Chapter 10 & 11

Little Company provides its employees with varying amounts of vacation per year, depending on the length of employment. The estimated amount of the current year's vacation cost is $172,800. The journal entry to record the adjusting entry required on December 31, the end of the current year, to record the current month's accrued vacation pay is a.$14,400. b.$86,400. c.$172,800. d.$0.

$14,400.

On January 8, Lowrence Co. issued a $60,000, 120-day discounted note to Raines Bank. The discount rate is 8%. Assuming a 360-day year, what are the proceeds received? a.$61,600 b.$55,200 c.$60,000 d.$58,400

$58,400

The payroll register of Sara Company indicates $5,800 of social security withheld and $1,450 of Medicare tax withheld on total salaries of $90,000 for the period. Assume earnings subject to state and federal unemployment compensation taxes are $31,500 at the federal rate of 0.8% and the state rate of 5.4%, respectively. What is the total amount of payroll tax expense? a.$8,951 b.$7,250 c.$7,502 d.$9,203

$9,203

A machine was purchased at a cost of $78,000. The equipment had an estimated useful life of five years and a residual value of $3,000. Assuming the equipment was sold at the end of Year 4 for $8,000, determine the gain or loss on the sale of equipment. (Assume the straight-line depreciation method.) a.a loss of $10,000 b.a loss of $18,000 c.a gain of $10,000 d.a gain of $18,000

($78,000 - $3,000)/5 = $15,000. $15,000 × 4 = $60,000. $78,000 - $60,000 = $18,000. $8,000 - $18,000 = ($10,000) loss.

straight line depreciation

(cost - salvage value) / useful life

Examples of items deducted to determine an employee's net pay are a.retirement savings deductions. b.federal income tax withholding. c.union dues. d.All of these choices are correct.

.All of these choices are correct.

The calculation of depletion expense is a.Quantity Extracted × Estimated Useful Life. b.Depletion Rate × Estimated Useful Life. c.Depletion Rate × Quantity Extracted. d.None of these choices are correct.

.Depletion Rate × Quantity Extracted.

A machine was purchased at a cost of $70,000. The equipment had an estimated useful life of eight years and a residual value of $6,000. Assuming the equipment was sold at the end of Year 6 for $14,000, determine the gain or loss on the sale of the equipment. (Assume the straight-line depreciation method.) a.a loss of $14,000 b.a gain of $8,000 c.a gain of $14,000 d.a loss of $8,000

.a loss of $8,000 The asset is sold for less than net book value in this transaction, which is a loss not a gain.

Depletion can be compared to which of the following depreciation methods? .units-of-production b.straight-line c.double-declining-balance d.None of these choices are correct.

.units-of-production

On December 1, a company accepted a $5,000, 4%, 90-day note. How much accrued interest (rounded to the nearest cent) will be recorded as an adjusting entry on December 31, the end of the accounting period? $16.67 $166.67 $1.67 $0.00; interest is not accrued at year-end

16.67

Blazer Company sells merchandise with a one-year warranty. In Year 1, sales consisted of 2,800 units. It is estimated that warranty repairs will average $10 per unit sold, and 30% of the repairs will be made in Year 1 and 70% in Year 2. In the income statement for Year 1, Blazer Company should show warranty expense of a.$0. b.$28,000. c.$8,400. d.$19,600.

28,000.

Puzzles Company sells merchandise with a one-year warranty. In Year 1, sales consisted of 3,600 units. It is estimated that warranty repairs will average $15 per unit sold, and 40% of the repairs will be made in Year 1 and 60% in Year 2. In the income statement for Year 1, Puzzles Company should show warranty expense of a.$54,000. b.$32,400. c.$0. d.$21,600.

54,000.

Which of the following will be classified as a fixed asset in a movie theater? a.Land for sale b.The latest movie c.Trademark d.A popcorn machine

A popcorn machine

Contra accounts (or contra asset accounts)

Accumulated depreciation accounts - these accounts are deducted from their related fixed asses accounts on the balance sheet

Which of the following is a characteristic of natural resources? Removed for sale Naturally occurring Removed and sold over more than one year All of these choices are correct.

All of these choices are correct.

Which of the following is not one of the factors used to determine depreciation expense? a.The asset's expected useful life b.The asset's initial cost c.The asset's estimated residual value d.All of these choices are correct.

All of these choices are correct.

The entry to record the amortization of a patent would include a debit to __________ and a credit to __________. Amortization Expense; Patents Amortization Expense; Accumulated Amortization Patents; Accumulated Amortization Patents Expense; Accumulated Amortization

Amortization Expense; Patents

Accumulated depreciation would be shown on which financial statement? Balance sheet Income statement Statement of cash flows None of these choices are correct.

