1. ____ Johnson purchased equipment. The cost of installing the equipment would
ID: 2468960 • Letter: 1
Question
1. ____ Johnson purchased equipment. The cost of installing the equipment would be a. debited to Depreciation Expense b. debited to Installation Expense c. debited to Miscellaneous Expense d. debited to the Equipment account
2. ____ Smith purchased a truck for $13,000; the salvage value was estimated to be $1,000. The truck is expected to be driven for 100,000 miles. In year one, it was driven 22,000 miles. The depreciation under Units of Activity would be: a. $2680 b. $2640 c. $3022 d. $1080
3. ____ To capitalize a cost means a. to debit an expense account b. to depreciate an asset c. to debit an asset account d. to omit the cost from consideration
4. ____ On 7/1/12 Bernie purchases Equipment with cost of $28,000, salvage value of $4,000 and life of 6 years. Under straight line depreciation, Bernie will record how much depreciation expense on 12/31/12? A. $4,000 b. $4,667 c. $8,000 d. $2,000
5. ____ Reggie purchases land for $40,000 and pays his lawyer $500 to advise him in the purchase. The $500 would be debited to: a. Legal Expense b. Miscellaneous Expense c. Land d. None of these
6. ____ Ward Inc. owns Equipment with cost of $30,000 and accumulated depreciation of $19,000. The Equipment is sold for $14,000 cash. Which of the following is true? a. Gain on Disposal will be debited for $3,000 b. Loss on Disposal will be credited for $1,000 c. Loss on Disposal will be debited for $1,000 d. Gain on Disposal will be credited for $3,000.
7. ____ Lemming acquired a building for $60,000 that is estimated to last for 20 years. Lemming depreciates the building on a straight line basis, with no salvage value. The book value of the building after 5 years will be: a. $60,000 b. $55,000 c. $45,000 d. the same as the market value of the building
8. ____ Who pays unemployment taxes? A. employee only b. employer and employee c. employer only d. neither employer nor employee
9. ____ A newly appointed payroll manager should obtain a copy of: a. “Learning Payroll by Trial and Error” b. Fifty Shades of Accounting c. IRS Publication 15 Circular E d. “Payroll—an Exciting Career Choice for the 1980s”
10. ____ Nell uses double declining balance depreciation. How much depreciation should Nell record in year one on Equipment with a cost of $9,000, salvage value of $1,000 and life of 5 years? A. $1600 b. $3200 c. $1800 d. $3600
11. ____ The book value of an asset is equal to the cost minus…a. the accumulated depreciation b. the salvage value c. the straight line rate d. the DDB rate
12. ____ Johnson purchases a piece of equipment with an estimated useful life of 4 years. The DDB rate for this asset would be…a. 8% b. .125 c. .25 d. .50
13. ____ On which financial statement would a gain or loss be reported? A. Balance Sheet b. Income Statement c. Owner’s Equity Statement d. None of these
14. ____ Name two accelerated depreciation methods: a. SL and DDB b. SL and Units of Activity c. DDB and MACRS d. SL and MACRS
15. ____ Goodwill is an intangible asset that arises when: a. a company sells a really popular product b. the company wins the President’s Award c. Mr. O’Neill brings a box of Krispy Kremes to class d. one company purchases another company, paying more for it that the value of its net assets
Explanation / Answer
1/ THE COST OF INSTALLATION EXPENSES SHOULD BE DEBITED TO ASSET ACCOUNT,BECAUSE ALL EXPENSES INCURRED TILL THE INSTALATION OF AN ASSET SHOULD FORM PART OF ASSET ACCOUNT. ANS D
2/ PURCHASE PRICE OF TRUCK=$13000
LESS SALVAGE VALUE =$1000
DEPRICIABLE VALUE =$12000
EXPECTED MILES TO DRIVE =100000 MILES
DRIVEN IN YEAR MILES
DEPRECIATION =DEPRICIATED VALUE / EXPECTED MILES TO DRIVE * DRIVEN IN YEAR ONE
=$12000 / 100000 * 22000
=$2640 ANS B
3/ CAPITALIZATION OF COST MEANS INCLUDING THE COST IN THE RESPECTIVE ASSET ACCOUNT, I'E DEBITING TO ASSET ACCOUNT ANS C
4/ EQUIPMENT COST =$28000
LESS SALVAGE VALUE=$4000
DEPRICIABLE VALUE =$24000
LIFE OF ASSET =6YEARS
DEPRICIATION FOR 1 YEAR=$4000
DEPRICIATION FOR 1/7/2012 TO 31/12/2012 (6 MONTHS)= $4000/2= $2000 ANS D
5/ LEGAL EXPENSES ON PURCHASE OF A LAND SHOULD DEBITED TO LAND ACCOUNT, BECAUSE BECAUSE IT IS ESSENTIAL TO TAKE ADVICE OF A LAWYER BEFORE PURCHASE OF THE LAND. ANS C
6/ COST OF EQUIPMENT =$30000
LESS ACCUMULATED DEPRICIATION =$19000
WRITTEN DOWN VALUE =$11000
SELLING PRICE =$14000
PROFIT =$3000 ANS D
6/ COST OF BUILDING =$60000
LIFE OF BUILDING =20YEARS
DEPRICIATION PER YEAR =$3000
DEPRICIATION FOR 5 YEAR =$15000
VALUE OF BUILDING AFTER 5 YEARS= $60000 -$15000
=$45000 ANS C
8/ UNEMPLOYEMENT TAX SHOULD BE PAID ONLY BY THE EMPLOYER ONLY. ANS C
9/ A NEWLY APPOINTED PAY ROLL MANGER SHOULD OBTAIN A COPY OF IFRS PUBLICATION 15 CIRUCULAR E ANS C
10/ COST OF EQUIPMENT =$9000
LESS SALVAGE VALUE =$1000
DEPRICIABLE VALUE =$8000
LIFE OF EQUIPEMENT BY USING DOUBLE DECLINING METHOD= 5YEARS/2
=2.5 YEARS
DECRICIATION AMOUNT=$8000 / 2.5
$3200 ANS B
11/ THE BOOK VALUE OF AN ASSET IS CALUCULATED BY DEDUCTING THE ACCUMULATED DEPRICIATION FROM THE COST OF ASSET. ANS A
12/ IF LIFE OF AN ASSET IS 4 YEARS AND DDB METHOD OF DEPRICIATION IS USED THEN THE PERCENTAGE OF DEPRICIATION WILL BE 50%, BECAUSE THE ASSET WILL BE FULLY DEPRIATED IN 2YEARS ONLY.ANS D
13/ INCOME STATEMENT IS PREPARED TO RECORD THE REVENUES AND INCOMES SO ULTIMATELY ITS BALANCE WILL SHOW THE GAIN OR LOSS. ANS B
14/ DDB & MACRS WILL DEPRICIATE THE ASSET SPEEDLY , ANS C
15/ WHEN A COMPANY PURCHASE ANOTHER COMPANY BY PAYING MORE FOR ITS NET ASSET IT WILL JUST BECAUSE OF THE VALUE OF GOODWILL. ANS D
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