Chapter 9
Indicate whether the costs of each of the following intangible assets are amortized or not amortized?
1) copyright- amortized 2) franchise- amortized 3) patent- amortized 4) trademark- not amortized
Silver company purchased a machine for use in the business. The purchase price was $55,000 and the related sales tax totaled $500. Silver paid $1,000 to have the machine delivered to its factory and $2,000 to have it assembled. Over the five year life of the machine, maintenance cost of $800 will be incurred annually. What is the capitalized cost of this asset?
Capitalized cost= purchase price of $55,000 + sales tax of $500 + transportation cost of $1,000 + assembly cost of $2,000= 58,500
Which of the following is the source of the retained earnings amount that's shown on the balance sheet
Statement of retained earnings
What is the best place to begin to identify accounts that need adjustments
Unadjusted trial balance
What does a company need to do when it disposed of a depreciable asset by retiring the asset to a junkyard?
Update the depreciation expense and accumulated depreciation accounts and then record the disposal.
What is declining balance
When asset is more efficient in early years but less so over time
What is straight line
When usage is the same each period
What is units of productjon
When usage varies each period
Which of the following explain why internal controls can never completely prevent and detect errors and frauds?
Fraud, human error, employees may override controls, and employees may collude to get around controls
Potboiler company has a lending agreement with its bank that states that the company must maintain stockholders equity of at least $500,000. The company will be required to repay its loan balance if that requirement is not met. What term is used to describe this type of requirement in a lending agreement?
Loan covenant
On January 1, year 1, the starshina company paid $25,000 for a photocopier the company estimates that the photocopies will produce 1,000,000 copies and will have an estimated residual value of $5,000. The company used to photocopier to make 220,000 copies during year 1. The company uses the units of production method. What is the amount of depreciation expense for year 1?
$4,400 bc annual depreciation = (cost-residual value) x actual production for this period/ estimated total production
On January 1, year 1, the starshina company paid $25,000 for a photocopier with an estimated useful life of 4 years, and an estimated residual value of $5,000. The company uses the straight line methods what is the amount of depreciation expense for year 2?
$5,000 bc annual depreciation = (cost-residual value) x 1/useful life
Match each item with the related section of the bank reconciliation in which it would appear:
1) bank service charge — adjustments to the book balance2) deposit in transit — adjustments to the bank balance3) interest earned — adjustments to the book balance4) NSF check — adjustments to the book balance5) outstanding check — adjustments to the bank balance
Current period or capitalized??
1) replace plumbing in factory- capitalized 2) replace flat tire on delivery truck- expensed in current period 3) yearly cleaning of floor drains in factory- expensed in current period
Depreciation expense or accumulated depreciation??
1) reported on the balance sheet- accumulated depreciation 2) reported on the income statement- depreciation expense 3) reports the depreciation of the current period only- depreciation expense 4) contains the current periods depreciation as well as that of prior periods- accumulated depreciation
For each of the items below indicate whether the company needs to prepare a journal entry relating to this item to adjust the book balance to the correct balance?
1) the company's bank reconciliation on June 30 included outstanding checks that totaled $4000 at June 30 — NO2) the company's reconciliation on June 30 included deposits in transit that totaled $3000 on June 30 — NO3) the company's bank reconciliation on June 30 included a credit memorandum in the amount of $150 for interest — YES4) the company's bank reconciliation on June 30 included check #1221 (in payment of an account payable) written for $4,900 but recorded in the accounting records as $4090 — YES
Which of the following costs are included in the capitalized cost of a tangible asset?
All reasonable and necessary costs to acquire and prepare the asset for intended use
Assume that a company has prepared and posted its closing entries which of the following is true
All revenue accounts expense accounts and the dividends account will have zero balances
How do adjustments affect financial results
All revenues and expenses will be reported in the period in which they are generated and incurred AND the financial statements will present the best picture of whether the company's business activities were profitable that period and what economic resources the company owns and owes at the end of the period
What is Assets cost
All the assets capitalized costs
Manning company purchased a factory for $120,000. The factory included land, a building, and equipment. The land contributes 40.8%, the building contributes 49.6%, and the equipment contributes 9.6% of the factory's value. How much of the cost should be assigned to the building?
Amount assigned to building= property cost * buildings contribution towards property's value Amount assigned to building= 120,000 x 0.496= $59,520
What is the purpose of an adjusted trial balance
An adjusted trail balance is prepared to check that the accounting records are still in balance, after having posted all adjusting entries to the T accounts
What is useful life
An estimate of the assets useful economic life to the company
How can a company enhance its document procedures?
Assign sequential numbers to documents, check to ensure that each document number corresponds to one and only one accounting entry, and require digital and paper documents for all business activities
Which of the following describes segregation of duties?
Assigning responsibilities for record keeping to employees who do not have access to the assets for which they are accounting
Which of the following amounts are shown on the adjusted trial balance and on the statement of retained earnings
Beginning of year balance for retained earnings
The acquisition cost of a delivery truck was $45,000 and the accumulated depreciation recorded on that truck to date equals $20,000 what is the book value of the truck?
Book value= acquisition cost - accumulated depreciation Book value= 45,000-20,000= $25,000
Assume that company A uses the straight like method, while company B used the double declining balance method. Both companies purchase equipment for $120,000 with a residual value of $20,000 and a four year life. Both companies sold the equipment for $100,000 at the end of year 1. Which of the following statements are true?
Both companies will report a gain on sale
Assume that company A uses the straight like method, while company B used the double declining balance method. Both companies purchase equipment for $120,000 with a residual value of $20,000 and a four year life. Which of the following statements are true?
