Online Tutorial Quiz

Please answer all questions

1		When a business acquires land as a site to construct a new store, the cost of removing unwanted buildings, grading, clearing, and delinquent real estate taxes should be recorded as part of the cost of the new store.
			A)	True
			B)	False
2		When a business buys and then immediately repairs an old building, the cost of the building repairs should be charged to the Building account.
			A)	True
			B)	False
3		The cost to have a second-hand machine assembled would be charged to an expense account, since the machine is not new.
			A)	True
			B)	False
4		Interest costs related to the construction of an asset should be charged directly to the Interest Expense account.
			A)	True
			B)	False
5		The cost of land and the cost of installing parking lot surfaces, fences, and lighting systems should be debited to the Land account.
			A)	True
			B)	False
6		Land, vehicles, buildings, parking lots, and business equipment, are examples of plant and equipment assets. Each will be depreciated over its estimated useful life.
			A)	True
			B)	False
7		Outlays of cash for the addition, improvement, or replacement of plant assets are referred to as revenue expenditures.
			A)	True
			B)	False
8		Miscellaneous shop tools purchased periodically should be charged directly to an appropriate operating expense account.
			A)	True
			B)	False
9		The basic purpose of depreciation is to achieve the matching principle--to match the cost of using the asset against the revenues that the asset helps to generate during any particular accounting period.
			A)	True
			B)	False
10		The normal balance of a contra-asset account is debit.
			A)	True
			B)	False
11		Book value is the asset cost less the salvage value of the asset.
			A)	True
			B)	False
12		An asset purchased for $40,000, with an accumulated depreciation balance at the end of the year totaling $30,000, has a book value $70,000.
			A)	True
			B)	False
13		Depreciation is a process of placing a value on an asset.
			A)	True
			B)	False
14		Accumulated Depletion is a contra-liability account.
			A)	True
			B)	False
15		Accumulated depreciation represents a cash fund that will be available to replace the asset when its useful life has been exhausted.
			A)	True
			B)	False
16		A decline in the usefulness of a plant asset because of its obsolescence is considered to be physical depreciation.
			A)	True
			B)	False
17		The term residual value (salvage value) refers to the estimated value of an asset on its disposal date.
			A)	True
			B)	False
18		The straight-line method of depreciation allocates the cost of an asset (minus any residual value) equally to each year of its life.
			A)	True
			B)	False
19		The half-year convention approach cannot be used with the straight-line depreciation method.
			A)	True
			B)	False
20		The straight-line rate for an asset with a 10-year life is 10%.
			A)	True
			B)	False
21		The depreciation method that applies a constant rate to a declining base is the declining-balance method.
			A)	True
			B)	False
22		It is not permissible to use depreciation methods for income-tax reporting purposes other than those used in financial statements that are distributed to other external users.
			A)	True
			B)	False
23		While the consistency principle applies to the method of inventory valuation used, it does not apply to methods of depreciation used.
			A)	True
			B)	False
24		At the time a plant asset is being discarded or sold, it is necessary to update the accumulated depreciation and book value of the plant asset at the date of sale.
			A)	True
			B)	False
25		The financial reporting of gains and losses on exchanges of plant assets is different than the income tax reporting of gains and losses on exchanges of plant assets.
			A)	True
			B)	False
26		The periodic allocation of the cost of a patent is called amortization.
			A)	True
			B)	False
27		Amortization of intangible assets can be longer than 40 years, under special circumstances.
			A)	True
			B)	False
28		Goodwill can be estimated and can be reported on the business records any time management feels the business has increased in value.
			A)	True
			B)	False
29		Research and development costs for a product or process should be capitalized and amortized over the life of the product or process as it is sold or used.
			A)	True
			B)	False
