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1 | |
Which of the following is a tangible long-term asset? (LO 1) |
| | A) | Patent |
| | B) | Goodwill |
| | C) | Timber |
| | D) | Trademark |
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2 | |
Which of the following is an intangible asset with an identifiable useful life? (LO 1) |
| | A) | Patent |
| | B) | Goodwill |
| | C) | Timber |
| | D) | Trademark |
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3 | |
Which of the following is the process of recognizing expense for property, plant, and equipment? (LO 1) |
| | A) | Allocation |
| | B) | Amortization |
| | C) | Depletion |
| | D) | Depreciation |
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4 | |
Which of the following is the process of recognizing expense for a natural resource? (LO 1) |
| | A) | Allocation |
| | B) | Amortization |
| | C) | Depletion |
| | D) | Depreciation |
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5 | |
Which of the following is the process of recognizing expense for intangible assets with identifiable useful lives? (LO 1) |
| | A) | Allocation |
| | B) | Amortization |
| | C) | Depletion |
| | D) | Depreciation |
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6 | |
Johnson Company purchased a new piece of equipment to use in its business. The details of the purchase and related costs are as follows: Purchase price of equipment | $125,000 | Freight costs (FOB shipping point) | 1,000 | Installation of equipment | 15,000 | Annual salary of new employee hired to operate the equipment | 40,000 | Increase in the annual cost of the fire and theft insurance policy to cover the new equipment | 800 |
Determine the amount to be capitalized for this equipment. (LO 2) |
| | A) | $126,000 |
| | B) | $141,000 |
| | C) | $181,000 |
| | D) | $181,800 |
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7 | |
Robinson Corporation purchased land and a building for $750,000. An appraisal was obtained that indicated that the land was worth $300,000 and the building was worth $700,000. What amount of the purchase price should Robinson allocate to the land and the building? (LO 2) |
| | A) | Land $ 50,000; building $700,000 |
| | B) | Land $225,000; building $525,000 |
| | C) | Land $300,000; building $450,000 |
| | D) | Land $300,000; building $700,000 |
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8 | |
Thompson Corporation purchased a truck that will be used extensively in the first two years of its five-year useful life. Which of the following depreciation methods is the LEAST appropriate method to recognize depreciation expense for this truck? (LO 3) |
| | A) | Straight-line method |
| | B) | Double-declining-balance method |
| | C) | Units-of-production method |
| | D) | Any of the methods are equally appropriate |
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9 | |
In 2005 Goodman Company purchases equipment for $100,000 and records $20,000 in depreciation expense. How does the recording of the equipment purchase and the depreciation expense affect the statement of cash flows? (LO 3) |
| | A) | Cash flows from operating activities ($100,000) |
| | B) | Cash flows from investing activities ($100,000) |
| | C) | Cash flows from investing activities ($120,000) |
| | D) | Cash flows from operating activities ($20,000); cash flows from investing activities ($100,000) |
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10 | |
Use the following information to answer Questions 10, 11, 12, and 13: On January 1, 2005, Jacobson Company purchased a delivery truck for $64,000. The truck was estimated to have a five-year useful life or 100,000 miles. Salvage value was estimated at $4,000. The truck was driven 25,000 miles in 2005 and 22,000 miles in 2006. Assume that Jacobson Company uses the straight-line depreciation method. What is the amount of depreciation expense for 2005 and 2006? (LO 3) |
| | A) | $12,000 in 2005; $12,000 in 2006 |
| | B) | $12,000 in 2005; $24,000 in 2006 |
| | C) | $12,800 in 2005; $12,800 in 2006 |
| | D) | $12,800 in 2005; $25,600 in 2006 |
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11 | |
Assume that Jacobson Company uses the double-declining-balance depreciation method. What is the amount of depreciation expense for 2005 and 2006? (LO 3) |
| | A) | $24,000 in 2005; $14,400 in 2006 |
| | B) | $24,000 in 2005; $38,400 in 2006 |
| | C) | $25,600 in 2005; $15,360 in 2006 |
| | D) | $25,600 in 2005; $40,960 in 2006 |
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12 | |
Assume that Jacobson Company uses the units-of-production depreciation method. What is the amount of depreciation expense for 2005 and 2006? (LO 3) |
| | A) | $15,000 in 2005; $13,200 in 2006 |
| | B) | $15,000 in 2005; $28,200 in 2006 |
| | C) | $16,000 in 2005; $14,080 in 2006 |
