Final Flashcards
Physical assets such as equipment, buildings, land, machinery, and vehicles are ___ assets
Tangible (Fixed) assets
No physical substance such as brand names, trademarks, and licensing rights are ___ assets
Intangible assets
Long lived assets: business assets acquired for…
use over 1+ years
General rule for tangible assets under the cost principle is that all reasonable and necessary costs to ___ and ___ an asset for use should be recorded as a cost of the asset
acquire; prepare
Costs have been ___ when they are recorded as assets, rather than expenses
capitalized
(increases/decreases)
Capitalizing costs ___ assets, and ___ expenses
increases; decreases
What costs should be capitalized when Land is acquired?
purchase cost, legal fees, survey fees, title search fees
What costs should be capitalized when Buildings are acquired?
purchase/construction cost, legal fees, appraisal fees, architect fees
What costs should be capitalized when Equipment is acquired?
purchase/construction cost, sales taxes, transportation costs, installation costs
Maintenance costs incurred during use of tangible assets
ordinary repairs, extraordinary repairs and maintenance
What is a basket purchase?
purchase of more than one asset at the same time for one purchase price
Cedar Fair paid $10 million for a hotel and the land surrounding it, based on an appraisal that estimates the land contributes 40% of the property’s value and the building contributes 60%.
How would Cedar Fair distribute these costs?
record 40% of the total cost as land ($4 million), and the other 60% as buildings ($6 million)
Why do you need to split the purchase price in a basket purchase?
splitting the purchase price among individual assets is necessary because they may be used over different periods
What is an example of an ordinary repair and maintenance?
oil changes for your car
What is an example of an extraordinary repair, replacement, and addition?
additions, major overhauls, complete reconditioning, and major replacements and improvements such as the replacement of the passenger train on a rollercoaster
Are extraordinary repairs capitalized?
yes. Since these costs increase the usefulness of tangible assets, they are added to the appropriate long-lived asset accounts, “capital expenditures”
(Expense/Capitalize)
Replacing electrical wiring throughout the building
Capitalize
(Expense/Capitalize)
Repairing the hinge on the front door of the building
Expense
(Expense/Capitalize)
Yearly cleaning of the building’s air-conditioning filters
Expense
(Expense/Capitalize)
Replacing load-bearing walls with a laminated beam
Capitalize
When does a company report depreciation expense?
a company reports depreciation expense every period buildings and equipment are used to generate revenue
Accumulated Depreciation is under the ___ of the Balance Sheet, ___ with the amount of Accumulated Depreciation, as it ___ the Property and Equipment Asset
Assets; decreasing; decreases
Asset cost includes the asset’s capitalized costs:
purchase cost, sales tax, legal fees, and other costs needed to acquire and prepare the asset for use
Useful life is an estimate of the asset’s useful economic life to the company. May be expressed in terms of ___ or ___ of capacity
years; units
___ is the only tangible asset that’s assumed to have an unlimited useful life, therefore land is not depreciated
Land
Residual (salvage) value is an ___ of the amount the company will received when it ___ of the asset
estimate; disposes
Amount to be depreciated over the asset’s life is the difference between its cost and residual value, an amount called ___ Cost.
