1. Corrieten Company purchased equipment and incurred these costs:
Cash price $24,000
Sales taxes 1,200
Insurance during transit 200
Installation and testing 400
Total costs $25,800
What amount should be recorded as the cost of the equipment?
2. Harrington Corporation recently leased a number of trucks from Andre Corporation. In inspecting the books of Harrington Corporation, you notice that the trucks have not been recorded as assets on its balance sheet. From this you can conclude that Harrington is accounting for this transaction as a(n):
A. operating lease.
B. capital lease.
D. None of the above.
3. Depreciation is a process of:
B. cost allocation.
C. cash accumulation.
4. Cuso Company purchased equipment on January 1, 2006, at a total invoice cost of $400,000. The equipment has an estimated salvage value of $10,000 and an estimated useful life of 5 years. What is the amount of accumulated depreciation at December 31, 2007, if the straight-line method of depreciation is used?
5. A company would minimize its depreciation expense in the first year of owning an asset if it used:
A. a high estimated life, a high salvage value, and declining-balance depreciation.
B. a low estimated life, a high salvage value, and straight-line depreciation.
C. a high estimated life, a high salvage value, and straight-line depreciation.
D. a low estimated life, a low salvage value, and declining-balance depreciation.
6. When there is a change in estimated depreciation:
A. previous depreciation should be corrected.
B. current and future years’ depreciation should be revised.
C. only future years’ depreciation should be revised.
D. None of the above.
7. Additions to plant assets:
A. are revenue expenditures.
B. increase a Repair Expense account.
C. increase a Purchases account.
D. are capital expenditures.
8. Which of the following measures provides an indication of how efficient a company is in employing its assets?
A. Current ratio.
B. Profit margin ratio.
C. Debt to total assets ratio.
D. Asset turnover ratio.
9. Pierce Company incurred $150,000 of research and development costs in its laboratory to develop a new product. It spent $20,000 in legal fees for a patent granted on January 2, 2007. On July 31, 2007, Pierce paid $15,000 for legal fees in a successful defense of the patent. What is the total amount that should be debited to Patents through July 31, 2007?
D. Some other amount.
10. Indicate which one of these statements is true.
A. Since intangible assets lack physical substance, they need to be disclosed only in the notes to the financial statements.
B. Goodwill should be reported as a contra account in the stockholders’ equity section.
C. Totals of major classes of assets can be shown in the balance sheet, with asset details disclosed in the notes to the financial statements.
D. Intangible assets are typically combined with plant assets and natural resources and then shown in the property, plant, and equipment section.
11. If a company reports goodwill as an intangible asset on its books, what is the one thing you know with certainty?
A. The company is a valuable company worth investing in.
B. The company has a well-established brand name.
C. The company purchased another company.
D. The goodwill will generate a lot of positive business for the company for many years to come.
12. Kant Enterprises purchased a truck for $11,000 on January 1, 2006. The truck will have an estimated salvage value of $1,000 at the end of 5 years. If you use the units-of-activity method, the balance in accumulated depreciation at December 31, 2007, can be computed by the following formula:
A. ($11,000/Total estimated activity) x Units of activity for 2007.
B. ($10,000/Total estimated activity) x Units of activity for 2007.
C. ($11,000/Total estimated activity) x Units of activity for 2006 and 2007.
D. ($10,000/Total estimated activity) x Units of activity for 2006 and 2007.
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