Exam 3 (ACCT 2810 Chapter 7 & 8)

Other descriptive titles for fixed assets would include

both plant assets and property, plant, and equipment.

A capital expenditure would appear on the

balance sheet under fixed assets.

If a capital expenditure is treated as a revenue expenditure, then

expenses are overstated and owners' equity is understated.

If a revenue expenditure is treated as a capital expenditure, then

expenses are understated and owners' equity is overstated.

Which of the following expenditures would NOT be included in the cost of an asset?

Vandalism

A company acquired some land for $80,000 to construct a new office complex. Legal fees paid were $2,300, delinquent taxes assumed were $3,400, and $5,850 was paid to remove an old building from which salvaged materials sold for $1,950. What is the cost ba

$89,600

All amounts paid to get an asset in place and ready for use are referred to as

cost of an asset.

The removal of an old building to make the land ready for its intended use is charged to

land.

Expenditures that add to the utility of fixed assets for more than one accounting period are

capital expenditures.

Which of the following should be included in the acquisition cost of a piece of equipment?

Transportation costs, Installation costs, & testing costs prior to placing the equipment into production

Which of the following is an example of a capital expenditure?

Replacing an engine in a company car

Land improvements include

fences, trees and shrubs, & outdoor lighting.

Which of the following is NOT a fixed asset?

Land held for investment

Book value is defined as

cost less accumulated depreciation.

What type of depreciation occurs when an asset can no longer provide services at the level originally intended?

Functional depreciation

Salvage value has a similar meaning as

both residual value and scrap value.

Depreciable cost equals

cost less residual value.

Which of the following is NOT characteristic of the accumulated depreciation account?

Accumulated depreciation represents cash reserved for asset replacement.

Which method of depreciation considers residual value in computing the normal periodic depreciation?

Straight-line

The accounting term depreciation measures

the amount of asset cost allocated to expense over periods benefited.

Accelerated depreciation is primarily used for

income tax purposes.

Recording depreciation

decreases net income and has no effect on cash flows.

To measure depreciation, all of the following must be known EXCEPT

market value.

A machine was purchased for $60,000. It has a useful life of 5 years and a residual value of $6,000. Under the straight-line method, what is annual depreciation expense?

$10,800

Equipment was purchased for $18,000. It has a useful life of 5 years and a residual value of $2,000. What is depreciation expense for year one under the double-declining-balance method?

$7,200

Computer equipment was acquired at the beginning of the year at a cost of $56,000 with an estimated residual value of $5,000 and an estimated useful life of 5 years. Determine the second year's depreciation using straight-line depreciation.

$10,200

Equipment was purchased for $30,000. It has a useful life of 5 years and a residual value of $4,000. What is depreciation expense for year two under the double-declining-balance method?

$7,200

On September 1, a machine with a useful life of 8 years and a residual value of $3,000 was purchased for $47,000. What is depreciation expense in the year of purchase under straight-line depreciation assuming a December 31 year-end?

$1,833

A machine with a useful life of 10 years and a residual value of $4,000 was purchased for $30,000. What is annual depreciation under the straight-line method?

$2,600

If a fixed asset with an original cost of $18,000 and accumulated depreciation of $2,000 is sold for $15,000, the company must

recognize a loss on the income statement under other expenses.

If a fixed asset is sold and the book value is less than cash received, the company must

recognize a gain on the income statement under other revenues.

A fixed asset with a cost of $30,000 and accumulated depreciation of $25,000 is sold for $3,500. What is the amount of the gain or loss on disposal of the fixed asset?

$1,500 loss

A gain is recorded on the sale of fixed assets when

the asset's book value is less than the cash received.

A fully depreciated asset must be

kept on the books until sold or discarded.

A company sold a delivery truck for $18,000 cash. The truck cost $47,500 and had accumulated depreciation of $36,000 as of the date of sale. The entry to record the sale would include

a gain for $6,500.

A company sold office furniture costing $16,500 with accumulated depreciation of $14,000 for $1,800 cash. The entry to record the sale would include

a loss for $700.

