Final Review Part 3 Flashcards
ACME Company bought a machine on January 1, 2022. The machine cost $180,000 and had an expected salvage value of $30,000. The life of the machine was estimated to be 5 years. The annual depreciation expense using the straight-line method of depreciation is
($180,000 − $30,000) ÷ 5 = $30,000
(Cost - sal. val.) ÷ 5 yrs.
ACME company purchased factory equipment on June 1, 2022 for $128,000. It is estimated that the equipment will have an $8,000 salvage value at the end of its 10-year useful life. Using the straight-line method of depreciation, the amount to be recorded as depreciation expense at December 31, 2022 is
[($128,000 − $8,000) ÷ 10] × 7/12 = $7,000
[(Cost - sal. val.) ÷ 10 yrs.] × 7/12
ACME Company purchases a new delivery van for $70,000. The sales taxes are $5,250. The logo of the company is painted on the side of the van for $1,400. The van’s annual license is $140. The van undergoes safety testing for $250. What does ACME record as the cost of the new van?
$70,000 + $5,250 + $1,400 + $250 = $76,900
Pur. price + sal. tax + logo + test
ACME Company’s land improvements should be depreciated over the useful life of the
land improvements.
ACME’s patent should
be amortized over its useful life or 20 years, whichever is shorter.
Additions to plant assets are:
capital expenditures.
A gain or loss on disposal of a plant asset by Omega Company is determined by comparing the
book value of the asset with the proceeds received from its sale.
A loss on disposal of a plant asset is reported in Omega Company’s financial statements
in the Other Expenses and Losses section of the income statement.
Beta Company’s intangible assets
should be reported as a separate classification on the balance sheet.
Beta Company’s recording of depreciation each period is necessary in accordance with the
expense recognition principle.
Corrieten Company purchased equipment and incurred these costs:
Cash price $24,000
Sales Tax 1,200
Installation and testing 400
Insurance during transit 200
Total costs $25,800
What amount should be recorded as the cost of the equipment?
$25,800.
Cost allocation of an Alpha Company intangible asset is referred to as
amortization.
Depreciation is a process of:
cost allocation.
If a company reports goodwill as an intangible asset on its books, what is the one thing you know with certainty?
The company purchased another company.
Totals of major classes of assets can be shown in the balance sheet, with asset details disclosed in the notes to the financial statements (T/F)
True
Omega Company sells a plant asset that originally cost $375,000 for $125,000 on December 31, 2022. The accumulated depreciation account had a balance of $150,000 after the current year’s depreciation of $37,500 had been recorded. The company should recognize a
$125,000 − ($375,000 − $150,000) = ($100,000)
(Sell. price - (cost − acc. dep.))
$100,000 loss on disposal.
One characteristic of an Alpha Company’s plant asset is that it is
used in the operations of a business.
On November 1, 2021, ACME Company places a new asset into service. The cost of the asset is $90,000 with an estimated 5-year life and $10,000 salvage value at the end of its useful life. What is the depreciation expense for 2022 if ACME Company uses the straight-line method of depreciation?
[($90,000 − $10,000) ÷ 5] = $16,000
[(Cost - sal. val.) ÷ 5 yrs.]
The balance in ACME Company’s Accumulated Depreciation account represents the
amount charged to expense since the acquisition of the plant asset.
The book value of an asset at Omega Company is equal to the
asset’s cost less accumulated depreciation.
The book value of an Omega Company plant asset is the difference between the
cost of the asset and the accumulated depreciation to date.
The term applied to the periodic expiration of Omega Company’s plant asset’s cost is
depreciation.
When Beta Company sells an asset, a gain is realized when the
sale price exceeds the book value of the asset sold.
When there is a change in estimated depreciation
current and future years’ depreciation should be revised.
Research and development costs are expensed when incurred, except when the research and development expenditures result in a successful patent. (T/F)
False
What is a basic principle of cash management?
Increase the speed of receivables collection
Which of the following is not an element of fraud in a business environment?
Risk assessment
(Financial pressure
Rationalization
Opportunity) Fraud
What is something not considered to be a cash equivalent?
Restricted cash funds
What item may cause the cash balance per bank to differ from the cash balance per books?
Time lags and bank errors
Which of the following of Alpha's assets does not decline in service potential over the course of its useful life? A. Equipment B. Land C. Fixtures D. Furnishings
B. Land
What would not be classified as an intangible asset on ACME’s balance sheet?
Employees
What is not an objective of internal control?
To guarantee the accuracy of the accounting records
What is not considered a part of the cost of a truck ACME Company purchased for business use?
Truck license
A current liability is a debt that can reasonably be expected to be paid
within one year, or the operating cycle, whichever is longer.
Bonds issued by ACME Co. that may be exchanged for common stock at the option of the bondholders are called
convertible bonds.
Bonds issued by Omega Company that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer are called
callable bonds.
Bonds that are issued against the general credit of the borrower are called
debenture bonds.
Howard Corporation issued a 20-year mortgage note payable on January 1, 2022. At December 31, 2022, the unpaid principal balance will be reported as:
part current and part long-term liability.
If the market rate of interest is greater than the contractual rate of interest, bonds will sell
at a discount.
If the market rate of interest is lower than the contractual interest rate, the bonds will sell at
a premium.
JD Company borrowed $70,000 on December 1 on a 6-month, 12% note. At December 31:
both the note payable and the interest payable are current liabilities.
Laurel Inc. issues 10-year bonds with a maturity value of $200,000. If the bonds are issued at a premium, this indicates that:
the contractual interest rate exceeds the market interest rate.
Madson Company typically sells subscriptions on an annual basis and publishes six times a year. The magazine sells 90,000 subscriptions in January at $10 each. What entry is made in January to record the sale of the subscriptions?
Cash 900,000
Unearned Subscription Revenue 900,000
Metro’s Unearned Rent Revenue is
reported as a current liability.
Moss County Bank agrees to lend the Sadowski Brick Company $500,000 on January 1. Sadowski Brick Company signs a $500,000, 6%, 9-month note. The entry made by Sadowski Brick Company on January 1 to record the proceeds and issuance of the note is
Cash 500,000
Notes Payable 500,000
On January 1, 2022, Kelly Corp. issues $200,000, 5-year, 7% bonds at face value. The entry to record the issuance of the bonds would include a:
credit to Bonds Payable for $200,000.
Prescher Corporation issued bonds that pay interest every January 1. The entry to accrue bond interest at December 31 includes a
credit to Interest Payable.
Alpha Company’s bonds that are secured by real estate are termed
secured bonds.
Sales taxes collected by Costco are reported as
current liabilities.
Secured bonds are bonds that
have specific assets of the issuer pledged as collateral.
The contractual rate of interest of a bond issued by Alpha is usually stated as a(n)
annual rate.
The current portion of Alpha’s long-term debt should
be reclassified as a current liability.
The market interest rate:
is the rate investors demand for loaning funds.
The time period for classifying a liability as current is one year or the operating cycle, whichever is:
longer.
To be classified as a current liability, a debt must be expected to be paid ,within
1 year, the operating cycle, or whichever is longer.
What term is used for bonds that have specific assets pledged as collateral?
Secured bonds.
