GB 518 Quiz 4 GB518 Financial Accounting Principles and Analysis 1. � Question : � A depreciation method that produces larger depreciation expense during the early years of an asset’s life and smaller expense in the later years is a(n): � � � � � � Accelerated depreciation method � � � � � � � Book value depreciation method � � � � � � � Straight-line depreciation method � � � � � � � Units-of-production depreciation method � � � � � � � Unrealized depreciation method Question 2. � Question : � A 90-day note issued on April 20 has a maturity date of: � � � � � � � July 17 � � � � � � � July 18 � � � � � � July 19 � � � � � � � July 20 � � � � � � � July 21 Question 3. � Question : � The buyer who pays cash for an account receivable referred to as a: � � � � � � � Payor � � � � � � � Pledgor � � � � � � Factor � � � � � � � Payee � � � � � � � Pledgee Question 4. � Question : � The maturity date of a note receivable: � � � � � � � Is the day of the credit sale � � � � � � � Is the day the note was signed � � � � � � Is the day the note is due to be paid � � � � � � � Is the date of the first payment � � � � � � � Is the last day of the month � � Question 5. � Question : � Cardco Inc. has an annual accounting period which ends on December 31. During the current year a depreciable asset which cost $42,000 was purchased on September 2. The asset has a $4,000 estimated salvage value. The company uses straight-line depreciation and expects the asset to have a 5 year life. What is the total depreciation expense for the current year? � � � � � � � $1,900.00 � � � � � � � $7,600.00 � � � � � � $2,533.33 � � � � � � � $2,800.00 � � � � � � � $3,166.67 Question 6. � Question : � A copyright: � � � � � � Gives its owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 70 years � � � � � � � Is an exclusive right granted to its owner to manufacture and sell a device or to use a process for 17 years � � � � � � � Is an exclusive right granted to its owner to manufacture and sell a device or to use a process for 50 years � � � � � � � Is the amount by which the value of a company exceeds the fair market value of a company’s net assets if purchased separately � � � � � � � Gives its owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 17 years Question 7. � Question : � The interest accrued on $3,600 at 7% for 60 days is: � � � � � � � $36 � � � � � � $42 � � � � � � � $252 � � � � � � � $180 � � � � � � � $420 � � � � � � Question 8. � Question : � A machine originally had an estimated useful life of 5 years, but after 3 complete years, it was decided that the original estimate of useful life should have been 10 years. At that point the remaining cost to be depreciated should be allocated over the remaining: � � � � � � � 2 years � � � � � � � 5 years � � � � � � 7 years � � � � � � � 8 years � � � � � � � 10 years Question 9. � Question : � Obsolescence: � � � � � � � Occurs when an asset is at the end of its useful life � � � � � � Refers to a plant asset that is no longer useful in producing goods and services � � � � � � � Refers to the insufficient capacity of a company’s plant assets to meet the company’s productive demands � � � � � � � Occurs when an asset’s salvage value is less than its replacement cost � � � � � � � Does not affect plant assets Question 10. Question : � Pepsi’s accounts receivable turnover was 9.9 for this year and 11.0 for last year. Coke’s turnover was 9.3 for this year and 9.3 for last year. These results imply that: � � � � � � � Coke has the better turnover for both years � � � � � � Pepsi has the better turnover for both years � � � � � � � Coke’s turnover is improving � � � � � � � Coke’s credit policies are too loose � � � � � � � Coke is collecting its receivables more quickly than Pepsi in both years Question 11. Question : � A company had average total assets of $897,000. Its gross sales were $1,090,000 and its net sales were $1,000,000. The company’s total asset turnover is equal to: � � � � � � � 0.82 � � � � � � � 0.90 � � � � � � � 1.09 � � � � � � 1.11 � � � � � � � 1.26 Question 12. Question : � A company purchased a delivery van for $23,000 with a salvage value of $3,000 on September 1, 2010. It has an estimated useful life of 5 years. Using the straight-line method, how much depreciation expense should the company recognize on December 31, 2010? � � � � � � � $1,000 � � � � � � $1,333 � � � � � � � $1,533 � � � � � � � $4,000 � � � � � � � $4,600 Question 13. Question : � A credit sale of $2,500 to a customer would result in: � � � � � � A debit to the Accounts Receivable account in the general ledger and a debit to the customer’s account in the accounts receivable ledger � � � � � � � A credit to the Accounts Receivable account in the general ledger and a credit to the customer’s account in the accounts receivable ledger � � � � � � � A debit to the Accounts Receivable account in the general ledger and a credit to the customer’s account in the accounts receivable ledger � � � � � � � A credit to the Accounts Receivable account in the general ledger and a debit to the customer’s account in the accounts receivable ledger � � � � � � � A