A company purchased an oil well for $25 million with a residual value of $500,000. It is estimated that 10 million barrels can be extracted from the well. Determine depletion expense assuming 3 million barrels are extracted and sold.

$7,350,000

The process of transferring the cost of metal ores and other minerals removed from the earth to an expense account is called

depletion.

The Drilling Company purchased a mining site for $500,000 on July 1, 2010. The company expects to mine ore for the next 10 years and anticipates that a total of 100,000 tons will be recovered. The estimated residual value of the property is $80,000. Durin

$27,300.

Goodwill is

only written down if an impairment in value occurs.

Which of the following is NOT an intangible asset?

Long-term receivable

Which intangible assets are amortized over their useful life?

Patents

Intangible assets are used in operations but

lack physical substance.

The exclusive right to use a certain name or symbol is called a

trademark.

NBC Company purchased a patent from ABC for $144,000. At the time of purchase the patent had been in existence for 10 years. What is the first year's amortization?

$14,400

Expenditures for research and development are generally recorded as

current operating expenses.

The cost of a patent should be amortized

over 20 years or its economic life, whichever is shorter.

A patent was purchased for $670,000 with a legal life of 20 years. Management estimates that the patent has an 12-year economic life. The entry to record amortization would include

a decrease in patent for $55,833.

Fixed assets are ordinarily presented in the balance sheet

at cost less accumulated depreciation.

What options does a business have when financing operations?

Both debt financing and equity financing

Current liabilities are

due and payable within one year.

Current liabilities are

due and to be paid out of current assets within one year.

Which of the following would most likely be classified as a current liability?

Unearned rent

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

within one year.

On June 5 Glover Co. issued a $60,000, 6%, 120-day note payable to Jones Co. How much will Glover Co. have to pay at maturity?

$61,200

Where is interest expense listed on the income statement?

Other expense section

As interest is recorded on an interest-bearing note, the Interest Expense account is

increased; the Interest Payable account is increased.

Income tax based on taxable income may differ from the income tax based on "Income before Taxes" on the income statement. Which of the following could be a reason for this difference?

A business may use accelerated depreciation for tax reporting and straight-line for financial reporting purposes.

Which of the following is characteristic of deferred income tax payable?

Deferred income tax payable is often generated due to timing differences, Deferred income tax payable may be either a current or long-term liability, & Deferred income tax payable represents the deferred payment of taxes to later years through tax planning techniques.

The cost of a product warranty should be included as an expense in the

period of the sale of the product.

When are contingent liabilities required to be recorded?

Both the liability must be probable and the amount must be reasonably estimable before the contingent liability is recorded.

The total earnings of an employee for a payroll period are referred to as

gross pay.

Gross earnings for a payroll period less payroll deductions are referred to as

net pay.

An employee receives an hourly rate of $27, with time and a half for all hours worked
in excess of 40 during a week. Payroll data for the current week are as follows: hours worked, 46; federal income tax withheld, $350; cumulative earnings for year prior

$1,323.00

An employee receives an hourly rate of $27, with time and a half for all hours worked in excess of 40 during a week. Payroll data for the current week are as follows: hours worked, 46; federal income tax withheld, $350; cumulative earnings for year prior

$873.77

An employee receives an hourly rate of $30, with time and a half for all hours worked in excess of 40 during a week. Payroll data for the current week are as follows: hours worked, 46; federal income tax withheld, $300; cumulative earnings for year prior

$1,059.75

Prior to the last weekly payroll period of the calendar year, the cumulative earnings of employees A and B are $106,150 and $91,000, respectively. Their earnings for the last completed payroll period of the year are $850 each. The amount of earnings subje

$115.50

Payroll taxes levied against employees become liabilities

at the time the liability for the employee's wages is paid.

The par value per share of common stock represents

the monetary amount assigned to each share of stock in the articles of incorporation.

Most employers are required to withhold from employees for

only federal income tax.

Most employers are levied a tax on payrolls for

federal unemployment compensation tax.

