Accounting UVU Chapter 9-12

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Intangible assets are rights, privileges, and competitive advantages that result from ownership of long-lived assets without physical substance.

True

A change in the estimated salvage value of a plant asset requires a restatement of prior years' depreciation.

False

A patent should

be amortized over its useful life or 20 years, whichever is shorter.

Goodwill can be recorded

only when there is an exchange transaction involving the purchase of an entire business.

In computing depreciation, salvage value is

an estimate of a plant asset's value at the end of its useful life

All of the following statements are false regarding depreciation except

depreciation does not apply to land.

A company purchased factory equipment on April 1, 2012, for $72,000. It is estimated that the equipment will have a $9,000 salvage value at the end of its 10-year useful life. Using the straight-line method of depreciation, the amount to be recorded as depreciation expense at December 31, 2012, is

$4,725

Equipment with a cost of $150,000 has an estimated salvage value of $10,000 and an estimated life of 4 years or 10,000 hours. It is to be depreciated by the straight-line method. What is the amount of depreciation for the first full year, during which the equipment was used 2,700 hours?

$35,000

A change in the estimated useful life of a plant asset may cause a change in the amount of depreciation recognized in the current and future periods, but not to prior periods.

True

Mitchell Corporation bought equipment on January 1, 2012 .The equipment cost $120,000 and had an expected salvage value of $20,000. The life of the equipment was estimated to be 6 years. The depreciable cost of the equipment is

$100,00

Management should select the depreciation method that

best measures the plant asset's contribution to revenue over its useful life.

The Modified Accelerated Cost Recovery System (MACRS) is a depreciation method that

is used for tax purposes.

When purchasing land, the costs for clearing, draining, filling, and grading should be charged to a Land Improvements account.

False

In calculating depreciation, both plant asset cost and useful life are based on estimates.

False

Ordinary repairs should be recognized when incurred as revenue expenditures.

True

The book value of a plant asset is the amount originally paid for the asset less anticipated salvage value.

False

A characteristic of a plant asset is that it is

used in the operations of a business

Expenditures that maintain the operating efficiency and expected productive life of a plant asset are generally

expensed when incurred.

A truck costing $42,000 and on which $35,000 of accumulated depreciation has been recorded was discarded as having no value. The entry to record this event would include a

Loss of $7,000

A company purchased land for $72,000 cash. Real estate brokers' commission was $5,000 and $7,000 was spent for demolishing an old building on the land before construction of a new building could start. Proceeds from salvage of the demolished building was $1,200. Under the cost principle, the cost of land would be recorded at

$82,800

If any portion of a long-term debt is to be paid in the next year, the entire debt should be classified as a current liability.

False

Notes payable usually require the borrower to pay interest

True

The higher the sales tax rate, the more profit a retailer can earn.

False

The face value is the amount of principal and interest due at the maturity date

False

A $150,000 bond with a quoted price of 102 1/4 is sold for $153,375.

True

The current market value of a bond is equal to the present value of all future cash payments promised by the bond.

True

Which of the following most likely would be classified as a current liability?

Dividends payable

Moss County Bank agrees to lend the Sadowski Brick Company $400,000 on January 1. Sadowski Brick Company signs a $400,000, 6%, 9-month note. What is the adjusting entry required if Sadowski Brick Company prepares financial statements on June 30?

Interest Expense 12,000
Interest Payable 12,000

The interest charged on a $50,000 note payable, at the rate of 6%, on a 90-day note would be

$750

A retail store credited the Sales account for the sales price and the amount of sales tax on sales. If the sales tax rate is 5% and the balance in the Sales account amounted to $189,000, what is the amount of the sales taxes owed to the taxing agency?

$9,000

Sales taxes collected by a retailer from a customer are expenses

of the retailer.

The following totals for the month of April were taken from the payroll register of Metz Company.

Salaries $20,000
FICA taxes withheld 1,533
Income taxes withheld 4,400
Medical insurance deductions 800
Federal unemployment taxes 160
State unemployment taxes 1,000
The entry to record the payment of net payroll would include a

debit to Salaries and Wages Payable for $13,267.

