Accounting Test Ch. 9 and 10

What is the formula for Net Book Value (NBV)?

cost - accumulated depreciation

Employee's hourly rate is $34 per hour. Any hours worked in excess of 40 hours per week are paid at 1½ times the regular rate. Employee worked 42 hours for the week ended December 27. what is his gross pay?

$1,360 + $102 = $1,462 (40 * 34) + (2 * 32 * 1.5) earnings at regular rate + Earnings at overtime rate = Total earnings

Assume the following data for a machine that was purchased on January 1: at the end of the second year, the machines net book value is? Initial machine cost $140,000 Expected useful life 5 years Estimated residual value $10,000 Annual depreciation using the straight line method [($140,000-$10,000) / 5 years)] $26,000

$140,000- $52,000 = $88,000 initial - accumulated depreciation ($26,000 * 2 years)

Employee's earnings (Gross Pay) for the week ending December 27 are $1,462. Social security tax rate is 6%, medicare tax rate is 1.5%. total FICA tax to be withheld is computed as?

(1,462 * 6%) + ($1,462 * 1.5%) $87.72 + $21.93 = 109.65

Assume instead that the machine that costs $30,000 had accumulated depreciation of $25,000 and was sold for $3,500. 1)What is the gain or loss on the sale of the asset? 2)What is the journal entry?

1) $1,500 LOSS on sale NBV ( $30,000 - $25,000 + $5,000) $3,500-$5,000 = (-) $1,500 (neg. makes it a loss) 2)Debit: Accumulated Depreciation - Machine $25,000 Debit: Cash $3,500 Debit: Loss on Sale of Assets $1,500 Credit: Fixed Asset - Machine $30,000

January 1 of Year 1 Lewis Company issues the following installment note to City National Bank: Principal amount of note $24,000 interest rate 6% Term of note 5 years Annual Payments $5,698 1)what is the principal portion of the payment? 2)what is the interest portion of the payment?

1) $4,258 $24,000 - ($24,000 *6%)= $4,258 total installment - interest 2)$1,440 ($24,000 * 6%) Principal balance * rate * time

Assume instead that the machine that costs $30,000 had accumulated depreciation of $25,000 and was abandoned (treat it as if it was sold for $0). 1)What is the gain or loss on the sale of the asset? 2)What is the journal entry?

1) $5,000 Loss $0 sales price - $5,000 NBV ($30,000 - $25,000) = $5,000 LOSS 2)Debit: Accumulated Depreciation - Machine $25,000 Debit: Loss on Sale of Assets $5,000 Credit: Fixed Asset - Machine $30,000

MINE Company acquired mineral rights for $60,000,000. The diamond deposit is estimated at 6,000,000 tons. During the current year, 2,300,000 tons were mined and sold. Questions: 1)Determine the depletion rate? 2)Determine the amount of depletion expense for the current year? 3)Journalize the adjusting entry to recognize the depletion expense?

1. Rate of depletion = 2,300,000 tons/ 6,000,000 tons = 38.3333% 2. Depletion Expense: $10 per ton * 2,300,000 tons = $23,000,000 3. Debit: Depletion Expense $23,000,000 Credit: Accumulated Depletion $23,000,000

What is the formula for depreciable Rate?

1/ (# of years of useful life) = %

Equipment with a cost of $220,000 has an estimated residual value of $30,000 and an estimated life of 10 years or 19,000 hours. It is to be depreciated by the straight-line method. What is the amount of depreciation for the first full year, during which the equipment was used 2,100 hours? A. $19,000 B. $21,000 C. $22,000 D. $30,000

A. $19,000 $220,000 - $30,000 = $190,000 $190,000/ 10 years = $19,000 depreciation expense per year

List examples of Current liabilities - due within one year:

Accounts Payable Notes Payable Interest Payable Unearned Rent Salaries & wages payable Federal Income Tax Withholding Payable Federal Unemployment Taxes (FUTA) Payable - .8% State Unemployment Taxes (SUTA) Payable - rate varies by state Social Security Taxes Payable - 6% Medicare Taxes Payable - 1.5% Vacation Pay Payable - current portion