A bond indenture is

a contract between the corporation issuing the bonds and the bondholders.

The market interest rate related to a bond is also called the

effective interest rate.

When the contract rate of interest on bonds is less than the market rate of interest, the bonds sell at

a discount.

If bonds are issued at a premium, the stated interest rate is

higher than the market rate of interest.

When the contract rate of interest on bonds is higher than the market rate of interest, the bonds sell at

a premium.

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 10%, a $10,000, 12%, 10-year bond that pays interest semiannually would sell at an amount

greater than face value.

When the market rate of interest on bonds is equal to the contract rate, the bonds will sell at

their face value.

The interest rate specified in the bond indenture is called the

contract rate.

If $1,000,000 of 8% bonds are issued at 102, the amount of cash received from the sale is

$1,020,000.

If $1,000,000 of 10% bonds are issued at 98 3/4, the amount of cash received from the sale is

$987,500.

If $4,000,000 of 12% bonds are issued at 103 1/4, the amount of cash received from the sale is

$4,130,000.

Stockholders' equity

includes retained earnings and paid-in capital.

The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 60,000 shares were originally issued and 5,000 were subsequently reacquired. What is the number of shares outstanding?

55000

The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 75,000 shares were originally issued and 5,000 were subsequently reacquired. What is the number of shares outstanding?

70000

If a corporation issues only one class of stock, it is called

common stock.

The excess of issue price over par of common stock is termed a(n)

premium

A company sold 200 shares of common stock with a par vale of $5 at a price of $12 per share. Which section of the statement of cash flows will contain this transaction?

Financing activities

A company sold 200 shares of common stock with a par value of $5 at a price of $13 per share. What is the effect on the accounts of this transaction?

Increase cash $2,600; increase common stock $1,000 and increase paid-in capital $1,600

The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 40,000 shares were originally issued and 5,000 were subsequently reacquired. What is the number of shares outstanding?

35000

Which statement below is NOT a reason for a corporation to buy back its own stock?

To increase the shares outstanding

How is treasury stock shown on the balance sheet?

As a decrease in stockholders' equity

In which section of the balance sheet would treasury stock be reported?

Stockholders' equity

A corporation purchases 5,000 shares of its own $20 par common stock for $35 per share, recording it at cost. What will be the effect on total stockholders' equity?

Decrease $175,000

Which one of the following is usually NOT necessary in order for a corporation to pay a cash dividend?

Declared dividends

Which of the following is usually NOT a prerequisite to paying a cash dividend?

Market value in excess of par value per share

The liability for a dividend is recorded on which of the following dates?

The date of declaration

What is the effect of a stock dividend on the balance sheet?

No effect on total assets, total liabilities, or total stockholders' equity

The reduction of par or stated value of stock by issuance of a proportionate number of additional shares is termed a

stock split.

A corporation has 50,000 shares of $100 par value stock outstanding. If the corporation issues a 4-for-1 stock split, the number of shares outstanding after the split will be

200,000 shares.

A corporation has 50,000 shares of $100 par value stock outstanding that has a current market value of $180. If the corporation issues a 4-for-1 stock split, the market value of the stock will fall to approximately

$45.

The primary purpose of a stock split is to

reduce the market price of the stock per share.

What is one reason to undergo a REVERSE stock split?

To increase the market value of the stock per share.

The major subdivisions of the Stockholders' Equity section of the balance sheet are

Paid-in Capital and Retained Earnings.

Which of the following accounts is reported in the noncurrent liabilities section of the corporate balance sheet?

Bonds Payable

Significant changes in stockholders' equity are reported in the

statement of stockholders' equity.

Based on the following information, what is earnings per share?
Common shares outstanding
115,000
Preferred stock dividend declared and paid
$40,000
Net income
$350,000

$2.70

For the year that just ended, a company reports net income of $1,500,000. There are 500,000 shares authorized, 300,000 shares issued, and 250,000 shares of common stock outstanding. What is the earnings per share?

$6.00