QUESTION 7 (8 marks) Answer all of the questions by bolding, colouring, and/or highlighting (not with red) the answer you think is correct. Questions with more than one answer selected will be marked as incorrect. Each question is worth 1 mark. 1. An estimated liability includes an obligation to pay: a. An uncertain but reasonably estimated amount to a specific entity on a specific date. b. A known amount to a specific entity on an uncertain due date. C. A known amount to an unknown entity on a certain due date d. All of the above. 2. A car is sold for $15,000 on June 1 with a one-year warranty covering parts and labour. Warranty expense is estimated at 1.5% of selling price. On March 1 the car is returned for warranty repairs for parts costing $75 and labour costing $60. The amount recorded as warranty expense at the time of the repair is: a. $0 b. $60 C. $75 d. $135 e. $22 3. The following items relate to the purchase of a new machine by Xero Company: gross purchase price, $700,000; GST, $35,000; discount taken for early payment, $21,000; assembly costs, $3,000; spare parts, $4,200, cost to repair damage to machine during installation, $5,000. The amount to be recorded as a cost of the new machine is: a. $726,200 b. $691,200 C. $687,000 d. $682,000 e. $700,000 4. Which of the following statements regarding the disposal of property, plant and equipment (PPE) is correct? a. Again will be recognized when the book value of the asset is greater than the proceeds of disposition. b. A loss will be recognized when the book value of the asset is greater than the proceeds of disposition. c. Gains and losses are never recognized on the disposal of PPE. d. If the asset is replaced with a dissimilar asset, the gain or loss) will be added to or (deducted from) the cost of the replacement asset. e. Both b and d. 5. In June 2015, Seahawks Transport purchased a new vehicle. The company made the following expenditures with respect to the vehicle in the month of June: Invoice price, terms FOB shipping point $214,000 Cost of gas for the first month of operation 1,500 Cost of liability insurance - one-year policy 17,000 Cost to paint the company's logo on the vehicle 2,000 Cost to ship the truck from the manufacturer to Seahawks Transport 3,000 Which of the following represents the cost at which the vehicle will be recorded in the company's accounts? a. $219,000 b. $234,000 C. $236,000 d. $237,500 6. The appropriate way to amortize goodwill is: a. Straight-line over a maximum of 40 years. b. Straight-line over a maximum of 20 years. c. Over the estimated useful life of the goodwill. d. Goodwill is not amortized; it is subject to an impairment test. 7. Land improvements are: a. Assets that increase the usefulness of land, but that have a limited useful life subject to amortization. b. Assets that increase the usefulness of land, and like land, are not amortized. c. Included in the value of the land account. d. Expensed in the period incurred. 8. Natural resources a. Include patents. b. Include land improvements. c. Are wasting assets. d. Are not amortized. e. Include copyrights
