1. All of the following costs would be included in the Land account when land is purchased EXCEPT ________.
A. costs to prepare the land for use such as removing a tree stump
B. the costs associated with paving a parking lot on the land
C. the fee paid to transfer title to the land
D. the realtor’s fee
2. Which statement below is true about the cost principle?
A. The cost principle says that all costs reasonable and necessary to place an asset into a working condition should be capitalized.
B. The cost principle says that only the cash paid to acquire a long-term asset should be capitalized.
C. The cost principle says that all costs associated with purchasing a long-term asset should be expensed in the period of the purchase.
D. The cost principle says that all costs associated, directly or indirectly, with buying and using a long-term asset should be permanently capitalized.
3. Cranberry Company purchased two pieces of equipment from a Canadian vendor for $400,000. If the assets had been purchased separately, the company would have paid $90,000 for the first piece of equipment and $360,000 for the second piece of equipment. What amount should be recorded for the first piece of equipment?
4. Capitalizing a cost means to record the cost into a(n) ________ account.
C. income statement
D. contributed capital
5. On November 1, 2011, Frigate Shipping Company bought equipment that cost $400,000, with an estimated useful life of 8 years and an estimated salvage value of $28,000. The company uses the straight-line method of depreciation and has a fiscal year ending on October 31. For the year ended October 31, 2012, Frigate Company will report depreciation expense of ________.
6. Which statement about depreciation is true?
A. Depreciation means loss in economic value.
B. Depreciation means to increase net income by transferring balances from shareholders’ equity.
C. Depreciation refers to an allocation of an asset’s cost to an expense account.
D. Depreciation means to capitalize a cost over several accounting periods.
7. The adjustment to record the use of long-term assets includes a(n) ________.
A. increase in total liabilities
B. decrease in total liabilities
C. decrease in total shareholders’ equity
D. increase in total shareholders’ equity
8. On January 1, 2011, Petrel Shipping Company bought equipment that cost $55,000 with an estimated useful life of 4 years and an estimated salvage value of $5,000. The company uses the straight-line method of depreciation. At what rate will the equipment depreciate in 2011?
9. RET Company uses the activity (units-of-production) method to depreciate long-term assets. The company owns a truck that cost $24,000. The truck is estimated to have a salvage value of $2,000 and a useful life of 200,000 miles. How much depreciation expense would be reported on the income statement in a year in which the truck is driven 50,000 miles?
10. A business will have depletion expense only if it has ________.
A. property, plant, and equipment that are used in operating activities
B. natural resources like timber and oil
C. current assets that are consumed during the period
D. intangible assets like copyrights and trademarks
11. Which of the following assets should be amortized?
A. oil reserves
12. Which of the following should be recorded as an expense in the period when the activity takes place?
A. Rondeaux Company paid $50,000 for the exclusive right to manufacture a product.
B. ResolCo paid $100,000 to buy a new piece of equipment.
C. Nationwise, Inc. routinely replaces the wiper blades on its fleet of delivery trucks.
D. Revel, Inc. paid $10,000 to overhaul and improve a machine to make it last longer.
13. BFS Company sold an asset for $7,500 in cash. The asset had an historical cost of $30,000 and accumulated depreciation of $20,000 on the day it was sold. How much is the gain or loss on the sale?
A. $2,500 loss
B. $2,500 gain
C. $10,000 loss
D. $22,500 gain
14. A loss is a ________.
A. reduction in liabilities
B. decrease in cash related to operating a business
C. reduction in income that is incurred outside the normal course of business
D. reduction in an asset’s selling price
15. On January 1, 2011, Fred McGriff Company bought office computers that cost $43,000, with an estimated useful life of 10 years and an estimated salvage value of $3,000. The company uses the straight-line method of depreciation and has a calendar year end. For the year ended December 31, 2012, McGriff Company will report depreciation expense of ________ on the ________.
A. $4,000; income statement
B. $4,000; statement of cash flows
C. $4,300; income statement
D. $4,300; statement of cash flows
16. WDS Company owns a patent with an estimated useful life of 15 years, a zero salvage value, and a historical cost of $42,000. Net income is $200,000 before the year-end adjustment related to the patent. What will net income be after the proper year-end adjustment has been made?
17. On January 1, 2011, Petrel Shipping Company bought equipment that cost $65,000 with an estimated useful life of 10 years and an estimated salvage value of $5,000. The company uses the double-declining balance method of depreciation. What will be the BOOK VALUE of the asset on
December 31, 2012?
18. Use the following selected information from PDG Corporation to determine the asset turnover ratio for the year.
Beginning total assets $300,000
Ending total assets $350,000
Sales revenue $900,000
Total operating expenses $800,000
Net income $85,000
19. Use the following selected information from ABC Corporation to determine the asset turnover ratio for the year.
Total revenues $100,000
Total operating expenses $65,000
Beginning total assets $500,000
Ending total assets $440,000
Ending retained earnings $300,000
20. Which of the following is an example of a physical control over assets?
A. unlocked storage rooms
B. the people who have physical custody of assets should be different from the people who maintain the records for those assets
C. cash register
D. complete and reliable record-keeping