Basic Accounting Multiple Choice 4 total

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QUESTION 1

1. Which method of depreciation assigns an equal amount of depreciation to each period of the asset's service life?

		Units-of-activity
		Salvage value
		Double-declining balance
		Straight-line

4.75 points

QUESTION 2

1. Southern Airlines purchased a new jet engine for $3,500,000. The engine has a 50,000 hour life and no salvage value. The accounting department at Southern Airlines determines asset depreciation using the units-of-activity method. The engine was flown 250 hours in February. What is the depreciation expense for the engine in February?

		$12,500
		$17,500
		$8,750
		$31,250

4.75 points

QUESTION 3

1. Western Manufacturing purchased a generator on January 1, 2013 for $85,000. The generator has an estimated service life of 30,000 hours, and a salvage value of $10,000. The generator has been used for the following time: 1,000 hours in 2013; 800 hours in 2014; and 700 hours in 2015. The accountant for Western Manufacturing uses the units-of-activity method of depreciation. In the following journal entry, what amount should be debited and credited?

Date	Account	Dr.	Cr.
12-31-15	Depreciation Expense
	Accumulated Depreciation
		$2,000
		$1,750
		$2,500
		$1,550

4.75 points

QUESTION 4

1. TVX Manufacturing purchases the patent for a tool from another firm for $50,000. The estimated useful life of the patent is 10 years. The cost of the patent should be __________ for the next 10 years.

		depreciated
		credited
		depleted
		amortized

4.75 points

QUESTION 5

1. Western Manufacturing purchased a generator on January 1, 2013 for $85,000. The generator has an estimated service life of 30,000 hours, and a salvage value of $10,000. The generator has been used for the following time: 1,000 hours in 2013; 800 hours in 2014; and 700 hours in 2015. The accountant for Western Manufacturing uses the units-of-activity method of depreciation. The December 21, 2014 journal entry to record the generator's depreciation expense should debit Depreciation Expense and credit Accumulated Depreciation for ________.

		$4,500
		$2,000

4.75 points

QUESTION 6

1. On January 1, 2014, RCV Enterprises purchased a machine that cost $100,000 and has a 5-year life. The RCV accountant, who uses the double-declining balance depreciation method, needs to make a journal entry to indicate the machine's depreciation in the first year. In the following journal entry, what amount should be debited and credited?

Date	Account	Dr.	Cr.
12-31-14	Depreciation Expense
	Accumulated Depreciation
		$50,000
		$20,000
		$10,000
		$40,000

4.75 points

QUESTION 7

1. In May, 2015, the owner of Dobson Enterprises sells a piece of equipment before the end of the asset's service life because the equipment is no longer useful to the business. The company's accountant needs to create two journal entries in this scenario. The first journal entry records depreciation for the first 5 months of the year. The purpose of the second journal entry is to ________.

		remove the asset and its accumulated depreciation from the books.
		record the salvage value of the asset at the time of disposal.
		debit Accounts Receivable and credit Accounts Payable for the sale.
		remove the asset from the books and record its capital expenditures.

4.75 points

QUESTION 8

1. In May, 2015, the owner of Dobson Enterprises sells a piece of equipment before the end of the asset's service life because the equipment is no longer useful to the business. The company's accountant creates two journal entries for the asset's disposal. The first journal entry records ________.

		depreciation for the first 5 months of the year.
		capital expenditures for the life of the asset.
		replacement costs of the asset.
		revenue expenditures of the asset.

4.75 points

QUESTION 9

1. Allocating the cost of an oil reserve to accounting periods that benefit from its use is a process known as

		amortization.
		depletion.
		retirement.
		depreciation.

4.75 points

QUESTION 10

1. True or false. The costs of an intangible asset with an indefinite life must be amortized.

		TRUE
		FALSE

4.75 points

QUESTION 11

		$31,250
		$12,500
		$8,750
		$17,500

4.75 points

QUESTION 12

1. On January 31, 2016, Wilson Trucking sells a trailer before the end of its service life. The trailer cost $80,000 with a service life of 80 months and no salvage value. The company uses the straight-line depreciation method. Wilson Trucking sells the trailer for $45,000 in cash when the trailer is 40 months old. Depreciation was last recorded on December 31, 2015. In the second journal entry below, what should Wilson Trucking do?

Date	Account	Dr.	Cr.
1-31-16	Depreciation Expense	1,000
	Accumulated Depreciation		1,000

Date	Account	Dr.	Cr.
1-31-16	Accumulated Depreciation	40,000
	Cash		45,000
		debit Equipment for $80,000.
		debit a loss of $5,000.
		credit Equipment for $85,000.
		credit a gain of $5,000.

