#intangibleasset

[infoseminar]

Info Seminar Training Finance Management. Jadwal Pelatihan Human Resources Development. Jadwal Training 2023 tersedia online dan offline class untuk public training dan in house training. Topik training Manajemen Keuangan dan HR Development: 1. Accounting for Project - Practice and Tricks 2. Basic Accounting & Finance for Non Finance Staff 3. Budget - A Forecasting Technique 4. Cash Flow and Treasury 5. Corporate Finance 6. Fixed & Intangible Asset Accounting & Management 7. Management and Cost Accounting - A Practical Approach 8. Update PSAK Terkini 9. Effective Manpower Planning 10. HR Administration 11. Job Analysis, Evaluation & Grading 12. Performance Improvement Plan 13. Training for the Trainer Info seminar training lengkap: WA: 0851-0197-2488 Jadwal training lengkap: https://www.informasi-seminar.com | Info Seminar Manajemen Keuangan | Jadwal Training HR Development | Training Finance Management | Info Training 2023 Online dan Offline Class | Jadwal Training Accounting dan Finance | #accounting #akuntansi #financemanagement #hrdevelopment #basicaccounting #finance #finon #budget #cashflow #treasury #corporatefinance #fixedasset #intangibleasset #costaccounting #akuntansibiaya #psak #manpowerplanning #hradministration #jobanalysis #jobevaluation #jobgrading #trainingfortrainer #accountingmanagement #jadwalpelatihan #manajemenkeuangan #humanresources (di Jakarta) https://www.instagram.com/p/Cod9Khsp7Wd/?igshid=NGJjMDIxMWI=

[canadianmoneytalk]

Video: Competitive Advantage of an Economic Moat

I explain the #WarrenBuffett and #Morningstar concept of an #economicmoat, something that gives the company with the moat a #competitiveadvantage. It could be one of five types: #Networkeffect, #Intangibleassets, #Costadvantage, #Switchingcosts or #efficientscale. This will allow a higher #ROI (return on investment) and higher #profits. The #CanadianMoneyTalk channel concentrates on…

[sillygalaxyangel]

Navigating the Unseen: Challenges in Accounting for Intangible Assets 💡📊

Hey Tumblr fam! Let's unravel the mystery behind a topic that often goes unnoticed but plays a crucial role in the financial landscape – accounting for intangible assets. 🧩💼

🔍 What are Intangible Assets? First things first – what are we talking about? Intangible assets are those valuable assets that lack physical substance. Think intellectual property, patents, copyrights, trademarks, and even brand recognition. They're like the unsung heroes of a company's value.

💼 Challenges on the Horizon:

Valuation Struggles: Putting a price tag on something you can't touch is no easy feat. The valuation of intangible assets can be subjective and challenging, making it harder for companies to reflect their true worth.

Amortization vs. Impairment: Unlike tangible assets with clear depreciation, intangibles often face the dilemma of amortization (gradual write-off) or impairment (sudden decline in value). Deciding which method to use can be a tricky dance for accountants.

Changing Regulatory Landscape: Accounting standards for intangible assets are not set in stone. Changes in regulations can throw a curveball, making it essential for accountants to stay on their toes and adapt to evolving guidelines.

Disclosure Dilemmas: Intangibles often hold strategic importance for a company. Balancing the need for transparency with the necessity to protect sensitive information can pose a challenge when it comes to disclosure in financial statements.

🚀 Why Does It Matter? Understanding these challenges is vital because accurate accounting for intangible assets is crucial for assessing a company's true value, making informed investment decisions, and maintaining financial transparency.

💬 Let's Chat! What are your thoughts on the challenges of accounting for intangible assets? Do you think it adds a layer of complexity to financial reporting, or is it a necessary puzzle piece in understanding a company's worth? Share your insights! 💬🌐

[kavithask]

Title: "Distinguishing Fictitious Assets from Intangible Assets: A Financial Insight"

Understanding the difference between fictitious assets and intangible assets is essential for financial clarity. Fictitious assets have no tangible value but may represent deferred expenses or losses, affecting a company's balance sheet. In contrast, intangible assets include valuable non-physical assets like patents, copyrights, and trademarks, influencing a company's worth. This guide provides insights into the classification, accounting, and impact of fictitious and intangible assets on financial statements and the valuation of a business. Explore the intricacies of asset categorization, and enhance your financial knowledge to make informed decisions in the world of accounting and corporate finance.

[ksacademyca]

IND AS 16| Full Coverage | CA Final | English | By our student Deepika Thyagavel

 IND AS 16| Full Coverage | CA Final  - #indas16 #cafinalfr #cafinal #cafinalclasses #cafinalfr #QuickRevisionofINDAS38 #CAFinalFRRevision #FR #cafinal  #IntangibleAssets   #financialreporting   #fasttrackrevision   #fasttrack

https://youtu.be/eKJLxHbfp_w

[20westlegal]

Your business is one of the intellectual properties that is considered an intangible asset. In estate planning, intellectual property and its value often get overlooked since they can be invisible to you and those who aren't familiar with its nature. 

As a business owner, it's critically important for you to identify and know your intellectual property's value and include all your intangible assets to ensure that they are protected in the event something happens to you.

Read here to know how to ensure your property is documented, protected and how you should work with a legal team. http://ow.ly/C7OE50DOcYy

"Protect what matters most, no matter what."

[crefovi]

Finally, the French translation of our article on #intangibles #intangibleassets #valuation is available to read on https://crefovi.fr/articles/pourquoi-l-evaluation-des-actifs-incorporels-est-importante/ @crefovi (at Paris, France) https://www.instagram.com/p/CDlj9q1HO9B/?igshid=1mli3tgophkc7

[mindfulgraffiti]

We all experience inner turmoil from time to time. Own your mind and control how it affects you. #MindfulGraffiti #MindOverMatter #Throwback #IntangibleAssets #MindStrength #Power #ControlMechanisms #ChallengingTimes #Mindfulness #ThoughtYoga #EnergyHealing #Instamindfulness #Enlightenment #Motivation #Gratitude #PurposefulLiving #CreateYourOwnHappiness #InspirationDaily #PositiveEnergy #GoodVibes #MindBodyAndSoul #FoodForThought #SelfCare #SelfHelp #SelfCareDaily #WordPorn #MindPorn #QuoteOfTheDay #StopTheSpread #MasterAtHome https://www.instagram.com/p/B-9JdXonW58/?igshid=1fhgjmx0fwtmx

[tiodesnu]

Aset tak berwujud yang perlu kamu miliki secara berkelanjutan adalah perbuatan baik. Bagikan hal itu kepada setiap orang yang kamu temui! Happy Friday! • • #quotes #intangibleassets #denshuquotes #explore #explorenature #seiretei #travelling #nikon #nikonindonesian #leader #leadership (at Grand Mosque of West Sumatra) https://www.instagram.com/p/BzPSoDjhHTW/?igshid=13xrbcs20abgd

[extraordinarylegend]

Sharing the 867ip.org gospel of Ideas to Assets at Start Up Week Phoenix with Sarah Kay was fun and we got some great feedback! We’re on a mission to document, categorize and monetize intangibles, manage and line item as assets and create a standard framework that people can use! 867ip.org check out our white paper. Side note: I am fortunate to have got some time with Sarah Kay. In the short time we were able to talk I gained some valuable insight to my strengths and weaknesses. She’s a great business and life coach and I witnessed that power in person. Thanks! #newmoneyhabits #867foundation #abundancegames #entrepreneur #startupweekphx #antifragile #intangibleassets #influencer #iheartmesa #sarahkay #intellectualproperty #assetmanagement #ideas (at Mesa Arts Center) https://www.instagram.com/p/BuuoqbjhuUy/?utm_source=ig_tumblr_share&igshid=15jg1y6e2s9l4

[caharshita24]

Intangible Asset . #IntangibleAsset Asset which does NOT have a physical identity e.g. goodwill, patents, copyright etc.

[jayanthitbrc]

Lessors Of Nonfinancial Intangible Assets Market Global Competitive Insights And Outlook 2020

The Business Research Company published its Lessors Of Nonfinancial Intangible Assets Global Market Report 2020 which provides strategists, marketers and senior management with the critical information they need to assess the global Lessors Of Nonfinancial Intangible Assets market. The report provides in-depth analysis of the impact of COVID-19 on the market, along with revised market numbers due to the effects of the coronavirus. The report covers the lessors of nonfinancial intangible assets market’s segments- by type: oil royalty companies, patent owners and lessors and by mode: online, offline. View Complete Report: https://www.thebusinessresearchcompany.com/report/lessors-of-nonfinancial-intangible-assets-global-market-report-2020-30-covid-19-impact-and-recovery Lessors Of Nonfinancial Intangible Assets Global Market Report 2020 is the most comprehensive report available on this market and will help gain a truly global perspective as it covers 60 geographies. The chapter on the impact of COVID-19 gives valuable insights on supply chain disruptions, logistical challenges, and other economic implications of the virus on the market. The chapter also covers markets which have been positively affected by the pandemic. The global lessors of nonfinancial intangible assets market is expected to grow from $531.6 billion in 2019 to $540.7 billion in 2020 at a compound annual growth rate (CAGR) of 1.8%. The low growth is mainly due to economic slowdown across countries owing to the COVID-19 outbreak and the measures to contain it. The market is then expected to recover and grow at a CAGR of 9% from 2021 and reach $691.4 billion in 2023. A large number of companies are investing in research and development and are trying to make patent leasing as a major source of their revenue. These companies are investing in niche areas and are seeking a high return on their investments towards research and development. Patent owners are licensing their patents to both direct competitors and companies in related industries with most of them creating a new subsidiary unit focused on making money on those assets. Few Points From Table Of Content   1. Executive Summary 2. Report Structure 3. Lessors Of Nonfinancial Intangible Assets Market Characteristics 4. Lessors Of Nonfinancial Intangible Assets Market Product Analysis 5. Lessors Of Nonfinancial Intangible Assets Market Supply Chain …… 19. Lessors Of Nonfinancial Intangible Assets Market Competitive Landscape 20. Key Mergers And Acquisitions In The Lessors Of Nonfinancial Intangible Assets Market 21. Market Background: Leasing Market 22. Recommendations 24. Copyright And Disclaimer Request A Sample Report At: https://www.thebusinessresearchcompany.com/sample.aspx?id=2223&type=smp Few Points From List Of Table  Table 1: Historic Market Growth, Value ($ Billion) Table 2: Forecast Market Growth, Value ($ Billion) Table 3: Global Lessors Of Nonfinancial Intangible Assets Market, 2019, By Region, Value ($ Billion) ……..  Table 127: Global Lessors Of Nonfinancial Intangible Assets Market In 2023- Growth Countries Table 128: Global Lessors Of Nonfinancial Intangible Assets Market In 2023- Growth Segments Table 129: Global Lessors Of Nonfinancial Intangible Assets Market In 2023- Growth Strategies

About The Business Research Company:  The Business Research Company is a Business Intelligence Company which excels in company, market and consumer research. It has offices in the UK, the US and India and a network of trained researchers in 15 countries globally.  

Contact Information:  The Business Research Company  Europe: +44 207 1930 708  Asia: +91 8897263534  Americas: +1 315 623 0293  Email: info@tbrc.info  Follow us on Blog: http://blog.tbrc.info/  Follow us on LinkedIn: https://in.linkedin.com/company/the-business-research-company

[david1johnson-blog]

ACC 206 Week 2 Quiz – Strayer NEW

Click on the Link Below to Purchase A+ Graded Course Material

��http://budapp.net/ACC-206-Accounting-Principles-II-Week-2-Quiz-Strayer-260.htm

  CHAPTER10

 PLANTASSETS,NATURALRESOURCES,ANDINTANGIBLEASSETS

   CHAPTERSTUDYOBJECTIVES

  1.Describehowthecostprincipleappliestoplantassets.

 2.Explaintheconceptofdepreciation..

 3.Computeperiodicdepreciationusingdifferentmethods.

 4.Describetheprocedureforrevisingperiodicdepreciation.

 5.Distinguishbetweenrevenueandcapitalexpenditures,andexplaintheentriesforeach.

 6.Explainhowtoaccountforthedisposalofaplantasset.

 7.Computeperiodicdepletionofnaturalresources.

 8.Explainthebasicissuesrelatedtoaccountingforintangibleassets.

 9.Indicatehowplantassets,naturalresources,andintangibleassetsarereported.

 10.Explainhowtoaccountfortheexchangeofplantassets.

  TRUE-FALSESTATEMENTS

  1.     Allplantassets(fixedassets)mustbedepreciatedfor accountingpurposes.

 2.     Whenpurchasingland,thecostsforclearing,draining,filling,andgradingshouldbe chargedto aLandImprovementsaccount.

 3.     Whenpurchasingdeliveryequipment,salestaxesandmotorvehiclelicensesshouldbe chargedto DeliveryEquipment.

 4.     Landimprovementsaregenerallychargedto theLandaccount.

 5.     Oncecostisestablishedforaplantasset,itbecomes thebasis ofaccounting fortheasset unlesstheassetappreciatesinvalue,inwhichcase,marketvaluebecomesthebasisfor accountability.

 6.     Thebookvalueof aplantassetisalwaysequaltoitsfairmarketvalue.

 7.     Recordingdepreciationonplantassetsaffectsthebalancesheetandtheincome statement.

 8.     Thedepreciablecostof aplant asset is itsoriginalcostminusobsolescence.

 9.     Recordingdepreciationeachperiodisanapplicationof thematchingprinciple.

 10.     TheAccumulatedDepreciationaccountrepresentsacashfundavailabletoreplaceplant assets.

 11.     Incalculatingdepreciation,bothplantassetcost andusefullifearebasedonestimates.

 12.     Usingtheunits-of-activitymethodofdepreciatingfactoryequipmentwillgenerallyresultin moredepreciationexpensebeingrecordedoverthelifeoftheassetthanifthestraight-line method hadbeenused.

 13.     Salvagevalueisnotsubtractedfromplantassetcostindeterminingdepreciationexpense underthedeclining-balancemethodofdepreciation.

 14.     Thedeclining-balancemethodofdepreciationiscalledanaccelerateddepreciation methodbecauseitdepreciatesanassetinashorterperiodoftimethantheasset'suseful life.

 15.     Underthedouble-declining-balancemethod,thedepreciationrateusedeachyear remainsconstant.

 16.     TheIRSdoesnotrequirethetaxpayertousethesamedepreciationmethodonthetax returnthatisusedinpreparingfinancialstatements.

 17.     Achangeintheestimatedusefullifeofaplantassetmaycauseachangeintheamount ofdepreciationrecognizedinthecurrentandfutureperiods,but nottopriorperiods.

 18.     Achangeintheestimatedsalvagevalueofaplantassetrequiresarestatementofprior years'depreciation.

 19.     Todetermineanewdepreciationamountafterachangeinestimateofaplantasset's useful life, the asset'sremaining depreciablecost isdividedbyits remainingusefullife.

 20.     Additionsand improvementstoaplantassetthatincreasethe asset'soperatingefficiency, productive capacity,or expectedusefullife aregenerallyexpensed intheperiodincurred.

 21.     Capitalexpendituresareexpendituresthatincreasethecompany'sinvestmentin productive facilities.

 22.     Ordinaryrepairs shouldberecognizedwhenincurredas revenueexpenditures.

 23.     A characteristicofcapitalexpendituresis that theexpendituresoccurfrequently duringthe period ofownership.

 24.     Onceanassetisfullydepreciated,noadditionaldepreciationcanbetakeneventhough theasset is still beingusedbythebusiness.

 25.     Thefairmarketvalueof a plantasset isalwaysthesameasits bookvalue.

 26.     Iftheproceedsfromthesaleofaplantassetexceeditsbookvalue,againondisposal occurs.

 27.     Alossondisposalofaplantassetcanonlyoccurifthecashproceeds received fromthe assetsaleis lessthanthe asset'sbook value.

 28.     Thebookvalueofaplantassetistheamount originallypaid fortheassetlessanticipated salvagevalue.

 29.     Alossondisposal ofaplantasset asaresult ofasaleoraretirementiscalculated inthe sameway.

 30.     A plantassetmustbefullydepreciatedbeforeit canberemovedfromthe books.

 31.     Ifaplantasset issoldata gain,thegain ondisposal shouldreducethecost ofgoodssold section of the incomestatement.

 32.     Depletioncostperunitiscomputedbydividingthetotalcostofanaturalresourcebythe estimatednumberof unitsintheresource.

 33.     TheAccumulatedDepletionaccountisdeductedfromthecostofthenaturalresourcein thebalancesheet.

 34.     Depletionexpenseforaperiodisonlyrecognizedonnaturalresourcesthathavebeen extractedandsoldduringtheperiod.

 35.     Naturalresourcesarelong-livedproductiveassetsthatareextractedinoperationsand arereplaceableonlybyanactof nature.

 36.     Thecostofnaturalresourcesisnotallocatedtoexpensebecausethenaturalresources arereplaceableonlybyanactof nature.

 37.     Conceptually,thecostallocationproceduresfornaturalresourcesparallelsthatofplant assets.

 38.     Naturalresourcesincludestandingtimberandundergrounddepositsofoil,gas,and minerals.

 39.     Ifanacquiredfranchiseorlicensehasanindefinitelife,thecostoftheassetisnot amortized.

 40.     Whenanentirebusinessispurchased,goodwillistheexcessofcostoverthebookvalue of thenet assetsacquired.

 41.     Researchand development costswhich result in asuccessful product which ispatentable arechargedtothePatentaccount.

 42.     Thecostof apatentmustbeamortizedovera 20-yearperiod.

 43.     Thecostofapatentshouldbeamortizedoveritslegallifeorusefullife,whicheveris shorter.

 44.     The balancesofthe majorclassesofplantassetsand accumulated depreciationby major classes shouldbedisclosedinthebalance sheetornotes.

 45.     Theassetturnover ratioiscalculated astotalsales dividedbyendingtotalassets.

 46.     Researchanddevelopmentcostscanbeclassifiedasaproperty,plant,andequipment itemoras an intangibleasset.

 a47.     An exchangeofplantassetshas commercial substanceifthe futurecashflows change as a resultofthe exchange.

 a48.     Companiesrecordagainorlossontheexchangeofplantassetsbecausemost exchangeshavecommercialsubstance.

 a49.     Whenplantassetsareexchanged,thecostofthenewassetisthebookvalueoftheold assetplus anycashpaid.

 Additional True-FalseQuestions

 50.     Whenconstructingabuilding,acompanyispermittedtoincludetheacquisitioncostand certaininterest costs incurredinfinancingtheproject.

 51.     Recognitionofdepreciationpermitstheaccumulationofcashforthereplacementofthe asset.

 52.     Whenanassetispurchasedduringtheyear,itisnotnecessarytorecorddepreciation expense inthefirst yearunderthedeclining-balancedepreciationmethod.

 53.     Depletionexpenseisreported intheincomestatementas anoperatingexpense.

 54.     Goodwillisnotrecognizedinaccountingunlessitisacquiredfromanotherbusiness enterprise.

 55.     Researchanddevelopmentcostsshouldbechargedtoexpensewhenincurred.

 56.       Alossontheexchangeofplantassetsoccurswhenthefairmarketvalueoftheoldasset islessthanitsbookvalue.

       MULTIPLECHOICEQUESTIONS

  57.     Thecostof apurchasedbuildingincludes allofthefollowingexcept a.closingcosts.

b.realestatebroker's commission. c.remodeling costs.

d.Allof theseareincluded.

 58.     Acompanypurchasedlandfor$90,000cash.Realestatebrokers'commissionwas $5,000and$7,000wasspentfordemolishinganoldbuildingonthelandbefore constructionofanewbuildingcouldstart.Underthecostprinciple,thecostoflandwould be recordedat

a.$97,000. b.$90,000. c.$95,000. d.$102,000.

 59.     Whichoneofthefollowingitemsisnotconsideredapartofthecostofatruckpurchased for businessuse?

a.Salestax

b.Trucklicensec.Freightcharges

d.Costofletteringonsideoftruck

 60.     Whichofthefollowingassetsdoesnotdeclineinservicepotentialoverthecourseofits useful life?

a.Equipment b.Furnishings c.Land

d.Fixtures

 61.     Thefoursubdivisions forplantassetsare

a.land,landimprovements,buildings,andequipment. b.intangibles,land,buildings,andequipment.

c.furnishingsandfixtures,land,buildings, andequipment. d.property,plant,equipment,andland.

 62.     Thecostof landdoesnotinclude

a.realestatebrokers' commission. b.annualpropertytaxes.

c.accruedpropertytaxesassumedbythepurchaser. d.title fees.

 63.     FeeneyClinicpurchaseslandfor$130,000cash.Theclinicassumes$1,500inproperty taxesdueontheland.Thetitleandattorneyfeestotaled$1,000.Theclinichastheland gradedfor $2,200.WhatamountdoesFeeneyClinicrecordasthecostforthe land?

a.$132,200 b.$130,000 c.$134,700 d.$132,500

 64.     BelleCompanybuyslandfor$50,000on12/31/07.Asof3/31/08,thelandhas appreciatedinvalueto$50,700.On12/31/08,thelandhasanappraisedvalueof $51,800.Bywhatamountshouldthe Landaccount beincreasedin 2008?

a.$0b.$700

c.$1,100 d.$1,800

 65.     PineCompanyacquireslandfor$86,000cash.Additional costsareasfollows:

 Removalof shed                                        $300 Fillingandgrading                                      1,500 Salvagevalue oflumberofshed                   120 Brokercommission                                     1,130 Pavingofparkinglot                                 10,000 Closingcosts                                                 560

 Pinewillrecordtheacquisitioncostof thelandas a.$86,000.

b.$87,690. c.$89,610. d.$89,370.

 66.     ShawneeHospitalinstallsanewparkinglot.Thepavingcost$30,000andthelightsto illuminatethenewparkingareacost$15,000.Whichofthefollowingstatementsistrue with respecttotheseadditions?

a.$30,000shouldbedebitedtothe Landaccount.

b.$15,000shouldbedebitedtoLandImprovements. c.$45,000shouldbedebitedtotheLandaccount.d.$45,000shouldbedebitedtoLandImprovements.

10-10

 67.     Landimprovementsshouldbedepreciatedovertheusefullife of the a.land.

b.buildingsontheland.

c.land or landimprovements,whicheverislonger. d.landimprovements.

 68.     GeneralMoldingisbuildinganewplantthatwilltakethreeyearstoconstruct.The constructionwillbefinancedinpartbyfundsborrowedduringtheconstructionperiod. Therearesignificantarchitectfees,excavationfees,andbuildingpermitfees.Whichof the followingstatementsis true?

a.Excavationfeesarecapitalizedbut building permitfeesarenot. b.Architectfeesarecapitalizedbut buildingpermitfeesarenot.

c.Interestiscapitalizedduring theconstructionas partof thecostofthebuilding.

d.The capitalizedcost is equaltothecontractprice tobuildthe plant less any intereston borrowed funds.

 69.     Acompanypurchasesaremotesitebuildingforcomputeroperations.Thebuildingwillbe suitableforoperationsaftersomeexpenditures.Thewiringmustbereplacedtocomputer specifications.Theroofisleakyandmustbereplaced.Allroomsmustberepaintedand recarpetedandtherewillalsobesomeplumbingworkdone.Whichofthefollowing statements is true?

a.Thecost ofthebuildingwillnot includetherepaintingandrecarpeting costs. b.Thecostofthebuildingwillincludethecostof replacing theroof.

c.Thecostofthebuildingisthepurchasepriceofthebuilding,whiletheadditional expendituresareallcapitalizedas BuildingImprovements.

d.Thewiringis partofthecomputercosts,notthebuildingcost.

 70.     CarleyCompany purchasesanewdeliverytruck for$45,000.Thesalestaxesare$3,000. Thelogo of thecompanyis painted on thesideofthe truckfor$1,200.Thetrucklicenseis $120.Thetruckundergoessafetytestingfor$220.WhatdoesCarleyrecordasthecostof thenewtruck?

a.$49,540 b.$49,420 c.$48,000 d.$47,420

 71.     Allof thefollowingfactorsincomputingdepreciationareestimatesexcept a.cost.

b.residualvalue. c.salvagevalue. d.usefullife.

 72.     StoriesCompanypurchasedequipmentandthesecostswereincurred:

 Cashprice Salestaxes

Insuranceduringtransit Installationandtesting Totalcosts

$22,500 1,800 320

           430$25,050

PlantAssets,NaturalResources,andIntangibleAssets             10-11

  Storieswillrecordtheacquisitioncostofthe equipmentas a.$22,500.

b.$24,300. c.$24,620. d.$25,050.

 73.     Becky’sBloomspurchasedadeliveryvanfor$20,000.Thecompany wasgivena$2,000 cashdiscountbythedealer,andpaid$1,000salestax.Annualinsuranceonthevanis $500.Asaresultofthepurchase,byhowmuchwillBecky’sBloomsincreaseitsvan account?

a.$20,000 b.$18,000 c.$19,500 d.$19,000

 74.     UptonCompanypurchasedequipmentonJanuary1atalistpriceof$50,000,withcredit terms2/10,n/30.PaymentwasmadewithinthediscountperiodandUptonwasgivena $1,000cashdiscount.Uptonpaid$2,500salestaxontheequipment,andpaidinstallation chargesof$880.Priortoinstallation,Uptonpaid$2,000topouraconcreteslabonwhich toplacethe equipment.Whatisthetotalcostofthe newequipment?

a.$52,380 b.$54,380 c.$55,380 d.$50,500

 75.     Interestmaybe includedintheacquisitioncost ofa plantasset a.duringtheconstructionperiodof aself-constructedasset.b.if theassetis purchasedoncredit.

c.if theassetacquisitionisfinancedbyalong-termnotepayable. d.ifit isapart of a lump-sumpurchase.

 76.     ThebalanceintheAccumulatedDepreciationaccountrepresentsthe a.cashfundtobeusedtoreplaceplantassets.

b.amounttobedeductedfromthecostoftheplantassettoarriveatitsfairmarket value.

c.amountchargedtoexpenseinthecurrentperiod.

d.amountchargedto expensesincetheacquisitionof theplantasset.

 77.     Whichoneofthefollowingitemsisnotaconsiderationwhenrecordingperiodic depreciationexpenseonplantassets?

a.Salvagevalue

b.Estimatedusefullife

c.Cashneededtoreplacethe plantasset d.Cost

 78.     Depreciationisthe processof allocating thecostof aplantasset overits servicelife in a.anequaland equitablemanner.

b.an acceleratedand accuratemanner. c.asystematicandrationalmanner.

d.a conservativemarket-basedmanner.

10-12

 79.     Thebookvalueof anassetisequaltothe

a.asset'smarketvaluelessits historicalcost.

b.bluebookvaluereliedonbysecondarymarkets. c.replacementcostof theasset.

d.asset'scostlessaccumulateddepreciation.

 80.     Accountantsdonotattempttomeasurethechangeinaplantasset'smarketvalueduring ownership because

a.theassetsare notheldfor resale. b.plantassetscannotbesold.

c.losseswouldhavetoberecognized.

d.itismanagement'sresponsibilityto determinefair values.

 81.     Depreciationis aprocessof a.assetdevaluation.

b.costaccumulation. c.cost allocation.

d.assetvaluation.

 82.     Recordingdepreciationeachperiodisnecessaryinaccordancewiththe a.goingconcernprinciple.

b.costprinciple.

c.matchingprinciple.

d.assetvaluationprinciple.

 83.     Incomputingdepreciation,salvagevalueis

a.thefairmarketvalueofa plantassetonthedate of acquisition.

b.subtractedfromaccumulateddepreciationtodeterminetheplantasset'sdepreciable cost.

c.anestimateof aplantasset'svalueattheendofitsusefullife. d.ignoredinallthedepreciationmethods.

 84.     Whenestimatingtheusefullifeofanasset,accountantsdonotconsider a.thecosttoreplacetheassetat theendofits usefullife.

b.obsolescencefactors.

c.expectedrepairsandmaintenance. d.theintendeduse of theasset.

 85.     Usefullifeisexpressedintermsof useexpectedfromtheassetunderthe a.declining-balancemethod.

b.straight-linemethod.

c.units-of-activitymethod. d.noneof these.

 86.     Equipmentwaspurchasedfor$75,000.Freightchargesamountedto$3,500andthere wasacostof$10,000forbuildingafoundationandinstallingtheequipment.Itis estimatedthattheequipmentwillhavea$15,000salvagevalueattheendofits5-year useful life. Depreciationexpenseeachyearusingthe straight-linemethodwillbe

a.$17,700. b.$14,700. c.$12,300. d.$12,000.

PlantAssets,NaturalResources,andIntangibleAssets             10-13

 87.     Atruckwaspurchasedfor$120,000anditwasestimatedtohavea$24,000salvage valueattheendofitsusefullife.Monthlydepreciationexpenseof$2,000wasrecorded using thestraight-linemethod.Theannualdepreciationrateis

a.20%. b.2%.c.8%. d.25%.

 88.     AcompanypurchasedfactoryequipmentonApril1,2008for$64,000.Itisestimatedthat theequipmentwillhavean$8,000salvagevalueattheendofits10-yearusefullife. Usingthestraight-linemethodofdepreciation,theamounttoberecordedasdepreciation expense atDecember31,2008is

a.$6,400. b.$5,600. c.$4,200. d.$4,800.

 89.     Acompanypurchasedofficeequipmentfor$40,000andestimatedasalvagevalueof $8,000attheendofits5-yearusefullife.Theconstantpercentagetobeappliedagainst book valueeachyearifthedouble-declining-balancemethodisusedis

a.20%. b.25%. c.40%. d.4%.

 90.     Thedeclining-balancemethodofdepreciationproduces a.adecreasingdepreciationexpenseeachperiod.

b.an increasingdepreciationexpenseeachperiod. c.a decliningpercentagerateeachperiod.

d.a constantamount ofdepreciationexpenseeachperiod.

 91.     Acompanypurchasedfactoryequipmentfor$250,000.Itisestimatedthattheequipment willhavea$25,000salvagevalueattheendofitsestimated5-yearusefullife.Ifthe companyusesthedouble-declining-balancemethodofdepreciation,theamountofannual depreciationrecordedforthesecondyear afterpurchasewould be

a.$100,000. b.$60,000. c.$90,000. d.$43,200.

 92.     Theunits-of-activitymethodisgenerallynot suitablefor a.airplanes.

b.buildings.

c.deliveryequipment. d.factorymachinery.

 93.     Aplantassetcost$144,000andisestimatedtohavean$18,000salvagevalueattheend ofits8-yearusefullife.Theannualdepreciation expenserecordedforthethirdyearusing thedouble-declining-balancemethodwouldbe

a.$12,060. b.$20,250. c.$17,718. d.$13,785.

10-14

 94.     Afactorymachinewaspurchased for$75,000onJanuary1,2008.Itwasestimatedthatit wouldhavea$15,000salvagevalueattheendofits5-yearusefullife.Itwasalso estimatedthatthemachinewouldberun40,000hoursinthe5years.Thecompanyran themachinefor4,000actualhoursin2008.Ifthecompanyusestheunits-of-activity methodof depreciation,the amountof depreciationexpensefor 2008 wouldbe

a.$7,500.b.$12,000. c.$15,000. d.$6,000.

 95.     TheModifiedAcceleratedCostRecoverySystem(MACRS)isadepreciationmethod which

a.isusedfortaxpurposes.

b.mustbeusedforfinancialstatementpurposes. c.isrequiredbytheSEC.

d.expensesanassetoverasingleyearbecausecapitalacquisitionsmustbeexpensed in theyearpurchased.

 96.     Whichofthefollowingmethodsof computing depreciationisproductionbased? a.Straight-line

b.Declining-balance c.Units-of-activityd.Noneof these

 97.     Managementshouldselect thedepreciationmethodthat a.iseasiesttoapply.

b.bestmeasurestheplantasset'smarketvalueover its usefullife.

c.bestmeasuresthe plantasset'scontributiontorevenue overits usefullife. d.hasbeenusedmostofteninthepastbythe company.

 98.     Thedepreciationmethodthatappliesaconstantpercentagetodepreciablecostin calculating depreciation is

a.straight-line.

b.units-of-activity.

c.declining-balance. d.noneof these.

 Usethefollowing informationforquestions99–100.

 OnOctober1,2008,DoleCompanyplacesanewassetintoservice.Thecostoftheassetis $60,000withanestimated5-yearlifeand$15,000salvagevalueattheendof its usefullife.

 99.     Whatisthedepreciationexpensefor2008ifDoleCompanyusesthestraight-linemethod ofdepreciation?

a.$2,250 b.$12,000 c.$3,000 d.$6,000

PlantAssets,NaturalResources,andIntangibleAssets             10-15

 100.     WhatisthebookvalueoftheplantassetontheDecember31,2008,balancesheet assuming that DoleCompanyusesthedouble-declining-balancemethodof depreciation? a.$39,000

b.$45,000 c.$54,000 d.$57,000

 101.     Whichdepreciationmethod ismostfrequentlyusedinbusinessestoday? a.Straight-line

b.Declining-balance c.Units-of-activity

d.Double-declining-balance

 102.     WineCompanyusestheunits-of-activitymethodincomputingdepreciation.Anewplant assetispurchased for$24,000thatwillproduceanestimated100,000unitsoveritsuseful life.Estimatedsalvagevalue attheend ofitsuseful lifeis$2,000. Whatis the depreciation costperunit?

a.$2.20 b.$2.40 c.$.22 d.$.24

 103.     Units-of-activityisanappropriatedepreciationmethodtouse when a.it isimpossibleto determinetheproductivityof theasset.

b.theasset'susewillbeconstantoverits usefullife.

c.theproductivityof theassetvariessignificantlyfromoneperiodtoanother. d.thecompanyisamanufacturingcompany.

 104.     Thecalculationof depreciationusingthedecliningbalancemethod,

a.ignoressalvage valueindeterminingtheamounttowhicha constantrateisapplied. b.multipliesaconstantpercentagetimesthepreviousyear'sdepreciationexpense.

c.yieldsan increasingdepreciationexpenseeachperiod.

d.multipliesadecliningpercentagetimesaconstantbookvalue.

 Use thefollowing informationforquestions105–106.

  GreyCompanypurchasedanewvanforfloraldeliveriesonJanuary1,2008.Thevancost $36,000withanestimatedlifeof5yearsand$9,000salvagevalueattheendofitsusefullife. Thedouble-declining-balancemethodof depreciationwillbeused.

 105.     Whatisthedepreciationexpensefor2008? a.$7,200

b.$5,400c.$10,800 d.$14,400

 106.     WhatisthebalanceoftheAccumulatedDepreciationaccountattheendof2009? a.$5,760

b.$17,280 c.$23,040 d.$8,640

10-16

 107.     PorterCompanypurchasedequipmentfor$450,000onJanuary1,2007,andwillusethe double-declining-balancemethodofdepreciation.Itisestimatedthattheequipmentwill havea3-yearlifeanda$20,000salvagevalueattheendofitsusefullife.Theamountof depreciationexpenserecognizedintheyear2009willbe

a.$50,000. b.$30,000. c.$54,440. d.$34,440.

 108.     Aplant asset was purchasedon January 1 for$50,000withan estimatedsalvagevalueof $10,000attheendofitsusefullife.Thecurrentyear'sDepreciationExpenseis$5,000 calculatedonthestraight-linebasisandthebalanceoftheAccumulatedDepreciation accountattheendof theyearis$25,000.Theremainingusefullifeof theplantasset is

a.10 years. b.8years. c.5 years. d.3years.

 109.     Equipmentwaspurchasedfor$60,000.Freightchargesamountedto$2,800andthere wasacostof$8,000forbuildingafoundation andinstallingtheequipment.Itisestimated thattheequipmentwillhavea$12,000salvagevalueattheendofits5-yearusefullife. Depreciation expenseeachyearusingthestraight-linemethodwill be

a.$14,160. b.$11,760. c.$9,840. d.$9,600.

 110.     Equipmentwaspurchased for$17,000onJanuary1,2008.Freightchargesamountedto $700andtherewasacostof$2,000forbuildingafoundationandinstallingthe equipment.Itisestimatedthattheequipmentwillhavea$3,000salvagevalueattheend ofits5-year useful life.What istheamountofaccumulateddepreciationatDecember31, 2009,if thestraight-linemethodof depreciationisused?

a.$6,680 b.$3,340 c.$2,860 d.$5,720

 111.     Acompanypurchasedfactoryequipment onJune 1,2008,for$48,000.Itisestimatedthat theequipmentwillhavea$3,000salvagevalueattheendofits10-yearusefullife.Using thestraight-linemethodofdepreciation,theamounttoberecordedasdepreciation expense atDecember31,2008,is

a.$4,500. b.$2,625. c.$2,250. d.$1,875.

