Accounting Test 5

Pasta Disasta, Inc., sold its $18,000 equipment with accumulated depreciation of $10,000 for $7,000. What is the amount of the Gain (Loss) on Sale of Equipment Pasta Disasta would record?

-$(1,000) or -1,000 Cost: 18,000-10,000 = 8,000 left. Sold for $7,000 so.... 8,000-7,000 = 1,000/

Lawn & Order Company purchased two pieces of equipment for $450,000. If the assets had been purchased separately, the company would have paid $200,000 for the first piece of equipment and $300,000 for the second piece of equipment. What amount should be recorded for the second piece of equipment?

-$270,000 The cost will be split based on each asse'ts fair market value at the time of purchase. The fair market value of a single asset is divided by the sum of the assets' fair market values ($500,000 = $200,000 + $300,000) to arrive at a percent. This percent is then multiplied by the total cost to get the asset's individual cost. -Equipment 1: ($200,000/$500,000) x $450,000 = 40% x $450,000 = $180,000 -Equipment 2: ($300,000/$500,000) x $450,000 = 60% x $450,000 = $270,000 The entry to record the purchase will include debits to Land for $20,000 (+A) and Building for $60,000 (+A) and a credit to Cash (-A) for $80,000.

Lawn & Order, Inc., purchased a truck on January 1, Year 1, at a cost of $87,000. The truck has an estimated useful life of 5 years or 107,000 miles. The estimated salvage value is $14,000. In Year 1, the truck was driven 16,000 miles. In Year 2, the truck was driven 20,000 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) ______.

-$29,200 (87,000-14,000)/5 X 2= 29,200

On-A-Roll, Inc., bought machinery at a cost of $68,000 with a salvage value of $8,000 and useful life of 10 years. Calculate Depreciation Expense on the income statement for the year ended Year 2 using the straight-line method.

-$6,000

On September 1, Sea the World Cruises, Inc., lent $7,000 on a 7-month, 9% note with interest and principal due at maturity. Calculate the amount of interest in the adjusting entry for the year ended December 31.

-210 7000*.09*4/12

Stumped, Inc., purchased the timber rights for $7,000,000. It is expected to produce a total of 1,000,000 cords of wood over 4 years, after which it will be sold for $2,000,000. What is the depletion rate per cord of wood?

-5.0 (7,000,000-2,000,000)/1,000,000 = 5

A loss is ______. (Select all that apply.) a reduction in liabilities recorded with a credit a reduction in an asset's selling price a reduction in income recorded with a debit a decrease in cash related to operating a business

-A reduction in income -Recorded with a debit

On January, Year 1, Faux Sure, Inc., purchased land for $90,000. The cash paid appears under A.___________ activities on the Statement of Cash Flows in the amount of B. $______________ for Year 1. -Activity: -Amount:

-Activity: Investing -Amount: (90,000)

During the year, Sure Lock Loans, Inc. recorded $90,000 for the CEO's salary as a capital expenditure. Determine the effect of this entry on the accounting equation.

-Assets: Overstated -Liabilities: No effect -Shareholders Equity: Overstated

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. -Copyrights: -Notes Payable (due in 2 years): -Equipment (net of Accumulated Depreciation): -Depreciation Expense:

-Copyrights: Non current Asset -Notes Payable (due in 2 years): Non current liabilities -Equipment (net of Accumulated Depreciation): Non current assets -Depreciation Expense: Expenses

A $100,000 truck was depreciated using straight-line and assuming a 5-year life and $10,000 salvage value. After 3 years, it was sold for $40,000 cash. The sale of the truck appears under A.___________ activities on the Statement of Cash Flows in the amount of B. $______________.

-Investing -$40,000

On November 30, Bags Bunny, Inc., purchased 100 shares of Novel Tea's stock for $40 each. On December 31, Bags Bunny received a dividend check for $50 (which was $0.50 per share). Based on stock market information, at December 31, year end, Novel Tea's shares trading for $42 each. Match the amount and on which financial statement each of the line items would be reported on the December 31 financial statements given these events. -Marketable Securities -Dividend Income -Unrealized Gain (Loss) on Marketable Securities -Purchase of Marketable Securities

-Marketable Securities: $4,200 Balance Sheet -Dividend Income: $50 Income Statement -Unrealized Gain (Loss) on marketable Securities: $200 Income Statement -Purchase of Marketable Securities: ($4,000) Investing Activities on Statement of Cash Flows

Miss Happ, the accountant for Twisted Pretzel, Inc., forgot to make the adjusting entry for depreciation on the company's equipment. As a result of this mistake, which of the following is misstated? (Select all that apply.) Total assets are too low. Total assets are too high. Total liabilities are too low. Total liabilities are too high. Shareholders' equity is too low. Shareholders' equity is too high.