The contractual rate of interest is usually stated as a(n)

annual rate

A bond with a face value of $200,000 and a quoted price of 98½ has a selling price of

$197,000

The liability of a stockholder is usually limited to the stockholder's investment in the corporation

True

The par value of common stock must always be equal to its market value on the date the stock is issued.

False

The acquisition of treasury stock by a corporation increases total assets and total stockholders' equity.

False

Preferred stock has contractual preference over common stock in certain areas

True

The amount of a cash dividend liability is recorded on the date of record because it is on that date that the persons or entities who will receive the dividend are divided.

False

A debit balance in the Retained Earnings account is identified as a deficit.

True

The two ways that a corporation can be classified by purpose are

profit and not-for-profit

The two ways that a corporation can be classified by ownership are

publicly held and privately held.

Which of the following factors does not affect the initial market price of a stock?

The par value of the stock.

If Lantz company issues $3,000 shares of $5 par value common stock for $210,000 the account

common stock will be credited for $15,000

The paid-in capital in excess of par value is increased in the accounting

capital stock is issued at an amount greater than par value.

Dawson Company issued 800 shares of no-par common stock for $7,200. Which of the following journal entries would be made if the stock has stated value of $2 per share?

Cash 7,200

Common Stock 1,600

Paid-in Capital in Excess of Stated Value 5,600

Treasury stock is

a corporation's own stock, which has been reacquired and held for future use.

Kaplan Manufacturing Corporation purchased 2,000 shares of its own previously issued $10 par common stock for $46,000. As a result of this event,

B.Kaplan's total stockholders' equity decreased $46,000.

Treasury stock is a(n)

contra stockholders' equity account.

the number of shares of issued stock equals

outstanding shares plus treasury shares.

Dividends in arrears on cumulative preferred stock

must be paid before common stockholders can receive a dividend

Outstanding stock of the West Corporation included 20,000 shares of $5 par common stock and 5,000 shares of 6%, $10 par non-cumulative preferred stock. In 2011, West declared and paid dividends of $2,000. In 2012, West declared and paid dividends of $6,000. How much of the 2012 dividend was distributed to preferred shareholders?

3,000.

Brewer Inc. has 3,000 shares of 8%, $50 par value, cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2012, and December 31, 2011. The board of directors declared and paid a $9,000 dividend in 2011. In 2012, $36,000 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2012?

$15,000

Denson, Inc. has 10,000 shares of 8%, $100 par value, non-cumulative preferred stock and 40,000 shares of $1 par value common stock outstanding at December 31, 2012. There were no dividends declared in 2011. The board of directors declares and pays a $120,000 dividend in 2012. What is the amount of dividends received by the common stockholders in 2012?

$40,000.

The primary purpose of the statement of cash flows is to provide information about a company's cash receipts and cash payments during an accounting period.

True

The statement of cash flows classifies cash receipts and payments as operating, nonoperating, financial, and extraordinary activities.

False

The acquisition of a building by issuing bonds would be considered an investing and financing activity that did not affect cash.

True

During the maturity phase, cash from operations and net income are approximately the same.

True

Which of the following is a reason that companies favor the indirect method of preparing the statement of cash flows?

It is easier to prepare.

Free cash flow is cash from operations less dividends

False

The primary purpose of the statement of cash flows is to

provide information about the cash receipts and cash payments during a period.

In addition to the three basic financial statements, which of the following is also a required financial statement?

Statement of cash flows.

Investing activities include

collecting cash on loans made

Generally, the most important category on the statement of cash flows is cash flows from

operating activities

Harden Corporation engaged in the following transaction. Assume that the Harden Corporation uses the indirect method to depict cash flows. Indicate where, if at all, income taxes paid would be classified on the statement of cash flows.

operating activities section

Harden Corporation engaged in the following transaction. Assume that the Harden Corporation uses the indirect method to depict cash flows. Indicate where, if at all, common stock issued for cash would be classified.

financing activities section

Harden Corporation engaged in the following transaction. Assume that the Harden Corporation uses the indirect method to depict cash flows. Indicate where, if at all, inventory purchased with cash would be classified on the statement of cash flows.

operating activities section

Which of the following transactions does not affect cash during a period?