Both companies will report the same amount of total depreciation expense over the four year life of the equipment AND both companies will report the same amount of accumulated depreciation at the end of year 4 AND both companies will report the same book value for the equipment at the end of year 4.
Examples of intangible assets
Brand names, trademarks, licensing rights
Examples of tangible assets
Buildings, vehicles, land, machinery, office equipment, furniture and fixtures
What describes long lived assets?
Business assets acquired for use over one or more years AND productive assets
Which of the following regarding adjusting entries are ture
Cash is never part of an accrual or deferral adjusting journal entry. Adjusting entries affect one balance sheet account and adjusting entries affect one income statement account
Which of the following are documented on a bank statement that is provided to a company?
Checks written by the company that have cleared the bank, deposits made by the business, interest earned on the account balance, service charges
Which of the following are included in the cash amount that is reported in the current assets section of a company's balance sheet?
Checks written by the company that have cleared the bank, deposits made by the business, interest earned on the account balance, service charges
What types of companies are required to comply with the requirements of the Sarbanes-Ockert Act SOX?
Companies that trade on the US stock exchanges
Which controls activities would be performed to meet the independently verify principle of internal control?
Comparing the company's accounting information to information kept by an independent third party
What is the term used to describe the attitude people in the organization hold regarding internal control?
Control environment
If a TENANT pays their rent in advance and makes adjustments to its accounts how does this year end adjustment impact the financial statements?
Decreases a liability and increases a revenue
On January 1, year 1, the starshina company paid $25,000 for a photocopier with an estimated useful life of 4 years, and an estimated residual value of $5,000. The company uses the double declining balance method. What is the amount of depreciation expense for year 3?
Depreciation expense= book value at beginning c (2 divided by useful life) Book value= cost - accumulated depreciation Year 1: DE= 25,000 x (2/4) =25,000 EBV= $25,000-12,500= 12,500 Year 2: DE= 12,500 x(2/4)= $6,250 EBV=25,000-(12,500+6,250)=$6,250 Year 3: DE=6250x(2/4)= 3125 EBV= 25000-(12500+6250+3125)=$3125 which is less than residual value of $5,000 Revised calculation: DE= beg. Book value -salvage value DE= 6250-5000=1250 EBV= 25,000-(12500+6250+1250)= 5000
A company deposits and stores its cash in a bank. What internal control principles are evident in this procedure?
Documents procedure, independently verifying the information, restricting access
Which of the following are common principles of internal control?
Establish responsibility, restrict access, segregate duties
What is residual value
Estimate of the amount the company will receive when it disposed of the asset
Barry company sells a patent for $25,000. The patent has an acquisition cost of $120,000 and accumulated amortization of $100,000 at the time of the sale. What was the amount of gain or loss recognized on the disposal of the patent?
Gain of $5,000
What term describes what occurs when events or changed circumstances interfere with a company's ability to recover the value of the asset through future operations?
Impairment
Which of the following are factors that exist when fraud occurs
Incentive opportunity and rationalization
Wages expense incurred... cash paid later will do what
Increase a liability and increase an expense
Service revenue earned and cash recives later
Increases an asset and increases a revenue
If a COMPANY pays its rent in advance and makes required adjustments. How does this year end adjustment impact the amounts recorded on financial statements?
It decreases an asset and increases an expense
Which of the following characteristics describe intangible assets?
Lack physical substance, long lived, ownership is represented by legal document
How is the fixed asset turnover ratio computed
Net revenues divided by average net fixed assets
Deferral adjustments are needed when the buisness
Pays cash before the expense has been incurred, receives cash before the revenue has been generated
Which of the following is NOT an example of a company implementing controls to restrict access?
Placing security cameras in a server room
Examples of a company implementing controls to restrict access are:
Protecting computer systems with firewalls, requiring employees to use passcodes or keys to access important files, restricting access to check signing equipment, and securing cash or valuables in a safe
Accrual adjustments are needed when the buisness
Received cash after the revenue has been generated and pays cash after the expense has been incurred
Which of the following types of accounts are found in closing journal entries
Revenue accounts expense accounts the dividends account and retained earnings account
Which of the following are the reasons that a company's records can differ from the banks records?
The bank has record items the company doesn't know about until the bank statement is examined, the company has recorded items the bank doesn't know about at the time it prepares the statement of account
What about deferral adjustments are true
They are used to decrease balance sheet accounts and increase corresponding income statement accounts AND each deferral adjustment involves one asset and one expense account or one liability and one revenue account
What about accrual adjustments are true
They are used to increase balance sheet accounts and increase correspond income statement accounts AND each accrual adjustment involves one asset and one revenue account or one liability and one expense account
What about accumulated depreciation are true
This contra account is subtracted when determining total assets on the balance sheet. AND it is a balance sheet account AND it's balances increase each year
Why are adjustments made to accounting records at the end of a period
To ensure assets and liabilities are reported at appropriate amounts, to ensure the related revenues and expenses are reported in the proper period
Categories of employee fraud
asset misappropriation, corruption, and financial statement fraud
What is used to increase the balances of revenue accoutns
credits
What is used to increase the account balance of the dividend account
debits
What is used to increase the balances of expense accounts
debits
A weak system of internal controls provides the ______ to commit fraud.
opportunity
Janet Cartwright feels that she is underpaid and is entitled to the inventory that she steals from the company's warehouse. What is the term used to describe this fraud triangle factor?
rationalization
