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Questions
Q:
Plant assets are used in everyday operations of the business and have useful lives that extend over more than one accounting period.
Q:
Plant assets are assets that are held for sale.
Q:
______________ is the process of systematically allocating the cost of an intangible asset to expense over its estimated useful life.
Q:
The process of allocating the cost of a natural resource to the period when it is consumed is called _____________________.
Q:
The three usual means for disposal of an asset are: _________________________________________________________.
Q:
_________________________ are capital expenditures that make a plant asset more productive; they often involve adding a component to an asset or replacing one of its old components with a better one and do not always increase an asset's life.
Q:
___________________ are additional costs of plant assets that do not materially increase the asset's life or productive capabilities.
Q:
_______________________ are expenditures that extend an asset's useful life beyond its original estimate.
Q:
_____________________ depreciation uses a depreciation rate that is a multiple of the straight-line rate and applies it to an asset's beginning-of-period book value.
Q:
______________________ depreciation charges a varying amount to expense for each period of an asset's useful life depending on its usage.
Q:
_______________________ depreciation recognizes equal amounts of annual depreciation over the life of an asset.
Q:
Revising estimates of the useful life or salvage value of a plant asset is referred to as a ____________________________________________.
Q:
The _____________________ principle requires that companies report the amount of accumulated depreciation on plant assets as well as the depreciation methods used to determine the annual depreciation expense.
Q:
_____________________ is an estimate of an asset's value at the end of its useful life.
Q:
The three main factors in computing depreciation are: (1) ____________________, (2) ____________________, (3) ___________________.
Q:
A company traded an old forklift for a new forklift, receiving a $10,500 trade-in allowance and paying the remaining $37,200 in cash. The old forklift cost $39,000 and straight-line accumulated depreciation of $27,200 had been recorded as of the exchange date under the assumption it would last five years and have a $5,000 salvage value.
a. What was the book value of the old forklift on the date of the exchange?
b. What amount of gain or loss (indicate which) should be recognized in recording the exchange?
c. What amount should be recorded as the cost of the new forklift?
Q:
On April 1 of the current year, a company traded an old machine that originally cost $32,000 and that had accumulated depreciation of $24,000 for a similar new machine that had a cash price of $40,000.
a. Give the entry to record the exchange under the assumption that a $5,000 trade-in allowance was received and the balance of $35,000 was paid in cash.
b. Give the entry to record the exchange under the assumption that instead of a $5,000 trade-in allowance, a $12,500 trade-in allowance was received and the balance of $27,500 was paid in cash.
Q:
A company purchased office equipment for $4,300 by trading in old equipment with a cost of $2,000 and that had accumulated depreciation of $1,900 as of the exchange date. The company received a $75 trade-in allowance for the old equipment with the balance of $4,225 paid in cash. Prepare the journal entry to record the exchange.
Q:
During the current year, a company acquired a new computer with a cash price of $12,800 by exchanging an old one on which the company received a $1,500 trade-in allowance (with the balance of $11,300 paid in cash). The old computer cost $9,000 and its accumulated depreciation was $5,500 as of the exchange date. Prepare the journal entry to record the exchange.
Q:
A company exchanged an old truck for a newer model. The old truck account had a cost of $76,000 and accumulated depreciation of $65,000 as of the exchange date. The new truck had a cash price of $84,000, but the company was given a $15,000 trade-in allowance and the balance of $69,000 was paid in cash. Prepare the journal entry to record the exchange.
Q:
A company exchanged its used machine for a new machine. The old machine cost $70,000 and the new one had a cash price of $95,000. The company had taken $60,000 depreciation on the old machine and was allowed a $2,500 trade-in allowance and the balance of $92,500 was paid in cash. What gain or loss should be recorded on the exchange?
Q:
The original cost of a machine was $60,000. After $45,000 of depreciation was recorded, the machine was traded in on a new machine of like purpose priced at $75,000. A $10,500 trade-in allowance was received on the old machine and the balance of $64,500 was paid in cash. Prepare the general journal entry to record this trade-in.
Q:
On January 2 of the current year, a company purchased a patent for $35,000 with a useful life of 10 years. Prepare the journal entry to amortize the patent at the end of the first year.
