Accounting 201 Exam 3

Classify each of the items below according to the section of a firm's financial statements in which it would be reported. Some sections may be used more than once. Some may not be used at all. MATCH 1. Accumulated Depreciation 2. Supplies 3. Amortization Expense 4. Sales A. Current Assets B. Long-term Assets C. Revenues D. Expenses

1. B 2. A 3. D 4. C

The company is authorized to sell 500,000 shares. The entry to record the issuance of 10,000 shares of $1 par value common stock at $19 per share would include a credit to Common Stock of what amount? If the amount should be a debit, enter 0.

10,000 ± 0%

Florist Gump, Inc., purchased a truck on January 1, Year 1, at a cost of $84,000. The truck has an estimated useful life of 5 years or 113,000 miles. The estimated salvage value is $27,000. In Year 1, the truck was driven 18,000 miles. In Year 2, the truck was driven 23,000 miles. Accumulated Depreciation using straight-line depreciation at December 31, Year 2, after two years of use, equals (rounded to the nearest dollar) ______.

22,800 ± 0%

Lawn & Order, Inc., purchased a truck on January 1, Year 1, at a cost of $104,000. The truck has an estimated useful life of 5 years or 101,000 miles. The estimated salvage value is $12,000. In Year 1, the truck was driven 17,000 miles. In Year 2, the truck was driven 23,000 miles. Accumulated Depreciation on the balance sheet using straight-line depreciation at December 31, Year 2, after two years of use, is (rounded to the nearest dollar) ______.

36,800 ± 0%

Z Best, Inc.'s, corporate charter allows it to issue 8,000,000 shares of common stock. In its first year of business, the company sold 400,000 shares of common stock. During the year, the company bought back 7,000 shares to be held as treasury stock.

393,000 ± 0%

On February 28, Year 1, Mighty Ducks, Inc., issued $300,000, 20-year, 5% bonds at 100.000. The bonds pay interest semiannually on February 28 and August 31. At the end of the year, December 31, Year 1, the adjusting entry includes a debit to Interest Expense of $______. (round to the nearest $ amount)

5,000 ± 0%

Microhard, Inc., issued a $61,000, 10-year, 10% bonds dated January 1, at 100.000. By what amount should the Cash account be debited when the bonds are issued? DO NOT INCLUDE $ IN YOUR ANSWER.

61,000 ± 0%

Which statement about depreciation is true?

Depreciation refers to an allocation of an asset's cost to an expense account.

On December 1, Year 1, the board of directors of Buy & Large, Inc., declared a cash dividend of $2 per share on the 300,000 common shares outstanding on record at December 31, Year 1, payable January 10, Year 2, the following year. No other dividends were declared in either year. What is the amount and on which Year 1 financial statement does Dividends and Dividends Payable appear?

Dividends $(600,000); Statement of Shareholders' Equity Dividends Payable $600,000; Balance Sheet

During the year, Reid & Wright Learning Center, Inc., spent $500,000 on training and capitalized the entire amount, intending to write it off over 5 years. This accounting treatment is ______.

incorrect. The company should treat the entire amount as an expense during the year

If a bond is sold at a discount, Interest Expense reported on the Income Statement in subsequent years __________.

increases each year

If a bond is sold at a premium, Cash Paid for Interest reported on the Statement of Cash Flows in subsequent years __________.

stays the same each year

Robbin, Inc., issued $200,000 of 9%, 10-year bonds for $213,419 given a market rate of interest of 8%. How much principal will Robbin, Inc., pay to the bond holders at the end of the tenth year?

$200,000

Identify whether each item is an expense, a capital expenditure (an asset), or neither. Riteon, Inc. paid ______. MATCH 1. $20,000 for research and development costs 2. $5,000 for the delivery of new machines 3. $30,000 for repairs to its older equipment A. Expense B. Capital Expenditure (asset) C. Neither

1. A 2. B 3. A

Classify each of the items below according to the section of a firm's financial statements in which it would be reported. Some sections may be used more than once. Some may not be used at all. MATCH 1. Copyrights 2. Notes Payable (due in 2 years) 3. Equipment (Net of Accumulated Depreciation) 4. Depreciation Expense A. Long-term Assets B. Expenses C. Long-term Liabilities

1. A 2. C 3. A 4. B

Ditchits, Inc., sold its equipment for $4,000 that cost $600,000 and had accumulated depreciation equal to $593,000 at the time of the sale. Calculate the gain or loss on the sale of this equipment.