A machine with a cost of $120,000 has an estimated residual value of $15,000 and an estimated life of 5 years or 15,000 hours. It is to be depreciated by the units-of-output method. What is the amount of depreciation for the second full year, during which the machine was used 5,000 hours? A. $5,000 B. $35,000 C. $21,000 D. $45,000

B. $35,000 $120,000 - $15,000 = $105,000 $105,000/15000 hrs= $7 dep. exp. per hr $7 * 5,000 hrs. = $35,000

The formula for depreciable cost is: A.) Initial cost + Residual value B.)Initial cost - Residual value C.)Initial cost - Accumulated depreciation D.)Depreciable cost = Initial cost

B.)Initial cost - Residual value

What is the normal balance of Accumulated depreciation?

Credit to Accumulated depreciation

A machine (a fixed asset) with a cost of $30,000 and accumulated depreciation of $28,500 is sold for $3,500. What is the amount of the gain or loss on disposal of the fixed asset? A. $2,000 loss B. $1,500 loss C. $3,500 gain D. $2,000 gain

D. $2,000 gain NBV $30,000-$28,500 = $1,500 sales price - NBV = gain or loss $3,500 - $1,500 = $2,000 gain on sale

A machine (a fixed asset) with a cost of $30,000 and accumulated depreciation of $28,500 is sold for $3,500. what is the journal entry?

Debit: Accumulated Depreciation - Machine $28,500 Debit: Cash $3,500 Credit: Fixed Asset - Machine $30,000 Credit: Gain on Sale of Assets $2,000

What is the normal journal entry to increase Accumulated Depreciation is?

Debit: Depreciation Expense Credit: Accumulated Depreciation

Equipment with a cost of $220,000 has an estimated residual value of $30,000 and an estimated life of 10 years or 19,000 hours. It is to be depreciated by the straight-line method. what is the journal entry? what is the impact?

Debit: Depreciation Expense $19,000 Credit: Accumulated Depreciation $19,000 Decrease assets; Decrease Stockholders' equity

The asset was purchased for $160,000 with $40,000 in cash, a 90-day note payable for $45,000, and a mortgage amounting to $75,000. Journalize the transaction

Debit: Fixed Asset $160,000 Credit: Cash $40,000 Credit: Note Payable $45,000 Credit: Mortgage Payable $75,000

what are two basic types of pension plans?

Defined Contribution Plan and Defined Benefit Plan

examples of postretirement benefits include:

Dental care, Eye Care, Medical Care, Life insurance, tax services

What is the formula for Depreciable Expense? what is it also known as at the end of the year?

Depreciable rate * (initial cost - residual value) = Depreciable expense

Nature's Sunshine Company issued a 90-day, 12% note for $1,000, dated August 1, to Murray Co. for a $1,000 overdue account. what is the entry to record the issuance of the note? ACTION: The balance of $1,000 is in accounts payable and needs to be reclassified to notes payable

Dr: Accounts Payable- Murray Co. $1,000 Cr: Notes Payable $1,000

The engine of a forklift that is near the end of its useful life may be overhauled at a cost of $4,500, extending its useful life by eight years. The expenditure is recorded as?

Dr: Accumulated Depreciation-Forklift $4,500 Cr: Cash 4,500

January 1 of Year 1 Lewis Company issues the following installment note to City National Bank: Principal amount of note $24,000 interest rate 6% Term of note 5 years Annual Payments $5,698 what is the journal entry to record the principal and interest?

Dr: Interest Expense $1,440 Dr: Notes payable $4,258 Cr: Cash $5,698

On December 31, Goodwhile Company estimated that goodwill of $250,000 was impaired. Journalize the adjusting entry on December 31 for the impaired goodwill

Dr: Loss from impaired goodwill $250,000 Cr: Goodwill $250,000

Nature's Sunshine Company issued a 90-day, 12% note for $1,000, dated August 1, to Murray Co. for a $1,000 overdue account. When the note matures, the entry to record the payment of $1,000 PLUS $30 interest ($1,000 × 12% × 90 ÷ 360) is?