 112.     Aplant asset was purchasedon January 1 for$40,000withan estimatedsalvagevalueof $8,000attheendofitsusefullife.Thecurrentyear'sDepreciationExpenseis$4,000 calculatedonthestraight-linebasisandthebalanceoftheAccumulatedDepreciation accountattheendof theyearis$20,000.Theremainingusefullifeof theplantasset is

PlantAssets,NaturalResources,andIntangibleAssets             10-17

 a.10 years. b.8years. c.5 years. d.3years.

 Usethefollowing informationforquestions113–115.

 BrinkmanCorporationboughtequipmentonJanuary1,2008.Theequipmentcost$90,000and hadanexpectedsalvagevalueof$15,000.Thelifeoftheequipmentwasestimatedtobe6 years.

 113.     Thedepreciablecostof theequipmentis a.$90,000.

b.$75,000. c.$50,000. d.$12,500.

 114.     Thedepreciationexpenseusingthestraight-linemethodof depreciationis a.$17,500.

b.$18,000. c.$12,500.

d.noneof theabove.

 115.     Thebookvalueof the equipmentatthebeginningof thethirdyear wouldbe a.$90,000.

b.$75,000. c.$65,000. d.$25,000.

 116.     BadenCompanypurchasedmachinerywithalistpriceof$32,000.Theyweregivena 10%discountbythemanufacturer.Theypaid$200forshippingandsalestaxof$1,500. Badenestimatesthatthemachinerywillhaveausefullifeof10yearsandaresidual value of$10,000.IfBadenusesstraight-linedepreciation,annualdepreciationwillbe

a.$2,050. b.$2,036. d.$3,050. d.$1,880.

 117.     BatesCompanypurchasedequipmentonJanuary1,2008,atatotalinvoicecostof $600,000.Theequipmenthasanestimatedsalvagevalueof$15,000andanestimated usefullifeof5years.WhatistheamountofaccumulateddepreciationatDecember31, 2009,if thestraight-linemethodof depreciationisused?

a.$120,000 b.$240,000 c.$117,000 d.$234,000

10-18

 118.     OnJanuary1,amachinewithausefullifeoffiveyearsandaresidualvalueof$15,000 waspurchasedfor$45,000.Whatisthedepreciationexpenseforyear2underthe double-declining-balancemethodof depreciation?

a.$10,800 b.$18,000 c.$14,400 d.$8,640

 119.     Amachinewithacostof$160,000hasanestimatedsalvagevalueof$10,000andan estimatedusefullifeof5yearsor15,000hours.Itistobedepreciatedusingtheunits-of-activitymethodofdepreciation.Whatistheamountofdepreciationforthesecondfull year,during whichthe machinewasused5,000hours?

a.$50,000 b.$30,000 c.$43,333 d.$53,333

 120.     Equipmentwithacostof$240,000hasanestimatedsalvagevalueof$15,000andan estimatedlifeof4yearsor15,000hours.Itistobedepreciatedusingtheunits-of-activity method.Whatistheamountofdepreciationforthefirstfullyear,duringwhichthe equipmentwasused 3,300 hours?

a.$60,000 b.$67,800 c.$49,500 d.$56,250

 121.     LarimeCompanypurchasedequipmentfor$40,000onJanuary1,2007,andwillusethe double-declining-balancemethodofdepreciation.Itisestimatedthattheequipmentwill havea5-yearlifeanda$2,000salvagevalueattheendofitsusefullife.Theamountof depreciationexpenserecognizedintheyear2009willbe

a.$5,760. b.$9,120. c.$9,600. d.$5,472.

 122.     InterlineTruckingpurchasedatractortrailerfor$98,000. Interlineusestheunits-of-activity methodfordepreciatingitstrucksandexpectstodrivethetruck1,000,000milesoverits 12-yearusefullife.Salvagevalueisestimated tobe$14,000.Ifthetruckisdriven90,000 miles in itsfirstyear,howmuchdepreciationexpenseshouldInterlinerecord?

a.$7,000 b.$8,820 c.$7,560 d.$8,167

 123.     Anassetwaspurchasedfor$150,000.Ithadanestimatedsalvagevalueof$30,000and anestimatedusefullifeof10years.After5yearsofuse,theestimatedsalvagevalueis revisedto$24,000buttheestimatedusefullifeisunchanged.Assumingstraight-line depreciation, depreciationexpenseinyear6 wouldbe

a.$18,000. b.$13,200. c.$9,000. d.$12,600.

PlantAssets,NaturalResources,andIntangibleAssets             10-19

 124.     Equipmentcosting$30,000withasalvagevalueof$6,000andanestimatedlifeof8 yearshasbeendepreciatedusingthestraight-linemethodfor2years.Assuminga revisedestimatedtotallifeof5yearsandnochangeinthesalvage value,thedepreciation expense for year3wouldbe

a.$3,600. b.$8,000. c.$6,000. d.$4,800.

 125.     Joe'sQuikShopboughtmachineryfor$25,000onJanuary1,2008.Joeestimatedthe usefullifetobe5yearswithnosalvagevalue,andthestraight-line methodofdepreciation willbeused. OnJanuary 1,2009,Joedecidesthatthebusinesswillusethemachineryfor a total of6 years.What is thereviseddepreciationexpensefor2009?

a.$4,000 b.$2,000 c.$3,333 d$5,000

 126.     Eachofthefollowingisusedincomputingrevisedannualdepreciationforachangein estimateexcept

a.bookvalue. b.cost.

c.depreciablecost.

d.remaininguseful life.

 127.     A changeintheestimatedusefullife of equipmentrequires

a.aretroactivechangeintheamountofperiodicdepreciationrecognizedinprevious years.

b.thatnochangebemadeintheperiodicdepreciation sothatdepreciationamounts are comparableoverthelifeof theasset.

c.thattheamountofperiodicdepreciationbechangedinthecurrentyearandinfuture years.

d.that incomeforthecurrent yearbeincreased.

 128.     HuntCompanyhasdecidedtochangetheestimateoftheusefullifeofanassetthathas beeninservicefor2years. Whichofthefollowingstatementsdescribestheproperwayto revise a usefullifeestimate?

a.Revisionsinusefullifeare permittedifapprovedbytheIRS.

b.Retroactivechangesmustbemadeto correctpreviouslyrecordeddepreciation. c.Onlyfuture yearswill beaffectedbytherevision.

d.Bothcurrentandfutureyearswillbeaffectedbythe revision.

 129.     Jim'sCopyShopboughtequipmentfor$90,000onJanuary1,2007.Jimestimatedthe usefullifetobe3yearswithnosalvage value, andthestraight-line methodofdepreciation willbeused.OnJanuary1,2008,Jimdecidesthat the businesswilluse theequipmentfor5years.Whatisthereviseddepreciationexpensefor 2008?

a.$30,000 b.$12,000 c.$15,000 d.$22,500

10-20

 130.     Costsincurredtoincreasetheoperatingefficiencyorusefullifeofaplantassetare referred toas

a.capitalexpenditures.b.expenseexpenditures. c.ordinaryrepairs.

d.revenueexpenditures.

 131.     Expendituresthatmaintain theoperatingefficiencyandexpectedproductivelifeofaplant assetaregenerally

a.expensedwhenincurred.

b.capitalizedasa partofthecostof theasset.

c.debitedto the AccumulatedDepreciationaccount.d.notrecordeduntiltheybecomematerialinamount.

 132.     Whichofthefollowingisnottrue of ordinaryrepairs?

a.Theyprimarilybenefitthecurrentaccountingperiod. b.Theycan bereferredto asrevenueexpenditures.

c.Theymaintaintheexpectedproductivelifeof theasset. d.Theyincreasetheproductivecapacityof theasset.

 133.     Thepaneling ofthe body ofanopenpickuptruckwouldbeclassifiedasa(n) a.revenueexpenditure.

b.addition.

c.improvement.d.ordinaryrepair.

 134.     Additionsand improvements

a.occurfrequentlyduringtheownershipof aplantasset. b.normallyinvolveimmaterialexpenditures.

c.increasethebookvalueof plantassetswhenincurred. d.typicallyonlybenefitthecurrentaccountingperiod.

 135.     Ifa plantassetisretiredbeforeit isfullydepreciatedandnosalvagevalueisreceived, a.againondisposaloccurs.

b.a lossondisposal occurs.

c.eitheragainor a losscan occur. d.neitheragainnor alossoccurs.

 136.     Againorlossondisposalof aplantassetis determinedbycomparingthe a.replacementcost oftheassetwiththeasset'soriginal cost.

b.bookvalueof theassetwiththeasset'soriginalcost.

c.originalcost oftheassetwiththeproceedsreceivedfromitssale. d.bookvalueof the assetwiththe proceedsreceivedfromits sale.

 137.     Thebookvalueof aplantassetisthedifferencebetweenthe a.replacementcost oftheassetandits historicalcost.

b.costof the asset andtheamountofdepreciationexpenseforthe year. c.costoftheasset andtheaccumulateddepreciationtodate.

d.proceedsreceivedfromthesaleoftheassetand its originalcost.

PlantAssets,NaturalResources,andIntangibleAssets             10-21

 138.     Ifa plantassetissoldbefore it isfullydepreciated, a.onlyagainondisposalcanoccur.

b.onlya losson disposalcanoccur.c.eitheragainor a losscan occur.d.neitheragainnor alosscanoccur.

 139.     Ifaplantassetisretiredbeforeitisfullydepreciated,andthesalvagevaluereceivedis less thanthe asset's book value,

a.a gainondisposaloccurs. b.a lossondisposal occurs.

c.thereis nogain or lossondisposal.

d.additionaldepreciationexpensemust berecorded.

 140      Acompanysellsaplantassetwhichoriginallycost$180,000for$60,000onDecember31, 2008.TheAccumulatedDepreciationaccounthadabalanceof$72,000afterthecurrent year'sdepreciationof $18,000 hadbeenrecorded.Thecompanyshouldrecognizea

a.$120,000lossondisposal. b.$48,000gainondisposal. c.$48,000lossondisposal. d.$30,000lossondisposal.

 141.     Ifdisposalofa plantassetoccursduringtheyear,depreciationis a.not recordedfortheyear.

b.recordedforthewholeyear.

c.recordedforthefractionof theyeartothedateof thedisposal. d.not recordediftheasset isscrapped.

 142.     Ifafullydepreciatedplant asset is still usedbya company,the

a.estimatedremainingusefullifemustberevisedtocalculatethecorrectrevised depreciation.

b.assetisremovedfromthebooks.

c.accumulateddepreciationaccountisremovedfromthebooksbuttheassetaccount remains.

d.assetandtheaccumulateddepreciation continue tobereportedonthebalancesheet withoutadjustment untiltheassetisretired.

 143.     Whichofthefollowingstatementsisnottruewhenafullydepreciatedplantassetis retired?

a.Theplantasset'sbookvalue isequaltoitsestimated salvagevalue. b.Theaccumulateddepreciationaccountisdebited.

c.Theassetaccount iscredited.

d.Theplantasset'soriginalcost equalsitsbookvalue.

 144.     Ifaplantassetisretiredbeforeitisfullydepreciated,andnosalvageorscrapvalueis received,

a.againondisposalwillberecorded.

b.phantomdepreciationmustbetakenasthoughtheassetwerestillonthe books. c.a losson disposalwill berecorded.

d.nogainorlossondisposal willberecorded.

10-22

 145.     Thebookvalueof anassetwillequalitsfairmarket valueatthedateofsaleif a.a gainondisposalisrecorded.

b.nogainorlossondisposalisrecorded. c.theplantassetisfully depreciated.

d.a lossondisposal isrecorded.

 146.     Atruckcosting$110,000wasdestroyedwhenitsenginecaughtfire.Atthedateofthe fire,theaccumulateddepreciationonthetruckwas$50,000.Aninsurancecheckfor $125,000wasreceivedbasedonthereplacementcostofthetruck.Theentrytorecord theinsuranceproceedsandthedispositionof the truckwill include a

a.GainonDisposalof $15,000.

b.creditto theTruckaccountof $60,000.

c.credittotheAccumulatedDepreciationaccountfor$50,000. d.GainonDisposalof $65,000.

 147.     OnJuly1,2008,MeedKennelssellsequipmentfor$66,000.Theequipmentoriginally cost$180,000,hadanestimated5-yearlifeandanexpectedsalvagevalueof$30,000. Theaccumulateddepreciationaccounthadabalanceof$105,000onJanuary1,2008, using thestraight-linemethod.Thegainorlossondisposalis

a.$9,000gain. b.$6,000loss. c.$9,000loss. d.$6,000gain.

 148.     A lossondisposalof aplantassetisreportedinthefinancialstatements a.intheOtherRevenuesandGainssection oftheincomestatement.b.intheOtherExpensesandLossessectionof theincomestatement. c.asadirectincreasetothecapitalaccount onthe balancesheet.

d.as adirectdecrease tothecapitalaccount onthe balancesheet.

 149.     WellsCompany'sdeliverytruck,whichoriginallycost$70,000,wasdestroyedbyfire.At thetimeofthefire,thebalanceoftheAccumulatedDepreciationaccountamountedto $47,500.The companyreceived$40,000reimbursementfromits insurancecompany.The gain orlossasaresultof thefire was

a.$30,000loss. b.$17,500loss. c.$30,000gain. d.$17,500gain.

 150.     Atruckthatcost$21,000andonwhich$10,000ofaccumulateddepreciationhasbeen recordedwasdisposedoffor $9,000cash.Theentrytorecordthiseventwouldincludeaa.gainof $2,000.

b.lossof $2,000.

c.credittotheTruckaccountfor$11,000.

d.creditto AccumulatedDepreciationfor$10,000.

 151.     Atruckthatcost$36,000andonwhich$30,000ofaccumulateddepreciationhasbeen recordedwasdisposedoffor $9,000cash.Theentrytorecordthiseventwouldincludeaa.gainof $3,000.

b.lossof $3,000.

c.credittotheTruckaccountfor$6,000.

d.creditto AccumulatedDepreciationfor$30,000.

PlantAssets,NaturalResources,andIntangibleAssets             10-23

 152.     AceCorporationsoldequipmentfor$12,000.Theequipmenthadanoriginalcostof $36,000andaccumulateddepreciationof $18,000.Asaresultof thesale,

a.netincomewill increase$12,000. b.netincomewillincrease$6,000.c. netincomewilldecrease$6,000.d.netincomewilldecrease$12,000.

 153.     Jarman’s CourierServicerecorded alossof$3,000whenitsoldavanthatoriginallycost $28,000for $5,000.Accumulateddepreciationonthevanmusthavebeen

a.$26,000. b.$8,000.c.$25,000. d.$20,000.

 154.     Onabalancesheet,naturalresourcesmaybedescribedmorespecificallyasallofthe followingexcept

a.landimprovements. b.mineraldeposits.

c.oilreserves. d.timberlands.

 155.     Naturalresourcesare

a.depreciatedusingtheunits-of-activity method.

b.physicallyextractedinoperationsandarereplaceableonlybyanact ofnature. c.reportedattheirmarketvalue.

d.amortizedovera periodnolongerthan40years.

 156.     Depletionis

a.a decreaseinmarketvalueof naturalresources.

b.the amountof spoilagethatoccurswhennaturalresourcesareextracted. c.theallocationof the costof naturalresources toexpense.

d.themethodusedtorecordunsuccessfulpatents.

 157.     Toqualifyasnaturalresourcesintheaccountingsense,assetsmustbe a.underground.

b.replaceable.

c.of amineralnature.

d.physicallyextractedinoperations.

 158.     Themethodmostcommonlyusedtocomputedepletionisthe a.straight-linemethod.

b.double-declining-balancemethod. c.units-of-activitymethod.

d.effectiveinterestmethod.

 159.     Incomputingdepletion,salvagevalueis a.alwaysimmaterial.

b.ignored.

c.impossibletoestimate.

d.includedinthe calculation.

10-24

 160.     Ifa miningcompanyextracts1,500,000tonsinaperiodbutonlysells1,200,000 tons, a.totaldepletiononthemineis basedonthe1,200,000tons.

b.depletionexpenseisrecognized onthe1,500,000tonsextracted.

c.depletionexpenseisrecognized onthe1,200,000tonsextractedandsold.

d.aseparateaccumulateddepletionaccountissetuptorecorddepletiononthe 300,000tonsextractedbutnotsold.

 161.     Acoalcompanyinvests$16millioninamineestimatedtohave20milliontonsofcoaland nosalvagevalue.Itisexpectedthattheminewillbeinoperationfor5years.Inthefirst year,1,000,000 tonsofcoalareextractedandsold.Whatisthedepletionexpenseforthe first year?

a.$800,000 b.$320,000 c.$80,000

d.Cannotbedeterminedfromtheinformationprovided.

 162.     AccumulatedDepletion

a.isusedbyallcompanieswithnaturalresources. b.hasanormaldebitbalance.

c.isacontra-assetaccount.

d.isnevershown onthebalancesheet.

 163.     OnJuly4,2008,MontanaMiningCompanypurchasedthemineralrightstoagranite depositfor$800,000.Itisestimatedthattherecoverablegranitewillbe400,000tons. During2008,100,000tonsofgranitewasextractedand60,000tonsweresold.The amount of theDepletionExpenserecognizedfor2008wouldbe

a.$100,000. b.$60,000.c.$120,000. d.$200,000.

 164.     Depletionexpenseiscomputedbymultiplyingthedepletioncostperunitbythe a.totalestimatedunits.

b.totalactualunits.

c.numberof unitsextracted. d.numberof unitssold.

 165.     Intangibleassetsaretherightsandprivilegesthatresultfromownershipoflong-lived assets that

a.mustbegeneratedinternally.

b.aredepletablenaturalresources. c.havebeenexchangedatagain. d.donothavephysicalsubstance.

 166.     Identifytheitembelowwherethetermsarenotrelated. a.Equipment—depreciation

b.Franchise—depreciation c.       Copyright—amortization d.Oilwell—depletion

PlantAssets,NaturalResources,andIntangibleAssets             10-25

 167.     A patentshould

a.be amortizedovera periodof20years.b.notbeamortizedifithas an indefinitelife.

c.beamortizedoveritsusefullifeor20 years,whicheverislonger. d.beamortizedoveritsusefullifeor20 years,whicheveris shorter.

 168.     Theentrytorecordpatent amortizationusuallyincludes a creditto a.AmortizationExpense.

b.AccumulatedAmortization. c.Accumulated Depreciation. d.Patents.

 169.     Thecostof successfullydefendingapatentinaninfringementsuitshouldbe a.chargedtoLegalExpenses.

b.deductedfromthebookvalueof thepatent. c.addedtothecostof thepatent.

d.recognizedasalossinthecurrentperiod.

 170.     Anassetthatcannotbesoldindividuallyinthe marketplaceis a.apatent.

b.goodwill.

c.a copyright.d.a tradename.

 171.     Goodwillcan berecorded

a.whencustomerskeepreturningbecausetheyaresatisfiedwiththecompany's products.

b.whenthe companyacquires agoodlocationforits business. c.whenthecompanyhas exceptionalmanagement.

d.onlywhenthereisanexchangetransactioninvolvingthepurchaseofanentire business.

 172.     OnJuly1,2008,MarshCompanypurchasedthecopyrighttoParsonsComputertutorials for$162,000.Itisestimatedthatthecopyrightwillhaveausefullifeof5yearswithan estimatedsalvagevalueof$12,000.TheamountofAmortizationExpenserecognizedfor theyear2008wouldbe

a.$32,400. b.$15,000. c.$30,000. d.$16,200.

 173.     Allof thefollowingintangibleassetsare amortizedexcept a.copyrights.

b.limited-lifefranchises. c.patents.

d.trademarks.

 174.     Whichofthefollowingisnot anintangibleassetarisingfromagovernmentgrant? a.Goodwill

b.Patent

c.Trademarkd.Tradename

10-26

 175.     Theamortizationperiodforapatentcannotexceed a.50years.

b.40years. c.20years. d.10 years.

 176.     Costallocationof anintangibleassetisreferredto as a.amortization.

b.depletion. c.accretion.

d.capitalization.

 177.     A patent

a.hasa legallifeof 40years. b.is nonrenewable.

c.canberenewedindefinitely.

d.israrelysubjectto litigationbecauseitis anexclusiveright.

 178.     Ifacompanyincurslegalcostsinsuccessfullydefendingitspatent,thesecostsare recordedbydebiting

a.LegalExpense.

b.anIntangibleLossaccount. c.thePatentaccount.

d.a revenueexpenditureaccount.

 179.     Copyrightsaregrantedbythefederalgovernment

a.forthe lifeofthecreatoror70 years, whicheverislonger. b.forthelife ofthe creatorplus70 years.

c.forthelifeofthe creatoror70years,whicheveris shorter. d.andthereforecannotbeamortized.

 180.     Goodwill

a.isonlyrecordedwhengeneratedinternally. b.canbesubdividedandsoldinparts.

c.canonlybeidentifiedwith thebusinessasawhole.

d.canbedefinedas normalearningsless accumulatedamortization.

 181.     Inrecordingtheacquisitioncost ofanentirebusiness,

a.goodwillis recordedas theexcessof costoverthefair valueof identifiablenetassets. b.assetsarerecordedattheseller'sbookvalues.

c.goodwill,ifit exists,is never recorded.

d.goodwillisrecordedastheexcessofcostoverthebookvalueofidentifiablenet assets.

 182.     Researchanddevelopmentcosts

a.areclassifiedasintangibleassets.

b.mustbeexpensed whenincurredundergenerallyacceptedaccountingprinciples. c.shouldbe included in thecostofthepatenttheyrelateto.

d.arecapitalizedandthenamortizedovera periodnotto exceed40 years.

PlantAssets,NaturalResources,andIntangibleAssets             10-27

 183.     Acomputercompanyhas$2,000,000inresearchanddevelopmentcosts.Before accountingforthesecosts,thenetincomeofthecompanyis$1,600,000.Whatisthe amount of netincomeorlossafter theseR&D costsareaccountedfor?

a.$400,000loss

b.$1,600,000netincome c.$0

d.Cannotbedeterminedfromtheinformationprovided.

 184.     DentonCompanyincurred$300,000ofresearchanddevelopmentcostsinitslaboratory todevelopa newproduct.Itspent$40,000 in legalfeesfora patentgrantedon January2, 2008.OnJuly31,2008, Dentonpaid $30,000for legalfees inasuccessfuldefenseofthe patent.Whatisthetotalamountthatshouldbedebitedto PatentsthroughJuly31, 2008?a.$300,000

b.$70,000c.$370,000

d.Someotheramount

 185.     Giventhefollowingaccountbalancesatyearend,computethetotalintangibleassetson thebalancesheet of AnishaEnterprises.

 Cash AccountsReceivable TrademarksGoodwill

Research& DevelopmentCosts

 a.$11,500,000 b.$7,500,000c.$5,500,000 d.$9,500,000

$1,500,000 4,000,000 1,000,000 4,500,000 2,000,000

  186.     During2008,SitterCorporationreportednetsalesof$2,000,000,netincomeof $1,200,000,anddepreciationexpenseof$100,000.Sitteralsoreportedbeginningtotal assetsof$1,000,000,endingtotalassetsof$1,500,000,plantassetsof$800,000,and accumulated depreciationof$500,000.Sitter’sassetturnoverratiois

a.2 times.b.1.6times. c.1.3times. d..96times.

 187.     During2008,TylerCorporationreportednetsalesof$3,000,000andnetincomeof $1,800,000.Tyleralsoreportedbeginningtotalassetsof$1,000,000andendingtotal assets of $1,500,000.Tyler’sassetturnoverratiois

a.3.0times. b.2.4times. c.2.0times. d.1.4times.

 188.     Naturalresourcesaregenerallyshownonthebalancesheetunder a.Intangibles.

b.Investments.

c.Property,Plant, andEquipment. d.Owner'sEquity.

10-28

 189.     Whichofthefollowingstatementsconcerningfinancialstatementpresentationisnota truestatement?

a.IntangiblesarereportedseparatelyunderIntangibleAssets.

b.Thebalancesofmajorclassesof assets maybe disclosedinthefootnotes.

c.Thebalancesoftheaccumulateddepreciationofmajorclassesofassetsmaybe disclosed inthefootnotes.

d.Thebalancesofallindividualassets,astheyappearinthesubsidiaryplantledger, shouldbedisclosedinthefootnotes.

 190.     Intangibleassets

a.shouldbereported undertheheadingProperty,Plant, andEquipment.

b.arenotreportedonthebalancesheet becausetheylackphysicalsubstance. c.shouldbereportedasCurrentAssets onthebalancesheet.

d.shouldbereported asaseparateclassification onthebalancesheet.

 191.     Acompanyhasthefollowing assets:

 BuildingsandEquipment,lessaccumulateddepreciationof$2,000,000 Copyrights

Patents

Timberlands,lessaccumulateddepletionof$2,800,000

 Thetotal amountreportedunderProperty,Plant,andEquipmentwouldbe a.$19,360,000.

b.$14,400,000. c.$18,400,000. d.$15,360,000.

$9,600,000 960,000 4,000,000 4,800,000

 a192.Acompanydecidestoexchangeitsoldmachineand$77,000cashforanewmachine. Theoldmachinehasabookvalueof$63,000andafairmarketvalueof$70,000onthe date of theexchange.Thecostof thenewmachinewouldberecordedat

a.$140,000. b.$147,000. c.$133,000.

d.cannotbedetermined.

 a193.Acompanyexchanges itsoldofficeequipmentand$40,000 fornewofficeequipment.The oldofficeequipmenthasabookvalueof$28,000andafairmarketvalueof$20,000on thedate ofthe exchange.Thecostofthe newoffice equipment wouldberecordedat

a.$68,000. b.$60,000. c.$48,000.

d.cannotbedetermined.

 a194.Inanexchangeofplantassetsthathascommercialsubstance,anydifferencebetween the fair marketvalueandthebookvalueof theoldplantassetis

a.recordedasagainorloss.

b.recorded ifagainbutisdeferredifaloss. c.recordedifaloss but isdeferredifa gain. d.deferredifeitheragainor loss.

PlantAssets,NaturalResources,andIntangibleAssets             10-29

 a195.Gainsonanexchangeof plantassetsthathascommercialsubstanceare a.deductedfromthecostofthenewassetacquired.

b.deferred.

c.not possible.

d.recognizedimmediately.

 a196.Lossesonanexchangeofplantassetsthathascommercialsubstanceare a.notpossible.

b.deferred.

c.recognizedimmediately.

d.deductedfromthecost of thenewassetacquired.

 a197.Thecostofanewassetacquiredinanexchangethathascommercialsubstanceisthe cashpaid plusthe

a.bookvalueof theoldasset.

b.fairmarketvalueoftheoldasset. c.       bookvalueoftheassetacquired. d.fair marketvalueof thenewasset.

  Additional MultipleChoiceQuestions

 198.     Thecostof landincludesallof thefollowingexcept a.realestatebrokers’commissions.

b.closingcosts.

c.accruedpropertytaxes. d.parkinglots.

 199.     A termthatisnotsynonymouswith property,plant,and equipmentis a.plantassets.

b.fixedassets.

c.intangibleassets.

d.long-livedtangibleassets.

 200.     Thefactorthat isnotrelevantincomputingdepreciationis a.replacementvalue.

b.cost.

c.salvagevalue. d.usefullife.

 201.     Depreciablecostisthe

a.bookvalueofanassetlessitssalvagevalue. b.costofanasset lessitssalvagevalue.

c.cost of anasset lessaccumulateddepreciation. d.bookvalueofanasset.

 202.     SantayanaCompanypurchasedamachineonJanuary1,2006,for$12,000withan estimatedsalvagevalueof$3,000andanestimatedusefullifeof8years.OnJanuary1, 2008,Santayanadecidesthemachinewilllast12yearsfromthedateofpurchase.The salvagevalueisstillestimatedat$3,000.Usingthestraight-linemethod,thenewannual depreciation will be

10-30

  a.$675. b.$750. c.$900. d.$1,000.

  203.     Ordinaryrepairs are expenditurestomaintaintheoperatingefficiencyof aplantassetand arereferredto as

a.capitalexpenditures.b.expenseexpenditures. c.improvements.

d.revenueexpenditures.

 204.     Improvementsare

a.revenueexpenditures.

b.debitedtoanappropriateassetaccountwhentheyincreaseusefullife.

c.debitedtoaccumulateddepreciationwhentheydo not increaseusefullife.

d.debitedtoanappropriateassetaccountwhentheydonotincreaseusefullife.

 205.     Againon sale of aplantassetoccurs whentheproceedsofthesalearegreaterthanthe a.salvagevalueof theassetsold.

b.marketvalueof the assetsold. c.bookvalueoftheassetsold.

d.accumulateddepreciationontheassetsold.

 206.     Theentrytorecorddepletionexpense

a.decreasesowner'sequityandassets.

b.decreasesnet incomeandincreasesliabilities. c.decreasesassets and liabilities.

d.decreasesassets andincreasesliabilities.

 207.     Allof thefollowingare intangibleassetsexcept a.copyrights.

b.goodwill. c.patents.

d.researchand developmentcosts.

 208.     A purchasedpatenthasa legallifeof 20years.Itshouldbe a.expensedintheyearofacquisition.

b.amortizedover20 yearsregardlessof itsusefullife. c.amortizedoverits usefullife iflessthan20years.d.notamortized.

 209.     Theassetturnover ratioiscomputedbydividing a.netincomebyaveragetotalassets.

b.netsalesbyaveragetotalassets. c.netincomebyendingtotalassets. d.net salesbyendingtotalassets.

PlantAssets,NaturalResources,andIntangibleAssets             10-31

 a210.In anexchangeof plantassetsthathascommercialsubstance a.neithergainsnorlossesarerecognizedimmediately.

b.gains,butnotlosses,arerecognizedimmediately. c.losses,butnotgains,arerecognizedimmediately. d.bothgainsand lossesarerecognizedimmediately.

      BRIEFEXERCISES

BE211

Indicatewhethereachofthefollowingexpendituresshouldbeclassifiedasland(L),land improvements (LI),buildings(B),equipment(E), ornone ofthese(X).

            1.Parkinglots

            2.Electricityused byamachine

            3.Excavationcosts

            4.Interestonbuilding constructionloan

            5.Costof trialrunsformachinery

            6.Drainagecosts

            7.Costto installa machine

            8.Fences

            9.Unpaid(past)propertytaxesassumed

           10.Costoftearingdownabuilding whenlandandabuildingonitare purchased

    BE212

 SellerCorporationpurchasedlandadjacenttoitsplanttoimproveaccessfortrucksmaking deliveries.Expendituresincurredinpurchasingthelandwereasfollows:purchaseprice, $50,000;broker’sfees,$6,000;titlesearchandotherfees,$5,000;demolitionofanoldbuilding ontheproperty,$5,700;grading,$1,200;diggingfoundationfortheroad,$3,000;layingand pavingdriveway,$25,000;lighting$7,500;signs,$1,500.Listtheitemsandamountsthatshould be includedin theLand account.

   BE213

 EastmanCompanypurchasedadeliverytruckfor$35,000onJanuary1,2008.Thetruckwas assignedanestimatedusefullifeof5yearsandhasaresidualvalueof$10,000.Compute depreciationexpenseusingthedouble-declining-balancemethodforthe years2008and2009.

    BE214

 EastmanCompanypurchasedadeliverytruckfor$35,000onJanuary1,2008.Thetruckwas assignedanestimatedusefullifeof100,000milesandhasaresidual valueof$10,000.Thetruck wasdriven18,000miles in2008and22,000milesin2009.Computedepreciationexpenseusing theunits-of-activitymethodfor the years2008and 2009.

    BE215

 PorikaCompanypurchasedatruckfor$57,000.Thecompanyexpectedthetrucktolastfour yearsor100,000miles,withanestimatedresidualvalueof$6,000attheendofthattime.During thesecond yearthetruckwasdriven27,000 miles.Computethedepreciationforthesecond year undereachof themethods belowand placeyouranswersintheblanksprovided.

 Units-of-activity                                          $                                  

 Double-declining-balance                            $                                  

   BE216

 On January 1,2006,EckerCompanypurchasedacomputersystemfor$20,500. Thesystemhad anestimatedusefullifeof5yearsandnosalvagevalue.AtJanuary1,2008,thecompany revisedtheremainingusefullifetotwoyears.Whatamountofdepreciationwillberecordedfor 2008and2009?

    BE217

 RobotEnterprisessoldequipmentonJanuary1,2008for$5,000.Theequipmenthadcost $24,000.ThebalanceinAccumulatedDepreciationatJanuary1is$20,000.Whatentrywould Robotmaketorecordthe saleof theequipment?

    BE218

 OnJanuary1,2008,FreeportEnterprisespurchasednaturalresourcesfor$1,200,000.The companyexpectstheresourcestoproduce12,000,000unitsofproduct.(1)Whatisthedepletion costperunit?(2)Ifthecompanyminedandsold20,000unitsinJanuary,whatisdepletion expense forthemonth?

   BE219

 OnJanuary2,2008,ElneerCompanypurchasedapatentfor$38,000.Thepatenthasan estimatedusefullifeof25yearsanda20-yearlegallife.Whatentrywouldthecompanymakeat December31, 2008torecordamortizationexpenseonthepatent?

    BE220

 Usingthefollowingdatafor Rocky,Inc.,computeits assetturnoverratio.

 Rocky, Inc.NetIncome2008

TotalAssets12/31/08 TotalAssets12/31/07 NetSales2008

 $123,000 2,443,000 1,880,000 2,135,000

   $2,135,000

  EXERCISES

Ex.221

HuntCompanypurchasedfactoryequipmentwithaninvoicepriceof$80,000.Othercosts incurredwerefreightcosts,$1,100;installationwiringandfoundation,$2,200;materialandlabor costsintestingequipment, $700;oillubricantsandsupplies tobeusedwithequipment, $500;fire insurancepolicycoveringequipment,$1,400.Theequipmentisestimatedtohavea$5,000 salvagevalueat theendofits5-yearusefulservicelife.

 Instructions

 (a)Computetheacquisitioncostofthe equipment.Clearlyidentifyeachelement ofcost.

 (b)Ifthedouble-declining-balancemethodofdepreciationwasused,theconstantpercentage applied toa decliningbookvalue wouldbe                                            .

 Ex.222

 Foreachentrybelowmake acorrectingentry ifnecessary.Ifthe entry given iscorrect,then state "Noentryrequired."

 (a)The$60cost of repairinga printerwaschargedtoComputerEquipment.

 (b)The $5,000cost ofa major engineoverhaulwas debitedto RepairExpense. The overhaulis expected to increasetheoperatingefficiencyof the truck.

 (c)    The$6,000closingcostsassociatedwiththeacquisitionoflandweredebitedtoLegal Expense.

 (d)A$500chargefortransportationexpensesonnewequipmentpurchasedwasdebitedto Freight-In.

    Ex.223

 BenedictCompanywasorganized onJanuary1.Duringthefirstyearofoperations,the following expendituresandreceipts wererecordedinrandom orderinthe account,Land.

 Debits

1.Costofrealestatepurchasedasaplantsite(landandbuilding).

2.Accruedrealestatetaxespaidatthetimeofthepurchaseoftherealestate. 3.Costof demolishingbuilding tomakelandsuitablefor constructionofanew

building.

4.Architect'sfeesonbuildingplans.5.Excavationcostsfor newbuilding. 6.Costoffilling andgradingtheland.

7.Insuranceandtaxesduringconstructionof building.

8.Costofrepairstobuilding underconstructioncaused byasmallfire.

9.Interestpaidduringthe year,of which$54,000pertainstotheconstruction period.

10.Fullpaymentto buildingcontractor. 11.Costof parkinglotsanddriveways.

12.Realestatetaxespaidfor thecurrentyearontheland. TotalDebits

  Credits 13.Insuranceproceedsforfire damage.

14.Proceedsfrom salvageof demolishedbuilding TotalCredits

 $220,000 4,000

 15,000 14,000 24,000 5,000 6,000 7,000

 64,000 760,000 36,000

           4,000$1,159,000

   $3,000

3,500$6,500

 Instructions

 Analyzetheforegoingtransactionsusingthefollowingtabulararrangement. Insertthenumberof each transactionintheItemspaceandinserttheamountsintheappropriatecolumns.

