Question 1

On July 1, 2012, Lott Enterprises sold equipment with an original cost of $95,000 for $50,000. The equipment was purchased January 1, 2011, and was depreciated using the straight-line method assuming a five year useful life and $5,000 salvage value. The necessary entries for 2012 include a:

A) debit to Accumulated Depreciation-Equipment for $18,000.
B) credit to Gain on Sale of Equipment for $18,000.
C) credit to Cash for $50,000.
D) debit to Depreciation Expense for $9,000.

D

Accepted Answer

D

Question 2

Which one of the following would not be considered an advantage of the corporate form of organization?&#10;A) Limited liability of stockholders.&#10;B) Separate legal existence.&#10;C) Continuous life.&#10;D) Government regulation.

Accepted Answer

Government regulation is not considered an advantage of the corporate form of organization because it imposes additional costs and compliance requirements on the corporation. However, limited liability of stockholders, separate legal existence, and continuous life are all advantages of the corporate form of organization.

Question 3

The amortization of premium on bonds payable:&#10;A) will increase bond interest expense.&#10;B) should take place over a period not to exceed 40 years.&#10;C) will decrease bond interest expense.&#10;D) will increase bond interest revenue.

Accepted Answer

The amortization of premium on bonds payable decreases bond interest expense because the premium is an amount paid over the bond's face value, which effectively reduces the cost of borrowing over the life of the bond.

Question 4

Equipment was purchased for $51,000. Freight charges amounted to $2,100 and there was a cost of $6,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $9,000 salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be:

A) $11,820.
B) $10,020.
C) $8,580.
D) $8,400.

Accepted Answer

The total cost of the equipment including freight charges and installation cost is $59,100 ($51,000+$2,100+$6,000). 
The depreciable cost of the equipment is $50,100 ($59,100-$9,000 salvage value). 
Using the straight-line method, the annual depreciation expense will be the depreciable cost divided by the useful life of the equipment: $10,020 ($50,100 divided by 5 years). Therefore, the best choice is B.

Question 5

A $300,000, 5%, 20-year bond was issued at 97. The proceeds received from the bond issuance are:&#10;A) $291,000.&#10;B) $285,600.&#10;C) $300,000.&#10;D) $309,000.

Accepted Answer

The proceeds from the bond issuance are calculated by multiplying the face value of the bond by the percentage at which it was issued. In this case, $300,000 * 97% = $291,000.

Question 6

The Kandy Company has total cash register receipts of $8,820. This total includes a 5% sales tax. The entry to record the receipts will include a:&#10;A) debit to Sales Tax Expense for $420.&#10;B) credit to Sales for $8,820.&#10;C) credit to Sales Taxes Payable for $420.&#10;D) credit to Sales Taxes Payable for $820.

Accepted Answer

The total receipts include sales tax, which means that the company did not receive the full $8,820 in revenue. Therefore, the entry should credit Sales for the net amount of the revenue received, which is $8,400 ($8,820 - $420). The sales tax collected should be recorded as a liability in Sales Taxes Payable, with a credit for the amount collected ($420). A debit to Cash or another appropriate account would also be necessary to balance the entry. Option A is incorrect because Sales Tax Expense is not used to record the amount of sales tax collected. Option B is incorrect because it does not take into account the 5% sales tax. Option D is incorrect because it overstates the amount of sales tax collected.

Question 7

The Land account would include all of the following costs except:&#10;A) drainage costs.&#10;B) the cost of building a fence.&#10;C) commissions paid to real estate agents.&#10;D) the cost of tearing down a building.

Accepted Answer

The cost of building a fence is not included in the Land account because it is considered a land improvement rather than a part of the land itself. Land improvements have a limited useful life and are depreciated over time, unlike land, which is not depreciated. Costs directly associated with preparing land for its intended use, such as drainage, commissions for purchasing the land, and clearing old buildings, are capitalized as part of the land cost.

Question 8

The Lewing Company purchases 1,000 shares of its common stock for $20,000. The $20,000 amount should be debited to:&#10;A) an asset account.&#10;B) Treasury Stock.&#10;C) Common Stock.&#10;D) Retained Earnings.

Accepted Answer

The purchase of the company's own stock results in a reduction in shareholder equity and is recorded as a contra-equity account called Treasury Stock. Therefore, the $20,000 should be debited to Treasury Stock.

Question 9

Retained earnings is affected by each of the following except a:&#10;A) cash dividend.&#10;B) large stock dividend.&#10;C) small stock dividend.&#10;D) stock split.

Accepted Answer

Stock splits do not affect retained earnings because they do not distribute any value to shareholders; instead, they simply change the number of outstanding shares and the per-share price without altering the company's equity or retained earnings.

Deck 9: Reporting and Analyzing Long-Lived Assets