Depreciable
___ - ___ ___ = Depreciable Cost
Cost - Residual Value
___ - ___ ___ = Book Value
Cost - Accumulated Depreciation
Straight-line method is used when usage is the ___ each period
same
Straight-line Depreciation Expense formula
(Cost - Residual Value) x (1 / Useful Life) = Depreciation Expense
In the straight-line method, Depreciation Expense is a ___ amount each year
Accumulated Depreciation ___ by an equal amount each year
Book Value ___ by the same equal amount each year
constant; increases; decreases
Units-of-product method is used when usage ___ each period
varies
Units-of-production Depreciation Expense formula
(Cost - Residual Value) x (Actual Production This Period / Estimated Total Production) = Depreciation Expense
Units-of-production Depreciation Rate formula
(Cost - Residual Value) / Estimated Total Production
The Depreciation Expense, Accumulated Depreciation, and Book Value ___ from period to period, depending on the number of units ___
vary; produced
Declining-balance method is used when the asset is more ___ in early years but less so over time; also used for ___
efficient; tax
Declining-balance Depreciation Expense formula
(Cost - Accumulated Depreciation) x (2 / Useful Life) = Depreciation Expense
Declining-balance speeds up depreciation reporting, so it is sometimes called an ___ method
accelerated
Because the 2/Useful Life rate used in the formula is double the straight-line rate, this particular version of the declining-balance method is called the ___-declining balance depreciation method
double
For partial-year depreciation calculations, the straight-line and declining-balance methods, the annual depreciation is multiplied by the ___ of the year for which depreciation is being calculated
fraction
These partial-year modifications are not required in the___ __ ___ method because that method is based on actual production for the period
units-of-production
Fixed asset turnover ratio
Net Revenue / Average Net Fixed Assets
A higher fixed asset turnover ratio implies ___ efficiency
greater
Depletion is the process of allocating a natural resource’s cost over the period of its ___ or ___
extraction; harvesting
An asset is purchased on January 1 for $40,000. It is expected to have a useful life of five years after which it will have an expected residual value of $5,000. The company uses the straight-line method. If it is sold for $30,000 exactly two years after it is purchased, the company will record a:
Gain of $4,000
Martin Company’s building has a 20-year useful life and a residual value equal to 20% of the building’s original cost. If the double-declining balance method is used, what depreciation rate would be used?
10%
Capitalizing a cost means to record it as an ___
asset
Tolleson Enterprises buys a computer system for $2,400,000 and pays the vendor $160,000 to install the computer system. Tolleson should record:
$2,560,000 as equipment.
A trucking company sold its fleet of trucks for $55,000. The trucks originally cost $1,410,000 and had Accumulated Depreciation of $1,269,000 recorded through the date of disposal. What gain or loss did the trucking company record when it sold the fleet of trucks?
Loss of $86,000.
A company sells equipment for $450,000 when the book value of the equipment is $400,000. The company would record the extra $50,000 as:
a gain, increasing net income and stockholders’ equity.
Hearth Company uses the units-of-production method to estimate depreciation. The company purchased a new machine for $45,000 that will produce an estimated 100,000 units over its useful life. The estimated residual value of the machine is $5,000. What is the depreciation rate per unit?
$0.40
Your company rents computers to local businesses and schools. You have 1,000 computers with a book value of $160,000. As a result of changing technology, your computers are more difficult to rent so you must drastically reduce your rental price, which causes a decrease in estimated future cash flows. The fair value of the computers is estimated to be $125,000 because of their outdated technology. Your company should report an asset impairment loss of:
$35,000.
A company bought a piece of equipment for $40,000 and expects to use it for eight years. The company then plans to sell it for $3,500. The company has already recorded depreciation of $35,995. Using the double-declining-balance method, what is the company’s annual depreciation expense for the upcoming year?
$505
Buckeye Industries purchased a truck and trailer for $81,000. The appraised values of the truck and trailer are $57,000 and $28,500, respectively. What is the amount of the cost that should be assigned to the trailer?
$27,000
Avalon Industries buys equipment for $24,000, expects to use it for ten years, and then sell it for $3,000. Using the straight-line method, the company should report annual depreciation for the equipment of:
$2,100
If a company records a cost as an expense that should have been capitalized, how is its income statement for the current period impacted?
Expenses are overstated.
Holly, Incorporated has a building that originally cost $562,500. Holly expects to be able to sell the facility for $160,500 at the end of its useful life. The balance of the related Accumulated Depreciation account is $387,000. The residual value of the facility is:
$160,500.
A piece of equipment was acquired on January 1, 2021, at a cost of $22,000, with an estimated residual value of $2,000 and an estimated useful life of four years. The company uses the double-declining-balance method. What is its book value at December 31, 2022?
$5,500
Hacienda Realty, a real estate management company, buys land that contains an abandoned apartment building for $9,000,000. It pays a construction company $1,000,000 to demolish the apartment building. Which of the following is correct?
The company would record $10,000,000 million as the cost of the land.
The MegaHit Film Studio owns a production lot and related equipment. How would MegaHit Company categorize these assets?
Tangible assets
Pebble Beach Company buys a piece of equipment for $24,000. The equipment has a useful life of ten years. No residual value is expected at the end of the useful life. Using the double-declining-balance method, what is the company’s depreciation expense in the first year of the equipment’s useful life?
$4,800
At the end of the first year of an asset’s life, the declining-balance depreciation method:
causes an asset to be carried at a lower book value than that computed using the straight-line method.
