Ch7-9 ACCT 211
Sheldon has a $15,000 liability for a machine that has an interest rate of 10%. The interest expense for one year is?
$1,500
Tops Co. purchases equipment for $12,000 and has been using straight-line depreciation, estimating a 5-year life and $500 salvage value. At the beginning of the third year, Tops decides to use the equipment for a total of 6-years with no salvage value. Compute the revised depreciation for the third year.
$1,850 Reason: (12,000-500)/5=2,300 per year. $2,300 x 2 years = $4,600 depreciation taken. Book value at beginning of year 3 = $12,000-4,600= $7,400/4 = $1,850.
On October 30, Cleo Co. purchased a machine for $26,000 and estimates it will use the machine for four-years with a $2,000 salvage value. Using the straight-line depreciation method, compute the machine's first year partial depreciation expense for October 30 through December 31.
$1000 Reason: This is a partial year depreciation. $26,000 - 2,000 = $24,000/4 = $6000 per year. $6000 x 2/12 = $1,000.
On June 1, Harding Co. purchased a machine for $14,000 and estimates it will use the machine for five-years with a $2,000 salvage value. Using the straight-line depreciation method, compute the machine's first year (partial) depreciation expense for June 1st through December 31st.
$1400 Reason: (14,000-2000)/5 x 7/12=1,400 for a partial year depreciation.
Ion Co. purchased land for $190,000. Ion also paid $5,000 in real estate commissions, $1,000 in legal fees, and $500 in title insurance fees. Ion should record the cost of this land at:
$196,500
Daley Co. owns a mineral deposit with an estimated 600,000 tons of available ore. It was purchased for $300,000 and has no salvage value. During the current period, Daley mined and sold 40,000 tons of ore. Depletion expense for the period will be how much?
$20,000 Reason: $300,000/600,000 x 40,000=20,000
Winn Co. signs a 60 day note payable for a $15,000 copy machine with an interest rate of 8%. Winn will record total interest expense of
$200 Reason: $15,000 x .08 x (60/360) = $200.
Wen Co. purchased a building for $200,000. Wen paid $20,000 in lawyer and title fees. Wen also paid an additional $15,000 to modify the building in order to accommodate his business needs. Wen should record the cost of the building at:
$235,000
PT Co. purchased land and an existing building for $200,000. In addition, PT paid real estate commissions of $15,000. PT removed the unwanted building and graded the land for a total cost of $35,000. PT should record the cost of the land at:
$250,000
Alin Co. purchases a building for $300,000 and pays an additional $30,000 for title fees and lawyer fees. Alin also pays $20,000 in renovations, including painting, carpet, lighting, etc. Alin should record the cost of the building at:
$350,000
A company acquires a patent for $20,000 to manufacture and sell an item. The company intends to hold the patent for 5 years. Amortization for the first year will be recorded with a debit to Amortization Expense for
$4000
Geo Co. purchased a building for $400,000. In addition, Geo paid $35,000 for taxes and lawyer fees. Geo also paid $60,000 to modify the building, changing the layout specifically for Geo's needs. Geo should record the building at
$495000
Straight-line depreciation can be calculated by taking:
(cost minus salvage value)/useful life
Which of the following liabilities could be a multi-period known liability?
- Unearned Subscription Revenue - Notes Payable
Determine which of the following expenses are considered revenue expenditures related to a company vehicle.
-Car wash -Oil change -Dent repair
Niwa Co. replaced a $3,000 account payable balance to Fiona Co. with a 60-day, $3,000 note bearing 5% annual interest. Niwa's entry to record this transaction would include which of the following entries?
-Credit to Notes Payable -Debit to Accounts Payable
Patel Paving collected $1,000 cash in advance from a customer to provide paving services next month. The entry to record this cash receipt would include the following entries?
-Debit to Cash -Credit to Unearned Paving Fees
Which of the following items are plant assets?
-Equipment being used in operations -Building being used for operations
Which of the following items are considered employee benefits?
-Medical insurance -Pension plans
The cost at which a company records purchases of machinery and equipment should include which of the following?
-Purchase price -Taxes -Installation -Shipping fees
Employee income tax depends on:
-number of employee withholding allowances -employee's income
Jorge Lopez worked 40 hours this week and earned $1,000 in total compensation. Federal and state taxes and other withholdings totaled $350. Jorge's gross pay totals $
1000
Kenesha Co. reported income before interest expense and income taxes of $30,000; interest expense of $3,000; and income taxes of $4,000. Calculate the times interest earned ratio.
10; (30,000/3000)=10
Jorge Lopez worked 40 hours this week and earned $1,000. Federal and state taxes, and other withholdings totaled $350. Jorge's net pay totals $ .