 Item                    Land                         Building                   Other                     Account Title

    Ex.224

 DuncanCompanypurchaseda machine atacost of$90,000.The machineisexpected to have a $5,000salvagevalueatthe endof its 5-yearusefullife.

 Instructions

Computeannualdepreciationforthefirstandsecond yearsusingthe (a)straight-linemethod.

(b)double-declining-balancemethod.

    Ex.225

 ReynoldsCompanypurchasedanewmachinefor$300,000.Itisestimatedthatthemachinewill havea$30,000salvagevalueattheendofits5-yearusefulservicelife.Thedouble-declining-balance method of depreciationwillbeused.

 Instructions

Prepareadepreciationschedulewhich showstheannualdepreciation expense onthemachine for its5-yearlife.

   Ex.226

 TannerCompanypurchasedequipmentonJanuary1,2007for$70,000.Itisestimatedthatthe equipmentwillhavea$5,000salvagevalueattheendofits5-yearusefullife.Itisalsoestimated that theequipmentwillproduce100,000unitsoverits 5-yearlife.

 Instructions

 Answerthefollowingindependentquestions.

 1.ComputetheamountofdepreciationexpensefortheyearendedDecember31,2007,using thestraight-linemethodofdepreciation.

 2.If16,000unitsofproductareproducedin2007and24,000unitsareproducedin2008,what isthebookvalueoftheequipmentatDecember31,2008?Thecompanyusestheunits-of-activitydepreciationmethod.

 3.Ifthecompanyusesthedouble-declining-balancemethodofdepreciation,whatisthe balance of theAccumulatedDepreciation—Equipment accountat December31,2009?

    Ex.227

 AplantassetacquiredonOctober1,2008,atacostof$300,000hasanestimatedusefullifeof 10years.Thesalvagevalueis estimated tobe$30,000 attheendofthe asset'suseful life.

 Instructions

Determinethedepreciationexpenseforthefirsttwoyearsusing: (a)        thestraight-linemethod.

(b)     the double-declining-balancemethod.

50,000miles

60,000miles

70,000miles

  Ex.228

 Tony’s,apopularpizzahang-out,hasathrivingdeliverybusiness.Tony’shasafleetofthree deliveryautomobiles.Priortomakingtheentryforthisyear'sdepreciationexpense,the subsidiary ledgerforthefleet is asfollows:

Accumulated

Estimated              Depr.—Beg.      MilesOperated Car           Cost      SalvageValue          Life in Miles           of the YearDuringYear

1       $21,000                $3,000                   50,000                   $2,520                   20,000 2         18,000                 2,400 60,000                    2,340                    22,000 3         20,000                 2,500         70,000                    2,000                   19,000

 Instructions

(a)Determinethedepreciationratespermileforeachcar.

(b)DeterminetheDepreciationExpenseforeachcarforthecurrent year.

(c)MakeonecompoundjournalentrytorecordtheannualDepreciationExpenseforthefleet.

   $21,000– $3,000

  Ex.229

 TheBarnettClinicpurchasedanewsurgicallaserfor$80,000.Theestimatedsalvagevalueis $5,000.Thelaserhasausefullifeoffiveyearsandtheclinicexpectstouseit10,000hours.It wasused1,600hours inyear1;2,200 hours in year2;2,400 hoursinyear 3;1,800 hours in year 4;2,000hoursin year5.

 Instructions

(a)Computetheannualdepreciationforeachofthefiveyearsundereachofthefollowing methods:

(1)straight-line.(2)units-of-activity.

 (b)Ifyouweretheadministratoroftheclinic,whichmethodwouldyoudeemasmost appropriate? Justifyyouranswer.

 (c)Whichmethodwouldresultinthelowestreportedincomeinthefirstyear?Whichmethod would resultinthelowesttotalreportedincomeoverthefive-yearperiod?

   Ex.230

 TheDecember31,2007balancesheetofRitterCompanyshowedEquipmentof$64,000and AccumulatedDepreciationof$18,000.OnJanuary1,2008,thecompanydecidedthatthe equipmenthasaremainingusefullifeof 6yearswitha $4,000salvagevalue.

 Instructions

Computethe (a)depreciablecost ofthe equipmentand(b) revisedannualdepreciation.

    Ex.231

 SoutheastAirlinespurchaseda747aircraftonJanuary1,2007,atacostof$35,000,000.The estimateduseful lifeoftheaircraftis20years,withanestimated salvagevalue of$5,000,000.On January1,2010theairlinerevisesthetotalestimatedusefullifeto15yearswitharevised salvagevalueof$3,500,000.

 Instructions

 (a)ComputethedepreciationandbookvalueatDecember31,2009usingthestraight-line methodandthedouble-declining-balancemethod.

 (b)Assumingthestraight-linemethodisused,computethedepreciationexpensefortheyear ended December31, 2010.

     Ex.232

 SeymorCompanypurchasedamachineonJanuary1,2008,atacostof$80,000.Itisexpected tohaveanestimatedsalvagevalueof$5,000attheendofits5-yearlife.Thecompany capitalizedthemachineanddepreciateditin2008usingthedouble-declining-balancemethodof depreciation.Thecompany hasapolicyofusingthestraight-linemethod todepreciateequipment butthecompanyaccountantneglectedtofollowcompanypolicywhenheusedthedouble-declining-balancemethod.NetincomefortheyearendedDecember31,2008was$55,000as the resultof depreciatingthemachineincorrectly.

 Instructions

 Usingthemethodofdepreciationwhichthecompanynormallyfollows,preparethecorrecting entry and determinethecorrectednet income.(Showcomputations.)

    Ex.233

 Equipment wasacquiredonJanuary1,2005,atacostof$80,000.Theequipmentwasoriginally estimatedtohaveasalvagevalueof$5,000andanestimatedlifeof10years.Depreciationhas beenrecordedthroughDecember31,2008,usingthestraight-linemethod.OnJanuary1,2009, theestimatedsalvagevaluewasrevisedto$6,000andtheusefullifewasrevisedtoatotalof8 years.

 Instructions

DeterminetheDepreciationExpensefor 2009.

  Ex.234

 GantnerCompanypurchasedamachineonJanuary1,2008.Inadditiontothepurchaseprice paid,thefollowingadditionalcostswereincurred:(a)salestaxpaidonthepurchaseprice,(b) transportationandinsurancecostswhilethemachinerywasintransitfromtheseller,(c) personneltrainingcosts forinitial operationofthemachinery,(d)annualcityoperatinglicense,(e) majoroverhaultoextendthelifeofthemachinery,(f)lubricationofthemachinerygearingbefore themachinerywasplacedintoservice,(g)lubricationofthemachinerygearingafterthe machinerywasplacedintoservice,and(h)installationcostsnecessarytosecurethemachinery to thebuildingflooring.

 Instructions

Indicatewhethertheitems(a)through(h)arecapitalorrevenueexpendituresinthespaces provided: C= Capital,R=Revenue.

 (a)                                (b)                                 (c)                                 (d)                            

 (e)                                (f)                                  (g)                                 (h)                            

    Ex.235

 CareyWordProcessingServiceusesthestraight-linemethodofdepreciation.Thecompany's fiscalyearendisDecember31.Thefollowingtransactionsandeventsoccurredduringthefirst three years.

 2007July         1

 Nov.3 Dec.31

   2008Dec.31

PurchasedacomputerfromtheComputerCenterfor$2,300cashplussales tax of$150,andshippingcosts of$50.

Incurredordinaryrepairsoncomputerof $140.

Recorded2007depreciationonthebasisofafouryearlifeandestimated salvagevalueof$500.

 Recorded2008depreciation.

  2009Jan.         1     Paid$400foranupgradeofthecomputer.Thisexpenditureisexpectedto increasetheoperatingefficiency andcapacityofthecomputer.

 Instructions

Preparethenecessaryentries.(Showcomputations.)

    Ex.236

 Identifythefollowingexpendituresascapitalexpenditures orrevenueexpenditures. (a)Replacementof wornoutgearsonfactorymachinery.

(b)Constructionof anewwing onanofficebuilding. (c)Paintingtheexteriorof abuilding.

(d)Oilchangeonacompanytruck.

 (e)ReplacingaPentiumIIcomputerchipwithaPentiumIVchip,whichincreasesproductive capacity.Noextensionofusefullifeexpected.

 (f)     Overhaulofa truckmotor.Oneyearextensioninusefullifeis expected. (g)Purchasedawastebasketatacostof $10.

(h)Paintingandletteringofa usedtruck uponacquisitionofthetruck.

    Ex.237

 OnJanuary1,2006RosenCompanypurchasedandinstalledatelephonesystematacostof $20,000.Theequipmentwasexpectedtolastfiveyearswithasalvagevalueof$3,000.On January1,2007moretelephoneequipmentwaspurchasedtotie-inwiththecurrentsystemfor $10,000.Thenewequipmentisexpectedtohaveausefullifeoffouryears.Throughanerror,the newequipmentwasdebitedtoTelephoneExpense.RosenCompanyusesthestraight-line methodofdepreciation.

 Instructions

PrepareascheduleshowingtheeffectsoftheerroronTelephoneExpense,Depreciation Expense,andNetIncomeforeachyearandintotalbeginningin2007throughtheusefullifeof thenewequipment.

 TelephoneExpense Overstated

Year                 (Understated)

Depreciation Expense Overstated

(Understated)

NetIncome Overstated

(Understated)

 2007

 2008

 2009

 2010

  Ex.238

 BermanCompanysoldequipmentonJuly31,2008for$50,000.Theequipmenthadcost $140,000 andhad$80,000ofaccumulateddepreciationasofJanuary1,2008.Depreciationfor thefirst6monthsof2008 was$8,000.

 Instructions

Preparethejournalentrytorecordthesaleoftheequipment.

    Ex.239

 (a)WattsCompanypurchasedequipmentin2001for$90,000andestimateda$6,000salvage valueattheendoftheequipment's10-yearusefullife.AtDecember31,2007,therewas $58,800intheAccumulatedDepreciationaccountforthisequipmentusingthestraight-line methodof depreciation.On March31, 2008,theequipmentwassoldfor$24,000.

 PreparetheappropriatejournalentriestoremovetheequipmentfromthebooksofWatts CompanyonMarch31, 2008.

 (b)GormanCompanysoldamachine for$15,000. Themachineoriginallycost$35,000in2005 and$8,000wasspentonamajoroverhaulin2008(chargedtoMachineaccount). AccumulatedDepreciationonthemachinetothe date of disposalwas$28,000.

 Preparetheappropriatejournalentrytorecordthedispositionofthemachine.

 (c)KlingerCompanysoldofficeequipmentthathadabookvalueof$6,000for$8,000.The officeequipmentoriginallycost$20,000anditisestimatedthatitwouldcost$25,000to replace theofficeequipment.

 Preparetheappropriatejournalentrytorecordthedispositionofthe officeequipment.

  Ex.240

 Fleming'sLumberMillsoldtwomachinesin2009.Thefollowinginformationpertainstothetwo machines:

Purchase       Useful      Salvage      Depreciation                                     Sales

MachineCost    Date      Life    Value     Method           Date Sold               Price

#1       $66,000      7/1/05        5yrs.         $6,000         Straight-line               7/1/09          $15,000 #2           $40,000      7/1/08        5yrs.         $5,000         Double-declining-      12/31/09      $24,000

balance

 Instructions

(a)Computethedepreciationoneachmachinetothedateofdisposal.

 (b)Preparethejournalentriesin2009torecord2009depreciationandthesaleofeach machine.

    Ex.241

 Presentedbelowareselectedtransactionsfor MiltonCompanyfor 2008.

 Jan.     1     Received$9,000scrapvalueonretirementofmachinerythatwaspurchasedon January1,1998.Themachinecost$90,000onthatdate,andhadausefullifeof10 yearswithno salvagevalue.

 April30

  Dec.31

Soldamachinefor$28,000thatwaspurchasedonJanuary1,2005.Themachine cost$75,000,andhadausefullifeof 5 years withnosalvagevalue.

 DiscardedabusinessautomobilethatwaspurchasedonOctober1,2003.Thecar cost$32,000andwasdepreciatedona5-yearusefullifewithasalvagevalueof $2,000.

 Instructions

Journalizeallentriesrequiredasaresultoftheabovetransactions.MiltonCompanyusesthe straight-linemethodof depreciationandhasrecordeddepreciationthroughDecember31,2007.

     Ex.242

 WatsonCompanysoldthefollowingtwomachinesin 2008:

  Cost Purchasedate Usefullife Salvagevalue

Depreciationmethod Datesold

SalesPrice

MachineA

$68,000 7/1/048years $4,000

Straight-line 7/1/08 $30,000

Machine B $80,000 1/1/055years $4,000

Double-declining-balance 8/1/08$16,000

 Instructions

Journalizeallentriesrequiredtoupdatedepreciationandrecordthesalesofthetwoassetsin 2008.ThecompanyhasrecordeddepreciationonthemachinethroughDecember31, 2007.

   Ex.243

 GirardMininginvested$960,000inamineestimatedtohave1,200,000tonsoforewithno salvagevalue.Duringthefirst year,200,000tons of orewereminedandsold.

 Instructions

 Preparethejournalentrytorecorddepletionexpense.

    Ex.244

 Eddy MiningCompanypurchaseda minefor$70 million which isestimated tohave250,000tons ofore anda salvagevalueof $10million.

 (a)Inthefirstyear,50,000tonsoforeareextractedandsold.Preparethejournalentryto recorddepletionexpenseforthefirstyear.

 (b)Inthesecondyear,150,000tonsoforeareextractedbutonly125,000tonsaresold. Preparethejournalentrytorecorddepletionexpenseforthesecondyear.

 (c)Whatamountandinwhataccountare thetonsof orenotsoldreported?

     Ex.245

 HarperMiningCompanypurchasedlandcontaininganestimated15milliontonsoforeatacost of$4,500,000.Thelandwithouttheoreisestimatedtobeworth$600,000. Thecompany expects tooperatetheminefor10years.Buildingscosting$600,000areerectedonthesiteandare expectedtolastfor25years.Equipmentcosting$300,000withanestimatedlifeof12yearsis installed.Thebuildingsandtheequipmentpossessnosalvagevalueafterthemineisclosed. During thefirst yearof operations,theminingcompanyminedandsold2milliontons ofore.

 Instructions

(a)Computethedepletionchargeperton.

(b)Computethedepletionexpensefor thefirst year.

(c)Computetheappropriatefirstyear'sdepreciationexpenseforthebuildings. (d)Computetheappropriatefirstyear'sdepreciationexpensefortheequipment.

(e)Preparejournalentriestorecorddepletionanddepreciationexpensesfortheyear.

   Ex.246

 (a)AcompanypurchasedapatentonJanuary1,2008, for$2,000,000.Thepatent'slegallifeis 20yearsbutthecompanyestimates thatthepatent'susefullifewillonlybe5yearsfromthe dateofacquisition.OnJune30,2008,thecompanypaidlegalcostsof$135,000in successfullydefendingthepatentinaninfringementsuit.Preparethejournalentryto amortize the patentatyearendonDecember31,2008.

 (b)FoleyCompanypurchasedafranchisefromYummieFoodCompanyfor$400,000on January1,2008.Thefranchise isforanindefinite timeperiodandgivesFoleyCompanythe exclusiverightstosellYummieWingsinaparticularterritory.Preparethejournalentryto recordtheacquisitionofthefranchiseandanynecessaryadjustingentryatyearendon December 31, 2008.

 (c)DryerCompanyincurredresearchanddevelopmentcostsof$500,000in2008in developinganewproduct.Preparethenecessaryjournalentriesduring2008torecord these eventsandanyadjustmentsat yearendonDecember31,2008.

    Ex.247

 OnJanuary2,2008,HolmesCompanypurchasedapatentfor$200,000.Thepatenthasan8-yearestimatedusefullife andalegallife of 20years.

 Instructions

Preparethejournalentrytorecordpatent amortization.

  Ex.248

 Foreachitemlistedbelow,enteracodeletterintheblankspacetoindicatetheallocation terminology fortheitem.Usethefollowing codesfor youranswer:

 A—Amortization

 D—Depreciation

P—Depletion

 N—Noneof these

 1.Goodwill

 2.Land

 3.Buildings

 4.Patents

 5.Copyrights

 6.Researchanddevelopmentcosts

7.Timberlands

 8.Franchises(indefinite life)

 9.Licenses(limitedlife)

 10.LandImprovements

 11.OilDeposits

 12.Equipment

     Ex.249

 Foreachofthefollowingunrelatedtransactions,(a)determinetheamountoftheamortizationor depletionexpenseforthecurrentyear,and(b)presenttheadjustingentriesrequiredtorecord each expenseatyearend.

 (1)Timberrightswerepurchasedonatractoflandfor$360,000.Thetimberisestimatedat 1,200,000boardfeet.Duringthecurrentyear,75,000boardfeetoftimberwerecutand sold.

 (2)Costsof$8,000wereincurredonJanuary1toobtainapatent.Shortlythereafter,$22,000 wasspentinlegalcoststosuccessfullydefendthepatentagainstcompetitors.Thepatent has anestimatedlegallifeof12years.

  Ex.250

 Duringthecurrentyear,LymonCompanyincurredseveralexpenditures.Brieflyexplainwhether theexpenditureslistedbelowshouldberecordedasanoperatingexpenseorasanintangible asset.Ifyouview theexpenditure asanintangibleasset,indicatethenumberofyearsoverwhich theassetshouldbe amortized.Explainyouranswer.

 (a)Spent$30,000inlegalcostsinapatentdefensesuit.Thepatentwasunsuccessfully defended.

 (b)Purchased atrademark fromanothercompany.Thetrademarkcanberenewedindefinitely. LymonCompanyexpectsthetrademarkto contributetorevenueindefinitely.

 (c)LymonCompanyacquiresapatentfor$2,000,000.Thecompanysellingthepatenthas spent$1,000,000ontheresearchanddevelopmentofit.Thepatenthasaremaininglifeof 15years.

 (d)LymonCompanyisspendingconsiderabletimeandmoneyindevelopingadifferentpatent foranotherproduct.Sofar$3,000,000hasbeenspentthisyearonresearchand development.LymonCompanyisveryconfidenttheywillobtainthispatentinthenextfew years.

    Ex.251

 Presentedbelowisinformationrelatedtoplantassets,naturalresources,andintangiblesatyear end on December31,2008,forNortenCompany:

 Buildings Goodwill Patents CoalMine

AccumulatedDepreciation AccumulatedDepletion

$1,080,000 350,000 480,000 440,000 670,000 275,000

 Instructions

 Prepareapartialbalancesheetfor NortenCompanythat showshowtheabovelisted itemswould be presented.

     Ex.252

 Computetheassetturnover ratiobasedonthefollowing:

 Beginningtotal assets Endingtotal assetsNetincome

Netsales

$800,000 1,200,000 300,000 2,200,000

    Ex.253

 Indicateinthe blank spaces below,thesectionof the balancesheetwherethefollowingitems are reported. Usethefollowingcodeto identifyyour answer:

 PPE      Property,Plant, andEquipment I     Intangibles

O      Other

N/A     Not onthebalancesheet

 1.     Goodwill

 2.LandImprovements 3.Buildings

4.AccumulatedDepreciation 5.Trademarks

6.Researchand developmentcosts

7.Timberlands 8.Franchises9.Licenses

10.Equipment 11.OilDeposits

12.Land

     *Ex.254

 Presentedbelowaretwoindependentsituations:

 (a)RileyCompanyexchangedanoldmachine(cost$100,000less$60,000accumulated depreciation)plus$7,000cashforanewmachine.Theoldmachinehadafairmarketvalue of$36,000.Preparetheentrytorecordtheexchangeof assets byRileyCompany.

 (b)CarlinCompanytradesoldequipment(cost$90,000less$54,000accumulateddeprecia-tion)fornewequipment.Carlinpaid$36,000cashinthetrade.Theoldequipmentthatwas tradedhadafairmarketvalueof$54,000.Preparetheentrytorecordtheexchangeof assetsbyCarlinCompany.

     *Ex.255

 AglerCompanyexchangesequipmentwithEatonCompanyandPetersCompanyexchanges equipmentwithFieroCompany.Thefollowinginformationpertainstotheexchanges:

  Equipment(cost) Accumulateddepreciation

Fairmarketvalueof theequipment Cashpaid

Agler Company $114,000

50,000 75,000 45,000

Peters Company $96,000

45,000 42,000

-0-

 Instructions

Prepare thejournalentriestorecordtheexchangesonthebooksofAglerCompanyandPeters Company.

    Ex.256

 FarrDeliveryCompanyandBellDeliveryCompanyexchangeddeliverytrucksonJanuary1, 2008.Farr'struckcost$84,000,hadaccumulateddepreciationof$69,000,andhasafairmarket valueof$9,000.Bell'struckcost$63,000,hadaccumulateddepreciationof$54,000,andhasa fair marketvalueof$9,000.

 Instructions

(a)    Journalizetheexchangefor FarrDeliveryCompany. (b)   Journalizetheexchangefor BellDeliveryCompany.

   Ex.257

 Prepare thejournalentriestorecordthefollowingtransactionsforBryantCompanywhichhasa calendaryearendandusesthe straight-linemethodofdepreciation.

 a)      OnSeptember30,2008,thecompanyexchangedolddeliveryequipmentand$24,000for newdeliveryequipment.The olddeliveryequipmentwas purchasedon January1,2006,for $84,000andwasestimatedtohavea$12,000salvagevalueattheendofits5-yearlife. Depreciationonthedelivery equipmenthasbeenrecordedthroughDecember31,2007.Itis estimatedthatthefairmarketvalueoftheolddeliveryequipmentis$36,000onSeptember 30,2008.

 (b)OnJune30,2008,thecompany exchangedoldofficeequipmentand$40,000fornewoffice equipment.Theoldofficeequipmentoriginallycost$80,000andhadaccumulated depreciationtothedateofdisposalof$35,000.Itisestimatedthatthefairmarketvalueof theold officeequipmentonJune30was$60,000.

   COMPLETIONSTATEMENTS

  258.Withtheexceptionofland,plantassetsexperiencea                                                          inservice potentialovertheirusefullives.

 259.Whenvacantlandisacquired,expendituresforclearing,draining,filling,andgrading should bechargedtothe                                                                       account.

 260.Thecostofdemolishinganoldbuildingonlandthathasbeenacquiredsothatanew buildingcanbeconstructedshouldbechargedtothe                                       account.

 261.Thecostofpaving,fencing,andlightinganewcompanyparkinglotischargedtoa

                               account.

 262.Equipmentwithaninvoicepriceof$20,000waspurchasedandfreightcostswere$900. Thecostofthe equipmentwouldbe$                                                         .

 263.                                istheprocessofallocatingthecostofaplantassettoexpense overits service lifeinarationalandsystematicmanner.

 264.Thebookvalueofaplantassetisobtainedbysubtracting                                                      fromthe

                               of theplantasset.

 265.Threefactorsthataffectthecomputationofperiodicdepreciationexpenseare(1)

                                , (2)                                ,and(3)                                      .

 266.The                                      methodofcomputingdepreciationexpenseresultsinanequal amountofperiodicdepreciationthroughouttheservicelife oftheplantasset.

 267.Thedeclining-balancemethodofcomputingdepreciationexpenseinvolvesmultiplyinga

                                 bookvaluebya                                    percentage.

 268.Thedeclining-balancemethodofcomputingdepreciationisknownasan                                          

 depreciationmethod.

 269.Ordinaryrepairswhichmaintainoperatingefficiencyandexpectedproductivelifeare called           .

 270.Additionsandimprovementsarecostsincurredtoincreasetheoperatingefficiency, productive capacity,or expectedusefullife andare referredtoas                                                                                  .

 271.Ifdisposalofaplantassetoccursatany timeduringtheyear,                                                         for the fractionoftheyeartothedate ofdisposalmustberecorded.

 272.Iffullydepreciatedequipmentthatcost$10,000withnosalvagevalueisretired,theentry torecordtheretirementrequiresadebittothe         account and acredittothe                   account.

 273.Iftheproceedsfromthesaleofaplantassetexceedits                                                      ,againon disposalwilloccur.

 274.Aplantassetoriginally cost$48,000andwasestimatedtohavea$3,000salvagevalueat theendofits5-yearusefullife.Ifattheendofthreeyears,theassetwassoldfor$9,000, andhadaccumulateddepreciationrecordedof$27,000,thecompanyshouldrecognizea

                             ondisposalintheamountof $                              .

  275.Naturalresourceshavetwodistinguishingcharacteristics(1)theyarephysically

                                                                                                                       inoperations,and(2)theyare                                onlybyanactof nature.

 276.Inrecordingthepurchaseofabusiness,goodwillshouldberecordedfortheexcessof

                               overthe                                  of thenet assetsacquired.

 277.Theallocationofthecostofanassettoexpenseoveritsusefullifeiscalled

                                                                                                               fortangibleplantassets,                                   fornaturalresources, and for intangibleassets.

 278.Thecostofapatentshouldbeamortizedoverits                                        lifeorits                            

 life,whicheverisshorter.

 279.The                                               ratioiscalculatedbydividingnetsalesbyaveragetotal assets.

 a280.Inthecaseofanexchangeofplantassetsresultinginalossondisposal,thecostofthe newassetacquiredisequaltothe                                                                                       oftheassetgivenupplusanycash paid bythepurchaser.

 a281.Acompanyexchangedanoldmachine,whichoriginallycost$22,000andhas accumulateddepreciationtodateof$12,000,foranewmachine.Theoldmachinehada fairmarketvalueof$14,000.Thecostofthenewmachineshouldberecordedat$   .

                                                                                                 10-63

  MATCHING

 Set1

 282.Matchtheitemsbelowbyenteringtheappropriatecodeletterinthespaceprovided.

 A.Plantassets B.Depreciation C.Bookvalue

D.Salvagevalue

E.Straight-linemethod

F.     Units-of-activitymethod

G.Double-declining-balancemethod H.MACRS

I.     Revenueexpenditure J.   Capitalexpenditure

  1.Smallexpenditureswhichprimarilybenefitthecurrent period.

 2.Costlessaccumulateddepreciation.

 3.Anaccelerateddepreciationmethodusedforfinancialstatementpurposes.

 4.Tangibleresourcesthatareusedinoperationsand arenotintendedforresale.

 5.Equalamountof depreciationeachperiod.

 6.Expectedcashvalueof theassetattheendof itsusefullife.

 7.Allocationof thecostofaplant assetto expenseoverits usefullife.

 8.Materialexpenditureswhichincreaseanasset'soperatingefficiency,productive capacity,orusefullife.

 9.Anaccelerateddepreciationmethodusedfortaxpurposes.

 10.Usefullifeisexpressedintermsof units ofproductionor expecteduse.

    Set2

 283.Matchtheitemsbelowbyenteringtheappropriatecodeletterinthespaceprovided.

 A.Gainondisposal B.Lossondisposal C.Trademark

D.Depletion E.Usefullife

F.     Assetturnoverratio G.Goodwill

H.Amortization

I.     Intangibleasset

J.     Researchanddevelopmentcosts

  1.Processofallocating thecost of anintangibleassettoexpenseoverits useful life.

 2.Isonlyrecorded whenanexchangehascommercialsubstance.

 3.Examplesarefranchisesand licenses.

 4.Theallocationofthecost ofanaturalresourcetoexpenseoverits usefullife.

 5.Canbeidentifiedonlywitha businessasawhole.

 6.Asymbolthat identifiesaparticularenterpriseorproduct.

 7.Whenbookvalue of assetisgreaterthantheproceedsreceivedfromitssale.

 8.Mustbe expensedwhen incurred.

 9.Indicateshowefficientlya companyisabletogenerate saleswithits assets.

 10.Anestimateoftheexpectedproductivelife ofanasset.

     SHORT-ANSWERESSAYQUESTIONS

 S-AE284

 Thedeclining-balancemethodisanacceleratedmethodofdepreciation.Brieflyexplainwhatis meantbyanacceleratedmethodofdepreciationandjustifythechoosingofanaccelerated method.

   S-AE285

 Identifythefactorsthatareconsideredinclassifyinganexpenditureasacapitalorarevenue expenditure.Arethereinstanceswhereitmaybedifficulttoclassifyanexpenditureasoneorthe other(e.g.,thepurchaseofawastebasketthathasausefullifeof5yearsandcost$10)?What basis wouldbe usedin adecision?

   S-AE286

 Ingeneral,howdoesonedeterminewhetherornotanexpenditureshouldbeincludedinthe acquisitioncostof property,plant,andequipment?

  S-AE287

 Commentonthevalidityofthefollowingstatements:―Asanassetlosesitsabilitytoprovide services,cashneedstobesetasidetoreplaceit.Depreciationaccomplishesthisgoal.‖

    S-AE288

 Goodwillisanunusualassetinthatitcannotbesoldindividuallyapartfromabusinessasa whole.Ifgoodwillisanintangibleasset,whycan'titbesoldlikeotherintangibleassetssuchas copyrights andpatents?Brieflyexplainwhatmakesgoodwilldifferent.

    S-AE289(Ethics)

 PhysicianReferenceService(PRS)providesservicestophysiciansincludingresearch assistance,diagnosiscodingandmedicalpracticesoftwareincludinganadvancedmedical recordcross-referencingsystem.PRSisaggressiveinmonitoringotherfirms'offeringsand ensuring thatits servicesarecomparabletoallothers.

 Becauseofitsneedtostayabreastofnewproductofferings,PRSspends alotofmoneysending professionalstotradeshows.Inaddition,PRShasagreementswithseveralclientswherebythe clientrequestsapresentationofacompetitor's services.APRSemployeeposesasanemployee oftheclient'sofficeandattends thepresentation, obtainingasmuchdataandsampleinformation aspossible.ThecostofthetravelandattendingpresentationsischargedtoProduct Developmentandexpensedduring thecurrentyear.

 S-AE289(cont.)

 InAprilofthisyear,PRSbegansellingasoftwareproductsubstitutebeforethecompetitor's softwarewasreleased.Thecompetitor,Compu-Med,suedforcopyrightinfringementandwon. PRShadtowithdrawitsproductfromthemarketandpay$1.5millionindamages.PRS immediatelynegotiatedanagreementwithCompu-MedtosellCompu-Med'sproduct(sinceit wasprohibitedfromofferingitsownversionforfiveyears.)Thisagreementcostanadditional $1.3million,but itallowedPRStocontinuetooffer afulllineofservices.

 PRS'saccountant,JuneBianco,initiallyrecordedthecashpaymentsas"LossfromLawsuit"and "ProductDevelopment,"respectively.However,FredNance,thecontroller,instructedJuneto createanintangibleasset,named"Goodwill"andchargebothcoststothisaccount."We're protectedfromanotherlawsuitaslongasthisagreementisineffect,"hesays."It'saboutas closetogoodwillaswe'llevergetfromourcompetitors.We mightaswellamortizethecostrather thantakethefullhitto income,anyway."

 Required:

 1.Whataretheethicalissues? 2.WhatshouldJunedo?

   S-AE290(Communication)

 TheRestor-Itisacompanyspecializingintherestorationofoldhomes.Toshowcaseitswork, thecompanypurchasedanoldVictorianhomeindowntown Pittsburg,Kansas.Theoriginalhome waspurchasedfor$125,000.Anewheatingandair-conditioningsystemwasaddedfor$30,000. Thehousewascompletelyrewiredandre-plumbedatacostof$50,000.Customcabinetswere added,andthefloorsand trimwererefurbishedto theiroriginalcondition,at acostof $75,000.

 Theprojectwassuchasuccess, thatRestor-Itdecidedtopurchaseanotherverylargehome,this timeinnearbyJoplin,Missouri.ArealtorofferedtopurchasethehomeinPittsburgfor$175,000. Heplanstoleaseitasluxuryshort-termapartmentsforvisitingdignitaries.Restor-Itdecidedthat amodestreturnwasallthatwasrequired,andsotheyagreedtosell.Onlyafterwarddidthey learnthattheyhada$10,000lossonthesale.Thepresidentofthecompany,JimHerman,does notbelievethatalossispossible."Wesoldthathouseformorethanwepaidforit,"hesaid."I knowweputsomemoneyinit,butwehaddepreciateditforthreeyears.Howintheworldcan we havea loss?"

 S-AE290(cont.)

 Required:

 Writeashort memotoMr.Herman explaining how itwouldbepossibletohavealoss.Do nottry tousespecificnumbersfor costordepreciation.

[stupendousbarbarianwitch-blog]

ACC 206 Week 5 Mid-Term Exam – Strayer

Click on the Link Below to Purchase A+ Graded Course Material

 http://budapp.net/ACC-206-Accounting-Principles-II-Week-5-Mid-Term-Exam-Strayer-263.htm

 Chapters 10 Through 13

 CHAPTER10

 PLANTASSETS,NATURALRESOURCES,ANDINTANGIBLEASSETS

   CHAPTERSTUDYOBJECTIVES

  1.Describehowthecostprincipleappliestoplantassets.

 2.Explaintheconceptofdepreciation..

 3.Computeperiodicdepreciationusingdifferentmethods.

 4.Describetheprocedureforrevisingperiodicdepreciation.

 5.Distinguishbetweenrevenueandcapitalexpenditures,andexplaintheentriesforeach.

 6.Explainhowtoaccountforthedisposalofaplantasset.

 7.Computeperiodicdepletionofnaturalresources.

 8.Explainthebasicissuesrelatedtoaccountingforintangibleassets.

 9.Indicatehowplantassets,naturalresources,andintangibleassetsarereported.

 10.Explainhowtoaccountfortheexchangeofplantassets.

  TRUE-FALSESTATEMENTS

  1.     Allplantassets(fixedassets)mustbedepreciatedfor accountingpurposes.

 2.     Whenpurchasingland,thecostsforclearing,draining,filling,andgradingshouldbe chargedto aLandImprovementsaccount.

 3.     Whenpurchasingdeliveryequipment,salestaxesandmotorvehiclelicensesshouldbe chargedto DeliveryEquipment.

 4.     Landimprovementsaregenerallychargedto theLandaccount.

 5.     Oncecostisestablishedforaplantasset,itbecomes thebasis ofaccounting fortheasset unlesstheassetappreciatesinvalue,inwhichcase,marketvaluebecomesthebasisfor accountability.

 6.     Thebookvalueof aplantassetisalwaysequaltoitsfairmarketvalue.

 7.     Recordingdepreciationonplantassetsaffectsthebalancesheetandtheincome statement.

 8.     Thedepreciablecostof aplant asset is itsoriginalcostminusobsolescence.

 9.     Recordingdepreciationeachperiodisanapplicationof thematchingprinciple.

 10.     TheAccumulatedDepreciationaccountrepresentsacashfundavailabletoreplaceplant assets.

 11.     Incalculatingdepreciation,bothplantassetcost andusefullifearebasedonestimates.

 12.     Usingtheunits-of-activitymethodofdepreciatingfactoryequipmentwillgenerallyresultin moredepreciationexpensebeingrecordedoverthelifeoftheassetthanifthestraight-line method hadbeenused.

 13.     Salvagevalueisnotsubtractedfromplantassetcostindeterminingdepreciationexpense underthedeclining-balancemethodofdepreciation.

 14.     Thedeclining-balancemethodofdepreciationiscalledanaccelerateddepreciation methodbecauseitdepreciatesanassetinashorterperiodoftimethantheasset'suseful life.

 15.     Underthedouble-declining-balancemethod,thedepreciationrateusedeachyear remainsconstant.

 16.     TheIRSdoesnotrequirethetaxpayertousethesamedepreciationmethodonthetax returnthatisusedinpreparingfinancialstatements.

 17.     Achangeintheestimatedusefullifeofaplantassetmaycauseachangeintheamount ofdepreciationrecognizedinthecurrentandfutureperiods,but nottopriorperiods.

 18.     Achangeintheestimatedsalvagevalueofaplantassetrequiresarestatementofprior years'depreciation.

 19.     Todetermineanewdepreciationamountafterachangeinestimateofaplantasset's useful life, the asset'sremaining depreciablecost isdividedbyits remainingusefullife.

 20.     Additionsand improvementstoaplantassetthatincreasethe asset'soperatingefficiency, productive capacity,or expectedusefullife aregenerallyexpensed intheperiodincurred.

