Chapter 10
1. Which of these is not a major characteristic of a plant asset?
a. Possesses physical substance
b. Acquired for use in operations
c. Yields services over a number of years
d. All of these are major characteristics of a plant asset.
2. Cotton Hotel Corporation recently purchased Emporia Hotel and the land on which it
is located with the plan to tear down the Emporia Hotel and build a new luxury hotel on
the site. The cost of the Emporia Hotel should be
a. depreciated over the period from acquisition to the date the hotel is scheduled to be torn down.
b. written off as an extraordinary loss in the year the hotel is torn down.
c. capitalized as part of the cost of the land.
d. capitalized as part of the cost of the new hotel.
3. When funds are borrowed to pay for construction of assets that qualify for
capitalization of interest, the excess funds not needed to pay for construction may be
temporarily invested in interest-bearing securities. Interest earned on these temporary investments should be
a. offset against interest cost incurred during construction.
b. used to reduce the cost of assets being constructed.
c. multiplied by an appropriate interest rate to determine the amount of interest to be capitalized.
d. recognized as revenue of the period.
4. An improvement made to a machine increased its fair value and its production
capacity by 25% without extending the machine's useful life. The cost of the improvement should be a. expensed.
b. debited to accumulated depreciation.
c. capitalized in the machine account.
d. allocated between accumulated depreciation and the machine account
5. On February 1, 2012, Nelson Corporation purchased a parcel of land as a factory site
for $250,000. An old building on the property was demolished, and construction began
on a new building which was completed on November 1, 2012. Costs incurred during this period are listed below:
Demolition of old building $ 20,000 Architect's fees 35,000
Legal fees for title investigation and purchase contract 5,000 Construction costs 1,290,000
(Salvaged materials resulting from demolition were sold for $10,000.)
Nelson should record the cost of the land and new building, respectively, as a. $275,000 and $1,315,000. b. $260,000 and $1,330,000. c. $260,000 and $1,325,000. d. $265,000 and $1,325,000.
6. Worthington Chandler Company purchased equipment for $12,000. Sales tax on the
purchase was $800. Other costs incurred were freight charges of $200, repairs of $350 for
damage during installation, and installation costs of $225. What is the cost of the equipment? a. $12,000 b. $12,800 c. $13,225 d. $13,575
7. Dodson Company traded in a manual pressing machine for an automated pressing
machine and gave $16,000 cash. The old machine cost $186,000 and had a net book
value of $142,000. The old machine had a fair value of $120,000. Which of the following
is the correct journal entry to record the exchange? a. Equipment 136,000 Loss on Disposal 22,000
Accumulated Depreciation 44,000 Equipment 186,000 Cash 16,000 b. Equipment 136,000 Equipment 120,000 Cash 16,000 c. Cash 16,000 Equipment 120,000 Loss on Disposal 22,000
Accumulated Depreciation 44,000 Equipment 202,000 d. Equipment 246,000
Accumulated Depreciation 44,000 Equipment 186,000 Cash 16,000
Use the following information to answer questions 8 & 9
Jamison Company purchased the assets of Booker Company at an auction for $2,800,000.
An independent appraisal of the fair value of the assets is listed below: Land $950,000 Building 1,400,000 Equipment 1,050,000 Trucks 1,700,000
8. Assuming that specific identification costs are impracticable and that Jamison
allocates the purchase price on the basis of the relative fair values, what amount would be allocated to the Trucks? a. $933,333 b. $1,400,000 c. $1,680,000 d. $1,700,000
9. Assuming that specific identification costs are impracticable and that Jamison
allocates the purchase price on the basis of the relative fair values, what amount would be allocated to the Building? a. $1,059,460 b. $1,400,000 c. $2,550,000 d. $768,627
10. The sale of a depreciable asset resulting in a loss indicates that the proceeds from the sale were
a. less than current fair value. b. greater than cost. c. greater than book value. d. less than book value ANSWERS 1. d 2. c 3. d 4. c 5. d 6. c 7. a 8. a 9. d 10. d CHAPTER 11
1. The relationship of current assets to current liabilities is used in evaluating a company's a. operating cycle. b. revenue-producing ability.
c. short-term debt paying ability. d. long-range solvency.
2. Which of the following is usually not an accrued liability? a. Interest payable b. Wages payable c. Taxes payable d. Notes payable
Use the following information for questions 3-5.
Coffey County Bank agrees to lend Adcock Brick Company $200,000 on January 1.
Adcock Brick Company signs a $200,000, 8%, 9-month note.
