Fixed Asset &
Depreciation
Depreciation
Which of the following best describes the objective of depreciation?
A) To allocate the cost of a tangible asset to the periods in which its use contributes to earning revenue.
B) To estimate the current market value of the asset.
C) To report the asset on the balance sheet at the estimated amount for which the asset could be sold on the balance sheet date.
D) To estimate the remaining useful life of the asset.
A) To allocate the cost of a tangible asset to the periods in which its use contributes to earning revenue.
Which of the following statements about earnings per share (EPS) is correct?
A) EPS is calculated using the weighted average number of common shares of stock outstanding.
B) Issuance of more common shares would cause earnings per share to increase.
C) Purchasing treasury shares would cause earnings per share to decrease.
D) Increased net income would cause earnings per share to decrease.
A) EPS is calculated using the weighted average number of common shares of stock outstanding.
Which of the following transactions does not result in either a cash inflow or a cash outflow?
A) A company purchased some of its own stock from a stockholder.
B) Payment of a cash dividend.
C) Sale of equipment at book value.
D) Amortization of a patent.
D) Amortization of a patent.
Which of the following is incorrect?
A) Current liabilities are those that will be satisfied within one year or the operating cycle, whichever is longer.
B) Interest that will be paid in the future is included in the reported amount of a current liability.
C) Current liabilities impact a company's liquidity.
D) Working capital is equal to current assets minus current liabilities.
B) Interest that will be paid in the future is included in the reported amount of a current liability.
Treasury stock shares are shares of stock that are:
A) authorized but not issued.
B) authorized and outstanding.
C) authorized, issued, and outstanding.
D) authorized and issued, but not outstanding.
D) authorized and issued, but not outstanding.
Which of the following is correct?
A) If a company overstates depreciation expense, net income is overstated and assets are understated.
B) If a company fails to record depreciation expense, net income and expenses are overstated.
C) If a company fails to record depreciation expense, net income and assets are overstated.
D) If a company fails to record depreciation expense, stockholders' equity, net income, and assets are understated.
C) If a company fails to record depreciation expense, net income and assets are overstated.
Treasury stock shares are shares of stock that are:
A) authorized but not issued.
B) authorized and outstanding.
C) authorized, issued, and outstanding.
D) authorized and issued, but not outstanding.
D) authorized and issued, but not outstanding.
Which of the following statements about the statement of cash flows is correct?
A) Cash dividends paid are classified as cash flows from operating activities.
B) Cash dividends received on stock investments are classified as cash flows from operating activities.
C) A purchase of equipment is classified as a cash inflow from investing activities.
D) A company with a net loss on the income statement will always have a net cash outflow from operating activities.
B) Cash dividends received on stock investments are classified as cash flows from operating activities.
Which of the following best describes the accrual of interest?
A) Assets and stockholders' equity decrease.
B) Net income and expenses decrease.
C) Expenses and liabilities increase.
D) Assets and liabilities decrease.
C) Expenses and liabilities increase.
Which of the following represents the number of shares currently owned by investors?
A) Authorized shares.
B) Outstanding shares.
C) Treasury shares.
D) Issued shares.
B) Outstanding shares.
A machine, acquired for a cash cost of $15,000, is being depreciated on a straight-line basis of $2,700 per year. The residual value was estimated to be 10% of cost. The estimated useful life is:
A) 3 years.
B) 6 years.
C) 5 years.
D) 4 years.
C) 5 years.
Which of the following statements incorrectly describes earnings per share (EPS)?
A) The reissue of treasury stock decreases earnings per share.
B) An increase in the market price per common share does not result in a decrease in earnings per share.
C) An increase in dividends per share results in an increase in earnings per share.
D) Earnings per share is a ratio calculated per common share outstanding.
C) An increase in dividends per share results in an increase in earnings per share.
Which of the following would be subtracted from net income when determining cash flows from operating activities under the indirect method?
A) Depreciation expense.
B) A decrease in prepaid insurance.
C) A gain on the sale of a depreciable asset.
