Accounting Exam 3

We normally record a long-term asset at the...

cost of the asset plus all costs necessary to get the asset ready for use

Sandwich Express incurred the following costs related to its purchase of a bread machine.

Cost of the equipment$20,000 Sales tax (8%) 1,600 Shipping 2,200 Installation 1,400 Total costs$25,200

At what amount should Sandwich Express record the bread machine?

25,200

Research and Development Costs

should be expensed

Breyer Co purchases all of the assets and liabilities of Stellar Co for 1,500,000. The fair value of Stellar's assets and liabilities are not known. For what amount would Beyer record goodwill associated with the purchase?

700,000

Which of the following expenditures should be recorded as an expense?

Repairs and maitnence that maintain current benefits

Which of the following will maximize net income by minimizing depreciation expense in the first year of the asset's life?

Long service life, high residual value, and straight line depreciation.

The balance in the Accumulated Depreciation account represents the

amount charged to depreciation expense since the aquisition of the plant asset.

The book value of an asset is equal to the

asset's cost less accumulated depreciation

Equipment was purchased for $50,000. At that time, the equipment was expected to be used eight years and have a residual value of $10,000. The company uses straight-line depreciation. At the beginning of the third year, the company changed its estimated useful life to a total of six years (four years remaining) and the residual value to $8,000. What is depreciation expense in the third year?

8000

Equipment was purchased for $50,000. The equipment is expected to be used 15,000 hours over its useful life and then have a residual value of $10,000. In the first two years of operation, the equipment was used 2,700 hours and 3,300 hours, respectively. What is the equipment's accumulated depreciation at the end of the second year using the activity-based method?

16,000

Which of the following statements is true regarding the amortization of intangible assets?

the expected residual value of most intangible assets is zero

Equipment originally costing 95,000 has accumulated depreciation of 30,000. If the equipment is sold for 55,000, the company should record

a loss of 10,000

The company's profitability on each dollar invested in assets is represented by which of the following ratios?

Return on assets

A company has a profit margin of 10% and reports net sales of 4,000,000 and average total assets of 5,000,000. Calculate the company's return on assets

8%

Which of the following statements regarding liabilities is NOT true

Liabilities result from future transactions

Current liabilities

May include contingent liabilities.

Express Jet borrows $100 million on October 1, 2021, for one year at 6% interest. For what amount does Express Jet report interest payable for the year ended December 31, 2021?

1.5 mil

Express Jet borrows $100 million on October 1 for one year at 6% interest. For what amount does Express Jet report interest expense for the year ended December 21, 2025?

4.5 mil

We record intrest expense on a note payable in the period in which

We incur intrest

Which of the following is NOT deducted from an employees salary

Unemployment taxes

A local Starbucks sells gift cards of $10,000 during the year. By the end of the year, customers have redeemed $8,000 of gift cards. What will be the year-end balance in the Deferred Revenue account?

2000

The seller collects sales taxes from the customer at the time of sale and reports the sales taxes as

Sales Tax Payable

The city of Summerton has a sales tax rate of 8%. A local convenience store sells merchandise, and the customer pays a total of $38.34. What effect does this transaction have on total liabilities?

increase of 2.84

Management can estimate the amount of loss that will occur due to litigation against the company. If the likelihood of loss is reasonably likely, a contingent liability should be:

Disclosed but not reported as a liability

Smith Co. filed suit against Western, Inc., seeking damages for patent infringement. Smith's legal counsel believes it is probable that Western will have to pay $125,000, although no final settlement has yet been reached. How should Smith report this litigation?

No asset or gain is reported

Smith Co. filed suit against Western, Inc., seeking damages for patent infringement. Western's legal counsel believes it is probable that Western will have to pay an estimated amount in the range of 75,000 to 175,000, with all amounts in the range considered equally likely. How should Western report this litigation?

As a liability of 75,000 with disclosure of the range

Pizza Shop sells toaster ovens with a one-year warranty to fix any defects. For the current year, 100 toaster ovens have been sold. By the end of the year 4 ovens have been fixed for an average of $80 each. Management estimates that 5 more of the 100 sold will need to be fixed next year for an estimated $80 each. For how much should Pizza Shop report warranty liability at the end of the current year?

400

The acid-test ratio is

Cash, current investments, and accounts receivable divided by current liabilities

Assuming a current ratio of 1.0 and a acid test ratio of 0.75, how will the purchase of inventory with cash affect each ratio?

No change to current ratio and decrease the acid test ratio

Which of the following is NOT a primary source of corporate debt financing?

Recievables

A company purchased new equipment for 31,000 with a two year installment note requiring 5% intrest. The required monthly payment is 1,360. For the first month's payment what is the amount to record for intrest expense?

129

A company purchased new equipment for 31,000 with a two year installment note requiring 5% intrest. The required monthly payment is 1,360. After the first month's payment, what is the balance of the note?

29,769

Which of the following typically represents an advantage of leasing over purchasing an asset with an installment note?

All of the above (Lease payments are often lower than installment payments, leasing generally requires cash upfront, Leasing typially offers greater flexibility and lower costs of disposing an asset)

A company needs construction equipment to complete a project over the next 20 months. The equipment costs $10,000. Instead of purchasing the equipment with a 12% note, the company leases the equipment with payments of $300 due at the end of each month. For what amount would the company record the lease liability at the beginning of the lease?

5,414

Which of the following ratios measures financial leverage?

The debt to eqity ratio

A company issues 50,000 of 4% bonds, due in 5 years, with intrest payable semiannually. Calculate the issue price of the bonds, assuming a market intrest rate of 5%

47812

The price of a bond is equal to

the present value of the face amount plus the present value of the stated interest payments

Suppose a company issues five year bonds for face amount of 80,000 with 6% semiannual intrest. On the issue date, the company will record bonds payable for

80,000

Suppose a company issues five year bonds for face amount of 80,000 with 6% semiannual intrest. On the first interest payable date, the company records interest expense of

2,400

Which of the following is true for bonds issued at a discount?

The market Interest rate is greater than the stated Interest rate

When bonds are issued at a premium, what happens to the carrying value and interest expense each period over the life of the bonds?

Carrying value and Interest expense decrease

A company issues 50,000 of 4% bonds, due in 5 years, with intrest payable semiannually. Assuming a market rate of 3% the bonds issue for 52,306. Calculate Interest expense as of the first semiannual interest payment

785

A company issues 50,000 of 4% bonds, due in 5 years, with intrest payable semiannually. Assuming a market rate of 3% the bonds issue for 52,306. Calculate the carrying value of the bonds after the first semiannual interest payment.

52,091

Lincoln County retires a $50 million bond issue when the carrying value of the bonds is $48 million, but the market value of the bonds is $54 million. Lincoln county will record the retirement as

a debit of $6 million to Loss due to early extinguishment