Dr: Notes Payable $1,000 Dr: Interest Expense $30 Cr: Cash $1,030 ($1,000 * 12% * 90/360 = $1,030)

On September 19, Iceburg Company borrowed cash from First National Bank by issuing a $4,000, 90-day, 15% note. The entry to record the payment of the note is?

Dr: Notes Payable $4,000 Dr: Interest Expense $150 Cr: cash $4,150 ($4,000 * 15% * 90/360 = $4,150)

On August 10, Cary Company issues a $20,000, 90-day discounted note to Western National Bank. what is the journal entry when they discount note is paid on Nov. 8?

Dr: Notes payable $20,000 Cr: Cash $20,000

Defined Contribution Plan example: ABC Company contributes 10% of employee monthly salaries to an employee 401k plan. For $500,000 of monthly salaries, what is the journal entry to record the monthly contribution for the fully-funded pension plan

Dr: Pension Expense $50,000 Cr: cash $50,000

The defined benefit plan of XYZ Company requires an annual pension cost of $80,000. This annual contribution is based on estimates of XYZ's future pension liabilities. On December 31, XYZ pays $60,000 to the pension fund what is the journal entry?

Dr: Pension Expense $80,000 Cr: Cash $60,000 Cr: Unfunded Pension Liability $20,000

what is the journal entry to record postretirement benefits?

Dr: Post Retirement Benefit Expense Cr: Cash or Post Retirement Benefit Liability

Assume that during June a company sold a product for $60,000 that includes a 36-month warranty for repairs. The average cost of repairs over the warranty period is 5% of the sales price. what is the journal entry?

Dr: Product Warranty Expense $3,000 Cr: Product warranty payable $3,000

Assume that a $200 part is replaced under warranty on August 16. The entry to record the replacement of the defective part is what?

Dr: Product warranty payable $200 Cr: Supplies $200

$300 paid for a tune-up of a delivery truck is recorded as follows?

Dr: Repairs and Maintenance Expense $300 Cr: Cash $300

sale salaries $20,000 office salaries $5,000 total payroll $25,000 social security and medicare $25,000 state and federal unemployment tax $10,000 social security tax 6% medicare tax 1.5% state unemployment compensation tax 5.4% federal unemployment compensation tax .8% federal income tax withheld $2,100 state income tax withheld $550 retirement contributions $1,200 charitable contributions $250 what is the journal entry?

Dr: Sales salaries expense $20,000 Dr: office salaries expense $5,000 Cr: social security tax payable $1,500 ($25,000 * 6%) Cr: medicare tax payable $375 ($25,000 * 1.5%) Cr: employee fed. income tax payable $2,100 Cr: Employee state income tax payable $550 Cr: Retirement contributions payable $1,200 Cr: charitable contributions payable $250 Cr: salaries payable $19,025

The estimated vacation pay for the year ending December 31 is $325,000

Dr: Vacation Pay Expense $325,000 Cr: Vacation Pay Payable $325,000

On June 1, Goodwhile Company acquired a patent with an estimated useful economic life of 5 years for $100,000. Journalize the adjusting entry on December 31 for the amortization of the patent rights.

Dr: amortization Expense- Patents $20,000 Cr: Patents $20,000 $100,000 / 5 years

On August 10, Cary Company issues a $20,000, 90-day discounted note to Western National Bank. What is the journal entry ? Face = $20,000 (due at maturity) Discount Rate = 15% Discount = $750 ($20,000 × 15% × 90 ÷ 360). Proceeds = $19,250 ($20,000 - $750) (know how to compute proceeds)

Dr: cash $19,250 Dr: Interest expense $750 Cr: Notes Payable $20,000

January 1 of Year 1 Lewis Company issues the following installment note to City National Bank: what is the journal entry to record proceeds received? Principal amount of note $24,000 interest rate 6% Term of note 5 years Annual Payments $5,698

Dr: cash $24,000 Cr: Notes Payable $24,000

On September 19, Iceburg Company borrowed cash from First National Bank by issuing a $4,000, 90-day, 15% note. What is the journal entry?