credit to Sales and a credit to the customer’s account in the accounts receivable ledger � � � � � � Question 14. Question : � Amortization: � � � � � � Is the systematic allocation of the cost of an intangible asset to expense over its estimated useful life � � � � � � � Is the process of allocating to expense the cost of a plant asset to the accounting periods benefiting from its use � � � � � � � Is the process of allocating the cost of natural resources to periods when they are consumed � � � � � � � Is an accelerated form of expensing an asset’s cost � � � � � � � Is the same as depletion Question 15. Question : � A company’s annual accounting period ends on September 30. During the current year a depreciable asset which cost $16,000 was purchased on January 1. The asset has a $2,000 estimated salvage value. The company uses straight-line depreciation and expects the asset to have a 4-year life. What is the total depreciation expense for the current year? � � � � � � � $4,000 � � � � � � � $3,000 � � � � � � � $3,500 � � � � � � $2,625 � � � � � � � $875 � � Question 16. Question : � On December 31, 2010, Stable Company sold a piece of equipment that was purchased on January 1, 2005. The equipment originally cost $820,000 and has an estimated useful life of eight years. Stable uses the straight-line method of depreciation. What is the gain/loss on the sale of equipment that Stable will recognize if the equipment was sold for $230,000? � � � � � � � $230,000 Gain � � � � � � � $25,000 Loss � � � � � � $25,000 Gain � � � � � � � $73,750 Gain � � � � � � � . $0; no gain or loss Question 17. Question : � Cardco Inc. has an annual accounting period which ends on December 31. During the current year a depreciable asset which cost $42,000 was purchased on September 2. The asset has a $4,000 estimated salvage value. The company uses straight-line depreciation and expects the asset to have a 5 year life. What is the total depreciation expense for the current year? � � � � � � � $1,900.00 � � � � � � � $7,600.00 � � � � � � $2,533.33 � � � � � � � $2,800.00 � � � � � � � $3,166.67 Question 18. Question : � Dell reported net sales of $8,739 million and average accounts receivable of $864 million. Its accounts receivable turnover is: � � � � � � � 0.90 � � � � � � 10.1 � � � � � � � 36.1 � � � � � � � 50.0 � � � � � � � 3,686 Question 19. Question : � Depreciation: � � � � � � � Measures the decline in market value of an asset � � � � � � � Measures physical deterioration of an asset � � � � � � Is the process of allocating to expense the cost of a plant asset � � � � � � � Is an outflow of cash from the use of a plant asset � � � � � � � Is applied to land Question 20. Question : � Plant assets are: � � � � � � Tangible assets used in the operation of a business that have a useful life of more than one accounting period � � � � � � � Current assets � � � � � � � Held for sale � � � � � � � Intangible assets used in the operations of a business that have a useful life of more than one accounting period � � � � � � � Tangible assets used in the operation of business that have a useful life of less than one accounting period Question 21. Question : � Many companies use accelerated depreciation in computing taxable income because: � � � � � � � It is required by the tax rules � � � � � � � It is required by financial reporting rules � � � � � � It postpones tax payments until later years and the company can use the resources now to earn additional income before payment is due � � � � � � � Using it causes a company to use higher income in the early years of the asset’s useful life � � � � � � � The results are identical to straight-line depreciation Question 22. Question : � A company purchased a tract of land for its natural resources at a cost of $1,500,000. It expects to mine 2,000,000 tons of ore from this land. The salvage value of the land is expected to be $250,000. The depletion expense per ton of ore is: � � � � � � � $0.75 � � � � � � $0.625 � � � � � � � $0.875 � � � � � � � $6.00 � � � � � � � $8.00 Question 23. Question : � A promissory note received from a customer in exchange for an account receivable: � � � � � � � Is a cash equivalent for the recipient � � � � � � � Is an account receivable for the recipient � � � � � � Is a note receivable for the recipient � � � � � � � Is a short-term investment for the recipient � � � � � � � Is a note payable for the recipient Question 24. Question : � The matching principle requires: � � � � � � � That expenses be ignored if their effect on the financial statements are less important than revenues to the financial statement user � � � � � � � The use of the direct write-off method for bad debts � � � � � � The use of the allowance method of accounting for bad debts � � � � � � � That bad debts be disclosed in the financial statements � � � � � � � That bad debts not be written off Question 25. Question : � Extraordinary repairs: � � � � � � � Are revenue expenditures � � � � � � Extend an asset’s useful life beyond its original estimate � � � � � � � Are cred
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