Deck 9: Reporting and Interpreting Liabilities

Question 1

What is the book value of a tangible operating asset?

A)Acquisition cost.
B)Current estimated market value.
C)Acquisition cost minus the balance in accumulated depreciation.
D)Total depreciation that has been recorded on the asset to date.

Answer 1

C

Question 2

Which of the following would not be included in the acquisition cost of a building?

A)An apportioned amount of the purchase cost when both the land and building are acquired in a basket purchase.
B)The cost of putting new windows and doors in the building before it opens for operations.
C)The cost of paving the parking lot and outdoor lighting in the lot.
D)The cost of paying an architect to design the remodelling modifications of the building before the store opens.

Answer 2

D

Question 3

The Land account would include all of the following costs except

A)drainage costs.
B)the cost of building a fence.
C)title fees.
D)the cost of tearing down a building.

Answer 3

B

Question 4

Wilson,Inc.,a manufacturing company,is preparing their annual financial statements.Which of the following accounts would not be grouped under operational assets?

A)Buildings.
B)Land on which the building is located.
C)Equipment.
D)Finished goods inventory.

Question 5

Tangible assets include which of the following?

A)Land,buildings,and leaseholds.
B)Land,buildings,and natural resources.
C)Natural resources,buildings,and franchises.
D)Licenses,trademarks,and land.

Question 6

What are operational assets that have physical substance called?

A)Long-term investments.
B)Tangible assets.
C)Intangible assets.
D)Current assets.

Question 7

Which of the following costs would be excluded from the acquisition cost of equipment purchased from a supplier?

A)Cost to install the equipment.
B)The cost of freight paid to get the equipment to our factory.
C)The cost to widen an entrance in the building to bring the equipment into the facilities.
D)A purchases discount offered by the supplier.

Question 8

Intangible assets include which of the following?

A)Natural resources,patents,and trademarks.
B)Trade receivables,franchises,and trademarks.
C)Copyrights,licenses,and land.
D)Leaseholds,patents,and copyrights.

Question 9

Johnson Company acquires land and building for $4,000,000 including all fees related to acquisition.The land is appraised at $2,700,000 and the building at $2,100,000.The building is then renovated at a cost of $750,000.What amount is capitalized to the building account?

A)$2,078,125
B)$2,500,000
C)$2,375,000
D)$4,000,000

Question 10

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 repainted and recarpeted and there will also be some plumbing work done.Which of the following statements is true?

A)The cost of the building will not include the repainting and recarpeting costs.
B)The cost of the building will include the cost of replacing the roof.
C)The cost of the building is the purchase price of the building,while the additional expenditures are all capitalized as Building Improvements.
D)The wiring is part of the computer costs,not the building cost.

Question 11

When may a company include interest cost as part of the cost of the asset?

A)When they buy a piece of equipment and finance its acquisition by a bank loan.
B)When they must borrow money to finance the manufacture of their inventory items.
C)When they are self-constructing a piece of equipment they will use to manufacture their products,but only during the period of construction.
D)Interest is never allowed to be capitalized.

Question 12

Depletion is recorded for which of the following?

A)Uncollectible trade receivables.
B)Natural resources.
C)Intangible assets.
D)Land and buildings.

Question 13

On March 1,Chapine Company purchased a new stamping machine for $5,000.Chapine paid cash for the machine.Other costs associated with the machine were: transportation costs,$300; sales tax paid,$200; and installation cost,$100.What cost was recorded for the machine?

A)$5,000
B)$5,200
C)$5,500
D)$5,600

Question 14

Which of the following would be classified as an operational (fixed)asset?

A)Land purchased and held for sale by a realtor.
B)Land purchased and held for development by Wal-Mart as a new store site.
C)Land and buildings owned by Toys "R" Us that are store sites closed due to restructuring and consolidating operations.
D)A Ford Motor Company manufacturing plant used to manufacture the Focus line in Oakville,Ontario.

Question 15

To which account should the amount of sales tax paid on the purchase of new machinery should be debited?

A)A sales tax expense account.
B)A separate deferred charge account.
C)The machinery account.
D)Accumulated depreciation for machinery.