Dr: cash $4,000 Cr: Notes Payable $4,000

The service value of a delivery truck might be improved by adding a $5,500 hydraulic lift to allow for easier and quicker loading of cargo. The expenditure is recorded as follows:

Dr: delivery Truck $5,500 Cr: Cash $5,500

The employer's payroll taxes for the March 21 payroll are as follows what is the journal entry? Social Security Tax $1,500 ($25,000 * 6%) Medicare Tax $375 ($25,000 * 1,5%) State Unemployment Tax $540 ($10,000 * 5.4%) Federal Unemployment Tax $80 Total Payroll Taxes $2,495

Dr: payroll Tax Expense $2,495 Cr: Social Security Tax Payable $1,500 Cr: Medicare Tax Payable $375 Cr: State Unemployment Tax Payable $540 Cr: Federal Unemployment Tax Payable $80

what is an example of deductions from earnings?

Federal income taxes withheld state income taxes withheld FICA taxes medical insurance pensions charitable contributions life insurance

Formula for Interest

Interest = Principal (FACE) x Rate x Time (use 360 days for the denominator of the term of the note)

Contingent liabilities depends on what two factors?

Likelihood of occurring (probability) Measurement (what is the amount?)

List examples of Long-term liabilities - due beyond one year

Notes Payable Vacation Payable Mortgage Payable Bonds Payable Warranty Expense Pension Liability Post Retirement Benefit Liability

SUTA State Unemployment Compensation Tax

Paid by the employer this employer tax provides temporary payments to those who become unemployed

Examples of intangible include?

Patents - Amortized Copyrights - Amortized Trademarks - Has an Indefinite life; not amortized; if decreases in value, it is impaired Goodwill - Has an Indefinite life; not amortized; if decreases in value, it is impaired

what are the two parts of an installment note?

Principal: Payment of a portion of the amount initially borrowed Interest: Payment of interest on the outstanding balance (REMEMBER - interest is the rate for one full year) has to be computed separately based on outstanding note

Payment at maturity is equal to what?

The face of the note

Defined Benefit plan provides...

a FIXED annual pension benefit to the employee

what is a pension? when are they accrued by employees?

a cash payment to retired employees as they work, based on the employer's pension plan

The current portion of lone-term debt is reported on the balance sheet as what?

a current liability

What is an installment note?

a debt that requires the borrower to make equal periodic payments to the lender for the term of the note

Accumulated depreciation is (blank) and (blank)

a long-term Fixed Asset and a Contra-Asset

Identify the following as a fixed asset (FA), or intangible asset (IA), natural resource (NR), or none of these(N) (a) Computer (b) Patent (c) oil reserve (d) Goodwill (e) U.S. Treasury note (f) land used for employee parking (g) gold mine

a) Computer (FA) b) Patent (IA) c) oil reserve (NR) d) Goodwill (IA) e) U.S. Treasury note (N) f) land used for employee parking (FA) g) gold mine (NR)

If a computer was purchased on January 1 for $3,750 with an estimated life of 3 years and a salvage or residual value of $150, the journal entry for the monthly expense under straight-line depreciation is: a. Depreciation Expense 100 Accumulated Depreciation 100 b. Depreciation Expense 1,200 Accumulated Depreciation 1,200 c. Accumulated Depreciation 1,200 Depreciation Expense 1,200 d. Accumulated Depreciation 100 Depreciation Expense 100

a. Depreciation Expense 100 Accumulated Depreciation 100 $3,750 - $150 = $3,600 ($3,600/ 36) = $100 12 months * 3 years = 36 months

The liability to pay for employee vacations is accrued as an adjusting entry for what?

accrued vacation at the end of the period

what is net pay?

