Reference no: EM132851143

Questions -

Q1. On January 2, 2017, Hannah Company sold a machine for $1,000 that it had used for several years. The machine cost $12,000 and had accumulated depreciation of $9,000 at the time of sale. What gain or loss will be reported on the income statement for the sale of the machine?

a. Loss of $2,000

b. Loss of $11,000

c. Gain of $3,000

d. Gain of $2,000

Q2. A building with an appraisal value of $250,000 is made available at an offer price of $180,000. The purchaser acquires the property for $35,000 in cash, a 90-day note payable for $65,000, and a mortgage amounting to $63,000. The cost basis recorded in the buyer's accounting records to recognize this purchase is

a. $180,000.

b. $163,000.

c. $100,000.

d. $250,000.

Q3. Wexford Co. purchased a new delivery truck at the beginning of 2017. The truck has a cost of $37,000, an estimated life of five years, and an estimated residual value of $7,000. A full year's depreciation expense is to be recorded in 2017. The truck was driven 20,000 miles during 2017 and 24,000 miles during 2018. The number of expected miles over five years is 100,000. Refer to the information about Wexford Co.

Wexford Co. wants to use the depreciation method that will result in the highest depreciation expense for 2017. Which method should be used?

a. Straight-line

b. Double-declining-balance

c. Units-of-production

d. All methods create the same income in 2017.

Q4. McLaren Corp. incurred the following costs to acquire and prepare land during 2017 for a new parking lot: purchase price for land, $800,000; cost of paving, $40,000; and lighting for the parking lot, $20,000. How much should McLaren record in the Land Improvements account?

a. $60,000

b. $90,000

c. $30,000

d. $40,000

Q5. Using different depreciation methods for book purposes versus tax purposes for the same asset is

a. not allowed since the amount can only be calculated one way or the other, not both.

b. the direct result of the differing goals of financial and tax accounting.

c. contrary to GAAP.

d. against the Internal Revenue Code, and as such, against the law.

Q6. Tarkington Beers, Inc. purchased the most popular and well-known pub in a college town. Its purchase price was $1,200,000. The appraisers determined that the land should be valued at $400,000, the building at $500,000, and the equipment at $200,000. Which of the following statements is correct?

a. Tarkington Beers, Inc. paid too much for the business and needs to record a loss.

b. Tarkington Beers, Inc. should record only the appraised value of the assets.

c. Tarkington Beers, Inc. needs to adjust the value of the assets in proportion to their appraised value so that the total of the assets equals the purchase price.

d. Tarkington Beers, Inc. needs to record goodwill of $100,000.

Q7. Newco Publishing Company purchased equipment at the beginning of 2017 for $200,000. The company decided to depreciate the equipment over an eight-year period using the straight-line method. The company estimated the equipment's residual value at $20,000. The adjustment for depreciation expense for 2017 will

a. increase Depreciation Expense and increase Accumulated Depreciation for $22,500.

b. increase Depreciation Expense and decrease Equipment for $22,500.

c. increase Accumulated Depreciation and decrease Equipment for $25,000.

d. increase Depreciation Expense and increase Accumulated Depreciation for $25,000.

Q8. The effect of recording depreciation for the year is a(n)

a. decrease in assets but no change in owners' equity.

b. decrease in net income and no change in assets.

c. increase in assets and an increase in net income.

d. decrease in assets and a decrease in net income.

Q9. Wind Chime Co. and Fire Hut Co. each purchased identical equipment having an estimated useful life of ten years for the same price. Wind Chime uses the straight-line depreciation method and Fire Hut uses the double-declining-balance method of depreciation. Assuming the two entities are similar in all other respects, which of the following statements is correct?

a. Fire Hut's equipment's book value will be less than Wind Chime's equipment's book value at the end of Year 2.

b. Wind Chime's depreciation expense will be greater in Year 1 than Fire Hut's depreciation expense.

c. Wind Chime's net income will be greater than Fire Hut's net income in Year 9.

d. Fire Hut's equipment's book value will be greater than Wind Chime's equipment's book value at the end of Year 1.

