Question 1

Which of the following statements is correct?

Accepted Answer

A) Using straight-line depreciation in comparison to an accelerated depreciation method will result in a lower reported amount of total assets at end of the first year of an asset's life. 
B) Using accelerated depreciation in the first year of an asset's life will result in a higher net income during the first year compared to using the straight-line depreciation method. 
C) Using an accelerated depreciation method will lead to a higher fixed asset turnover ratio for the first year. 
D) Using straight-line depreciation in comparison to an accelerated depreciation method will lead to a higher book value at the end of an asset's life. 
A) Using straight-line depreciation in comparison to an accelerated depreciation method will result in a lower reported amount of total assets at end of the first year of an asset's life. 
B) Using accelerated depreciation in the first year of an asset's life will result in a higher net income during the first year compared to using the straight-line depreciation method. 
C) Using an accelerated depreciation method will lead to a higher fixed asset turnover ratio for the first year. 
D) Using straight-line depreciation in comparison to an accelerated depreciation method will lead to a higher book value at the end of an asset's life.

Question 2

If a long-lived asset has been impaired,the journal entry will require a debit to a loss account and a credit to the long-lived asset account.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements is correct?

Accepted Answer

A) Companies can change the method of depreciating assets from one year to the next. 
B) Companies can affect the book value at the end of an asset's life by choosing one method of depreciation over another. 
C) Companies can use one method of depreciation for some of their long-lived, productive assets but then use a different method for another group or type of long-lived, productive assets. 
D) Companies can minimize an asset's book value in the first year of use by selecting the straight-line depreciation method rather than the double-declining-balance method. 
A) Companies can change the method of depreciating assets from one year to the next. 
B) Companies can affect the book value at the end of an asset's life by choosing one method of depreciation over another. 
C) Companies can use one method of depreciation for some of their long-lived, productive assets but then use a different method for another group or type of long-lived, productive assets. 
D) Companies can minimize an asset's book value in the first year of use by selecting the straight-line depreciation method rather than the double-declining-balance method.

Question 4

The financial statements of Franklin Company contained the following errors:
 $$\begin{array} { l r r r } 
\text { Item } &{ December 31, 2009 } &  {December 31,2010 }  \
\text { Depreciation expense on office } &  & \
\text { equipment } & \$ 1,000 understated & \$ 900  overstated \
\end{array}$$ Requirements:
A.Was net income for 2009 understated or overstated?
B.Was total combined net income for the two-year period ended December 31,2010 overstated or understated?

Accepted Answer

Depreciation expense reduces net incom

Question 5

Which of the following would most likely not be a revenue expenditure?

Accepted Answer

A) Repairing the carpet in the sales department offices. 
B) Repairing a leaky roof. 
C) Putting a hydraulic lift on a delivery truck making it easier and quicker to deliver appliances. 
D) Painting the exterior of the factory building. 
A) Repairing the carpet in the sales department offices. 
B) Repairing a leaky roof. 
C) Putting a hydraulic lift on a delivery truck making it easier and quicker to deliver appliances. 
D) Painting the exterior of the factory building.

Question 6

Which method of depreciation results in periodic depreciation expense that fluctuates from one period to the next,not necessarily in a steadily upward or downward direction?

Accepted Answer

A) Straight-line 
B) Units-of-production 
C) Modified accelerated cost recovery system 
D) Declining balance 
A) Straight-line 
B) Units-of-production 
C) Modified accelerated cost recovery system 
D) Declining balance

Question 7

Which of the following is incorrect for Smith Company when Smith issues 10,000 shares of $10 par value common stock and pays $20,000 cash in exchange for a building? The market price of the Smith stock on the exchange date was $35 per share and the building's book value on the books of the seller was $200,000.

Accepted Answer

A) The common stock account increases by $100,000. 
B) The building account increases by $350,000. 
C) Stockholders' equity increases $350,000. 
D) The additional paid-in capital account increases by $250,000. 
A) The common stock account increases by $100,000. 
B) The building account increases by $350,000. 
C) Stockholders' equity increases $350,000. 
D) The additional paid-in capital account increases by $250,000.

Question 8

Which of the following transactions would not increase the fixed asset turnover ratio?

Accepted Answer

A) A profitable sale of inventory on account. 
B) A profitable sale of inventory for cash. 
C) Selling equipment used in the manufacturing process for a loss. 
D) A decrease in cash-based operating expenses. 
A) A profitable sale of inventory on account. 
B) A profitable sale of inventory for cash. 
C) Selling equipment used in the manufacturing process for a loss. 
D) A decrease in cash-based operating expenses.

