Possible Multiple Choice Questions

Registered Bonds

Type of bond The name of the owner of this bond is recorded on the record books of the corporation and interest payments are sent to the owner periodically without any action on his part.

Physical life

______ of a property is the length of time during which it is capable of performing the function for which it was designed and manufactured.

Physical depreciation

_________ is due to the lessening of the physical ability of a property to produce results. Its common causes are wear and deterioration.

Economic life

____________ is the length of time during which the property may be operated at a profit.

Value

___________________, in a commercial sense, is the present worth of all future profits that are to be received through ownership of a particular property

variable costs

are those costs that vary with output or any change in the activities of an enterprise.

Borrowed funds

are those supplied by others on which a fixed rate of interest must be paid and the debt must be repaid at a specified time.

Increment Cost

are those that arise as the result of a change in operations or policy

Double Declining Method

In this method the salvage value should not be subtracted from the first cost when calculating the depreciation charge

Declining Balance Method

It is also called as constant percentage method or Matheson Formula

Depreciation

It is an accounting concept that establishes an annual deduction against before-tax income, such as the effect of time and use on an asset's value, that can be reflected in a firm's financial statements.

Functional depreciation

It is due to the lessening in the demand for the function which the property was designed to render. Its common causes are inadequacy, changes in styles, population centers shift, a saturation of markets or more efficient machines being produced.

Depreciation

It is the decrease in the value of physical property with passage of time.

Depreciation

It is the decrease in the value of physical property with the passage of time.

Fair Value

It is the value that is usually determined by a disinterested third party in order to establish a price that is fair to both seller and buyer

Book value

It is the worth of a property as shown on the accounting records of an enterprise.

Individual Ownership

It isa also called as sole proprietorship.

Coupon bond

have a coupon attached to the bond for each interest payment that will be amended during the life of the bond. The owner of the bond can collect the interest due by surrendering the coupon to the offices of the corporation or at specified banks

Depletion

refers to the decrease in the value of a property due to the gradual extraction of its contents.

Sunk Cost

represents money which has been spent or capital which have been invested and that cannot be recovered due to certain reasons.

market value

The _____________ of a property is the amount which a willing buyer will pay to a willing seller for the property where each has equal advantage and is under no compulsion to buy or sell.

utility value

The ________________ of a property is what the property is worth to the owner as an operating unit.

Sales of stock

The capital of a corporation is acquired through the ____________.

Declining Balance Method

The ratio of any depreciation in any year to the book value at the beginning of the year is constant throughout the life of the property and is designated by k, the rate of depreciation.

Service Output Method

This method assumes that the total depreciation that has taken place is directly proportional to the quantity of output of the property up to that time. This method has the advantage of making the unit cost of depreciation constant and giving low depreciation expense during periods of low production.

Double Declining Method

This method is very similar to declining balance method except that the rate of depreciation k is replaced by 2/L

Common stock

This stock represents ordinary ownership without special guarantees of return.

bonds

are issued when there is need for more capital such as for expansion of the plant or the services rendered by the corporation.

Fixed Costs

are those costs that remain constant, whether or not a given change in operations or policy is adopted.

bond

is a certificate of indebtedness of a corporation usually for a period not less than ten years and guaranteed by a mortgage on certain assets of the corporation or its subsidiaries.

Corporation

is a distinct legal entity, separate from the individuals who own it, and which can engage in almost any type of business transaction in which a real person could occupy himself or herself.

Partnership

is an association of two or mores persons for the purpose of engaging in a business for profit.

Business

is an enterprise which distributes or provides services where members of the community need and are able and willing to pay for it.

Marginal Cost

is the additional cost of producing one or more units of a product.

face or par value of a bond

is the amount stated on the bond.

Scrap value

is the amount the property would sell for if disposed off as junk

Salvage Value

is the price that can be obtained from the sale of the property after it has been used.

Depreciation

is the reduction or fall in the value of an asset or physical property during the course of its working life and due to the passage of time.

Individual Ownership.

is the simplest form of business organization, wherein a person uses his or her own capital to establish a business and is the sole owner.

Equity capital

those supplied and used by the owners of an enterprise in the expectation that a profit will be earned.

Cost Basis

•It is the initial cost of acquiring an asset, (purchase price plus taxes). It is also termed as unadjusted cost basis or first cost

Recovery period

•It is the number of years over which the basis of a property is recovered through the accounting process.

Book Value

•It is the original cost basis of the property, including any adjustments, less all allowable depreciation deductions. It represents the amount of capital that remains invested in the property and must be recovered in the future through the accounting process.

Adjusted Cost Basis

•The original cost basis of the asset, adjusted by allowable increases or decreases is used to compute depreciation deductions.