ACCOUNTING MULTIPLE CHOICE 7 8 9

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A company purchased land and building from a seller for $900,000. A separate appraisal reveals the fair value of the land to be $200,000 and the fair value of the building to be $800,000. For what amount would the company record land at the time of purchase?

$180,000

Which of the following represents a characteristic of a liability?

-A probable future sacrifice of economic benefits. -Arising from present obligations to other entities. -Resulting from past transactions or events. ALL ARE CORRECT

When a customer pays in advance for a product or service, the advance payment received by the company is recorded as:

A debit to an asset credit to a liability account.

Over the entire service life of an asset, which depreciation method records the highest total depreciation?

All the methods result in the same total depreciation.

Allied Partners filed suit against Big Sky, Inc., seeking damages for patent infringement. Big Sky's legal counsel believes it is probable that Big Sky will settle the lawsuit for an estimated amount in the range of $500,000 to $700,000, with all amounts in the range considered equally likely. How should Big Sky report this litigation?

As a liability for $500,000 with disclosure of the range.

When bonds are issued at face amount, what happens to the carrying value and interest expense over the life of the bonds?

Carrying value and interest expense remain unchanged.

A long-term asset is recorded at the:

Cost of the asset plus all costs necessary to the asset ready for use.

On November 1, 20X1, a company signed a $200,000, 12%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 20X2. The company should report the following adjusting entry at December 31, 20X1:

Debit interest expense and credit interest payable, $4,000

nature of depreciation

Depreciation represents the allocation of the cost of property, plant, and equipment over its service life.

An advantage of leasing an asset rather than purchasing the asset is:

Leases typically require less cash upfront to begin using the asset

Which of the following will maximize net income by minimizing depreciation expense in the first year of the asset's life?

Long service life, high residual value, and straight-line depreciation.

an unused line of credit

NOT a current liability

in each succeeding payment on an installment note

The amount that goes to interest expense decreases.

When a product or service is delivered to a customer that previously paid in advance, the delivery is recorded as:

a debit to a liability credit to a rev account

which of the following is NOT a primary source of long-term debt financing?

accounts payable

If equipment is retired, which of the following accounts would be debited?

accumulated depreciation

depreciation in accounting is

allocation of an asset's cost to an expense over time

Smith Co. filed suit against Western, Inc., seeking damages for patent infringement. Western's legal counsel believes it is probable that Western will have to pay an estimated amount in the range of $75,000 to $175,000, with all amounts in the range considered equally likely. How should Western report this litigation?

as a liability for 75000 with disclosure of the range

The book value of an asset is equal to the

asset's cost less accumulated depreciation

The asset's cost less accumulated depreciation is called:

book value

debt financing

borrowing money from creditors (liabilities)

an improvement to a tangible asset

capitalyzed

accumulated depreciation

contra asset

we normally record a long-term asset at the

cost of the asset plus all costs necessary to get the asset ready for use

which of the following is reported as current liability?

current portion of long term debt

Travel Planners, Inc. borrowed $5,000 from First State Bank and signed a promissory note. What entry should Travel Planners record?

debit cash 5000 credit notes payable 5000

Travel Planners, Inc. borrowed $5,000 from First State Bank and signed a promissory note. What entry should First State Bank record?

debit notes receivable 5000 credit cash 5000

which of the following is not an advantage of debt financing?

debt financing often has no maturity date

Management can estimate the amount of loss that will occur due to litigation against the company. If the likelihood of loss is reasonably likely, a contingent liability should be:

disclosed not reported

Management can estimate the amount of loss that will occur due to litigation against the company. If the likelihood of loss is reasonably possible, a contingent liability should be

disclosed not reported as a liability

has the highest depreciation expense during the assets early life?

double declining depreciation

The cash paid for interest on bonds payable is calculated as:

face amount x stated interest rate

equity financing

funds provided by the owners of company (stockholders equity)

which of the following expenditures should be recorded as an asset?

interest costs during the construction period of a new building

An accumulated depreciation account

is the amount charged to depreciation expense since the acquisition of the plant asset

which of the following is not a characteristic of a liability?

it must be payable in cash

Which of the following typically represents an advantage of leasing over purchasing an asset with an installment note?

lease payments often are lower than installment payments generally requires less cash upfront offers greater flexibility and lower costs in disposing an asset

Which of the following statements regarding liabilities is not true?

liabilities result from future transactions

current liabilities

may include contingent liabilities

a companys capital structure refers to

mixture of liabilities and stockholders equity

Smith Co. filed suit against Western, Inc., seeking damages for patent infringement. Smith's legal counsel believes it is probable that Western will have to pay $125,000, although no final settlement has yet been reached. How should Smith report this litigation?

no asset or gain is reported

research and development

not recorded as an intangible asset in the balance sheet

current liabilities are payable within_________years and long term liabilities are payable more than ____________ years from now

one ....one

An exclusive 20-year right to manufacture a product or to use a process is a:

patent

Which of the following is NOT a primary source of corporate debt financing?

receivables

Suppose that Neuman Exploration Tours has filed a lawsuit against a competitor for an alleged trademark violation. At the end of the year, Neuman's attorney estimates that the company will likely win the lawsuit and be awarded between $1.5 and $2 million, with the most likely amount being $1.8 million. How much should Neuman record as a gain?

record 0$

A company leases an office building for 24 months. At the beginning of the lease period, the lessee (user) would:

record a lease asset, liability, and lease for the present value of the 24 lease payments

A contingent liability that is probable and can be reasonably estimated must be

recorded

an addition which increases future benefit

recorded as an asset

a purchased patent

recorded as an intangible asset

Which of the following expenditures should be recorded as an expense?

repairs and maintenance that maintain current benefits

liabilities

represent probable future sacrifices of benefits

The seller collects sales taxes from the customer at the time of sale and reports the sales taxes as

sales tax payable

Which of the following will result in higher depreciation expense in the first year of the asset's life?

short service life low residual value

research and development costs

should be expensed

ordinary repairs and matinence

should be recorded as an expense

Interest expense is recorded in the period in which:

the interest is incurred

the amount of gain on the sale of equipment equals

the selling price minus the book value of the equipment

We record interest expense on a note payable in the period in which

we incur interest


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