 21.     Capitalexpendituresareexpendituresthatincreasethecompany'sinvestmentin productive facilities.

 22.     Ordinaryrepairs shouldberecognizedwhenincurredas revenueexpenditures.

 23.     A characteristicofcapitalexpendituresis that theexpendituresoccurfrequently duringthe period ofownership.

 24.     Onceanassetisfullydepreciated,noadditionaldepreciationcanbetakeneventhough theasset is still beingusedbythebusiness.

 25.     Thefairmarketvalueof a plantasset isalwaysthesameasits bookvalue.

 26.     Iftheproceedsfromthesaleofaplantassetexceeditsbookvalue,againondisposal occurs.

 27.     Alossondisposalofaplantassetcanonlyoccurifthecashproceeds received fromthe assetsaleis lessthanthe asset'sbook value.

 28.     Thebookvalueofaplantassetistheamount originallypaid fortheassetlessanticipated salvagevalue.

 29.     Alossondisposal ofaplantasset asaresult ofasaleoraretirementiscalculated inthe sameway.

 30.     A plantassetmustbefullydepreciatedbeforeit canberemovedfromthe books.

 31.     Ifaplantasset issoldata gain,thegain ondisposal shouldreducethecost ofgoodssold section of the incomestatement.

 32.     Depletioncostperunitiscomputedbydividingthetotalcostofanaturalresourcebythe estimatednumberof unitsintheresource.

 33.     TheAccumulatedDepletionaccountisdeductedfromthecostofthenaturalresourcein thebalancesheet.

 34.     Depletionexpenseforaperiodisonlyrecognizedonnaturalresourcesthathavebeen extractedandsoldduringtheperiod.

 35.     Naturalresourcesarelong-livedproductiveassetsthatareextractedinoperationsand arereplaceableonlybyanactof nature.

 36.     Thecostofnaturalresourcesisnotallocatedtoexpensebecausethenaturalresources arereplaceableonlybyanactof nature.

 37.     Conceptually,thecostallocationproceduresfornaturalresourcesparallelsthatofplant assets.

 38.     Naturalresourcesincludestandingtimberandundergrounddepositsofoil,gas,and minerals.

 39.     Ifanacquiredfranchiseorlicensehasanindefinitelife,thecostoftheassetisnot amortized.

 40.     Whenanentirebusinessispurchased,goodwillistheexcessofcostoverthebookvalue of thenet assetsacquired.

 41.     Researchand development costswhich result in asuccessful product which ispatentable arechargedtothePatentaccount.

 42.     Thecostof apatentmustbeamortizedovera 20-yearperiod.

 43.     Thecostofapatentshouldbeamortizedoveritslegallifeorusefullife,whicheveris shorter.

 44.     The balancesofthe majorclassesofplantassetsand accumulated depreciationby major classes shouldbedisclosedinthebalance sheetornotes.

 45.     Theassetturnover ratioiscalculated astotalsales dividedbyendingtotalassets.

 46.     Researchanddevelopmentcostscanbeclassifiedasaproperty,plant,andequipment itemoras an intangibleasset.

 a47.     An exchangeofplantassetshas commercial substanceifthe futurecashflows change as a resultofthe exchange.

 a48.     Companiesrecordagainorlossontheexchangeofplantassetsbecausemost exchangeshavecommercialsubstance.

 a49.     Whenplantassetsareexchanged,thecostofthenewassetisthebookvalueoftheold assetplus anycashpaid.

 Additional True-FalseQuestions

 50.     Whenconstructingabuilding,acompanyispermittedtoincludetheacquisitioncostand certaininterest costs incurredinfinancingtheproject.

 51.     Recognitionofdepreciationpermitstheaccumulationofcashforthereplacementofthe asset.

 52.     Whenanassetispurchasedduringtheyear,itisnotnecessarytorecorddepreciation expense inthefirst yearunderthedeclining-balancedepreciationmethod.

 53.     Depletionexpenseisreported intheincomestatementas anoperatingexpense.

 54.     Goodwillisnotrecognizedinaccountingunlessitisacquiredfromanotherbusiness enterprise.

 55.     Researchanddevelopmentcostsshouldbechargedtoexpensewhenincurred.

 56.       Alossontheexchangeofplantassetsoccurswhenthefairmarketvalueoftheoldasset islessthanitsbookvalue.

       MULTIPLECHOICEQUESTIONS

  57.     Thecostof apurchasedbuildingincludes allofthefollowingexcept a.closingcosts.

b.realestatebroker's commission. c.remodeling costs.

d.Allof theseareincluded.

 58.     Acompanypurchasedlandfor$90,000cash.Realestatebrokers'commissionwas $5,000and$7,000wasspentfordemolishinganoldbuildingonthelandbefore constructionofanewbuildingcouldstart.Underthecostprinciple,thecostoflandwould be recordedat

a.$97,000. b.$90,000. c.$95,000. d.$102,000.

 59.     Whichoneofthefollowingitemsisnotconsideredapartofthecostofatruckpurchased for businessuse?

a.Salestax

b.Trucklicensec.Freightcharges

d.Costofletteringonsideoftruck

 60.     Whichofthefollowingassetsdoesnotdeclineinservicepotentialoverthecourseofits useful life?

a.Equipment b.Furnishings c.Land

d.Fixtures

 61.     Thefoursubdivisions forplantassetsare

a.land,landimprovements,buildings,andequipment. b.intangibles,land,buildings,andequipment.

c.furnishingsandfixtures,land,buildings, andequipment. d.property,plant,equipment,andland.

 62.     Thecostof landdoesnotinclude

a.realestatebrokers' commission. b.annualpropertytaxes.

c.accruedpropertytaxesassumedbythepurchaser. d.title fees.

 63.     FeeneyClinicpurchaseslandfor$130,000cash.Theclinicassumes$1,500inproperty taxesdueontheland.Thetitleandattorneyfeestotaled$1,000.Theclinichastheland gradedfor $2,200.WhatamountdoesFeeneyClinicrecordasthecostforthe land?

a.$132,200 b.$130,000 c.$134,700 d.$132,500

 64.     BelleCompanybuyslandfor$50,000on12/31/07.Asof3/31/08,thelandhas appreciatedinvalueto$50,700.On12/31/08,thelandhasanappraisedvalueof $51,800.Bywhatamountshouldthe Landaccount beincreasedin 2008?

a.$0b.$700

c.$1,100 d.$1,800

 65.     PineCompanyacquireslandfor$86,000cash.Additional costsareasfollows:

 Removalof shed                                        $300 Fillingandgrading                                      1,500 Salvagevalue oflumberofshed                   120 Brokercommission                                     1,130 Pavingofparkinglot                                 10,000 Closingcosts                                                 560

 Pinewillrecordtheacquisitioncostof thelandas a.$86,000.

b.$87,690. c.$89,610. d.$89,370.

 66.     ShawneeHospitalinstallsanewparkinglot.Thepavingcost$30,000andthelightsto illuminatethenewparkingareacost$15,000.Whichofthefollowingstatementsistrue with respecttotheseadditions?

a.$30,000shouldbedebitedtothe Landaccount.

b.$15,000shouldbedebitedtoLandImprovements. c.$45,000shouldbedebitedtotheLandaccount.d.$45,000shouldbedebitedtoLandImprovements.

10-10

 67.     Landimprovementsshouldbedepreciatedovertheusefullife of the a.land.

b.buildingsontheland.

c.land or landimprovements,whicheverislonger. d.landimprovements.

 68.     GeneralMoldingisbuildinganewplantthatwilltakethreeyearstoconstruct.The constructionwillbefinancedinpartbyfundsborrowedduringtheconstructionperiod. Therearesignificantarchitectfees,excavationfees,andbuildingpermitfees.Whichof the followingstatementsis true?

a.Excavationfeesarecapitalizedbut building permitfeesarenot. b.Architectfeesarecapitalizedbut buildingpermitfeesarenot.

c.Interestiscapitalizedduring theconstructionas partof thecostofthebuilding.

d.The capitalizedcost is equaltothecontractprice tobuildthe plant less any intereston borrowed funds.

 69.     Acompanypurchasesaremotesitebuildingforcomputeroperations.Thebuildingwillbe suitableforoperationsaftersomeexpenditures.Thewiringmustbereplacedtocomputer specifications.Theroofisleakyandmustbereplaced.Allroomsmustberepaintedand recarpetedandtherewillalsobesomeplumbingworkdone.Whichofthefollowing statements is true?

a.Thecost ofthebuildingwillnot includetherepaintingandrecarpeting costs. b.Thecostofthebuildingwillincludethecostof replacing theroof.

c.Thecostofthebuildingisthepurchasepriceofthebuilding,whiletheadditional expendituresareallcapitalizedas BuildingImprovements.

d.Thewiringis partofthecomputercosts,notthebuildingcost.

 70.     CarleyCompany purchasesanewdeliverytruck for$45,000.Thesalestaxesare$3,000. Thelogo of thecompanyis painted on thesideofthe truckfor$1,200.Thetrucklicenseis $120.Thetruckundergoessafetytestingfor$220.WhatdoesCarleyrecordasthecostof thenewtruck?

a.$49,540 b.$49,420 c.$48,000 d.$47,420

 71.     Allof thefollowingfactorsincomputingdepreciationareestimatesexcept a.cost.

b.residualvalue. c.salvagevalue. d.usefullife.

 72.     StoriesCompanypurchasedequipmentandthesecostswereincurred:

 Cashprice Salestaxes

Insuranceduringtransit Installationandtesting Totalcosts

$22,500 1,800 320

           430$25,050

PlantAssets,NaturalResources,andIntangibleAssets             10-11

  Storieswillrecordtheacquisitioncostofthe equipmentas a.$22,500.

b.$24,300. c.$24,620. d.$25,050.

 73.     Becky’sBloomspurchasedadeliveryvanfor$20,000.Thecompany wasgivena$2,000 cashdiscountbythedealer,andpaid$1,000salestax.Annualinsuranceonthevanis $500.Asaresultofthepurchase,byhowmuchwillBecky’sBloomsincreaseitsvan account?

a.$20,000 b.$18,000 c.$19,500 d.$19,000

 74.     UptonCompanypurchasedequipmentonJanuary1atalistpriceof$50,000,withcredit terms2/10,n/30.PaymentwasmadewithinthediscountperiodandUptonwasgivena $1,000cashdiscount.Uptonpaid$2,500salestaxontheequipment,andpaidinstallation chargesof$880.Priortoinstallation,Uptonpaid$2,000topouraconcreteslabonwhich toplacethe equipment.Whatisthetotalcostofthe newequipment?

a.$52,380 b.$54,380 c.$55,380 d.$50,500

 75.     Interestmaybe includedintheacquisitioncost ofa plantasset a.duringtheconstructionperiodof aself-constructedasset.b.if theassetis purchasedoncredit.

c.if theassetacquisitionisfinancedbyalong-termnotepayable. d.ifit isapart of a lump-sumpurchase.

 76.     ThebalanceintheAccumulatedDepreciationaccountrepresentsthe a.cashfundtobeusedtoreplaceplantassets.

b.amounttobedeductedfromthecostoftheplantassettoarriveatitsfairmarket value.

c.amountchargedtoexpenseinthecurrentperiod.

d.amountchargedto expensesincetheacquisitionof theplantasset.

 77.     Whichoneofthefollowingitemsisnotaconsiderationwhenrecordingperiodic depreciationexpenseonplantassets?

a.Salvagevalue

b.Estimatedusefullife

c.Cashneededtoreplacethe plantasset d.Cost

 78.     Depreciationisthe processof allocating thecostof aplantasset overits servicelife in a.anequaland equitablemanner.

b.an acceleratedand accuratemanner. c.asystematicandrationalmanner.

d.a conservativemarket-basedmanner.

10-12

 79.     Thebookvalueof anassetisequaltothe

a.asset'smarketvaluelessits historicalcost.

b.bluebookvaluereliedonbysecondarymarkets. c.replacementcostof theasset.

d.asset'scostlessaccumulateddepreciation.

 80.     Accountantsdonotattempttomeasurethechangeinaplantasset'smarketvalueduring ownership because

a.theassetsare notheldfor resale. b.plantassetscannotbesold.

c.losseswouldhavetoberecognized.

d.itismanagement'sresponsibilityto determinefair values.

 81.     Depreciationis aprocessof a.assetdevaluation.

b.costaccumulation. c.cost allocation.

d.assetvaluation.

 82.     Recordingdepreciationeachperiodisnecessaryinaccordancewiththe a.goingconcernprinciple.

b.costprinciple.

c.matchingprinciple.

d.assetvaluationprinciple.

 83.     Incomputingdepreciation,salvagevalueis

a.thefairmarketvalueofa plantassetonthedate of acquisition.

b.subtractedfromaccumulateddepreciationtodeterminetheplantasset'sdepreciable cost.

c.anestimateof aplantasset'svalueattheendofitsusefullife. d.ignoredinallthedepreciationmethods.

 84.     Whenestimatingtheusefullifeofanasset,accountantsdonotconsider a.thecosttoreplacetheassetat theendofits usefullife.

b.obsolescencefactors.

c.expectedrepairsandmaintenance. d.theintendeduse of theasset.

 85.     Usefullifeisexpressedintermsof useexpectedfromtheassetunderthe a.declining-balancemethod.

b.straight-linemethod.

c.units-of-activitymethod. d.noneof these.

 86.     Equipmentwaspurchasedfor$75,000.Freightchargesamountedto$3,500andthere wasacostof$10,000forbuildingafoundationandinstallingtheequipment.Itis estimatedthattheequipmentwillhavea$15,000salvagevalueattheendofits5-year useful life. Depreciationexpenseeachyearusingthe straight-linemethodwillbe

a.$17,700. b.$14,700. c.$12,300. d.$12,000.

PlantAssets,NaturalResources,andIntangibleAssets             10-13

 87.     Atruckwaspurchasedfor$120,000anditwasestimatedtohavea$24,000salvage valueattheendofitsusefullife.Monthlydepreciationexpenseof$2,000wasrecorded using thestraight-linemethod.Theannualdepreciationrateis

a.20%. b.2%.c.8%. d.25%.

 88.     AcompanypurchasedfactoryequipmentonApril1,2008for$64,000.Itisestimatedthat theequipmentwillhavean$8,000salvagevalueattheendofits10-yearusefullife. Usingthestraight-linemethodofdepreciation,theamounttoberecordedasdepreciation expense atDecember31,2008is

a.$6,400. b.$5,600. c.$4,200. d.$4,800.

 89.     Acompanypurchasedofficeequipmentfor$40,000andestimatedasalvagevalueof $8,000attheendofits5-yearusefullife.Theconstantpercentagetobeappliedagainst book valueeachyearifthedouble-declining-balancemethodisusedis

a.20%. b.25%. c.40%. d.4%.

 90.     Thedeclining-balancemethodofdepreciationproduces a.adecreasingdepreciationexpenseeachperiod.

b.an increasingdepreciationexpenseeachperiod. c.a decliningpercentagerateeachperiod.

d.a constantamount ofdepreciationexpenseeachperiod.

 91.     Acompanypurchasedfactoryequipmentfor$250,000.Itisestimatedthattheequipment willhavea$25,000salvagevalueattheendofitsestimated5-yearusefullife.Ifthe companyusesthedouble-declining-balancemethodofdepreciation,theamountofannual depreciationrecordedforthesecondyear afterpurchasewould be

a.$100,000. b.$60,000. c.$90,000. d.$43,200.

 92.     Theunits-of-activitymethodisgenerallynot suitablefor a.airplanes.

b.buildings.

c.deliveryequipment. d.factorymachinery.

 93.     Aplantassetcost$144,000andisestimatedtohavean$18,000salvagevalueattheend ofits8-yearusefullife.Theannualdepreciation expenserecordedforthethirdyearusing thedouble-declining-balancemethodwouldbe

a.$12,060. b.$20,250. c.$17,718. d.$13,785.

10-14

 94.     Afactorymachinewaspurchased for$75,000onJanuary1,2008.Itwasestimatedthatit wouldhavea$15,000salvagevalueattheendofits5-yearusefullife.Itwasalso estimatedthatthemachinewouldberun40,000hoursinthe5years.Thecompanyran themachinefor4,000actualhoursin2008.Ifthecompanyusestheunits-of-activity methodof depreciation,the amountof depreciationexpensefor 2008 wouldbe

a.$7,500.b.$12,000. c.$15,000. d.$6,000.

 95.     TheModifiedAcceleratedCostRecoverySystem(MACRS)isadepreciationmethod which

a.isusedfortaxpurposes.

b.mustbeusedforfinancialstatementpurposes. c.isrequiredbytheSEC.

d.expensesanassetoverasingleyearbecausecapitalacquisitionsmustbeexpensed in theyearpurchased.

 96.     Whichofthefollowingmethodsof computing depreciationisproductionbased? a.Straight-line

b.Declining-balance c.Units-of-activityd.Noneof these

 97.     Managementshouldselect thedepreciationmethodthat a.iseasiesttoapply.

b.bestmeasurestheplantasset'smarketvalueover its usefullife.

c.bestmeasuresthe plantasset'scontributiontorevenue overits usefullife. d.hasbeenusedmostofteninthepastbythe company.

 98.     Thedepreciationmethodthatappliesaconstantpercentagetodepreciablecostin calculating depreciation is

a.straight-line.

b.units-of-activity.

c.declining-balance. d.noneof these.

 Usethefollowing informationforquestions99–100.

 OnOctober1,2008,DoleCompanyplacesanewassetintoservice.Thecostoftheassetis $60,000withanestimated5-yearlifeand$15,000salvagevalueattheendof its usefullife.

 99.     Whatisthedepreciationexpensefor2008ifDoleCompanyusesthestraight-linemethod ofdepreciation?

a.$2,250 b.$12,000 c.$3,000 d.$6,000

PlantAssets,NaturalResources,andIntangibleAssets             10-15

 100.     WhatisthebookvalueoftheplantassetontheDecember31,2008,balancesheet assuming that DoleCompanyusesthedouble-declining-balancemethodof depreciation? a.$39,000

b.$45,000 c.$54,000 d.$57,000

 101.     Whichdepreciationmethod ismostfrequentlyusedinbusinessestoday? a.Straight-line

b.Declining-balance c.Units-of-activity

d.Double-declining-balance

 102.     WineCompanyusestheunits-of-activitymethodincomputingdepreciation.Anewplant assetispurchased for$24,000thatwillproduceanestimated100,000unitsoveritsuseful life.Estimatedsalvagevalue attheend ofitsuseful lifeis$2,000. Whatis the depreciation costperunit?

a.$2.20 b.$2.40 c.$.22 d.$.24

 103.     Units-of-activityisanappropriatedepreciationmethodtouse when a.it isimpossibleto determinetheproductivityof theasset.

b.theasset'susewillbeconstantoverits usefullife.

c.theproductivityof theassetvariessignificantlyfromoneperiodtoanother. d.thecompanyisamanufacturingcompany.

 104.     Thecalculationof depreciationusingthedecliningbalancemethod,

a.ignoressalvage valueindeterminingtheamounttowhicha constantrateisapplied. b.multipliesaconstantpercentagetimesthepreviousyear'sdepreciationexpense.

c.yieldsan increasingdepreciationexpenseeachperiod.

d.multipliesadecliningpercentagetimesaconstantbookvalue.

 Use thefollowing informationforquestions105–106.

  GreyCompanypurchasedanewvanforfloraldeliveriesonJanuary1,2008.Thevancost $36,000withanestimatedlifeof5yearsand$9,000salvagevalueattheendofitsusefullife. Thedouble-declining-balancemethodof depreciationwillbeused.

 105.     Whatisthedepreciationexpensefor2008? a.$7,200

b.$5,400c.$10,800 d.$14,400

 106.     WhatisthebalanceoftheAccumulatedDepreciationaccountattheendof2009? a.$5,760

b.$17,280 c.$23,040 d.$8,640

10-16

 107.     PorterCompanypurchasedequipmentfor$450,000onJanuary1,2007,andwillusethe double-declining-balancemethodofdepreciation.Itisestimatedthattheequipmentwill havea3-yearlifeanda$20,000salvagevalueattheendofitsusefullife.Theamountof depreciationexpenserecognizedintheyear2009willbe

a.$50,000. b.$30,000. c.$54,440. d.$34,440.

 108.     Aplant asset was purchasedon January 1 for$50,000withan estimatedsalvagevalueof $10,000attheendofitsusefullife.Thecurrentyear'sDepreciationExpenseis$5,000 calculatedonthestraight-linebasisandthebalanceoftheAccumulatedDepreciation accountattheendof theyearis$25,000.Theremainingusefullifeof theplantasset is

a.10 years. b.8years. c.5 years. d.3years.

 109.     Equipmentwaspurchasedfor$60,000.Freightchargesamountedto$2,800andthere wasacostof$8,000forbuildingafoundation andinstallingtheequipment.Itisestimated thattheequipmentwillhavea$12,000salvagevalueattheendofits5-yearusefullife. Depreciation expenseeachyearusingthestraight-linemethodwill be

a.$14,160. b.$11,760. c.$9,840. d.$9,600.

 110.     Equipmentwaspurchased for$17,000onJanuary1,2008.Freightchargesamountedto $700andtherewasacostof$2,000forbuildingafoundationandinstallingthe equipment.Itisestimatedthattheequipmentwillhavea$3,000salvagevalueattheend ofits5-year useful life.What istheamountofaccumulateddepreciationatDecember31, 2009,if thestraight-linemethodof depreciationisused?

a.$6,680 b.$3,340 c.$2,860 d.$5,720

 111.     Acompanypurchasedfactoryequipment onJune 1,2008,for$48,000.Itisestimatedthat theequipmentwillhavea$3,000salvagevalueattheendofits10-yearusefullife.Using thestraight-linemethodofdepreciation,theamounttoberecordedasdepreciation expense atDecember31,2008,is

a.$4,500. b.$2,625. c.$2,250. d.$1,875.

 112.     Aplant asset was purchasedon January 1 for$40,000withan estimatedsalvagevalueof $8,000attheendofitsusefullife.Thecurrentyear'sDepreciationExpenseis$4,000 calculatedonthestraight-linebasisandthebalanceoftheAccumulatedDepreciation accountattheendof theyearis$20,000.Theremainingusefullifeof theplantasset is

PlantAssets,NaturalResources,andIntangibleAssets             10-17

 a.10 years. b.8years. c.5 years. d.3years.

 Usethefollowing informationforquestions113–115.

 BrinkmanCorporationboughtequipmentonJanuary1,2008.Theequipmentcost$90,000and hadanexpectedsalvagevalueof$15,000.Thelifeoftheequipmentwasestimatedtobe6 years.

 113.     Thedepreciablecostof theequipmentis a.$90,000.

b.$75,000. c.$50,000. d.$12,500.

 114.     Thedepreciationexpenseusingthestraight-linemethodof depreciationis a.$17,500.

b.$18,000. c.$12,500.

d.noneof theabove.

 115.     Thebookvalueof the equipmentatthebeginningof thethirdyear wouldbe a.$90,000.

b.$75,000. c.$65,000. d.$25,000.

 116.     BadenCompanypurchasedmachinerywithalistpriceof$32,000.Theyweregivena 10%discountbythemanufacturer.Theypaid$200forshippingandsalestaxof$1,500. Badenestimatesthatthemachinerywillhaveausefullifeof10yearsandaresidual value of$10,000.IfBadenusesstraight-linedepreciation,annualdepreciationwillbe

a.$2,050. b.$2,036. d.$3,050. d.$1,880.

 117.     BatesCompanypurchasedequipmentonJanuary1,2008,atatotalinvoicecostof $600,000.Theequipmenthasanestimatedsalvagevalueof$15,000andanestimated usefullifeof5years.WhatistheamountofaccumulateddepreciationatDecember31, 2009,if thestraight-linemethodof depreciationisused?

a.$120,000 b.$240,000 c.$117,000 d.$234,000

10-18

 118.     OnJanuary1,amachinewithausefullifeoffiveyearsandaresidualvalueof$15,000 waspurchasedfor$45,000.Whatisthedepreciationexpenseforyear2underthe double-declining-balancemethodof depreciation?

a.$10,800 b.$18,000 c.$14,400 d.$8,640

 119.     Amachinewithacostof$160,000hasanestimatedsalvagevalueof$10,000andan estimatedusefullifeof5yearsor15,000hours.Itistobedepreciatedusingtheunits-of-activitymethodofdepreciation.Whatistheamountofdepreciationforthesecondfull year,during whichthe machinewasused5,000hours?

a.$50,000 b.$30,000 c.$43,333 d.$53,333

 120.     Equipmentwithacostof$240,000hasanestimatedsalvagevalueof$15,000andan estimatedlifeof4yearsor15,000hours.Itistobedepreciatedusingtheunits-of-activity method.Whatistheamountofdepreciationforthefirstfullyear,duringwhichthe equipmentwasused 3,300 hours?

a.$60,000 b.$67,800 c.$49,500 d.$56,250

 121.     LarimeCompanypurchasedequipmentfor$40,000onJanuary1,2007,andwillusethe double-declining-balancemethodofdepreciation.Itisestimatedthattheequipmentwill havea5-yearlifeanda$2,000salvagevalueattheendofitsusefullife.Theamountof depreciationexpenserecognizedintheyear2009willbe

a.$5,760. b.$9,120. c.$9,600. d.$5,472.

 122.     InterlineTruckingpurchasedatractortrailerfor$98,000. Interlineusestheunits-of-activity methodfordepreciatingitstrucksandexpectstodrivethetruck1,000,000milesoverits 12-yearusefullife.Salvagevalueisestimated tobe$14,000.Ifthetruckisdriven90,000 miles in itsfirstyear,howmuchdepreciationexpenseshouldInterlinerecord?

a.$7,000 b.$8,820 c.$7,560 d.$8,167

 123.     Anassetwaspurchasedfor$150,000.Ithadanestimatedsalvagevalueof$30,000and anestimatedusefullifeof10years.After5yearsofuse,theestimatedsalvagevalueis revisedto$24,000buttheestimatedusefullifeisunchanged.Assumingstraight-line depreciation, depreciationexpenseinyear6 wouldbe

a.$18,000. b.$13,200. c.$9,000. d.$12,600.

PlantAssets,NaturalResources,andIntangibleAssets             10-19

 124.     Equipmentcosting$30,000withasalvagevalueof$6,000andanestimatedlifeof8 yearshasbeendepreciatedusingthestraight-linemethodfor2years.Assuminga revisedestimatedtotallifeof5yearsandnochangeinthesalvage value,thedepreciation expense for year3wouldbe

a.$3,600. b.$8,000. c.$6,000. d.$4,800.

 125.     Joe'sQuikShopboughtmachineryfor$25,000onJanuary1,2008.Joeestimatedthe usefullifetobe5yearswithnosalvagevalue,andthestraight-line methodofdepreciation willbeused. OnJanuary 1,2009,Joedecidesthatthebusinesswillusethemachineryfor a total of6 years.What is thereviseddepreciationexpensefor2009?

a.$4,000 b.$2,000 c.$3,333 d$5,000

 126.     Eachofthefollowingisusedincomputingrevisedannualdepreciationforachangein estimateexcept

a.bookvalue. b.cost.

c.depreciablecost.

d.remaininguseful life.

 127.     A changeintheestimatedusefullife of equipmentrequires

a.aretroactivechangeintheamountofperiodicdepreciationrecognizedinprevious years.

b.thatnochangebemadeintheperiodicdepreciation sothatdepreciationamounts are comparableoverthelifeof theasset.

c.thattheamountofperiodicdepreciationbechangedinthecurrentyearandinfuture years.

d.that incomeforthecurrent yearbeincreased.

 128.     HuntCompanyhasdecidedtochangetheestimateoftheusefullifeofanassetthathas beeninservicefor2years. Whichofthefollowingstatementsdescribestheproperwayto revise a usefullifeestimate?

a.Revisionsinusefullifeare permittedifapprovedbytheIRS.

b.Retroactivechangesmustbemadeto correctpreviouslyrecordeddepreciation. c.Onlyfuture yearswill beaffectedbytherevision.

d.Bothcurrentandfutureyearswillbeaffectedbythe revision.

 129.     Jim'sCopyShopboughtequipmentfor$90,000onJanuary1,2007.Jimestimatedthe usefullifetobe3yearswithnosalvage value, andthestraight-line methodofdepreciation willbeused.OnJanuary1,2008,Jimdecidesthat the businesswilluse theequipmentfor5years.Whatisthereviseddepreciationexpensefor 2008?

a.$30,000 b.$12,000 c.$15,000 d.$22,500

10-20

 130.     Costsincurredtoincreasetheoperatingefficiencyorusefullifeofaplantassetare referred toas

a.capitalexpenditures.b.expenseexpenditures. c.ordinaryrepairs.

d.revenueexpenditures.

 131.     Expendituresthatmaintain theoperatingefficiencyandexpectedproductivelifeofaplant assetaregenerally

a.expensedwhenincurred.

b.capitalizedasa partofthecostof theasset.

c.debitedto the AccumulatedDepreciationaccount.d.notrecordeduntiltheybecomematerialinamount.

 132.     Whichofthefollowingisnottrue of ordinaryrepairs?

a.Theyprimarilybenefitthecurrentaccountingperiod. b.Theycan bereferredto asrevenueexpenditures.

c.Theymaintaintheexpectedproductivelifeof theasset. d.Theyincreasetheproductivecapacityof theasset.

 133.     Thepaneling ofthe body ofanopenpickuptruckwouldbeclassifiedasa(n) a.revenueexpenditure.

b.addition.

c.improvement.d.ordinaryrepair.

 134.     Additionsand improvements

a.occurfrequentlyduringtheownershipof aplantasset. b.normallyinvolveimmaterialexpenditures.

c.increasethebookvalueof plantassetswhenincurred. d.typicallyonlybenefitthecurrentaccountingperiod.

 135.     Ifa plantassetisretiredbeforeit isfullydepreciatedandnosalvagevalueisreceived, a.againondisposaloccurs.

b.a lossondisposal occurs.

c.eitheragainor a losscan occur. d.neitheragainnor alossoccurs.

 136.     Againorlossondisposalof aplantassetis determinedbycomparingthe a.replacementcost oftheassetwiththeasset'soriginal cost.

b.bookvalueof theassetwiththeasset'soriginalcost.

c.originalcost oftheassetwiththeproceedsreceivedfromitssale. d.bookvalueof the assetwiththe proceedsreceivedfromits sale.

 137.     Thebookvalueof aplantassetisthedifferencebetweenthe a.replacementcost oftheassetandits historicalcost.

b.costof the asset andtheamountofdepreciationexpenseforthe year. c.costoftheasset andtheaccumulateddepreciationtodate.

d.proceedsreceivedfromthesaleoftheassetand its originalcost.

PlantAssets,NaturalResources,andIntangibleAssets             10-21

 138.     Ifa plantassetissoldbefore it isfullydepreciated, a.onlyagainondisposalcanoccur.

b.onlya losson disposalcanoccur.c.eitheragainor a losscan occur.d.neitheragainnor alosscanoccur.

 139.     Ifaplantassetisretiredbeforeitisfullydepreciated,andthesalvagevaluereceivedis less thanthe asset's book value,

a.a gainondisposaloccurs. b.a lossondisposal occurs.

c.thereis nogain or lossondisposal.

d.additionaldepreciationexpensemust berecorded.

 140      Acompanysellsaplantassetwhichoriginallycost$180,000for$60,000onDecember31, 2008.TheAccumulatedDepreciationaccounthadabalanceof$72,000afterthecurrent year'sdepreciationof $18,000 hadbeenrecorded.Thecompanyshouldrecognizea

a.$120,000lossondisposal. b.$48,000gainondisposal. c.$48,000lossondisposal. d.$30,000lossondisposal.

 141.     Ifdisposalofa plantassetoccursduringtheyear,depreciationis a.not recordedfortheyear.

b.recordedforthewholeyear.

c.recordedforthefractionof theyeartothedateof thedisposal. d.not recordediftheasset isscrapped.

 142.     Ifafullydepreciatedplant asset is still usedbya company,the

a.estimatedremainingusefullifemustberevisedtocalculatethecorrectrevised depreciation.

b.assetisremovedfromthebooks.

c.accumulateddepreciationaccountisremovedfromthebooksbuttheassetaccount remains.

d.assetandtheaccumulateddepreciation continue tobereportedonthebalancesheet withoutadjustment untiltheassetisretired.

 143.     Whichofthefollowingstatementsisnottruewhenafullydepreciatedplantassetis retired?

a.Theplantasset'sbookvalue isequaltoitsestimated salvagevalue. b.Theaccumulateddepreciationaccountisdebited.

c.Theassetaccount iscredited.

d.Theplantasset'soriginalcost equalsitsbookvalue.

 144.     Ifaplantassetisretiredbeforeitisfullydepreciated,andnosalvageorscrapvalueis received,

a.againondisposalwillberecorded.

b.phantomdepreciationmustbetakenasthoughtheassetwerestillonthe books. c.a losson disposalwill berecorded.

d.nogainorlossondisposal willberecorded.

10-22

 145.     Thebookvalueof anassetwillequalitsfairmarket valueatthedateofsaleif a.a gainondisposalisrecorded.

b.nogainorlossondisposalisrecorded. c.theplantassetisfully depreciated.

d.a lossondisposal isrecorded.

 146.     Atruckcosting$110,000wasdestroyedwhenitsenginecaughtfire.Atthedateofthe fire,theaccumulateddepreciationonthetruckwas$50,000.Aninsurancecheckfor $125,000wasreceivedbasedonthereplacementcostofthetruck.Theentrytorecord theinsuranceproceedsandthedispositionof the truckwill include a

a.GainonDisposalof $15,000.

b.creditto theTruckaccountof $60,000.

c.credittotheAccumulatedDepreciationaccountfor$50,000. d.GainonDisposalof $65,000.

 147.     OnJuly1,2008,MeedKennelssellsequipmentfor$66,000.Theequipmentoriginally cost$180,000,hadanestimated5-yearlifeandanexpectedsalvagevalueof$30,000. Theaccumulateddepreciationaccounthadabalanceof$105,000onJanuary1,2008, using thestraight-linemethod.Thegainorlossondisposalis

a.$9,000gain. b.$6,000loss. c.$9,000loss. d.$6,000gain.

 148.     A lossondisposalof aplantassetisreportedinthefinancialstatements a.intheOtherRevenuesandGainssection oftheincomestatement.b.intheOtherExpensesandLossessectionof theincomestatement. c.asadirectincreasetothecapitalaccount onthe balancesheet.

d.as adirectdecrease tothecapitalaccount onthe balancesheet.

 149.     WellsCompany'sdeliverytruck,whichoriginallycost$70,000,wasdestroyedbyfire.At thetimeofthefire,thebalanceoftheAccumulatedDepreciationaccountamountedto $47,500.The companyreceived$40,000reimbursementfromits insurancecompany.The gain orlossasaresultof thefire was

a.$30,000loss. b.$17,500loss. c.$30,000gain. d.$17,500gain.

 150.     Atruckthatcost$21,000andonwhich$10,000ofaccumulateddepreciationhasbeen recordedwasdisposedoffor $9,000cash.Theentrytorecordthiseventwouldincludeaa.gainof $2,000.

b.lossof $2,000.

c.credittotheTruckaccountfor$11,000.

d.creditto AccumulatedDepreciationfor$10,000.

 151.     Atruckthatcost$36,000andonwhich$30,000ofaccumulateddepreciationhasbeen recordedwasdisposedoffor $9,000cash.Theentrytorecordthiseventwouldincludeaa.gainof $3,000.

b.lossof $3,000.

c.credittotheTruckaccountfor$6,000.

d.creditto AccumulatedDepreciationfor$30,000.

PlantAssets,NaturalResources,andIntangibleAssets             10-23

 152.     AceCorporationsoldequipmentfor$12,000.Theequipmenthadanoriginalcostof $36,000andaccumulateddepreciationof $18,000.Asaresultof thesale,

a.netincomewill increase$12,000. b.netincomewillincrease$6,000.c. netincomewilldecrease$6,000.d.netincomewilldecrease$12,000.

 153.     Jarman’s CourierServicerecorded alossof$3,000whenitsoldavanthatoriginallycost $28,000for $5,000.Accumulateddepreciationonthevanmusthavebeen

a.$26,000. b.$8,000.c.$25,000. d.$20,000.

 154.     Onabalancesheet,naturalresourcesmaybedescribedmorespecificallyasallofthe followingexcept

a.landimprovements. b.mineraldeposits.

c.oilreserves. d.timberlands.

 155.     Naturalresourcesare

a.depreciatedusingtheunits-of-activity method.

b.physicallyextractedinoperationsandarereplaceableonlybyanact ofnature. c.reportedattheirmarketvalue.

d.amortizedovera periodnolongerthan40years.