D) An increase in accounts payable.
C) A gain on the sale of a depreciable asset.
Benwick Company borrowed $50,000 cash on October 1, 2022, and signed a nine-month, 8% interest-bearing note payable with interest payable at maturity. Assuming that adjusting entries have not been made during the year, the amount of accrued interest payable to be reported on the December 31, 2022 balance sheet is which of the following?
A) $1,500.
B) $500.
C) $600.
D) $1,000.
D) $1,000.
Which of the following transactions will decrease the accounts payable turnover ratio?
A) Selling inventory for cash.
B) A customer returning inventory sold on account.
C) Using cash to pay an accounts payable balance.
D) Selling inventory on account.
B) A customer returning inventory sold on account.
On January 1, 2022, Woodstock, Incorporated purchased a machine costing $40,000. Woodstock also paid $1,000 for transportation and installation. The expected useful life of the machine is 6 years and the residual value is $5,000.
How much is the annual depreciation expense, assuming use of the straight-line depreciation method?
A) $6,000.
B) $5,750.
C) $5,950.
D) $6,100.
A) $6,000.
Rye Company has provided the following information:
What is Rye's earnings per share (EPS)?
A) $3.50
B) $1.87
C) $2.02
D) $3.05
A) $3.50
Which of the following would not be a cash flow from investing activities?
A) Sale of a patent.
B) Collection of principal on a long-term note receivable.
C) Purchase of long-term investments.
D) Collection of interest revenue on a long-term note receivable.
D) Collection of interest revenue on a long-term note receivable.
Little Elm Company borrowed $300,000 cash on September 1, 2022, and signed a one-year, 6% interest-bearing note payable. Assume noadjusting entries have been made during the year. Would the following adjusting entry at the end of the December 31, 2022 accounting period be correct?
Interest Payable 6,000
Interest Expense 6,000
False!
Which of the following transactions would not create a cash flow from operating activities?
A) Paying cash to a supplier.
B) Collecting cash from a customer.
C) Paying cash for a utility bill.
D) Paying cash dividends to stockholders.
D) Paying cash dividends to stockholders.
On July 1, Campbell Company purchased new equipment for $90,000 by paying cash. Other costs associated with the equipment were: transportation costs, $1,800; sales tax paid, $7,200; and installation cost, $4,500. At what amount will the equipment be recorded on a balance sheet?
A) $97,200.
B) $91,800.
C) $103,500.
D) $96,300.
C) $103,500.
Claire Company has provided the following information:
What is Claire's earnings per share (EPS)?
A) $5.72
B) $4.00
C) $4.44
D) $5.00
D) $5.00
Red Rock Company has provided the following information pertaining to its recent year of operation:
Using the indirect method, how much was Red Rock's net cash provided by operating activities?
A) $230,000
B) $178,000
C) $222,000
D) $250,000
C) $222,000
Ponderosa Company borrowed $400,000 cash on September 1, 2022, and signed a one-year, 6% interest-bearing note payable. The interest and principal are both due on August 31, 2023. Assume that the appropriate adjusting entry was made on December 31, 2022 and that no adjusting entries have been made during 2023. Which of the following would be the required journal entry to pay the note on August 31, 2023?
A) Interest Expense. 24,000
Cash 24,000
B) Interest Payable 8,000
Notes Payable. 400,000
Cash 408,000
C) Notes Payable 400,000
Interest Expense 24,000
Cash 424,000
D) Interest Expense 16,000
Interest Payable. 8,000
Notes Payable. 400,000
Cash 424,000
D) Interest Expense 16,000
Interest Payable. 8,000
Notes Payable. 400,000
Cash 424,000
Which of the following statements is correct?
A) Current liabilities are initially recorded at the amount of their principal plus interest.
B) Current liabilities are those liabilities due within the shorter of one year or one operating cycle.
C) Liquidity refers to the ability to pay all debts within one year.
D) Current liabilities affect working capital and the cash flows from operating activities.
D) Current liabilities affect working capital and the cash flows from operating activities.