Chapter 08 Accounting for Long-Term Assets - DOC by 669p9n


									Chapter 01
1. The primary objective of financial accounting is to provide general-purpose financial
   statements to help external users analyze and interpret an organization's activities.

2. The business entity assumption requires that a business be accounted for separately
   from other business entities, including its owner or owners.

3. The four basic financial statements include the balance sheet, income statement,
   statement of retained earnings and statement of cash flows.

4. A balance sheet covers a period of time, such as a month or year.

5. The income statement shows the financial position of a business on a specific date.

Chapter 02
6. An account is a record of increases and decreases in a specific asset, liability, equity,
   revenue or expense item.

7. Debit means the right-hand side of any account.

8. In a double-entry accounting system, total amount debited must always equal total
   amount credited.

9. A debit entry is always favorable.

10. Posting is the transfer of the information from each journal entry to the ledger.

11. Debits increase both asset and expense accounts.

Chapter 08
12. Depreciation measures the actual decline in market value of an asset.

13. Accumulated depreciation represents funds set aside to buy new assets when the assets
    currently owned are replaced.

14. An assets' cost includes all normal and reasonable expenditures necessary to get the
    asset in place and ready for its intended use.

15. The most frequently used method of depreciation is the straight-line method.

16. Extraordinary repairs are expenditures extending the asset's useful life beyond its
    original estimate and are capital expenditures because they benefit future periods.

17. An ore deposit costing $800,000 is expected to produce 1,600,000 tons of ore. A total
    of 70,000 tons are mined and sold in the current year. The depletion expense for the
    current year is $35,000.

18. Goodwill is the amount by which a company's value exceeds the value of its
    individual assets and liabilities.

Chapter 09
19. Current liabilities are obligations not due within one year or the company's operating
    cycle, whichever is longer.

20. A company can have a liability even if the amount of the obligation is unknown.

21. When companies pay the government collected sales tax, sales taxes payable is
    credited and cash is debited.

22. The Orlando Magic received $6 million cash in advance season ticket sales. Prior to
    the beginning of the basketball season, these sales are recorded as a credit to unearned
    season ticket revenue.

23. Accounting for contingent liabilities covers three categories. (1) The future event is
    probable and the amount cannot be reasonably estimated. (2) The future event is
    remote or unlikely to recur. (3) The likelihood of the liability to occur is impossible.

24. Promissory notes are nonnegotiable, which means they cannot be transferred from
    party to party.

25. Gross pay is also called take-home pay.

26. Employers must pay FICA taxes that are equal to amount being withheld from their

27. The state unemployment tax rates applied to an employer are adjusted according to an
    employer's merit rating.

Chapter 10
28.   Bonds may only be issued on an interest payment date.

29. Operating leases are long-term or non-cancelable leases in which the lessor transfers
    all the risks and rewards of ownership to the lessee.

30. An advantage of bond financing is that issuing bonds does not affect owner control.

31. Callable bonds have an option exercisable by the issuer to retire them at a stated dollar
    amount prior to maturity.

32. A bond's par value is not necessarily the same as its market value.

33. A discount on bonds payable occurs when a company issues bonds with an issue price
    less than par value.

34. A premium on bonds occurs when bonds carry a contract rate greater than the market
    rate at issuance.

Chapter 11
35. A corporation is a separate legal entity from its owners.

36. Authorized stock is the total number of shares outstanding.

37. Common stock always carries a preference for receiving dividends over preferred

38. Earnings per share is calculated by dividing the total number of common shares
    outstanding by net income.

39. The price-earnings ratio reveals information about the stock market's expectations for
    a company's future growth in earnings, dividends and economic opportunities.

40. A debit balance in retained earnings is often referred to as a retained earnings deficit.

41. When a company declares of cash dividends retained earnings is reduced.

Chapter 01
42. Which of the following accounting principles dictates when expenses are recognized?
    A. Revenue recognition principle
    B. Business entity principle
    C. Matching principle
    D. Full disclosure principle

43. Which of the following elements are found on the income statement?
    A. Cash
    B. Accounts Receivable
    C. Retained Earnings
    D. Salaries Expense

44. Which of the following elements are found on the Balance Sheet?
       A. Service Revenue
       B. Net Income
       C. Utilities Expense
       D. Retained Earnings

45. A parcel of land is: offered for sale at $150,000, assessed for tax purposes at $95,000,
        recognized by its purchasers as being worth $140,000 and purchased for
        $137,000. The land should be recorded in the purchaser's books at:
        A. $95,000
        B. $137,000
        C. $140,000
        D. $150,000

