Chapter 7
Corporation A purchased land for a new building. Which of the following costs would not be included in the cost of the land?
A. Cost of new parking lot constructed on the land
B. Purchase price of the land
C. Cost of demolishing an old garage located on the land
D. Brokerage commission paid to the real estate agent who handled the land transaction
A. Cost of new parking lot constructed on the land
Thomastown Corporation purchased a new delivery van on the last day of its fiscal year. The cost of the delivery van will appear on Thomastown’s _____________ in the year of the purchase.
Suppose George’s delivery pays $66 million to buy Guaranteed Overnight. The fair value of Guaranted’s assets is $82 million, and the fair value of its liabilities is $26 million. How much goodwill did George’s Delivery purchase in its acquisition of Guaranteed Overnight?
A. $10 million
B. $25 million
C. $43 million
D. $22 million
A. $10 million
The discount on bonds payable account is what type of account?
CONTRA-LIABILITY ACCOUNT
A bond with a face value of $120,000 and a quoted price of 99 has a selling price of
A. $120,000
B. $118,800
C. $120,099
D. the answer is not displayed
B. $118,800
When a company expenses the cost of maintenance for its fleet of delivery vehicles, the cost will appear on its
A.Income statement
B. Statement of retained earnings
C. Balance sheet
D. Statement of stockholders’ equity
A.Income statement
A capital expenditure …
A. Is expensed immediately.
B. Adds to an asset.
C. Records additional capital.
D. Is a credit-like capital (equity).
B. Adds to an asset.
Judson company purchased a machine for $8,200 on January 1, 2019. The machinery has been reported deprecated using the straight-line method assuming it has an eight-year life with $1,000 residual value Judson sold the machinery on January 1, 2021 for $8,900.
What is the book value of the machine on December 31, 2020?
A. $7,200
B. $9,900
C. $6,400
D. $4,500
C. $6,400
A corporation issued a $500,00 in bonds payable at par. The journal entry to record a semiannual interest payment on these bonds would be:
DR INT EXP 500
CR CASH 500
Bonds with an 8% stated interest rate were issued when the market rate of interest was 5%. The bond issued at a __________.
PREMIUM
Chichi company purchase a building and land for $500,000 in total. Individually, the land appraised for $53,000 and the building appraised for $477,000. How much of the purchase price should be allocated to the cost of the land?
50,000
The depreciation method that does not initially use the residual value in depreciation calculations is the
A. Units-of-production
B. Direct method
C. Double-declining balance method
D. Straight-line method
C. Double-declining balance method
23. Williams Company purchased a machine for $11,800 on January 1, 2019. The machinery has been depreciated using the straight-line method assuming it has a four-year life with a $1,600 residual value. Williams sold the machinery on January 1, 2021 for $7,400. The book value as of December 31, 2020 is $6,700. What gain or loss should Williams record on the sale?
A. Gain of $700
B. Gain of $400
C. Loss of $1,200
D. Loss of $400
A. Gain of $700
The discount on bonds payable becomes
A. additional interest expenses in the year the bonds are sold
B. a reduction in interest expense over the life of the bonds
C. additional interest expense over the life of the bonds
D. a reduction of interest expense in the year the bonds mature
C. additional interest expense over the life of the bonds;
WHY? THE DISCOUNT ON B/P IS AMORTIZED OVER THE LIFE OF THE BONDS SO THE PERIODIC AMORTIZATION INCREASES INTEREST EXP OVER THE LIFE OF THE BONDS
DR INT EXP
CR CASH
CR DISCOUNT ON B/P
What is the carrying value of Bonds Payable?
FV – Discount on B/P; FV + Premium
Kline Company failed to record depreciation of equipment. How does this omission affect Kline’s financial statements?
A. Net income is overstated and assets are overstated
B. Net income is overstated and assets are understated.
C. Net income is understated and assets are understated
D. Net income is understated and assets are overstated.
A. Net income is overstated and assets are overstated
Acton, Inc uses the double-declining-balance method for depreciation on its computers. Which item is not needed to compute depreciation for its first year?
A. Expected useful life in years
B. Original cost
C. Estimated residual value
D. All the items listed are needed.
C. Estimated residual value
6. A company issued $1,900,000, 5-year, 6% bonds for $1,862,000 on January 1, 2022. Interest is paid semiannually on January 1 and July 1. The corporation uses the S-L method of amortization. The company’s fiscal year ends on December 31. The amount of discount amortization on July 1, 2022, would be:
$3,800
The carrying value on bonds equals bonds payable
A. minus Premium on B/P
B. plus Discount on B/P
C. plus Premium on B/P
D. minus Discount on B/P
E. both a and b
F. both c and d
F. both c and d
13.
The journal entry on the maturity date to record the retirement of bonds with a face value of $1,000,000 that were issued at $60,000 discount includes
A. a debit to Discount on B/P for $60,000
B. a credit to cash for $1,060,000
C. a debit to Bonds Payable for $1,000,000
D. all of the above
C. a debit to Bonds Payable for $1,000,000
DR B/P
CR CASH
TextDat , Inc., reported sales revenue of $375,000, net income of $22,500, and average total assets of $300,000. TextDats’s return on assets is
A. 1.25%
B. 7.5%
C. 60%
D. 6.0%
B. 7.5%
Which of the following is a measure of profitability?
A. Return on assets (ROA)
B. Inventory turnover
C. Quick (acid-test) ratio
D. Net sales
A. Return on assets (ROA)
1. Bankley Company issued $325,000, 5%, ten-year bonds for 114, with interest paid annually. Assuming straight-line amortization, what is the carrying value of the bonds after one year?
$365,950
11. A company sells $300,000 of 13%, 15-year bonds for 96.8507 on April 1,2021. The market rate of interest on that day is 13.5%. Interest is paid each year on April 1. What is the journal entry to record the sale of the bonds on April 1?
Dr Cash 290,552 (300,000 x .968507)
Dr Discount on B/P 9,448 (300-290,552)
Cr B/P 300,000
15. XYZ Corporation retires its bonds at 110 on January 1, after the payment of interest. The face value of the bonds is $500,000. The carrying value of the bonds at retirement is $515,000. The entry to record the retirement will include a
A. Dr of $15,000 to Premium on Bonds Payable
B. Cr of $15,000 to Premium on Bonds Payable
C. Dr of $35,000 to Premium on Bonds Payable
D. Cr of $35,000 to Premium on Bonds Payable
A. Dr of $15,000 to Premium on Bonds Payable (515-500=15)