Chapter 9

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Indicate whether the costs of each of the following intangible assets are amortized or not amortized?

1) copyright- amortized 2) franchise- amortized 3) patent- amortized 4) trademark- not amortized

Silver company purchased a machine for use in the business. The purchase price was $55,000 and the related sales tax totaled $500. Silver paid $1,000 to have the machine delivered to its factory and $2,000 to have it assembled. Over the five year life of the machine, maintenance cost of $800 will be incurred annually. What is the capitalized cost of this asset?

Capitalized cost= purchase price of $55,000 + sales tax of $500 + transportation cost of $1,000 + assembly cost of $2,000= 58,500

Which of the following is the source of the retained earnings amount that's shown on the balance sheet

Statement of retained earnings

What is the best place to begin to identify accounts that need adjustments

Unadjusted trial balance

What does a company need to do when it disposed of a depreciable asset by retiring the asset to a junkyard?

Update the depreciation expense and accumulated depreciation accounts and then record the disposal.

What is declining balance

When asset is more efficient in early years but less so over time

What is straight line

When usage is the same each period

What is units of productjon

When usage varies each period

Which of the following explain why internal controls can never completely prevent and detect errors and frauds?

Fraud, human error, employees may override controls, and employees may collude to get around controls

Potboiler company has a lending agreement with its bank that states that the company must maintain stockholders equity of at least $500,000. The company will be required to repay its loan balance if that requirement is not met. What term is used to describe this type of requirement in a lending agreement?

Loan covenant

On January 1, year 1, the starshina company paid $25,000 for a photocopier the company estimates that the photocopies will produce 1,000,000 copies and will have an estimated residual value of $5,000. The company used to photocopier to make 220,000 copies during year 1. The company uses the units of production method. What is the amount of depreciation expense for year 1?

$4,400 bc annual depreciation = (cost-residual value) x actual production for this period/ estimated total production

On January 1, year 1, the starshina company paid $25,000 for a photocopier with an estimated useful life of 4 years, and an estimated residual value of $5,000. The company uses the straight line methods what is the amount of depreciation expense for year 2?

$5,000 bc annual depreciation = (cost-residual value) x 1/useful life

Match each item with the related section of the bank reconciliation in which it would appear:

1) bank service charge — adjustments to the book balance2) deposit in transit — adjustments to the bank balance3) interest earned — adjustments to the book balance4) NSF check — adjustments to the book balance5) outstanding check — adjustments to the bank balance

Current period or capitalized??

1) replace plumbing in factory- capitalized 2) replace flat tire on delivery truck- expensed in current period 3) yearly cleaning of floor drains in factory- expensed in current period

Depreciation expense or accumulated depreciation??

1) reported on the balance sheet- accumulated depreciation 2) reported on the income statement- depreciation expense 3) reports the depreciation of the current period only- depreciation expense 4) contains the current periods depreciation as well as that of prior periods- accumulated depreciation

For each of the items below indicate whether the company needs to prepare a journal entry relating to this item to adjust the book balance to the correct balance?

1) the company's bank reconciliation on June 30 included outstanding checks that totaled $4000 at June 30 — NO2) the company's reconciliation on June 30 included deposits in transit that totaled $3000 on June 30 — NO3) the company's bank reconciliation on June 30 included a credit memorandum in the amount of $150 for interest — YES4) the company's bank reconciliation on June 30 included check #1221 (in payment of an account payable) written for $4,900 but recorded in the accounting records as $4090 — YES

Which of the following costs are included in the capitalized cost of a tangible asset?

All reasonable and necessary costs to acquire and prepare the asset for intended use

Assume that a company has prepared and posted its closing entries which of the following is true

All revenue accounts expense accounts and the dividends account will have zero balances

How do adjustments affect financial results

All revenues and expenses will be reported in the period in which they are generated and incurred AND the financial statements will present the best picture of whether the company's business activities were profitable that period and what economic resources the company owns and owes at the end of the period

What is Assets cost

All the assets capitalized costs

Manning company purchased a factory for $120,000. The factory included land, a building, and equipment. The land contributes 40.8%, the building contributes 49.6%, and the equipment contributes 9.6% of the factory's value. How much of the cost should be assigned to the building?

Amount assigned to building= property cost * buildings contribution towards property's value Amount assigned to building= 120,000 x 0.496= $59,520

What is the purpose of an adjusted trial balance

An adjusted trail balance is prepared to check that the accounting records are still in balance, after having posted all adjusting entries to the T accounts

What is useful life

An estimate of the assets useful economic life to the company

How can a company enhance its document procedures?

Assign sequential numbers to documents, check to ensure that each document number corresponds to one and only one accounting entry, and require digital and paper documents for all business activities

Which of the following describes segregation of duties?

Assigning responsibilities for record keeping to employees who do not have access to the assets for which they are accounting

Which of the following amounts are shown on the adjusted trial balance and on the statement of retained earnings

Beginning of year balance for retained earnings

The acquisition cost of a delivery truck was $45,000 and the accumulated depreciation recorded on that truck to date equals $20,000 what is the book value of the truck?

Book value= acquisition cost - accumulated depreciation Book value= 45,000-20,000= $25,000

Assume that company A uses the straight like method, while company B used the double declining balance method. Both companies purchase equipment for $120,000 with a residual value of $20,000 and a four year life. Both companies sold the equipment for $100,000 at the end of year 1. Which of the following statements are true?

Both companies will report a gain on sale

Assume that company A uses the straight like method, while company B used the double declining balance method. Both companies purchase equipment for $120,000 with a residual value of $20,000 and a four year life. Which of the following statements are true?