 156.     Depletionis

a.a decreaseinmarketvalueof naturalresources.

b.the amountof spoilagethatoccurswhennaturalresourcesareextracted. c.theallocationof the costof naturalresources toexpense.

d.themethodusedtorecordunsuccessfulpatents.

 157.     Toqualifyasnaturalresourcesintheaccountingsense,assetsmustbe a.underground.

b.replaceable.

c.of amineralnature.

d.physicallyextractedinoperations.

 158.     Themethodmostcommonlyusedtocomputedepletionisthe a.straight-linemethod.

b.double-declining-balancemethod. c.units-of-activitymethod.

d.effectiveinterestmethod.

 159.     Incomputingdepletion,salvagevalueis a.alwaysimmaterial.

b.ignored.

c.impossibletoestimate.

d.includedinthe calculation.

10-24

 160.     Ifa miningcompanyextracts1,500,000tonsinaperiodbutonlysells1,200,000 tons, a.totaldepletiononthemineis basedonthe1,200,000tons.

b.depletionexpenseisrecognized onthe1,500,000tonsextracted.

c.depletionexpenseisrecognized onthe1,200,000tonsextractedandsold.

d.aseparateaccumulateddepletionaccountissetuptorecorddepletiononthe 300,000tonsextractedbutnotsold.

 161.     Acoalcompanyinvests$16millioninamineestimatedtohave20milliontonsofcoaland nosalvagevalue.Itisexpectedthattheminewillbeinoperationfor5years.Inthefirst year,1,000,000 tonsofcoalareextractedandsold.Whatisthedepletionexpenseforthe first year?

a.$800,000 b.$320,000 c.$80,000

d.Cannotbedeterminedfromtheinformationprovided.

 162.     AccumulatedDepletion

a.isusedbyallcompanieswithnaturalresources. b.hasanormaldebitbalance.

c.isacontra-assetaccount.

d.isnevershown onthebalancesheet.

 163.     OnJuly4,2008,MontanaMiningCompanypurchasedthemineralrightstoagranite depositfor$800,000.Itisestimatedthattherecoverablegranitewillbe400,000tons. During2008,100,000tonsofgranitewasextractedand60,000tonsweresold.The amount of theDepletionExpenserecognizedfor2008wouldbe

a.$100,000. b.$60,000.c.$120,000. d.$200,000.

 164.     Depletionexpenseiscomputedbymultiplyingthedepletioncostperunitbythe a.totalestimatedunits.

b.totalactualunits.

c.numberof unitsextracted. d.numberof unitssold.

 165.     Intangibleassetsaretherightsandprivilegesthatresultfromownershipoflong-lived assets that

a.mustbegeneratedinternally.

b.aredepletablenaturalresources. c.havebeenexchangedatagain. d.donothavephysicalsubstance.

 166.     Identifytheitembelowwherethetermsarenotrelated. a.Equipment—depreciation

b.Franchise—depreciation c.       Copyright—amortization d.Oilwell—depletion

PlantAssets,NaturalResources,andIntangibleAssets             10-25

 167.     A patentshould

a.be amortizedovera periodof20years.b.notbeamortizedifithas an indefinitelife.

c.beamortizedoveritsusefullifeor20 years,whicheverislonger. d.beamortizedoveritsusefullifeor20 years,whicheveris shorter.

 168.     Theentrytorecordpatent amortizationusuallyincludes a creditto a.AmortizationExpense.

b.AccumulatedAmortization. c.Accumulated Depreciation. d.Patents.

 169.     Thecostof successfullydefendingapatentinaninfringementsuitshouldbe a.chargedtoLegalExpenses.

b.deductedfromthebookvalueof thepatent. c.addedtothecostof thepatent.

d.recognizedasalossinthecurrentperiod.

 170.     Anassetthatcannotbesoldindividuallyinthe marketplaceis a.apatent.

b.goodwill.

c.a copyright.d.a tradename.

 171.     Goodwillcan berecorded

a.whencustomerskeepreturningbecausetheyaresatisfiedwiththecompany's products.

b.whenthe companyacquires agoodlocationforits business. c.whenthecompanyhas exceptionalmanagement.

d.onlywhenthereisanexchangetransactioninvolvingthepurchaseofanentire business.

 172.     OnJuly1,2008,MarshCompanypurchasedthecopyrighttoParsonsComputertutorials for$162,000.Itisestimatedthatthecopyrightwillhaveausefullifeof5yearswithan estimatedsalvagevalueof$12,000.TheamountofAmortizationExpenserecognizedfor theyear2008wouldbe

a.$32,400. b.$15,000. c.$30,000. d.$16,200.

 173.     Allof thefollowingintangibleassetsare amortizedexcept a.copyrights.

b.limited-lifefranchises. c.patents.

d.trademarks.

 174.     Whichofthefollowingisnot anintangibleassetarisingfromagovernmentgrant? a.Goodwill

b.Patent

c.Trademarkd.Tradename

10-26

 175.     Theamortizationperiodforapatentcannotexceed a.50years.

b.40years. c.20years. d.10 years.

 176.     Costallocationof anintangibleassetisreferredto as a.amortization.

b.depletion. c.accretion.

d.capitalization.

 177.     A patent

a.hasa legallifeof 40years. b.is nonrenewable.

c.canberenewedindefinitely.

d.israrelysubjectto litigationbecauseitis anexclusiveright.

 178.     Ifacompanyincurslegalcostsinsuccessfullydefendingitspatent,thesecostsare recordedbydebiting

a.LegalExpense.

b.anIntangibleLossaccount. c.thePatentaccount.

d.a revenueexpenditureaccount.

 179.     Copyrightsaregrantedbythefederalgovernment

a.forthe lifeofthecreatoror70 years, whicheverislonger. b.forthelife ofthe creatorplus70 years.

c.forthelifeofthe creatoror70years,whicheveris shorter. d.andthereforecannotbeamortized.

 180.     Goodwill

a.isonlyrecordedwhengeneratedinternally. b.canbesubdividedandsoldinparts.

c.canonlybeidentifiedwith thebusinessasawhole.

d.canbedefinedas normalearningsless accumulatedamortization.

 181.     Inrecordingtheacquisitioncost ofanentirebusiness,

a.goodwillis recordedas theexcessof costoverthefair valueof identifiablenetassets. b.assetsarerecordedattheseller'sbookvalues.

c.goodwill,ifit exists,is never recorded.

d.goodwillisrecordedastheexcessofcostoverthebookvalueofidentifiablenet assets.

 182.     Researchanddevelopmentcosts

a.areclassifiedasintangibleassets.

b.mustbeexpensed whenincurredundergenerallyacceptedaccountingprinciples. c.shouldbe included in thecostofthepatenttheyrelateto.

d.arecapitalizedandthenamortizedovera periodnotto exceed40 years.

PlantAssets,NaturalResources,andIntangibleAssets             10-27

 183.     Acomputercompanyhas$2,000,000inresearchanddevelopmentcosts.Before accountingforthesecosts,thenetincomeofthecompanyis$1,600,000.Whatisthe amount of netincomeorlossafter theseR&D costsareaccountedfor?

a.$400,000loss

b.$1,600,000netincome c.$0

d.Cannotbedeterminedfromtheinformationprovided.

 184.     DentonCompanyincurred$300,000ofresearchanddevelopmentcostsinitslaboratory todevelopa newproduct.Itspent$40,000 in legalfeesfora patentgrantedon January2, 2008.OnJuly31,2008, Dentonpaid $30,000for legalfees inasuccessfuldefenseofthe patent.Whatisthetotalamountthatshouldbedebitedto PatentsthroughJuly31, 2008?a.$300,000

b.$70,000c.$370,000

d.Someotheramount

 185.     Giventhefollowingaccountbalancesatyearend,computethetotalintangibleassetson thebalancesheet of AnishaEnterprises.

 Cash AccountsReceivable TrademarksGoodwill

Research& DevelopmentCosts

 a.$11,500,000 b.$7,500,000c.$5,500,000 d.$9,500,000

$1,500,000 4,000,000 1,000,000 4,500,000 2,000,000

  186.     During2008,SitterCorporationreportednetsalesof$2,000,000,netincomeof $1,200,000,anddepreciationexpenseof$100,000.Sitteralsoreportedbeginningtotal assetsof$1,000,000,endingtotalassetsof$1,500,000,plantassetsof$800,000,and accumulated depreciationof$500,000.Sitter’sassetturnoverratiois

a.2 times.b.1.6times. c.1.3times. d..96times.

 187.     During2008,TylerCorporationreportednetsalesof$3,000,000andnetincomeof $1,800,000.Tyleralsoreportedbeginningtotalassetsof$1,000,000andendingtotal assets of $1,500,000.Tyler’sassetturnoverratiois

a.3.0times. b.2.4times. c.2.0times. d.1.4times.

 188.     Naturalresourcesaregenerallyshownonthebalancesheetunder a.Intangibles.

b.Investments.

c.Property,Plant, andEquipment. d.Owner'sEquity.

10-28

 189.     Whichofthefollowingstatementsconcerningfinancialstatementpresentationisnota truestatement?

a.IntangiblesarereportedseparatelyunderIntangibleAssets.

b.Thebalancesofmajorclassesof assets maybe disclosedinthefootnotes.

c.Thebalancesoftheaccumulateddepreciationofmajorclassesofassetsmaybe disclosed inthefootnotes.

d.Thebalancesofallindividualassets,astheyappearinthesubsidiaryplantledger, shouldbedisclosedinthefootnotes.

 190.     Intangibleassets

a.shouldbereported undertheheadingProperty,Plant, andEquipment.

b.arenotreportedonthebalancesheet becausetheylackphysicalsubstance. c.shouldbereportedasCurrentAssets onthebalancesheet.

d.shouldbereported asaseparateclassification onthebalancesheet.

 191.     Acompanyhasthefollowing assets:

 BuildingsandEquipment,lessaccumulateddepreciationof$2,000,000 Copyrights

Patents

Timberlands,lessaccumulateddepletionof$2,800,000

 Thetotal amountreportedunderProperty,Plant,andEquipmentwouldbe a.$19,360,000.

b.$14,400,000. c.$18,400,000. d.$15,360,000.

$9,600,000 960,000 4,000,000 4,800,000

 a192.Acompanydecidestoexchangeitsoldmachineand$77,000cashforanewmachine. Theoldmachinehasabookvalueof$63,000andafairmarketvalueof$70,000onthe date of theexchange.Thecostof thenewmachinewouldberecordedat

a.$140,000. b.$147,000. c.$133,000.

d.cannotbedetermined.

 a193.Acompanyexchanges itsoldofficeequipmentand$40,000 fornewofficeequipment.The oldofficeequipmenthasabookvalueof$28,000andafairmarketvalueof$20,000on thedate ofthe exchange.Thecostofthe newoffice equipment wouldberecordedat

a.$68,000. b.$60,000. c.$48,000.

d.cannotbedetermined.

 a194.Inanexchangeofplantassetsthathascommercialsubstance,anydifferencebetween the fair marketvalueandthebookvalueof theoldplantassetis

a.recordedasagainorloss.

b.recorded ifagainbutisdeferredifaloss. c.recordedifaloss but isdeferredifa gain. d.deferredifeitheragainor loss.

PlantAssets,NaturalResources,andIntangibleAssets             10-29

 a195.Gainsonanexchangeof plantassetsthathascommercialsubstanceare a.deductedfromthecostofthenewassetacquired.

b.deferred.

c.not possible.

d.recognizedimmediately.

 a196.Lossesonanexchangeofplantassetsthathascommercialsubstanceare a.notpossible.

b.deferred.

c.recognizedimmediately.

d.deductedfromthecost of thenewassetacquired.

 a197.Thecostofanewassetacquiredinanexchangethathascommercialsubstanceisthe cashpaid plusthe

a.bookvalueof theoldasset.

b.fairmarketvalueoftheoldasset. c.       bookvalueoftheassetacquired. d.fair marketvalueof thenewasset.

  Additional MultipleChoiceQuestions

 198.     Thecostof landincludesallof thefollowingexcept a.realestatebrokers’commissions.

b.closingcosts.

c.accruedpropertytaxes. d.parkinglots.

 199.     A termthatisnotsynonymouswith property,plant,and equipmentis a.plantassets.

b.fixedassets.

c.intangibleassets.

d.long-livedtangibleassets.

 200.     Thefactorthat isnotrelevantincomputingdepreciationis a.replacementvalue.

b.cost.

c.salvagevalue. d.usefullife.

 201.     Depreciablecostisthe

a.bookvalueofanassetlessitssalvagevalue. b.costofanasset lessitssalvagevalue.

c.cost of anasset lessaccumulateddepreciation. d.bookvalueofanasset.

 202.     SantayanaCompanypurchasedamachineonJanuary1,2006,for$12,000withan estimatedsalvagevalueof$3,000andanestimatedusefullifeof8years.OnJanuary1, 2008,Santayanadecidesthemachinewilllast12yearsfromthedateofpurchase.The salvagevalueisstillestimatedat$3,000.Usingthestraight-linemethod,thenewannual depreciation will be

10-30

  a.$675. b.$750. c.$900. d.$1,000.

  203.     Ordinaryrepairs are expenditurestomaintaintheoperatingefficiencyof aplantassetand arereferredto as

a.capitalexpenditures.b.expenseexpenditures. c.improvements.

d.revenueexpenditures.

 204.     Improvementsare

a.revenueexpenditures.

b.debitedtoanappropriateassetaccountwhentheyincreaseusefullife.

c.debitedtoaccumulateddepreciationwhentheydo not increaseusefullife.

d.debitedtoanappropriateassetaccountwhentheydonotincreaseusefullife.

 205.     Againon sale of aplantassetoccurs whentheproceedsofthesalearegreaterthanthe a.salvagevalueof theassetsold.

b.marketvalueof the assetsold. c.bookvalueoftheassetsold.

d.accumulateddepreciationontheassetsold.

 206.     Theentrytorecorddepletionexpense

a.decreasesowner'sequityandassets.

b.decreasesnet incomeandincreasesliabilities. c.decreasesassets and liabilities.

d.decreasesassets andincreasesliabilities.

 207.     Allof thefollowingare intangibleassetsexcept a.copyrights.

b.goodwill. c.patents.

d.researchand developmentcosts.

 208.     A purchasedpatenthasa legallifeof 20years.Itshouldbe a.expensedintheyearofacquisition.

b.amortizedover20 yearsregardlessof itsusefullife. c.amortizedoverits usefullife iflessthan20years.d.notamortized.

 209.     Theassetturnover ratioiscomputedbydividing a.netincomebyaveragetotalassets.

b.netsalesbyaveragetotalassets. c.netincomebyendingtotalassets. d.net salesbyendingtotalassets.

PlantAssets,NaturalResources,andIntangibleAssets             10-31

 a210.In anexchangeof plantassetsthathascommercialsubstance a.neithergainsnorlossesarerecognizedimmediately.

b.gains,butnotlosses,arerecognizedimmediately. c.losses,butnotgains,arerecognizedimmediately. d.bothgainsand lossesarerecognizedimmediately.

      BRIEFEXERCISES

BE211

Indicatewhethereachofthefollowingexpendituresshouldbeclassifiedasland(L),land improvements (LI),buildings(B),equipment(E), ornone ofthese(X).

            1.Parkinglots

            2.Electricityused byamachine

            3.Excavationcosts

            4.Interestonbuilding constructionloan

            5.Costof trialrunsformachinery

            6.Drainagecosts

            7.Costto installa machine

            8.Fences

            9.Unpaid(past)propertytaxesassumed

           10.Costoftearingdownabuilding whenlandandabuildingonitare purchased

    BE212

 SellerCorporationpurchasedlandadjacenttoitsplanttoimproveaccessfortrucksmaking deliveries.Expendituresincurredinpurchasingthelandwereasfollows:purchaseprice, $50,000;broker’sfees,$6,000;titlesearchandotherfees,$5,000;demolitionofanoldbuilding ontheproperty,$5,700;grading,$1,200;diggingfoundationfortheroad,$3,000;layingand pavingdriveway,$25,000;lighting$7,500;signs,$1,500.Listtheitemsandamountsthatshould be includedin theLand account.

   BE213

 EastmanCompanypurchasedadeliverytruckfor$35,000onJanuary1,2008.Thetruckwas assignedanestimatedusefullifeof5yearsandhasaresidualvalueof$10,000.Compute depreciationexpenseusingthedouble-declining-balancemethodforthe years2008and2009.

    BE214

 EastmanCompanypurchasedadeliverytruckfor$35,000onJanuary1,2008.Thetruckwas assignedanestimatedusefullifeof100,000milesandhasaresidual valueof$10,000.Thetruck wasdriven18,000miles in2008and22,000milesin2009.Computedepreciationexpenseusing theunits-of-activitymethodfor the years2008and 2009.

    BE215

 PorikaCompanypurchasedatruckfor$57,000.Thecompanyexpectedthetrucktolastfour yearsor100,000miles,withanestimatedresidualvalueof$6,000attheendofthattime.During thesecond yearthetruckwasdriven27,000 miles.Computethedepreciationforthesecond year undereachof themethods belowand placeyouranswersintheblanksprovided.

 Units-of-activity                                          $                                  

 Double-declining-balance                            $                                  

   BE216

 On January 1,2006,EckerCompanypurchasedacomputersystemfor$20,500. Thesystemhad anestimatedusefullifeof5yearsandnosalvagevalue.AtJanuary1,2008,thecompany revisedtheremainingusefullifetotwoyears.Whatamountofdepreciationwillberecordedfor 2008and2009?

    BE217

 RobotEnterprisessoldequipmentonJanuary1,2008for$5,000.Theequipmenthadcost $24,000.ThebalanceinAccumulatedDepreciationatJanuary1is$20,000.Whatentrywould Robotmaketorecordthe saleof theequipment?

    BE218

 OnJanuary1,2008,FreeportEnterprisespurchasednaturalresourcesfor$1,200,000.The companyexpectstheresourcestoproduce12,000,000unitsofproduct.(1)Whatisthedepletion costperunit?(2)Ifthecompanyminedandsold20,000unitsinJanuary,whatisdepletion expense forthemonth?

   BE219

 OnJanuary2,2008,ElneerCompanypurchasedapatentfor$38,000.Thepatenthasan estimatedusefullifeof25yearsanda20-yearlegallife.Whatentrywouldthecompanymakeat December31, 2008torecordamortizationexpenseonthepatent?

    BE220

 Usingthefollowingdatafor Rocky,Inc.,computeits assetturnoverratio.

 Rocky, Inc.NetIncome2008

TotalAssets12/31/08 TotalAssets12/31/07 NetSales2008

 $123,000 2,443,000 1,880,000 2,135,000

   $2,135,000

  EXERCISES

Ex.221

HuntCompanypurchasedfactoryequipmentwithaninvoicepriceof$80,000.Othercosts incurredwerefreightcosts,$1,100;installationwiringandfoundation,$2,200;materialandlabor costsintestingequipment, $700;oillubricantsandsupplies tobeusedwithequipment, $500;fire insurancepolicycoveringequipment,$1,400.Theequipmentisestimatedtohavea$5,000 salvagevalueat theendofits5-yearusefulservicelife.

 Instructions

 (a)Computetheacquisitioncostofthe equipment.Clearlyidentifyeachelement ofcost.

 (b)Ifthedouble-declining-balancemethodofdepreciationwasused,theconstantpercentage applied toa decliningbookvalue wouldbe                                            .

 Ex.222

 Foreachentrybelowmake acorrectingentry ifnecessary.Ifthe entry given iscorrect,then state "Noentryrequired."

 (a)The$60cost of repairinga printerwaschargedtoComputerEquipment.

 (b)The $5,000cost ofa major engineoverhaulwas debitedto RepairExpense. The overhaulis expected to increasetheoperatingefficiencyof the truck.

 (c)    The$6,000closingcostsassociatedwiththeacquisitionoflandweredebitedtoLegal Expense.

 (d)A$500chargefortransportationexpensesonnewequipmentpurchasedwasdebitedto Freight-In.

    Ex.223

 BenedictCompanywasorganized onJanuary1.Duringthefirstyearofoperations,the following expendituresandreceipts wererecordedinrandom orderinthe account,Land.

 Debits

1.Costofrealestatepurchasedasaplantsite(landandbuilding).

2.Accruedrealestatetaxespaidatthetimeofthepurchaseoftherealestate. 3.Costof demolishingbuilding tomakelandsuitablefor constructionofanew

building.

4.Architect'sfeesonbuildingplans.5.Excavationcostsfor newbuilding. 6.Costoffilling andgradingtheland.

7.Insuranceandtaxesduringconstructionof building.

8.Costofrepairstobuilding underconstructioncaused byasmallfire.

9.Interestpaidduringthe year,of which$54,000pertainstotheconstruction period.

10.Fullpaymentto buildingcontractor. 11.Costof parkinglotsanddriveways.

12.Realestatetaxespaidfor thecurrentyearontheland. TotalDebits

  Credits 13.Insuranceproceedsforfire damage.

14.Proceedsfrom salvageof demolishedbuilding TotalCredits

 $220,000 4,000

 15,000 14,000 24,000 5,000 6,000 7,000

 64,000 760,000 36,000

           4,000$1,159,000

   $3,000

3,500$6,500

 Instructions

 Analyzetheforegoingtransactionsusingthefollowingtabulararrangement. Insertthenumberof each transactionintheItemspaceandinserttheamountsintheappropriatecolumns.

 Item                    Land                         Building                   Other                     Account Title

    Ex.224

 DuncanCompanypurchaseda machine atacost of$90,000.The machineisexpected to have a $5,000salvagevalueatthe endof its 5-yearusefullife.

 Instructions

Computeannualdepreciationforthefirstandsecond yearsusingthe (a)straight-linemethod.

(b)double-declining-balancemethod.

    Ex.225

 ReynoldsCompanypurchasedanewmachinefor$300,000.Itisestimatedthatthemachinewill havea$30,000salvagevalueattheendofits5-yearusefulservicelife.Thedouble-declining-balance method of depreciationwillbeused.

 Instructions

Prepareadepreciationschedulewhich showstheannualdepreciation expense onthemachine for its5-yearlife.

   Ex.226

 TannerCompanypurchasedequipmentonJanuary1,2007for$70,000.Itisestimatedthatthe equipmentwillhavea$5,000salvagevalueattheendofits5-yearusefullife.Itisalsoestimated that theequipmentwillproduce100,000unitsoverits 5-yearlife.

 Instructions

 Answerthefollowingindependentquestions.

 1.ComputetheamountofdepreciationexpensefortheyearendedDecember31,2007,using thestraight-linemethodofdepreciation.

 2.If16,000unitsofproductareproducedin2007and24,000unitsareproducedin2008,what isthebookvalueoftheequipmentatDecember31,2008?Thecompanyusestheunits-of-activitydepreciationmethod.

 3.Ifthecompanyusesthedouble-declining-balancemethodofdepreciation,whatisthe balance of theAccumulatedDepreciation—Equipment accountat December31,2009?

    Ex.227

 AplantassetacquiredonOctober1,2008,atacostof$300,000hasanestimatedusefullifeof 10years.Thesalvagevalueis estimated tobe$30,000 attheendofthe asset'suseful life.

 Instructions

Determinethedepreciationexpenseforthefirsttwoyearsusing: (a)        thestraight-linemethod.

(b)     the double-declining-balancemethod.

50,000miles

60,000miles

70,000miles

  Ex.228

 Tony’s,apopularpizzahang-out,hasathrivingdeliverybusiness.Tony’shasafleetofthree deliveryautomobiles.Priortomakingtheentryforthisyear'sdepreciationexpense,the subsidiary ledgerforthefleet is asfollows:

Accumulated

Estimated              Depr.—Beg.      MilesOperated Car           Cost      SalvageValue          Life in Miles           of the YearDuringYear

1       $21,000                $3,000                   50,000                   $2,520                   20,000 2         18,000                 2,400 60,000                    2,340                    22,000 3         20,000                 2,500         70,000                    2,000                   19,000

 Instructions

(a)Determinethedepreciationratespermileforeachcar.

(b)DeterminetheDepreciationExpenseforeachcarforthecurrent year.

(c)MakeonecompoundjournalentrytorecordtheannualDepreciationExpenseforthefleet.

   $21,000– $3,000

  Ex.229

 TheBarnettClinicpurchasedanewsurgicallaserfor$80,000.Theestimatedsalvagevalueis $5,000.Thelaserhasausefullifeoffiveyearsandtheclinicexpectstouseit10,000hours.It wasused1,600hours inyear1;2,200 hours in year2;2,400 hoursinyear 3;1,800 hours in year 4;2,000hoursin year5.

 Instructions

(a)Computetheannualdepreciationforeachofthefiveyearsundereachofthefollowing methods:

(1)straight-line.(2)units-of-activity.

 (b)Ifyouweretheadministratoroftheclinic,whichmethodwouldyoudeemasmost appropriate? Justifyyouranswer.

 (c)Whichmethodwouldresultinthelowestreportedincomeinthefirstyear?Whichmethod would resultinthelowesttotalreportedincomeoverthefive-yearperiod?

   Ex.230

 TheDecember31,2007balancesheetofRitterCompanyshowedEquipmentof$64,000and AccumulatedDepreciationof$18,000.OnJanuary1,2008,thecompanydecidedthatthe equipmenthasaremainingusefullifeof 6yearswitha $4,000salvagevalue.

 Instructions

Computethe (a)depreciablecost ofthe equipmentand(b) revisedannualdepreciation.

    Ex.231

 SoutheastAirlinespurchaseda747aircraftonJanuary1,2007,atacostof$35,000,000.The estimateduseful lifeoftheaircraftis20years,withanestimated salvagevalue of$5,000,000.On January1,2010theairlinerevisesthetotalestimatedusefullifeto15yearswitharevised salvagevalueof$3,500,000.

 Instructions

 (a)ComputethedepreciationandbookvalueatDecember31,2009usingthestraight-line methodandthedouble-declining-balancemethod.

 (b)Assumingthestraight-linemethodisused,computethedepreciationexpensefortheyear ended December31, 2010.

     Ex.232

 SeymorCompanypurchasedamachineonJanuary1,2008,atacostof$80,000.Itisexpected tohaveanestimatedsalvagevalueof$5,000attheendofits5-yearlife.Thecompany capitalizedthemachineanddepreciateditin2008usingthedouble-declining-balancemethodof depreciation.Thecompany hasapolicyofusingthestraight-linemethod todepreciateequipment butthecompanyaccountantneglectedtofollowcompanypolicywhenheusedthedouble-declining-balancemethod.NetincomefortheyearendedDecember31,2008was$55,000as the resultof depreciatingthemachineincorrectly.

 Instructions

 Usingthemethodofdepreciationwhichthecompanynormallyfollows,preparethecorrecting entry and determinethecorrectednet income.(Showcomputations.)

    Ex.233

 Equipment wasacquiredonJanuary1,2005,atacostof$80,000.Theequipmentwasoriginally estimatedtohaveasalvagevalueof$5,000andanestimatedlifeof10years.Depreciationhas beenrecordedthroughDecember31,2008,usingthestraight-linemethod.OnJanuary1,2009, theestimatedsalvagevaluewasrevisedto$6,000andtheusefullifewasrevisedtoatotalof8 years.

 Instructions

DeterminetheDepreciationExpensefor 2009.

  Ex.234

 GantnerCompanypurchasedamachineonJanuary1,2008.Inadditiontothepurchaseprice paid,thefollowingadditionalcostswereincurred:(a)salestaxpaidonthepurchaseprice,(b) transportationandinsurancecostswhilethemachinerywasintransitfromtheseller,(c) personneltrainingcosts forinitial operationofthemachinery,(d)annualcityoperatinglicense,(e) majoroverhaultoextendthelifeofthemachinery,(f)lubricationofthemachinerygearingbefore themachinerywasplacedintoservice,(g)lubricationofthemachinerygearingafterthe machinerywasplacedintoservice,and(h)installationcostsnecessarytosecurethemachinery to thebuildingflooring.

 Instructions

Indicatewhethertheitems(a)through(h)arecapitalorrevenueexpendituresinthespaces provided: C= Capital,R=Revenue.

 (a)                                (b)                                 (c)                                 (d)                            

 (e)                                (f)                                  (g)                                 (h)                            

    Ex.235

 CareyWordProcessingServiceusesthestraight-linemethodofdepreciation.Thecompany's fiscalyearendisDecember31.Thefollowingtransactionsandeventsoccurredduringthefirst three years.

 2007July         1

 Nov.3 Dec.31

   2008Dec.31

PurchasedacomputerfromtheComputerCenterfor$2,300cashplussales tax of$150,andshippingcosts of$50.

Incurredordinaryrepairsoncomputerof $140.

Recorded2007depreciationonthebasisofafouryearlifeandestimated salvagevalueof$500.

 Recorded2008depreciation.

  2009Jan.         1     Paid$400foranupgradeofthecomputer.Thisexpenditureisexpectedto increasetheoperatingefficiency andcapacityofthecomputer.

 Instructions

Preparethenecessaryentries.(Showcomputations.)

    Ex.236

 Identifythefollowingexpendituresascapitalexpenditures orrevenueexpenditures. (a)Replacementof wornoutgearsonfactorymachinery.

(b)Constructionof anewwing onanofficebuilding. (c)Paintingtheexteriorof abuilding.

(d)Oilchangeonacompanytruck.

 (e)ReplacingaPentiumIIcomputerchipwithaPentiumIVchip,whichincreasesproductive capacity.Noextensionofusefullifeexpected.

 (f)     Overhaulofa truckmotor.Oneyearextensioninusefullifeis expected. (g)Purchasedawastebasketatacostof $10.

(h)Paintingandletteringofa usedtruck uponacquisitionofthetruck.

    Ex.237

 OnJanuary1,2006RosenCompanypurchasedandinstalledatelephonesystematacostof $20,000.Theequipmentwasexpectedtolastfiveyearswithasalvagevalueof$3,000.On January1,2007moretelephoneequipmentwaspurchasedtotie-inwiththecurrentsystemfor $10,000.Thenewequipmentisexpectedtohaveausefullifeoffouryears.Throughanerror,the newequipmentwasdebitedtoTelephoneExpense.RosenCompanyusesthestraight-line methodofdepreciation.

 Instructions

PrepareascheduleshowingtheeffectsoftheerroronTelephoneExpense,Depreciation Expense,andNetIncomeforeachyearandintotalbeginningin2007throughtheusefullifeof thenewequipment.

 TelephoneExpense Overstated

Year                 (Understated)

Depreciation Expense Overstated

(Understated)

NetIncome Overstated

(Understated)

 2007

 2008

 2009

 2010

  Ex.238

 BermanCompanysoldequipmentonJuly31,2008for$50,000.Theequipmenthadcost $140,000 andhad$80,000ofaccumulateddepreciationasofJanuary1,2008.Depreciationfor thefirst6monthsof2008 was$8,000.

 Instructions

Preparethejournalentrytorecordthesaleoftheequipment.

    Ex.239

 (a)WattsCompanypurchasedequipmentin2001for$90,000andestimateda$6,000salvage valueattheendoftheequipment's10-yearusefullife.AtDecember31,2007,therewas $58,800intheAccumulatedDepreciationaccountforthisequipmentusingthestraight-line methodof depreciation.On March31, 2008,theequipmentwassoldfor$24,000.

 PreparetheappropriatejournalentriestoremovetheequipmentfromthebooksofWatts CompanyonMarch31, 2008.

 (b)GormanCompanysoldamachine for$15,000. Themachineoriginallycost$35,000in2005 and$8,000wasspentonamajoroverhaulin2008(chargedtoMachineaccount). AccumulatedDepreciationonthemachinetothe date of disposalwas$28,000.

 Preparetheappropriatejournalentrytorecordthedispositionofthemachine.

 (c)KlingerCompanysoldofficeequipmentthathadabookvalueof$6,000for$8,000.The officeequipmentoriginallycost$20,000anditisestimatedthatitwouldcost$25,000to replace theofficeequipment.

 Preparetheappropriatejournalentrytorecordthedispositionofthe officeequipment.

  Ex.240

 Fleming'sLumberMillsoldtwomachinesin2009.Thefollowinginformationpertainstothetwo machines:

Purchase       Useful      Salvage      Depreciation                                     Sales

MachineCost    Date      Life    Value     Method           Date Sold               Price

#1       $66,000      7/1/05        5yrs.         $6,000         Straight-line               7/1/09          $15,000 #2           $40,000      7/1/08        5yrs.         $5,000         Double-declining-      12/31/09      $24,000

balance

 Instructions

(a)Computethedepreciationoneachmachinetothedateofdisposal.

 (b)Preparethejournalentriesin2009torecord2009depreciationandthesaleofeach machine.

    Ex.241

 Presentedbelowareselectedtransactionsfor MiltonCompanyfor 2008.

 Jan.     1     Received$9,000scrapvalueonretirementofmachinerythatwaspurchasedon January1,1998.Themachinecost$90,000onthatdate,andhadausefullifeof10 yearswithno salvagevalue.

 April30

  Dec.31

Soldamachinefor$28,000thatwaspurchasedonJanuary1,2005.Themachine cost$75,000,andhadausefullifeof 5 years withnosalvagevalue.

 DiscardedabusinessautomobilethatwaspurchasedonOctober1,2003.Thecar cost$32,000andwasdepreciatedona5-yearusefullifewithasalvagevalueof $2,000.

 Instructions

Journalizeallentriesrequiredasaresultoftheabovetransactions.MiltonCompanyusesthe straight-linemethodof depreciationandhasrecordeddepreciationthroughDecember31,2007.

     Ex.242

 WatsonCompanysoldthefollowingtwomachinesin 2008:

  Cost Purchasedate Usefullife Salvagevalue

Depreciationmethod Datesold

SalesPrice

MachineA

$68,000 7/1/048years $4,000

Straight-line 7/1/08 $30,000

Machine B $80,000 1/1/055years $4,000

Double-declining-balance 8/1/08$16,000

 Instructions

Journalizeallentriesrequiredtoupdatedepreciationandrecordthesalesofthetwoassetsin 2008.ThecompanyhasrecordeddepreciationonthemachinethroughDecember31, 2007.

   Ex.243

 GirardMininginvested$960,000inamineestimatedtohave1,200,000tonsoforewithno salvagevalue.Duringthefirst year,200,000tons of orewereminedandsold.

 Instructions

 Preparethejournalentrytorecorddepletionexpense.

    Ex.244

 Eddy MiningCompanypurchaseda minefor$70 million which isestimated tohave250,000tons ofore anda salvagevalueof $10million.

 (a)Inthefirstyear,50,000tonsoforeareextractedandsold.Preparethejournalentryto recorddepletionexpenseforthefirstyear.

 (b)Inthesecondyear,150,000tonsoforeareextractedbutonly125,000tonsaresold. Preparethejournalentrytorecorddepletionexpenseforthesecondyear.

 (c)Whatamountandinwhataccountare thetonsof orenotsoldreported?

     Ex.245

 HarperMiningCompanypurchasedlandcontaininganestimated15milliontonsoforeatacost of$4,500,000.Thelandwithouttheoreisestimatedtobeworth$600,000. Thecompany expects tooperatetheminefor10years.Buildingscosting$600,000areerectedonthesiteandare expectedtolastfor25years.Equipmentcosting$300,000withanestimatedlifeof12yearsis installed.Thebuildingsandtheequipmentpossessnosalvagevalueafterthemineisclosed. During thefirst yearof operations,theminingcompanyminedandsold2milliontons ofore.

 Instructions

(a)Computethedepletionchargeperton.

(b)Computethedepletionexpensefor thefirst year.

(c)Computetheappropriatefirstyear'sdepreciationexpenseforthebuildings. (d)Computetheappropriatefirstyear'sdepreciationexpensefortheequipment.

(e)Preparejournalentriestorecorddepletionanddepreciationexpensesfortheyear.

   Ex.246

 (a)AcompanypurchasedapatentonJanuary1,2008, for$2,000,000.Thepatent'slegallifeis 20yearsbutthecompanyestimates thatthepatent'susefullifewillonlybe5yearsfromthe dateofacquisition.OnJune30,2008,thecompanypaidlegalcostsof$135,000in successfullydefendingthepatentinaninfringementsuit.Preparethejournalentryto amortize the patentatyearendonDecember31,2008.

 (b)FoleyCompanypurchasedafranchisefromYummieFoodCompanyfor$400,000on January1,2008.Thefranchise isforanindefinite timeperiodandgivesFoleyCompanythe exclusiverightstosellYummieWingsinaparticularterritory.Preparethejournalentryto recordtheacquisitionofthefranchiseandanynecessaryadjustingentryatyearendon December 31, 2008.

