Ch 8 Accounting Online Quiz

Which of the following costs would not be debited to the Equipment account? A) Taxes paid on the purchase price B) Insurance while in transit C) Costs incurred to assemble and test the equipment D) Repairs to keep the asset in working condition E) All of the above costs would be debited to the Equipment account

D The costs of machinery and equipment consist of all costs normal and necessary to purchase them and prepare them for intended use

A company purchased a machine on January 1 for $11,000. The machine is expected to have a salvage value of $1,000 at the end of its useful life of 10 years. Using the double-declining balance method, what is the amount of depreciation that will be recorded during the second-year of its useful life? A) $1,760 B) $1,800 C) $2,000 D) $2,200 E) None of the above

A

Which of the following is an exclusive right that is granted to an inventor to sell an item or use a process for 17 years? A) Copyright B) Patent C) Leasehold D) Franchise E) Trademark

B

The Oxide Mining Company acquired an iron ore deposit for $2,000,000. The company's geologist estimated the deposit to contain 1,000,000 tons of iron ore. At the end of the first year, 60,000 tons had been extracted. The end-of-year journal entry to record the depletion of the iron ore would require which of the following? A) A credit to Iron Ore Deposit of $120,000 B) A credit to Accumulated Depletion of $120,000 C) A debit to Depletion Expense of $30,000 D) A debit to Accumulated Depletion of $30,000 E) None of the above

B The iron ore would be depleted at $2.00 per ton (or $2,000,000/1,000,000) for depletion expense of $120,000 (or 60,000 tons multiplied by $2.00 per ton) in the first year ($2.00 x 60,000). Alternatively, the depletion expense could be calculated as follows. The 60,000 tons extracted divided by 1,000,000 tons in the deposit equals a percentage depleted of 6%. The cost of $2,000,000 multiplied by the percentage depleted of 6% equals depletion expense of $120,000

The net sales for the year total $4,000,000 and the December 31 cash balance is $50,000. Assets totaled $600,000 at the beginning of the year and $1,000,000 at the end of the year. What is the total asset turnover? A) 4.00 B) 4.40 C) 5.00 D) 6.51 E) None of the above

C (1,000,000 + 600,000 / 2)

What will be the result of the failure to record the year-end adjusting entry for depreciation? A) An overstatement of income and an understatement of equity. B) An overstatement of income and an understatement of assets. C) An overstatement of income and an overstatement of assets. D) An understatement of income and an overstatement of equity. E) An understatement of income and an understatement of equity.

C The adjusting entry to record depreciation includes a debit to the Depreciation Expense account and a credit to the Accumulated Depreciation account, a contra asset account.

A car with a book value of $5,000 (cost of $20,000 less accumulated depreciation of $15,000) is sold for $8,000. Which of the following would be included in the journal entry to record the sale? A) A debit to the Vehicles account for $5,000 B) A debit to the Gain on Sale account for $3,000 C) A credit to the Gain on Sale account for $3,000 D) A debit to Cash for $5,000 E) None of the above

C The entry to record the sale would include a debit to the Cash account for $8,000, a debit to the Accumulated Depreciation account for $15,000, a credit to the Vehicles account for $20,000, and a credit to the Gain on Sale account for $3,000 (or the cash proceeds of $8,000 less the book value of $5,000)

Which of the following statements is false? A) U.S. GAAP prohibits companies from recording increases in the value of plant assets. B) IFRS requires an annual review of useful life and salvage value estimates. C) When the value of plant assets declines after acquisition, but before disposition, only IFRS requires companies to record those decreases as impairment losses. D) IFRS permits upward asset revaluations. E) All of the above.

C When the value of plant assets declines after acquisition, but before disposition, both IFRS and U.S. GAAP require companies to record those decreases as impairment losses.

Which of the following statements is not correct? A) The term, betterment, is synonymous with the term, improvement. B) A capital expenditure is a balance sheet expenditure. C) A plant asset is a natural resource. D) A natural resource is a wasting asset. E) The term, service life, is synonymous with the term, useful life.

C natural assets are consumed when used

Which of the following statements is not correct? A) The units-of-production method will have varying amounts charged to depreciation expense during an asset's life depending upon usage of the asset. B) The ending book value of an asset will be the same regardless of which depreciation method is used. C) Both the straight-line and declining balance method use depreciable cost in the calculation of annual depreciation expense. D) The declining-balance method yields a larger depreciation expense in the early years of an asset's life and less depreciation in later years. E) The straight-line method yields a constant amount of depreciation expense for each year.

C the straight-line method uses depreciable cost (cost minus salvage value) in the depreciation expense calculation, the declining-balance method uses an asset's beginning-period book value in the depreciation expense calculation.

Which of the following should not be charged to the Land account? A) Government assessments for public roadways, sewers, and sidewalks B) Title fees and real estate commissions C) Removal of existing structures D) Fences and lighting systems E) Accrued property taxes paid by the purchaser

D The Land account should be charged (or debited) for the cost of land, government assessments, whether incurred at the time of purchase or later, public roadways, sewers, and sidewalks. Because they have limited useful lives, fences and lighting systems should be accounted for separately by charging the Land Improvements account.

An asset is being depreciated over a 10 year useful life. At the end of the fifth year, company management determines that the asset will only be used for three more years. How should this change be handled? A) No changes should be made in the depreciation calculation. B) The financial statements for the past four years should be changed to reflect only eight years of depreciation. C) The change should be reflected in only the future years' financial statements. D) The change should be reflected in the current and future years' financial statements. E) None of the above.

D When an estimate of an asset's salvage value or useful life changes, the new estimate is used to compute deprecation for current and future periods; that is, the depreciation expense computation is revised by spreading the cost yet to be depreciated over the remaining useful life.

A factory machine is purchased for $50,000 on July 1. The machine is expected to have no salvage value at the end of its useful life of 5 years and be useful for 25,000 machine hours. The company decides to use the units-of-production method for depreciating the asset. If the machine is used for 1,920 hours during the first year, what is the book value of the asset at the end of year one? A) $3,840 B) $10,000 C) $40,000 D) $46,160 E) None of the above

D (50,000 / 25,000) x 1,920 = 3,840 50,000 - 3,840 = 46,160

Adding a new wing to a building is an example of which of the following? A) Ordinary repair B) Revenue expenditure C) Betterment D) Capital expenditure E) Both C and D

E Adding a new wing to a building is a type of betterment and, as such, it would be treated as a capital expenditure and debited to the Building account