46. Revenues are:
    A. The same as net income
    B. Resources owned or controlled by a company
    C. Increases in retained earnings from a company's earning activities
    D. The costs of assets or services used

Chapter 02
47. A record of the increases and decreases in a specific asset, liability, equity, revenue or
    expense is a(n):
    A. Journal
    B. Posting
    C. Trial balance
    D. Account

48. A ledger is:
    A. A record containing increases and decreases in a specific asset, liability, equity,
        revenue or expense item
    B. A journal in which transactions are first recorded
    C. A collection of documents that describe transactions and events during the
        accounting process
    D. A list of all accounts with their debit balances at a point in time

49. A debit is:
    A. An increase in an account
    B. The right-hand side of a T-account
    C. A decrease in an account
    D. The left-hand side of a T-account

50. An account balance is:
    A. The total of the credit side of the account

      B. The total of the debit side of the account
      C. The difference between the total debits and total credits for an account
         including the beginning balance
      D. Always a credit

51. The Fireside Country Inn is a very popular destination for tourists. The Inn requires
    guests to make reservations at least two months in advance of their stay. A twenty
    percent down payment is required at the time the reservation is made. When should
    this inn recognize room rental revenue?
    A. On the date the reservation is received
    B. On the date the money for the reservation is received
    C. On the date the guests stay in the inn
    D. Once all cash has been received

52.   73. Businesses can take all of the following forms except:
      A. Sole proprietorship
      B. Common stock
      C. Partnership
      D. Corporation

Chapter 08
53. Depreciation:
    A. Measures the decline in market value of an asset
    B. Measures physical deterioration of an asset
    C. Is the process of allocating to expense the cost of a plant asset
    D. Is an outflow of cash from the use of a plant asset
    E. Is applied to land

54. Obsolescence:
    A. Occurs when an asset is at the end of its useful life
    B. Refers to a plant asset that is no longer useful in producing goods and services
    C. Refers to the insufficient capacity of a company's plant assets to meet the
    company's productive demands
    D. Occurs when an asset's salvage value is less than its replacement cost
    E. Does not affect plant assets

55. A change in an accounting estimate is:
    A. Reflected in past financial statements
    B. Reflected in future financial statements and also requires modification of past
    C. A change in a calculated amount that is part of financial statements that results
    from new information or subsequent developments and from better insight or
    improved judgment
    D. Not allowed under current accounting rules
    E. Considered an error in the financial statements

56. A company's annual accounting period ends on December 31. During the current year
    a depreciable asset which cost $24,000 was purchased on October 1. The asset has a
    $1,000 estimated salvage value. The company uses straight-line depreciation and
    expects the asset to have a 6-year life. What is the total depreciation expense for the
    current year?
    A. $3,833.33
    B. $958.33
    C. $4,000.00
    D. $1,000.00
    E. $1,041.67

57. Total asset turnover is used to evaluate:
    A. The efficiency of management's use of assets to generate sales
    B. The need for asset replacement
    C. The number of times operating assets were sold during the year
    D. The cash flows used to acquire assets
    E. The relation between asset cost and book value

58. A company purchased property for $100,000. The property included a building, a
    parking lot and land. The building was appraised at $62,000; the land at $45,000 and
    the parking lot at $18,000. The value of the land that will be included in the
    accounting record is:
    A. $0
    B. $36,000
    C. $42,000
    D. $45,000
    E. $100,000

59. Extraordinary repairs:
    A. Are revenue expenditures
    B. Extend an asset's useful life beyond its original estimate
    C. Are credited to accumulated depreciation
    D. Are additional costs of plant assets that do not materially increase the asset's life
    E. Are expensed as incurred

60. A company sold a machine that originally cost $100,000 for $60,000 cash. The
    accumulated depreciation on the machine was $40,000. The company should
    recognize a:
    A. $0 gain or loss
    B. $20,000 gain
    C. $20,000 loss
    D. $40,000 loss
    E. $60,000 gain

61. Amortization:
    A. Is the systematic allocation of the cost of an intangible asset to expense over its
    estimated useful life

    B. Is the process of allocating to expense the cost of a plant asset to the accounting
    periods benefiting from its use
    C. Is the process of allocating the cost of natural resources to periods when they are
    D. Is an accelerated form of expensing an asset's cost
    E. Is the same as depletion

62. A leasehold:
    A. Is a short-term rental agreement
    B. Is the same as a patent
    C. Are the rights granted to the lessee by the lessor of a lease
    D. Is recorded as rent expense
    E. Is an investment asset

