ACCOUNTING MULTIPLE CHOICE 7 8 9
A company purchased land and building from a seller for $900,000. A separate appraisal reveals the fair value of the land to be $200,000 and the fair value of the building to be $800,000. For what amount would the company record land at the time of purchase?
$180,000
Which of the following represents a characteristic of a liability?
-A probable future sacrifice of economic benefits. -Arising from present obligations to other entities. -Resulting from past transactions or events. ALL ARE CORRECT
When a customer pays in advance for a product or service, the advance payment received by the company is recorded as:
A debit to an asset credit to a liability account.
Over the entire service life of an asset, which depreciation method records the highest total depreciation?
All the methods result in the same total depreciation.
Allied Partners filed suit against Big Sky, Inc., seeking damages for patent infringement. Big Sky's legal counsel believes it is probable that Big Sky will settle the lawsuit for an estimated amount in the range of $500,000 to $700,000, with all amounts in the range considered equally likely. How should Big Sky report this litigation?
As a liability for $500,000 with disclosure of the range.
When bonds are issued at face amount, what happens to the carrying value and interest expense over the life of the bonds?
Carrying value and interest expense remain unchanged.
A long-term asset is recorded at the:
Cost of the asset plus all costs necessary to the asset ready for use.
On November 1, 20X1, a company signed a $200,000, 12%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 20X2. The company should report the following adjusting entry at December 31, 20X1:
Debit interest expense and credit interest payable, $4,000
nature of depreciation
Depreciation represents the allocation of the cost of property, plant, and equipment over its service life.
An advantage of leasing an asset rather than purchasing the asset is:
Leases typically require less cash upfront to begin using the asset
Which of the following will maximize net income by minimizing depreciation expense in the first year of the asset's life?
Long service life, high residual value, and straight-line depreciation.
an unused line of credit
NOT a current liability
in each succeeding payment on an installment note
The amount that goes to interest expense decreases.
When a product or service is delivered to a customer that previously paid in advance, the delivery is recorded as:
a debit to a liability credit to a rev account
which of the following is NOT a primary source of long-term debt financing?
accounts payable
If equipment is retired, which of the following accounts would be debited?
accumulated depreciation
depreciation in accounting is
allocation of an asset's cost to an expense over time
Smith Co. filed suit against Western, Inc., seeking damages for patent infringement. Western's legal counsel believes it is probable that Western will have to pay an estimated amount in the range of $75,000 to $175,000, with all amounts in the range considered equally likely. How should Western report this litigation?
as a liability for 75000 with disclosure of the range
The book value of an asset is equal to the
asset's cost less accumulated depreciation
The asset's cost less accumulated depreciation is called:
book value
debt financing
borrowing money from creditors (liabilities)
an improvement to a tangible asset
capitalyzed
accumulated depreciation
contra asset
we normally record a long-term asset at the
cost of the asset plus all costs necessary to get the asset ready for use
which of the following is reported as current liability?
current portion of long term debt
Travel Planners, Inc. borrowed $5,000 from First State Bank and signed a promissory note. What entry should Travel Planners record?
debit cash 5000 credit notes payable 5000
Travel Planners, Inc. borrowed $5,000 from First State Bank and signed a promissory note. What entry should First State Bank record?
debit notes receivable 5000 credit cash 5000
which of the following is not an advantage of debt financing?
debt financing often has no maturity date
Management can estimate the amount of loss that will occur due to litigation against the company. If the likelihood of loss is reasonably likely, a contingent liability should be:
disclosed not reported
Management can estimate the amount of loss that will occur due to litigation against the company. If the likelihood of loss is reasonably possible, a contingent liability should be
disclosed not reported as a liability
has the highest depreciation expense during the assets early life?
double declining depreciation
The cash paid for interest on bonds payable is calculated as:
face amount x stated interest rate
equity financing
funds provided by the owners of company (stockholders equity)
which of the following expenditures should be recorded as an asset?
interest costs during the construction period of a new building
An accumulated depreciation account
is the amount charged to depreciation expense since the acquisition of the plant asset
which of the following is not a characteristic of a liability?
it must be payable in cash
Which of the following typically represents an advantage of leasing over purchasing an asset with an installment note?
lease payments often are lower than installment payments generally requires less cash upfront offers greater flexibility and lower costs in disposing an asset
Which of the following statements regarding liabilities is not true?
liabilities result from future transactions
current liabilities
may include contingent liabilities
a companys capital structure refers to
mixture of liabilities and stockholders equity
Smith Co. filed suit against Western, Inc., seeking damages for patent infringement. Smith's legal counsel believes it is probable that Western will have to pay $125,000, although no final settlement has yet been reached. How should Smith report this litigation?
no asset or gain is reported
research and development
not recorded as an intangible asset in the balance sheet
current liabilities are payable within_________years and long term liabilities are payable more than ____________ years from now
one ....one
An exclusive 20-year right to manufacture a product or to use a process is a:
patent
Which of the following is NOT a primary source of corporate debt financing?
receivables
Suppose that Neuman Exploration Tours has filed a lawsuit against a competitor for an alleged trademark violation. At the end of the year, Neuman's attorney estimates that the company will likely win the lawsuit and be awarded between $1.5 and $2 million, with the most likely amount being $1.8 million. How much should Neuman record as a gain?
record 0$
A company leases an office building for 24 months. At the beginning of the lease period, the lessee (user) would:
record a lease asset, liability, and lease for the present value of the 24 lease payments
A contingent liability that is probable and can be reasonably estimated must be
recorded
an addition which increases future benefit
recorded as an asset
a purchased patent
recorded as an intangible asset
Which of the following expenditures should be recorded as an expense?
repairs and maintenance that maintain current benefits
liabilities
represent probable future sacrifices of benefits
The seller collects sales taxes from the customer at the time of sale and reports the sales taxes as
sales tax payable
Which of the following will result in higher depreciation expense in the first year of the asset's life?
short service life low residual value
research and development costs
should be expensed
ordinary repairs and matinence
should be recorded as an expense
Interest expense is recorded in the period in which:
the interest is incurred
the amount of gain on the sale of equipment equals
the selling price minus the book value of the equipment
We record interest expense on a note payable in the period in which
we incur interest