Transport Incorporated has a fleet of 10 large trucks that cost a total of $1,410,000. The fleet is expected to be driven a total of 1,000,000 miles during its estimated 10-year life and be sold for $141,000 at the end of its useful life. If the fleet was driven 125,000 miles during the current year, what is the amount of depreciation that would be calculated using the straight-line and units-of-production methods, respectively?
$126,900 and $158,625
Tonto Company purchased property for $280,000. The property included a building, equipment and land. The building was appraised at $173,600, the land at $126,000, and the equipment at $50,400. What is the amount of cost to be allocated to the building in the accounting records?
$138,880
Company increases liabilities when: Addition obligations arise by ___ goods and services, ___ customer deposits, or incurring ___ charges over time
purchasing; receiving; interest
Company decreases liabilities when: Makes a ___ or provides ___ to the creditor
payment; services
Payroll costs =
Net pay to employees + Income taxes withheld from employees + FICA taxes withheld from employees + FICA taxes (matching contributions)
Payroll taxes paid by employees include which of the following?
Federal income tax withheld, state income tax withheld, and Medicare
Zorn Incorporated makes a sale for $300. The company is required to collect sales tax of 9%. What is the amount that will be credited to the Sales Tax Payable account?
$27
Sales tax collected (payable) =
Sales revenue × Sales tax rate
Your company sells $50,000 of one-year, 10% bonds for an issue price of $52,000. The journal entry to record the issuance of the bond will include a credit to Bonds Payable in the amount of:
$50,000
___ sales tax to the government does not create a liability
remitting
In October, the CEO of Saguaro, Incorporated signs a note for $90,000 in order to buy new equipment. The note is due in five years, at 8% annual interest. Semiannual interest payments are due each April and October. Assuming no other long-term debt, what is the initial balance in the related long-term debt account?
$90,000
The total amount of interest that will be paid on a four-month, $6,500, 9% note payable equals:
$195
A company typically records the amount owed to suppliers for goods or services when:
The goods or services are received.
On October 1, Pinnacle Company signs a note for $360,000 to provide the funds needed to build a new facility. The note is due in 10 years, includes an annual interest rate at 7%, and requires semiannual interest payments each April and October. The journal entry to record the issuance of the promissory note should debit:
Cash and credit Notes Payable for $360,000.
Travis County Bank agrees to lend Brickyard Corporation $200,000 on January 1. Brickyard signs a $200,000, 4%, 9-month note. Interest is due at maturity on September 30. The company’s fiscal year ends June 30 and adjusting entries are recorded at that time only.
What adjusting entry should Brickyard make on June 30 before preparing its annual financial statements?
Debit Interest Expense and credit Interest Payable for $4,000.
ABC Corporation issued $100,000 of bonds at a premium; as a result, the company:
received more than $100,000.
Current liabilities are due:
and payable within the current operating cycle or one year, whichever is longer.
Redmont Company’s gross salaries and wages are $30,000, and it withholds $4,500 for income taxes and $2,000 for FICA taxes, the journal entry to record the employees’ pay should include a:
credit to Salaries and Wages Payable for $23,500.
During one pay period, Star Valley Company distributes $234,900 to employees as net pay. The income tax withholdings were $34,200 and the FICA withholdings were $9,000. Total payroll costs to the company for this pay period, excluding any unemployment taxes, was:
Payroll costs = Net pay to employees + Income taxes withheld from employees + FICA taxes withheld from employees + FICA taxes (matching contributions)= $234,900 + $34,200 + $9,000 + $9,000 = $287,100
Accrued payroll includes liabilities ___ by law or voluntarily requested by employees that have not yet been ___, or ___.
required; paid; remitted
Employer payroll taxes:
are an added payroll expense beyond the wages and salaries earned by employees.
Owners of common stock usually have a few benefits:
voting rights, dividends, residual claim, and preemptive rights
Corporate ownership: shares of stock can be purchased in ___ amounts, ownership interests are ___, and stockholders are not ___ for the corporation’s debts
small; transferable; liable
___ stock
“non-voting” stock, don’t have a say in management decisions
They get dividends first, and have a secure percentage compared to common stock
Preferred
If there is no par value, ___ is debited and ___ ___/ ___ ___ is credited
Cash; Common Stock/Preferred Stock
Par value
There will be 2 separate entries credited, one is __ ___, the other is ___ __ ___. ___ is debited.