-Total assets are too high. -Shareholders' equity is too high. The truck is capitalized, i.e., debit Equipment (+A), in the period it is purchased. The Equipment is expensed (-SE) over its useful life in order to match the use of the asset with the related revenue it helped to generate. The adjusting entry to record depreciation requires a debit to Depreciation Expense (-SE) and credit to Accumulated Depreciation (-A).

On September 1, Sea the World Cruises, Inc., lent $2,000 on a 6-month, 9% note with interest and principal due at maturity. Calculate the amount of interest in the adjusting entry for the year ended December 31.

60 2000*.09*5/12

Identify whether each item is an expense, a capital expenditure (an asset), or neither. Fryin' Dutchman, Inc. paid ______. -$1,000 for the maintenance of its equipment -$20,000 to advertise its new, improved production process given its investment in new equipment -$100,000 to replace the buildings roof

1. Expense 2. Expense 3. Capital Expenditure (asset)

Ditchits, Inc., sold its equipment for $7,000 that cost $600,000 and had accumulated depreciation equal to $596,000 at the time of the sale. Calculate the gain or loss on the sale of this equipment.

3,000

Which of the following accounting treatments violates the expense recognition principle? -A capital expenditure is recorded as an expense. -The seller records inventory in transit as Cost of Goods Sold when the terms are FOB shipping point. -Inventory is expensed in the period of the sale of the inventory. -A long-term asset is expensed over its useful life using one of the depreciation methods in accordance with GAAP. -More than one of these choices violates the expense principle.

A capital expenditure is recorded as an expense.

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 is the dollar amount of life the asset has left. -The company must have neglected to close its temporary accounts in the prior accounting periods. -Accumulated Depreciation accumulates and reports all of the asset's usefulness used since the asset was purchased. -The company must have adjusted the useful life of the asset.

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

What is book value (or net book value) of plant and equipment and on which financial statement is it reported? -Book value is the difference between Accumulated Depreciation and market value, and it is reported on the income statement. -Book value is the difference between historical cost and Accumulated Depreciation, and it is reported on the balance sheet. -Book value is the difference between Depreciation Expense and Accumulated Depreciation, and it is reported on the balance sheet. -Book value is the difference between historical cost and market value, and it is reported on the balance sheet.

Book value is the difference between historical cost and Accumulated Depreciation, and it is reported on the balance sheet.

On January 1, Year 1, MachX, Inc., paid $90,000 cash for a machine with an estimated useful life of 5 years and a $10,000 salvage value. In December Year 2, the company decided that the machine's original estimated useful life of 5 years should be revised to a total of only 3 years (i.e., a remaining life of 2 years) with a $0 salvage value. Show the effect of the depreciation adjusting entry for Year 2 using straight-line deprecation given this change in estimate.

DR: Accumulated Depreciation- $37,000 CR: Depreciation Expense- $37,000 Y1: (90,000-10,000)/5 = 16,000 Y2: 90,000-16,000 = 74,000 SO... 74,000/2 = $37,000 (the two is the net book value)

On November 30, Sure Lock Loans, Inc., purchased eight of Buy & Large, Inc.'s, $1,000 par value, 9% bonds for $8,000, interest is paid monthly. On December 31, Sure Lock Loans received interest income of $60 from Buy & Large. Record the journal entry for the receipt of interest.

