accounting exam 3 chapter 9-12
the interest charged on a 350,000 note payable at the rate of 6% on a 60 day note would be
3500
the interest charged on a 300,000 note payable at the rate of 6% on a 90 day note would be
4500
bonds with a face value of 500,000 and a quoted price of 97 1/4
486,250
bonds with a face value of 500,000 and a quoted price of 102 1/4' have a feeling price of
511,250
A note payable must always be paid before an account payable
F
If the market rate of interest at the date of issuance of a bond is greater than the stated interest rate the bond will be issued at a premium
F
a current liability must be paid out of current earnings
F
additions and improvements to a plant asset that increase the assets operating efficiency productive capacity or expected useful life are generally expensed in the period incurred
F
all plants assets (fixed assets) must be depreciated for accounting purposes
F
each bond holder may vote for the board of directors in proportion th the number of bonds held
F
if $150,000 face value bonds are issued at 102, the proceeds received will be $102,000
F
if a plant asset is sold at a gain the gain on disposal should reduce the cost of goods sold section of the income statement
F
if bonds are issued at a discount the issuing corporation will pay a principal amount less than the face amount of the bonds on the maturity date
F
if bonds sell at a premium the interest expense is recognized each year will be greater than the bond interest paid
F
if the straight line method of amortization is used the amount of unamortized premium on bonds payable will increase as the bonds approach maturity
F
if the straight line method of amortization is used the amount of year interest expense will increase as the bonds approach maturity
F
in calculating the depreciation both plant asset cost and useful life are based on estimates
F
interest expense on a note payable is only recorded at maturity
F
land improvements are generally charged to the land account
F
losses on bond redemption are reported as operating expenses on the income statement
F
most notes are not interest bearing
F
neither corporate bond interest nor dividends are deductible for tax purposes
F
the accumulated depreciation account represents a cash fund available to replace plant assets
F
the book value of a long term asset is calculated by subtracting its salvage value from the cost
F
the book value of a plant asset is always equal to its fair market value
F
the book value of a plant asset is the amount originally paid for the asset less anticipated salvage value
F
the carrying value of bonds is calculated by adding the balance of the discount on bonds payable account to the balance in the bonds payable
F
the contractual interest rate is always equal to the market rate of interest on the date that bonds are issued
F
the declining- balance method of depreciation is called an accelerated depreciation method because its depreciates an asset in a shorter period of time than the assets useful life
F
using the units of activity method of depreciating factory equipment will generally result in more depreciation expense being recorded over the life of the asset than if the straight line method had been used
F
Capital expenditures are expenditures that increase the company's investment in productive facilities
T
If an acquired franchise or license has an indefinite life, the cost of the asset is not amortized.
T
Notes payable usually require the borrower to pay interest.
T
Recording Depreciation on plant assets affects both the balance sheet and the income statement
T
a change in the estimated useful life of a plant asset may cause a change in the amount of depreciation recognized in the current and future periods but not in prior periods
T
a company whose current liabilities exceed its current assets may have liquidity problem
T
a loss on disposal of a plant asset as a result of a sale or retirement is calculated in the same way as a gain on disposal
T
a loss on disposal of a plant asset occurs if the cash proceeds received from the asset sale is less than the assets book value
T
bond interest paid by a corporation is an expense whereas dividends paid are not an expense of the corporation
T
current liabilities are expected to be paid within one year or the operating cycle whichever is longer
T
if 180,000 6^ bonds are issued on January 1 and pay interest annually the amount of interest paid will be $10,000
T
if 500,000 par value bonds with a carrying value of 476,000 are redeemed at 97, a loss on redemption will be recorded
T
if bonds are issued at a premium the carriying value of the bonds will be greater than the face value of the bonds for all periods prior to the bond maturity date
T
if the market rate of interest is greater than the contractual rate of interest bonds will sell at a discount
T
if the proceeds from the sale of a plant asset exceed its book value a gain on disposal occurs
T
if the straight line method of amortization is used the amount of unamortized premium on bonds payable will decrease as the bonds approach maturity
T
in the notes to the financial statements, the depreciation and amortization methods used should be described
T
intangible assets are rights privileges and competitive advantages that result from ownership of long lived assets without physical substance
T
interest expense is reported under other expenses and losses in the income statement
