Accounting Exam 3

spreads the cost of intangible assets to expense over their useful lives is calculated using the straight-line method is in accordance with the matching principle

Amortization ______.

Interest payable; Cash

The entry to record the cash payment to a bank for interest owed that has already been expensed requires a debit to ______ and credit to ______.

decreased, increased

A higher residual value will result in a(n) ______ depreciation expense per year and a(n) ______ net income.

(Book value-new residual value) x (1/remaining life)

Assuming straight-line is used, which of the following is the depreciation formula for the revision of an estimate?

the same amount for both notes

Burrows, Inc. issued 2 notes payable for $10,000 each on November 30. One is a 3-month, 6%, note and the other is a 6-month, 6% notes. The amount of interest owed at December 31 will be ______.

accelerated

Declining-balance depreciation methods are also called _______ depreciation methods.

cost minus its residual (or salvage) value

Depreciable cost equals an asset's _______.

less

Gains on the sale of fixed assets are recorded with a credit and occur when the book value is ______ than the sales price.

Company B used straight-line and estimated useful lives of 5 years and $1,000 residual values.

Given each of the following start-up companies are identical except for the depreciation methods and estimates used, which company would report the higher net income in the first year?

IFRS allow development costs to be capitalized IFRS allow asset values to be increased to fair values

IFRS and GAAP rules to account for long-lived asset values differ in that ______.

license or operating rights

If Company A is granted permission to provide cable services to a particular area, then Company A purchased ______.

net income will be overstated

If a company records an expense as a capital expenditure, then ______.

Immaterial repairs and maintenance Interest on loans to purchase the assets Ordinary repairs and maintenance

In accordance with US Generally Accepted Accounting Principles, which of the following costs associated with long-lived assets are expensed, not capitalized? (Check all that apply.)

increase in assets and an increase in liabilities

Issuing a note payable for cash results in a(n) ______.

Fixed Assets; Inventory; Cost of Goods Sold

Natural resources are first recorded as ______, then recorded as ______ when extracted; and lastly recorded as ______ when sold.

0

On January 1, 2015, X-it Company bought a new delivery truck for $30,000. X-it plans to use the truck for 4 years, after which it will be sold for $6,000. Depreciation expense for 2018, the fourth year of use, using double-declining-balance equals ______.

$1500

On January 1, 2017, X-it Company bought a new delivery truck for $30,000. X-it plans to use the truck for 4 years, after which it will be sold for $6,000. Depreciation expense for 2019, the third year of use, using double-declining-balance equals ______.

$18,000 (= (($45,000 - 8,000) - 1,000)/2 years).

On January 1, 2018, MachX, Inc. paid $45,000 for a machine and uses straight-line depreciation with an estimated useful life of 5 years and a $5,000 residual value. In 2019, MachX decided that the machine's original estimated useful life of 5 years should be revised to a total of only 3 years with a $1,000 salvage value. The revised depreciation expense for the year ended December 31, 2019 equals ______.

$6350

On January 1, 2018, Moonbucks, Inc., received $79,380 and agreed to pay $100,000 in 3 years on December 31, 2020. The market rate of interest is 8% compounded annually. For the year ended December 31, 2018, Interest Expense on this note payable equals _____

$10,000 debit to Notes Payable $10,000 credit to Cash

On January 1, Year 1, Burrows, Inc. received $8,900 and agreed to pay $10,000 on January 1, Year 3. The market rate of interest is 6% compounded annually. Assuming Notes Payable includes the accrued interest through year-end December 31, Year 2, the journal entry to record the payment of this note on January 1, Year 3 includes a ______. (Check all that apply.)

Liabilities increase and stockholders' equity decreases.

On November 1, 2018, ABC Corp. borrowed $100,000 cash on a 1-year note payable with a 6% annual rate that requires ABC to pay all the interest as well as the principal on October 31, 2019. Assuming the November 1 transaction was properly recorded, how would the December 31, 2018, year-end adjusting entry affect the accounting equation?

debit to Interest Payable of $40 credit to Cash of $40

On September 1, ABC Company borrowed $1,000, 12% annually by issuing 4-month note payable from XYZ National Bank with interest due on January 1. At year end, December 31, ABC adjusted for the four months of interest owed. The entry to record the payment of interest on January 1 would include a ______. (Select all that apply.)

debit to Interest expense of $1,000

On September 1, ABC Company borrowed $50,000 with a 6% annual rate by issuing a 9-month note payable to XYZ National Bank. Given no previous adjusting entries have been recorded, the adjusting entry at December 31 would include a ______.

decrease to assets on the balance sheet decrease to net income on the income statement

On-a-Roll, Inc. amortizes its patent of $20,000 over 20 years. The adjusting entry to record amortization results in a(n) ______.

be recorded as an asset

Sony, Inc. spent $1,000,000 of development cost for commercially feasible prototypes. If Sony follows IFRS, then the $1,000,000 would ____.

make the final adjusting entry to depreciation expense be such that the net book value equals the residual value

The estimated output used to calculate depreciation expense will often differ from the actual output. The proper accounting for any difference is to ______.

the present value of $100,000 discounted at 12% for 3 years

The journal entry to record the purchase of an asset in exchange for $100,000 due in 3 years at a market rate of interest of 12% compounded annually includes a debit to the asset in the amount of ______.

different under GAAP (than under IFRS), which require assets be valued at cost and not fair value

The rules to account for long-lived asset values are ______.

update Depreciation expense to the date of sale

To record the disposal of a long-lived asset, a company must first ______.

the current ratio, which equals current assets divided by current liabilities, will be overstated

Today's Fashions has a debt that has been properly reported as long-term debt before this year. Part of this debt is due this year. If Today's Fashions continues to report the current position of the debt as a long-term liability, then ______.

False

True or false: A company may record an asset called Goodwill if it has developed a brand new product.

False

True or false: In accordance with US Generally Accepted Accounting Principles, a company will always capitalize the cost of a long-lived asset.

on the balance sheet if the loss will probably occur and can be reasonably estimated in the notes to the financial statements if the loss may possibly occur and can be reasonably estimated

Under US GAAP, a contingent liability is required to be reported ______.

lower

Vango, Inc. depreciates its truck using units-of-production based on miles. Vango drove its truck 50,000 miles in year 1 and 70,000 miles in year 2. Depreciation expense will be ______ in year 1 compared to year 2.

Recording interest paid Accruing interest incurred, but not paid Recording principal paid

What are the key events that occur with any note payable?

As an adjusting entry with the passage of time

When is interest typically recorded as a liability?

A lower interest rate A compounding of interest less frequently

Which of the following factors will result in a higher present value of $1? (Check all that apply.)

Environmental problems Product warranties Future litigation losses

Which of the following may be classified as contingent liabilities?

10-year bonds 10-year Leases Notes payable due in 2 years

Which of the following obligations are long-term?

assets being overstated stockholders' equity being overstated

WorldCom improperly capitalized costs that should have been expensed. The effect of this fraud on its accounting equation resulted in ______.

Long-term debt of $25,000 Current portion of long-term debt of $25,000

XYZ borrowed $50,000 this year. Half of the loan will be repaid next year and the remainder will be paid the following year. How will the $50,000 be reported on its balance sheet at the end of this year? (Check all that apply.)