ACC 203 Ch. 8 and 9
which of the following are current liabilities
Accounts payable Deferred revenues Taxes payable
Identify characteristics of notes payable that are not common to accounts payable.
based on promissory note interest bearing
when selling a fixed asset, the seller recognizes a gain or loss for the difference between the amount received and the ___ value of the asset sold
book
the original cost of an asset minus accumulated depreciation is
book value
Long-term tangible assets include
buildings, land, equipment
amortization
allocation of the cost of an intangible asset
depletion
allocation of the cost of natural resources
the gain or loss on disposal of an asset is calculated as:
amount received less the book value of asset sold
for accounting purposes, depreciation is
an allocation of a cost of an asset
an interest rate, unless otherwise specified, is typically a(n) _ rate.
annual
Schmidt Company borrows $10,000 from its bank and signs a 6-month note. Interest, which is due quarterly, is specified in the note as 6%. The 6% interest rate is a(n)
annual, 12 month rate
the allocation of the cost of a tangible fixed asset is referred to as ____, whereas the allocation of the cost of an intangible asset is referred to as ___
depreciation, amoritization
which of the following are long-term assets?
equipment, property
an asset that has no physical substance is called a(n) ___ asset
intangible
an asset that has no physical substance is referred to as a
intangible asset
Otto Inc. retires old equipment with a book value of $2,400. Otto should
recognize a loss of $2,400
which of the following are expenditures for assets subsequent to acquisition?
repairs and maintenance improvements additions
the depreciable cost of an asset is the asset's cost minus its estimated ___ value
residual
an asset ___ occurs when an asset is no longer useful, but cannot be sold
retirement
Classifying liabilities as current or long term helps creditors and investors assess
risk
the estimated use the company expects to obtain from an asset before disposing of it is referred to as the ___ life of the asset
service/depreciable
the depreciation method that allocated an equal amount of the depreciable base to each year of the asset's service life is the
straight-line method
the formula for calculating declining balance depreciation is the depreciation rate per year times
the book value at the beginning of the year
total depreciation recorded over an asset's service life is
the same regardless of the depreciation method used
which of the following does NOT differ among the different depreciation methods?
total depreciation recognized over the asset's service life
TRUE or FALSE: The initial cost of property, plant, and equipment includes the purchase price and all expenditures necessary to bring the asset to its desired condition and location for use
true
the purchase price and all costs to bring an asset to its desired condition and location for use should be
capitalized
Rhodes borrowed $5,000 by signing a 5-year note with an interest rate of 8%. On the date the note is signed, Rhodes should
credit notes payable $5,000.
liabilities are classified as
current and long term
Volker Company signs a 3-month, $10,000 note. Stated interest rate is 12% payable at the maturity date. Interest incurred on the note is:
$300
the formula for calculating the double-declining-balance method is
(book value at beginning of year x 2) / estimated service life
A retirement or abandonment of an asset is different from a sale of an asset because
no cash is received. a loss must be recognized for the remaining book value.
current liability
normal payable within one year
long-term liability
normally payable more than one year from now
The time it takes to spend cash to provide goods and services to a customer until collection of cash from that customer is referred to as the company's
operating cycle
True or false: Companies prefer to report liabilities as long-term versus current.
true
depreciation
allocation of the cost of a tangible fixed asset
the formula for straight-line depreciation is
(cost - residual value) / service life
Which of the following are long-term liabilities?
20-year mortgage payable Note payable due in 3 years
On October 1, 2021, Perry Corporation signed a 12-month, 8% interest-bearing promissory note for $10,000. Assume that all appropriate adjusting journal entries were made at 12/31. The journal entry required when the note matures on October 1, 2022 would include a debit to interest expense for
600
Choose the correct formula for calculating interest.
Face amount x annual interest rate x fraction of the year
Pearce Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $120,000, and its accumulated depreciation at the date of exchange was $40,000. The new equipment received had a fair value of $50,000 and a book value of $32,000. The journal entry to record this exchange will include which of the following entries?
Debit accumulated depreciation $40,000 Debit equipment $50,000 Debit loss on exchange $30,000 Credit equipment $120,000
Cheng Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $90,000, and its accumulated depreciation at the date of exchange was $40,000. The new equipment received had a fair value of $40,000 and a book value of $35,000. The journal entry to record this exchange will include which of the following entries?
Debit accumulated depreciation $40,000 Debit loss on exchange $10,000 Credit equipment $90,000 Debit equipment $40,000
Krasel Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $90,000, and its accumulated depreciation at the date of exchange was $70,000. The new asset received had a fair value of $50,000 and a book value of $45,000. The journal entry to record this exchange will include which of the following entries?
Debit accumulated depreciation $70,000 Credit equipment $90,000 Debit equipment $50,000 Credit gain on exchange of asset $30,000
On November 1, Year 1, ABC Corp. borrowed $100,000 cash on a 1-year, 6% note payable that requires ABC to pay both principal and interest on October 31, Year 2. The journal entry on November 1, Year 1 would include which of the following?
Debit to Cash $100,000 Credit to Note Payable $100,000
___ value is the amount the company expects to receive for the asset at the end of its service life
Residual
a(n) _ payable results from an agreement with a supplier to pay within 30 days, whereas a(n) _ payable is a signed contract that promises to pay a specific amount with interest at a specific maturity date.
account, note
straight-line, declining-balance, and activity-based refer to methods commonly used to __ property, plant, and equipment.
depreciate
Wall Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $100,000, and its accumulated depreciation at the date of exchange was $60,000. The new asset received had a fair value of $80,000 and a book value of $65,000. The journal entry to record this exchange will include which of the following entries?
debit equipment $80,000 credit equipment $100,000 debit accumulated depreciation $60,000 credit gain on exchange of asset $40,000
On September 1, ABC Company borrowed $50,000 on a 6%, 9-month note payable to XYZ National Bank. Given no previous adjusting entries have been recorded, ABC's adjusting entry at December 31 would include a
debit to Interest expense of $1,000
the journal entry to retire old equipment that is not fully depreciated includes a
debit to accumulated depreciation debit to loss credit to equipment
A probable future sacrifice of economic benefits arising from present obligations of an entity to transfer assets or provide services as a result of past transactions or events is a(n)
liability
a(n) _ is a probable future sacrifice of economic benefits arising from present obligations to transfer assets or provide services as a result of past transactions or events.
liability
Kauff Company properly classifies certain liabilities payable in 15 months as current liabilities. Kauff's operating cycle must be:
longer than one year