Question 16

Operational assets do not include which of the following kinds of assets?

A)Plant and equipment in use.
B)Land held for resale.
C)Patents in use.
D)Mineral deposits being mined.

Question 17

The apportionment of the acquisition cost of an operational asset to future periods in which the benefits contribute to earning revenue must be which of the following?

A)Random
B)Impaired
C)Revised annually.
D)Rational.

Question 18

Airbury Company acquired manufacturing equipment at an invoice price of $80,000 and paid $750 to have it delivered to the factory.$400 was spent to repair a door that was damaged while installing the equipment.At what amount should this equipment be recorded on the company's books?

A)$80,000
B)$80,400
C)$80,750
D)$81,150

Question 19

Martinelli Company recently purchased a truck.The price negotiated with the dealer was $85,000.Martinelli also paid sales tax of $6,000 on the purchase,shipping and preparation costs of $950,and insurance for the first year of operation of $2,000.For the truck,what amount should be debited to the asset account Vehicles?

A)$85,000
B)$85,950
C)$91,000
D)$91,950

Question 20

Belmont Corporation made a basket purchase of land,a building and equipment,paying a total of $1,500,000.Market values for the assets were not available,but the appraised values were $300,000 for the land,$900,000 for the building,and $600,000 for equipment.What amounts should be recorded in the Land,Building,and Equipment accounts,respectively?

A)$300,000,$900,000,and $600,000
B)$1,500,000,$-0-,and $-0-
C)$250,000,$750,000,and $500,000
D)$500,000,$500,000,and $500,000

Question 21

With respect to depreciation policies,the principle of consistency means:

A)A company should disclose on the financial statements the depreciation method for all its capital assets.
B)A company should use the same depreciation method from year to year for a given capital asset.
C)A company should use the same depreciation methods as other companies in the same industry.
D)A company should use the same depreciation method in computing depreciation expense on all its assets.

Question 22

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

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

Question 23

Residual value is which of the following?

A)Equal to the acquisition cost of a tangible operational asset.
B)The same as book value of an asset.
C)The amount expected to be recovered when an asset is disposed of at the end of its estimated useful life.
D)The current value of an asset as of the statement of financial position date.

Question 24

In accounting for tangible operational assets,the continuity assumption is important because of which of the following?

A)It helps a company decide whether to use straight-line depreciation or an accelerated depreciation method.
B)It justifies depreciating the asset over its expected useful life,without anticipating that the business will liquidate in the near future.
C)It provides justification for including residual values in calculating depreciation.
D)It is consistent with maintaining assets in the accounting records at market value rather than acquisition cost.

Question 25

On January 1,20A,Straight,Inc.,purchased a machine with a cash price of $9,500.Straight also paid $500 for transportation and installation.The expected useful life of the machine is 5 years and the residual value is $500.Assuming straight-line depreciation,the annual depreciation expense would be which of the following?

A)$1,800
B)$1,900
C)$2,000
D)$2,100

Question 26

Bubba Inc.purchased an asset on January 1,20A.Bubba chose the straight-line method to depreciate the asset.Had Bubba chosen an accelerated depreciation method,which of the following would be false?

A)Depreciation expense would be greater in 20A.
B)The book value of the asset would be less at the end of 20A.
C)Profit would be less in 20A.
D)Depreciation expense would be the same each year.

Question 27

In 20B,Gamma Company made an ordinary repair to a delivery truck at a cost of $300.Gamma's accountant debited the asset account,Delivery Vehicles.Was this treatment an error,and if so,what will be the effect on the financial statements of Gamma?

A)The repair was accounted for correctly.
B)The error increased assets and profit in 20B.
C)In the years following 20B,net income will be too high.
D)The error decreased profit in 20B.

Question 28

Bethany Company plans to depreciate a new building using declining-balance depreciation with a 200 percent acceleration rate.The building cost $400,000.The estimated residual value of the building is $50,000 and it has an expected useful life of 25 years.Assuming the first year's depreciation expense was recorded properly,what would be the amount of depreciation expense for the second year?

