Accounting 3 test
Goodwill is recognized only when one company blank another company.
acquirer
Depreciation is a process of cost Blank and not a process of valuation.
allocation
Intrest Receivable
amount of interest that has been earned but not yet been received in cash
In accounting, the term impairment refers to
an asset's significant decline in value
Activity Base example Hawaiian Speciality foods purchased equipment for $30,000. Residual Value at the end of an estimated year is service life is expected to be $3,000. The machine operated for 3,100 hours in the first year, and the company expects the machine to operate for a total of 20,000 hours. Calculate the Deprecation expense for the first year.
$30,000-3,000/ 20,000 hrs= $1.35 per hour x 3,100hrs= $4,185
On January 1, year 1, Ziegler issued 5-year bonds with a stated rate of 8% and a face amount of $100,000. The bonds pay interest semiannually. The market rate of interest was 10%. Calculate the issue price of the bonds. Round your answer to the nearest dollar.
$92,278 Rationale:(7.72173 x $8,000 x 0.5) + (0.61391 x $100,000) = $92,278
Double-decline balance (DDB) Example Hawaiian Speciality foods purchased equipment for $30,000. Residual Value at the end of an estimated year is service life is expected to be $3,000. The machine operated for 3,100 hours in the first year, and the company expects the machine to operate for a total of 20,000 hours. Calculate the Deprecation expense for the first year. estimated service life 4 years
30,000 x 2/4= $15,000 Note : Since the life estimated is 4 years, the double decline balance is half of whatever the straight-line method is. So since its 1/4 is 25% for straight line you would take 2/4 for double decline balance. Another example is 1/5 of straight line method would be would be 20% so double decline would be 40% for 2 years
Example Straight Line method Example New Truck= 40,000 Residual value 5,000 Estimated service life 5 years
7,000 per year
perpetual inventory system
A detailed inventory system in which a company maintains the cost of each inventory item, and the records continuously show the inventory that should be on hand.
What will be the effect of paying off an accounts payable balance on the current and the acid-test ratios? Assume that both ratios are greater than 1. Acid-test ratio will remain unchanged Acid-test ratio will increase Current ratio will remain unchanged Current ratio will increase Acid-test ratio will decrease Current ratio will decrease
Acid-test ratio will increase Current ratio will increase
Which of the following items are initially recorded as an expense on the income statement? Multiple select question. Advertising costs Research and development costs Purchased intangibles
Advertising cost research and development costs
Depreciation
Allocation of the cost of a tangible fixed asset
Amortization
Allocation of the cost of an intangible asset
Depletion
Allocation of the cost of natural resources
Where is the account accumulated depreciation on equipment found on the financial statements?
As a contra account to equipment on the balance sheet
Double-decline balance (DDB)
Book Value x Deprecation Rate= Deprecation Expense
The term means BLANK to record an expenditure as an asset.
Capitalize
In accounting, expenditures recorded as assets are said to be
Capitalized
The purchase price and all costs to bring an asset to its desired condition and location for use should be
Capitalized
A(n) is protected by law and gives the creator of a published work the exclusive rights to reproduce and sell the work for the life of the creator plus 70 years.
Copy right
Notes payable is classified as a liability that has which of the following effects? Creates revenue on the income statement Creates interest expense on the income statement Creates deferred revenue on the income statement Creates an asset on the balance sheet
Creates interest expense on the income statement
Which of these are parts of the journal entry to record depreciation? Multiple select question. Debit Depreciation Expense Credit Accumulated Depreciation Debit Accumulated Depreciation Credit Depreciation Expense
Debit Depreciation Expense Credit Accumulated Depreciation
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
Identify two ratios commonly used to assess a company's financial risk.
Debt to equity ratio Times interest earned ratio
The allocation of the cost of a tangible fixed asset is referred to as ,blank whereas the allocation of the cost of an intangible asset is referred to as blank
Depreciation, amortization
Deferred income
Income received but not yet earned is
Intrest Revenue
Money earned through loaning money
Straight Line Method
Most Common Method Purchased - residual value/Estimated service life
How to calculate Profit Margin
Net Income/net sales
How to calculate Asset turnover
Net sales/ average total assets
The exclusive legal right to manufacture a product or to use a process is called a(n)
Patent
A(n) BLANK is the exclusive right to manufacture a product or use a process granted for a period of BLANK years
Patent and 20 years
Activity Base
Purchase amount - Residual Value/total hours=per hour x hours used= Activity Base
On January 1, 2018, Lennox Corporation purchased equipment for $100,000. Lennox depreciated the equipment straight--line over 10 years with no residual value. What is the book value of the equipment on January 1, 2021?
Reason: $100,000/10 years = $10,000 depreciation per year. Historical cost of $100,000 less $30,000 depreciation (for 2018, 2019, and 2020) = $70,000.
blank value is the amount the company expects to receive for the asset at the end of its service life.
