Final Review Part 3

Question 1

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

Answer 1

($180,000 − $30,000) ÷ 5 = $30,000

(Cost - sal. val.) ÷ 5 yrs.

Question 2

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

Answer 2

[($128,000 − $8,000) ÷ 10] × 7/12 = $7,000

[(Cost - sal. val.) ÷ 10 yrs.] × 7/12

Question 3

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?

Answer 3

$70,000 + $5,250 + $1,400 + $250 = $76,900

Pur. price + sal. tax + logo + test

Question 4

ACME Company’s land improvements should be depreciated over the useful life of the

Answer 4

land improvements.

Question 5

ACME’s patent should

Answer 5

be amortized over its useful life or 20 years, whichever is shorter.

Question 6

Additions to plant assets are:

Answer 6

capital expenditures.

Question 7

A gain or loss on disposal of a plant asset by Omega Company is determined by comparing the

Answer 7

book value of the asset with the proceeds received from its sale.

Question 8

A loss on disposal of a plant asset is reported in Omega Company’s financial statements

Answer 8

in the Other Expenses and Losses section of the income statement.

Question 9

Beta Company’s intangible assets

Answer 9

should be reported as a separate classification on the balance sheet.

Question 10

Beta Company’s recording of depreciation each period is necessary in accordance with the

Answer 10

expense recognition principle.

Question 11

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?

Answer 11

$25,800.

Question 12

Cost allocation of an Alpha Company intangible asset is referred to as

Answer 12

amortization.

Question 13

Depreciation is a process of:

Answer 13

cost allocation.

Question 14

If a company reports goodwill as an intangible asset on its books, what is the one thing you know with certainty?

Answer 14

The company purchased another company.

Question 15

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)

Answer 15

True

Question 16

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

Answer 16

$125,000 − ($375,000 − $150,000) = ($100,000)
(Sell. price - (cost − acc. dep.))

$100,000 loss on disposal.

Question 17

One characteristic of an Alpha Company’s plant asset is that it is

Answer 17

used in the operations of a business.

Question 18

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?

Answer 18

[($90,000 − $10,000) ÷ 5] = $16,000

[(Cost - sal. val.) ÷ 5 yrs.]

Question 19

The balance in ACME Company’s Accumulated Depreciation account represents the

Answer 19

amount charged to expense since the acquisition of the plant asset.

Question 20

The book value of an asset at Omega Company is equal to the

Answer 20

asset’s cost less accumulated depreciation.

Question 21

The book value of an Omega Company plant asset is the difference between the

Answer 21

cost of the asset and the accumulated depreciation to date.

Question 22

The term applied to the periodic expiration of Omega Company’s plant asset’s cost is

Answer 22

depreciation.

Question 23

When Beta Company sells an asset, a gain is realized when the

Answer 23

sale price exceeds the book value of the asset sold.

Question 24

When there is a change in estimated depreciation

Answer 24

current and future years’ depreciation should be revised.

Question 25

Research and development costs are expensed when incurred, except when the research and development expenditures result in a successful patent. (T/F)

Answer 25

False

Question 26

What is a basic principle of cash management?

Answer 26

Increase the speed of receivables collection

Question 27

Which of the following is not an element of fraud in a business environment?

Answer 27

Risk assessment

(Financial pressure
Rationalization
Opportunity) Fraud

Question 28

What is something not considered to be a cash equivalent?

Answer 28

Restricted cash funds

Question 29

What item may cause the cash balance per bank to differ from the cash balance per books?

Answer 29

Time lags and bank errors

Question 30

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

Answer 30

B. Land

Question 31

What would not be classified as an intangible asset on ACME’s balance sheet?

Answer 31

Employees

Question 32

What is not an objective of internal control?

Answer 32

To guarantee the accuracy of the accounting records

Question 33

What is not considered a part of the cost of a truck ACME Company purchased for business use?

Answer 33

Truck license

Question 34

A current liability is a debt that can reasonably be expected to be paid

Answer 34

within one year, or the operating cycle, whichever is longer.

Question 35

Bonds issued by ACME Co. that may be exchanged for common stock at the option of the bondholders are called

Answer 35

convertible bonds.

Question 36

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

Answer 36

callable bonds.

Question 37

Bonds that are issued against the general credit of the borrower are called

Answer 37

debenture bonds.

Question 38

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:

Answer 38

part current and part long-term liability.

Question 39

If the market rate of interest is greater than the contractual rate of interest, bonds will sell

Answer 39

at a discount.

Question 40

If the market rate of interest is lower than the contractual interest rate, the bonds will sell at

Answer 40

a premium.

Question 41

JD Company borrowed $70,000 on December 1 on a 6-month, 12% note. At December 31:

Answer 41

both the note payable and the interest payable are current liabilities.

Question 42

Laurel Inc. issues 10-year bonds with a maturity value of $200,000. If the bonds are issued at a premium, this indicates that:

Answer 42

the contractual interest rate exceeds the market interest rate.

Question 43

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?

Answer 43

Cash 900,000

Unearned Subscription Revenue 900,000

Question 44

Metro’s Unearned Rent Revenue is

Answer 44

reported as a current liability.

Question 45

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

Answer 45

Cash 500,000

Notes Payable 500,000

Question 46

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:

Answer 46

credit to Bonds Payable for $200,000.

Question 47

Prescher Corporation issued bonds that pay interest every January 1. The entry to accrue bond interest at December 31 includes a

Answer 47

credit to Interest Payable.

Question 48

Alpha Company’s bonds that are secured by real estate are termed

Answer 48

secured bonds.

Question 49

Sales taxes collected by Costco are reported as

Answer 49

current liabilities.

Question 50

Secured bonds are bonds that

Answer 50

have specific assets of the issuer pledged as collateral.

Question 51

The contractual rate of interest of a bond issued by Alpha is usually stated as a(n)

Answer 51

annual rate.

Question 52

The current portion of Alpha’s long-term debt should

Answer 52

be reclassified as a current liability.

Question 53

The market interest rate:

Answer 53

is the rate investors demand for loaning funds.

Question 54

The time period for classifying a liability as current is one year or the operating cycle, whichever is:

Answer 54

longer.

Question 55

To be classified as a current liability, a debt must be expected to be paid ,within

Answer 55

1 year, the operating cycle, or whichever is longer.

Question 56

What term is used for bonds that have specific assets pledged as collateral?

Answer 56

Secured bonds.