Question 9

If depreciation expense is calculated without taking into account the asset's residual value,depreciation expense will be higher than it should have been.

Accepted Answer

A) True 
 B)False

Question 10

Which statement is false?

Accepted Answer

A) Shortening the estimated useful lives of depreciable assets will lead to a higher fixed asset turnover. 
B) Using an accelerated depreciation method instead of the straight-line depreciation method will lead to reporting a higher fixed asset turnover during the earlier years of an asset's life. 
C) Acquiring more long-lived, productive assets when a company is growing will lead to a lower fixed asset turnover. 
D) Selling off long-lived, productive assets while maintaining sales will lead to a lower fixed asset turnover. 
A) Shortening the estimated useful lives of depreciable assets will lead to a higher fixed asset turnover. 
B) Using an accelerated depreciation method instead of the straight-line depreciation method will lead to reporting a higher fixed asset turnover during the earlier years of an asset's life. 
C) Acquiring more long-lived, productive assets when a company is growing will lead to a lower fixed asset turnover. 
D) Selling off long-lived, productive assets while maintaining sales will lead to a lower fixed asset turnover.

Question 11

A machine,acquired for a cash cost of $15,000,is being depreciated on a straight-line basis of $2,700 per year.The residual value was estimated to be 10% of cost.The estimated useful life is

Accepted Answer

A) 3 years. 
B) 4 years. 
C) 5 years. 
D) 6 years. 
A) 3 years. 
B) 4 years. 
C) 5 years. 
D) 6 years.

Question 12

Landmark Restaurants reported net income of $45.9 million during 2010.They reported depreciation and amortization of plant and equipment of $48.8 million and cash paid for additions to property,plant and equipment of $162.9 million during 2010.Explain where each of these items would be reported and their impact on cash flows on the statement of cash flows.

Accepted Answer

The net income of $45.9 million would be

Question 13

Williams Company purchased a machine costing $25,000 and is depreciating it over a 10-year estimated useful life with a residual value of $3,000.At the beginning of the eighth year,a major overhaul on it was completed at a cost of $8,000,and the total estimated useful life was changed to 12 years with the residual value unchanged.How much is the year 8 depreciation expense assuming use of the straight-line depreciation method?

Accepted Answer

A) $2,200 
B) $2,920 
C) $3,100 
D) $8,800 
A) $2,200 
B) $2,920 
C) $3,100 
D) $8,800

Question 14

Which of the following statements regarding the fixed asset turnover ratio is incorrect?

Accepted Answer

A) The numerator is net operating income. 
B) The denominator is average net fixed assets. 
C) It is used to assess a company's effectiveness in generating sales from its fixed assets. 
D) It increases when a company sells a factory building for its book value. 
A) The numerator is net operating income. 
B) The denominator is average net fixed assets. 
C) It is used to assess a company's effectiveness in generating sales from its fixed assets. 
D) It increases when a company sells a factory building for its book value.

Question 15

Gains and losses on a long-lived asset disposal are determined by comparing the asset's cost to its selling price.

Accepted Answer

A) True 
 B)False

Question 16

In accounting for depreciation,acquisition cost and useful life usually are known quantities,whereas residual value is an estimate because it relates to an amount in the future.

Accepted Answer

A) True 
 B)False

Question 17

Warren Company plans to depreciate a new building using the double declining-balance depreciation method.The building cost $800,000.The estimated residual value of the building is $50,000 and it has an expected useful life of 25 years.What is the building's book value at the end of the first year?

Accepted Answer

A) $736,000 
B) $768,000 
C) $686,000 
D) $690,000 
A) $736,000 
B) $768,000 
C) $686,000 
D) $690,000

Question 18

The systematic and rational allocation of the acquisition cost of natural resources to those periods in which the resources contribute to revenue is called depletion.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following includes only intangible assets?

Accepted Answer

A) Natural resources, patents, and trademarks. 
B) Research and development costs, franchises, and trademarks. 
C) Copyrights, licenses, and land. 
D) Leaseholds, patents and copyrights. 
A) Natural resources, patents, and trademarks. 
B) Research and development costs, franchises, and trademarks. 
C) Copyrights, licenses, and land. 
D) Leaseholds, patents and copyrights.

Question 20

Schager Company purchased a computer system on January 1,2010,at a cash cost of $25,000.The estimated useful life is 10 years,and the estimated residual value is $3,000.The company will use the double declining-balance depreciation method.How much is the 2011 depreciation expense?

