ACCT 250-Chapters 9 & 10

Working capital is

current assets - current liabilities

the current ratio is

current assets / current liabilities

Amount of interest due on a $10000, 8%, 90-day note at maturity is

$200

what is the journal entry for depletion?

Dr. Inventory Cr. Accumulated Depletion

Joe's Copy Shop bought equipment for $60,000 on January 1, 2022. Joe estimated the useful life to be 3 years with no salvage value. The straight-line method of depreciation will be used. On January 1, 2023, Joe decides that the business will use the equipment for a total of 5 years. What is the revised depreciation expense for 2023?

$10000

Jefferson Company purchased a piece of equipment on January 1, 2021. The equipment cost $60,000 and had an estimated life of 8 years and a salvage value of $8,000. What was the depreciation expense for the asset for 2022 under the double-declining-balance method?

$11250

Equipment was purchased for $60,000. Freight charges amounted to $2,800 and a cost of $8,000 was incurred for building a foundation and installing the equipment. It is estimated that the equipment will have a $12,000 salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be

$11760

A company purchased factory equipment for $570000. It is estimated that the equipment will have a $73000 salvage value at the end of its estimated 5-year useful life. If the company uses the double-declining-balance method of depreciation, the amount of annual depreciation recorded for the second year after purchase would be

$136800

A factory machine was purchased for $384000 on January 1, 2021. It was estimated that it would have a $76000 salvage value at the end of its 5-year useful life. It was also estimated that the machine would be run 40000 hours in the 5 years. The company ran the machine for 4100 actual hours in 2021. If the company uses the units-of-activity method of depreciation, the amount of depreciation expense for 2021 would be

$31570

Andrews Inc. issues a $497,000, 10% 3-year mortgage note on January 1. The note will be paid in three annual installments of $200,000, each payable at the end of the year. What is the amount of interest expense that should be recognized by Andrews Inc. in the second year?

$34670 (197000 X 10%) = 49700 200000-49700 = 150300 497000 - 150300 = 346700 346700 X 10% = 34670

Martha Beyerlein Company incurred $150,000 of research and development costs in its laboratory to develop a patent that was granted on January 2, 2022. On July 31, 2022, Beyerlein paid $35,000 for legal fees in a successful defense of the patent. The total amount debited to Patents through July 31, 2022 for these costs should be

$35000

Maggie Sharrer Company borrows $88,500 on September 1, 2022 from Sand Beach State Bank by signing an $88,500, 12%, one-year note. What is the accrued interest at December 31, 2022?

$3540

On May 1, 2021, Sheffield Company sells office furniture for $315600 cash. The office furniture originally cost $757600 when purchased on January 1, 2014. Depreciation is recorded by the straight-line method over 10 years with a salvage value of $75400. What gain should be recognized on the sale? (Hint: Use 7.333333 for years used in calculation.)

$58280

Mike Kohl, an employee of Spotswood Company, has gross earnings for the month of October of $8,000. FICA taxes are 7.65% of gross earnings, federal income taxes amount to $1,270 for the month, state income taxes are 2% of gross earnings, and Mike authorizes voluntary deductions of $20 per month to the United Fund. What is the net pay for Mike Kohl?

$5938

Bibi's Beach Boutique does not ring up sales tax separately. If the sales tax rate is 5% and the total receipts amounted to $126,000, what is the amount of the sales taxes owed to the taxing agency?

$6000

Equipment was purchased for $800,000 on January 1, 2022. It has an estimated useful life of 8 years and a salvage value of $120,000. Depreciation is being computed using the straight-line method. What amount should be shown for the Equipment, net of accumulated depreciation, in the company's 2023 balance sheet?

$630000

Buffon Electronics Company issues an $800,000, 10%, 20-year mortgage note on January 1. The terms provide for semiannual installment payments, exclusive of real estate taxes and insurance, of $46,621. After the first installment payment, the principal balance is

$793379 40000(800000 X 10% X .5) = 6621 800000 - 6621 = 793379

Bennie Razor Company has decided to sell one of its old manufacturing machines on June 30, 2022. The machine was purchased for $80,000 on January 1, 2018, and was depreciated on a straight-line basis for 10 years assuming no salvage value. If the machine was sold for $26,000, what was the amount of the gain or loss recorded at the time of the sale?

($18000)

How to compute straight-line method

(cost- salvage value) / useful life.... this is what gives you your depreciation per year.

