Multiple Choice: Chose the one best answer for each of the following (2 points each) 1. On October 1, Denton Company borrows $100,000 from National Bank signing a six month note payable for that amount plus interest to be computed at a rate of 9% per annum. Which of the following statements are not true about this transaction. a. Daltons liability on October 1 is only $100,000 b. The maturity value of this note is $104,500 c. On December 31, Denton will have a liability for accrued interest payable in the amount of $4,500. d. Dentons total liability for this loan at November 30 is $101,500. 2. Payroll expenses for employers may involve: a. Liabilities to federal and state governments b. Liabilities to insurance companies c. Liabilities to labor unions d. All of the above 3. Which of the following situations require recording a liability in 2012? a. In 2012, a company manufactures and sells stereo equipment that carries no warranty but has not held up well for the consumer b. In 2012, a theater group receives payments in advance from season ticket holders for productions to be performed in 2013 c. A company is a defendant in a legal action. At the end of 2012, the companys attorney feels it is possible the company will lose and that the amount of the loss might be material. d. During 2012, a Midwest agricultural cooperative is concerned about the risk of loss if inclement weather destroys the crops. 4. Assume that Spree Company received $400,000 for long-term promissory notes that were issued on November 1. The notes pay interest on April 30 and October 31 at the annual rate of 6 percent which was comparable to other interest rates in the market at that time. Which of the following journal entries would be required at December 31? a. Interest Expense 4,000 Interest Payable 4,000 b. Interest Expense 4,000 Cash 4,000 c. Interest Expense 4,000 Interest Payable 8,000 Cash 12,000 d. Interest Expense 8,000 Interest Payable 4,000 Cash 12,000 5. As of February 28, 2013, Greetings Company had 9,700 full time and 19,800 part time employees. Assume that in the last pay period of the year, the company paid $8,000,000 to employees after deducting $2,000,000 for employee income taxes, $612,000 for FICA taxes and $700,000 for other payroll taxes. No payments have been made to the government relating to these taxes. Which of the following statements is true regarding this pay period? a. FICA taxes payable is $612,000 b. FICA taxes payable is $1,224,000 c. Salaries and wages expense is $6,000,000 d. None of the above is true 6. Which of the following statements is correct? a. Accumulated depreciation represents a cash fund being accumulated for the replacement of plant assets b. The cost of a machine includes the cost of repairing damage to the machine during the installation process c. A company may use different depreciation methods in its financial statements and its income tax return d. The use of accelerated depreciation method causes an asset to wear out more quickly than does use of the straight-line method. 7. Edison Enterprises purchased a depreciable asset on October 1, 2010 at a cost of $100,000. The asset is expected to have a salvage value of $15,000 at the end of its five year useful life. If the asset is depreciated on the double-declining-balance method, the assets book value on December 31, 2012 will be: a. $27,540 b. $21,600 c. $32,400 d. $18,360 e. $90,000 8. The modified accelerated cost recovery system (MACRS): a. Is included in the U.S. federal income tax rules for depreciating assets b. Is an out-dated system that is no longer used by companies c. Is required for financial reporting d. Is identical to units of production depreciation e. All of the above 9. All else equal, if Takers Company incurs a 3 percent fee to factor $10,000 of its accounts receivable, its net income will a. Increase by $10,000 b. Increase by $9,700 c. Increase by $300 d. Decrease by $300 e. None of the above 10. Hobb Company purchased machinery for $40,000 eight years ago. It was expected to have a useful life of ten years, no salvage value, and was depreciated using the straight line method. At the end of its eighth year of use, it was retired from service and given to a junk dealer The entry to record the retirement includes: a. Debit to Loss on Disposal for $8,000 b. Credit to Depreciation Expense for $4,000 c. Debit to Machinery for $40,000 d. Credit to Accumulated DepreciationMachinery for $32,000. Use the following data for questions 11 and 12. Powder Company bought real estate on which there was an old office building for $800,000. They paid $80,000 in cash as a down payment and signed a 6% mortgage for the remainder. They immediately had the old building razed at a net cost of $40,000. Attorneys were paid $7,000 in connection with the land purchase and an additional $3,000 in connection with permits and zoning variances necessary for Powders new office building. $25,000 was paid for excavation for the basement of the new building. $1,700,000 was paid for construction of the new building, and $95,000 was paid for a parking lot and necessary walkways and driveways. 11. The new office building should be recorded at: a. $1,700,000 b. $1,728,000 c. $1,725,000 d. $1,823,000 12. Land should be recorded at a cost of: a. $847,000 b. $840,000 c. $935,000 d. $895,000 13. Salvage value is deducted in the computation of depreciation expense in all of the following methods with the exception of: a. Straight line b. Units of activity c. Declining balance d. All of the above include a deduction of salvage value 14. On June 30, 2012, Johnson Company sold equipment with an original cost of $99,000 for $40,000. The equipment was purchased January 1, 2011 and was depreciated using the straight line method assuming a five year useful life and $9,000 salvage value. The necessary entries for 2012 include a: a. Debit to Accumulated Depreciation-Equipment for $16,000 b. Debit to Loss on sale of equipment for $32,000 c. Credit to Cash for $40,000 d. Debit to depreciation Expense for $8,000 15. Candy Corporation borrowed $180,000 on March 1, 2012 signing a one year, 6% note payable to State Bank. The adjusting entry required on December 31, 2012 includes a: a. Debit to Interest Expense of $9,000 b. Debit to cash of $180,000 c. Credit to Interest Revenue of $9,000 d. Debit to Interest Payable of $10, 800 (Problem #1 (42 points) At December 31, 2011, Goethe Corporation reported the following plant assets. Land $ 2,000,000 Buildings $21,600,000 Less: Accumulated depreciationbuildings 7,920,000 13,680,000 Equipment 7,200,000 Less: Accumulated depreciationequipment 2,700,000 4,500,000 Total plant assets $20,180,000 During 2012, the following selected cash transactions occurred: . Feb. 1 Purchased land for $1,400,000. Apr. 1 Sold equipment that cost $48,000 when purchased on January 1, 2007. The equipment was sold for $14,000. June 1 Sold land for $1,300,000. The land cost $900,000. Sept. 1 Purchased equipment for $96,000. Dec. 31 Retired equipment that cost $64,000 when purchased on December 31, 2004. No salvage value was received. Instructions (a) Journalize the transactions. (Hint: You may wish to set up T accounts, post beginning balances, and then post 2012 transactions.) Goethe uses straight-line depreciation for buildings and equipment. The buildings are estimated to have a 30-year useful life and no salvage value; the equipment is estimated to have an 8-year useful life and no salvage value. Be sure to update depreciation on assets disposed of at the time of sale or retirement with a journal entry. (b) Record adjusting entries for depreciation for 2012