T
ordinary repairs should be recognized when incurred as a period of expense
T
recording depreciation in each period is an application of the matching people
T
the board of directors may authorize more bonds than are issued
T
the calculation of interest to be paid each interest period in connection with a bond payable is not influenced by any premium or discount upon issuance
T
the carrying value of a bond is equal to the market price on the date of sale
T
the classification of a liability as current or concurrent in important because it may affect the evaluation of a company liquidity
T
the cost of a patent should be amortized over its legal life or useful life whichever is shorter
T
the current market value of a bond is equal to the present value of all future cash payments promised by the bond
T
the depreciable base of a plant asset is its original cost minus its estimated salvage value
T
salvage value is not subtracted from plant asset cost in determining depreciation expense under the declining balance method of depreciation
True
which of the following assets is not properly classified as property plant and equipment
a truck held for resale by an automobile dealership
interest expense on an interest bearing note is
accrued over the life of the note
the balance in the accumulated depreciation account represents the
amount charged to expense since the acquisition of the plant asset
in computing depreciation salvage value is
an estimate of a plant asset value at then end of its useful life
current liabilities are due
and payable within one year
the cost of land dos not include
annual property tax
the contractual rate of interest is usually stated as an
annual rate
the cost of a long term asset is expensed
as the asset benefits the company
the book value of an asset is equal to the
asset's cost less accumulated depreciation
a legal document that indicates the name of the issuer the face value of the bond and such other data is called
bond certificate
which one of the following items is not a consideration when recording periodic deprecation expense on plant assets
cash needed to replace the plant asset
Depreciation is a process of
cost allocation
on January 1, 2020, keister company a colander year company issued 900,000 of notes payable of which 225,000 is due on January 1 for each of the next four years. the proper balance sheet presentation on December 31, 2020 is
current liabilities : 225,000 ; long term debt: 675,000
which of the following methods will result in the highest depreciation in the first year
declining balance
the declining balance method of depreciation produces an
decreasing depreciation expense each period
the term applied to the periodic expiration of a plant asset cost is
depreciation
all of the following statements are false regarding depreciation except
depreciation does not apply to land
liabilities are classified as a current or long term based on their
due date
which of the following is not an advantage of issuing bonds instead of a common stock
earnings per share on common stock may be lower
which of the following would not be charged to the equipment account
electricity used by the machine
Very often, failure to record a liability means failure to record a(n)
expense
a plant asset must be fully depreciated before I can be removed from the books
false
as interest is recorded on an interest bearing note the interest expense account is
increased, the interest payable account is increased
from the standpoint of the issuing company a disadvantage of using bonds as a means of long term financing is that
interest must be paid on a periodic basis regardless of earnings
which of the following assets does not decline in service potential over the course of its useful life
land
land improvements should be depreciated over the useful life of the
land improvements
liabilities are classified on the balance sheet as current or
long term
Recording depreciation each period is necessary in accordance with the
matching principle
most companies pay current liabilties
out of current assets
Failure to record a liability will probably
result in an overstated net income
when authorizing bonds to be issued the board of directors does not specify the
selling price
depreciation is the process of allocating the cost of a plant asset over it's useful life in
systematic and rational manner
the land account would include all of the following costs except
the cost of building a fence
when estimating the useful life of an asset accountants do not consider
the cost to replace the asset at the end of its useful life
stockholders of a company may be reluctant to finance expansion by issuing more equity because
their earnings per share may decrease
all th following are needed for the computation of deprecation except
training costs of manufacturing personnel
under the double declining balance method the deprecation rate used each year remains constant
true
which of the following methods of computing depreciation is production based
units of activity
one characteristic of a plant asset is that it is
used in the operations of business
all of the following statements about the useful life factor associated with depreciation are true except
useful life is also called expected trade in value
a current liability is a debt that can reasonably be expected to be paid
within on year or the operating cycle whichever is longer