A)$15,360
B)$16,000
C)$29,440
D)$32,000

Question 29

Management should select the depreciation method that

A)is easiest to apply.
B)best measures the asset's fair value each period over its useful life.
C)best reflects the pattern in which the asset's future economic benefits are to be consumed.
D)has been used most often in the past by the company.

Question 30

Lowe Company purchased a machine at a cash cost of $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.depreciation expense for year 8 would be which of the following (assuming straight-line depreciation)?

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

Question 31

On January 1,20A,Johns Company purchased an asset that cost $10,000 (no estimated residual value,estimated useful life 8 years,straight-line depreciation is used).An error was made because the total cost amount was debited to an expense account for 20A and no depreciation on it was recorded.Pretax profit for 20A was $11,250.What was the correct pretax profit for 20A?

A)$12,000
B)$19,200
C)$20,000
D)$20,750

Question 32

In 2012,WD Company reported the cost of their parks,resorts and other related property at $15,869 million and accumulated depreciation on these assets at $6,220 million.The remaining estimated life of these assets is approximately

A)61%.
B)39%.
C)45%.
D)Cannot be determined from the given information.

Question 33

What is an extraordinary repair to a building?

A)It is a revenue expenditure and it is debited to an expense account.
B)It is a capital expenditure and it is debited to an asset account.
C)It is a capital expenditure and it is debited to an expense account.
D)It is a revenue expenditure and may be debited to accumulated depreciation.

Question 34

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?

A)Straight-line.
B)Units-of-production.
C)Depreciation.
D)Declining-balance.

Question 35

A company decided to use the units of production method to calculate depreciation on a car to be driven by the sales manager.The amount of annual depreciation will vary with which of the following?

A)Age of the car.
B)Balance in accumulated depreciation.
C)Number of kilometres the car is driven.
D)Amount of maintenance expense incurred on the car.

Question 36

Trumble Company purchased a machine on January 1,20B,for $10,000.The company bookkeeper incorrectly used a 6-year life instead of a 5-year life to depreciate the machine.What would be the effect of this error on the 20B financial statements?

A)Overstatement of assets offset by an understatement of shareholders' equity.
B)Overstatement of assets offset by an understatement of retained earnings.
C)Overstatement of assets,profit,and shareholders' equity.
D)Overstatement of assets and an understatement of liabilities.

Question 37

Bangor Industries purchased a car for $22,000 on January 1,20A.The car had an estimated useful life of 80,000 kilometres and an estimated residual value of $4,000.In the second year of ownership (20B),the car was driven 25,000 kilometres.Using the units of production method,what was the amount of depreciation expense for 20B?

A)$4,500
B)$5,000
C)$5,625
D)$6,875

Question 38

Sure Company purchased a machine on January 1,20A,at a cash cost of $12,000.The estimated useful life is 10 years,and the estimated residual value is $3,000.The company will use the declining-balance method based on a 150 percent acceleration rate.What will be the depreciation expense for the second year?

A)$900
B)$1,350
C)$1,530
D)$1,800

Question 39

If a company classifies an expenditure as a capital expenditure instead of a revenue expenditure,which of the following will be false?

A)Profit for the year of acquisition will be higher.
B)The initial cost basis of the asset will be higher.
C)Depreciation expense will be higher over the asset's life.
D)It will be expensed in the year in which the expenditure takes place.

Question 40

What is the main purpose of recording depreciation?

A)To allocate the cost of a tangible asset to the periods in which its use contributes to earning revenue.
B)To estimate the remaining useful life of the asset.
C)To report the asset on the statement of financial position at the estimated amount for which the asset could be sold on the statement of financial position date.
D)To estimate the current replacement cost of the asset.

Question 41

If a company sold an operational asset at a price equal to its book value,the selling company would record which of the following?

A)No gain or loss.
B)A gain.
C)A loss.
D)A betterment.

Question 42

Most companies keep separate sets of accounting records for financial reporting and for income tax computations.Which of the following statements is true?

A)They do it even though this practice is illegal and in violation of international financial reporting standards.
B)They do it because the Income Tax Act requires companies to keep separate records for tax purposes.
C)They do it because financial reporting rules and ITA regulations differ in many ways.
D)They do it to enable a company to do a reconciliation between taxable income and reported profit.

