100 – quiz questions i-true/false. write, on the answer sheet above,

I-TRUE/FALSE. Write, on the answer sheet above, ‘T’ if the statement is true and ‘F’ if the statement is false.

II- For the Multiple choice questions, please select the letter that better answers the question and write it

answer sheet.

1) The cost of razing a building on a parcel of land to build a new building is added to the cost of the
2) Treating a cost which should be an expense as a capital expenditure will make a company’s net
3) Expenditures which extend the life of an asset or increase its productive capacity should be
4) Normal expenditures for repairs and maintenance should be capitalized
5) Which of the following is included in the cost of land?
6) The cost of excavating a basement for a new building is added to the price of the land
7) The cost of land includes the cost of removing unwanted buildings

8) An asset impairment will be reflected by an increase in the book value of an asset, as shown on the
9) A loss on the sale of a plant asset is recorded when the sales price exceeds the book value.

10) Which of the following items should be depleted?
11) Which of the following is the expense resulting from a decline in the utility of a natural resource?
12) Which of the following accounting methods is the method used to compute depletion?
13) Navajo Mining Company purchased a mine in 2013 for $3,400,000. It was estimated that the mine
contained 200,000 tons of ore and that the mine would be worthless after all of the ore was
extracted. The company extracted 25,000 tons of ore in 2013 and 30,000 tons of ore in 2014.
What is depletion expense for 2013?
14) Which would NOT be accounted for by the depletion method?
15) A mine is purchased for $4,000,000. There will be a salvage value of $300,000 when the land is
restored after mining is completed. The mine has an estimated 250,000 tons of coal. What is the
depletable cost per ton of coal?
16) Depletion would be used for all of the following EXCEPT:
17) If assets are junked before being fully depreciated, there is a loss equal to the book value of the
18) A loss occurs on the exchange of a plant asset if the market value of the new asset received is
greater than the total amount given up in the exchange

19) A gain on disposal of an asset is recorded when cash received is less than book value.


20) When an asset is fully depreciated, the salvage value must be written off.
21) When an asset is fully depreciated, no further depreciation expense is recorded
22) Which of the following is NOT considered a plant asset?
23) Which of the following is the amount capitalized as goodwill?
24) Which of the following types of expenses result from a decline in the utility of an intangible asset?
25) Azimuth Company purchases a small business for $500,000. The market value of the business’s
assets are $850,000, and the market value of the liabilities are $400,000. How much goodwill
should Azimuth record?
26) If a company incurs an expense, but treats it as an asset, net income would be understated

27) If a note payable has installments due within a year, the entire note is treated as a current liability

28) Amounts owed for products or services purchased on account are contingent liabilities.
29) Unearned revenue is an obligation to provide goods or services to the customer
30) Notes payable are considered short-term if they are due within the current operating cycle

31) Which of the following is an amount for products or services purchased on account?
32) Which of the following is a characteristic of a current liability?
33) Which of the following occurs when a company records accrued interest expense on a note payable?
34) In which of the following periods should the estimated warranty liability be debited?
35) Which of the following is the proper treatment for a liability that exists, but the exact amount of
36) Tractor World offers warranties on all their tractors. They estimate warranty expense at 2.4% ofsales. At the beginning of 2013, the Estimated warranty payable account had a credit balance of$900. During the year, Tractor World had $285,000 of sales, and had to pay out $5,100 in warranty payments. At the end of the year, how much Warranty expense was reported on the income statement?

37) A certain contingent liability was evaluated at year-end, and considered to have a reasonable possibility of becoming an actual liability. If the accountant decided NOT to report it on the balance sheet or in the notes to the financial statement, what effect would this have on the financial reporting of the company?
38) Which of the following is NOT an exact liability?
39) Gross pay is the total amount of salary, wages, commissions, and bonuses earned by an employee
40) The old age, survivors, and disability insurance portion of FICA taxes is imposed on all of an individual employee’s earnings
41) Payroll tax expense includes the employer’s portion of FICA taxes, state unemployment taxes, and federal unemployment taxes

42) FICA tax is a tax which is paid by the employer only and is not deducted from the employee’s pay.

