1) Depreciation, or the process of allocating the cost of a plant asset over its useful service life, is designed to properly match expenses with revenues. a) True b) False 2) Depreciation applies to all of the following types of assets except a) Buildings b) Land c) Equipment d) Land improvements 3) Which of the following would be the correct way to record depreciation expense of $4,000 into the T accounts? a) Equipment 4,000 Depreciation Exp. 4,000 b).Accum. Deprec Equipment Depreciation Exp. 4,000 4,000 c) Accum. Deprec Equipment 4,000 Depreciation Exp. 4,000 4) Which of the following is the correct formula for the net book value of a plant asset? a) accumulated depreciation - cost b) accumulated depreciation + cost cost-accumulated d) cost + accumulated depreciation c) depreciation. 5) The condition of the asset when purchased is not taken into consideration when computing depreciation expense. a) True b) False 6) Which of the following methods of depreciation is most widely used? a) declining balance b) straight line c) units of activity d) all of the above methods are equally popular the above methods are equally popular Note: Use the following information to answer questions (7). (8) and (9): Cost: Salvage value: $5,000 $1,000 Estimated useful life: 4 years 2 (See next page) 7) Under the straight line method of depreciation, what is the depreciation expense in the first year? a) $ 250 b) $1,250 c) $1,500 d) $1,000 8) Under the straight line method of depreciation, what is the depreciation expense in the second year? a) $ 250 b) $1,250. c) $1,500 d) $1,000 9) Under the straight line method of depreciation, what is the net book value at the end of the third year? a) $3,000 b) $2,500 c) $2,000 d) $1,250 10) Which of the following methods of depreciation always results in more depreciation in the early years of an asset's life and less depreciation in the later years? a) straight line b) declining balance c) units of activity d) both (b) and (c) above 11) A plant asset has a depreciable cost of $10,000 and an estimated useful life of 100,000 hours. If it used for 24,000 hours during the first year, what is its net book value at the end of the first year? a) $10,000 b) $ 7,600 c) $2,400 d) $ 1,000 12) The total amount of depreciation recorded for a plant asset will be the same regardless of the method of depreciation used. a) True )False 13) The Internal Revenue Service requires companies to use the same depreciation method on the tax return that is used in preparing financial statements. a) True b) False 14) When a change in a depreciation estimate is required, the change is made in a) current b) future years. c) prior d) both (a) and (b) above 15) When there is an impairment, or permanent decline in the fair value of an asset, it may be written down to its new fair value in a later year when total assets and net income are at a high level. a) True b) False 16) A vehicle that cost $20,000 when purchased was sold for $5,000. At the time of the sale, the vehicle had accumulated depreciation of $17,000. What is the gain or loss on the sale? a) loss of $15,000 b) loss of $12,000 c) gain of $2,000 d) gain of $5,000 17) The cost of intangible assets with indefinite lives should not be amortized (written off). a) True b) False 18) A word, phrase, jingle, or symbol that distinguishes or identifies a particular enterprise or product is an example of a a) copyright b) patent c) trademark d) franchise 19) Which of the following statements about goodwill is incorrect? a) Goodwill is the excess of amount paid over the fair value of the net assets acquired b) Goodwill is recorded when there is a transaction that involves the purchase of an entire business c) Goodwill is amortized (written off) over 20 years d) Goodwill must be written down if a company determines the value of goodwill value has been permanently impaired Note: Use the following information to answer questions (20) and (21): Net sales: Net income: $ 800,000 $ 200,000 $ 1,000,000 Average total assets: 20) Using the above information, which of the following is the correct amount for return on assets? a) 400% b) 80% c) 25% d) 20% 21) Using the above information, which of the following is the correct amount for asset turnover? a) .20 times b) .80 times c) 1.25 times d) 5.00 times 22) In addition to accounts payable, which of the following is also a type of current liability? a) sales taxes payable b) payroll and payroll taxes payable c) unearned revenues d) both (a) and (b) above e) all of the above 23) The amounts withheld from an employee's gross pay for payroll taxes are paid off to the a) Comptroller of Maryland. b) Internal Revenue Service: c) both (a) and (b) above d) none of the above 24) When issuing a bond, which of the following is not shown on the bond certificate? a) face value b) market rate of interest c) maturity date d) contractual interest rate (stated rate) 25) If the stated interest rate is less than the market rate, this means that the bonds sell compared to their face value. at a a) discount b) premium 36) If bends 26) If bonds are sold at 102, this means that they are sold at a their face value. compared to a) discount. )premium 27) If Company A sells $50,000 of bonds at 97 and receives $48,500, which of the following would be the correct way for Company A to record the sale of bonds at a discount into the T accounts? a) Cash 48,500 Discount on Bonds Payable 1,500 Bonds Payable 50,000 b) Cash Bonds Payable 48,500 48,500 Cash Bonds Payable 48,500 50,000 Discount on Bonds Payable 1,500 28) A discount on bonds payable a) increases b) reduces c) does not affect the total cost of borrowing. 29) When the bonds in question (27) above are redeemed (paid off), what is the amount that Company A would record as a credit to cash? a) $48,500 b) $50,000 c) $51,500 d) some other amount 30) Corporations may be either for-profit or non-profit. a) True b) False 31) Which of the following is not an advantage of a corporation? a) separate legal existence b) limited liability of stockholders c) transferable ownership d) a limited life e) ability to acquire capital A 32) A corporation must pay federal and state income taxes, and its stockholders must also pay individual taxes on any cash dividends distributed to them. a) True b) False DJ Faise 33) Which of the following is the correct way to record the issuance of 2,000 shares of the $1 par value common stock for cash at $4 per share in the T accounts? a) Cash 8,000 Common Stock 8,000 b) Cash Common Stock 8,000 2,000 Additional Paid-In Capital 6,000 34) Preferred stockholders have preference or priority over common stockholders in relation to a) dividends b) assets in the event of liquidation c) both of the above d) none of the above 35) A pro-rata distribution of the corporation's own stock to stockholders, which is paid out of retained earnings (profits), is also known as a) treasury stock b) a stock split c) a stock dividend d) none of the above 36) A corporation's own stock that has been reacquired by the corporation and is being held for future use, is also known as a) treasury stock b) a stock split c) a stock dividend d) none of the above 37) 14hink 37) Which of the following would be the correct way to record a cash dividend of $75,000 on the declaration date in the T accounts? a) Dividends Payable Cash Dividends 75,000 75,000 b) Dividends Payable c) Cash 75,000 Cash Dividends 75,000 75,000 8 Cash Dividends 75,000 (See next page) 38) Based on the following information, which is the correct amount for Return on Common Stockholder's Equity? Net income: $ 600,000 Preferred dividends: $ 200,000 Cash dividends on common stock: $ 150,000 Average common stockholder's equity: $1,000,000 a) 15% b) 20% c) 25% d) 40%