Write-off of an uncollectible account.

A company would be expected to generate small amounts of cash from operations during the

growth phase.

The cost of an intangible asset must be amortized over a 20-year period.

False

When a change in estimate is made, there is no correction of previously recorded depreciation expense.

True

The cost of successfully defending a patent in an infringement suit should be

added to the value of the patent.

Goodwill can be recorded

only when there is an exchange transaction involving the purchase of an entire business.

All the following are needed for the computation of depreciation except

training costs of manufacturing personnel.

Depreciation is the process of allocating the cost of a plant asset over its useful life in a(n)

systematic and rational manner.

A company purchased factory equipment on April 1, 2012, for $72,000. It is estimated that the equipment will have a $9,000 salvage value at the end of its 10-year useful life. Using the straight-line method of depreciation, the amount to be recorded as depreciation expense at December 31, 2012, is

$4,725

Using the units-of-activity method of depreciating factory equipment will generally result in more depreciation expense being recorded over the life of the asset than if the straight-line method had been used.

False

Pearson Company bought a machine on January 1, 2012. The machine cost $108,000 and had an expected salvage value of $18,000. The life of the machine was estimated to be 5 years. The depreciable cost of the machine is

$90,000

Management should select the depreciation method that

best measures the plant asset's contribution to revenue over its useful life.

The Modified Accelerated Cost Recovery System (MACRS) is a depreciation method that

is used for tax purposes.

When purchasing delivery equipment, sales taxes and motor vehicle licenses should be charged to Delivery Equipment.

False

The book value of a plant asset is always equal to its fair market value.

False

A characteristic of capital expenditures is that the expenditures occur frequently during the period of ownership.

False

If the proceeds from the sale of a plant asset exceed its book value, a gain on disposal occurs.

True

Which of the following would not be included in the Equipment account?

Electricity used by the machine.

Which of the following is not true of ordinary repairs?

They increase the productive capacity of the asset.

Equipment that cost $36,000 and on which $20,000 of accumulated depreciation has been recorded was disposed of for $18,000 cash. The entry to record this event would include a

gain of $2,000.

Arnold Company purchases a new delivery truck for $45,000. The sales taxes are $2,500. The logo of the company is painted on the side of the truck for $1,200. The truck's annual license is $120. The truck undergoes safety testing for $220. What does Arnold record as the cost of the new truck?

$49,040

A current liability must be paid out of current earnings.

False

Interest expense on a note payable is only recorded at maturity.

False

The higher the sales tax rate, the more profit a retailer can earn.

False

An unsecured bond is one that is issued against the general credit of the borrower.

True

If a bond has a stated value of $1,000 and a contractual interest rate of 6 percent, then the interest paid annually will be $60.

True

A $150,000 bond with a quoted priced of 102 ¼ is sold for $153,375.

True

Which of the following most likely would be classified as a current liability?

Dividends payable

Moss County Bank agrees to lend the Sadowski Brick Company $400,000 on January 1. Sadowski Brick Company signs a $400,000, 6%, 9-month note. The entry made by Sadowski Brick Company on January 1 to record the proceeds and issuance of the note is

Cash 400,000
Notes Payable 400,000

The interest charged on a $50,000 note payable, at the rate of 6%, on a 90-day note would be

$750

A company receives $174, of which $14 is for sales tax. The journal entry to record the sale would include a

debit to Cash for $174.

Sales taxes collected by a retailer from a customer are expenses

of the customers.

Norlan Company does not ring up sales taxes separately on the cash register. Total receipts for October amounted to $14,700. If the sales tax rate is 5%, what amount must be remitted to the state for October's sales taxes?

$700

The contractual rate of interest is usually stated as a(n)

Annual Rate

A bond with a face value of $100,000 and a quoted price of 104¼ has a selling price of

$104,250

The tax laws can be a significant disadvantage of the corporate form of business.