Q10. Norwood, Inc. purchased a crane at a cost of $80,000. The crane has an estimated residual value of $5,000 and an estimated life of eight years, or 12,500 hours of operation. The crane was purchased on January 1, 2017, and was used 2,700 hours in 2017 and 2,600 hours in 2018. Refer to the information for Norwood, Inc.

Based on this information, what method of depreciation will produce the maximum depreciation expense in 2017?

a. Units-of-production

b. Double-declining-balance

c. Straight-line

d. All methods produce the same expense in 2017.

Q11. Central National Bank recently acquired a new computer system. Which of the following costs associated with the computer should not be recorded in the Equipment account?

a. System programmer wages for personnel hired to install the system.

b. Insurance coverage covering the transport period from the manufacturer.

c. Replacement of several circuit boards damaged during installation.

d. Installation of a backup power source required for the computer.

Q12.Interest is capitalized when incurred in connection with the construction of plant assets because

a. many plant assets last longer than 20 years.

b. the decision to purchase a plant asset is a business decision separate from the financing decision.

c. interest is considered a part of the acquisition cost of the related plant asset.

d. interest is considered an expense of the period.

Q13. How are the cash flow effects from the purchase and sale of intangible assets reported on a statement of cash flows?

a. As operating activities

b. As financing activities

c. As investing activities

d. They are not reported on a statement of cash flows.

Q14. Many companies use accelerated depreciation for

a. tax purposes because it results in a larger net income in the early years of a plant asset's life.

b. financial reporting purposes because depreciation is not allowed for tax purposes.

c. tax purposes because of a desire to report higher expenses in early years in order to pay lower taxes.

d. financial reporting purposes and a different method for tax purposes.

Q15. Why is depreciation added to net income in the Operating Activities category of the statement of cash flows when the indirect method is used?

a. Depreciation expense is a negative amount in the Investing Activities section and therefore is a positive amount in the Operating Activities section.

b. Depreciation reduced the book value of plant assets and, therefore, must be reported as an investing activity.

c. Depreciation was deducted in arriving at net income on the accrual basis of accounting; however, it did not require the use of cash.

d. Depreciation provides cash and therefore must be added to net income.

Q16. Which of the following statements is not true?

a. Under IFRS, fair market values for intangibles require an active market.

b. FASB standards require all research and development costs to be expensed.

c. International accounting standards are more flexible in allowing the use of fair market values for intangible assets.

d. IFRS require all research and development costs to be expensed.

Q17. Norwood, Inc. purchased a crane at a cost of $80,000. The crane has an estimated residual value of $5,000 and an estimated life of eight years, or 12,500 hours of operation. The crane was purchased on January 1, 2017, and was used 2,700 hours in 2017 and 2,600 hours in 2018. Refer to the information for Norwood, Inc.

What amount will Norwood, Inc. report as depreciation expense over the eight-year life of the equipment?

a. $60,000

b. $75,000

c. $80,000

d. $72,000

Q18. Barnhill, Inc. uses straight-line depreciation for its equipment with an estimated useful life of ten years and zero residual value. The CEO points out that the equipment will last much longer than ten years, perhaps up to 20 years. What is the impact on earnings per share and net income of depreciating equipment over 20 years rather than ten years?

a. Earnings per share will increase and net income will decrease.

b. Earnings per share will decrease and net income will increase.

c. Both earnings per share and net income will increase.

d. Both earnings per share and net income will decrease.

Q19. The following information is for Chambersburg Corp. for 2018 and 2017. Chambersburg uses the straight-line depreciation method.

	2018	2017
Property, plant, and equipment	$250,000	$190,000
Accumulated depreciation	100,000	85,000
Depreciation expense	62,500	47,500
Net sales	1,000,000	900,000
Average total assets	625,000	475,000

Refer to the information for Chambersburg Corp.

What is the asset turnover ratio for Chambersburg for 2018 (rounded to two decimal places)?

a. 4.55 times

b. 4.00 times

c. 1.82 times

d. 1.60 times

Q20. Select the financial statement on which the user would most likely find the answer to the question given. (Select all that apply.) How much depreciation expense did the company report during the year?

a. Statement of cash flows

b. Balance sheet

c. Statement of retained earnings

d. Income statement

Q21. Carrington, Inc. recorded $97,000 in salary expense for January 2017. Its beginning balance in salaries payable was $3,000, and its ending balance was $4,000. How much was paid in cash for salaries during January 2017?

a. $97,000

b. $98,000

c. $96,000

d. $99,000

Q24. To calculate the future value of an amount that is invested at 12%, compounded quarterly, at the end of three years, the interest factor used would be

a. 12% for three periods.

b. 1% for 12 periods.

c. 3% for 12 periods.

d. 3% for four periods.