Q:
A company purchased mining property that containing 15,000,000 tons of ore for $4,875,000. In 2012, the company mined and sold 789,000 tons of ore and in 2013, it mined and sold 1,235,000. Calculate the depletion expense for 2012 and 2013.
Q:
A company purchased mining property for $1,560,000. The property was estimated to contain 13,000,000 tons of ore. In the current year, the company removed and sold 247,000 tons of ore. Calculate the depletion expense for the current year.
Q:
Mason Company sold a piece of equipment for $25,000 cash on December 31 after recording the annual depreciation on the asset. The equipment had an original cost of $92,500 and accumulated depreciation of $60,000. Prepare the general journal entry to record the sale of this asset.
Q:
On April 1 of the current year, a company disposed of an automobile that had cost $20,000. The auto had a salvage value of $2,000 and a useful life of five years. The accounting records showed accumulated depreciation for this automobile of $8,100 as of April 1 of the current year. The asset was discarded after an accident occurred and $10,500 cash was received from an insurance claim.
Prepare the journal entry to record the disposal of the automobile.
Q:
On April 1, 2013, a company discarded a computer that cost $15,000 and that had a useful life of four years and a salvage value of $1,000. Using straight-line depreciation, the accumulated depreciation as of December 31, 2012, was $10,700. a. Prepare the journal entry to record depreciation up to the date of disposal of the computer
b. Prepare the journal entry to record the disposal of the computer.
Q:
A company had a building destroyed by fire. The building originally cost $650,000 and its accumulated depreciation as of the date of the fire was $300,000. The company received $400,000 cash from an insurance policy that covered the building and will use that money to help rebuild. Prepare the single journal entry to record the destruction of the building and the receipt of cash from the insurance company.
Q:
A company sold for $40,000 cash a machine that originally cost $90,000. The accumulated depreciation on this machine was $47,000 at the time of the sale. What was the company's gain or loss on this sale?
Q:
On January 1, a company purchased a machine for $75,000 that had a six-year useful life and a salvage value of $6,000. After three years of straight-line depreciation, on January 1, 2013, the company paid $7,500 cash to improve the efficiency of the machine. The effect of the expenditure was to increase the productivity of the machine without increasing its remaining useful life or changing its salvage value. Straight-line depreciation is used throughout the machine's life.
a. Prepare the journal entry to record the $7,500 expenditure.
b. What amount of depreciation expense should be recorded for 2013?
Q:
A company paid $314,000 for a machine that was expected to last five years and have a salvage value of $40,000. During the third year of the machine's life, $37,000 cash was paid for replacement parts that were expected to increase the machine's productivity by 10% each year. Prepare the journal entry to record the $37,000 cost incurred in the third year.
Q:
On January 1, a machine costing $260,000 with a four-year life and an estimated $5,000 salvage value was purchased. It was also estimated that the machine would produce 500,000 units during its life. The actual units produced during its first year of operation were 110,000. Determine the amount of depreciation expense for the first year under each of the following assumptions:
a. The company uses the straight-line method of depreciation.
b. The company uses the units-of-production method of depreciation.
c. The company uses the double-declining-balance method of depreciation.
Q:
A company purchased equipment for $325,000 on January 2, 2013. The company expects the equipment to last for eight years or 60,000 hours of operation, with an estimated salvage value of $25,000. During 2013, the equipment was in operations for 8,000 hours, while in 2014 the equipment was in operations for 8,700 hours. Compute the depreciation expense relating to the equipment for 2013 and 2014 using the following depreciation methods:
a. Straight-line
b. Double-declining-balance
c. Units-of-production.
Q:
A company purchased a machine on January 1 of the current year for $750,000. Calculate the annual depreciation expense for each year of the machine's life (estimated at five years or 20,000 hours, with a salvage value of $75,000). During the machine's five-year life its hourly usage was: 3,000; 4,000; 5,000; 5,000; and 3,000 hours. Year
Straight-Line
Units-of-Production
Double-Declining-Balance Year 1
$
$
$ Year 2 Year 3 Year 4 Year 5 Totals
Q:
A company recently paid $1,500,000 to buy a building with an estimated useful life of 20 years and a salvage value of $25,000. Calculate the depreciation expense for the third year after acquisition using the double-declining-balance depreciation.