Accepted Answer

A) $5,000 
B) $4,000 
C) $3,800 
D) $2,200 
A) $5,000 
B) $4,000 
C) $3,800 
D) $2,200

Which of the following statements is correct?

If a long-lived asset has been impaired,the journal entry will require a debit to a loss account and a credit to the long-lived asset account.

Which of the following statements is correct?

Which of the following would most likely not be a revenue expenditure?

Which method of depreciation results in periodic depreciation expense that fluctuates from one period to the next,not necessarily in a steadily upward or downward direction?

Which of the following transactions would not increase the fixed asset turnover ratio?

If depreciation expense is calculated without taking into account the asset's residual value,depreciation expense will be higher than it should have been.

Which statement is false?

A machine,acquired for a cash cost of $15,000,is being depreciated on a straight-line basis of $2,700 per year.The residual value was estimated to be 10% of cost.The estimated useful life is

Which of the following statements regarding the fixed asset turnover ratio is incorrect?

Gains and losses on a long-lived asset disposal are determined by comparing the asset's cost to its selling price.

In accounting for depreciation,acquisition cost and useful life usually are known quantities,whereas residual value is an estimate because it relates to an amount in the future.

Warren Company plans to depreciate a new building using the double declining-balance depreciation method.The building cost $800,000.The estimated residual value of the building is $50,000 and it has an expected useful life of 25 years.What is the building's book value at the end of the first year?

The systematic and rational allocation of the acquisition cost of natural resources to those periods in which the resources contribute to revenue is called depletion.

Which of the following includes only intangible assets?

Schager Company purchased a computer system on January 1,2010,at a cash cost of $25,000.The estimated useful life is 10 years,and the estimated residual value is $3,000.The company will use the double declining-balance depreciation method.How much is the 2011 depreciation expense?

Financial Statements and Business Decisions

Investing and Financing Decisions and the Balance Sheet

Operating Decisions and the Income Statement

Adjustments,Financial Statements,and the Quality of Earnings

Communicating and Interpreting Accounting Information

Reporting and Interpreting Sales Revenue, Receivables, and Cash

Reporting and Interpreting Cost of Goods Sold and Inventory

Reporting and Interpreting Liabilities

Reporting and Interpreting Bonds

Reporting and Interpreting Owners Equity

Reporting and Interpreting Investments in Other Corporations

Statement of Cash Flows

Analyzing Financial Statements

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Exam 8: Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles

Which of the following statements is correct?

If a long-lived asset has been impaired,the journal entry will require a debit to a loss account and a credit to the long-lived asset account.

Which of the following statements is correct?

Which of the following would most likely not be a revenue expenditure?

Which method of depreciation results in periodic depreciation expense that fluctuates from one period to the next,not necessarily in a steadily upward or downward direction?

Which of the following transactions would not increase the fixed asset turnover ratio?

If depreciation expense is calculated without taking into account the asset's residual value,depreciation expense will be higher than it should have been.

Which statement is false?

A machine,acquired for a cash cost of $15,000,is being depreciated on a straight-line basis of $2,700 per year.The residual value was estimated to be 10% of cost.The estimated useful life is

Which of the following statements regarding the fixed asset turnover ratio is incorrect?

Gains and losses on a long-lived asset disposal are determined by comparing the asset's cost to its selling price.

In accounting for depreciation,acquisition cost and useful life usually are known quantities,whereas residual value is an estimate because it relates to an amount in the future.

Warren Company plans to depreciate a new building using the double declining-balance depreciation method.The building cost $800,000.The estimated residual value of the building is $50,000 and it has an expected useful life of 25 years.What is the building's book value at the end of the first year?

The systematic and rational allocation of the acquisition cost of natural resources to those periods in which the resources contribute to revenue is called depletion.

Which of the following includes only intangible assets?

Schager Company purchased a computer system on January 1,2010,at a cash cost of $25,000.The estimated useful life is 10 years,and the estimated residual value is $3,000.The company will use the double declining-balance depreciation method.How much is the 2011 depreciation expense?

Financial Statements and Business Decisions

Investing and Financing Decisions and the Balance Sheet

Operating Decisions and the Income Statement

Adjustments,Financial Statements,and the Quality of Earnings

Communicating and Interpreting Accounting Information

Reporting and Interpreting Sales Revenue, Receivables, and Cash

Reporting and Interpreting Cost of Goods Sold and Inventory

Reporting and Interpreting Liabilities

Reporting and Interpreting Bonds

Reporting and Interpreting Owners Equity

Reporting and Interpreting Investments in Other Corporations

Statement of Cash Flows

Analyzing Financial Statements

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