3. The entry made by Adcock Brick Company on January 1 to record the proceeds and issuance of the note is
a. Interest Expense.................................................................. 12,000
Cash. ................................................................................... 188,000
Notes Payable ............................................................ 200,000
b. Cash .................................................................................... 200,000
Notes Payable ............................................................ 200,000
c. Cash .................................................................................... 200,000
Interest Expense.................................................................. 12,000
Notes Payable ............................................................ 212,000
d. Cash .................................................................................... 200,000
Interest Expense.................................................................. 12,000
Notes Payable ............................................................ 200,000
Interest Payable.......................................................... 12,000
4. What is the adjusting entry required if Adcock Brick Company prepares financial statements on June 30?
a. Interest Expense.................................................................. 8,000
Interest Payable.......................................................... 8,000
b. Interest Expense.................................................................. 8,000
Cash ........................................................................... 8,000
c. Interest Payable................................................................... 8,000
Cash ........................................................................... 8,000
d. Interest Payable................................................................... 8,000
Interest Expense......................................................... 8,000
5. What entry will Adcock Brick Company make to pay off the note and interest at
maturity assuming that interest has been accrued to September 30?
a. Notes Payable...................................................................... 212,000
Cash ............................................................................ 212,000
b. Notes Payable...................................................................... 200,000
Interest Payable ................................................................... 12,000
Cash ............................................................................ 212,000
c. Interest Expense .................................................................. 12,000
Notes Payable ...................................................................... 200,000
Cash ............................................................................ 212,000
d. Interest Payable ................................................................... 8,000
Notes Payable ...................................................................... 200,000
Interest Expense .................................................................. 4,000
Cash ............................................................................ 212,000
6. On January 1, 2008, Dunnon Company, a calendar-year company, issued $600,000 of
notes payable, of which $150,000 is due on January 1 for each of the next four years. The
proper balance sheet presentation on December 31, 2008, is
a. Current Liabilities, $600,000. b. Long-term Debt, $600,000.
c. Current Liabilities, $300,000; Long-term Debt, $300,000.
d. Current Liabilities, $150,000; Long-term Debt, $450,000.
7. Jordon Company does not ring up sales taxes separately on the cash register. Total
receipts for October amounted to $18,900. If the sales tax rate is 5%, what amount must
be remitted to the state for October's sales taxes? a. $900 b. $945 c. $45 d. It cannot be determined.
8. Enrique's Salon has total receipts for the month of $16,430 including sales taxes. If the
sales tax rate is 6%, what are Enrique's sales for the month? a. $15,444.20 b. $17,415.80 c. $15,500.00 d. It cannot be determined
9. The accounting for warranty cost is based on the matching principle, which requires
that the estimated cost of honoring warranty contracts should be recognized as an expense
a. when the product is brought in for repairs.
b. in the period in which the product was sold.
c. at the end of the warranty period.
d. only if the repairs are expected to be made within one year.
10. If a liability is dependent on a future event, it is called a a. potential liability. b. hypothetical liability. c. probabilistic liability. d. contingent liability.
11. The total compensation earned by an employee is called a. take-home pay. b. net pay. c. net earnings. d. gross earnings.
12. Which one of the following payroll taxes does not result in a payroll tax expense for the employer? a. FICA tax b. Federal income tax c. Federal unemployment tax d. State unemployment tax
13. Assuming a FICA tax rate of 8% on the first $90,000 in wages, and a federal income
tax rate of 20% on all wages, what would be an employee's net pay for the year if he earned $100,000 for the year? a. $92,800 b. $72,000 c. $80,000 d. $72,800
14. Employee payroll deductions include each of the following except
a. federal unemployment taxes. b. federal income taxes. c. FICA taxes.
d. insurance, pension plans, and union dues.
15. The journal entry to record the payroll for a period will include a credit to Wages and
Salaries Payable for the gross
a. amount less all payroll deductions.
b. amount of all paychecks issued. c. pay less taxes payable.
d. pay less voluntary deductions
Use the following information for questions 16-19.
The following totals for the month of April were taken from the payroll register of Main Company. Salaries $24,000 FICA taxes withheld 1,100 Income taxes withheld 5,000
Medical insurance deductions 900 Federal unemployment taxes 64 State unemployment taxes 432
16. The journal entry to record the monthly payroll on April 30 would include a
a. debit to Salaries Expense for $24,000.
b. credit to Salaries Payable for $24,000.
c. debit to Salaries Payable for $24,000.
d. debit to Salaries Expense for $17,000.
17. The entry to record the payment of net payroll would include a
a. debit to Salaries Payable for $16,504.
b. debit to Salaries Payable for $17,000.
c. debit to Salaries Payable for $15,900.
d. credit to Cash for $18,100. 18
a. debit to Payroll Tax Expense for $496.
b. debit to Payroll Tax Expense for $1,596.
c. credit to FICA Taxes Payable for $2,200.
19. The entry to record the accrual of federal unemployment taxes would include a
a. credit to Federal Unemployment Taxes Payable for $64.
b. debit to Federal Unemployment Taxes Expense for $64.
c. credit to Payroll Tax Expense for $64.
d. debit to Federal Unemployment Taxes Payable for $64
d. credit to Payroll Tax Expense for $496.