Chapter 09
63. Obligations due to be paid within one year or within the company's operating cycle,
    whichever is longer, are:
    A. Current assets
    B. Current liabilities
    C. Earned revenues
    D. Operating cycle liabilities
    E. Bills

64. Accounts payable:
    A. Are amounts owed to suppliers for products and/or services purchased on credit
    B. Are long-term liabilities
    C. Are estimated liabilities
    D. Do not include specific due dates
    E. Must be paid within 30 days

65. Sales taxes payable:
    A. Is an estimated liability
    B. Is a contingent liability
    C. Is a current liability for retailers
    D. Is a business expense
    E. Is a long-term liability

66. A contingent liability:
    A. Is always of a specific amount
    B. Is a potential obligation that depends on a future event arising out of a past
    transaction or event
    C. Is an obligation not requiring future payment
    D. Is an obligation arising from the purchase of goods or services on credit
    E. Is an obligation arising from a future event

67. The difference between the amount received from issuing a note payable and the
    amount repaid is referred to as:
    A. Interest
    B. Principle
    C. Face Value
    D. Cash
    E. Accounts Payable

68. A short-term note payable:
    A. Is a written promise to pay a specified amount on a definite future date within one
    year or the company's operating cycle, whichever is longer
    B. Is a contingent liability
    C. Is an estimated liability
    D. Is not a liability until the due date
    E. Cannot be used to extend the payment period for an account payable

69. On December 1, Martin Company signed a $5,000 3-month 6% note payable, with the
    principle plus interest due on March 1 of the following year. What amount of interest
    expense is accrued at December 31 on the note?
    A. $0
    B. $25
    C. $50
    D. $75
    E. $300

70. An estimated liability:
    A. Is an unknown liability of a certain amount
    B. Is a known obligation of an uncertain amount that can be reasonably estimated
    C. Is a liability that may occur if a future event occurs
    D. Can be the result of a lawsuit
    E. Is not recorded until the amount is known for certain

71. Employee vacation benefits:
    A. Are estimated liabilities
    B. Are contingent liabilities
    C. Are recorded as an expense when the employee takes a vacation
    D. Are recorded as an expense when the employee retires
    E. Increase net income

72. A company sold $12,000 worth of trampolines with an extended warranty. It estimates
    that 2% of these sales will result in warranty work. The company should:
    A. Consider the warranty expense a remote liability since the rate is only 2%
    B. Recognize warranty expense at the time the warranty work is performed
    C. Recognize warranty expense and liability in the year of the sale
    D. Consider the warranty expense a contingent liability
    E. Recognize warranty liability when the company purchases the trampolines

Chapter 10
73. A company issues at 9% bonds at par with a par value of $100,000 on April 1, which
    is 4 months after the most recent interest date. How much total cash interest is
    received on April 1 by the bond issuer?
    A. $750
    B. $5,250
    C. $1,500
    D. $3,000
    E. $6,000

74. A company issues at par 7% bonds with a par value of $500,000 on June 1, which is 5
    months after the most recent interest date. How much total cash interest is received on
    May 1 by the bond issuer?
    A. $0
    B. $2,916.66
    C. $100,000.00
    D. $14,583.33
    E. $35,000.00

75. Operating leases differ from capital leases in that
    A. For a capital lease the lessee records the lease payments as rent expense, but for an
    operating lease the lessee reports the lease payments as depreciation expense
    B. For an operating lease the lessee depreciates the asset acquired under lease, but for
    the capital lease the lessee does not
    C. Operating leases create a long-term liability on the balance sheet, but capital leases
    do not
    D. Operating leases do not transfer ownership of the asset under the lease, but capital
    leases often do
    E. Operating lease payments are generally greater than capital lease payments

76. A bond traded at 102 ½ means that:
    A. The bond pays 2.5% interest
    B. The bond traded at $1,025 per $1,000 bond
    C. The market rate of interest is 2.5%
    D. The bonds were retired at $1,025 each
    E. The market rate of interest is 2 ½% above the contract rate

77. Secured bonds:
    A. Are also referred to as debentures
    B. Have specific assets of the issuing company pledged as collateral
    C. Are backed by the issuer's bank
    D. Are subordinated to those of other unsecured liabilities
    E. Are the same as sinking fund bonds

78. The contract between the bond issuer and the bondholders, which identifies the rights
    and obligations of the parties is called a(n):
    A. Debenture
    B. Bond indenture
    C. Mortgage
    D. Installment note
    E. Mortgage contract

79. A company issues 9%, 20-year bonds with a par value of $750,000. The current
    market rate is 9%. The amount of interest owed to the bondholders for each
    semiannual interest payment is.
    A. $0
    B. $33,750
    C. $67,500
    D. $750,000
    E. $1,550,000

