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chapter_9_-_quiz_1
Quiz Questions for Chapter 9
1.
A truck was purchased for $25,000. It has a six-year life and a $4,000 salvage value. Under the straight-line method, what is the assets carrying value
(
book value) after 2 1/2 years?
a.
$8,750.
b.
$12,250.
c.
$14,583.
d.
$16,250.
2.
On January 1, 20X1, Superior Landscaping Company paid $17,000 to buy a stump remover. If the equipment is used to remove 2,500 stumps per year, it would have an estimated useful life of 10 years and a salvage value of $4,500. The amount of depreciation to be recorded for the year 20X1, using the units-of-production method and assuming that 3,500 units were produced, is
a.
$2,380.
b.
$1,750.
c.
$1,700.
d.
$1,250.
3.
The sale of equipment costing $8,000 with accumulated depreciation of $6,700 and a sale price of $2,000 would result in a
a.
gain of $2,000.
b.
gain of $700.
c.
loss of $700.
d.
loss of $1,300.
4.
Underestimating the number of tons of a mineral that can be mined over a mineral deposit’s life will result in
a.
overstated net income each year.
b.
overstated total assets each year.
c.
overstated depletion expense each year.
d.
no effect on total assets each year.
5.
A copyright is obtained for what becomes a very successful book. The publisher expects the book to generate sales for 10 years. The copyright should be amortized over
a.
2 to 4 years.
b.
10 years.
c.
40 years.
d.
the author’s life plus 50 years.
The following information pertains to the next two questions. Z Company purchased an asset that cost $24,000 on January 1, 20X2. The asset was expected to have a four-year life and a $4,000 salvage value.
6.
The amount of depreciation expense for 20X4 under the double-declining-balance method would be:
a.
$2,000.
b.
$3,000.
c.
$6,000.
d.
$12,000.
7.
Assume that Z Company uses the straight-line depreciation method. If on January 1, 20X5, Z Company sells the asset for $10,000, the cash flow statement would reflect a:
a.
$1,000 cash inflow from gain on the sale of the asset under the operating section.
b.
$10,000 cash inflow from an asset disposal in the investing section.
c.
$9,000 cash inflow from an asset disposal in the financing section.
d.
a and c.
8.
On January 1, 20X6, Fulsom Corporation purchased a machine for $50,000. Fulsom paid shipping expenses of $500 as well as installation costs of $1,200. The machine was estimated to have a useful life of ten years and an estimated salvage value of $3,000. If Fulsom records depreciation under the straight-line method, depreciation expense for 20X7 is.
a.
$4,870.
b.
$5,170.
c.
$5,270.
d.
$5,570.
9.
The Hickory Ridge Company purchased a building and the plot of land for $920,000. The individual assets had the following appraised market values:
Land
$614,400
Building
$345,600
Recording the land in the accounting records would
a.
increase land by $588,800.
b.
increase land by $614,400.
c.
increase assets by $920,000.
d.
Both a and c.
10.
The Silverman Company purchased equipment on November 1, 20X2 for $35,000. The equipment has a 10-year life and a zero salvage value. The company uses the straight-line-method for financial reporting and MACRS for seven-year property for tax purposes. Based on this information, which of the following is true?
a.
In the early years of the asset’s life, higher depreciation expenses will be shown on the income statement than on the tax return.
b.
There will be deferred taxes shown on the income statement.
c.
Taxes due on the tax return will be lower in the early years of the asset’s life because of the depreciation charges.
d.
Taxes due on the tax return will be lower in the later years of the asset’s life because of the depreciation charges.
11.
Penny Lane and Associates purchased a generator on January 1, 20X6, for $6,300. The equipment was estimated to have a five-year life and a salvage value of $600. At the beginning of 20X8, the company revised the expected life of the asset to six years and revised the salvage value to $300. Using straight-line depreciation, the depreciation expense recorded in 20X8 would
a.
decrease assets and equity by $1,140.
b.
decrease assets and equity by $930.
c.
decrease assets and equity by $1,005.
d.
decrease assets and equity by $1,500.
12.
Which of the following statements is true about goodwill?
a.
The amount of goodwill is determined by computing the difference between the fair market value of the asset on the day of purchase minus the amount paid for its purchase.
b.
The amount of goodwill is recorded as an asset.
c.
The amortization of goodwill acts to reduce the amount of net income.
d.
All of the above.
13.
XYZ Company paid cash for a capital expenditure that improved the operating efficiency of one of its assets. Which of the following choices accurately reflects how this expenditure would affect the company’s financial statements?
|
Assets |
= |
Liab. |
+ |
Equity |
Rev. |
( |
Exp. |
Net Inc. |
Cash Flow |
||||||||||||||||||
| a. |
+ ( |
n/a |
( IA |
||||||||||||||||||||||||
| b. | |||||||||||||||||||||||||||
| c. |
( OA |
||||||||||||||||||||||||||
| d. | |||||||||||||||||||||||||||
14.
KLM Company experienced an accounting event that affected its financial statements as indicated below:
| + | ( |
|
( OA |
Which of the following events could have caused these effects?
a.
recognition of depreciation.
b.
cash paid for capital expenditure.
c.
amortization of patent.
d.
none of the above.
