Accounting Exam 3 Review

Which of the following is a capital expenditure?

Upgrade extending useful life

Capitalizing a cost increases which account type?

Asset

Which item should be recorded as a capital expenditure?

Taxes paid on new office equipment

Which of the following is not included in the cost of land?

Cost to pave parking lot

Which of the following is an intangible asset that can be amortized?

Patent

Which depreciation method does not initially use residual value?

Double-declining balance

Which statement about depreciation is false?

Depreciation should not be recorded if market value rises

A bond’s stated rate is 11% while the market rate is 9%. The bond will be issued at:

Premium

A $100,000 bond issued at 98 has a 5% stated rate. The market rate is:

Higher than 5%

If a bond is sold at a premium, how does its carrying value change over time?

Decreases

The carrying value of a bond equals:

Bonds Payable – Unamortized discount

The debt ratio is calculated by dividing:

Total debt by total assets

Bonds with an 8% stated rate are issued when the market rate is 5%. These bonds are issued at:

Premium

The Discount on Bonds Payable account is:

A contra account to Bonds Payable

Amortizing the discount on bonds payable:

Increases interest expense recorded

The carrying value on bonds equals Bonds Payable:

Minus Discount on B/P

What type of account is Discount on Bonds Payable and what is its normal balance?

Contra-liability; Debit

A company’s leverage ratio increases from 2.5 to 3.0. Which situation likely occurred?

New debt financing occurred (may or may not be profitable)

Smatter Corporation purchased land for a new building. Which of the following costs would not be included in the cost of the land?

Cost of new parking lot constructed on the land

Whitmore Corporation purchased a new delivery van on the last day of its fiscal year. The cost of the delivery van will appear on Whitmore's _______________ in the year of purchase.

Balance sheet

When a company expenses the cost of maintenance for its heating and cooling system, that cost will appear on its

Income statement

Capitalizing a cost involves increasing what type of account?

Asset

A capital expenditure

Adds to an asset

Which of the following items should be accounted for as a capital expenditure?

Taxes paid in conjunction with the purchase of office equipment

The depreciation method that does not initially use the residual value in depreciation calculations is the

Double-declining balance method

Which statement about depreciation is false?

Depreciation should not be recorded in years in which the market value of the asset has increased

Which of the following is an intangible asset?

Copyright

Bonds with an 8% stated interest rate were issued when the market rate of interest was 5%. This bond was issued at

A premium

The Discount on Bonds Payable account

is a contra account to Bonds Payable

Amortizing the discount on bonds payable

increases the recorded amount of interest expense

The carrying value on bonds equals Bonds Payable

Bonds Payable minus Discount on Bonds Payable

What type of account is Discount on Bonds Payable and what is its normal balance?

Contra liability; Debit

The debt ratio is calculated by dividing

Total debt by total assets