Balance sheet

The depletion rate is calculated as a.Estimated Total Units of Resource/Cost of Resource. b.Estimated Useful Life of Resource/Cost of Resource. c.Cost of Resource/Estimated Total Units of Resource. d.Cost of Resource/Estimated Useful Life of Resource.

Cost of Resource/Estimated Total Units of Resource.

The calculation of depletion expense is a.Quantity Extracted × Estimated Useful Life. b.Depletion Rate × Estimated Useful Life. c.Depletion Rate × Quantity Extracted. d.None of these choices are correct.

Depletion Rate × Quantity Extracted.

Which of the depreciation methods is called an accelerated depreciation method? Straight-line method Double-declining-balance method Units-of-activity method All of these choices are correct.

Double-declining-balance method

Which is a characteristic of a fixed asset? Short-term and impermanent. Only leased, not owned, by the company but used in normal operations. Exist physically so they are tangible assets. Offered for sale as part of normal operations.

Exist physically so they are tangible assets.

Which of the following taxes are not included in the employer's payroll tax expense? a.Federal income taxes b.FUTA taxes c.SUTA taxes d.FICA taxes

Federal income taxes

Book Value or Net Book Value

Fixed Asset - accumulated depreciation

Which industry has the highest percentage of fixed assets to total assets? Software Food retail Heavy industry Merchandise retail

Food retail

In regard to discarding fixed assets, which of the following is not true? a.If an asset has not been fully depreciated, depreciation should be recorded before removing the asset from the accounting records. b.If a fixed asset is no longer used and has no residual value, it is discarded. c.If a fixed asset is no longer used and has no residual value, it is written off. d.If an asset has not been fully depreciated, depreciation should not be recorded before removing the asset from the accounting records.

If an asset has not been fully depreciated, depreciation should not be recorded before removing the asset from the accounting records.

The numerator in the quick ratio includes all of the following except a.Inventory. b.Accounts Receivable. c.Cash. d.Temporary Investments.

Inventory.

Which of the following is not classified as an intangible asset? a.Goodwill b.Patent c.Trademark d.Investment

Investment Investments are long-term investments in stocks not intended as a source of cash in the normal operations of a business.

Which industry has the lowest percentage of fixed assets to total assets? Entertainment Social media Transportation Software

Software

Which of the following taxes are employees not subject to? a.State unemployment tax b.Federal withholding tax c.Social security tax d.Medicare tax

State unemployment tax

Which of the following is not one of the most common depreciation methods? a.Double-declining-balance method b.Straight-line method c.Sum-of-the-years-digits method d.Units-of-output method

Sum-of-the-years-digits method

Which of the following is not true with regard to selling fixed assets for cash? a.The cash payment to the buyer is recorded. b.The cash receipt is recorded. c.The journal entry is similar to discarding fixed assets. d.If the selling price is more than the book value, a gain is recorded.

The cash payment to the buyer is recorded.

When selling fixed assets

The cash receipt is recorded. The journal entry is similar to discarding fixed assets. If the selling price is more than the book value, a gain is recorded.

The journal entry for the issuance of a promissory note by a borrower to purchase inventory would include _____. a credit to Merchandise Inventory a debit to Notes Payable None of these choices are correct.

a credit to Notes Payable

The best definition of a trademark is a.the exclusive right to publish and sell literary, artistic, or musical compositions. b.the exclusive right to produce and sell goods with one or more unique features. c.an asset created from favorable factors such as location, product quality, reputation, and managerial skills. d.a name, term, or symbol used to identify a business or its product.

a name, term, or symbol used to identify a business or its product.

All of the following will be found under the caption of "Property, Plant, and Equipment" in the balance sheet except a. computer equipment. b.land improvements. c.parking lot costs. d.a trademark.

a trademark. A trademark is a name, term, or symbol used to identify a business and its products, such as McDonald's golden arches. Under the caption of Intangible Assets in the balance sheet, copyrights, patents, goodwill, and trademarks will be included.

Cardinal Industries purchased a generator that cost $11,000. It has an estimated life of five years and a residual value of $1,000. It is estimated to be good for 5,000 hours. Compute the depreciation expense for the second year using the double-declining-balance method of depreciation. a.$2,640 b.$1,000 c.$4,400 d.$2,000

a.$2,640 (100%/5 years) × 2 = 40%. Depreciation for Year 1 = $11,000 × 40% = $4,400. Depreciation for Year 2 = ($11,000 - $4,400) × 40% = $2,640.