650
Which of the following situations will result in recognizing a gain on sale of a plant asset?
A fully depreciated asset is sold for $1,000.
Ella Co. owns a mineral deposit and recognizes $15,000 of depletion expense during the period. This entry will be recorded with a credit to:
Accumulated Depletion - Mineral Deposit
_________ are expenditures that make a plant asset more efficient or productive, but do not always increase an asset's useful life.
Betterments
______ is the process of allocating the cost of a plant asset to expense while it is in use.
Depreciation
________ is the process of allocating the cost of a plant asset to expense while it is in use.
Depreciation
Unemployment taxes are examples of (employee/employer) taxes.
Employer
Simar Sales Co. sells and installs kitchen appliances. Simar guarantees parts and labor for one year after installation. Simar would record potential claims in a(n) _______ account.
Estimated Warranty Liability
True or false: The cost of plant assets should include all of the normal and reasonable expenditures necessary to get the asset in place and ready for its intended use, including repairs to damages incurred after installation
False
Keys Co. is located in Florida. An evacuation has been ordered due to Hurricane Edward, which is headed in the direction of Keys. Keys should record a contingent liability prior to the evacuation.
False Reason: Contingent liabilities cannot be recorded for future events.
Which of the following situations is not a contingent liability?
Future natural disaster
On March 1, Young Co. borrowed $1,000 by extending their past-due account payable with a 120-day, 6% interest-bearing note. On June 29, the due date, Young pays the amount due in full. This entry would be recorded by Young with a credit to _____ in the amount of ______.
Cash; $1,020 Reason: Interest is computed for 120 days. $1,000 x .06 x (120/360) = $20. Cash will be credited for $1,000 + 20. Notes payable will be debited for $1,000.
On January 1, Avers Co. borrowed $10,000 by extending their past-due account payable with a a 60-day, 8% interest-bearing note. On March 1, the due date, Avers pays the amount due in full. This entry would be recorded by Avers with a debit to (Accounts Payable/Notes Payable/Cash)_____ in the amount of _______.
Notes Payable; $10,000
_______ are expenditures that keep an asset in good operating condition. They are necessary if an asset is to perform to expectations over its useful life.
Ordinary repairs
(Plant/Current) assets purchased as a group in a single transaction for a lump-sum price are allocated the purchase price based on their relative market values.
Plant
_________ assets are assets used in a company's operations that have a useful life of more than one accounting period.
Plant
Which of the following expenses would not be considered an ordinary repair?
Replacing an engine
(Revenue/Capital) expenditures are additional costs of plant assets that do not materially increase the asset's life or capabilities.
Revenue
A liability created by buying goods or services on credit is typically recorded to
accounts payable
________ are amounts owed to suppliers for products or services purchased on credit.
accounts payable
Copyrights, trademarks, and other intangible assets are expensed over their useful lives through the process of:
amortization
Employee ________ are perks that are provided in addition to salaries and wages, such as all or part of medical, dental, life and disability insurance.
benefits
Niren Co. made modifications to a manufacturing machine that increased its productivity by 40%. Niren would classify this expense as a(n):
betterment
A ___________ is when an employer provides employees with a percentage of the net income earned during the year.
bonus plan
Angela Bennett is an employee of Marks Co. This past year, Angela received 1% of Marks net income, in addition to her annual salary. This added benefit is called a:
bonus plan
The factors necessary to compute depreciation include all of the following, except:
book value
When a company revises an estimate used to record depreciation expense, the company should revise depreciation by using the formula (_______ - revised salvage value)/revised remaining useful life.
book value
When a company guarantees the payment of debt owed by a supplier, customer or another company, the guarantor usually discloses the guarantee as a _______ liability.
contingent
The factors necessary to compute depreciation include (cost/selling price/market value), salvage value and useful life.
cost
Amounts withheld from employee's earnings for employee income tax is considered a _____ by the employer until the government is paid.
current liability
Plant assets are recorded at cost, which includes all expenditures necessary to get the asset in place and ready for use. All of the following would be included as part of the cost of a plant asset except:
damage done when unpacking the plant asset
The process of allocating the cost of a natural resource to a period when it is consumed requires a debit entry to the ________ account.
depletion expense
A company owns an asset that is fully depreciated. The asset is no longer being used in operations and has no market value. The company has decided to ________ the asset by recording an entry to remove it from the balance sheet.
discard
A plant asset is (depreciated/discarded/obsolete) when it is no longer useful to the company, and it has no market value.
discarded
A known obligation of an uncertain amount that can be reasonably estimated is called a(n) _____ liability.
estimated
A(n) ______ liability is a known obligation that is of an uncertain amount but that can be reasonably estimated.