4.75 points

QUESTION 13

1. The owner of Ricardo's Restaurant recently spent $10,000 to replace the restaurant building's roof, which was worn out. Since the roof has been restored to its original condition, its cost should be recorded as a(n)

		intangible asset.
		revenue expenditure.
		credit to Accumulated Depreciation.
		debit to Accumulated Depreciation.

4.75 points

QUESTION 14

1. Thompson Manufacturing owns a machine that typically experiences significant maintenance costs as it ages. The company's accountant has taken higher depreciation expenses in the early years of the machine's service life to offset high repair costs in the future. Which method of depreciation is used by Thompson?

		Units-of-activity
		Double-declining balance
		Straight-line
		Capital expenditure

4.75 points

QUESTION 15

1. Thompson Manufacturing purchased a new machine. The company's accountant decided to use the double-declining balance (DDB) method of depreciation for the machine. Which of the following best explains why the accountant would use the DDB method?

		Company cash flow improves by spreading the machine's depreciation costs equally.
		The machine's repair costs are likely to increase as the machine ages.
		The machine's service life is determined by the number of hours it is used.
		The machine does not have a future salvage value for the company.

4.75 points

QUESTION 16

1. An accountant would use the process of depletion when allocating costs associated with the use of a(n)

		bulldozer.
		franchise.
		oil reserve.
		copyright.

4.75 points

QUESTION 17

		intangible asset.
		debit to Accumulated Depreciation.
		revenue expenditure.
		credit to Accumulated Depreciation.

4.75 points

QUESTION 18

1. Tulip's Flower Shop purchased a new van to use for delivering flowers. The van cost $40,000, and the store's accountant believes the service life of the van will be 6 years. With this information, the accountant can now allocate the van's cost over 6 years. This process is known as which of the following?

		Adjustment
		Depreciation
		Estimation
		Forecasting

4.75 points

QUESTION 19

1. Chapman Construction owns many large pieces of equipment used in the business, such as cranes, bulldozers, and excavators. In the PP&E section of the balance sheet, which of the following would be included as a capital expenditure?

		Employee training to use the equipment
		Regular maintenance for the equipment
		Costs to repair equipment damage
		Purchase price and sales tax for equipment

4.75 points

QUESTION 20

1. True or false. Two journal entries are necessary when a business sells an asset. One journal entry records the asset's depreciation up to the point of sale, and a second journal entry removes the asset and its accumulated depreciation from the company's books.

		FALSE
		TRUE

4.75 points

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Part 2

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QUESTION 1

1. Steele Construction recently decided to expand from residential construction projects to commercial construction projects, which means the firm needs additional equipment, such as bulldozers and excavators. To finance this strategic move, the firm issued bonds with a par value of $25 million. The bonds pay interest annually at a stated rate of 5.0% and mature in 20 years. On the issue date, January 1, 2016, the market interest rate was 4.5%. The issue price was $29,250,785. Which of the following is recorded in the journal entry shown below?

Date	Account	Dr.	Cr.
01-01-16	Cash	$29,250,785
	Bonds Payable		$25,000,000
	Premium on Bonds Payable		$4,250,785
		Issuing a bond at a discount
		Issuing a bond at face value
		Repaying a bond at a premium
		Issuing a bond at a premium

4.75 points

QUESTION 2

1. __________ is the legal minimum for which a stock can be sold.

		Par value
		Stated value

4.75 points

QUESTION 3

1. True or false. On January 5, 2016, Loeb Corporation issued 80,000 shares of 6% cumulative preferred stock with a par value of $75. On April 1, 2016, Loeb declared a dividend on its preferred stock, payable April 30, 2016, to stockholders of record on April 20. The following entry would be made on the payment date:

Dividends Payable	$360,000
Dividends Payable		$360,000
		TRUE
		FALSE

4.75 points

QUESTION 4

1. Wilton Pet Supply Store purchases dog and cat food from Sunshine Pet Food and receives an invoice for the amount due. The amount must be repaid to Sunshine 30 days from the invoice date. Which best describes the debt incurred by Wilton?

		A long-term liability recorded as accounts receivable
		A current liability recorded as unearned revenue
		A current liability recorded as accounts payable
		A long-term liability recorded as accounts payable

4.75 points

QUESTION 5

1. What is the primary reason that firms incur long-term liabilities?

		Funding operating activities
		Failing to sell current inventory
		Receiving tax deductions for interest expenses
		Raising capital for business expansion

4.75 points

QUESTION 6

1. Stock financing is more advantageous than bond financing for all of the following reasons, except:

		Stock financing does not require repayment, whereas bond financing does.
		Stock dividends and cash dividends are tax deductible expenses.
		Stock financing gives the company more flexibility since dividends do not have to be paid.
		For investors, the return on investing in a company's stock can be much greater (higher) than the return on the same company's bonds.