Question 43

Recording depreciation expense does which of the following?

A)It reduces both profit and the amount of cash generated by a company.
B)It does not affect profit or the amount of cash generated by a company.
C)It reduces profit and increases the amount of cash generated by a company.
D)It reduces profit but does not affect the amount of cash generated by a company.

Question 44

Belton Corporation uses straight-line depreciation and,for assets acquired during the fiscal year,follows the policy of recording a full month's depreciation for all assets acquired on or before the 15^th of the month.No depreciation is recorded for the month if an asset is acquired after the 15^th.On May 22,20A,Belton purchased a car that cost $22,000 which had an estimated residual value of $2,000 and an estimated useful life of five years.To the nearest dollar,what is the amount of depreciation that should be recorded on the car for 20A?

A)$2,000
B)$2,333
C)$2,667
D)$4,000

Question 45

Kovacic Company purchased a computer that cost $10,000.It had an estimated useful life of five years and residual value of $0.The computer was depreciated by the straight-line method and was sold at the end of the fourth year of use for $3,000 cash.What should Kovacic record?

A)A gain of $1,000.
B)A loss of $1,000.
C)Neither a gain nor a loss-the computer was sold at its book value.
D)Neither a gain nor a loss-the gain that occurred in this case would not be recognized.

Question 46

A depreciable asset that cost $100,000 had an estimated useful life of 5 years and estimated residual value of $10,000.What is the first year for which depreciation would be greater under the straight-line method than under the declining-balance method with an acceleration rate of 200%?

A)The first year.
B)The second year.
C)The third year.
D)The fourth year.

Question 47

Which of the following statements is false?

A)Depreciation expense is added to profit in the operating activities section of the statement of cash flows because it had no cash effect on profit under the indirect method.
B)Depreciation expense is included in the investing activities section of the cash flow statement.
C)The only cash effect for depreciation is the tax savings provided by its deduction to derive taxable income.
D)Depreciation is a non-cash expense that reduces profit but involves no outflow of cash.

Question 48

Which of the following is false?

A)The book value at the end of an asset's useful life will be the same under all the depreciation methods allowed under IFRS.
B)The total depreciation in the accumulated depreciation account will be the same at the end of the asset's useful life under all the methods allowed under IFRS.
C)The annual depreciation expense will differ under the various depreciation methods.
D)The annual depreciation expense using the straight-line method increases each year.

Question 49

Helm Corporation purchased a machine with an initial cost of $80,000,a residual value of $5,000,and an estimated useful life of 10 years.At the beginning of the fifth year,Helm spent $10,000 for an extraordinary repair.Following the repair,Helm estimated that the machine had a remaining useful life of 8 years,and that the residual value was unchanged.Calculate depreciation expense on the machine for the fifth year,assuming that Helm uses the straight-line method.

A)$5,625
B)$6,875
C)$7,250
D)$7,500

Question 50

The records of Pam Company showed the following about a machine on January 1,20H: Purchased 1/1/20E for $35,000
Accumulated depreciation at January 1,20H,$26,400
On July 1,20H,the machine was sold for $7,000.Depreciation for the first six months of 20H was $1,467.The gain or loss on disposal would be which of the following?

A)$133 loss
B)$133 gain
C)$1,600 loss
D)$1,600 gain

Question 51

Which of the following statements is false?

A)A company can change the method used for depreciating assets if the change can be justified because it provides a better measure of the company's profit.
B)A change in estimate requires the company to recalculate and restate all the prior years' estimates of depreciation and adjust the impact on the statement of financial position and income statement.
C)A change in estimate is frequently necessary because the estimates of useful lives or residual values may change over time because conditions change.
D)Either a change in estimate or a change in method can only be justified on the basis it provides a better measure of profit.

Question 52

WD Company reports profit in 2012 of $1,300 million and depreciation expense of $851 million.They also report investment in new theme parks,resorts,and other property of $2,134 million for 2012.Which of the following disclosures would appear on their statement of cash flows?