@ par; Paid in Capital; Cash
Total Contributed Capital =
Preferred Stock par $ + Additional Paid in Capital (PS) + Common Stock par $ + Additional Paid in Capital (CS)
Total Contributed Capital + Retained Earnings =
Total Stockholders’ Equity
Par value of a stock refers to the:
value assigned to a share of stock in the corporate charter.
Ms. Jessica Duffy purchased 1 share of $10 par value common stock from Ohio Corporation for $50 per share. Ms. Duffy sold that share to Mike Truesdale for $60 per share. As a result of the sale by Duffy to Truesdale sale, Ohio Corporation would:
not record this transaction.
Sylvan Heights Company issues 200,000 shares of preferred stock for $40 per share. The stock has a fixed dividend rate of 5% and a par value of $3 per share. The company records the issuance with a debit to Cash for:
$8,000,000, a credit to Preferred Stock for $600,000, and a credit to Additional Paid-in Capital for $7,400,000.
A corporation’s owners have ___ liability.
unlimited
Which of the following statements would not explain why a company may want to repurchase its stock?
To increase the number of shares of outstanding stock.
Galaxy Industries buys back 600,000 shares of its stock from investors at $45 a share. Two years later it reissues this stock for $65 a share. The stock reissue would be recorded with a debit to Cash for:
$39 million, a credit to Treasury Stock for $27 million, and a credit to Additional Paid-in Capital for $12 million.
Which one of the following events would not require a journal entry on a corporation’s books?
2-for-1 stock split
Sullivan Gulch Corporation declared a stock dividend on November 1 and issued 18,000 shares of stock to its stockholders. Prior to the dividend, the balance in Retained Earnings was $1,700,000, the number of shares of $5 par value stock issued and outstanding was 120,000, and the market value of the stock was $12. This stock dividend will cause total stockholders’ equity to:
remain unchanged.
King Corporation has one million shares outstanding with a par value of $5. On August 24 of this year, it issued a 10% stock dividend when its stock price was $25. As a result of this stock dividend, retained earnings:
decreased by $2,500,000.
A company issues 1 million shares of common stock with a par value of $0.02 for $15 a share. The entry to record this transaction includes a debit to Cash for:
$15,000,000, a credit to Common Stock for $20,000, and a credit to Additional Paid-in Capital for $14,980,000.
Mountain View Company buys back 3,000 shares of its $10 par value common stock from investors at $126 per share. This stock repurchase would be recorded with a debit to:
Treasury Stock and a credit to Cash for $378,000.
Seville Company issued 1,680 shares of $50 par value stock for $126,000. What is the total amount of contributed capital?
$126,000
When a company issues stock to the public for the first time, the issuance is called a(n):
initial public offering (IPO).
Galleria Company has 280,000 shares authorized, 196,000 shares issued and 14,000 shares of treasury stock. How many shares does Galleria Company have outstanding?
182,000
Treasury stock is a ___-___ account
contra-equity
Features of common stock usually include all of the following except:
primary claim to the company’s assets in case of liquidation.
The stockholders’ equity section of the balance sheet includes all of the following except:
Dividends.
On the payment date for a cash dividend, the company:
debits Dividends Payable and credits Cash for the dividend amount.
A corporate charter specifies that the company may issue up to 20 million shares of stock. The company sells 12 million shares to investors and later buys back 3 million shares. The current number of shares of treasury stock after these transactions have been accounted for is:
3 million shares.
The effect of a stock dividend is to:
change the composition of stockholders’ equity.
Current Ratio=
current assets/ current liabilities
Earnings Per Share=
(net income - preferred dividends)/ avg. # shares outstanding
Gross Profit Margin=
gross profit/net sales
Net Profit Margin=
net income/net sales
Days to Collect=
365/receivables turnover ratio
Receivables Turnover Ratio=
net Credit Sales /average Accounts Receivable
Inventory Turnover Ratio=
cost of goods sold/average inventory
Fixed Assets Turnover Ratio=
sales/net Fixed Assets
Total Assets Turnover Ratio:
sales/total Assets
ROE-Return on Equity=
net Income/total Equity
P/E- Price to Earnings Ratio=
share price/earnings per share
Impairment Loss=
Book Value − Fair Value
