FINANCE

1)

 

Hull Company acquires land for $96,000 cash. Additional costs are as follows:

Removal of shed                                       $    300

Filling and grading                                        1,500

Salvage value of lumber of shed                      120

Broker commission                                      1,130

Paving of parking lot                                  10,000

Closing costs                                                   560

Hull will record the acquisition cost of the land as

a.   $86,000.

b.   $97,690.

c.   $99,610.

d.   $99,370.

 

2)

 

Wesley Hospital installs a new parking lot. The paving cost $40,000 and the lights to illuminate the new parking area cost $20,000. Which of the following statements is true with respect to these additions?

a.   $40,000 should be debited to the Land account.

b.   $20,000 should be debited to Land Improvements.

c.   $60,000 should be debited to the Land account.

d.   $60,000 should be debited to Land Improvements.

 

3)

 

Land improvements should be depreciated over the useful life of the

a.   land.

b.   buildings on the land.

c.   land or land improvements, whichever is longer.

d.   land improvements.

 

4)

 

Mattox Company is building a new plant that will take three years to construct. The construction will be financed in part by funds borrowed during the construction period. There are significant architect fees, excavation fees, and building permit fees. Which of the following statements is true?

a.   Excavation fees are capitalized but building permit fees are not.

b.   Architect fees are capitalized but building permit fees are not.

c.   Interest is capitalized during the construction as part of the cost of the building.

d.   The capitalized cost is equal to the contract price to build the plant less any interest on borrowed funds.

 

 

5)

 

A company purchases a remote site building for computer operations. The building will be suitable for operations after some expenditures. The wiring must be replaced to computer specifications. The roof is leaky and must be replaced. All rooms must be repainted and recarpeted and there will also be some plumbing work done. Which of the following statements is true?

a.   The cost of the building will not include the repainting and recarpeting costs.

b.   The cost of the building will include the cost of replacing the roof.

c.   The cost of the building is the purchase price of the building, while the additional expenditures are all capitalized as Building Improvements.

d.   The wiring is part of the computer costs, not the building cost.

 

 

6)

 

Engler Company purchases a new delivery truck for $60,000. The sales taxes are $4,000. The logo of the company is painted on the side of the truck for $1,600. The truck license is $160. The truck undergoes safety testing for $290. What does Engler record as the cost of the new truck?

a.   $66,050

b.   $65,890

c.   $64,000

d.   $65,600

 

 

7)

 

All of the following factors in computing depreciation are estimates except

a.   cost.

b.   residual value.

c.   salvage value.

d.   useful life.

 

8)

 

Presto Company purchased equipment and these costs were incurred:

Cash price                                             $45,000

Sales taxes                                                 3,600

Insurance during transit                               640

Installation and testing                                860

Total costs                                            $50,100

Presto will record the acquisition cost of the equipment as

a.   $45,000.

b.   $48,600.

c.   $49,240.

d.   $50,100.

9)

 

When estimating the useful life of an asset, accountants do not consider

a.   the cost to replace the asset at the end of its useful life.

b.   obsolescence factors.

c.   expected repairs and maintenance.

d.   the intended use of the asset.

 

10)

 

Useful life is expressed in terms of use expected from the asset under the

a.   declining-balance method.

b.   straight-line method.

c.   units-of-activity method.

d.   none of these.

 

11)

 

Equipment was purchased for $150,000. Freight charges amounted to $7,000 and there was a cost of $20,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $30,000 salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be

a.   $35,400.

b.   $29,400.

c.   $24,600.

d.   $24,000.

 

12)

 

A truck was purchased for $120,000 and it was estimated to have a $24,000 salvage value at the end of its useful life. Monthly depreciation expense of $2,000 was recorded using the straight-line method. The annual depreciation rate is

a.   20%.

b.   2%.

c.   8%.

d.   25%.

 

13)

 

A company purchased factory equipment on April 1, 2012 for $80,000. It is estimated that the equipment will have an $10,000 salvage value at the end of its 10-year useful life. Using the straight-line method of depreciation, the amount to be recorded as depreciation expense at December 31, 2012 is

a.   $8,000.

b.   $7,000.

c.   $5,250.

d.   $6,000.

14)

 

A company purchased office equipment for $40,000 and estimated a salvage value of $8,000 at the end of its 4-year useful life. The constant percentage to be applied against book value each year if the double-declining-balance method is used is

a.   20%.

b.   25%.

c.   50%.

d.   5%.

 

15)

 

The declining-balance method of depreciation produces

a.   a decreasing depreciation expense each period.

b.   an increasing depreciation expense each period.

c.   a declining percentage rate each period.

d.   a constant amount of depreciation expense each period.

 

 

16)

 

A company purchased factory equipment for $350,000. It is estimated that the equipment will have a $35,000 salvage value at the end of its estimated 5-year useful life. If the company uses the double-declining-balance method of depreciation, the amount of annual depreciation recorded for the second year after purchase would be

a.   $140,000.

b.   $84,000.

c.   $126,000.

d.   $60,480.

 

17)

 

The units-of-activity method is generally not suitable for

a.   airplanes.

b.   buildings.

c.   delivery equipment.

d.   factory machinery.

 

 

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