Both companies will report the same amount of total depreciation expense over the four year life of the equipment AND both companies will report the same amount of accumulated depreciation at the end of year 4 AND both companies will report the same book value for the equipment at the end of year 4.

Examples of intangible assets

Brand names, trademarks, licensing rights

Examples of tangible assets

Buildings, vehicles, land, machinery, office equipment, furniture and fixtures

What describes long lived assets?

Business assets acquired for use over one or more years AND productive assets

Which of the following regarding adjusting entries are ture

Cash is never part of an accrual or deferral adjusting journal entry. Adjusting entries affect one balance sheet account and adjusting entries affect one income statement account

Which of the following are documented on a bank statement that is provided to a company?

Checks written by the company that have cleared the bank, deposits made by the business, interest earned on the account balance, service charges

Which of the following are included in the cash amount that is reported in the current assets section of a company's balance sheet?

Checks written by the company that have cleared the bank, deposits made by the business, interest earned on the account balance, service charges

What types of companies are required to comply with the requirements of the Sarbanes-Ockert Act SOX?

Companies that trade on the US stock exchanges

Which controls activities would be performed to meet the independently verify principle of internal control?

Comparing the company's accounting information to information kept by an independent third party

What is the term used to describe the attitude people in the organization hold regarding internal control?

Control environment

If a TENANT pays their rent in advance and makes adjustments to its accounts how does this year end adjustment impact the financial statements?

Decreases a liability and increases a revenue

On January 1, year 1, the starshina company paid $25,000 for a photocopier with an estimated useful life of 4 years, and an estimated residual value of $5,000. The company uses the double declining balance method. What is the amount of depreciation expense for year 3?

Depreciation expense= book value at beginning c (2 divided by useful life) Book value= cost - accumulated depreciation Year 1: DE= 25,000 x (2/4) =25,000 EBV= $25,000-12,500= 12,500 Year 2: DE= 12,500 x(2/4)= $6,250 EBV=25,000-(12,500+6,250)=$6,250 Year 3: DE=6250x(2/4)= 3125 EBV= 25000-(12500+6250+3125)=$3125 which is less than residual value of $5,000 Revised calculation: DE= beg. Book value -salvage value DE= 6250-5000=1250 EBV= 25,000-(12500+6250+1250)= 5000

A company deposits and stores its cash in a bank. What internal control principles are evident in this procedure?

Documents procedure, independently verifying the information, restricting access

Which of the following are common principles of internal control?

Establish responsibility, restrict access, segregate duties

What is residual value

Estimate of the amount the company will receive when it disposed of the asset

Barry company sells a patent for $25,000. The patent has an acquisition cost of $120,000 and accumulated amortization of $100,000 at the time of the sale. What was the amount of gain or loss recognized on the disposal of the patent?

Gain of $5,000

What term describes what occurs when events or changed circumstances interfere with a company's ability to recover the value of the asset through future operations?

Impairment

Which of the following are factors that exist when fraud occurs

Incentive opportunity and rationalization

Wages expense incurred... cash paid later will do what

Increase a liability and increase an expense

Service revenue earned and cash recives later

Increases an asset and increases a revenue

If a COMPANY pays its rent in advance and makes required adjustments. How does this year end adjustment impact the amounts recorded on financial statements?

It decreases an asset and increases an expense

Which of the following characteristics describe intangible assets?

Lack physical substance, long lived, ownership is represented by legal document

How is the fixed asset turnover ratio computed

Net revenues divided by average net fixed assets

Deferral adjustments are needed when the buisness

Pays cash before the expense has been incurred, receives cash before the revenue has been generated

Which of the following is NOT an example of a company implementing controls to restrict access?

Placing security cameras in a server room

Examples of a company implementing controls to restrict access are:

Protecting computer systems with firewalls, requiring employees to use passcodes or keys to access important files, restricting access to check signing equipment, and securing cash or valuables in a safe

Accrual adjustments are needed when the buisness

Received cash after the revenue has been generated and pays cash after the expense has been incurred

Which of the following types of accounts are found in closing journal entries

Revenue accounts expense accounts the dividends account and retained earnings account

Which of the following are the reasons that a company's records can differ from the banks records?

The bank has record items the company doesn't know about until the bank statement is examined, the company has recorded items the bank doesn't know about at the time it prepares the statement of account

What about deferral adjustments are true

They are used to decrease balance sheet accounts and increase corresponding income statement accounts AND each deferral adjustment involves one asset and one expense account or one liability and one revenue account

What about accrual adjustments are true

They are used to increase balance sheet accounts and increase correspond income statement accounts AND each accrual adjustment involves one asset and one revenue account or one liability and one expense account

What about accumulated depreciation are true

This contra account is subtracted when determining total assets on the balance sheet. AND it is a balance sheet account AND it's balances increase each year

Why are adjustments made to accounting records at the end of a period

To ensure assets and liabilities are reported at appropriate amounts, to ensure the related revenues and expenses are reported in the proper period

Categories of employee fraud

asset misappropriation, corruption, and financial statement fraud

What is used to increase the balances of revenue accoutns

credits

What is used to increase the account balance of the dividend account

debits

What is used to increase the balances of expense accounts

debits

A weak system of internal controls provides the ______ to commit fraud.

opportunity

Janet Cartwright feels that she is underpaid and is entitled to the inventory that she steals from the company's warehouse. What is the term used to describe this fraud triangle factor?

rationalization


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