DR: Cash $60 CR: Interest Income $60

On January 1, Year 1, Twisted Pretzel, Inc., purchased equipment for $25,000 with an estimated useful life of 5 years and $0 salvage value. On January 1, Year 4, Twisted Pretzel, sold the equipment for $9,000 cash. The journal entry to record the sale of this equipment includes ______. (Select all that apply.) -debit to Cash for $9,000 -credit to Gain (Loss) on Sale of Equipment for $1,000 -debit to Gain (Loss) on Sale of Equipment for $1,000 -credit to Cash for $9,000 -debit to Accumulated Depreciation for $15,000 -credit to Accumulated Depreciation for $15,000 -debit to Equipment for $25,000 -credit to Equipment for $10,000 -credit to Equipment for $25,000

DR: Cash $9,000 DR: Gain (Loss) on Sale of Equipment $1,000 DR: Accumulated Depreciation $15,000 CR: Equipment $25,000

On January 1, Year 1, Framer vs. Framer, Inc., purchased a $600,000 machine with an estimated useful life of 10 years or 500,000 frames and a $100,000 salvage value. The machine actually produced 150,000 frames in Year 1 and 120,000 frames in Year 2. Record the depreciation adjusting entry for Year 2 using the activity method:

DR: Depreciation Expense 120,000 CR: Accumulated Depreciation 120,000

On January 1, Year 1, Tangibles, Inc., purchased a $600,000 machine with an estimated useful life of 10 years or 500,000 units and a $100,000 salvage value. The machine actually produced 150,000 units in Year 1 and 120,000 units in Year 2. Record the depreciation adjusting entry for Year 1 using the straight-line method:

DR: Depreciation Expense 50,000 CR: Accumulated Depreciation 50,000

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.

DR: Depreciation Expense 70,000 CR: Accumulated Depreciation 70,000

On November 1, Pastibilities, Inc., lent $900 on a 9-month, 6% note with interest and principal due on August 1. Record the adjusting entry for interest earned for the year ended December 31.

DR: Interest Receivable 9 CR: Interest Income 9

On November 1, Blade for Blade, Inc., lent $900 on a 3-month, 6% note with interest and principal due on February 1. Record the adjusting entry for interest earned for the year ended December 31.

DR: Interest Receivable 9 CR: Interest Income 9 PxRxT = $900 x 6% per year x 2/12 year (Nov. and Dec. interest earned). Interest rates are always reported as annual rates. Thus, the time is how much of the annual rate the company has earned. The adjusting entry requires a debit to Interest Receivable (+A) and a credit to Interest Income (+SE).

On May 1, Sofa So Good, Inc., purchased 100 shares of Staco Bell's stock for $8 each. At December 31, year end, the stock was trading for $9 each. Record the adjusting entry based on this stock information. If no adjusting entry is required, type in 0 in the boxes below.

DR: Marketable Securities 100 CR: Unrealized Gain (Loss) on Marketable Securities 100

On May 1, Chain Reaction Bike Shop purchased 100 shares of Staco Bell's stock for $8 each. Record the purchase of Marketable Securities below.

DR: Marketable Securities 800 CR: Cash 800

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.

DR: Notes Receivable 900 CR: Cash 900

Which of the following is NOT an intangible asset? -Human resources -Goodwill -Copyrights -Patents

Human Resources

Treating a capital expenditure as an immediate expense:

Overstates expenses and understates net income

Basket Cases, Inc., purchased land and two buildings at a total cost of $380,000. To the right of the appraised values below, show the amount Basket Cases should record as the cost for each of the assets purchased: Land: $100,000 Building 1: $160,000 Building 2: $140,000

The fair market value of each of the assets purchased together is divided by the sum of all of the assets' fair market values to arrive at a percent. This percent is then multiplied by the total cost to get the asset's individual cost. Land: ($100,000/$400,000) x $380,000 = 25% x $380,000 = $95,000 Building 1: ($160,000/$400,000) x $380,000 = 40% x $380,000 = $152,000 Building 2: ($140,000/$400,000) x $380,000 = 35% x $380,000 = $133,000

During the year, Cycloanalysts, Inc., spent $1,000,000 on research and development (R&D) and capitalized the entire amount, intending to write it off over 5 years. This accounting treatment is ______. -incorrect. GAAP requires that all R&D be written off over 40 years -incorrect. The company should record the expenditure as an asset -incorrect. The company should treat the entire amount as an expense -correct

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

Investing Activities

property, plant, equipment, and natural resources -trucks, land, computers, mineral rights, lumber, intangible assets -copyrights, trademarks, patents