How to calculate depletion cost per unit?

(total cost - salvage value) / total estimated units available

When recording the purchase of Equipment what all is included in the price?

- cash purchase - freight charges - expenditures required for assembling, installing, and testing - sales taxes - insurance during transit BUT NOT pre-paid insurance

For the current year, Lake Coffee Company reported net sales of $180,000, net income of $54,000, beginning total assets of $200,000, and ending total assets of $300,000. What was the company's asset turnover?

0.72 times

3 depreciation methods

1. straight line 2. units of production 3. double declining balance

A company purchased office equipment for $48000 and estimated a salvage value of $7000 at the end of its 5-year useful life. The constant percentage to be applied against book value each year if the double-declining-balance method is used is

40%

The entry to record maturity for the purchasing company is

Dr. Notes Payable Dr. Interest Payable Cr. Cash

Costs incurred to increase the operating efficiency or useful life of a plant asset are referred to as: 1. Capital expenditures 2. Ordinary reparis 3. Expense expenditures 4. Revenue expenditures

Capital Expenditures

3 computing factors of depreciation are?

Cost, useful life, and salvage value

If a market interest rate is 12% what are you?

Discount

How do you account for the disposal of plant assets?

Dr. Accumulated Depreciation Cr. Depreciation Expense

How do you record an entry where cost doesn't equal accumulated depreciation?

Dr. Accumulated Depreciation Dr. Loss on Disposal of Plant Assets Cr. Equipment (or other asset)

How do you record a retirement?

Dr. Accumulated Depreciation for full amount of depreciation taken over the life of the asset Cr. the asset account for original cost

The entry to record the SALE of bonds is

Dr. Cash Cr. Bonds Payable

When purchasing a bond on premium the entry is

Dr. Cash Cr. Bonds payable Cr. Premium on bonds payable

The entry to record the proceeds upon issuing an interest-bearing note is

Dr. Cash Cr. Notes Payable

The entry to record sales tax and revenue is

Dr. Cash Cr. Sales taxes payable Cr. Sales Revenue

When purchasing a bond on discount the entry is

Dr. Cash Dr. Discount on Bonds payable Cr. Bonds Payable

What is the journal entry when you sell after depletion?

Dr. Cost of goods sold Cr. Inventory

What is the journal entry for recording all depreciation methods?

Dr. Depreciation Expense Cr. Accumulated Depreciation

The entry to record an adjusting entry for an interest expense by the purchasing company is

Dr. Interest Expense Cr. Interest Payable

The entry to record interest paid is

Dr. Interest Payable Cr. Cash

Recording payroll expenses as the employer includes what entry?

Dr. Payroll tax expense Cr. FICA taxes payable Cr. State unemployment taxes payable Cr. Federal unemployment taxes payable

Recording paying employees includes what entry?

Dr. Salaries and Wages Payable Cr. Cash

Recording payroll includes what entry?

Dr. Salaries and wages expense Cr. All of the taxes accounts

If a market interest rate is 10% what are you?

Face value

Employer payroll taxes do not include

Federal income taxes, which is a payroll deduction not an employer payroll tax.

Plant assets decline in service potential over their useful lives except for: 1. equipment 2. land 3. buildings 4. land improvements

Land

Which method acceptable by the IRS is not acceptable by GAAP?

Modified Accelerated Cost Recovery System (MARCS)

The cost of land includes all of the following except: 1. Real estate brokers' commissions 2. Accred property taxes 3. Closing costs 4. Paving of parking lots.

Paving of parking lots

If a market interest rate is 8% what are you?

Premuium

Which of the following amounts increases each period when accounting for long-term mortgage payable?

Reduction of principal

What account do employees record the issuing checks in?

Salaries and wages payable

The amount of sales tax collected by a retailer is recorded in the

Sales Taxes Payable account

How to record a gain on sale? First step.

To record entire depreciation. Dr. Depreciation Expense Cr. Accumulated Depreciation

How to record a gain on sale? Second step.

To record the gain or loss. Dr. Cash Dr. Accumulated Depreciation (Loss) Dr. Loss on disposal of plant assets Cr. Equipment (or other asset) (Gain) Cr. Gain on disposal of Plant Assets

If a plant asset is retired before it is fully depreciated an no salvage value is received

a loss on disposal occurs

What is a trademark?

a symbol, word, or words legally registered or established by use as representing a company or product.