 (c)DryerCompanyincurredresearchanddevelopmentcostsof$500,000in2008in developinganewproduct.Preparethenecessaryjournalentriesduring2008torecord these eventsandanyadjustmentsat yearendonDecember31,2008.

    Ex.247

 OnJanuary2,2008,HolmesCompanypurchasedapatentfor$200,000.Thepatenthasan8-yearestimatedusefullife andalegallife of 20years.

 Instructions

Preparethejournalentrytorecordpatent amortization.

  Ex.248

 Foreachitemlistedbelow,enteracodeletterintheblankspacetoindicatetheallocation terminology fortheitem.Usethefollowing codesfor youranswer:

 A—Amortization

 D—Depreciation

P—Depletion

 N—Noneof these

 1.Goodwill

 2.Land

 3.Buildings

 4.Patents

 5.Copyrights

 6.Researchanddevelopmentcosts

7.Timberlands

 8.Franchises(indefinite life)

 9.Licenses(limitedlife)

 10.LandImprovements

 11.OilDeposits

 12.Equipment

     Ex.249

 Foreachofthefollowingunrelatedtransactions,(a)determinetheamountoftheamortizationor depletionexpenseforthecurrentyear,and(b)presenttheadjustingentriesrequiredtorecord each expenseatyearend.

 (1)Timberrightswerepurchasedonatractoflandfor$360,000.Thetimberisestimatedat 1,200,000boardfeet.Duringthecurrentyear,75,000boardfeetoftimberwerecutand sold.

 (2)Costsof$8,000wereincurredonJanuary1toobtainapatent.Shortlythereafter,$22,000 wasspentinlegalcoststosuccessfullydefendthepatentagainstcompetitors.Thepatent has anestimatedlegallifeof12years.

  Ex.250

 Duringthecurrentyear,LymonCompanyincurredseveralexpenditures.Brieflyexplainwhether theexpenditureslistedbelowshouldberecordedasanoperatingexpenseorasanintangible asset.Ifyouview theexpenditure asanintangibleasset,indicatethenumberofyearsoverwhich theassetshouldbe amortized.Explainyouranswer.

 (a)Spent$30,000inlegalcostsinapatentdefensesuit.Thepatentwasunsuccessfully defended.

 (b)Purchased atrademark fromanothercompany.Thetrademarkcanberenewedindefinitely. LymonCompanyexpectsthetrademarkto contributetorevenueindefinitely.

 (c)LymonCompanyacquiresapatentfor$2,000,000.Thecompanysellingthepatenthas spent$1,000,000ontheresearchanddevelopmentofit.Thepatenthasaremaininglifeof 15years.

 (d)LymonCompanyisspendingconsiderabletimeandmoneyindevelopingadifferentpatent foranotherproduct.Sofar$3,000,000hasbeenspentthisyearonresearchand development.LymonCompanyisveryconfidenttheywillobtainthispatentinthenextfew years.

    Ex.251

 Presentedbelowisinformationrelatedtoplantassets,naturalresources,andintangiblesatyear end on December31,2008,forNortenCompany:

 Buildings Goodwill Patents CoalMine

AccumulatedDepreciation AccumulatedDepletion

$1,080,000 350,000 480,000 440,000 670,000 275,000

 Instructions

 Prepareapartialbalancesheetfor NortenCompanythat showshowtheabovelisted itemswould be presented.

     Ex.252

 Computetheassetturnover ratiobasedonthefollowing:

 Beginningtotal assets Endingtotal assetsNetincome

Netsales

$800,000 1,200,000 300,000 2,200,000

    Ex.253

 Indicateinthe blank spaces below,thesectionof the balancesheetwherethefollowingitems are reported. Usethefollowingcodeto identifyyour answer:

 PPE      Property,Plant, andEquipment I     Intangibles

O      Other

N/A     Not onthebalancesheet

 1.     Goodwill

 2.LandImprovements 3.Buildings

4.AccumulatedDepreciation 5.Trademarks

6.Researchand developmentcosts

7.Timberlands 8.Franchises9.Licenses

10.Equipment 11.OilDeposits

12.Land

     *Ex.254

 Presentedbelowaretwoindependentsituations:

 (a)RileyCompanyexchangedanoldmachine(cost$100,000less$60,000accumulated depreciation)plus$7,000cashforanewmachine.Theoldmachinehadafairmarketvalue of$36,000.Preparetheentrytorecordtheexchangeof assets byRileyCompany.

 (b)CarlinCompanytradesoldequipment(cost$90,000less$54,000accumulateddeprecia-tion)fornewequipment.Carlinpaid$36,000cashinthetrade.Theoldequipmentthatwas tradedhadafairmarketvalueof$54,000.Preparetheentrytorecordtheexchangeof assetsbyCarlinCompany.

     *Ex.255

 AglerCompanyexchangesequipmentwithEatonCompanyandPetersCompanyexchanges equipmentwithFieroCompany.Thefollowinginformationpertainstotheexchanges:

  Equipment(cost) Accumulateddepreciation

Fairmarketvalueof theequipment Cashpaid

Agler Company $114,000

50,000 75,000 45,000

Peters Company $96,000

45,000 42,000

-0-

 Instructions

Prepare thejournalentriestorecordtheexchangesonthebooksofAglerCompanyandPeters Company.

    Ex.256

 FarrDeliveryCompanyandBellDeliveryCompanyexchangeddeliverytrucksonJanuary1, 2008.Farr'struckcost$84,000,hadaccumulateddepreciationof$69,000,andhasafairmarket valueof$9,000.Bell'struckcost$63,000,hadaccumulateddepreciationof$54,000,andhasa fair marketvalueof$9,000.

 Instructions

(a)    Journalizetheexchangefor FarrDeliveryCompany. (b)   Journalizetheexchangefor BellDeliveryCompany.

   Ex.257

 Prepare thejournalentriestorecordthefollowingtransactionsforBryantCompanywhichhasa calendaryearendandusesthe straight-linemethodofdepreciation.

 a)      OnSeptember30,2008,thecompanyexchangedolddeliveryequipmentand$24,000for newdeliveryequipment.The olddeliveryequipmentwas purchasedon January1,2006,for $84,000andwasestimatedtohavea$12,000salvagevalueattheendofits5-yearlife. Depreciationonthedelivery equipmenthasbeenrecordedthroughDecember31,2007.Itis estimatedthatthefairmarketvalueoftheolddeliveryequipmentis$36,000onSeptember 30,2008.

 (b)OnJune30,2008,thecompany exchangedoldofficeequipmentand$40,000fornewoffice equipment.Theoldofficeequipmentoriginallycost$80,000andhadaccumulated depreciationtothedateofdisposalof$35,000.Itisestimatedthatthefairmarketvalueof theold officeequipmentonJune30was$60,000.

   COMPLETIONSTATEMENTS

  258.Withtheexceptionofland,plantassetsexperiencea                                                          inservice potentialovertheirusefullives.

 259.Whenvacantlandisacquired,expendituresforclearing,draining,filling,andgrading should bechargedtothe                                                                       account.

 260.Thecostofdemolishinganoldbuildingonlandthathasbeenacquiredsothatanew buildingcanbeconstructedshouldbechargedtothe                                       account.

 261.Thecostofpaving,fencing,andlightinganewcompanyparkinglotischargedtoa

                               account.

 262.Equipmentwithaninvoicepriceof$20,000waspurchasedandfreightcostswere$900. Thecostofthe equipmentwouldbe$                                                         .

 263.                                istheprocessofallocatingthecostofaplantassettoexpense overits service lifeinarationalandsystematicmanner.

 264.Thebookvalueofaplantassetisobtainedbysubtracting                                                      fromthe

                               of theplantasset.

 265.Threefactorsthataffectthecomputationofperiodicdepreciationexpenseare(1)

                                , (2)                                ,and(3)                                      .

 266.The                                      methodofcomputingdepreciationexpenseresultsinanequal amountofperiodicdepreciationthroughouttheservicelife oftheplantasset.

 267.Thedeclining-balancemethodofcomputingdepreciationexpenseinvolvesmultiplyinga

                                 bookvaluebya                                    percentage.

 268.Thedeclining-balancemethodofcomputingdepreciationisknownasan                                          

 depreciationmethod.

 269.Ordinaryrepairswhichmaintainoperatingefficiencyandexpectedproductivelifeare called           .

 270.Additionsandimprovementsarecostsincurredtoincreasetheoperatingefficiency, productive capacity,or expectedusefullife andare referredtoas                                                                                  .

 271.Ifdisposalofaplantassetoccursatany timeduringtheyear,                                                         for the fractionoftheyeartothedate ofdisposalmustberecorded.

 272.Iffullydepreciatedequipmentthatcost$10,000withnosalvagevalueisretired,theentry torecordtheretirementrequiresadebittothe         account and acredittothe                   account.

 273.Iftheproceedsfromthesaleofaplantassetexceedits                                                      ,againon disposalwilloccur.

 274.Aplantassetoriginally cost$48,000andwasestimatedtohavea$3,000salvagevalueat theendofits5-yearusefullife.Ifattheendofthreeyears,theassetwassoldfor$9,000, andhadaccumulateddepreciationrecordedof$27,000,thecompanyshouldrecognizea

                             ondisposalintheamountof $                              .

  275.Naturalresourceshavetwodistinguishingcharacteristics(1)theyarephysically

                                                                                                                       inoperations,and(2)theyare                                onlybyanactof nature.

 276.Inrecordingthepurchaseofabusiness,goodwillshouldberecordedfortheexcessof

                               overthe                                  of thenet assetsacquired.

 277.Theallocationofthecostofanassettoexpenseoveritsusefullifeiscalled

                                                                                                               fortangibleplantassets,                                   fornaturalresources, and for intangibleassets.

 278.Thecostofapatentshouldbeamortizedoverits                                        lifeorits                            

 life,whicheverisshorter.

 279.The                                               ratioiscalculatedbydividingnetsalesbyaveragetotal assets.

 a280.Inthecaseofanexchangeofplantassetsresultinginalossondisposal,thecostofthe newassetacquiredisequaltothe                                                                                       oftheassetgivenupplusanycash paid bythepurchaser.

 a281.Acompanyexchangedanoldmachine,whichoriginallycost$22,000andhas accumulateddepreciationtodateof$12,000,foranewmachine.Theoldmachinehada fairmarketvalueof$14,000.Thecostofthenewmachineshouldberecordedat$   .

                                                                                                 10-63

  MATCHING

 Set1

 282.Matchtheitemsbelowbyenteringtheappropriatecodeletterinthespaceprovided.

 A.Plantassets B.Depreciation C.Bookvalue

D.Salvagevalue

E.Straight-linemethod

F.     Units-of-activitymethod

G.Double-declining-balancemethod H.MACRS

I.     Revenueexpenditure J.   Capitalexpenditure

  1.Smallexpenditureswhichprimarilybenefitthecurrent period.

 2.Costlessaccumulateddepreciation.

 3.Anaccelerateddepreciationmethodusedforfinancialstatementpurposes.

 4.Tangibleresourcesthatareusedinoperationsand arenotintendedforresale.

 5.Equalamountof depreciationeachperiod.

 6.Expectedcashvalueof theassetattheendof itsusefullife.

 7.Allocationof thecostofaplant assetto expenseoverits usefullife.

 8.Materialexpenditureswhichincreaseanasset'soperatingefficiency,productive capacity,orusefullife.

 9.Anaccelerateddepreciationmethodusedfortaxpurposes.

 10.Usefullifeisexpressedintermsof units ofproductionor expecteduse.

    Set2

 283.Matchtheitemsbelowbyenteringtheappropriatecodeletterinthespaceprovided.

 A.Gainondisposal B.Lossondisposal C.Trademark

D.Depletion E.Usefullife

F.     Assetturnoverratio G.Goodwill

H.Amortization

I.     Intangibleasset

J.     Researchanddevelopmentcosts

  1.Processofallocating thecost of anintangibleassettoexpenseoverits useful life.

 2.Isonlyrecorded whenanexchangehascommercialsubstance.

 3.Examplesarefranchisesand licenses.

 4.Theallocationofthecost ofanaturalresourcetoexpenseoverits usefullife.

 5.Canbeidentifiedonlywitha businessasawhole.

 6.Asymbolthat identifiesaparticularenterpriseorproduct.

 7.Whenbookvalue of assetisgreaterthantheproceedsreceivedfromitssale.

 8.Mustbe expensedwhen incurred.

 9.Indicateshowefficientlya companyisabletogenerate saleswithits assets.

 10.Anestimateoftheexpectedproductivelife ofanasset.

     SHORT-ANSWERESSAYQUESTIONS

 S-AE284

 Thedeclining-balancemethodisanacceleratedmethodofdepreciation.Brieflyexplainwhatis meantbyanacceleratedmethodofdepreciationandjustifythechoosingofanaccelerated method.

   S-AE285

 Identifythefactorsthatareconsideredinclassifyinganexpenditureasacapitalorarevenue expenditure.Arethereinstanceswhereitmaybedifficulttoclassifyanexpenditureasoneorthe other(e.g.,thepurchaseofawastebasketthathasausefullifeof5yearsandcost$10)?What basis wouldbe usedin adecision?

   S-AE286

 Ingeneral,howdoesonedeterminewhetherornotanexpenditureshouldbeincludedinthe acquisitioncostof property,plant,andequipment?

  S-AE287

 Commentonthevalidityofthefollowingstatements:―Asanassetlosesitsabilitytoprovide services,cashneedstobesetasidetoreplaceit.Depreciationaccomplishesthisgoal.‖

    S-AE288

 Goodwillisanunusualassetinthatitcannotbesoldindividuallyapartfromabusinessasa whole.Ifgoodwillisanintangibleasset,whycan'titbesoldlikeotherintangibleassetssuchas copyrights andpatents?Brieflyexplainwhatmakesgoodwilldifferent.

    S-AE289(Ethics)

 PhysicianReferenceService(PRS)providesservicestophysiciansincludingresearch assistance,diagnosiscodingandmedicalpracticesoftwareincludinganadvancedmedical recordcross-referencingsystem.PRSisaggressiveinmonitoringotherfirms'offeringsand ensuring thatits servicesarecomparabletoallothers.

 Becauseofitsneedtostayabreastofnewproductofferings,PRSspends alotofmoneysending professionalstotradeshows.Inaddition,PRShasagreementswithseveralclientswherebythe clientrequestsapresentationofacompetitor's services.APRSemployeeposesasanemployee oftheclient'sofficeandattends thepresentation, obtainingasmuchdataandsampleinformation aspossible.ThecostofthetravelandattendingpresentationsischargedtoProduct Developmentandexpensedduring thecurrentyear.

 S-AE289(cont.)

 InAprilofthisyear,PRSbegansellingasoftwareproductsubstitutebeforethecompetitor's softwarewasreleased.Thecompetitor,Compu-Med,suedforcopyrightinfringementandwon. PRShadtowithdrawitsproductfromthemarketandpay$1.5millionindamages.PRS immediatelynegotiatedanagreementwithCompu-MedtosellCompu-Med'sproduct(sinceit wasprohibitedfromofferingitsownversionforfiveyears.)Thisagreementcostanadditional $1.3million,but itallowedPRStocontinuetooffer afulllineofservices.

 PRS'saccountant,JuneBianco,initiallyrecordedthecashpaymentsas"LossfromLawsuit"and "ProductDevelopment,"respectively.However,FredNance,thecontroller,instructedJuneto createanintangibleasset,named"Goodwill"andchargebothcoststothisaccount."We're protectedfromanotherlawsuitaslongasthisagreementisineffect,"hesays."It'saboutas closetogoodwillaswe'llevergetfromourcompetitors.We mightaswellamortizethecostrather thantakethefullhitto income,anyway."

 Required:

 1.Whataretheethicalissues? 2.WhatshouldJunedo?

   S-AE290(Communication)

 TheRestor-Itisacompanyspecializingintherestorationofoldhomes.Toshowcaseitswork, thecompanypurchasedanoldVictorianhomeindowntown Pittsburg,Kansas.Theoriginalhome waspurchasedfor$125,000.Anewheatingandair-conditioningsystemwasaddedfor$30,000. Thehousewascompletelyrewiredandre-plumbedatacostof$50,000.Customcabinetswere added,andthefloorsand trimwererefurbishedto theiroriginalcondition,at acostof $75,000.

 Theprojectwassuchasuccess, thatRestor-Itdecidedtopurchaseanotherverylargehome,this timeinnearbyJoplin,Missouri.ArealtorofferedtopurchasethehomeinPittsburgfor$175,000. Heplanstoleaseitasluxuryshort-termapartmentsforvisitingdignitaries.Restor-Itdecidedthat amodestreturnwasallthatwasrequired,andsotheyagreedtosell.Onlyafterwarddidthey learnthattheyhada$10,000lossonthesale.Thepresidentofthecompany,JimHerman,does notbelievethatalossispossible."Wesoldthathouseformorethanwepaidforit,"hesaid."I knowweputsomemoneyinit,butwehaddepreciateditforthreeyears.Howintheworldcan we havea loss?"

 S-AE290(cont.)

 Required:

 Writeashort memotoMr.Herman explaining how itwouldbepossibletohavealoss.Do nottry tousespecificnumbersfor costordepreciation.

    CHAPTER11

  CURRENTLIABILITIESANDPAYROLLACCOUNTING

  CHAPTERSTUDYOBJECTIVES

  1.Explainacurrentliability,andidentifythemajortypesofcurrentliabilities.

 2.Describetheaccountingfornotespayable.

 3.Explaintheaccountingforothercurrentliabilities.

 4.Explainthefinancialstatementpresentationandanalysisofcurrentliabilities.

 5.Describetheaccountinganddisclosurerequirementsforcontingentliabilities.

 6.Computeandrecordthepayrollforapayperiod.

 7.Describeandrecordemployerpayrolltaxes.

 8.Discusstheobjectivesofinternalcontrolforpayroll.

 9.Identifyadditionalfringebenefitsassociatedwithemployeecompensation.

   TRUE-FALSESTATEMENTS

 1.     A currentliability must bepaidoutof currentearnings.

 2.     Currentliabilitiesareexpectedtobepaidwithinoneyearortheoperatingcycle, whichever islonger.

 3.     Therelationshipbetweencurrentliabilitiesandcurrentassetsisimportantinevaluatinga company'sabilityto payoffits long-termdebt.

 4.     Acompanywhosecurrentliabilitiesexceeditscurrentassetsmayhavealiquidity problem.

 5.     Notespayableusuallyrequiretheborrowerto payinterest.

 6.     Notespayableare oftenusedinsteadofaccountspayable.

 7.     A notepayablemustalwaysbepaidbeforeanaccountpayable.

 8.     A $30,000,8%,9-monthnotepayablerequiresaninterestpayment of$1,800 atmaturity.

 9.     Mostnotesarenotinterest bearing.

 10.     Withaninterest-bearingnote,theamountofcashreceiveduponissuanceofthenote generallyexceedsthenote'sfacevalue.

 11.     Interestexpenseonanote payableis onlyrecordedatmaturity.

 12.     Interestexpenseis reportedunderOtherExpensesandLossesinthe incomestatement.

 13.    UnearnedrevenuesshouldbeclassifiedasOtherRevenuesandGainsontheIncome Statement.

 14.     Thehigherthesalestaxrate,themoreprofitaretailercanearn.

 15.     MetropolitanSymphonysells200seasonticketsfor$60,000thatincludesafiveconcert season. TheamountofUnearnedTicketRevenueafterthesecondconcertis$24,000.

 16.     Duringthemonth,acompanysellsgoodsforatotalof$108,000,whichincludessales taxesof$8,000;therefore,thecompanyshouldrecognize$100,000inSalesRevenues and $8,000in SalesTaxExpense.

 17.     Current maturitiesoflong-termdebtreferstotheamountofinterestonanotepayable that must be paidinthecurrent year.

 18.     Thecurrentratiopermitsanalyststocomparethe liquidityofdifferent sizedcompanies.

 19.     Workingcapital is currentassetsdivided bycurrentliabilities.

 20.     Contingentliabilitiesshouldberecordedintheaccountsifthereisaremotepossibility that thecontingencywillactuallyoccur.

 21.     A contingentliabilityisa liabilitythatmayoccur ifsomefutureeventtakesplace.

 22.     Inconcept,theestimatingofWarrantyExpensewhenproductsaresoldunderwarrantyis similar to theestimatingofBadDebtsExpensebasedon creditsales.

 23.     FICAtaxesandfederalincometaxesare leviedonemployees'earningswithoutlimit.

 24.     FICAtaxeswithheldandfederalincometaxes withheldaremandatorypayrolldeductions.

 25.     Theemployerincursapayrolltaxexpenseequaltotheamountwithheldfromthe employees'wagesforfederalincometaxes.

 26.     Internalcontroloverpayrollisnotnecessarybecauseemployeeswillcomplainiftheydo not receivethecorrectamount ontheirpayrollchecks.

 27.     Thetimekeepingfunctionincludessupervisorsmonitoringhoursworkedthroughtime cardsandtimereports.

 28.     Thehumanresourcesdepartmentdocumentsandauthorizesemploymentofnew employees.

 29.     Payrollactivitiesinvolvethreefunctions:hiringemployees,preparingthepayroll,and payingthepayroll.

 a30.     Post-retirementbenefitsconsistofpaymentsbyemployerstoretiredemployees forhealth care, life insurance,andpensions.

 Additional True-FalseQuestions

 31.     A debt that isexpectedto be paidwithinone yearthroughthecreationof long-termdebt is a current liability.

 32.     Notespayableusuallyareissuedtomeet long-termfinancingneeds.

 33.     Currentmaturitiesoflong-termdebtareoftenidentifiedaslong-termdebtduewithinone yearon thebalancesheet.

 34.     Inagivenyear,totalwarrantyexpenseisthesumofactualwarrantycostsincurredon unitssoldplustheestimatedcostofservicingthose unitsinthefuture.

 35.     FICAtaxesarea voluntarydeductionfromemployeeearnings.

 36.     FICAtaxesareadeductionfromemployeeearningsandarealsoimposedupon employersas an expense.

 37.     Theobjectivesofinternalaccountingcontrolforpayrollsare(a)tosafeguardcompany assetsfromunauthorizedpaymentsofpayrollsand(b)toassureaccuracyandreliability oftheaccountingrecordspertainingto payroll.

 a38.     Whenacompanygivesemployeesrightstoreceivecompensationforabsencesandthe paymentforsuchabsencesisprobableandtheamountcanbereasonablyestimated, the companyshould accruea liability.

        MULTIPLECHOICEQUESTIONS

 39.     Allof thefollowingarereportedascurrent liabilitiesexcept a.accountspayable.

b.bonds payable. c.notespayable.

d.unearnedrevenues.

 40.     Therelationshipbetweencurrentliabilitiesandcurrentassets is a.usefulindetermining income.

b.usefulinevaluatinga company'sliquidity. c.calledthematchingprinciple.

d.usefulindeterminingtheamountof acompany'slong-termdebt.

 41.     Mostcompaniespaycurrent liabilities a.outof currentassets.

b.by issuinginterest-bearing notespayable. c.byissuingstock.

d.bycreatinglong-term liabilities.

 42.     A currentliability isadebt thatcanreasonably beexpectedtobepaid a.withinoneyear.

b.between6monthsand 18months.

c.outof currentlyrecognizedrevenues. d.outof cashcurrentlyonhand.

 43.     Liabilitiesare classifiedon thebalancesheetascurrentor a.deferred.

b.unearned. c.long-term. d.accrued.

 44.     Froma liquiditystandpoint,itismoredesirablefora companytohavecurrent a.assetsequalcurrentliabilities.

b.liabilitiesexceedcurrentassets. c.assetsexceedcurrentliabilities.

d.liabilitiesexceed long-termliabilities.

 45.     Therelationshipof current assetstocurrentliabilitiesisusedinevaluatinga company's a.operatingcycle.

b.revenue-producingability.

c.short-termdebtpayingability. d.long-rangesolvency.

 46.     Whichofthefollowingisusuallynotan accruedliability? a.Interestpayable

b.Wagespayable c.Taxespayable d.Notespayable

 47.     Inmostcompanies,current liabilitiesarepaidwithin

a.oneyearthroughthecreationof othercurrentliabilities.

b.theoperatingcyclethroughthecreationof othercurrentliabilities. c.oneyearout of currentassets.

d.theoperatingcycle out of currentassets.

 48.     Theentrytorecord theissuance ofaninterest-bearingnotecreditsNotesPayable forthe note's

a.maturityvalue. b.marketvalue. c.facevalue.

d.cashrealizablevalue.

 49.     Withaninterest-bearingnote,theamountofassets receiveduponissuanceofthenoteis generally

a.equaltothenote'sface value.

b.greaterthanthe note'sface value. c.lessthanthenote'sfacevalue.

d.equaltothenote'smaturityvalue.

11-8        

 50.     A notepayableis intheformof

a.a contingencythat isreasonablylikelyto occur. b.awrittenpromissorynote.

c.anoralagreement.

d.a standingagreement.

 51.     Theentrytorecordthe proceedsuponissuinganinterest-bearingnoteis a.InterestExpense

Cash

NotesPayable b.Cash

NotesPayable c.NotesPayable

Cash d.Cash

NotesPayable InterestPayable

 Usethefollowing informationforquestions52–54.

 CoffeyCounty Bank agrees tolend Adcock BrickCompany$200,000on January1.Adcock Brick Companysignsa$200,000,8%,9-monthnote.

 52.     TheentrymadebyAdcockBrickCompanyonJanuary1torecordtheproceedsand issuance ofthenote is

a.InterestExpense..................................................................              12,000 Cash....................................................................................     188,000

NotesPayable............................................................                               200,000 b.Cash....................................................................................     200,000

NotesPayable............................................................                               200,000 c.Cash....................................................................................     200,000

InterestExpense..................................................................           12,000

NotesPayable............................................................                               212,000 d.Cash....................................................................................     200,000

InterestExpense..................................................................           12,000

NotesPayable............................................................                               200,000 InterestPayable..........................................................                            12,000

 53.     WhatistheadjustingentryrequiredifAdcockBrickCompanypreparesfinancial statements onJune30?

a.InterestExpense..................................................................                8,000

InterestPayable..........................................................                                  8,000 b.InterestExpense..................................................................         8,000

Cash...........................................................................                                  8,000 c.InterestPayable...................................................................         8,000

Cash...........................................................................                                  8,000 d.InterestPayable...................................................................         8,000

InterestExpense.........................................................                                  8,000

CurrentLiabilitiesandPayroll Accounting       11-9

 54.     WhatentrywillAdcockBrickCompanymaketopayoffthenoteandinterestatmaturity assumingthat interesthas beenaccruedtoSeptember30?

a.NotesPayable......................................................................            212,000 Cash............................................................................                         212,000

b.NotesPayable......................................................................           200,000 InterestPayable...................................................................       12,000

Cash............................................................................                            212,000 c.InterestExpense..................................................................       12,000

NotesPayable......................................................................        200,000 Cash............................................................................                         212,000

d.InterestPayable...................................................................               8,000 NotesPayable......................................................................     200,000 InterestExpense..................................................................             4,000

Cash............................................................................                            212,000

 55.     As interestisrecordedon an interest-bearingnote, theInterestExpenseaccountis a.increased;the NotesPayableaccountis increased.

b.increased;the NotesPayableaccountisdecreased.c. increased;theInterestPayableaccountisincreased.d. decreased;theInterestPayableaccountis increased.

 56.     Whenaninterest-bearing notematures,thebalance intheNotes Payableaccountis a.lessthanthetotalamountrepaidbythe borrower.

b.thedifferencebetweenthematurityvalueof thenoteandthefacevalueof thenote. c.equal to thetotalamountrepaidbytheborrower.

d.greaterthanthetotalamountrepaidbytheborrower.

 Usethefollowing informationforquestions57–58.

 OnOctober1,Jerry'sCarpetServiceborrows$250,000fromFirstNationalBankona3-month, $250,000,8% note.

 57.     WhatentrymustJerry'sCarpetServicemakeonDecember31beforefinancial statements are prepared?

 a.InterestPayable...................................................................                5,000

InterestExpense..........................................................                                 5,000

 b.InterestExpense..................................................................             20,000

InterestPayable...........................................................                               20,000

 c.InterestExpense..................................................................                5,000

InterestPayable...........................................................                                 5,000

 d.InterestExpense..................................................................               5,000

NotesPayable.............................................................                                 5,000

  58.     Theentry by Jerry's Carpet Serviceto recordpaymentof thenoteandaccrued intereston January1 is

 a.NotesPayable...................................................................... Cash............................................................................

 b.NotesPayable...................................................................... InterestPayable...................................................................

Cash............................................................................

255,000

  250,000 5,000

 255,000

   255,000

11-10

 58.     (cont.)

 c.NotesPayable..................................................................... InterestPayable................................................................... Cash...........................................................................

 d.NotesPayable..................................................................... InterestExpense.................................................................. Cash...........................................................................

250,000 20,000

  250,000 5,000

   270,000

   255,000

 59.     Interestexpenseonaninterest-bearingnoteis a.alwaysequaltozero.

b.accruedoverthelifeof thenote.

c.onlyrecordedatthetimethenoteisissued.

d.onlyrecordedatmaturitywhenthenoteispaid.

 60.     Theentrytorecordthepaymentofaninterest-bearingnoteatmaturityafterallinterest expense has beenrecognizedis

a.NotesPayable InterestPayable

Cash

b.NotesPayable Interest Expense Cash

c.NotesPayable Cash

 d.NotesPayable Cash

InterestPayable

 61.     Salestaxescollectedbya retailerarerecordedby a.creditingSalesTaxesRevenue.

b.debitingSalesTaxesExpense. c.creditingSales TaxesPayable. d.debitingSalesTaxesPayable.

 62.     UnearnedRentalRevenueis

a.a contraaccounttoRentalRevenue. b.a revenueaccount.

c.reportedasacurrentliability.

d.debitedwhenrentis receivedinadvance.

 63.     Salestaxescollectedbytheretailerare recordedasa(n) a.revenue.

b.liability.c.expense. d.asset.

 Usethefollowing informationforquestions64–65.

 OnSeptember1,Ken'sPaintingServiceborrows$50,000fromNationalBankona4-month, $50,000,6%note.

CurrentLiabilitiesandPayroll Accounting       11-11

 64.     WhatentrymustKen'sPaintingServicemakeonDecember31before statements are prepared?

a.InterestPayable...................................................................                1,000 InterestExpense..........................................................

b.InterestExpense..................................................................                3,000 InterestPayable...........................................................

c.InterestExpense..................................................................                1,000 InterestPayable...........................................................

d.InterestExpense..................................................................               1,000 NotesPayable.............................................................

financial

   1,000

 3,000

 1,000

 1,000

  65.     The entrybyKen'sPainting Serviceto recordpayment of thenoteandaccrued intereston January1 is

a.NotesPayable......................................................................              51,000 Cash............................................................................                           51,000

b.NotesPayable......................................................................              50,000 InterestPayable...................................................................         1,000

Cash............................................................................                              51,000 c.NotesPayable......................................................................       50,000

InterestPayable...................................................................             3,000 Cash............................................................................                           53,000

d.NotesPayable......................................................................             50,000 InterestExpense..................................................................         1,000

Cash............................................................................                              51,000

 66.     Theinterestchargedona$100,000notepayable,attherateof8%,ona90-daynote would be

a.$8,000. b.$4,444. c.$2,000. d.$667.

 67.     Theinterestchargedona$100,000notepayable,attherateof6%,ona60-daynote would be

a.$6,000. b.$3,333. c.$1,500. d.$1,000.

 68.     Theinterestchargedona$50,000notepayable,attherateof8%,ona3-monthnote would be

a.$4,000. b.$2,000. c.$1,000. d.$667.

 69.     Theinterestchargedona$50,000notepayable,attherateof6%,ona2-monthnote would be

a.$3,000. b.$1,500. c.$750.d.$500.

11-12

 70.     Acompanyreceives$132,ofwhich$12isforsalestax.Thejournalentrytorecordthe sale wouldincludea

a.debittoSales TaxExpensefor$12. b.credit toSales TaxPayable for$12. c.debit to Salesfor $132.

d.debitto Cashfor $120.

 71.     Acompanyreceives$174,ofwhich$14isforsalestax.Thejournalentrytorecordthe sale wouldincludea

adebittoSalesTaxExpensefor$14. b.debittoSalesTaxPayablefor$14. c.debit to Salesfor $174.

d.debitto Cashfor $174.

 72.     A retailstore creditedtheSalesaccountforthesales priceandtheamount ofsalestaxon sales.Ifthesalestaxrateis5%andthebalanceintheSalesaccountamountedto $315,000,whatisthe amount of thesalestaxesowedto thetaxingagency?

a.$300,000 b.$315,000 c.$15,750 d.$15,000

 73.     OnJanuary1,2008,DunnonCompany,acalendar-yearcompany,issued$600,000of notespayable, ofwhich$150,000 isdueonJanuary 1foreachofthenextfouryears. The properbalancesheetpresentation on December31,2008,is

a.CurrentLiabilities,$600,000. b.Long-termDebt,$600,000.

c.CurrentLiabilities,$300,000;Long-termDebt,$300,000. d.CurrentLiabilities,$150,000;Long-termDebt,$450,000.

 74.     OnJanuary1,2008,BrunsonCompany,acalendar-yearcompany,issued$400,000of notespayable, ofwhich$100,000 isdueonJanuary1foreachofthenextfouryears. The properbalancesheetpresentation on December31,2008,is

a.CurrentLiabilities,$400,000. b.Long-termDebt, $400,000.

c.CurrentLiabilities,$100,000;Long-termDebt,$300,000. d.CurrentLiabilities,$300,000;Long-termDebt,$100,000.

 75.     Acashregistertapeshowscashsalesof$1,500andsalestaxesof$120.Thejournal entry torecordthis information is

a.Cash....................................................................................                1,620 Sales...........................................................................                              1,620

b.Cash....................................................................................                1,620

SalesTaxPayable......................................................                                       120 Sales...........................................................................                              1,500

c.Cash....................................................................................                1,500 SalesTaxExpense..............................................................            120

Sales...........................................................................                                 1,620 d.Cash....................................................................................         1,620

Sales...........................................................................                                 1,500 SalesTaxesRevenue.................................................                                 120

CurrentLiabilitiesandPayroll Accounting       11-13

 76.     Jo’sBookstorehascollected$750insalestaxesduringApril.Ifsalestaxesmustbe remittedtothestategovernmentmonthly,whatentrywillJo'sBookstoremaketoshow theAprilremittance?

a.SalesTaxesPayable............................................................                      750 Cash............................................................................                                750

b.SalesTaxExpense.............................................................                      750 Cash............................................................................                                750

c.SalesTaxExpense..............................................................                     750

SalesTaxesPayable...................................................                                       750 d.Noentryrequired.

 77.     JordonCompanydoesnotringupsalestaxesseparatelyonthecashregister.Total receiptsforOctoberamountedto$18,900.Ifthesalestaxrateis5%,whatamountmust be remittedtothestateforOctober'ssalestaxes?

a.$900 b.$945 c.$45

d.Itcannotbedetermined.

 78.     Enrique'sSalonhastotalreceiptsforthemonthof$16,430includingsalestaxes.Ifthe sales taxrateis 6%,whatareEnrique'ssalesfor themonth?

a.$15,444.20 b.$17,415.80 c.$15,500.00

d.Itcannotbedetermined.

 79.     Theamountof salestaxcollectedbyaretailstore whenmakingsalesis a.amiscellaneousrevenuefor thestore.

b.a currentliability.

c.notrecordedbecauseit isataxpaidbythecustomer. d.recordedasanoperatingexpense.

 80.     Aretailstorecredited theSalesaccount forthesalesprice andtheamountofsales taxon sales.Ifthesalestaxrateis5%andthebalanceintheSalesaccountamountedto $189,000,whatisthe amount of thesalestaxesowedto thetaxingagency?

a.$180,000 b.$189,000 c.$9,450d.$9,000

 81.     Advancesfromcustomersareclassifiedasa(n) a.revenue.

b.expense.

c.currentasset.d.currentliability.

 82.     Thecurrentportionof long-term debtshould a.bepaidimmediately.

b.be reclassifiedasa currentliability. c.beclassifiedasa long-termliability.

d.notbeseparatedfromthelong-termportionof debt.