Q:
A new machine is expected to produce 600,000 units of product during its eight-year useful life. The machine cost $1,800,000 cash and it is estimated to have a $60,000 salvage value. What is the first year's depreciation on the machine as calculated by the straight-line method?
Q:
A new machine is expected to produce 600,000 units of product during its eight-year useful life. The machine cost $1,800,000 cash and it is estimated to have a $60,000 salvage value. If depreciation on the machine is calculated by the double-declining-balance method, what is the depreciation for the first year?
Q:
A new machine is expected to produce 600,000 units of product during its eight-year useful life. The machine cost $1,800,000 cash and it is estimated to have a $60,000 salvage value. If the machine produces 70,000 units of product during its first year, what is the depreciation for the first year as calculated by the units-of-production method?
Q:
A company made the following expenditures in connection with the construction of its
new building: Architects fees for the new building
$ 12,000 Cash paid for land and run-down building on the land
300,000 Removal of old building
18,000 Salvage from sale of old building materials
4,000 Construction survey to site the new building
1,500 Legal fees for title search
3,000 Excavation for basement construction
25,000 Machinery purchased for operations
100,000 Storage charges on machinery because building was not ready when machinery was delivered
900 Freight on machinery purchased
1,600 Hauling charges to deliver machinery from storage to new building
300 Construction costs of new building
1,000,000 Landscaping
20,000 Installation of machinery
2,500 Prepare a schedule showing the amounts to be recorded as land, buildings, and machinery.
Q:
A company purchased land on which to construct a new building for a cost of $250,000. Additional costs incurred were: Real estate brokers commissions
$15,000 Legal fees incurred in purchase of the real estate
2,500 Landscaping
10,000 Expenses to remove old house located on land
3,000 Proceeds from selling materials salvaged from old house
1,000 What total dollar amount should be charged to land and what amount should be charged to the new building?
Q:
A company needed a new building. It found a suitable location with an existing old building on the land. The company reached an agreement to buy the land and the building for $960,000 cash. The old building was demolished to make way for the needed new building. Following is information regarding the demolition of the old building and construction of the new one: Construction cost of new building including $660,000 for parking lot
$9,560,000 Demolition of old building
300,000 Proceeds from sale of salvaged materials from old building
120,000 Prepare a single journal entry to record the above costs assuming all transactions are paid in cash.
Q:
A company purchased land with a building for a total cost of $2,570,000 ($500,000 paid in cash and the balance on a long-term note). It was estimated that the land and building had market values of $900,000 and $2,100,000, respectively.
Determine the cost to be apportioned to the land and to the building and prepare the journal entry to record the acquisition.
Q:
A company purchased equipment on July 3 of the current year and placed it in service on August 1. The following costs were incurred in acquiring the equipment. Determine the amount to be recorded as cost for the equipment. Purchase (invoice) price
$215,600 Transportation
1,400 Insurance during shipping
200 One-year fire insurance beginning August 1 of the current year
1,200 Installation cost
4,500 Raw materials and direct labor used to test the equipment
1,500
Q:
Prepare journal entries to record the following transactions of a company during the current year: Mar. 1
Purchased a truck for $30,000 with a five-year useful life and a $5,000 salvage value. Also paid 6% sales tax, $350 for the annual truck license, $500 to paint the truck with the companys colors and name, and $1,500 for spare parts. All payments were in cash. May 10
Purchased a garage from a neighboring business with a 7%, four-year, $75,000 note. The sellers book value for the garage was $42,750. The estimated remaining useful life of the garage is 10 years. June 1
Paid $1,000 cash to replace (uninsured) garage windows broken during a storm. Aug. 25
Purchased used office equipment for $14,700 cash. Sales tax was $825, freight costs $250, and reconditioning costs $900, all of which were paid in cash. The estimated useful life of the equipment is 3 years and salvage value is $500. Oct. 5
Purchased store equipment for $24,500 cash. Paid $1,470 in sales tax,. $550 for repairs incurred from an accident during installation, $3,200 for a special base to house the equipment, and $2,600 for supplies to be used during periodic preventive maintenance. The estimated useful life of the equipment is eight years and salvage value is $1,200.