Which of the following statements is true regarding bonds? 1. bond issuance must be approved by the board of directors 2. bond terms are set forth in a legal document called a bond indenture 3. the contractual interest rate on a bond is also referred to as the stated rate. 4. all of these answer choices are correct

all of these answer choices are correct

Depreciation

allocating cost of an asset over its useful life.

The balance in the Accumulated Depreciation account represents the

amount charged to expense since the acquisition of the plant asset

If a fully depreciated plant asset is still used by a company, the

asset and the accumulated depreciation continue to be reported on the balance sheet without adjustment until the asset is retired.

Book value of an asset is equal to the

asset's cost - accumulated depreciation

Management should select the depreciation method that

best measures the plant asset's contribution to revenue over its useful life.

How do you compute the double declining-balance method?

book value beginning of year X declining balance rate First, you have to start with finding what your straight-line method total depreciation is. Once you have that double it then divide your beginning balance by that doubled number- that is going to be your total depreciation expense for the first year. Subtract that from the beginning balance and then that is your starting for the next year. NO SALVAGE VALUE INVOLVED.

Additions and improvements are referred to as?

capital expenditures, used to increase operating efficiency or in terms of capital- invest in operating efficiency. Requires a debit to the plant asset affected.

Depreciable cost is the

cost of an asset - its salvage value

Four-Nine Corporation issued bonds that pay interest every July 1 and January 1. The entry to accrue bond interest at December 31 includes a

credit to interest payable

Maggie Sharrer Company expects to extract 20 million tons of coal from a mine that cost $12 million. If no salvage value is expected, and 2 million tons are mined and sold in the first year, the entry to record depletion will include a

debit to depletion expense of $1200000

How to calculate depletion?

depletion cost per unit X units used

Depreciable cost per unity formula

depreciable cost / total units of activity

How do you compute units-of-activity method

depreciable cost / total units of activity = depreciable cost per unit depreciable cost per unity X units of activity during the year = annual depreciation expense

Annual depreciation expense

depreciable cost per unit X units of activity during the year

The depreciation method that produces a decreasing annual depreciation expense over an asset's useful life is the

double declining-balance method

The method that ignores salvage value in determining the amount of depreciation until the final year of the asset's useful life is the

double declining-balance method

Which of the following is not a payroll deduction: 1. federal income tax 2. FICA taxes 3. state income tax 4. federal unemployment taxes

federal unemployment taxes, they are paid by the employer not the employee.

If the company issues a $100,000, 12%, 10-year bond that pays interest semiannually when the market interest rate is 10%, the bond would sell at an amount that is

greater than face value

How to calculate net pay

gross earnings - payroll deductions

All of the following are advantages of bond financing over common stock except: 1. possibly higher earnings per share 2. tax savings 3. stockholder control is not affected 4. higher net income

higher net income, bond interest reduces net income.

Each payment on a mortgage consists of

interest on the unpaid balance of the loan and a reduction of loan principal.

The discount on bonds payable account

is a contra accounts

The premium on bonds payable account

is considered to be a reduction the cost of borrowing

Companies amortize the cost of a patent over its: 1. Legal life or its useful life, whichever is shorter. 2. useful life. 3. legal life or its useful life, whichever is longer. 4. legal life

legal life or useful life, whichever is shorter.

The time period for classifying a liability as current is one year or the operating cycle, whichever is: 1. shorter 2. possible 3. longer 4. probable

longer

What is capital?

money for investment

How do you calculate asset turnover?

net sales / [ (beginning assets + ending assets) / 2]

When recording payroll

payroll deductions are recorded as liabilites

What is a patent?

protection of ownership of an invention

What is a copyright?

protection of written material or ideas

All of the following are intangible assets except: 1. goodwill 2. research and development costs 3. patents 4. copyrights

research and development

Ordinary repairs are referred to as?

revenue expenditures, used to maintain operating efficiency Requires a debit to maintenance and repairs expense.

What is depletion?

similar to depreciation but for natural resources like petroleum, minerals and timber

A change in the estimated useful life of equipment requires

that the amount of a periodic depreciation be changed in the current year and in the future years.

How do you calculated sales tax?

total receipts / 1 + sales tax percentage THEN total receipts - what you just got

The relationship between current liabilities and current assets is

useful in evaluating a company's liquidity.