30		If an asset is purchased for $30,000 on April 1, and depreciation is calculated at $.60 per hour, twenty thousand hours of service will require recording $9,000 of depreciation expense.
			A)	True
			B)	False
31		MACRS is an example of a depreciation method that is commonly used in financial accounting to more accurately determine the net income of a business.
			A)	True
			B)	False
32		Use of the sum-of-the-years' digits method of depreciation has increased in recent years.
			A)	True
			B)	False
33		Land with a price of $60,000 is acquired for future use. Accrued taxes of $1,500 on the parcel were paid to clear the title. Legal fees to complete the purchase total $2,500. A small building on the parcel will not be used and is demolished at a net cost of $4,000. What will be the cost of the land?
			A)	$64,000
			B)	$68,000
			C)	$65,000
			D)	$67,000
			E)	$60,000
34		A one-time fee paid to the water company to bring water across adjoining land to the corner of a parcel owned by the business should be charged to which account?
			A)	Building account
			B)	Land account
			C)	Utility Expense account
			D)	Land Improvements account
			E)	Accumulated Depreciation, Building account
35		A machine is purchased for $5,000 plus additional freight costs of $500. Major modifications and installation costs will be $1,200. What is the amount of the cost basis for this asset?
			A)	$5,000
			B)	$6,700
			C)	$6,200
			D)	$5,500
			E)	$5,700
36		Small repairs made to keep a truck running over its useful life have been debited to the Vehicles account. As a result of this, which of the following occurred?
			A)	The balance in the Vehicles account was correctly stated.
			B)	The balance in the Vehicles account was overstated.
			C)	The expenses for the period were overstated.
			D)	The net income for the period was understated.
			E)	Revenues were overstated.
37		A business acquired land and two buildings for a single, lump-sum purchase price of $240,000. The land was assessed for tax purposes at $50,000 and the buildings at $30,000 and $20,000, respectively, for a total assessed value of $100,000. Which of the following is the recorded cost of the land?
			A)	$ 50,000
			B)	$120,000
			C)	$ 60,000
			D)	$190,000
			E)	None of the above
38		A material expenditure that will benefit only the current period is called which of the following?
			A)	Capital expenditure
			B)	Liability
			C)	Revenue expenditure
			D)	Tax expenditure
			E)	Accumulated depreciation
39		An asset having a four-year service life and a salvage value of $5,000 was acquired for $45,000 cash on January 2. What will be the depreciation expense for the second year ending December 31?
			A)	$5,000, using the straight-line method
			B)	$11,250, using the double-declining-balance method
			C)	$14,000, using the units-of-output method
			D)	$11,250, using the straight-line method
			E)	None of the above
40		An asset having a four-year service life and a salvage value of $5,000 was acquired for $45,000 cash on June 28. What will be the depreciation expense at the end of the first year, December 31?
			A)	$10,000, under the straight-line method
			B)	$22,500, under the double-declining-balance method
			C)	$7,000, under the straight-line method
			D)	$11,250, under the double-declining-balance method
			E)	$15,000, under the double-declining-balance method
41		Production equipment that cost $20,000, with a salvage value of $5,000 and an estimated service life of five years, was purchased on the 10th day of the first month of the fiscal year. What will be the depreciation expense for the second year using the double-declining-balance method?
			A)	$4,000
			B)	$8,000
			C)	$3,600
			D)	$4,400
			E)	$4,800
42		What will be the result from failing to record the year-end adjustment for depreciation?
			A)	An overstatement of income, understatement of owners' equity
			B)	An overstatement of income, understatement of assets
			C)	An overstatement of income, overstatement of assets
			D)	An understatement of income, overstatement of owners' equity
			E)	An understatement of income, understatement of owners' equity
43		An asset being depreciated on a straight-line basis has a current book value of $10,000, a remaining useful life of two years, and no salvage value. New information indicates a useful life of four years and no change in salvage value. What should be the amount of depreciation expense for each of the next four years?
			A)	$5,000
			B)	$7,500
			C)	$2,000
			D)	$2,500
			E)	None of the above