True

The par value of common stock must always be equal to its market value on the date the stock is issued.

False

Treasury stock is reported as an asset on the balance sheet because treasury stock may later be resold.

False

When preferred stock is cumulative, preferred dividends not declared in a given period are called dividends in arrears.

True

A stock split results in a transfer at market value from retained earnings to paid-in capital.

False

A debit balance in the Retained Earnings account is identified as a deficit.

True

The ability of a corporation to obtain capital is

enhanced because of limited liability and ease of share transferability.

Which one of the following would not be considered an advantage of the corporate form of organization?

Government regulation.

The par value of a stock

is legally significant.

If Lantz Company issues 3,000 shares of $5 par value common stock for $210,000, the account

Common Stock will be credited for $15,000.

The Paid-in Capital in Excess of Par Value is increased in the accounting records when

capital stock is issued at an amount greater than par value.

Treasury stock is

a corporation's own stock, which has been reacquired and held for future use.

A corporation purchases 30,000 shares of its own $20 par common stock for $35 per share, recording it at cost. What will be the effect on total stockholders' equity?

Decrease by $1,050,000.

Treasury Stock is a(n)

contra stockholders' equity account.

Treasury shares plus outstanding shares equal

issued stock.

Dividends in arrears on cumulative preferred stock

should be disclosed in the notes to the financial statements.

Outstanding stock of the West Corporation included 20,000 shares of $5 par common stock and 5,000 shares of 6%, $10 par non-cumulative preferred stock. In 2011, West declared and paid dividends of $2,000. In 2012, West declared and paid dividends of $6,000. How much of the 2012 dividend was distributed to preferred shareholders?

$3,000

Brewer Inc. has 3,000 shares of 8%, $50 par value, cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2012, and December 31, 2011. The board of directors declared and paid a $9,000 dividend in 2011. In 2012, $36,000 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2012?

$15,000

Watson, Inc. has 5,000 shares of 6%, $100 par value, cumulative preferred stock and 20,000 shares of $1 par value common stock outstanding at December 31, 2012. There were no dividends declared in 2010. The board of directors declares and pays a $50,000 dividend in 2011 and in 2012. What is the amount of dividends received by the common stockholders in 2012?

$10,000

The statement of cash flows is a required statement that must be prepared along with an income statement, balance sheet, and retained earnings statement.

True

The statement of cash flows classifies cash receipts and payments as operating, nonoperating, financial, and extraordinary activities.

False

Operating activities include the cash effects of transactions that create revenues and expenses.

True

The growth phase of the product life cycle occurs when the company is purchasing fixed assets and beginning to produce and sell.

False

Free cash flow is cash from operations less dividends.

False

The primary purpose of the statement of cash flows is to

provide information about the cash receipts and cash payments during a period.

In addition to the three basic financial statements, which of the following is also a required financial statement?

Statement of Cash Flows.

Investing activities include

collecting cash on loans made.

The category that is generally considered to be the best measure of a company's ability to continue as a going concern is

cash flows from operating activities.

Harden Corporation engaged in the following transaction. Assume that the Harden Corporation uses the indirect method to depict cash flows. Indicate where, if at all, interest paid on note would be classified on the statement of cash flows.

Operating activities section.

Harden Corporation engaged in the following transaction. Assume that the Harden Corporation uses the indirect method to depict cash flows. Indicate where, if at all, income taxes paid would be classified on the statement of cash flows.

Operating activities section.

Harden Corporation engaged in the following transaction. Assume that the Harden Corporation uses the indirect method to depict cash flows. Indicate where, if at all, stock issued for equipment would be classified on the statement of cash flows.

Does not represent a cash flow.

Harden Corporation engaged in the following transaction. Assume that the Harden Corporation uses the indirect method to depict cash flows. Indicate where, if at all, long-term debt retired with cash would be classified on the statement of cash flows.

Financing activities section.

Which of the following transactions does not affect cash during a period?

Write-off of an uncollectible account.

Cash generated from operations exceeds investing needs, and the company can begin retiring debt during the

maturity phase.

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