also called "take home pay" the amount actually received by the employee after deductions

Impairment has what effect on the book value of the asset?

an expense that writes-off or directly reduces, the book value of the asset

what is a long-term asset?

are debts due beyond one year

Likelihood is classified as?

as probable (record), reasonably possible (disclose the amount), or remote

A building with an appraisal value of $154,000 is made available at an offer price of $172,000. The purchaser acquires the property for $40,000 in cash, a 90-day note payable for $45,000, and a mortgage amounting to $75,000. The cost basis recorded in the buyer's accounting records to recognize this purchase is a. $154,000 b. $172,000 c. $160,000 d. $120,000

c. $160,000 = (cash $40,000 + note payable $45,000 + mortgage $75,000)

A machine with a cost of $75,000 has an estimated residual value of $5,000 and an estimated life of 4 years or 18,000 hours. What is the amount of depreciation for the second full year, using the double-declining-balance method? a. $17,500 b. $37,500 c. $18,750 d. $16,667

c. $18,750 depreciation rate = 1/4 =25% * 2 = 50% $75,000 * 50% = $37,500 $75,000- $37,500 = $37,500 NBV end of year 1 $37,500* 50% = $18,750 NBV end of year 2

what are quick assets?

cash and other current assets that can easily be converted to cash, such as temporary investments and accounts receivable

what is the formula for working capital?

current assets - current liabilities

what is the formula for current ratio?

current assets / current liabilities

Residual Value is also known as the following, except: a.)Scrap value b.)Trade in value c.)Salvage value d.)Net book value = Cost less accumulated depreciation, not Residual value

d.)Net book value = Cost less accumulated depreciation, not Residual value

what is a current liability?

debts that will be paid out of current assets and are due within one year

what are the characteristics of a discounted note?

discount rate discount proceeds of a discounted note due at maturity

Defined Contribution Plan is...

fully funded where the Employer contributes defined amounts on a regular basis.

Employee's earnings (Gross Pay) for the week ending December 27 are $1,462. Social security tax rate is 6%, medicare tax rate is 1.5%. Employee authorized weekly deductions of $20 for retirement savings and $5 for a United Fund contribution. Assume that $257.95 of federal income tax is withheld. what is the employee's net pay?

gross pay $1,462 total deductions $87.72 + $21.93 + $257.95 + $20 + $5 = 392.60 total deductions include ss tax, medicare tax, federal income tax, retirement savings, untied fund gross earnings - total deductions = net pay $1,462 - $392.60 = $1,069.40

what is the impact when you increase accumulated depreciation?

increase expense, decrease net income, increase accumulated depreciation, DECREASE ASSETS, DECREASE STOCKHOLDERS' EQUITY (bold is need to know)

FUTA Federal Unemployment Compensation Tax

paid by the employer this employer tax provides for temporary payments to those who become unemployed

what is the quick ratio formula?

quick assets / current liabilites

Assume the following data for a machine that was purchased on January 1: what is the depreciation expense for each of the remaining 8 years? At the beginning of the third year, the company estimates that the machine's remaining useful life is eight years (instead of three) and that its residual value is $8,000 (instead of $10,000). Initial machine cost $140,000 Expected useful life 5 years Estimated residual value $10,000 Annual depreciation using the straight line method [($140,000-$10,000) / 5 years)] $26,000

revised depreciation expense = (book value - revised residual value) / (revised remaining useful life) $88,000 -$8,000 / 8 years = $10,000

what are Contingent Liabilities?

some liabilities may arise from past transaction only if certain events occur in the future.

quick ratio measure what?

the "instant" debt paying ability of a company

measurement is what?

the ability to estimate the potential liability is classified as estimable or not estimable (if you can't estimate it don't record it)

what is a Discount?

the loan is issued for the face amount minus the interest on the note

what is gross pay?

total earnings of an employee for a payroll period, including overtime pay. also called gross earnings, gross wages

analysis for decision making is based on the following three measures:

working capital current ratio Quick ratio