A)Depreciation of $851 million would be deducted from profit under operating activities and the $2,134 million would be added under investing activities
B)Depreciation of $851 million would be added to profit under operating activities and the $2,134 million would be added under investing activities
C)Depreciation of $851 million would be added to profit under operating activities and the $2,134 million would be deducted under investing activities
D)Depreciation of $851 million would be deducted from profit under operating activities and the $2,134 million would be deducted under investing activities

Question 53

How is the matching principle related to the recording of depreciation on tangible operational assets?

A)The matching principle requires a company to use the same depreciation.
B)Once a particular depreciation method is adopted for a particular asset,the owner must continue to use the same method.
C)The accountant who calculates the depreciation may assume that the company will continue in business as long as the estimated useful life of the asset.
D)A portion of the cost of the asset should be allocated as an expense for the periods in which the asset helps the business to earn revenue.

Question 54

Which of the following is a false statement?

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 operational assets but then use a different method for another group or type of operational assets.
D)Companies cannot change their estimate of the salvage value of a long-term asset.

Question 55

Barnes Company purchased a machine on April 4,2011,for $210,000.The machine had an estimated useful life of five years and a salvage value of $30,000.The machine is being depreciated using the double declining balance method.Barnes depreciates its assets from the first day of the month nearest the date of purchase.The asset balance,net of accumulated depreciation,at December 31,2012,should be:

A)$75,600
B)$88,200
C)$94,800
D)$105,600

Question 56

Angstrom Corporation purchased a truck at a cost of $60,000.It has an estimated useful life of five years and estimated residual value of $5,000.At the beginning of year three,Angstrom's managers concluded that the total useful life would be four years,rather than five.There was no change in the estimated residual value.What is the amount of depreciation that Angstrom should record for year 3 under the straight-line method?

A)$8,250
B)$11,000
C)$15,500
D)$16,500

Question 57

Godfrey's Gadgets sold an obsolete piece of equipment for $4,000.Original cost of the item had been $12,500 and its accumulated depreciation was $7,200.This transaction would result in a:

A)Loss of $3,200
B)Loss of $1,300
C)Gain of $4,000
D)Loss of $8,500

Question 58

How should an expenditure for an ordinary repair to factory equipment be recorded?

A)As an expense in the period incurred.
B)Debited to an asset account but not depreciated over future years.
C)Debited to an asset account and depreciated over the current and future years.
D)Debited to accumulated depreciation.

Question 59

Under what conditions would a company most likely adopt the double declining-balance method for financial reporting?

A)They have high technology,robotic equipment in their plant that becomes obsolete quickly and declines in utility to the company more rapidly in the early years of the assets' lives.
B)They have a fleet of trucks where repair costs increase annually as the fleet ages.
C)They expect the asset to lose its value more rapidly in the first few years of its life.
D)Both a)and c)above.

Question 60

Jeffers Inc.purchased a warehouse and the land upon which it was located.The total price was $450,000.The land was appraised for $180,000 while the warehouse was appraised for $360,000.What account balances should Jeffers show in its general ledger?

A)Land $180,000; Warehouse $360,000
B)Land $150,000; Warehouse $300,000
C)Land $166,667; Warehouse $333,333
D)Land $150,000; Warehouse $350,000

Question 61

Non-current assets are those that a business retains for long periods of time for use in the course of normal operations rather than for sale.

Question 62

Tangible operational assets differ from intangible operational assets in that tangible assets have physical substance whereas intangible assets have no physical substance.

Question 63

One of the most important challenges facing managers is forecasting the level of productive capacity (fixed assets)needed in the long run to meet customer demand.

Question 64

In accounting,which of the following is true of goodwill?

A)It may be recorded whenever a company achieves a level of profit that exceeds the industry average.
B)It does not need to be amortized because its useful life is indeterminate.
C)It may be recorded when a company purchases another business.
D)It must be expended in the period it is recorded because benefits from goodwill are difficult to identify.

Question 65

On January 1,2012,Stacy Company purchased the College Book Store for $350,000.At the date of purchase,it was determined the recorded assets had a total market value of $325,000,comprised of inventory (books),$275,000; fixtures,$30,000; and other assets $20,000.It is estimated that the goodwill (if any)has an economic useful life of 20 years.What is the amount of amortization expense for goodwill for 2012?

