TRUE/FALSE. Write T if the statement is true and F if the statement is false. 1) The cost of razing a building on a parcel of land to build a new building is added to the cost of the land. 1) 2) Treating a cost which should be an expense as a capital expenditure will make a company's net 2) income higher. 3) 3) Expenditures which extend the life of an asset or increase its productive capacity should be expensed. ) 4) Normal expenditures for repairs and maintenance should be capitalized. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 5) Which of the following is included in the cost of land? 5) A) The cost of paving B) The cost of fencing The cost of outdoor lighting D) The cost of clearing the land TRUE/FALSE. Write T if the statement is true and F if the statement is false, 6) The cost of excavating a basement for a new building is added to the price of the land. 6) 7) The cost of land includes the cost of removing unwanted buildings. 7 8) An asset impairment will be reflected by an increase in the book value of an asset, as shown on the balance sheet. 10) 9) A loss on the sale of a plant asset is recorded when the sales price exceeds the book value. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 10) Which of the following items should be deplete A) Intangible property B) Natural resources Land D) Tangible property, plant, and equipment, other than land 11) Which of the following is the expense resulting from a decline in the utility of a natural resource? 11) A) Obsolescence B) Depreciation Depletion D) Amortization 12) 12) Which of the following accounting methods is the method used to compute depletion? A) Units-of-production B) Straight-line First-In, First-Out D) Declining-balance 13) 13) Navajo Mining Company purchased a mine in 2013 for $3,400,000. It was estimated that the mine contained 200,000 tons of ore and that the mine would be worthless after all of the ore was extracted. The company extracted 25,000 tons of ore in 2013 and 30,000 tons of ore in 2014. What is depletion expense for 2013? A) $425,000 B) $510,000 $340,000 D) 5680,000 14) Which would NOT be accounted for by the depletion method? A) Oil reserves B) Coal reserves C) Land D) Timber reserves 14) 15) 15) A mine is purchased for $4,000,000. There will be a salvage value of $300,000 when the land is restored after mining is completed. The mine has an estimated 250,000 tons of coal. What is the depletable cost per ton of coal? A) $13.33 B) $14.80 C)$16.00 D) Cannot be determined from given information 16) Depletion would be used for all of the following EXCEPT: A) oil and gas. B) timber. merchandise inventory. D) minerals. TRUE FALSE. Write T if the statement is true and 'T' if the statement is false. 17) If assets are junked before being fully deprecated, there is a loss equal to the book value of the 16) 17) asset. 18) 18) A loss occurs on the exchange of a plant asset if the market value of the new asset received is greater than the total amount given up in the exchange. 19) A gain on disposal of an asset is recorded when cash received is less than book value, 20) When an asset is fully depreciated, the salvage value must be written off. 19) 20) 21) When an asset is fully depreciated, no further depreciation expense is recorded. 21) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question 22) Which of the following is NOT considered a plant asset? A) Building B) Land Equipment D) Copyright 22) 23) 23) Which of the following is the amount capitalized as goodwill? A) The excess of the cost of an acquired company over the sum of the book value of its assets B) The excess of the cost of an acquired company over the sum of the market value of its assets The excess of the cost of an acquired company over the sum of the book value of its net assets D) The excess of the cost of an acquired company over the sum of the market value of its net assets 24) 24) Which of the following types of expenses result from a decline in the utility of an intangible asset? A) Depreciation B) Obsolescence Amortization D) Depletion 25) 25) Azimuth Company purchases a small business for $500,000. The market value of the business's assets are $850,000, and the market value of the liabilities are $400,000. How much goodwill should Azimuth record? A) $50,000 B) None C) $450,000 D) $500,000 TRUE/FALSE. Write T if the statement is true and 'F' if the statement is false. 26) If a company incurs an expense, but treats it as an asset, net income would be understated. 27) If a note payable has installments due within a year, the entire note is treated as a current liability. 26) 27) 30) 28) Amounts owed for products or services purchased on account are contingent liabilities. 28) 29) Unearned revenue is an obligation to provide goods or services to the customer. 29) 30) Notes payable are considered short-term if they are due within the current operating cycle. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question, 31) Which of the following is an amount for products or services purchased on account? 