43) The Statewide Sales Company has gross pay for March of $45,000. The first journal entry in the payroll cycle to record salary expense would include a credit to Cash for $45,000
44) Which of the following is included in the entry to record the employer’s payroll taxes?
45) Dan Jones and Pat Smith are the only two employees of Lone Star Company. In January, 2012, Dan’s gross pay was $4,400 and Pat’s gross pay was $5,200. All earnings are subject to FICA taxes of 7.65%.Which of the following would be included in the entry to record the salary expense for January?

46) The Statewide Sales Company has gross pay for March of $45,000. Which of the following would be included in the first journal entry in the payroll cycle to record salary expense?
47) Art Parrish, the sole employee of Parrish Sales, has gross salary for March of $4,000. The entire amount is under the OASDI limit of $106,800, and thus subject to FICA. He is also subject to federal income tax at a rate of 18%. Art has a deduction of $320 for health insurance and $80 for United Way. The second entry in the payroll cycle to record the disbursement of his net pay should include which of the following?
48) The current portion of notes payable is the principal amount that will be paid within one year of the balance sheet date.

49) Installment payments for mortgages are normally paid once per year

50) Bonds are long-term liabilities issued to multiple lenders, usually in increments of $1,000

51) The company will repay the principal amount of the bond on the maturity date

52) If a bond is issued at a discount, it will sell for more than face value

53) Installment payments for mortgages typically contain both an amount for principal repayment and an amount for interest.

54) The current portion of notes payable must be reported on the balance sheet combined with the long-term portion under long-term liabilities

55) The balance in the Bonds payable account is a credit of $50,000. The balance in the Discount on bonds payable account is a debit of $1,500. The bond carrying amount is $51,500

56) Interest payable would normally be shown on the balance sheet in current liabilities

57) The time value of money is based on the concept that money earns interest over time

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
58) Using the present value tables, please compute the present value of an annuity which pays $2,000 per year for 10 years, discounted at 7%.
59) On January 1, 2014, Partridge Company issued $50,000 of 6-year bonds with a stated rate of 3%. The market rate at time of issue was 4%, so the bonds were discounted and sold for $47,331. Partridge uses the effective-interest rate of amortization for bond discount. Semiannual interest payments are made on June 30 and December 31 of each year. How much interest expense will be recorded when the first interest payment is made? (Please round to the nearest whole dollar.)
60) The main reason companies retire bonds prior to their maturity date is to relieve the pressure of paying semiannual interest payments

61) If a company wishes to retire bonds early, they may call the bonds if the bonds are callable, but they may not purchase them on the open market

62) Compute the present value of a bond:
The principal amount is $50,000, the stated rate is 3%, and the term of the bond is 6 years. The bond pays interest semiannually. At the time of issue, the market rate is 4%. Please compute the present value of the bond at market rate using the present value tables.
63) The formation of a corporation is generally less complicated than the formation of a partnership.
64) Different classes and types of stock carry different degrees of risk for the shareholder

65) When a company records the year-end closing entries, the first step is to close the Revenues to Retained earnings

66) Declaring and paying dividends causes a decrease in both assets and equity

67) If a company has a strong rate of return on common stockholders’ equity, that is an indication of strong profitability.

68) The rate of return on total assets and the rate of return on common stockholders’ equity are used to evaluate the:

 69) Reed Company reports the following information for the year 2013:

Net income $46,000

Preferred dividends 12,000

Common equity, Jan 1 800,000

Common equity, Dec 31 900,000

Please calculate the rate of return on common stockholders’ equity. Please round to 3 decimal

places.