11-14

 83.     Salestaxescollectedbya retailerareexpenses a.of theretailer.

b.of thecustomers.c.ofthegovernment.

d.that arenotrecognizedbythe retaileruntiltheyaresubmittedtothegovernment.

 84.     Salestaxescollectedbya retailerarereportedas a.contingentliabilities.

b.revenues. c.expenses.

d.currentliabilities.

 85.     Linda'sBoutiquehastotalreceiptsforthemonthof$29,295includingsalestaxes.Ifthe sales taxrateis 5%,whatareLinda'ssalesforthemonth?

a.$27,831 b.$27,900 c.$29,295

d.Itcannotbedetermined.

 86.     A cashregistertapeshowscashsalesof$1,500and salestaxesof $90.Thejournalentry to recordthisinformationis

 a.Cash....................................................................................                1,500 Sales...........................................................................                              1,500

 b.Cash....................................................................................                1,590

SalesTaxRevenue.....................................................                                         90 Sales...........................................................................                              1,500

 c.Cash....................................................................................                1,500 SalesTaxExpense..............................................................              90

Sales...........................................................................                                 1,590

 d.Cash....................................................................................               1,590 Sales...........................................................................                              1,500 SalesTaxesPayable..................................................                                   90

 87.     Tim'sPharmacyhascollected$600insalestaxesduringMarch.Ifsalestaxesmustbe remittedtothestategovernmentmonthly,whatentrywillTim'sPharmacymaketoshow theMarch remittance?

a.SalesTaxExpense..............................................................                      600

Cash...........................................................................                                     600 b.SalesTaxesPayable...........................................................             600

Cash...........................................................................                                     600 c.SalesTaxExpense..............................................................            600

SalesTaxesPayable..................................................                                        600 d.Noentryrequired.

 88.     LangerCompanydoesnotringupsalestaxesseparatelyonthecashregister.Total receiptsforFebruaryamountedto$28,600.Ifthesalestaxrateis4%,whatamountmust be remittedtothestatefor February'ssalestaxes?

a.$1,144 b.$1,100 c.$1,716

d.Itcannotbedetermined.

CurrentLiabilitiesandPayroll Accounting       11-15

 89.     Anybalanceinanunearnedrevenueaccountisreportedasa(n) a.currentliability.

b.long-termdebt. c.revenue.

d.unearnedliability.

 90.     StanleyCompany typicallysellssubscriptionsonanannualbasis,andpublishessixtimes ayear.Themagazinesells60,000subscriptionsinJanuaryat$15each.Whatentryis made inJanuary torecordthesaleof thesubscriptions?

 a.SubscriptionsReceivable..................................................... SubscriptionRevenue.................................................

 b.Cash..................................................................................... UnearnedSubscriptionRevenue.................................

 c.SubscriptionsReceivable..................................................... UnearnedSubscriptionRevenue.................................

 d.PrepaidSubscriptions.......................................................... Cash............................................................................

900,000

  900,000

  150,000

  900,000

 900,000

  900,000

  150,000

  900,000

 91.     Milton Companyissuedafour-year interest-bearingnotepayablefor$300,000on January 1,2007.EachJanuarythecompany isrequiredtopay$75,000onthenote.Howwillthis note be reportedontheDecember31,2008balancesheet?

a.Long-termdebt,$300,000. b.Long-termdebt,$225,000.

c.Long-termdebt,$150,000;Long-termdebtduewithinone year,$75,000. d.Long-termdebt,$225,000;Long-termdebtduewithinone year,$75,000.

 92.     JanisKnothasalargeconsultingpractice.Newclientsarerequiredtopayone-halfofthe consultingfeesupfront.Thebalanceispaidattheconclusionoftheconsultation.How does Knotaccountforthe cashreceivedattheend of theengagement?

a.Cash

UnearnedConsultingRevenue b.Cash

EarnedConsultingRevenue c.PrepaidConsultingFees

EarnedConsultingRevenue

d.Noentryisrequiredwhentheengagementisconcluded.

 93.     Whichoneofthefollowingisshownfirstundercurrentliabilitiesbymanycompaniesasa matter ofcustom?

a.Accruedexpenses

b.Currentmaturities of long-term debt c.Salestaxespayable

d.Notespayableandaccountspayable

 94.     Workingcapital is

a.currentassetspluscurrentliabilities.b.currentassetsminuscurrent liabilities.

c.currentassetsdividedbycurrentliabilities.d.currentassetsmultipliedbycurrentliabilities.

11-16

 95.     Thecurrentratiois

a.currentassetspluscurrentliabilities.b.currentassetsminuscurrent liabilities.

c.currentassetsdividedbycurrentliabilities.d.currentassetsmultipliedbycurrentliabilities.

 96.     Acontingentliabilityneedonlybedisclosedinthefinancialstatementnoteswhenthe likelihood of thecontingencyis

a.reasonablypossible. b.probable.

c.remote. d.unlikely.

 97.     Ifacontingentliabilityisreasonablyestimableanditisreasonablypossiblethatthe contingencywilloccur,thecontingentliability

a.shouldberecorded intheaccounts.

b.shouldbedisclosedin the notesaccompanyingthefinancialstatements.

c.shouldnotberecordedordisclosedinthenotesuntilthecontingencyactually happens.

d.mustbepaidforthe amountestimated.

 98.     Theaccountingforwarrantycostisbasedonthematchingprinciple,whichrequiresthat theestimatedcost of honoring warrantycontractsshouldberecognizedasanexpense

a.whenthe productisbrought inforrepairs.b.intheperiodinwhichtheproductwassold. c.attheendofthewarrantyperiod.

d.onlyif therepairsareexpectedtobemadewithinone year.

 99.     Ifa liabilityis dependentonafutureevent,it iscalleda a.potentialliability.

b.hypotheticalliability. c.probabilisticliability. d.contingentliability.

 100.     Currentmaturities of long-termdebt a.requireanadjustingentry.

b.areoptionallyreportedonthebalancesheet.

c.canbeproperlyclassifiedduringbalancesheetpreparation,withnoadjustingentry required.

d.arenotconsideredtobecurrentliabilities.

 101.     A contingencythatisremote

a.shouldbedisclosedinthefinancialstatements. b.mustbeaccruedasa loss.

c.doesnotneedto bedisclosed.

d.isrecordedasacontingentliability.

 102.     Theaccountingfor warrantycostsisbasedonthe a.goingconcernprinciple.

b.matchingprinciple.

c.conservatismprinciple. d.objectivityprinciple.

CurrentLiabilitiesandPayroll Accounting       11-17

 103.     Warrantyexpensesarereported ontheincomestatementas a.administrativeexpenses.

b.part of costofgoodssold. c.contra-revenues.

d.sellingexpenses.

 Usethefollowing informationforquestions104–105.

 NeerCompanysells2,000unitsofitsproductfor$500each.Thesellingpriceincludesaone-yearwarrantyonparts.Itisexpectedthat3%oftheunitswillbedefectiveandthatrepaircosts willaverage$50perunit.Intheyearofsale,warrantycontractsarehonoredon40unitsfora totalcostof$2,000.

 104.     WhatamountshouldNeerCompanyaccrueonDecember31forestimatedwarranty costs?

a.$3,000 b.$2,000 c.$1,000 d.$15,000

 105.     WhatamountwillbereportedonNeerCompany'sbalancesheetasEstimatedWarranty Liabilityon December31,2008?

a.$2,000 b.$3,000 c.$1,000

d.Itcannotbedetermined.

 106.     Whichofthefollowingitemswouldnotbeidentifiedifacontingentliabilityweredisclosed in a financialstatementfootnote?

a.Thenatureof theitem

b.Theexpectedoutcomeof thefutureeventc.Anumericalprobabilityof theexpectedloss d.Theamountofthecontingency,if known

 107.     Disclosureofa contingentliabilityisusuallymade

a.parenthetically,inthebodyofthebalancesheet.

b.parenthetically,inthebodyoftheincomestatement. c.in anotetothefinancialstatements.

d.inthemanagementdiscussionsectionofthefinancial statement.

 108.     Currentliabilitiesgenerallyappear

a.after long-termdebtonthebalancesheet.

b.indecreasingorderofmagnitudeonthebalancesheet. c.in orderofmaturityonthebalancesheet.

d.in increasingorderofmagnitudeonthe balancesheet.

 109.     Whichofthefollowingemployees wouldlikelyreceivea salaryinsteadofwages? a.Storeclerk

b.Factoryemployee c.Salesmanager

d.Manuallaborer

11-18

 110.     Thetotalcompensationearnedbyanemployeeis called a.take-homepay.

b.netpay.

c.netearnings.d.grossearnings.

 111.     Whichoneofthefollowingpayrolltaxesdoesnotresultinapayrolltaxexpenseforthe employer?

a.FICAtax

b.Federalincometax

c.Federalunemployment tax d.Stateunemploymenttax

 112.     SueStein'sregularrateofpayis$12perhourwithoneandone-halftimesherregular rateforanyhourswhichexceed40hoursperweek.Sheworked48hourslastweek. Therefore, hergross wageswere

a.$576. b.$480. c.$624. d.$864.

 113.     AssumingaFICAtaxrateof8%onthefirst$90,000inwages,andafederalincometax rateof20%onallwages,whatwouldbeanemployee'snetpay fortheyearifheearned $100,000for theyear?

a.$92,800 b.$72,000 c.$80,000 d.$72,800

 114.     Mostcompaniesinvolvedin interstatecommercearerequiredtocomputeovertimeat a.theworker'sregularhourlywage.

b.1.25timestheworker'sregularhourlywage. c.1.5timestheworker'sregularhourlywage. d.2.5timesthe worker'sregularhourlywage.

 115.     SueRicehasworked44hoursthisweek.Sheworkedinexcessof8hourseachday.Her regularhourlywageis$15perhour.WhatareSue'sgrosswagesfortheweek?(The company Sue worksfor is incompliancewiththeFair LaborStandardsAct.)

a.$660 b.$690 c.$990 d.$720

 116.     FICAtaxesdonotprovideworkerswith a.lifeinsurance.

b.supplementalretirement. c.employmentdisability.d.medicalbenefits.

CurrentLiabilitiesandPayroll Accounting       11-19

 117.     Employeepayroll deductionsincludeeachofthefollowingexcept a.federalunemployment taxes.

b.federalincometaxes. c.FICAtaxes.

d.insurance,pension plans,anduniondues.

 118.     ThejournalentrytorecordthepayrollforaperiodwillincludeacredittoWagesand SalariesPayableforthegross

a.amountlessallpayrolldeductions. b.amountof allpaychecksissued.c.paylesstaxespayable.

d.paylessvoluntarydeductions.

 119.     Theamountofincometaxeswithheldfromemployeesisdependentoneachofthe followingexceptthe

a.employee'sgrossearnings. b.employee'snetpay.

c.length ofthepayperiod.

d.numberof allowancesclaimedbytheemployee.

 Use thefollowing informationforquestions120–123.

  Thefollowingtotalsforthemonthof Aprilweretakenfromthepayrollregisterof MainCompany.

 Salaries

FICAtaxeswithheld IncometaxeswithheldMedicalinsurancedeductions Federalunemploymenttaxes Stateunemploymenttaxes

$24,000 1,100 5,000 900

64 432

  120.     Thejournalentrytorecordthemonthlypayrollon April30wouldincludea a.debit toSalariesExpensefor $24,000.

b.credittoSalariesPayablefor$24,000. c.debittoSalariesPayablefor$24,000. d.debit to Salaries Expensefor $17,000.

 121.     Theentrytorecordthe paymentofnetpayroll wouldincludea a.debit toSalariesPayablefor$16,504.

b.debittoSalariesPayable for$17,000. c.debittoSalariesPayablefor$15,900. d.credit to Cashfor $18,100.

 122.     TheentrytorecordaccrualofMainCompany’spayrolltaxeswouldincludea a.debit toPayrollTaxExpensefor$496.

b.debittoPayrollTaxExpensefor$1,596. c.credit toFICA Taxes Payablefor$2,200. d.credit to PayrollTaxExpensefor $496.

11-20

 123.     Theentrytorecordthe accrualof federal unemploymenttaxeswouldincludea a.credit to FederalUnemploymentTaxes Payablefor $64.

b.debitto Federal UnemploymentTaxes Expensefor $64. c.creditto PayrollTaxExpensefor$64.

d.debitto Federal UnemploymentTaxes Payablefor $64

 Usethefollowing informationforquestions124–127.

 Thefollowingtotalsforthemonthof June weretakenfromthepayrollregisterof LaneCompany.

 Salaries

FICAtaxeswithheld IncometaxeswithheldMedicalinsurancedeductions Federalunemploymenttaxes Stateunemploymenttaxes

$20,000 1,533 4,400 800

160 1,000

  124.     Thejournalentrytorecordthemonthlypayrollon June30wouldincludea a.debit toSalariesExpensefor $20,000.

b.credittoSalariesPayablefor$20,000. c.debittoSalariesPayablefor$20,000. d.debit to Salaries Expensefor $13,267

 125.     Theentrytorecordthe paymentofnetpayroll wouldincludea a.debitto SalariesPayablefor$12,107.

b.debittoSalariesPayable for$13,267. c.debittoSalariesPayablefor$12,267. d.credit to Cashfor $12,267.

 126.     TheentrytorecordaccrualofLaneCompany’spayrolltaxeswouldincludea a.debit toPayrollTaxExpensefor$2,693

b.credittoPayrollTaxExpensefor$2,693 c.credit toFICA TaxesPayablefor$1,160. d.credit to PayrollTaxExpensefor $1,160.

 127.     Theentrytorecordthe accrualof federal unemploymenttaxeswouldincludea a.credit to FederalUnemploymentTaxes Payablefor $160.

b.creditto Federal UnemploymentTaxes Expensefor $160. c.creditto PayrollTaxExpensefor$160.

d.debitto Federal UnemploymentTaxes Payablefor $160.

 128.     Whichoneofthefollowingpayrolltaxesisnotwithheldfromanemployee'swages because it is notleviedontheemployee?

a.Federalincometax

b.Federalunemployment tax c.State incometax

d.FICAtax

CurrentLiabilitiesandPayroll Accounting       11-21

 129.     ByJanuary31followingtheendofacalendaryear,anemployerisrequiredtoprovide each employeewitha(n)

a.stateunemploymenttaxform.

b.federalunemployment taxform940. c.wageandtaxstatementformW-2.

d.employee'swithholdingallowancecertificateformW-4.

 130.     Whichofthefollowingpayroll taxesareusuallyfiledandremittedannually? a.Federalunemployment taxes

b.FICAtaxes

c.Stateunemploymenttaxes

d.Federalandstateunemploymenttaxes

 131.     Thetaxthatispaidequallybytheemployerand employeeis the a.federalincometax.

b.federalunemployment tax. c.stateunemploymenttax.d.FICAtax.

  132.     The effectivefederalunemploymenttaxrateisusually a.6.2%.

b.0.8%. c.5.4%. d.8.0%.

 133.     Thetreasurer'sdepartmentisresponsiblefor a.approvingthepayroll.

b.maintainingpayrollrecords.c.preparingpayroll taxreturns. d.signingpayrollchecks.

 134.     Thepayrollis paidbythea.personneldepartment. b.payrolldepartment.

c.cashier.

d.treasurer'sdepartment.

 a135.Post-retirementbenefitsconsistof payments byemployerstoretiredemployeesfor a.healthcareand lifeinsuranceonly.

b.healthcareandpensionsonly.c.lifeinsuranceandpensionsonly.

d.healthcare,lifeinsurance,andpensions.

 a136.Thepaidabsencethat ismostcommonlyaccruedis a.votingleave.

b.vacationtime.c.maternityleave. d.disabilityleave.

11-22

 a137.BlakeCompanyhastenemployeeswhoeachearn$160perday.Iftheyaccumulate vacationtimeattherateof1.5vacationdaysforeachmonthworked,theamountof vacation benefitsthatshouldbeaccruedatthe end of themonthis

a.$160.b.$1,600. c.$2,400. d.$240.

 a138.Anemployer'sestimatedcostfor post-retirement benefitsforitsemployeesshouldbe a.recognizedas anexpensewhenpaid.

b.recognizedasanexpenseduringtheemployees'workyears.

c.recognizedas an expenseduringtheemployees'retirementyears.

d.chargedto thegoodwillaccount because providingemployees with benefits generates employee goodwill.

 Additional MultipleChoiceQuestions

 139.     Acurrentliabilityisadebtthecompanyreasonablyexpectstopayfromexistingcurrent assetswithin

a.oneyear.

b.theoperatingcycle.

c.one yearor theoperatingcycle, whicheverislonger. d.oneyearor theoperatingcycle, whicheveris shorter.

 140.     Whichofthefollowingstatements concerningcurrent liabilitiesis incorrect? a.Currentliabilitiesincludeunearnedrevenues.

b.Acompanythat hasmore currentliabilities thancurrentassets is usuallythesubjectof someconcern.

c.Currentliabilitiesincludeprepaidexpenses.

d.Acurrentliabilityisadebtthatcanreasonablybeexpectedtobepaidoutofexisting currentassetsorresult inthecreationof other currentliabilities.

 141.     OnAugust1,2008,acompanyborrowedcashandsignedaone-yearinterest-bearing noteonwhichboththefacevalueandinterestarepayableonAugust1,2009.Howwill thenotepayableandtherelatedinterestbeclassifiedintheDecember31,2008,balance sheet?

NotePayable                                  Interest Payablea.Currentliability                     Noncurrentliability b.Noncurrentliability                          Currentliability

c.Currentliability                                 Currentliability d.Noncurrentliability                          Notshown

 142.     Companiesreportcurrentliabilitiesonthebalancesheetin a.alphabeticalorder.

b.order ofmaturity. c.randomorder.

d.order ofmagnitude.

CurrentLiabilitiesandPayroll Accounting       11-23

 143.     A contingencyneednotberecordednordisclosedwhen

a.itisprobablethecontingencywillhappenandtheamountcanbereasonably estimated.

b.itisprobablethecontingencywillhappenbuttheamountcannotbereasonably estimated.

c.itisreasonablypossiblethecontingencywillhappenandtheamountcanbe reasonablyestimated.

d.thepossibilityof the contingencyhappeningisremote.

 144.     A contingentliabilityis recordedwhenthe likelihoodof thecontingency is a.remote.

b.reasonablypossible. c.probable.

d.nil or zero.

 145.    MikeKohl,anemployeeofSpottswoodCompany,hasgrossearningsforthemonthof Octoberof$6,000.FICAtaxesare8%ofgrossearnings, federalincometaxesamount to $952forthemonth,stateincometaxesare2%ofgrossearnings,andMikeauthorizes voluntarydeductionsof$15permonthtotheUnitedFund.WhatisthenetpayforMike Kohl?

a.$4,442 b.$4,433 c.$4,448 d.$4,452

 146.    Apayrollrecordthataccumulatesthegrossearnings,deductions,andnetpayby employeefor eachpayperiodis the

a.withholdingtaxtable.

b.employeeearningsrecord. c.payrollregister.

d.WageandTaxStatement.

 147.    ThejournalentrytorecordthepayrollforMarcusGarveyCompanyfortheweekending January8,wouldprobablyincludea

a.creditto OfficeSalaries.b.credittoWages Expense.

c.debittoFederalIncomeTaxesPayable. d.creditto FICATaxesPayable.

 148.    Employerpayroll taxesincludeallofthefollowingexcept a.FICAtaxes.

b.federalunemployment taxes. c.stateunemploymenttaxes.d.federalincometaxes.

 149.    Therecordthatprovidesacumulativesummaryofeachemployee’sgrossearnings, payrolldeductions, and netpayduring theyearandisrequiredtobemaintainedtocomply with stateandlocalfederallawisthe

a.register.

b.employeeearningsrecord. c.statementofearnings.

d.wageandtaxstatement.

11-24

 a150.Post-retirementbenefitsincludeallofthefollowingexcept a.healthcare.

b.lifeinsurance. c.pensions.

d.vacationbenefits.

        BRIEFEXERCISES

  BE151

 SaldanaSalesCompanyhasthefollowingselectedaccountsafterpostingadjustingentries:

 AccountsPayableNotesPayable,3-month

AccumulatedDepreciation—Equipment NotesPayable,5-year,6%

PayrollTax Expense InterestPayable MortgagePayable SalesTaxPayable

$62,000 50,000 14,000 80,000 4,000 3,000 120,000 38,000

  Instructions

PreparethecurrentliabilitysectionofSaldanaSalesCompany'sbalancesheet,assuming $20,000of themortgageispayablenextyear.

  BE152

 Identifywhichof thefollowingwouldbeclassifiedas currentliabilitiesasof December31,2008: 1.WagesPayable

2.BondsPayable, maturingin 2013 3.InterestPayable,dueJuly1,2009 4.TaxesPayable

5.NotesPayable, dueJanuary30,2010

    BE153

 OnDecember1,DestinCorporationborrowed$5,000ona90-day,6%note.Preparetheentries torecordtheissuanceofthenote,theaccrualofinterestatyearend,andthepaymentofthe note.

   BE154

DuringDecember2008,FashionVixenPublishingsold2,50012-monthannualmagazine subscriptionsatarateof$30each.ThefirstissuesweremailedinFebruary2009.Preparethe entriesonFashionVixen’sbookstorecordthesaleofthesubscriptionsandthemailingofthe first issues.

  BE155

 Landen Companyhadcashsalesof$54,250(includingtaxes)forthemonthofJune.Salesare subjectto8.5%salestax.Preparetheentryto recordthesale.

    BE156

 OnDecember1, WynnCompanyintroducesanewproductthatincludesaone-yearwarrantyon parts.InDecember,500unitsaresold.Managementbelievesthat5%oftheunitswillbe defectiveandthattheaveragewarrantycostswillbe$60perunit.Preparetheadjustingentryat December31toaccruethe estimatedwarrantycost.

   BE157

 MaryStine’sregularhourlywagerateis$12,andshereceivesanhourlyrateof$18forworkin excessof40hours.DuringaMarchpayperiod,Maryworks47hours.Mary’sfederalincometax withholdingis$70,andshehasnovoluntarydeductions.ComputeMaryStine’sgrossearnings and netpayforthepayperiod.

   BE158

 Data forMaryStinearepresentedinBE157.PreparethejournalentrytorecordMary’spayfor theperiod.Use March15fortheendof thepayperiod.

    BE159

 InFebruary,grossearningsinZennCompanytotaled$50,000.Allearningsaresubjectto8% FICAtaxes,5.4%stateunemploymenttaxes,and0.8%federalunemploymenttaxes.Prepare theentrytorecordJanuarypayrolltaxexpense.

    *BE160

 WeaverCompanyemployeesareentitledtooneday’svacationforeachmonthworked.In February,60employeesworkedthefullmonth.RecordthevacationpayliabilityforFebruary assuming theaveragedailypayfor eachemployeeis$90.

   EXERCISES

Ex.161

StinerCompanyhasthefollowingselectedaccounts afterpostingadjustingentries:

 AccountsPayableNotesPayable,3-month

AccumulatedDepreciation—Equipment PayrollandBenefitsPayable

NotesPayable,5-year,8% EstimatedWarrantyLiability PayrollTax ExpenseInterestPayable MortgagePayable

SalesTaxPayable

$45,000 80,000 14,000 27,000 30,000 34,000 6,000 3,000 200,000 16,000

  Instructions

(a)PreparethecurrentliabilitysectionofStinerCompany'sbalancesheet,assuming$25,000 of themortgageispayablenextyear. (Listliabilities inmagnitudeorder,withlargestfirst.)

 (b)Commenton Stiner's liquidity,assumingtotalcurrentassetsare$450,000.

    Ex.162

 Preparethenecessaryjournalentriesforthefollowingtransactions:

(a)On September1,LoreCompanyborrowed$150,000fromNationalBankona6-month,8% note.

(b)On December31, LoreCompanyaccruedinterest(assumeadjustingentries areonlymade at theendoftheyear).

CurrentLiabilitiesandPayroll Accounting       11-29

  Ex.163

 OnMarch1,FeltonCompanyborrows$90,000fromOttawaStateBankbysigninga6-month, 8%,interest-bearingnote.

 Instructions

PreparethenecessaryentriesbelowassociatedwiththenotepayableonthebooksofFelton Company.

(a)Preparetheentryon March 1whenthe notewasissued.

(b)PrepareanyadjustingentriesnecessaryonJune30inordertopreparethesemi-annual financialstatements. Assumenootherinterestaccrualentrieshavebeenmade.

(c)Preparetheadjustingentry at August31to accrueinterest. (d)Preparetheentryto recordpaymentof thenote atmaturity.

    Ex.164

 TomByerssellstelevisionswitha2-yearwarranty.Pastexperienceindicatesthat2%oftheunits soldwillbereturnedduringthewarrantyperiodforrepairs.Theaveragecostofrepairsunder warrantyisestimatedtobe$50perunit.During2008,7,000unitsweresoldatanaverageprice of$400.Duringtheyear,repairsweremadeon55unitsatacost of $2,400.

 Instructions

Preparejournalentriestorecordtherepairsmadeunderwarrantyandestimatedwarranty expense fortheyear.

  Ex.165

 SommersCompanybilleditscustomersatotalof$1,575,000forthemonthofNovember.The totalincludesa 5% statesalestax.

 Instructions

(a)Determinetheproperamountof revenuetoreportforthemonth.

(b)Preparethegeneraljournalentrytorecordtherevenue andrelatedliabilitiesforthemonth.

   Ex.166

 StevensCompany does notsegregatesales andsales taxes onitscashregister.Its registertotal for themonthis$259,700, whichincludesa 6%salestax.

 Instructions

 Computesalestaxespayable,andmaketheentrytorecordsalesandsalestaxespayable.

   Ex.167

 SuttonCoatCompany,whichpreparesannualfinancialstatements,ispreparingadjustingentries on December31. Analysisindicatesthefollowing:

 1.Thecompanyisthedefendantinanemployeediscriminationlawsuitinvolving$50,000of damages.Legalcounselbelievesitisunlikelythatthecompanywillhavetopayany damages.

 2.December31stisaFriday.TheemployeesofthecompanyhavebeenpaidonMonday, December27thforthepreviousweekwhichendedonFriday,December24th.Thecompany employs30peoplewhoearn$100perdayand15peoplewhoearn$150perday.All employees work5-day weeks.

 3.Thecompany isadefendantina$500,000productliability lawsuit.Legal counsel believesthe companyprobablywill havetopaytheamountrequested.

 a4.Employeesareentitledtooneday'svacationforeachmonthworked.Allemployees describedabove in(2.) workedthemonthof December.

 Instructions

Prepareanyadjustingentriesnecessaryattheendof theyear.

    Ex.168

 Basedonthefollowinginformation,computethe(1) currentratioand(2) workingcapital.

 Currentassets Totalassets Currentliabilities Totalliabilities

$240,000 900,000 80,000 500,000

  Ex.169

 LindaEstessellsexercisemachinesforhomeuse.Themachinescarrya2-yearwarranty.Past experienceindicatesthat6%oftheunitssoldwillbereturnedduringthewarrantyperiodfor repairs.Theaveragecostofrepairsunderwarrantyis$60forlaborand$90forpartsperunit. During2008,2,500exercise machines weresoldatanaverageprice of$800.Duringtheyear,60 of themachinesthat weresold wererepairedattheaveragepriceper unit.

 Instructions

(a)     Preparethejournalentrytorecordtherepairsmadeunderwarranty.

(b)    Preparethejournalentrytorecordtheestimatedwarrantyexpense fortheyear.

    Ex.170

 GolfWorldPublicationspublishesagolfmagazineforwomen.Themagazinesellsfor$3acopy onthenewsstand.Yearlysubscriptionstothemagazinecost$24peryear(12issues).During December2008,GolfWorldPublicationssells9,000copiesofthegolfmagazineatnewsstands andreceivespaymentfor15,000subscriptionsfor2009.Financialstatementsareprepared monthly.

 Instructions

(a)Preparethe December2008journalentriesto record the newsstandsales and subscriptions received.

 (b)PreparethenecessaryadjustingentryonJanuary31,2009.TheJanuary2009issuehas been mailedto subscribers.

CurrentLiabilitiesandPayroll Accounting       11-33

  Ex.171

 PresleyCompanysellsaproduct thatincludesaone-yearwarrantyonpartsandlabor.During the year,10,000unitsaresold.Presleyexpectsthat3%oftheunitswillbedefectiveandthatthe averagewarrantycostwillbe$50perunit.Actualwarrantycostsincurredduringtheyearwere $14,000.

 Instructions

 Preparethejournalentriestorecord(a)theestimatedwarrantycostsand(b) theactualcosts incurred.

    Ex.172

 DobsonCompanyispreparingadjustingentriesatDecember31.Ananalysisrevealsthe following:

 1.DuringDecember,DobsonCompanysold2,000unitsofaproductthatcarriesa60-day warranty.Thesalesforthisproducttotaled$100,000.Thecompanyexpects4%oftheunits toneedrepairunderthe warrantyanditestimates thattheaveragerepaircostperunitwillbe $15.

 2.Thecompanyhasbeensuedbyadisgruntledemployee.Legalcounselbelievesthatitis reasonablypossiblethatthecompanywillhaveto pay$200,000indamages.

 3.Thecompanyhasbeennamedasoneofseveraldefendantsina$400,000damagesuit. Legalcounselbelievesit is unlikelythatthecompanywillhavetopayanydamages.

 a4.Employeesearnvacationpayatarateof1daypermonth.DuringDecember,tenemployees qualifyforvacationpay.Theiraveragedailywageis $90per employee.

 Instructions

 Prepareadjustingentries,if required,for eachofthefouritems.

  Ex.173

 Matchthecodesassignedtothefollowingpayrollfunctionstotheprocedureslistedbelow:

 H          HiringEmployees T          Timekeeping

PRE        PreparingthePayroll PAY                Payingthe Payroll

 1.Distributionof checksbythetreasurer 2.Supervisorapproveshoursworked

3.Documentationof employeehiring 4.Maintenanceofpayrollrecords

5.Verificationof payrollcalculations

 6.Screeningand interviewingofjobapplicants 7.Useofatimeclock

8.Signingprenumberedpayrollchecks

    Ex.174

 SueWiebe'sregularhourlywageis$14anhour.Shereceivesovertimepayattherateoftime andahalf.TheFICAtaxrateis8%.Sueispaideverytwoweeks.Forthefirstpayperiodin January,Sueworked86hoursofwhich6wereovertimehours.Sue'sfederalincometax withholdingis$300andherstateincometaxwithholding is$100.Suehasauthorizedthat$50be withheldfrom hercheckeachpayperiodforsavingsbonds.

 Instructions

 ComputeSueWiebe'sgrossearningsandnetpayforthepayperiodshowingeachpayroll deductioninarrivingatnet pay.

    Ex.175

 StacyCooper'sregularhourlywagerateis$12,andshereceivesawageof11/2timesher regularrateforworkinexcessof40hours.DuringaJunepayperiod,Stacyworked46hours. Stacy'sfederalincometaxwithholdingis$58,andheronlyvoluntarydeductionis$25forgroup hospitalization insurance.

 Instructions

ComputeStacy's(a)grossearningsand(b) net payforthepayperiod.

   Ex.176

 OatesCompany'spayrollfortheweekendingJanuary15amountedto$95,000forOffice Salariesand$150,000forStoreWages.Noneoftheemployeeshasreachedtheearningslimits specifiedforfederalorstateemployerpayrolltaxes.Thefollowingdeductionswerewithheldfrom employees'salaries andwages:

 FederalIncomeTax StateIncomeTax FICATaxes

UnionDues UnitedFund

$50,000 9,000 19,600 2,700 1,800

  Federalunemploymenttax(FUTA)rateis6.2%lessacreditequaltotheratepaidforstate unemployment taxes.Thestateunemploymenttax(SUTA)rateis5.4%.

 Instructions

 Preparethe journal entrytorecord theweeklypayroll endingJanuary 15 andalsothe employer’s payroll taxexpenseonthe payroll.

    Ex.177

 AnnFinleyhadearned(accumulated)salaryof$86,000throughNovember30.HerDecember salaryamounted to$7,800.JimLanebeganemploymentonDecember1andwillbepaidhisfirst month'ssalaryof$5,000onDecember31.IncometaxwithholdingforDecemberforeach employee isasfollows:

Ann Finley                         JimLane FederalIncomeTax                              $2,180                                 $990 StateIncomeTax                                    390                                   180

CurrentLiabilitiesandPayroll Accounting       11-37

 Ex.177         (cont.)

 Thefollowingpayrolltaxratesareapplicable:

FICAtaxonfirst $90,000                          8% FUTAtaxonfirst $7,000                     6.2%* SUTAtaxonfirst$7,000                     5.4%

 *Lessacredit equaltothe stateunemploymentcontribution

 Instructions

 RecordthepayrollforthetwoemployeesatDecember31andrecordtheemployer'sshareof payroll taxexpenseforthe December31payroll.

   Ex.178

 AssumethatthepayrollrecordsofGibbsOilCompanyprovidedthefollowinginformationforthe weeklypayrollendedNovember30, 2008.

Year-to-Date Hourly                        Federal                                      EarningsThrough

Employee     HoursWorked      PayRate         Income Tax        Union Dues      PreviousWeek

 C.White                 44 J.Ward  46 K.Hurt        39 M.King       42

$45                  $362 10                     65 20                   118 22                   169

$9                      $91,000 5                       23,200 —                         5,700 7                        49,500

 Ex.178         (cont.)

 Additionalinformation:Allemployeesarepaidovertimeattimeandahalfforhoursworkedin excessof40perweek.TheFICAtaxrateis8%forthefirst$90,000ofeachemployee'sannual earnings.Theemployerpaysunemploymenttaxesof6.2%(5.4%forstateand.8%forfederal) on thefirst $7,000ofeachemployee'sannualearnings.

 Instructions

(a)     Preparethepayrollregisterforthepayperiod.

(b)    Preparegeneraljournalentriestorecordthepayrollandpayrolltaxes.

    Ex.179

 DianeJenksearnsasalaryof$8,000permonthduringtheyear.FICAtaxesare8%onthefirst $90,000ofgrossearnings.Federalunemploymentinsurancetaxesare6.2%ofthefirst$7,000; however,acreditisallowedequaltothestateunemploymentinsurancetaxesof5.4%onthe $7,000.During the year, $27,300waswithheldfor federal incometaxesand$5,700was withheld for state incometaxes.

CurrentLiabilitiesandPayroll Accounting       11-39

 Ex.179         (cont.)

 Instructions

(a)PrepareajournalentrysummarizingthepaymentofJenks’total salaryduringthe year.

 (b)PrepareajournalentrysummarizingtheemployerpayrolltaxexpenseonJenks’salaryfor theyear.

 (c)Determinethecostof employing Jenksfor theyear.

     Ex.180

 TolanCompanyhadthefollowingpayroll datafortheyear:

 Grossearningsof employees Employeeearnings notsubjectto FICAtax

Employeeearnings notsubjecttoFUTAor SUTAtax

$640,000 140,000 490,000

 Assumingthefollowing: FICAtaxrate

StateUnemploymenttaxrate Federal Unemploymenttaxrate

 8%

5.4%(SUTA) .8%(FUTA)

 Instructions

ComputeTolan'spayrolltaxexpensefortheyear.Makeasummaryjournalentrytorecordthe payroll taxexpense.

  Ex.181

 InMarch,grossearningsofMilnerCompanytotaled$150,000.AllearningsaresubjecttoFICA taxes,5.4%stateunemploymenttaxes,and0.8%federalunemployment taxes.

 Instructions

 (a)Computetheemployer'spayrolltaxexpense. (b)Preparetheentrytorecordpayrolltaxes.

    Ex.182

 ThefollowingpayrollliabilityaccountsareincludedintheledgerofClementsCompanyon January1,2008:

 FICATaxes Payable                                                     $1,750 FederalIncomeTaxesPayable                                   4,000 StateIncomeTaxesPayable                                          665 FederalUnemploymentTaxesPayable                          175 StateUnemploymentTaxes Payable                           1,190 UnionDuesPayable                                                       400 HealthInsurancePremiumPayable                            5,000 ChristmasClubSavingsPayable                                 1,500

 InJanuary,thefollowingtransactionsoccurred:

 Jan.9          Sentacheckfor $5,000toBlueCrossandBlueShield.