Q:
A company paid $770,000 plus $5,000 in closing costs for property that included land appraised at $384,000; land improvements appraised at $128,000; and a building appraised at $288,000. The plan is to use the building as a manufacturing plant. Determine the amounts that should be recorded as:
a. Land............................ $___________________
b. Land Improvements.... $___________________
c. Building...................... $___________________
Q:
A company purchased a special purpose machine on August 1 of the past year and it was installed and ready to run on January 1 of this year. The following costs were incurred in the purchase and installation of the machine. Determine the total cost of the machine. Invoice price
$1,200,000 Freight costs
6,000 Installation costs
64,000 Electrical and power connections
32,000 Repairs to correct damage incurred during uncrating
12,000 Costs to adjust machine to appropriate specifications
56,000 Spare parts for future use
108,000 Sales tax
70,500 Fines incurred during transport of machine
400 Cost of special foundation required for machine installation
28,500
Q:
Heidel Co. paid $750,000 cash to buy the plant assets of Rogers Co. which went out of business. An independent appraiser assigned the following values to the assets acquired: Land
$522,000 Building
243,000 Equipment
135,000 Total
$900,000 Prepare Heidel's journal entry to record the acquisition of these assets.
Q:
A company had net sales of $541,500 in 2013 and $475,300 in 2014. Its average assets were $410,000 for 2013 and $400,000 for 2014. (1) Calculate the total asset turnover for each year. (2) Interpret and comment on the company's efficiency in the use of its assets.
Q:
A company had net sales of $230,000 for 2013 and $288,000 for 2014. The company's average total assets for 2013 were $150,000 and $180,000 for 2014. Calculate the total asset turnover for each year and comment on the company's efficiency in the use of its assets.
Q:
Paoli Pizza bought $5,000 worth of merchandise from TechCom and signed a 90-day, 10% promissory note for the $5,000. TechCom's journal entry to record the sales portion of the transaction is:
A. Accounts Receivable
5,000 Sales 5,000 B. Notes Receivable
5,000 Sales 5,000 C. Accounts Receivable
5,125 Sales 5,125 D. Notes Receivable
5,125 Sales 5,125 E. Notes Receivable
5,000 Interest Receivable
125 Sales 5,125
Q:
The amount due on the date of maturity for a $6,000, 60-day, 8%, note receivable is:
A. $6,000
B. $6,480
C. $5,520
D. $6,080
E. $5,920
Q:
Electron borrowed $75,000 cash from TechCom by signing a promissory note. TechCom's entry to record the transaction should include a:
A. Debit to Notes Receivable for $75,000.
B. Debit to Accounts Receivable for $75,000.
C. Credit to Notes Receivable for $75,000.
D. Debit Notes Payable for $75,000.
E. Credit to Sales for $75,000.
Q:
A company ages its accounts receivables to determine its end of period adjustment for bad debts. At the end of the current year, management estimated that $39,375 of the accounts receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance for Doubtful Accounts had a credit balance of $3,285. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?
A. Bad Debt Expense
36,090 Allowance for Doubtful Accounts 36,090 B. Bad Debt Expense
42,660 Allowance for Doubtful Accounts 42,660 C. Bad Debt Expense
39,375 Allowance for Doubtful Accounts 39,375 D. Accounts Receivable
39,375 Bad Debt Expense
3,285 Sales 42,660 E. Accounts Receivable
36,090 Allowance for Doubtful Accounts 36,090 Answer: A
Feedback:
Q:
A company used the percent of sales method to determine its bad debts expense. At the end of the current year, the company's unadjusted trial balance reported the following selected amounts: Accounts receivable
$245,000 debit Allowance for uncollectible accounts
300 credit Net Sales
900,000 credit All sales are made on credit. Based on past experience, the company estimates 0.5% of credit sales to be uncollectible. What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared?
A. $925
B. $1,225
C. $4,200
D. $4,500
E. $45,000
Q:
A company ages its accounts receivables to determine its end of period adjustment for bad debts. At the end of the current year, management estimated that $15,750 of the accounts receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance for Doubtful Accounts had a debit balance of $175. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?