70) Normally, a company’s book income and tax income should be the same

71) Which one of the following describes financial leverage?
72) Origami Company is considering a new project and needs to raise $800,000 of capital. Their after-tax net income would be $75,000 if they do not implement the new project. If the new project is implemented, it will add an additional $50,000 of profits before tax and interest. Origami’s income tax rate is 40%. If they use debt financing, the interest will be at 5%. Origami has 25,000 shares of common stock outstanding and no preferred stock. If Origami decides to implement the project using debt financing, what will be the earnings per share amount? (Please round to the nearest cent.)
73) Origami Company is considering a new project and needs to raise $800,000 of capital. Their after-tax net income would be $75,000 if they do not implement the new project. If the new project is implemented, it will add an additional $50,000 of profits before tax and interest. Origami’s income tax rate is 40%. If they use debt financing, the interest will be at 5%. Origami has 25,000 shares of common stock outstanding, and no preferred stock. They would have to issue an additional 10,000 shares of common stock to finance the project with equity capital. If Origami decides to implement the project using equity financing, what will be the earnings per share amount? (Please round to the nearest cent.)
74) Deferred tax can either be an asset or a liability

75) Origami Company is considering a new project and needs to raise $800,000 of capital. Their after-tax net income would be $75,000 if they do not implement the new project. If the new project is implemented, it will add an additional $50,000 of profits before tax and interest. Origami’s income tax rate is 40%. If they use debt financing, the interest will be at 5%. Origami has 25,000 shares of common stock outstanding and no preferred stock. They would have to issue an additional 10,000 shares of common stock to finance the project with equity capital. If Origami decides to use equity financing, their earnings per share will be higher than if they use debt

76) A company’s income tax expense is calculated on the basis of book income, but the income tax payable amount is based on the:
77) Which of the following factors may cause a difference between book income and taxable income?
78) If a company has a strong rate of return on total assets, that shows that they can easily pay off their current liabilities with their current assets
79) If a company has a strong rate of return on common stockholders’ equity, that is an indication of good cash flow
80) Which of the following measures a company’s success in using assets to earn income?
81) Paying dividends causes a decrease in total paid-in capital.

82) If preferred stock is non-cumulative, then the company does NOT need to pay dividends that were passed in previous years

83) If preferred stock is cumulative, then the company does NOT need to pay dividends that were passed in previous years.

84) A dividend’s declaration date is the date the board of directors announces the intention to pay the dividend

85) When a company records the year-end closing entries, the Income summary balance, before it is closed to Retained earnings, should be equal to the Net income or Net loss for the year

86) A net loss for the year increases the balance in Retained earnings.

87) Ajax Company was founded in 2009. Its yearly earnings are shown here:

2012: Net income of $4,000

2013: Net income of $23,000

2014: Net income of $2,000

2015: Net loss of $30,000

No dividends were paid. At the end of the year 2015, Ajax would have a Retained earnings deficit of $1,000

88) Corporations must issue common stock, but may or may not decide to issue preferred stock

89) All forms and classes of stock carry voting rights

90) Every corporation issues preferred stock.  

91) A corporation is a separate legal entity formed under the laws of a particular state

92) Stockholders of a corporation have unlimited liability for the corporation’s debt

93) Rules of GAAP require that bond premiums or discounts be amortized using the straight-line method

94) If the difference between the effective-interest method of amortizing bond discount and the straight-line method is immaterial, then GAAP permits use of the straight-line method

95) The time value of money is related to which of the following concepts?
96) FICA tax payable would normally be shown on the balance sheet in long-term liabilities

97) Accounts payable is always shown on the balance sheet in current liabilities

98) The balance in the Bonds payable account is a credit of $50,000. The balance in the Discount on bonds payable is a debit of $1,500. The balance sheet will report the bond balance as $48,500

99) The balance in the Bonds payable account is a credit of $50,000. The balance in the Premium on bonds payable account is a credit of $900. The bond carrying amount is $50,900

100) Deferred tax would normally arise from which of the following situations?