4.75 points

QUESTION 7

1. Steele Construction recently decided to expand from residential construction projects to commercial construction projects, which means the firm needs additional equipment, such as bulldozers and excavators. To finance this strategic move, the firm issued bonds with a par value of $25 million. The bonds pay interest annually at a stated rate of 5.0% and mature in 20 years. On the issue date, January 1, 2016, the market interest rate was 4.5%. The issue price was $29,250,785. Which account should be credited in the following journal entry?

Date	Account	Dr.	Cr.
01-01-16	Cash	$29,250,785
	Bonds Payable		$25,000,000
	Premium on Bonds Payable		$4,250,785
		Amortization
		Discount on Bonds Payable
		Premium on Bonds Payable
		Interest Expense

4.75 points

QUESTION 8

1. Carson Construction has a 20-year, secured loan with ABC Bank, which was used to purchase a bulldozer. The bank has not received a loan payment from Carson Construction in 6 months. Given Carson's failure to repay the loan, what does ABC Bank have the contractual right to do?

		Charge a higher interest rate
		Convert the note to a bond
		Issue a bond to raise capital
		Repossess the bulldozer

4.75 points

QUESTION 9

1. Marcos, a bond investor, typically buys bonds that are repaid in increments. He also wants the right to trade the bonds for shares of a company's common stock. Which type of bonds does Marcos prefer?

		Serial, convertible bonds
		Unsecured, callable bonds
		Term, convertible bonds
		Secured, callable bonds

4.75 points

QUESTION 10

1. All of the following statements about a corporation's board of directors are true, except:

		It is a group of individuals elected by the shareholders.
		It hires managers to run the company and employees to work for the company.
		It is a group of individuals who represent the shareholders' interests.
		It delegates the responsibility for the day to day management of the corporation to top executives.

4.75 points

QUESTION 11

1. Which is a debt that must be repaid after 1 year or more, and is used by businesses to raise capital to expand operations?

		Contingent liability
		Current liability
		Accrued liability
		Long-term liability

4.75 points

QUESTION 12

1. What is a disadvantage of bonds in comparison to stocks?

		If a company chooses to issue bonds, the existing bondholders will own a smaller proportion of the company's bonds.
		Interest expense reduces the net income and profitability of the company.
		Employees who are owed back pay and retirement benefits, as well as preferred stockholders, are paid before bond holders receive anything.
		Interest is not a tax deductible expense.

4.75 points

QUESTION 13

1. Feldman Enterprises has an operating cycle of 10 months. How much time does Feldman have to repay its current liabilities?

		60 days
		3 years
		10 months
		1 year

4.75 points

QUESTION 14

1. What best defines a bond?

		A debt issued by a corporation to its investors
		A contract between a creditor and a borrower
		A debt that must be repaid in less than 1 year
		A share in the ownership of a corporation

4.75 points

QUESTION 15

1. A disadvantage of bonds in comparison to stocks is that __________ reduce/reduces the net income and profitability of the company.

		interest expense
		cash dividends

4.75 points

QUESTION 16

1. Tomlin Corporation has 1,000,000 shares of $5 par value common stock issued and outstanding. The market price of the stock is $150 per share. The company decides to declare a 5-for-1 stock split. As a result of the stock split, the market price of the stock will decrease and the number of shares issued and outstanding will __________.

		increase
		decrease

4.75 points

QUESTION 17

1. Which term describes a notes payable that is attached to an asset?

		Discounted
		Bonded
		Current
		Secured

4.75 points

QUESTION 18

1. On November 1, 2015, Concord Industries secured a loan from a bank for $600,000 to purchase manufacturing equipment. The loan will be repaid in 10 years with payments due every month and an interest rate of 3%. What will be the interest expense for the first payment on December 1, 2016?

		$1,800
		$600
		$1,000
		$1,500

4.75 points

QUESTION 19

		Retained earnings will decrease.
		The market price of the stock will decrease.
		Common stock, par value will increase.
		Paid-in capital in excess of par value, common stock will increase.

4.75 points

QUESTION 20

1. Each month, Wilton Pet Supply Store purchases dog and cat food from Sunshine Pet Food and receives an invoice for the amount due. The amount must be repaid to Sunshine 30 days from the invoice date. This situation best describes a current liability known as an __________.

		accrued liability
		accounts payable

4.75 points

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