31) A) Accrued expense B) Estimated warranty payable C) Unearned revenue D) Accounts payable 32) 32) Which of the following is a characteristic of a current liability? A) A current liability is a liability that is due within one year or one operating cycle, whichever is longer. B) A current liability is a liability that is due within 30 days. C) A current liability is a liability that is due within 10 days. D) A current liability is a liability that is due in longer than a one-year period, or one operating cycle. 33) 33) Which of the following occurs when a company records accrued interest expense on a note payable? A) Note payable is credited. B) Cash is debited. Interest payable is credited. D) Interest expense is credited. 34) 34) In which of the following periods should the estimated warranty liability be debited? A) The period when the product is shipped to the customer B) The period when the product is sold C) The period when cash is collected for the sale of the product D) The period when cash is paid to repair or replace the product 35) 35) Which of the following is the proper treatment for a liability that exists, but the exact amount of which is not known? A) The liability should be ignored. B) The liability should be reported in the notes to the financial statements. The liability should be treated as a contingent liability. D) The amount of the liability should be estimated and recorded. 36) Tractor World offers warranties on all their tractors. They estimate warranty expense at 2.4% of sales. At the beginning of 2013, the Estimated warranty payable account had a credit balance of $900. During the year, Tractor World had $285,000 of sales, and had to pay out $5,100 in warranty payments. At the end of the year, how much Warranty expense was reported on the income B) $5,100 C) $4,200 D) $2,640 36) statement? A) $6,840 37) 37) A certain contingent liability was evaluated at year-end, and considered to have a reasonable possibility of becoming an actual liability. If the accountant decided NOT to report it on the balance sheet or in the notes to the financial statement, what effect would this have on the financial reporting of the company? A) The net income of the company would be understated. B) The information about the transaction would be inadequately disclosed in the notes. The liabilities on the balance sheet would be understated D) There would be no effect. 38) 39) 38) Which of the following is NOT an exact liability? A) Accounts payable B) Income tax payable Warranty payable D) FICA tax payable TRUE/FALSE. Write T if the statement is true and 'F if the statement is false, 39) Gross pay is the total amount of salary, wages, commissions, and bonuses earned by an employee during a pay period. 40) The old age, survivors, and disability insurance portion of FICA taxes is imposed on all of an individual employee's earnings 41) Payroll tax expense includes the employer's portion of FICA taxes, state unemployment taxes, and federal unemployment taxes. 42) FICA tax is a tax which is paid by the employer only and is not deducted from the employee's pay. 43) The Statewide Sales Company has gross pay for March of S45,000. The first journal entry in the payroll cycle to record salary expense would include a credit to Cash for $45,000 40) 41) 42) 13) 44) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question 44) Which of the following is included in the entry to record the employer's payroll taxes? A) A credit to Payroll tax expense B) A credit to FICA tax payable A debit to State unemployment tax payable D) A credit to Salary payable to employees 15) of 7.65% 45) Dan Jones and Pat Smith are the only two employees of Lone Star Company. In January, 2012, Dan's gross pay was $4,400 and Pat's gross pay was $5,200. All earnings are subject to FICA taxes Which of the following would be included in the entry to record the salary expense for January? A) A credit to Salary expense for $734,40 B) A credit to FICA tax payable for $734.40 A debit to FICA tax payable for $734.40 D) A debit to Salary payable to employees for $734.40 46) 46) The Statewide Sales Company has gross pay for March of S45,000. Which of the following would be included in the first journal entry in the payroll cycle to record salary expense? A) Debit Cash B) Debit Salary payable Debit Salary expense D) Credit Salary expense 47) Art Parrish, the sole employee of Parrish Sales, has gross salary for March of $4,000. The entire amount is under the OASDI limit of $106,800, and thus subject to FICA. He is also subject to federal income tax at a rate of 18%. Art has a deduction of $320 for health insurance and $80 for United Way. The second entry in the payroll cycle to record the disbursement of his net pay should include which of the following? A) Debit Cash B) Credit to Payable to the United Way C) Credit to Salary payable D) Debit FICA tax payable 47) 58) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question 