A. Bad Debt Expense
15,750 Allowance for Doubtful Accounts 15,750 B. Bad Debt Expense
15,575 Allowance for Doubtful Accounts 15,575 C. Bad Debt Expense
15,925 Allowance for Doubtful Accounts 15,925 D. Accounts Receivable
15,750 Bad Debt Expense
175 Sales 15,925 E. Accounts Receivable
15,925 Allowance for Doubtful Accounts 15,925 Answer: C
Feedback:
Q:
On December 31 of the current year, a company's unadjusted trial balance included the following: Accounts Receivable, debit balance of $88,790; Allowance for Doubtful Accounts, credit balance of $1,245. What amount should be debited to Bad Debts Expense, assuming 4% of outstanding accounts receivable at the end of the current year are considered uncollectible?
A. $1,245.00
B. $3,551.60
C. $4,796.60
D. $2,306.60
E. $87,545.00
Answer: D
Feedback:
Q:
On December 31 of the current year, a company's unadjusted trial balance included the following: Accounts Receivable, debit balance of $97,250; Allowance for Doubtful Accounts, credit balance of $951. What amount should be debited to Bad Debts Expense, assuming 6% of outstanding accounts receivable at the end of the current year will be uncollectible?
A. $951
B. $3,992
C. $4,884
D. $5,835
E. $6,786
Answer: C
Feedback:
Q:
An accounting procedure that (1) estimates and reports bad debts expense from credit sales during the period of the sales and (2) reports accounts receivable at the amount of cash to be collected is the:
A. Allowance method of accounting for bad debts.
B. Aging of notes receivable.
C. Adjustment method for uncollectible debts.
D. Direct write-off method of accounting for bad debts.
E. Cash basis method of accounting for bad debts.
Q:
A method of estimating bad debts expense that involves a detailed examination of outstanding accounts and their length of time past due is the:
A. Direct write-off method.
B. Aging of accounts receivable method.
C. Percent of sales method.
D. Aging of investments method.
E. Percent of accounts receivable method.
Q:
According to GAAP, the amount of bad debt expense can be estimated by:
A. Only the percent of sales method.
B. Only the percent of accounts receivable method.
C. Only by the aging of accounts receivable method.
D. Only by the percent of sales method or the percent of accounts receivable method.
E. Bad debt expense can be estimated by the percent of sales method, the percent of accounts receivable method, or by the aging of accounts receivable method.
Q:
Newton Company uses the allowance method of accounting for uncollectible accounts. On May 3, the Newton Company wrote off the $3,000 uncollectible account of its customer, P. Best. On July 10, Newton received a check for the full amount of $3,000 from Best. On July 10, the entry or entries Newton makes to record the recovery of the bad debt is:
A. Accounts Receivable P. Best
3,000 Allowance for Doubtful Accounts 3,000 Cash
3,000 Accounts Receivable P. Best 3,000 B. Cash
3,000 Bad Debts Expense 3,000 C. Accounts Receivable P. Best
3,000 Bad Debts Expense 3,000 Cash
3,000 Accounts Receivable P. Best 3,000 D. Allowance for Doubtful Accounts
3,000 Accounts Receivable P. Best 3,000 Accounts Receivable P. Best
3,000 Cash 3,000 E. Cash
3,000 Accounts Receivable P. Best 3,000
Q:
On October 29 of the current year, a company concluded that a customer's $4,400 account receivable was uncollectible and that the account should be written off. What effect will this write-off have on this company's net income and total assets assuming the allowance method is used to account for bad debts?
A. Decrease in net income; no effect on total assets.
B. No effect on net income; no effect on total assets.
C. Decrease in net income; decrease in total assets.
D. Increase in net income; no effect on total assets.
E. No effect on net income; decrease in total assets.
Q:
If the credit balance of the Allowance for Doubtful Accounts account exceeds the amount of a bad debt being written off, the entry to record the write-off against the allowance account results in:
A. An increase in the expenses of the current period.
B. A reduction in current assets.
C. A reduction in equity.
D. No effect on the expenses of the current period.
E. A reduction in current liabilities.
Q:
The materiality constraint:
A. States that an amount can be ignored if its effect on financial statements is unimportant to the user's business decisions.