Based on the following data, what is the quick ratio, rounded to one decimal point? Accounts payable $30,000 Accounts receivable 60,000 Accrued liabilities 4,000 Cash 60,000 Intangible assets 50,000 Inventory 69,000 Long-term investments 80,000 Long-term liabilities 100,000 Marketable securities 50,000F ixed assets 670,000 Prepaid expenses 1,000 a.5.0 b.6.5 c.7.1 d.1.3

a.5.0

Based on the following data, what is the current ratio, rounded to one decimal point? Accounts payable 30,000 Accounts receivable 60,000 Accrued liabilities 5,000 Cash 40,000 Intangible assets 50,000 Inventory 69,000 Long-term investments 80,000 Long-term liabilities 100,000 Marketable securities 30,000 Fixed assets 670,000 Prepaid expenses 1,000 a.5.7 b.6.7 c.3.7 d.8.0

a.5.7

All of the following are considered fixed assets EXCEPT building. truck. land. accounts receivable.

accounts receivable.

Coal Miner Co. acquired coal rights for $100,000,000. It is estimated that there are 2,500,000 tons of the resource, and during the current year 500,000 tons were mined and sold. What is the amount of depletion for the current year? a.$10,000,000 b.$20,000,000 c.$2,500,000 d.$2,000,000

b.$20,000,000 $100,000,000/2,500,000 tons = $40 per ton; $40 × 500,000 tons = $20,000,000.

Cost less accumulated depreciation equals depreciable cost. book value. residual value. None of these choices are correct.

book value.

The estimated value of an asset at the end of its useful life is called all of the following except a.residual value. b.book value. c.scrap value. d.salvage value.

book value.

A debtor is referred to as a a.payee. b.borrower. c.creditor. d.lender..

borrower.

The exclusive right to publish and sell a literary, artistic, or musical composition is granted by a patent. trademark. copyright. franchise.

copyright.

The journal entry a company uses to record accrued vacation privileges for its employees at the end of the year is to a.debit Salary Expense and credit Salaries Payable. b.debit Vacation Pay Payable and credit Vacation Pay Expense. c.debit Vacation Pay Expense and credit Vacation Pay Payable. d.debit Salary Expense and credit Cash.

debit Vacation Pay Expense and credit Vacation Pay Payable.

Scout Company sold $15,000 of merchandise in September with a three-month warranty. The cost to repair defects under warranty is estimated at 5% of the sales price. The journal entry to record the estimated warranty expense for the month of September will include a a.credit to Product Warranty Payable for $7,500. b.debit to Product Warranty Payable for $7,500. c.debit to Product Warranty Expense for $750. d.credit to Product Warranty Expense for $750.

debit to Product Warranty Expense for $750.

The journal entry to record costs related to extraordinary repairs would include a __________ to __________. credit; Accumulated Depreciation debit; Accumulated Depreciation debit; Cash credit; the respective asset account

debit; Accumulated Depreciation

The journal entry to record depletion would include a _____ to _____. debit; Depletion Expense credit; Depletion Expense debit; Accumulated Depreciation credit; Natural Resource Expense

debit; Depletion Expense

The difference between a fixed asset's initial cost and residual value is known as its depreciable cost. book value. accumulated depreciation. net revenue.

depreciable cost.

The straight-line percentage

determined by dividing 100% by the number of years of expected useful life,

If an asset is long lived and is used in a productive manner in a business, it will be classified as a(n) a.fixed asset. b.expense. c.intangible asset. d.investment.

fixed asset.

If a purchased item is long-lived but not used in normal operations, the asset is classified and recorded as a(n) fixed asset. investment. expense. contra asset.

investment.

All of the following fixed assets are depreciated EXCEPT building. truck. land. equipment.

land.

An asset with a net book value of $1,225 was discarded, having no market value. How much will be recorded as a loss or gain on disposal? a.loss of $1,225 b.gain of $1,225 c.no loss or gain d.Cannot be determined with the information given.

loss of $1,225 If an asset is not fully depreciated when discarded, the net book value will be recorded as a loss

Internal controls for payroll systems include all of the following except a.having employees check into work using an employee ID card. b.payroll checks should be distributed by each employee's supervisor. c.restricted access to the check signing machine. d.changes in pay rates should be authorized and in writing.

payroll checks should be distributed by each employee's supervisor.

Amortization and depreciation will be found on the income statement as a.one amount. b.They will be on the balance sheet. c.They will not be found on the income statement. d.separate expenses.

separate expenses. The amount of depreciation and amortization expense of a period should be reported separately in the income statement or disclosed in a note.

Postretirement benefits may include all of the following except a.dental care. b.vacation pay. c.tuition assistance. d.All of these choices are correct.

vacation pay.

A fixed asset should be removed from the accounts except a.when it is discarded. b.when it is fully depreciated. c.when it is given away. d.when it is sold.

when it is fully depreciated. A fixed asset should be removed from the accounts when it is discarded.

Current liabilities are debts that are expected to be satisfied a.within one year. b.after one year. c.only after six months. d.after several years.

within one year.