| | D) | $16,000 in 2005; $30,080 in 2006 |
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13 | |
For income tax purposes, Jacobson Company uses the modified accelerated cost recovery system (MACRS). What is the maximum amount of depreciation expense that Jacobson Company will record for 2005 and 2006 assuming the truck is 5-year property? (LO 5) |
| | A) | $ 8,574 in 2005; $14,694 in 2006 |
| | B) | $ 9,146 in 2005; $15,674 in 2006 |
| | C) | $12,000 in 2005; $19,200 in 2006 |
| | D) | $12,800 in 2005; $20,480 in 2006 |
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14 | |
Wharton Company owns a truck that was purchased four years ago. The company spent $3,000 to replace the transmission which will extend the useful life by 2 years. Which of the following choices represents the journal entry necessary to record this transaction? (LO 7) | | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | | | Cash | + | Truck | – | Acc. Dep. | | | | | | | | | | | | | | a. | | (3,000) | + | n/a | – | n/a | = | n/a | + | (3,000) | | n/a | – | 3,000 | = | (3,000) | | (3,000) OA | | b. | | (3,000) | + | 3,000 | – | n/a | = | n/a | + | n/a | | n/a | – | n/a | = | n/a | | (3,000) IA | | c. | | (3,000) | + | n/a | – | (3,000) | = | n/a | + | n/a | | n/a | – | n/a | = | n/a | | (3,000) IA | | d. | | (3,000) | + | n/a | – | n/a | = | n/a | + | (3,000) | | n/a | – | 3,000 | = | (3,000) | | (3,000) IA | |
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| | A) | A |
| | B) | B |
| | C) | C |
| | D) | D |
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15 | |
Wharton Company owns a truck that was purchased four years ago. The company spent $600 for routine maintenance on the truck. Which of the following choices represents the journal entry necessary to record this transaction? (LO 7) | | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | | | Cash | + | Truck | – | Acc. Dep. | | | | | | | | | | | | | | a. | | (600) | + | n/a | – | n/a | = | n/a | + | (600) | | n/a | – | 600 | = | (600) | | (600) OA | | b. | | (600) | + | 600 | – | n/a | = | n/a | + | n/a | | n/a | – | n/a | = | n/a | | (600) IA | | c. | | (600) | + | n/a | – | (600) | = | n/a | + | n/a | | n/a | – | n/a | = | n/a | | (600) IA | | d. | | (600) | + | n/a | – | n/a | = | n/a | + | (600) | | n/a | – | 600 | = | (600) | | (600) IA | |
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| | A) | A |
| | B) | B |
| | C) | C |
| | D) | D |
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16 | |
Warrior Company owns a machine that was purchased three years ago. The company spent $8,000 to improve the productive quality of the machine. Which of the following choices represents the journal entry necessary to record this transaction? (LO 7) | | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | | | Cash | + | Mach. | – | Acc. Dep. | | | | | | | | | | | | | | a. | | (8,000) | + | n/a | – | n/a | = | n/a | + | (8,000) | | n/a | – | 8,000 | = | (8,000) | | (8,000) OA | | b. | | (8,000) | + | 8,000 | – | n/a | = | n/a | + | n/a | | n/a | – | n/a | = | n/a | | (8,000) IA | | c. | | (8,000) | + | n/a | – | (8,000) | = | n/a | + | n/a | | n/a | – | n/a | = | n/a | | (8,000) IA | | d. | | (8,000) | + | n/a | – | n/a | = | n/a | + | (8,000) | | n/a | – | 8,000 | = | (8.000) | | (8,000) IA | |
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| | A) | A |
| | B) | B |
| | C) | C |
| | D) | D |
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17 | |
Butler Company sold a machine for $9,000 cash. The machine originally cost $50,000 and the company had recognized $38,000 in depreciation over the life of the machine. What is the effect of this sale on the income statement and the statement of cash flows? (LO 4) |
| | A) | $3,000 loss on the income statement; ($3,000) cash from investing activities |
| | B) | $3,000 loss on the income statement; $9,000 cash from investing activities |
| | C) | $3,000 gain on the income statement; $3,000 cash from investing activities |
| | D) | $41,000 loss on the income statement; $9,000 cash from investing activities |
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18 | |
Valley Company purchased a machine for $45,000. The machine had an expected useful life of 7 years and a $3,000 salvage value. After 3 years of using straight-line depreciation, Valley Company revised the expected life from 7 years to 11 years with no change in expected salvage value. What is the depreciation expense for year 4? (LO 6) |
| | A) | $2,455 |
| | B) | $3,000 |
| | C) | $3,375 |
| | D) | $6,000 |
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19 | |
Three years ago Cooper Mining Company paid $6,000,000 cash to purchase a mine with an estimated 20,000,000 tons of coal. In 2005 Cooper mined 500,000 tons of coal. What is the effect on the income statement and the statement of cash flows for 2005? (LO 8) |
