Chapter 10 Take Home Review

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					Review Questions – Chapter 10

1. Land acquired so it can be resold in the future is listed in the balance sheet as a(n)
      a. fixed asset
      b. current asset
      c. investment
      d. intangible asset
       ANS: C                 DIF: Easy               OBJ: 10-01


2. A building with an appraisal value of $147,000 is made available at an offer price of $152,000. The
      purchaser acquires the property for $35,000 in cash, a 90-day note payable for $45,000, and a mortgage
      amounting to $65,000. The cost basis recorded in the buyer's accounting records to recognize this
      purchase is
      a. $147,000
      b. $152,000
      c. $145,000
      d. $110,000
       ANS: C                 DIF: Moderate           OBJ: 10-01


3. All of the following below are needed for the calculation of straight-line depreciation except
       a. cost
       b. residual value
       c. estimated life
       d. units produced
       ANS: D                 DIF: Easy               OBJ: 10-02


4. When the amount of use of a fixed asset varies from year to year, the method of determining depreciation
     expense that best matches allocation of cost with revenue is
     a. declining-balance
     b. straight-line
     c. units-of-production
     d. MACRS
       ANS: C                 DIF: Moderate           OBJ: 10-02


5. All of the following below are needed for the calculation of straight-line depreciation except
       a. cost
       b. residual value
       c. estimated life
       d. units produced
       ANS: D                 DIF: Easy               OBJ: 10-02
6. On December 31, Strike Company has decided to sell one of its batting cages. The initial cost of the
      equipment was $215,000 with an accumulated depreciation of $185,000. Depreciation has been taken up
      to the end of the year. The company found a company that is willing to buy the equipment for $55,000.
      What is the amount of the gain or loss on this transaction?
      a. Cannot be determined
      b. No gain or loss
      c. Gain of $25,000
      d. Gain of $55,000
       ANS: C           DIF:     Easy    OBJ:    10-03

7. The term applied to the amount of cost to transfer to expense resulting from a decline in the utility of
      intangible assets is
      a. amortization
      b. depletion
      c. depreciation
      d. allocation
       ANS: A                  DIF: Easy             OBJ: 10-05

8. Xtra Company purchased goodwill from Argus for $144,000. Argus had developed the goodwill over 6
       years. How much would Xtra amortize the goodwill for its first year?
       a. $8,640
       b. $24,000
       c. Goodwill is not amortized.
       d. Not enough information.
       ANS: C                  DIF: Difficult        OBJ: 10-05

9. Equipment with a cost of $160,000, an estimated residual value of $40,000, and an estimated life of 15 years
      was depreciated by the straight-line method for 4 years. Due to obsolescence, it was determined that the
      useful life should be shortened by 3 years and the residual value changed to zero. The depreciation
      expense for the current and future years is
      a. $11,636
      b. $16,000
      c. $11,000
      d. $8,000
       ANS: B                  DIF: Difficult        OBJ: 10-02

10. If a fixed asset, such as a computer, were purchased on January 1st for $3,750 with an estimated life of 3
       years and a salvage or residual value of $150, the journal entry for monthly expense under straight-line
       depreciation is:
       (Note: EOM indicates the last day of each month.)
       a. EOM Depreciation Expense                        100
                        Accumulated Depreciation                     100
       b. EOM Depreciation Expense                       1,200
                        Accumulated Depreciation                    1,200
       c. EOM Accumulated Depreciation                     1,200
                        Depreciation Expense                      1,200
       d. EOM Accumulated Depreciation                      100
                        Depreciation Expense                       100
ANS: A   DIF: Easy   OBJ: 10-02

				
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