1. A company purchases a remote site building for computer operations. The building will be suitable for operations after some expenditures. The wiring must be replaced to computer specifications. The roof is leaky and must be replaced. All rooms must be repaired and re-carpeted and there will also be some plumbing work done.Which of the following statements is true.
a. the cost of the building will include the cost of replacing the roof
b. the cost of the building is the purchase price of the building, while the additional expenditures are all capitalized as Building improvements.
c. the wiring is part of the computer costs, not the building cost
d. the cost of the building will not include the re-carpeting cost
2. All of the following factors in computing depreciation are estimates except
a. useful life
b. cost
c. residual value
d. selvedge value
3. Accountants do not attempt to measure the change in the plant asset’s market value during ownership because
a. losses would have to be recognized
b. the assets are not held for resale
c. plant assets can not be sold
d. it is management’s responsibility to determine fair values
4. In computing depreciation, selvedge value is
a. the fair market value of a plant asset on the date of acquisition
b. ignored in all the depreciation methods
c. subtracted from accumulated depreciation to determine the plant asset’s depreciable cost
d. an estimate of a plant asset’s value at the end of its useful life
5. Useful life is expressed in terms of use expected from the asset under the
a. declining-balance method
b. straight-line method
c. units-of-activity method
d. none of these
6. Management should select the depreciation method that
a. best measures the plant asset’s market value over its useful life
b. best measure the plant asset’s contribution to revenue over its useful life
c. has been used most often in the past by the company.
d. is easiest to apply
7. A change in the estimated useful life of equipment requires
a. that the amount of periodic depreciation be changed in the current year and in future years
b. that income for the current year be increased
c. that no change be made in the periodic depreciation so that depreciation amounts are comparable over the life of the asset
d. a retroactive change in the amount of periodic depreciation recognized in the previous year
8. Additions and improvements
a. typically only benefit the current accounting period
b. normally involve immaterial expenditures
c. increase the book value of the plant assets when incurred
d. occur frequently during the ownership of a plant asset
9. If a plant asset is retired before it is fully depreciated, and no selvedge or scrap value is received
a. phantom depreciation must be taken as though the asset were still on the books
b. no gain or loss on disposal will be recorded
c. a gain on disposal will be recorded
d. a loss on disposal will be recorded
10. On a balance sheet, natural resources may be described more specifically as all of the following except
a. timberlands
b. land improvements
c. mineral deposits
d. oil reserves
11. A patent should
a. be amortized over its useful life or 20 yes, whichever is longer
b. be amortized over its useful life or 20 yrs, whichever is shorter
c. be amortized over a period of 20 yrs
d. not be amortized if it has an indefinite life
12. The balance in accumulated depreciation is
a. deducted from intangible assets on the balance sheet
b. deducted from retained earnings in the stockholders’ equity section of the balance sheet
c. generally not reported in the financial statements
d. deducted from plant and equipment on the balance sheet
13. A gain on sale of a plant asset occurs when the proceeds of the sale are greater than the
a. market value of the asset sold
b. selvedge value of the asset sold
c. accumulated depreciation on the asset sold
d. book value of the asset sold
14. A purchased patent has a legal life of 20 yrs. It should be
a. amortized over its useful life if less than 20 yrs
b. expensed in the year of acquisition
c. not amortized
d. amortized over 20 yrs regardless of its useful life
15. A truck was purchased for $120,000 and it was estimated to have a $24,000 selvedge value at the end of its useful life. Monthly depreciation expense of$2000 was recorded using the straight-line method. The annual depreciation rate is
a. 25%
b. 8%
c. 20%
d. 2%
16. All of the following are reported as current liabilities except
a. bonds payable
b. notes payable
c. accounts payable
d. unearned revenues
17. The relationship between current liabilities and current assets is
a. useful in determining the amount of a company’s long-term debt
b. useful in evaluating a company’s liquidity
c. called the matching principle
d. useful in determining income
18. Most companies pay current liabilities
a. out of current assets
b. by issuing interest-bearing notes payable
c. by issuing stock
d. by creating long-term liabilities
19. From a liquidity standpoint, it is more desirable for a company to have current
a. liabilities exceed current assets
b. assets equal current liabilities
c. assets exceeds current liabilities
d. liabilities exceed long-term liabilities
20. In most companies, current liabilities are paid within
a. one year through the creation of other current liabilities
b. the operating cycle out of current assets
c. the operating cycle through the creation of other current liabilities
d. one year out of current assets
21. The entry to record the issuance of an interest-bearing note credits Note Payable for the note’s
a. market value
b. maturity value
c. face value
d. cash realizable value
22. As interest is recorded on an interest-bearing note, the Interest Expense account is
a. decreased; the Interest Payable account is increased
b. increased; the Interest Payable account is increased
c. increased; the Notes Payable account is increased
d. increased; the Notes Payable account is decreased
23. Unearned Rental Revenue is
a. a revenue account
b. a contra account to Rental Revenue
c. reported as a current liability
d. debited when rent is received in advance
24. The amount of sales tax collected by a retail store when making sales is
a. recorded as an operating expense
b. not recorded because it is a tax paid by the customer
c. a miscellaneous revenue for the store
d. a current liability
25. Bonds that are secured by real estate are termed
a. bearer bonds
b. mortgage bonds
c. serial bonds
d. debentures
26. A major disadvantage resulting from the use of bonds is that
a. bond holders have voting rights
b. earning per share may be lowered
c. interest must be paid on a periodic basis
d. taxes may increase
27. Which one of the following amounts increases each period when accounting for long-term notes payable?
a. interest expense
b. principal balance
c. reduction of principal
d. cash payment
28. The entry to record an installment payment on a long-term note payable is
a. Mortgage notes Payable
Interest Expense
Cash
b. Bonds Payable
Cash
c. Interest Expense
Cash
d. Mortgage Notes Payable
Cash
29. Each of the following may be shown in a supporting schedule instead of the balance sheet except the
a. maturity dates
b. conversion privileges
c. interest rate
d. current maturities of long-term debt
30. The discount on bonds payable on premium or bond payable is shown on the balance sheet as an adjustment to bonds payable to arrive at the carrying value of the bonds. Indicate the appropriate addition or subtraction to bonds payable:
Premium on Discount on
Bonds Payable Bonds payables
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a. Deduct Deduct
b. Deduct Add
c. Add Add
d. Add Deduct
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