Consider the following schedule, and assume exchanges are for assets that are used for similar purposes:
Asset Disposal Income Tax Reporting
A. Loss on discard Loss is recognized
B. Loss on sale Loss is recognized
C. Loss on exchange Loss is unrecognized
D. Gain on exchange Gain is unrecognized
E. Gain on sale Gain is unrecognized

44		Which line of the schedule was not the proper income tax reporting of a gain or loss on the disposal of the asset?
			A)	Line A
			B)	Line B
			C)	Line C
			D)	Line D
			E)	Line E
45		On June 28, 2001, a business sold for $1,500 a plant asset that cost $5,000. The asset had a 5-year service life, no salvage value, and had been used by the business since January 1, 1998. Straight-line depreciation was used. The fiscal year ends on December 31. What will be the result of selling the plant asset?
			A)	A $500 gain on the disposal of a plant asset.
			B)	A $1,000 gain on the disposal of a plant asset.
			C)	A $500 loss on the disposal of a plant asset.
			D)	A $500 unrecognized gain on the sale of a plant asset.
			E)	No gain or loss on the disposal of the plant asset.
46		On January 1, a business exchanged a plant asset with a book value of $1,500 for a similar asset that had a price of $23,000. The business received a trade-in allowance of $2,100 on the old plant asset. What was the result of the exchange?
			A)	A $600 gain on the disposal of a plant asset.
			B)	A $1,000 unrecognized gain on the exchange of a plant asset.
			C)	A cost basis of $22,400 for the new plant asset.
			D)	A cost basis of $23,600 for the new plant asset.
			E)	A credit to cash for $21,900.
47		On January 1, a business exchanged a plant asset with a book value of $1,500 for a similar asset that had a price of $23,000. The business received a trade-in allowance of $2,100 on the old plant asset. The income-tax method was used to record this trade. What was the result of the exchange?
			A)	A $600 recognized gain on the exchange of the plant asset.
			B)	A $1,000 unrecognized gain on the exchange of the plant asset.
			C)	A cost basis of $22,400 for the new plant asset.
			D)	A cost basis of $23,600 for the new plant asset.
			E)	A credit to cash for $21,900.
48		Your company currently is generating a 12% return on total assets of $450,000. Comparable companies are earning 10% on total assets. What is the estimated goodwill of your company?
			A)	$90,000
			B)	$45,000
			C)	$9,000
			D)	$15,000
			E)	None of the above
49		Which of the following items is an intangible asset?
			A)	Patents
			B)	Copyrights
			C)	Franchises
			D)	Trademarks
			E)	All of the above
50		Which is not true of the accounting procedures or the accounting rules applied to intangible assets?
			A)	Patents have a legal life of 17 years.
			B)	The maximum length of amortization for intangibles is 40 years.
			C)	Generally, the straight-line method of amortization is used on intangible assets.
			D)	Accumulated amortization accounts are maintained for intangibles.
			E)	All of the above are not true.

Asset Estimated
Item Classification Useful Life
A. Franchise Intangible Indeterminable - 40 years maximum
B. Trademark Intangible Indeterminable - 40 years maximum
C. Patent Tangible 17 years
D. Goodwill Intangible Indeterminable - 40 years maximum
E. Copyrights Intangible Life of creator plus 50 years

51		Which line of the schedule above is incorrect?
			A)	Line A
			B)	Line B
			C)	Line C
			D)	Line D
			E)	Line E

Consider the following schedule:
Asset Estimated
Item Classification Useful Life

52		Which line of the schedule is incorrect?
			A)	Line A
			B)	Line B
			C)	Line C
			D)	Line D
			E)	Line E

53		The Baker Mining Company acquired an iron ore deposit for $2,000,000. The company's geologist estimated the deposit to contain 1,500,000 tons of iron ore. At the end of the first year, 60,000 tons had been extracted. What would be the end-of-year journal entry to record the depletion of the iron ore?
			A)	A credit to Iron Ore Inventory of $45,000.
			B)	A credit to Accumulated Depletion of $80,000.
			C)	A debit to Iron Ore Inventory of $50,000.
			D)	None, until all of the ore is extracted.
			E)	None of the above
54		The Baker Mining Company acquired an iron ore deposit for $2,000,000. The company's geologist estimated the deposit to contain 1,500,000 tons of iron ore. Extracting equipment costing $450,000 was permanently installed in the mine. At the end of the first year, 60,000 tons had been extracted. What would be the end-of-year journal entry to record the depreciation of the extracting equipment?
			A)	A credit to Accumulated Depreciation of $45,000
			B)	A credit to Accumulated Depletion of $90,000
			C)	A credit to Accumulated Depreciation of $18,000
			D)	None, until all of the ore is extracted
			E)	None of the above
55		What is the depreciation method called in which the actual use of the asset is the determinate factor in the deterioration and reduced capacity of the asset to provide services?
			A)	Units-of-output method
			B)	Double-declining-balance method
			C)	Straight-line method
			D)	Accelerated Cost Recovery System method
			E)	MACRS
56		For assets purchased after 1986, taxpayers can use a depreciation method that conforms with generally accepted accounting principles but is based on a declining-balance method. What is the name of this accelerated depreciation method?
			A)	Asset Cost Recovery Statement
			B)	Asset Cost Recognition System
			C)	Modified Accelerated Cost Recovery System
			D)	Accelerated Cost Recovery System
			E)	Accountants Cost Reporting System

Consider the following schedule:
Depreciation Method Book value at end of useful life
A. Straight-line Equal to the salvage value
B. Sum-of-the-years' digits Equal to the salvage value
C. Declining-balance Less than the salvage value
D. Units-of-output Equal to the salvage value
E. MACRS Less than salvage value

57		Which line of the schedule not true about the depreciation methods?
			A)	Line A
			B)	Line B
			C)	Line C
			D)	Line D
			E)	Line E