58) Using the present value tables, please compute the present value of an annuity which pays $2,000 per year for 10 years, discounted at 7% A) $14,048 B) $19,240 $16,440 D) $18,180 59) On January 1, 2014, Partridge Company issued $50,000 of 6-year bonds with a stated rate of 3%. The market rate at time of issue was 4%, so the bonds were discounted and sold for $47,331. Partridge uses the effective interest rate of amortization for bond discount. Semiannual interest payments are made on June 30 and December 31 of each year. How much interest expense will be recorded when the first interest payment is made? (Please round to the nearest whole dollar.) A) $750 B) $2,000 $947 D) $167 59) 60) TRUE/FALSE. Write T if the statement is true and 'F if the statement is false. 60) The main reason companies retire bonds prior to their maturity date is to relieve the pressure of paying semiannual interest payments. 61) If a company wishes to retire bonds early, they may call the bonds if the bonds are callable, but they may not purchase them on the open market. $1) 62) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question 62) Compute the present value of a bond: The principal amount is $50,000, the stated rate is 3%, and the term of the bond is 6 years. The bond pays interest semiannually. At the time of issue, the market rate is 4%. Please compute the present value of the bond at market rate using the present value tables. A) $7,931 B) $39,400 ) $47,331 D) $59,000 63) 64) TRUE/FALSE. Write T if the statement is true and 'F if the statement is false. 63) The formation of a corporation is generally less complicated than the formation of a partnership. 64) Different classes and types of stock carry different degrees of risk for the shareholder 65) When a company records the year-end closing entries, the first step is to close the Revenues to Retained earnings 66) Declaring and paying dividends causes a decrease in both assets and equity. 67) If a company has a strong rate of return on common stockholders' equity, that is an indication of strong profitability. 65) 66) 67) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 68) The rate of return on total assets and the rate of return on cominon stockholders' equity are used to 68) evaluate the A) ability to pay current liabilities with current assets. B) profitability of the business C) cash flow of the business D) liquidity of the business. 69) Reed Company reports the following information for the year 2013: Net income Preferred dividends Common equity, Jan 1 Common equity, Dec 31 $46,000 12,000 800,000 900,000 70) Please calculate the rate of retum on common stockholders' equity. Please round to 3 decimal places. A) 0.014 B) 0.054 C) 0.040 D) 0.043 TRUE/FALSE. Write 'T' if the statement is true and 'F if the statement is false. 70) Normally, a company's book income and tax income should be the same. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answer the question 71) Which one of the following describes financial leverage? A) To earn more income on borrowed money than the related interest expertise B) To finance with equity capital C) To pay off all long-term debt in order to reduce interest expense D) To offer discounts to customers for early payment of invoices 72) Origami Company is considering a new project and needs to raise $800,000 of capital. Their after-tax net income would be $75,000 if they do not implement the new project. If the new project is implemented, it will add an additional $50,000 of profits before tax and interest. Origami's income tax rate is 40%. If they use debt financing the interest will be at 5%. Origami has 25,000 shares of common stock outstanding and no preferred stock. 71) 72) If Origami decides to implement the project using debt financing, what will be the earnings per share amount? (Please round to the nearest cent.) A) $3.24 B) $3.40 C)54.14 D) 54.20 73) 73) Origami Company is considering a new project and needs to raise $900,000 of capital. Their after-tax net income would be $75,000 if they do not implement the new project. If the new project is implemented, it will add an additional $50,000 of profits before tax and interest. Origami's income tax rate is 40%. If they use debt financing the interest will be at 5%. Origami has 25,000 shares of common stock outstanding, and no preferred stock. They would have to issue an additional 10,000 shares of common stock to finance the project with equity capital If Origami decides to implement the project using equity financing what will be the earnings per share amount? (Please round to the nearest cent.) A) $3.00 B) $3.24 C) $4.14 D) $3.40 TRUE/FALSE. Write 'T' if the statement is true and F if the statement is false. 