B. Requires use of the allowance method for bad debts.
C. Requires use of the direct write-off method.
D. States that bad debts not be written off.
E. Requires that expenses be reported in the same period as the sales they helped produce.
Q:
The matching principle requires:
A. That expenses be ignored if their effect on the financial statements are less important than revenues to the financial statement user.
B. The use of the direct write-off method for bad debts.
C. The use of the allowance method of accounting for bad debts.
D. That bad debts be disclosed in the financial statements.
E. That bad debts not be written off.
Q:
A company had an accounts receivable turnover ratio of 8 and net sales of $600,000 for a given period. What was the average accounts receivable amount for this period?
A. $4,800,000.
B. $2,919.99.
C. $205.48.
D. $75,000.
E. Average accounts receivable cannot be determined from this information.
Q:
A company had an accounts receivable turnover ratio of 12 and net sales of $744,000 for a given period. What was the average amount of accounts receivables for this period?
A. $8,928,000
B. $62,000
C. $4,380
D. $169.86
E. Average accounts receivable cannot be determined from this information
Q:
Pepsi's accounts receivable turnover was 9.9 for this year and 11.0 for last year. Coca-Cola's turnover was 9.3 for this year and 9.3 for last year. These results imply that:
A. Coke has the better turnover for both years.
B. Pepsi has the better turnover for both years.
C. Coke's turnover is improving.
D. Coke's credit policies are too loose.
E. Coke is collecting its receivables more quickly than Pepsi in both years.
Q:
Dell reported net sales of $8,739 million and average accounts receivable of $864 million. Its accounts receivable turnover is:
A. 0.90
B. 10.1
C. 36.1
D. 50.0
E. 3,686
Q:
A company has net sales of $870,000 and average accounts receivable of $174,000. What is its accounts receivable turnover for the period?
A. 0.20
B. 5.00
C. 20.0
D. 73.0
E. 1,825
Q:
The accounts receivable turnover is calculated by:
A. Dividing net sales by average accounts receivable.
B. Dividing net sales by average accounts receivable and multiplying by 365.
C. Dividing average accounts receivable by net sales.
D. Dividing average accounts receivable by net sales and multiplying by 365.
E. Dividing net income by average accounts receivable.
Q:
The quality of receivables refers to:
A. The creditworthiness of sellers.
B. The speed of collection.
C. The likelihood of collection without loss.
D. Sales turnover.
E. The interest rate.
Q:
A Company sold $10,000 of its accounts receivable and was charged a 2% factoring fee. How should the company record this transaction in the journal?
A. Cash
9,800 Factoring Fee Expense
200 Accounts Receivable 10,000 B. Cash
10,000 Accounts Receivable 10,000 C. Cash
10,000 Factoring Fee Expense 200 Accounts Receivable 9,800 D. Accounts Receivable
10,000 Factoring Fee Expense 200 Cash 9,800 E. Accounts Receivable
9,800 Factoring Fee Expense
200 Cash 10,000
Q:
The buyer who pays cash for an account receivable is referred to as a:
A. Payor
B. Pledgor
C. Factor
D. Payee
E. Pledgee
Q:
A company receives a 6.2%, 60-day note for $9,650. The total amount of cash due on the maturity date is:
A. $598.30
B. $99.72
C. $9,650.00
D. $10,248.30
E. $9,749.72
Q:
A company receives a 7.5%, six-month note for $8,900. The total interest due on the maturity date is:
A. $66,750.00
B. $4,005.00
C. $2,002.50
D. $667.50
E. $333.75
Q:
A company receives a 10%, 90-day note for $1,500. The total interest due upon the maturity date is:
A. $37.50
B. $150.00
C. $75.00
D. $50.00
E. $87.50
Q:
A 90-day note issued on April 20 has a maturity date of:
A. July 17
B. July 18
C. July 19
D. July 20
E. July 21
Q:
The interest accrued on $3,600 at 7% for 60 days is:
A. $36
B. $42
C. $252
D. $180
E. $420