estimated
Book value is less than the selling price
gain on sale of asset
_______ is(are) the total compensation an employee earns including wages, salaries, commissions, bonuses, and any compensation earned before deductions such as taxes.
gross pay
Land _______ are assets that are additions to land and have limited useful lives, such as walkways and fences.
improvements
A measurable obligation arising from agreements, contracts, or laws is called a _____ liability
known
Assets that increase the benefits of land, have a limited useful life, such as parking lots and lighting systems, are called:
land improvements
A _____ is a probable future payment of assets or services that a company is presently obligated to make as a result of past transactions or events.
liability
Bina Consulting Co. collected $500 from a customer in advance to provide consulting fees for the next two months. The $500 would be recorded with a debit to Cash and a credit to the Unearned Revenues, which is a(n) (asset/liability/equity) account.
liability
Bryne Co. sells merchandise and collects a 5% state sales tax. The tax is recorded on Bryne's general ledger as a(n) ______ account.
liability
When a company has a current obligation to make a future payment to their supplier due to a shipment of supplies that were received last week, the company would record this transaction with an increase to an asset account and a(n) ________ account.
liability
Book value is greater than the selling price
loss on sale of asset
The purchase of a group of plant assets for one price is called a ______ purchase.
lump-sum
Unearned subscription revenues that extends over multiple periods is an example of a _______ known liability.
multi-period
Brice Co. purchases land in order to drill oil. This oil field would be classified as a(n) _______ on the balance sheet.
natural resource
______ are assets that are physically consumed when used, such as mineral deposits and oil and gas fields.
natural resources
Gross pay minus all deductions—including federal and state taxes, FICA and any voluntary deductions—equals _____ pay.
net
Which of the following items is not a payroll deduction?
net pay
Bushra Co. replaced a $1,000 account payable balance to Elin Co. with a 120-day, $1,000 note bearing 8% annual interest. Bushra's entry to record this transaction would include a credit to which account?
notes payable
A potential legal claim is recorded
only if payment for damages is probable and the amount can be reasonably estimated.
Amounts withheld from an employee's gross pay are called:
payroll deductions
In order for a contingent liability to be recorded as a journal entry in the financial statements, it must be (probable/reasonably possible/remote) and reasonably estimable.
probable
A contingent liability can be ignored (not recorded in the financial statements or notes to the financial statements) if it is considered as (probable/reasonably possible/remote) possibility.
remote
Total asset turnover is computed as net _____/average total assets.
sales
Straight-line depreciation is calculated by taking cost minus (salvage/market) value divided by useful life.
salvage
A written promise to pay a specified amount on a stated future date within one year or the company's operating cycle, whichever is longer, is considered a __________.
short-term note payable
Cadie Construction Co. signed a note promising to pay a cement supplier $1,000 60-days from now. As a result of this transaction, Cadie would record a(n) ________ on her balance sheet.
short-term note payable
The ratio of income before interest expense (and any income taxes) divided by interest expense reflects the risk of a company not being able to pay fixed expenses if sales decline is called the ____________ ratio.
times interest earned
Employers must pay employee taxes in addition to those paid by the employees. Which of the following is paid only by the employer?
unemployment
A known liability is a measurable obligation arising from agreements, contracts, or laws. Known liabilities would include all of the following items, except:
warranties
A _____ is a seller's obligation to replace or fix a product (or service) that fails to perform as expected within a specified period.
warranty
Book value is equal to the selling price
No gain or loss recognized
Paid absences offered to employees are called ______ benefits.
Vacation
Abby Co. allows each employee two weeks of paid time off during each calendar year. Since employees are working for 50 weeks, rather than 52 weeks, Abby must accrue the paid time off during the 50 weeks that the employees work. The year-end adjusting entry is recorded as a credit to the ________ account.
Vacation Benefits Payable
_______ are nonphysical assets used in operations that give companies long-term rights, or competitive advantages.
Intangible assets
On January 8, Lee Co. borrows $100,000 cash from National Bank by signing a 90-day, 6% interest note. On April 8, Lee Co. will pay National Bank a total of $101,500. The difference between the amount paid back to National Bank of $101,500 and the amount borrowed of $100,000 (or $1,500) represents ____ expense.
Interest
______ is the difference between the amount borrowed and the amount repaid.
Interest
On December 31, Briar Co. disposed of a piece of equipment that cost $6,000 with accumulated depreciation of $4,500. The entry to record this disposal would include a debit to which account and for how much?
Loss on Disposal of Equipment for $1,500
Forward Co. discarded a machine that cost $5,000 and was fully depreciated. The entry to record this transaction would include a credit to the _________ account.
Machinery
Zion Co. sells $100 of merchandise and collects $10 sales tax. The sales tax is recorded to which account?
Sales Tax Payable