A)$1,250
B)$0
C)$16,250
D)$17,500

Question 66

Which statement is false?

A)Shortening the estimated useful lives of our assets will increase the fixed asset turnover.
B)Using an accelerated depreciation method instead of straight-line will lead to reporting a higher fixed asset turnover.
C)Acquiring more operational assets when a company is growing will lead to a lower fixed asset turnover.
D)Selling off operational assets while maintaining sales will cause fixed asset turnover to decrease.

Question 67

Because of its large investment in equipment,West Jet closely monitors the unused seats on flights since it may be more profitable to reduce fares to fill more seats thereby using more of the capacity.

Question 68

The Orser Mining Company acquired a gold mine for $8,000,000.It is estimated that 40,000 ounces of gold can be extracted from the mine.In the first year of operations,15,000 ounces of gold were extracted.The Orser Mining Company would recognize:

A)An increase in profit of $3,000,000
B)Depreciation expense of $3,000,000
C)Cost of goods sold of $3,000,000
D)Depletion expense of $3,000,000

Question 69

Building and equipment are recorded at their cost at acquisition and are subsequently reported at cost less accumulated depreciation.

Question 70

Carpenter Corporation purchased a mineral deposit,making payment as follows: Cash $10,000 and 6,000 Carpenter Corporation common shares.On the date of the purchase,the mineral deposit had an appraised value of $75,000; the common shares were quoted on the market at $11 per share.Other acquisition costs amounted to $3,000 cash.What was the cost recorded for the mineral deposit?

A)$70,000
B)$73,000
C)$75,000
D)$79,000

Question 71

On March 1,20A,Jance Company purchased a producing oil well at a cash cost of $100,000.It is estimated that 250,000 barrels of oil can be produced over the remaining life of the well.By December 31,20A (end of the accounting period),1,500 barrels of oil were produced and sold.What would be the amount of depletion expense for 20A on this well?

A)$300
B)$450
C)$600
D)$750

Question 72

In 2012,DAL Co.had a fixed asset turnover of 1.63 compared to ABC Co.of 1.10.What is the most likely cause of DAL Co.'s higher ratio?

A)DAL Co.is less efficient in generating net sales from its operational assets.
B)DAL Co.is more efficient at generating profit from employing its operational assets.
C)DAL Co.is able to generate greater sales from its operational assets.
D)DAL Co.is able to generate less profit from its operational assets.

Question 73

What is the term used for matching the cost of an intangible asset with the revenues generated through the use of the asset?

A)Depletion.
B)Amortization.
C)Appraisal.
D)Book value.

Question 74

Which of the following methods ordinarily would be the most appropriate to determine depletion of natural resources for financial reporting purposes?

A)Straight-line.
B)Two hundred percent declining-balance.
C)Specific identification.
D)Units of production.

Question 75

Which of the following is true of a failure to record amortization on a patent during the current year?

A)It would cause profit to be overstated for the year but would have no effect on total assets.
B)It would cause both profit for the year and total assets to be overstated.
C)It would cause total assets to be overstated but would have no effect on profit for the year.
D)It is allowed under International Financial Reporting Standards.

Question 76

The cost allocation method utilized affects the amount of net property,plant,and equipment that is used in the computation of the fixed asset turnover ratio.

Question 77

In 2011,DAL Co.reported a fixed asset turnover ratio of 1.83 and in 2012,1.63.What was the most likely cause of this drop?

A)An increase in sales.
B)An increase in fixed assets.
C)A decrease in fixed assets.
D)An increase in profit.

Question 78

A corporation may choose to list its operational assets in the current assets section of the statement of financial position.

Question 79

Which of the following is true of depletion recorded for natural resources?

A)It recognizes increases in market value with the passage of time.
B)It matches the cost of resources used up with the revenues that are earned.
C)It is also recorded on buildings and equipment used in extracting the resource.
D)It is determined by a method similar to declining balance depreciation.

Question 80

Intangible assets have value to a business because they represent rights that are useful to the business.