-3,000 ± 0%

Identify whether each item is an expense, a capital expenditure (an asset), or neither. Sock Market, Inc. paid ______. MATCH 1. $100,000 for advertisements run during the year 2. $30,000 for the training of its employees during the year 3. $5,000 sales tax on purchase of equipment A. Expense B. Capital Expenditure (asset) C. Neither

1. A 2. A 3. B

Why is Accumulated Depreciation on the balance sheet more than Depreciation Expense on the income statement in the subsequent years of an asset's useful life?

Accumulated Depreciation accumulates and reports all of the asset's usefulness used since the asset was purchased.

Central Perk, Inc. issued 10,000 shares of no-par value common stock at $10 per share. The proper entry to record this issuance of shares is to debit _______.

Cash and credit Common Stock for $100,000

Intangible Assets

Copyrights, Patents, Goodwill

The correct journal entry for the issuance of 200 shares of $1 par common stock for $25 is:

Debit Cash $200 Credit Common Stock $200

Shear Lock Combs, Inc., manufactures combs. On January 1, Year 1, it purchased a $400,000 machine with an estimated useful life of 5 years or 500,000 combs and a $50,000 salvage value. The machine actually produced 120,000 combs in Year 1 and 110,000 combs in Year 2.

Debit Depreciation Expense $70,000 Credit Accumulated Depreciation $70,000

On August 1, Par for the Course, Inc., lent $10,000 on a 6-month, 6% note with interest and principal due on February 1. Record the adjusting entry for interest earned for the year ended December 31.

Debit Interest Receivable $250 Credit Interest Revenue $250

On November 1, BBQ's Tanning Beds, Inc., lent $900 on a 6-month, 6% note with interest and principal due on May 1. Record the issuance of the note below.

Debit Notes Receivable $900 Credit Cash $900

A company's bookkeeper forgot to make the adjusting entry to accrue Interest Expense at the end of September. As a result,there will be an error(s) on September's ________.

Income Statement and Balance Sheet

A Bond with a 6% stated interest rate was issued when the market rate of interest was 7%. This bond was issued at ______.

a discount

If the bond's contract (stated) rate of interest is less than the market rate of interest, the bonds will sell at _______.

a discount

Common stock's par value is ______.

a minimal amount specified in the corporate charter

If the market rate of interest is less than the bond's contract (stated) rate of interest, the bonds will sell at _________.

a premium

A loss is ______.

a reduction in income recorded with a credit a decrease in cash related to operating a business recorded with a debit

Daffy Duct, Inc., sold some office furniture for $4,300 cash. The furniture cost $31,000 and had accumulated depreciation through the date of sale totaling $28,500. The journal entry to record the sale of the furniture will include a ______.

credit to Gain on Sale of Equipment for $1,800

Before common dividends can be paid, the ______ preferred stock must be paid ______.

cumulative; dividends in arrears

The date, which follows the date of declaration, and determines which shareholders will receive the dividend is the ______.

date of record

On January 1, Year 1, Squid Roe, Inc., purchased equipment for $25,000 and depreciated the equipment using straight-line and an estimated useful life of 5 years and $0 salvage value. On January 1, Year 4, Squid Roe, Inc., sold the equipment for $11,000 cash. The journal entry to record the sale of this equipment includes a ______.

debit to Cash for $11,000 credit to Equipment for $25,000 debit to Accumulated Depreciation for $15,000 credit to Gain for $1,000

If a bond is sold at a premium, Interest Expense reported on the Income Statement in subsequent years ________.

decreases each year

The purchase of treasury stock ______.

decreases total assets and decreases shareholders' equity

When a shareholder sells its shares to another person for more than its original cost, the corporation ______.

does not make a journal entry

Retained Earnings of $100,000 represents a corporation's cumulative earnings ______ and is reported on the ______.

kept; balance sheet and statement of shareholders' equity