74) Deferred tax can either be an asset or a liability 74) 75) 75) Origami Company is considering a new project and needs to raise $800,000 of capital. Their after-tax net income would be $75,000 if they do not implement the new project. If the new project is implemented, it will add an additional $50,000 of profits before tax and interest. Origami's income tax rate is 40% If they use debt financing, the interest will be at 5% Origami has 25,000 shares of common stock outstanding and no preferred stock. They would have to issue an additional 10,000 shares of common stock to finance the project with equity capital. 14 Origami decides to use equity financing, their earings per share will be higher than if they use debt. 76) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question 76) A company's income tax expense is calculated on the basis of book income, but the income tax payable amount is based on the A) amount of dividends paid to shareholders. B) amount of payroll tax that has not been paid yet. C) sales tax rate applied to sales revenues. D) amount of taxable income, as calculated on the income tax return. 77) Which of the following factors may cause a difference between book income and taxable income? A) The company has a deposit in transit at year-end. B) The company uses straight-line depreciation for books and accelerated depreciation for tax. C) The company sells stock right before the end of the year, D) The company pays its federal income taxes quarterly as opposed to annually. TRUE FALSE. Write 'T' if the statement is true and F if the statement is false. 75) If a company has a strong rate of return on total assets, that shows that they can easily pay off their current liabilities with their current assets. 77) 78) 79) 79) If a company has a strong rate of return on common stockholders' equity, that is an indication ol good cash flow MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 80) Which of the following measures a company's success in using assets to earn income? 80) A) Days sales in receivables B) The rate of return on stockholders' equity C) Inventory tumover D) The rate of return on total assets TRUE FALSE. Write 'Tif the statement is true and F if the statement is false. 81) Paying dividends causes a decrease in total paic-in capital 81) 82) If preferred stock is non-cumulative, then the company does NOT need to pay dividends that were 82) passed in previous years. 83) If preferred stock is cumulative, then the company does NOT need to pay dividends that were 83) passed in previous years 84) A dividend's declaration date is the date the board of directors announces the intention to pay the dividend. 84) 85) 86) 85) When a company records the year-end closing entries, the Income summary balance, before it is closed to retained earnings, should be equal to the Net income or Net loss for the year. 86) A net loss for the year increases the balance in Retained earnings. 87) Ajax Company was founded in 2009. Its yearly earnings are shown here: 2012. Net income of $4,000 2013. Net income of $23,000 2014: Net income of $2,000 2015: Net loss of $30,000 No dividends were paid. At the end of the year 2015, Ajax would have a Retained eamings deficit of $1,000 88) Corporations must issue common stock, but may or may not decide to issue preferred stock 88) 89) All forms and classes of stock carry voting rights. 89) 90) 91) 90) Every corporation issues preferred stock 91) A corporation is a separate legal entity formed under the laws of a particular state. 92) Stockholders of a corporation have unlimited liability for the corporation's debt. 93) Rules of GAAP require that bond premiums or discounts be amortized using the straigh-line method. 92) 93) 94) 94) If the difference between the effective-interest method of amortizing bond discount and the straight-line method is immaterial, then GAAP permits use of the straight-line method. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question 95) The time value of money is related to which of the following concepts? A) Money loses value over time as it is spent, B) Money can buy extra time. C) Money earns interest over time and grows in value. D) Money loses its purchasing power because of inflation 95) 96) TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 96) FICA tax payable would normally be shown on the balance sheet in long-term liabilities. 97) Accounts payable is always shown on the balance sheet in current liabilities. 98) The balance in the Bonds payable account is a credit of $50,000. The balance in the Discount on bonds payable is a debit of $1,500. The balance sheet will report the bond balance as $48,500 97) 98) 99) 99) The balance in the Bonds payable account is a credit of $50,000. The balance in the Premium on bonds payable account is a credit of $900. The band carrying amount is $50,900 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question 100) Deferred tax would normally arise from which of the following situations? A) When a company makes a different choice for its tax return versus its book net income B) When a company pays income tax quarterly versus yearly When a company withholds income tax from its employees' payroll D) When a company pays off all of its debts at the end of the year 100)