20. Which one of the following payroll taxes is not withheld from an employee's wages
because it is not levied on the employee? a. Federal income tax b. Federal unemployment tax c. State income tax d. FICA tax 1.C 2.D 3.B 4.A 5.B 6.D 7.A 8.C 9.B 10.D
11.D 12.B 13.D 14.A 15.A 16.A 17.B 18.B 19.A 20.B CHAPTER 18
1. In reporting discontinued operations, the income statement should show in a special section:
a. gains on the disposal of the discontinued component.
b. losses on the disposal of the discontinued component. c. Neither (a) nor (b). d. Both (a) and (b).
2. Which situation below might indicate a company has a low quality of earnings?
a. The same accounting principles are used each year.
b. Revenue is recognized when the performance obligation is satisfied.
c. Maintenance costs are capitalized and then depreciated.
-E ratio is high relative to competitors.
3. In horizontal analysis, each item is expressed as a percentage of the: a. net income amount. b. c. total assets amount. d. base-year amount.
4. Adams Corporation reported net sales of $300,000, $330,000, and $360,000 in the
years 2018, 2019, and 2020, respectively. If 2018 is the base year, what percentage do 2020 sales represent of the base? a. 77%. b. 108%. c. 120%. d. 130%.
5. The following schedule is a display of what type of analysis? Amount Percent Current assets $200,000 25%
Property, plant, and equipment $600,000 75% Total assets $800,000 a. Horizontal analysis. b. Differential analysis. c. Vertical analysis. d. Ratio analysis.
6. In vertical analysis, the base amount for depreciation expense is generally: a. net sales.
b. depreciation expense in a previous year. c. gross profit. d. fixed assets. 7.
a. Accounts receivable turnover. b. Current ratio. c. Both (a) and (b). d. None of the above.
8. Which measure is useful in evaluating the efficiency in managing inventories? a. Inventory turnover. b. Days in inventory. c. Both (a) and (b). d. None of the above.
9. Which of these is not a liquidity ratio? a. Current ratio. b. Asset turnover. c. Inventory turnover.
d. Accounts receivable turnover.
10. Plano Corporation reported net income $24,000, net sales $400,000, and average assets
$600,000 for 2020. What is the 2020 profit margin? a. 6%. b. 12%. c. 40%. d. 200%.
Use the following financial statement information as of the end of each year to answer Questions 11 15. 2020 2019 Inventory $54,000 $48,000 Current assets 81,000 106,000 Total assets 382,000 326,000 Current liabilities 27,000 36,000 Total liabilities 102,000 88,000 240,000 198,000 Net sales 784,000 697,000 Cost of goods sold 306,000 277,000 Net income 134,000 90,000 Income tax expense 22,000 18,000 Interest expense 12,000 12,000
Dividends paid to preferred stockholders 4,000 4,000
11. Compute the days in inventory for 2020. a. 64.4 days. b. 60.8 days. c. 6 days. d. 24 days.
12. Compute the current ratio for 2020. a. 1.26:1. b. 3.0:1. c. 0.80:1. d. 3.75:1.
13. Compute the profit margin for 2020. a. 17.1%. b. 18.1%. c. 37.9%. d. 5.9%.
14. Compute the return on common a. 54.2%. b. 52.5%. c. 61.2%. d. 59.4%.
15. Compute the times interest earned for 2020. a. 11.2 times. b. 65.3 times. c. 14.0 times. d. 13.0 times.
16. Which of the following statements about liquidity ratios is true?
a. The higher the current ratio, the more likely a firm is able to pay its short-term obligations.
b. The lower the quick ratios relative to the current ratio, the safer a firm is in terms of liquidity.
c. The ratio of net working capital to total assets always lies between 0 and 1.
d. Relatively high current ratios are usually a sign of efficient working capital management.
17. The ________ ratios help determine the degree of financial risk and earnings volatility present in a firm. a. profitability b. asset utilization c. liquidity d. none of the above.
18. Ratio analysis which compares a company to an industry is complicated because
a. reliable industry data is not readily accessible.
b. the accounting conventions between companies may be dissimilar.
c. large companies are diversified across several industries.
d. more than one of the above.
19. The Huck Printing Co. had sales of $10 million, Operating Income of $3 million; After-
tax income of $1 million; assets of $8 million; Stockholders' equity of $5 million; and a
total debt of $4 million. What is Huck's return on assets? a. 37.5% b. 12.5% c. 30.0% d. 25.0%
20. The Huck Printing Co. had sales of $10 million, Operating Income of $3 million;
Aftertax income of $1 million; assets of $8 million; Stockholders' equity of $5 million; and
a total debt of $3 million. What is Huck's return on equity? a. 37.5% b. 10.0% c. 20.0% d. 60.0% Chap 18: 1. D 2. C 3. D 4. C 5. C 6. A 7. C 8. C 9. B 10. A 11. B 12. B 13. A 14. D 15. C 16. A 17. D 18. D 19. B 20. C