1. The Easy Does It Company had the following costs related to a machine that it recently purchased:
The total amount that the company should record in the account machinery related to this machine during the year is:
a. $15,000
b. $19,188
c. $19,338
d. $16,188
2. The Alright Company purchased a car on February 1, 1999 for $25,000 that had a salvage value of $1,000. The useful life of the car was 5 years. At December 31, 2000 (the end of the next year) what amount should Alright show on its balance sheet as the book value of the car?
a. $15,800
b. $14,800
c. $15,400
d. $14,400
3. The Tangora Company's financial statements showed the following information related to equipment and its use. The equipment was purchased in 1999 and there were no other equipment purchases or retirements during the two year period.
The original cost of the equipment must have been:
a. $46,800
b. $48,000
c. $50,000
d. $54,800
4. The Tangora Company's financial statements showed the following information related to equipment and its use. The equipment was purchased in 1999 and there were no other equipment purchases or retirements during the two year period.
How old is the equipment?
a. 18 months
b. 20 months
c. 22 months
d. 24 months
5. The Eyenora Company purchased land and building for a total cost of $500,000. The land was appraised at $150,000 and the building was appraised at $450,000. How much should the company record for the land and the building?
a. $150,000 for the land and $450,000 for the building
b. $150,000 for the land and $350,000 for the building
c. $166,667 for the land and $333,333 for the building
d. $125,000 for the land and $375,000 for the building
6. If depreciation expense is not listed separately on the income statement, the reader of the financial statements can usually find the amount of depreciation in the:
a. footnotes to the financial statements
b. cash flow statement if the company uses the direct method
c. auditor's report on the financial statements
d. management discussion portion of the annual report.
7. The Lennox Corporation purchased a piece of equipment for $30,000. The company made a cash down payment of $10,000 and signed a note for the balance. The first principal payment is due next year. The equipment purchased would be shown on the statement of cash flows:
a. as an investing activity; an increase of $30,000
b. as an investing activity; an increase of $10,000
c. as a financing activity; a decrease of $10,000
d. answer not given
8. Many companies use accelerated depreciation methods in their accounting records. This means that:
a. the companies record more depreciation over the life of the asset then they would using the straight line method.
b. the companies record less depreciation over the life of the asset then they would using the straight line method.
c. the companies record more depreciation in the early life of the asset then they would using the straight line method.
d. the companies record more depreciation in the later life of the asset then they would using the straight line method.
9. Which of the following statements is false?
a. MACRS is the depreciation method that companies use for tax purposes.
b. Most companies use straight line depreciation in their accounting records and MACRS on their tax return.
c. The term book value means cost less salvage value.
d. Depreciation is added back to net income in computing net cash flow from operations on the statement of cash flows using the indirect method.
10. Which of the following factors is not considered when determining the useful life of a fixed asset?
a. Usage
b. Salvage value
c. Obsolescence
d. Management Policy
11. The entry to record annual depreciation for equipment which is now two years old, originally cost $12,000 and has a useful life of 10 years would be:
a. (1,000) in accumulated depreciation and (1,000) in retained earnings described as depreciation expense
b. (1,000) in equipment and (1,000) in retained earnings described as depreciation expense
c. (2,000) in accumulated depreciation and (2,000) in retained earnings described as depreciation expense
d. (2,000) in accumulated depreciation and (1,000) in retained earnings described as depreciation expense
12. The bookkeeper forgot to record depreciation for the current year. This ommision would have what effect on assets, liabilities and owners' equity?
a. Assets would be understated, liabilities would be correctly stated and owners' equity would be overstated.
b. Assets would be overstated, liabilities would be correctly stated and owners' equity would be overstated.
c. Assets would be overstated, liabilities would be overstated and owners' equity would be overstated.
d. Assets would be understated, liabilities would be understates and owners' equity would be understated.