| | A) | $150,000 expense on the income statement; ($150,000) cash flow from operating activities |
| | B) | $150,000 expense on the income statement; no effect on the statement of cash flows |
| | C) | $1,666,667 expense on the income statement; ($1,666,667) cash flow from operating activities. |
| | D) | $1,666,667 expense on the income statement; no effect on the statement of cash flows |
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20 | |
Which of the following regarding goodwill is FALSE? (LO 9) |
| | A) | Goodwill is an intangible asset with an indefinite useful life. |
| | B) | Goodwill must be tested for impairment annually. |
| | C) | Goodwill is the value attributable to favorable factors such as reputation, location, and superior product. |
| | D) | If the book value of goodwill is less than its fair value, an impairment loss must be recognized. |
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21 | |
In 2005, Sanderson Company and Bradley Company each paid $50,000 for an asset with an expected useful life of five years and no salvage value. Sanderson uses the straight-line depreciation method and Bradley Company uses the double-declining-balance depreciation method. Assuming that all revenue and other expense items are identical for both companies, which of the following statements is TRUE for 2005? (LO 10) |
| | A) | Straight-line depreciation provides the lowest depreciation expense and the best return on sales. |
| | B) | Straight-line depreciation provides the highest depreciation expense and the best return on sales. |
| | C) | Double-declining-balance depreciation provides the lowest depreciation expense and the best return on sales. |
| | D) | Double-declining-balance depreciation provides the highest depreciation expense and the best return on sales. |
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22 | |
What type of account is Accumulated Depreciation? (LO 3) |
| | A) | Equity |
| | B) | Liability |
| | C) | Expense |
| | D) | Contra asset |
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23 | |
Hopper Company purchased a building for $200,000 that is now worth $220,000. The building has a related Accumulated Depreciation of $30,000. What is the book value of the building? (LO 3) |
| | A) | $170,000 |
| | B) | $190,000 |
| | C) | $200,000 |
| | D) | $220,000 |
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24 | |
Use the following information to answer questions 24 and 25: In 2001 Gray Company purchased land for $60,000 to use as a future site for its new office building. At the end of 2004, the land was worth $72,000. The company decided not to build the new office and sold the land for $75,000 cash in 2005. How does Gray Company's sale of the land affect the 2005 income statement? (LO 4) |
| | A) | Loss on the sale of land $ 3,000 |
| | B) | Loss on the sale of land $15,000 |
| | C) | Gain on the sale of land $ 3,000 |
| | D) | Gain on the sale of land $15,000 |
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25 | |
In which section of the statement of cash flows does Gray Company’s sale of the land appear? (LO 4) |
| | A) | Cash flow from operating activities |
| | B) | Cash flow from investing activities |
| | C) | Cash flow from financing activities |
| | D) | This sale does not affect the statement of cash flows. |
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26 | |
Use the following information to answer questions 26 and 27: On January 1, 2005 Kinsey Company purchased computer equipment for $22,000 cash. The equipment has an estimated useful life of four years and a $2,000 salvage value. Kinsey Company uses the straight-line depreciation method. What amount of depreciation expense will the company record for 2005? (LO 3) |
| | A) | $ 5,000 |
| | B) | $ 5,500 |
| | C) | $ 6,000 |
| | D) | $22,000 |
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27 | |
How does the recording of depreciation expense affect the statement of cash flows? (LO 3) |
| | A) | As a cash flow from operating activities |
| | B) | As a cash flow from investing activities |
| | C) | As a cash flow from financing activities |
| | D) | This transaction does not affect the statement of cash flows. |
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28 | |
Canary Corporation experienced an accounting event that affected its financial statements as indicated below: | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | | – | | n/a | | – | | n/a | | – | | – | | n/a | |
Which of the following accounting events could have caused these effects on Canary Corporation's financial statements? (LO 3) |
| | A) | Recorded depreciation on computer equipment |
| | B) | Paid cash for advertising expense |
| | C) | Purchased computer equipment on account |
| | D) | Purchased supplies on account |
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