Residual
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 false question. True False
T
Long-term assets are classified as Multiple select question. acquired. tangible. intangible. current.
Tangible and Intangible
During the current year, Katie Corp. pays $5,120 on an installment note. The outstanding loan balance at the beginning of the year was $50,000; the effective interest rate is 8%. Which of the statements regarding the installment note balance at the end of the current year is correct?
The balance is $48,880. Rationale:$50,000 - (5,120 - 4,000 interest)
An exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company, product, or service is referred to as a
Trademark
Notes Receivable
Written promise (as evidenced by a formal instrument) for amounts to be received. Also a asset
A retirement or abandonment of an asset is different from a sale of an asset because
a loss must be recognized for the remaining book value. no cash is received.
Periodic payments on installment notes typically include an increase in stockholders' equity a portion that reduces the outstanding loan balance. installment fees. a portion that reflects interest.
a portion that reduces the outstanding loan balance. a portion that reflects interest.
A(n) Blank notes , payable is a short-term liability that occurs when a company purchases goods and does not immediately pay with cash
account
A company purchases inventory or supplies and promises to pay within 30 to 45 days. No formal agreement is signed. This transaction is recorded as a
accounts payable.
Convertible bonds allow the lender to convert each bond into:
common stock
A(n) Blank liability is an existing uncertain situation that might result in a loss depending on the outcome of a future event
contingent
Which account is credited in a journal entry to record depreciation on machinery?
contra asset
is an exclusive right of protection given to a creator of a published work, such as a song, film, painting, photograph,
copyright
Deferred revenues and sales tax payable typically are reported as Blank liabilities.
current
Liabilities that are payable within one year commonly are classified as BLANK liabilities, while those payable more than one year from now commonly are classified as BLANK liabilities.
current, longterm
The formula to calculate the depreciation for the units-of-production method or activity-based depreciation, is ((cost - residual value)/total estimated production) x
current-year activity or production
A contract in which an owner provides a user the right to use an asset in return for periodic cash payments over a period of time is
lease
A(n) BLANK 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
How to calculate Return on Assets
net income/average total assets Note: to get the average total take beginning of year and end of year and divide it by 2
Which of the following are expenditures for assets subsequent to acquisition? Multiple select question. Additions Repairs and maintenance Freight charges Improvements
repairs and maintenance improvements additions
Recording depreciation results in the allocation of the cost of a long-term asset to the years during which the asset provides
revenues
Notes Payable
signed by a firm to repay amount borrowed plus interest also a liability
The depreciable cost is
the cost of the asset minus the residual value.
The price of a bond includes the present value of the periodic interest payments the present value of the face amount the present value of the face amount minus the present value of the periodic interest payments the present value of the face amount plus the present value of the periodic interest payments
the present value of the face amount plus the present value of the periodic interest payments
Larry purchases land to be used for a new corporate headquarters. Which of the following items are capitalized in the cost of land? Multiple select question. Title insurance Grading the land Costs to remove an old building Current year's property taxes Legal fees to secure title
title insurance grading the land cost to remove building legal fees to secure title
Semiannual
twice a year every 6 months
Other terms used for an activity-based depreciation method are:
units of production method and units of output method
The original cost of the asset less the accumulated depreciation is the blank
book value
Identify the characteristics of an annuity. A series of amounts that vary from period to period A series of amounts that are equal Varying time periods between payment dates Equal time periods between payment dates
A series of amounts that are equal Equal time periods between payment dates
Common current liabilities include: Multiple select question. Sales tax payable Notes payable due in two years a long-term liability Prepaid insurance Deferred revenues The current portion of long-term debt
Sales tax payable Deferred revenues The current portion of long-term debt
Payroll withholdings ______. are voluntary are amounts subtracted from employees' gross earnings to determine their net pay increase the amount of cash an employee receives are amounts added to employees' gross earnings to determine their net pay decrease the amount of cash an employee receives
are amounts subtracted from employees' gross earnings to determine their net pay decrease the amount of cash an employee receives
The original cost of an asset minus accumulated depreciation is
book value
The journal entry to retire old equipment that is not fully depreciated includes a:
debit to accumulated depreciation debit to loss credit to equipment
Financing with BLANK requires borrowing, whereas financing with BLANK requires issuing shares of stock.
debt, equity
How to calculate interest
face value x annual interest x fraction of the year
A contractual arrangement in which one entity grants the purchaser the exclusive right to use the trade name, formulas, and product rights within a specific geographic area for a specific period of time is called a
franchise
When a company purchases another company and the purchase price is greater than the fair value of the net assets acquired, this excess is referred to as
goodwill
When an asset has a significant decline in value and is written down, this is called
impairment
Obtaining a note payable for cash results in a(n)
increase in assets and an increase in liabilities
An asset that has no physical substance is referred to as a
intangible asset
Long-lived assets are typically classified in two categories:
tangible and intangible