80. On January 1, 2010, a company issued and sold an $850,000, 6%, 5-year bond payable
    and received proceeds of 825,000. Interest is payable each June 30 and December 31.
    The company uses the straight-line method to amortize the discount. The journal entry
    to record the first interest payment is:






81. Bonds that give the issuer an option of retiring them prior to the date of maturity are:
    A. Debentures
    B. Serial bonds
    C. Sinking fund bonds
    D. Registered bonds
    E. Callable bonds

82. A corporation borrowed $125,000 cash by signing a 5-year, 9% installment note
    requiring annual payments each December 31 of accrued interest plus equal amounts
    of principal. What journal entry would the issuer record for the first payment?






Chapter 11
83. A proxy is:
    A. A legal document that gives a designated agent of a stockholder the power to vote
    the stock
    B. A contractual commitment by an investor to purchase unissued shares of stock
    C. An amount of assets defined by state law that stockholders must invest and leave
    invested in a corporation
    D. The right of common stockholders to protect their proportionate interests in a
    corporation by having the first opportunity to purchase additional shares of common
    stock issued by the corporation
    E. An arbitrary amount assigned to no-par stock by the corporation's board of directors

84. The board of directors of a corporation:
    A. Are elected by the corporate registrar
    B. Are responsible for day-to-day operations of the business
    C. Do not have the power to bind the corporation to contracts, due to lack of mutual
    D. May not also be executive officers of the corporation, due to the separate entity
    E. Are responsible for and have final authority for managing corporate activities

85. Par value of a stock refers to the:
    A. Issue price of the stock
    B. Value assigned to a share of stock by the corporate charter
    C. Market value of the stock on the date of the financial statements
    D. Maximum selling price of the stock
    E. Dividend value of the stock

86. When all of the authorized shares have the same rights and characteristics, the stock is
    A. Preferred stock
    B. Common stock
    C. Par value stock
    D. Stated value stock
    E. No-par value stock

87. Stockholders' equity consists of:
    A. Long-term assets
    B. Contributed capital and retained earnings
    C. Contributed capital and par value
    D. Retained earnings and cash
    E. Premiums and discounts

88. Owners of preferred stock often do not have:
    A. Ownership rights to assets of the corporation
    B. Voting rights
    C. Preference to dividends
    D. The right to sell their stock on the open market
    E. Preference to assets at liquidation

89. Changes in accounting estimates are:
    A. Considered accounting errors
    B. Reported as prior period adjustments
    C. Accounted for with a cumulative "catch-up" adjustment
    D. Extraordinary items
    E. Accounted for in current and future periods

90. The amount of income earned per share of a company's common stock is known as:
    A. Restricted retained earnings per share
    B. Earnings per share
    C. Continuing operations per share
    D. Dividends per share
    E. Book value per share

91. A company issued 60 shares of $100 par value stock for $7,000 cash. The total amount
    of contributed capital in excess of par is:
    A. $100
    B. $600
    C. $1,000

    D. $6,000
    E. $7,000

92. A premium on common stock:
    A. Is the amount paid in excess of par by purchasers of newly issued stock
    B. Is the difference between par value and issue price when the amount paid is below
    C. Represents profit from issuing stock
    D. Represents capital gain on sale of stock
    E. Is prohibited in most states

Chapter 08
93. BeeCorp bought a machine paying $120,000. Estimated life is 60 months. Using
    straight-line depreciation prepare the journal entry to record ONE MONTH’S

94. JayCo is disposing of a machine fully depreciated machine with a cost of $25,000.
    Prepare the entry to dispose of the machine.

Chapter 9
95. WalMart sold a TV collecting $600 PLUS 8% sales tax. Prepare WalMarts entry
    recording the entire sale.

96. BillyBobCo sends a check to pay off his $1,000, 12%, 6 month note. Prepare
    BillyBob’s entry to pay off the note he owes. (He did not accrue interest each month)

Chapter 10
97. JimCo sells $50,000 worth of machines. JimCo expects 8% warranty claims for these
    machines. Prepare the journal entry for the anticipated warranty costs.

98. GaGaCorp Company issued $1,000,000 of 6% bonds at par. Prepare the entry to pay
    the first semi-annual interest payment.

Chapter 11
99. DeeCorp issued 10,000 shares of $10 par stock at $17. Prepare the entry to issue the

100. ZeeCo declares a $100,000 cash dividend to its shareholders. Prepare the entry, on the
     date of declaration date, for the dividend. (Note: the dividend will actually be paid out
     next month).


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