Q25. A company's balance sheet shows the account, Notes Payable. This resulted from a loan made by the company's bank. If the end-of-year balance in the Notes Payable account exceeds the beginning-of-year balance by $5,000, this is shown on the cash flow statement as an

a. outflow of cash of $5,000 in the Financing Activities category.

b. outflow of cash of $5,000 in the Operating Activities category.

c. inflow of cash of $5,000 in the Operating Activities category.

d. inflow of cash of $5,000 in the Financing Activities category.

Q26. Match each of the following terms pertaining to liabilities to their definitions.

a) Current liability

b) Accounts payable

c) Current maturities of long-term liabilities

d) Accrued liabilities

1) The portion of a long-term liability that will be paid within one year of the balance sheet date.

2) Accounts that will be satisfied within one year or the next operating cycle.

3) A liability that has been incurred but has not been paid as of the balance sheet date.

4) Amounts owed for the purchase of inventory, goods, or services acquired in the normal course of business.

Q27. Current liabilities are defined as those liabilities that will be satisfied

a. within one year or within the operating cycle, whichever is shorter.

b. within one year.

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

d. by the end of the operating cycle.

Q28. If a company borrows money from its bank and the bank deducts the interest in advance, the company would record the amount of the interest deduction as

a. prepaid interest.

b. a discount.

c. a loss.

d. an expense.

Q29. Executive, Inc. has a weekly payroll of $10,000 for a five-day workweek, Monday through Friday. If December 31, the last day of the accounting year, falls on Thursday, Executive would make an adjusting entry that would

a. increase wages payable by $2,000.

b. decrease cash by $8,000.

c. decrease wages payable by $2,000.

d. increase wages expense by $8,000.

Q30. An example of a current liability that must be accrued is

a. income taxes payable.

b. revenue received in advance.

c. accounts payable.

d. current maturity of long-term debt.

Q31. On November 1, 2017, Brownsville Co. borrowed $80,000 from State Bank and signed a 12%, six-month note payable, all due at maturity. The interest on this loan is stated separately. On December 31, 2017, Brownsville Co.'s overall liability for this loan amounts to

a. $80,000.

b. $84,800.

c. $83,200.

d. $81,600.

Q33. On November 1, Greenfield Corporation borrowed $55,000 from a bank and signed a 12%, 90-day note payable in the amount of $55,000. If you assume 360 days in year, the November 30 adjustment will

a. increase discount on notes payable by $1,100 and increase interest payable by $1,100.

b. increase interest expense by $550 and increase interest payable by $550.

c. increase interest expense by $550 and decrease cash by $550.

d. increase interest expense by $550 and increase notes payable by $550.

Q34. Marsh Corporation borrowed $90,000 by issuing a 12%, six-month note payable, all due at the maturity date. After one month, the company's total liability for this loan amounts to

a. $90,000.

b. $91,800.

c. $90,450.

d. $90,900.

Q35. Almost all current liabilities affect the Operating category of the statement of cash flows, but one that does not affect cash provided by operating activities is

a. taxes payable.

b. interest payable.

c. notes payable.

d. accounts payable.

Q36. In 2017, Scranton, Inc. sold 2,000 carpets for $50 each. The carpets carry a two-year warranty for repairs. Scranton estimates that repair costs will average 3% of the total selling price. What amount would be recorded in the warranty liability account as a result of selling the carpets during 2017?

a. $50

b. $1,500

c. $3,000

d. No liability should be recorded until the carpets are returned for repairs.

Q37. A company has $200 in cash, $500 in accounts receivable, and $700 in inventory. If current liabilities are $400, then the quick ratio would be

a. 2.25 to 1.

b. 3.00 to 1.

c. 1.75 to 1.

d. 3.50 to 1.