11      Depositedacheckfor$5,750inFederalReserveBankforFICAtaxesandfederal incometaxeswithheld.

14      Sentacheckfor $400totheuniontreasurerforuniondues. 18          Paidstateincometaxeswithheldfromemployees.

21      Paidstateandfederalunemployment taxes.

22      Senta$1,500checktoaSavingsandLoanforthe ChristmasClubwithholdings.

 Instructions

JournalizetheJanuarytransactions

    COMPLETIONSTATEMENTS

  183.Acurrentliabilityisadebtthatcanbeexpectedtobepaidwithin                                                 year or the                                       ,whicheveris longer.

 184.Liabilitiesareclassifiedonthebalancesheetasbeing                                                      liabilitiesor

                               liabilities.

  185.Obligationsinwrittenformarecalled                                      andusuallyrequiretheborrower topayinterest.

 186.Withaninterest-bearingnote,aborrowermustpaythe                                                   ofthenote plus                                            atmaturity.

 187.Salestaxescollectedfromcustomersarea                                             ofthebusinessuntilthey areremittedtothetaxing agency.

 188.Thecurrentratioiscurrent assetsdivided by                                       .

  189.Acontingentliabilityshouldberecordedintheaccountsifitis         thatthe contingencywilloccurand theamountis                                                                            .

 190.Twofederaltaxeswhichareleviedagainstemployees'wagesthatmustbedeductedin arrivingatnetpay are(1)                                                                       taxesand(2)                                taxes.

 191.Theemployerincursapayrolltaxexpenseequaltotheamountcontributedbyeach employeefor       taxes.

 192.Apayrolltaxexpensewhichisborneentirelybytheemployeristhefederal

                                 tax.

    MATCHING

  193.Matchtheitemsbelowbyenteringtheappropriatecodeletterinthespaceprovided.

 A.Currentliability B.NotesPayable

C.WageandTaxStatement D.Currentratio

E.Contingentliabilities

F.     Federalincometaxes G.FICAtaxes

H.Federalunemploymenttaxes aI.       Post-retirementbenefits

aJ.Pensionplan

  1.Leviedagainstemployees'wageswithoutlimit.

 2.Anobligationintheformofa writtenpromissorynote.

 3.Anagreementwherebyanemployerprovidesbenefitsto employeesaftertheyretire.

 4.Apayrolltaxexpenseleviedonlyagainstthe employerbasedonemployees'wages.

 5.Ameasureofacompany’sliquidity.

 6.Adebtthancanreasonablybeexpected tobepaidfromcurrentassets.

 7.Aformshowinggrossearnings andincometaxeswithheld.

 8.Leviedagainstemployees'wageswithamaximumlimit.

 9.Paymentsbyemployerstoretiredemployees.

 10.Apotentialliabilitythat maybecome anactualliability inthefuture.

     SHORT-ANSWERESSAYQUESTIONS

S-AE194

Acompanywillincurproductrepaircostsinthefutureifproductsthatitsellscurrentlyunder warrantyarebroughtinforrepairduringthewarrantyperiod.Thecompanywillalsoincurbad debtsexpenseinthefutureifcustomerswhobuyoncreditcurrentlyareunabletopaytheir accounts.Aretheaccountingproceduresforthesetwocontingentcosts(warrantyexpenseand bad debtexpense)relatedorguidedbythesameaccountingprinciple?Brieflyexplain.

   S-AE195

 Anemployee'snetpayconsistsofgrosspaylessmandatoryandvoluntarypayrolldeductions. Identifythemandatorypayrolldeductionsandgivetwoorthreeexamplesofcommonvoluntary deductions.Arethesedeductionsrecognizedaspayrollexpensesbytheemployer? Whattypeof payroll expensesdoesthe employerincurrelatedto havingapayroll?

  S-AE196(Ethics)

 Quaney Companymaintainstwoseparateaccountspayablecomputersystems.Oneisknownto alltheusers,andisusedtoprocesspaymentstovendors.Employeesenterthevendorcode,or thenameandaddressofnewvendors,theamount,theaccount,andsoon.Theothersystemis asecretone.Itisusedtocross-checkthevendorsagainstanapprovedvendorlist.Ifavendoris notlistedasapproved, thepaymentprocessishalted.Internalauditemployeesseektoverifythe existenceofabonafideclaimbythevendor.Allinquiriesaremadeatthetopmanagement level, andverydiscreetly.Noonebuttopmanagement,theinternalauditstaff,andtheBoardof Directorsofthecompanyis evenawareof thesecondsystem.

 Required:

Isit ethicalforacompanytohavea secretsystemliketheonedescribed?Explain.

  S-AE197(Communication)

 Al-Fabisamanufacturingcompanythatmakesvariousindustrialcomponentsoutofaluminum. Al-FabislocatedinalargecityinthenortheasternUnitedStates.Variouslabordisputeshave occurredinthecity,somewithacrimoniouspublicdebateconcerningthehonestyof management.DuringoneofAl-Fab'sroutineemployeemeetings,JackGrant,aproduction worker, broughtuptheissueof thecostof aworkerasreportedinthecompany'sannualreport.

 Thecostwasgivenas$32,000peryear.Jackpointsoutthattheaveragewagerateof$12per hourisatmostaround$25,000ingrosswages.Heaskswhetherthecompanyisaddingin overtime,becauseifso,thefiguresaremisleadingbecausetheemployeesarenotallowedto workovertime.

 Required:

 PrepareanoteexplainingtoMr.GranthowAl-Fabmightcalculateacostperemployeethatis greater thangross wages.Explainingeneraltermsonly.Do notuseanycalculations.

    CHAPTER12

  ACCOUNTINGFORPARTNERSHIPS

   CHAPTERSTUDYOBJECTIVES

  1.Identifythecharacteristicsofthepartnershipformofbusinessorganization.

 2.Explaintheaccountingentriesfortheformationofapartnership.

 3.Identifythebasesfordividingnetincomeornetloss.

 4.Describetheformandcontentofpartnershipfinancialstatements.

 5.Explaintheeffectsoftheentriestorecordtheliquidationofapartnership.

 6.Explaintheeffectsoftheentrieswhenanewpartnerisadmitted.

 7.Describetheeffectsoftheentrieswhenapartnerwithdrawsfromthefirm.

    TRUE-FALSESTATEMENTS

 1.     Thepersonalassets,liabilities,andpersonaltransactionsofpartnersareexcludedfrom theaccountingrecordsofthepartnership.

 2.     Theactofanypartnerisbindingonallotherpartnersiftheactappearstobeappropriate forthepartnership.

 3.     Amajoradvantageofthepartnershipformoforganizationisthatthepartnershave unlimitedliability.

 4.     Partnershipcreditorsmayhaveaclaimonthepersonalassetsofanyofthepartnersifthe partnershipassetsarenotsufficienttosettleclaims.

 5.     Thepartnershipagreementbetweenpartnersmustbeinwriting.

  6.     Ifapartnerinvestsnoncashassetsinapartnership,theyshouldberecordedbythe partnershipattheirfairmarketvalue.

 7.     L.Hillinveststhefollowingassetsinanewpartnership:$15,000incash,andequipment thatcost$30,000buthasabookvalueof$17,000andfairmarketvalueof$20,000.Hill, Capitalwillbecreditedfor$32,000.

 8.     Twoproprietorshipscannotcombineandformapartnership.

  9.     Ifapartner'sinvestmentinapartnershipconsistsofequipmentthathasaccumulated depreciationof$8,000,itwouldnotbeappropriateforthepartnershiptorecordthe accumulateddepreciation.

 10.     Ifapartner'sinvestmentinapartnershipconsistsofAccountsReceivableof$25,000and anAllowanceforDoubtfulAccountsof$7,000,itwouldnotbeappropriateforthe partnershiptorecordthe AllowanceforDoubtfulAccounts.

 11.     Unlessstatedotherwiseinthepartnershipcontract,profitsandlossesaresharedamong thepartnersintheratiooftheircapitalequitybalances.

 12.     Ifsalaryallowancesandinterestoncapitalarestipulatedinthepartnershipprofitandloss sharingagreement,theyareimplementedonlyifincomeissufficienttocovertheamounts requiredbythesefeatures.

 13.     Unlessthepartnershipagreementspecificallyindicatesanincomeratio,partnershipnet incomeorlossisnotallocatedtothepartners.

AccountingforPartnerships         12-5

  14.     Partnershipincomeorlossneednotbeclosedtopartners'capitalaccountseachperiod becauseoftheunlimitedlifecharacteristicofpartnerships.

 15.     Ifapartnershiphasalossfortheperiod,theclosingentrytotransferthelosstothe partnerswillrequireacredittotheIncomeSummaryaccount.

 16.     Thepartners'drawingaccountsareclosedeachperiodintotheIncomeSummary account.

 17.     Salaryallowancestopartnersareamajorexpenseonmostpartnershipincome statements.

 18.     Aninterestallowanceinsharingpartnershipnetincome(ornetloss)isrelatedtothe amountofpartners'investedcapital duringtheperiod.

 19.     Thefinancialstatementsofapartnershiparesimilartothoseofaproprietorship.

  20.     Theincomeearnedbyapartnershipwillalwaysbegreaterthantheincomeearnedbya proprietorshipbecauseinapartnershipthereismorethanoneownercontributingtothe successofthebusiness.

 21.     ThefunctionofthePartners'CapitalStatementistoexplainthechangesinpartners' capitalaccountbalancesduringaperiod.

 22.     Adetailedlistingofalltheassetsinvestedbyapartnerinapartnershipappearsonthe Partners'CapitalStatement.

 23.     Totalpartners'equityofapartnershipisequaltothesumofallpartners'capitalaccount balances.

 24.     Thedistributionofcashtopartnersinapartnershipliquidationisalwaysmadebasedon thepartners'incomesharingratio.

 25.     Theliquidationofapartnershipmeansthatanewpartnerhasbeenadmittedtothe partnership.

 a26.     Theadmissionofanewpartnerresultsinthelegaldissolutionoftheexistingpartnership andthebeginningofanewpartnership.

 a27.     Ifanewpartnerisadmittedintoapartnershipbyinvestment,thetotalassetsandtotal capitalwillchange.

 a28.     Abonustooldpartnersresultswhenthenewpartner'scapitalcreditonthedateof admittanceisgreaterthanhisorherinvestmentinthefirm.

 a29.     Ifanewpartnerinvestsinapartnershipatbookvalueandacquiresa1/4interestintotal partnershipcapital,itindicatesthatabonuswaspaidtotheoriginalpartners.

 a30.     Abonustotheremainingpartnersresultswhenaretiringpartnerreceivespartnership assetswhicharelessthanhisorhercapitalbalanceonthedateofwithdrawal.

  AdditionalTrue-FalseQuestions

  31.     Apartnershipisanassociationofnomorethantwopersonstocarryonasco-ownersofa businessforprofit.

 32.     Onceassetshavebeeninvestedinthepartnership,theyareownedjointlybyallpartners.

  33.     Eachpartner'sinitialinvestmentinapartnershipshouldberecordedatbookvalue.

  34.     Partnershipincomeissharedinproportiontoeachpartner'scapitalequityinterestunless thepartnershipcontractspecificallyindicatesthemannerinwhichnetincomeornetloss istobedivided.

 35.     Inaliquidation,thefinaldistributionofcashtopartnersshouldbeonthebasisoftheir incomeratios.

 a36.     Inanadmissionofapartnerbyinvestmentofassets,thetotalnetassetsandtotalcapital ofthepartnershipdonotchange.

 a37.     Thewithdrawalofapartnerlegallydissolvesthepartnership.

      MULTIPLECHOICEQUESTIONS

  38.     Ahybridformofbusinessorganizationwithcertainfeatureslikeacorporationisa(n) a.limitedliabilitypartnership.

b.limitedliabilitycompany. c."S"corporation.

d.sub-chapter"S"corporation.

  39.     Apartnership

 a.hasonlyoneowner.

 b.paystaxesonpartnershipincome. c.mustfileaninformationtaxreturn.

d.isnotanaccountingentityforfinancialreporting purposes.

  40.     Ageneralpartnerinapartnership

 a.hasunlimitedliabilityforallpartnershipdebts. b.isalwaysthegeneralmanagerofthefirm.

c.isthepartnerwholacksaspecialization.

 d.isliableforpartnershipliabilitiesonlytotheextentofthatpartner'scapitalequity.

AccountingforPartnerships         12-7

  41.     Theindividualassetsinvestedbyapartnerinapartnership a.revertbacktothatpartnerifthepartnershipliquidates.

b.determinethatpartner'sshareofnetincomeorlossfortheyear. c.arejointlyownedbyallpartners.

d.determinethescopeofauthorityofthatpartner.

  42.     Whichoneofthefollowingwouldnotbeconsideredadisadvantageofthepartnership formoforganization?

a.Limitedlife

 b.Unlimitedliability c.Mutualagency

d.Easeofformation

  43.     Thepartnershipformofbusinessis

 a.restrictedtolawandmedicalpractices.

 b.restrictedtofirmshavingfewerthan10partners. c.notrestrictedtoanyparticulartypeofbusiness. d.mostoftenusedinrelativelylargecompanies.

 44.     Whichofthefollowingisnotaprincipalcharacteristicofthepartnershipformofbusiness organization?

a.Mutualagency

 b.Associationofindividuals c.Limitedliability

d.Limitedlife

  45.     Thepartnershipagreementshouldincludeeachofthefollowingexceptthe a.dateofthepartnershipinception.

b.principallocationofthefirm.

 c.survivingfamilymembersintheeventofapartner'sdeath. d.Eachoftheseshouldbeincluded.

 46.     Whichofthefollowingstatementsistrueregardingtheformofalegallybinding partnershipcontract?

a.Thepartnershipcontractmustbeinwriting.

 b.Thepartnershipcontractmaybebasedonahandshake. c.Thepartnershipcontractmaybeimplied.

d.Thepartnershipcontractcannotbe oral.

  47.     Whichofthefollowingstatementsaboutapartnershipiscorrect?

 a.Thepersonalassetsofapartnerareincludedinthepartnershipaccountingrecords. b.Apartnershipisnotrequiredtofileaninformationtaxreturn.

c.Eachpartner'sshareofincomeistaxabletothepartnership.

 d.Apartnershiprepresentsanaccountingentityforfinancialreportingpurposes.

  48.     Inapartnership,mutualagencymeans

 a.eachpartneractsonhisownbehalfwhenengaginginpartnershipbusiness.

 b.theactofanypartnerisbindingonallotherpartners,onlyifpartnersactwithintheir copeofauthority.

c.anactbyapartnerisjudgedasbindingonotherpartnersdependingonwhetherthe actappearstobeappropriateforthepartnership.

d.thatpartnersmustpaytaxesonamutualorcombinedbasis.

12-8        TestBankforAccountingPrinciples,EighthEdition

  49.     Apartnership

 a.isdissolvedonlybythewithdrawalofapartner.

 b.isdissolvedupontheacceptanceofanewpartner. c.dissolutionmeansthebusinessmustliquidate.

d.hasunlimitedlife.

  50.     Thepartnerinalimitedpartnershipthathasunlimitedliabilityisreferredtoasthe a.leadpartner.

b.headpartner.

 c.generalpartner.d.unlimitedpartner.

 51.     Limitedpartnerships

 a.musthaveatleastonegeneralpartner.

 b.guaranteethatapartnerwillreceiveareturn.

 c.guaranteethatapartnerwillgetbackhisoriginalinvestment. d.arelimitedtoonlythreepartners.

 52.     TheMaris-Cranepartnershipisterminatedwhencreditorclaimsexceedpartnership assetsby$40,000.CraneisamillionaireandMarishasnopersonalassets.Maris' partnershipinterestis75%andCrane'sis25%.Creditors

a.mustcollecttheirclaimsequallyfromMarisandCrane. b.maycollecttheentire$40,000fromCrane.

c.mustcollecttheirclaims75%fromMarisand25%fromCrane.

 d.maynotrequireCranetousehispersonalassetstosatisfythe$40,000inclaims.

  53.     Whichofthefollowingstatementsaboutpartnershipsisincorrect? a.Partnershipassetsareco-ownedbypartners.

b.Ifa partnership isterminated,the assets do not legallyrevert totheoriginal contributor.c.Ifthepartnershipagreementdoesnotspecifythemannerinwhichnetincomeistobe

shared,itisdistributedaccordingtocapitalcontributions.

 d.Eachpartnerhasaclaimonassetsequaltothebalanceinthepartner'scapital account.

 54.     Whichofthefollowingisnotanadvantageofthepartnershipformofbusiness? a.Mutualagency

b.Easeofformation

 c.Easeofdecisionmaking

 d.Freedomfromgovernmentalregulationsandrestrictions

  55.     ThelargestcompaniesintheUnitedStatesareprimarilyorganizedas a.limitedpartnerships.

b.partnerships. c.corporations.

d.proprietorships.

  56.     Thebasisfordividingpartnershipnetincomeornetlossisreferredtoasanyofthe followingexceptthe

a.incomeratio.

 b.incomeandlossratio. c.profitandlossratio.d.incomesharingratio.

AccountingforPartnerships         12-9

  57.     Whichofthefollowingstatementsisincorrectregardingpartnershipagreements? a.Itmaybereferredtoasthe“articlesofco-partnership.”

b.Oralagreementsarepreferabletowrittenarticles.

 c.Itshouldspecifythedifferentrelationshipsthataretoexistamongthepartners. d.Itshouldstateproceduresforsubmittingdisputestoarbitration.

 58.     Nortoninvestspersonallyownedequipment,whichoriginallycost$110,000andhas accumulateddepreciationof$30,000intheNortonandKennettpartnership.Bothpartners agreethatthefairmarketvalueoftheequipmentwas$60,000.Theentrymadebythe partnershiptorecordNorton'sinvestmentshouldbe

a.Equipment............................................................................                                                                                            110,000AccumulatedDepreciation—Equipment......................                            30,000 Norton,Capital.............................................................                            80,000

b.Equipment............................................................................            80,000

 Norton,Capital.............................................................                              80,000 c.Equipment............................................................................       60,000

LossonPurchaseofEquipment..........................................              20,000 AccumulatedDepreciation—Equipment...............................         30,000

Norton,Capital.............................................................                            110,000 d.Equipment............................................................................       60,000

Norton,Capital.............................................................                              60,000

  59.     PartnerBisinvestinginapartnershipwithPartnerA.Bcontributesaspartofhisinitial investment,AccountsReceivableof$80,000;anAllowanceforDoubtfulAccountsof $12,000;and$8,000cash.TheentrythatthepartnershipmakestorecordB'sinitial contributionincludesa

a.credittoB,Capitalfor$88,000.

 b.debittoAccountsReceivablefor$68,000. c.credittoB,Capitalfor$76,000.

d.debittoAllowanceforDoubtfulAccountsfor$12,000.

  60.     Whichofthefollowingwouldnotberecordedintheentryfortheformationofa partnership?

a.Accumulateddepreciation

 b.Allowancefordoubtfulaccounts c.Accountsreceivable

d.Allofthesewouldberecorded.

  61.     BobisinvestinginapartnershipwithJerry.Bobcontributesequipmentthatoriginallycost $63,000,hasabookvalueof$30,000,andafairmarketvalueof$39,000.Theentrythat thepartnershipmakestorecordBob'sinitialcontributionincludesa

a.debittoEquipmentfor$33,000. b.debittoEquipmentfor$63,000. c.debittoEquipmentfor$39,000.

d.credittoAccumulatedDepreciationfor$33,000.

  62.     Apartnercontributes,aspartofherinitialinvestment,accountsreceivablewithan allowancefordoubtfulaccounts.Whichofthefollowingreflectsapropertreatment?

12-10TestBankforAccountingPrinciples,EighthEdition

  a.Thebalanceoftheaccountsreceivableaccountshouldberecordedonthebooksof thepartnershipatitsnetrealizablevalue.

b.Theallowanceaccountmaybesetuponthebooksofthepartnershipbecauseit relatestotheexistingaccountsthatarebeingcontributed.

c.Theallowanceaccountshouldnotbecarriedontothebooksofthepartnership.

 d.Theaccountsreceivableandallowanceshouldnotberecordedonthebooksofthe partnershipbecauseapartnermustinvestcashinthebusiness.

 63.     Whichoneofthefollowingwouldnotbeconsideredanexpenseofapartnershipin determiningincomefortheperiod?

a.Expiredinsurance

 b.Salaryallowancetopartners c.Suppliesused

d.Freight-out

  64.     Apartnerinvestsintoapartnershipabuildingwithanoriginalcostof$90,000and accumulateddepreciationof$40,000.Thisbuildinghasa$70,000fairmarketvalue.Asa resultoftheinvestment,thepartner’scapitalaccountwillbecreditedfor

a.$70,000. b.$50,000. c.$90,000. d.$120,000.

 Usethefollowinginformationforquestions65–67.

  JamesandLauraareformingapartnership.Jameswillinvestatruckwithabookvalueof $10,000andafairmarketvalueof$14,000.Laurawillinvestabuildingwithabookvalueof $30,000andafairmarketvalueof$42,000withamortgageof$15,000.

 65.     Atwhatamountshouldthebuildingberecorded? a.$30,000

b.$27,000 c.$42,000 d.$45,000

 66.     WhatamountshouldberecordedinLaura’scapitalaccount? a.$30,000

b.$27,000 c.$42,000 d.$14,000

 67.     WhatamountshouldberecordedinJames’capitalaccount? a.$30,000

b.$27,000 c.$42,000 d.$14,000

 68.     SpeirandPablodecidetoorganizeapartnership.Speirinvests$15,000cash,andPablo contributes$12,000cashandequipmenthavingabookvalueof$6,000.Choosetheentry torecordPablo’sinvestmentinthepartnershipassumingtheequipmenthasafairmarket valueof$9,000.

AccountingforPartnerships       12-11

  a.Cash.....................................................................................             12,000 Equipment...........................................................................         6,000

Pablo,Capital.............................................................                                18,000 b.Equipment...........................................................................         6,000

Pablo,Capital.............................................................                                   6,000 c.Cash.....................................................................................       12,000

Pablo,Capital.............................................................                                12,000 d.Cash.....................................................................................       12,000

Equipment...........................................................................             9,000

 Pablo,Capital.............................................................                                21,000

   Usethefollowinginformationforquestions69–71.

  PartnersAbelandCainhavecapitalbalancesinapartnershipof$40,000and$60,000, respectively.Theyagreetoshareprofitsandlossesasfollows:

Abel           Cain

 Assalaries                                                                          $10,000                 $12,000 Asinterestoncapitalatthebeginningoftheyear                 10%                       10% Remainingprofitsorlosses                                                     50%                       50%

 69.     Ifincomefortheyearwas$50,000,whatwillbethedistributionofincometoCain? a.$23,000

b.$27,000 c.$20,000 d.$10,000

 70.     Ifincomefortheyearwas$30,000,whatwillbethedistributionofincometoAbel? a.$13,000

b.$77,000 c.$10,000 d.$14,000

 71.     Ifnetlossfortheyearwas$2,000,whatwillbethedistributiontoCain? a.$12,000income

b.$1,000income c.$1,000loss

d.$2,000loss

  72.     PartnersJimandJoehaveagreedtoshareprofitsandlossesinan80:20ratio respectively,afterJimisallowedasalaryallowanceof$140,000andJoeisalloweda salaryallowanceof$70,000.Ifthepartnershiphadnetincomeof$140,000for2008, Joe’sshareoftheincomewouldbe

a.$70,000. b.$56,000. c.$84,000. d.$14,000.

12-12TestBankforAccountingPrinciples,EighthEdition

  73.     Themostappropriatebasisfordividingpartnershipnetincomewhenthepartnersdonot plantotakeanactiveroleindailyoperationsis

a.onafixedratio.

 b.interestoncapitalbalancesandsalariestothepartners. c.onaratiobasedaveragecapitalbalances.

d.salariestothepartnersandtheremainderonafixedratio.

  74.     TheSmithandJonespartnershipagreementstipulatesthatprofitsandlosseswillbe sharedequallyaftersalaryallowancesof$160,000forSmithand$80,000forJones.At thebeginningoftheyear,Smith'sCapitalaccounthadabalanceof$320,000,whileJones' Capitalaccounthadabalanceof$280,000.Netincomefortheyearwas$200,000.The balanceofJones'Capitalaccountattheendoftheyearafterclosingis

a.$380,000. b.$80,000.c.$340,000. d.$360,000.

 75.     Apartner'sshareofnetincomeisrecognizedintheaccountsthrough a.adjustingentries.

b.closingentries.

 c.correctingentries. d.accrualentries.

 76.     ThepartnershipofNottandReesereportsnetincomeof$60,000.Thepartnersshare equallyinincomeandlosses.Theentrytorecordthepartners'shareofnetincomewill includea

a.credittoIncomeSummaryfor$60,000. b.credittoNott,Capitalfor$30,000.

c.debittoReese,Capitalfor$30,000.d.credittoReese,Drawingfor$30,000.

 77.     PartnerAreceives$210,000andPartnerBreceives$140,000inasplitof$350,000net income.Whichexpressiondoesnotreflecttheincomesplittingarrangement?

a.3:2

 b.3/5&2/5 c.6:4

d.2:1

  78.     Anincomeratiobasedoncapitalbalancesmightbeappropriatewhen a.serviceisa primaryconsideration.

b.some,butnotall,partnersplantoworkinthebusiness.

 c.fundsinvestedinthepartnershipareconsideredthecriticalfactor. d.littlenetincomeisexpected.

 79.     Ifthepartnershipagreementspecifiessalariestopartners,interestonpartners'capital, andtheremainderonafixedratio,andpartnershipnetincomeisnotsufficienttocover bothsalariesandinterest,

a.onlysalariesareallocatedtothepartners. b.onlyinterestisallocatedtothepartners.

c.theentirenetincomeissharedonafixedratio.

 d.bothsalariesandinterestareallocatedtothepartners.

AccountingforPartnerships       12-13

  80.     Whichofthefollowingwouldnotbeconsideredanexpenseofapartnershipin determiningincomefortheperiod?

a.Expiredinsuranceb.Incometaxexpense c.Rentexpense

d.Utilitiesexpense

  Usethefollowinginformationforquestions81–82.

 ThenetincomeofthePineandMilespartnershipis$180,000.Thepartnershipagreement specifiesthatPineandMileshaveasalaryallowanceof$48,000and$72,000,respectively.The partnershipagreementalsospecifiesaninterestallowanceof10%oncapitalbalancesatthe beginningoftheyear.Eachpartnerhadabeginningcapitalbalanceof$120,000.Anyremaining netincomeornetlossissharedequally.

 81.     WhatisPine'sshareofthe$180,000netincome? a.$48,000

b.$60,000 c.$66,000 d.$78,000

 82.     WhatisthebalanceofMiles'Capitalaccountattheendoftheyearafternetincomehas beendistributed?

a.$204,000 b.$192,000 c.$222,000 d.$210,000

 83.     ThenetincomeoftheTorreyandGorepartnershipis$250,000.Thepartnership agreementspecifiesthatprofitsandlosseswillbesharedequallyaftersalaryallowances of$200,000(Torrey)and$150,000(Gore)havebeenallocated.Atthebeginningofthe year,Torrey'sCapitalaccounthadabalanceof$500,000andGore'sCapitalaccounthad abalanceof$650,000.WhatisthebalanceofGore'sCapitalaccountattheendofthe yearafterprofitsandlosseshavebeendistributed?

a.$650,000 b.$100,000 c.$750,000 d.$775,000

 84.     Apartners'capitalstatementexplains

 a.theamountoflegalliabilityofeachofthepartners.

 b.thetypesofassetsinvestedinthebusinessbyeachpartner.

 c.howthepartnershipwillbecapitalizedifanewpartnerisadmittedtothepartnership.d.thechangesineachpartner'scapitalaccountandintotalpartnershipcapitalduringa

period.

  85.     Eachofthefollowingisusedinpreparingthepartners’capitalstatementexceptthe a.balancesheet.

b.incomestatement.

 c.partners’capitalaccounts.d.partners’drawingaccounts.

12-14TestBankforAccountingPrinciples,EighthEdition

  86.     Theowners'equitystatementforapartnershipiscalledthe a.partners'proportionalstatement.

b.partners'capitalstatement.

 c.statementofshareholders'equity. d.capitalanddrawingstatement.

 87.     Whichofthefollowingwouldnotcauseanincreaseinpartnershipcapital? a.Drawings

b.Netincome

 c.Additionalcapitalinvestmentbythepartners d.Initialcapitalinvestmentbythepartners

 88.     JillGrier'scapitalstatementrevealsthatherdrawingsduringtheyearwere$50,000.She madeanadditionalcapitalinvestmentof$25,000andhershareofthenetlossforthe yearwas$10,000.Herendingcapitalbalancewas$200,000.WhatwasJillGrier's beginningcapitalbalance?

a.$225,000 b.$185,000 c.$235,000 d.$260,000

 89.     BillWrenstartedtheyearwithacapitalbalanceof$180,000.Duringtheyear,hisshareof partnershipnetincomewas$160,000andhewithdrew$30,000fromthepartnershipfor personaluse.Hemadeanadditionalcapitalcontributionof$50,000duringtheyear.The amountofBillWren'scapitalbalancethatwillbereportedontheyear-endbalancesheet willbe

a.$160,000. b.$390,000. c.$300,000. d.$360,000.

 90.     ThePartners'CapitalStatementfortheUnitedCenterreportedthefollowinginformationin total:

Capital,January1..................................................$120,000 Additionalinvestment.............................................        40,000 Drawings................................................................        80,000 Netincome.............................................................     100,000

 Thepartnershiphasthreepartners:Moon,Garr,andRicewithendingcapitalbalancesin aratio40:20:40.Whataretherespectiveendingbalancesof thethreepartners?

a.Moon,$80,000;Garr,$40,000;Rice, $80,000. b.Moon,$72,000:Garr,$36,000;Rice, $72,000.

c.Moon,$136,000;Garr,$68,000;Rice,$136,000. d.Moon,$90,000;Garr,$48,000;Rice, $90,000.

AccountingforPartnerships       12-15

  91.     ThetotalcolumnofthePartners'CapitalStatementforNorth Companyis asfollows:

 Capital,January1................................................. Additionalinvestment............................................ Drawings............................................................... Netincome............................................................

$150,000 60,000 90,000 180,000

 Thepartnershiphasthreepartners.Thefirsttwopartnershaveendingcapitalbalances thatareequal.Theendingbalanceofthethirdpartnerishalfoftheendingbalanceofthe firstpartner. Whatistheendingcapitalbalanceofthethirdpartner?

a.$72,000 b.$48,000 c.$60,000 d.$66,000

 92.     Thepartners'drawingaccountsare

 a.reportedontheincomestatement. b.reportedonthebalancesheet.

c.closedtoIncomeSummary.

 d.closedtothepartners'capitalaccounts.

 93.     TheUniformPartnershipActprovidesthat

 a.apurchaserofapartnershipinterestisnotapartneruntilheorsheisacceptedinto thefirmbythecontinuingpartners.

b.apartnermustobtaintheapprovalofotherpartnersbeforesellinghisorherinterest.c.thepricepaidinapurchaseofpartner'sinterestmustbeequaltothecapitalequity

acquired.

 d.thepricepaidinapurchaseofpartner'sinterestmustbegreaterthanthecapital equityacquired.

 94.     Thebalancesheetofapartnershipwill

 a.reportretainedearningsbelowthepartnershipcapitalaccounts. b.showaseparatecapitalaccountforeachpartner.

c.showaseparatedrawingaccountforeachpartner.

 d.showtheamountofincomethatwasdistributedtoeachpartner.

 95.     Theliquidationofapartnershipmayresultfromeachofthefollowingexceptthe a.bankruptcyofthepartnership.

b.deathofapartner.

 c.retirementofapartner.

 d.saleofthebusinessbythepartners.

 96.     Intheliquidationofapartnership,anygainorlossontherealizationofnoncashassets shouldbeallocated

a.firsttocreditorsandtheremaindertopartners.

 b.tothepartnersonthebasisoftheircapitalbalances.

 c.tothepartnersonthebasisoftheir income-sharingratio. d.onlyafterallcreditorshavebeenpaid.

 97.     Intheliquidationofapartnership,anypartnerwhohasacapitaldeficiency a.hasapersonaldebttothepartnershipfortheamountofthedeficiency. b.isautomaticallyterminatedasapartner.

c.willreceiveacashdistributiononlyonthebasisofhisorherincome-sharingratio. d.isnotobligatedtomakeupthecapitaldeficiency.

12-16TestBankforAccountingPrinciples,EighthEdition

  98.     PartnersA,B,andChavecapitalaccountbalancesof$120,000each.Theincomeand lossratiois5:2:3,respectively.Intheprocessofliquidatingthepartnership,noncash assetswithabookvalueof$100,000aresoldfor$40,000.ThebalanceofPartnerB's Capitalaccountafterthesaleis

a.$90,000. b.$102,000. c.$108,000. d.$132,000.

 Usethefollowinginformationforquestions99–101.

  Thepartners'incomeandlosssharingratiois2:3:5,respectively.

 D,E,ANDFPARTNERSHIP BalanceSheetDecember31,2008

 Assets                                                        LiabilitiesandOwners'Equity

 Cash

 Noncashassets

   Total

$90,000 570,000

   $660,000

Liabilities D,Capital E,Capital F,Capital

Total

$300,000 120,000 180,000

           60,000$660,000

  99.     IftheD,E,andFPartnershipisliquidatedbysellingthenoncashassetsfor$390,000and creditorsarepaidinfull,whatistheamountofcashthatcanbesafelydistributedtoeach partner?

a.D,$72,000;E,$108,000;F,$0.

 b.D,$84,000;E,$126,000;F,$30,000. c.D,$69,000;E,$111,000;F,$0.

d.D,$66,000;E,$114,000;F,$0.

  100.     IftheD,E,andFPartnershipisliquidatedbysellingthenoncashassetsfor$750,000, andcreditorsarepaidinfull,whatisthetotalamountofcashthatPartnerDwillreceivein thedistributionofcashtopartners?

a.$36,000 b.$234,000 c.$156,000 d.$150,000

 101.     IftheD,E,andFPartnershipisliquidatedandthenoncashassetsareworthless,the creditorswilllooktowhatpartner'spersonalassetsforsettlementofthecreditors'claims? a.ThepersonalassetsofPartnerE.

b.ThepersonalassetsofPartnersDandF.

 c.ThepersonalassetsofPartnersD,E,andF.

 d.Thepersonalassetsofthepartnersarenotavailableforpartnershipdebts.

AccountingforPartnerships       12-17

  102.     Ifapartnerhasacapitaldeficiencyanddoesnothavethepersonalresourcestoeliminate it,

a.thecreditorswillhavetoabsorbthecapitaldeficiency.

 b.theotherpartnerswillabsorbthecapitaldeficiencyonthebasisoftheirrespective capitalbalances.

c.theotherpartnerswillhavetoabsorbthecapitaldeficiencyonthebasisoftheir respectiveincomesharingratios.

d.neitherthecreditorsnortheotherpartnerswillhavetoabsorbthecapitaldeficiency.

  103.     Whenapartnershipterminatesbusiness,thesaleofnoncashassetsiscalled a.liquidation.

b.realization. c.recognition. d.disposition.

 104.     Theliquidationofapartnership

 a.cannotbeavoluntaryactofthepartners. b.terminatesthebusiness.

c.eliminatesthosepartnerswithacapitaldeficiency. d.cannotoccurunlessallpartnersapprove.

 105.     Theliquidationofapartnershipisaprocesscontainingthefollowingsteps:

 1.Paypartnershipliabilitiesincash.

 2.Allocatethegainorlossonrealizationtothepartnersontheirincomeratios. 3.Sellnoncashassetsforcashandrecognizeagainorlossonrealization.

4.Distributeremainingcashtopartnersonthebasisoftheirremainingcapitalbalances.

 Identifythepropersequencingofthestepsintheliquidationprocess. a.3,2,4,1.

b.3,2,1,4. c.1,3,2,4. d.1,4,3,2.

 106.     Inthefinalstepoftheliquidationprocess,remainingcashisdistributedtopartners a.onanequalbasis.

b.onthebasisoftheincomeratios.

 c.onthebasisoftheremainingcapitalbalances. d.regardlessofcapitaldeficiencies.

 107.     Intheliquidationprocess,ifacapitalaccountshowsadeficiency

 a.thepartnerwithadeficiencyhasanobligationtothepartnershipfortheamountofthe deficiency.

b.itmaybewrittenofftoa"Loss"account.

 c.itisdisregardeduntilafterthepartnershipbooksareclosed. d.itcanbewrittenofftoa"Gain"account.

 108.     Beforedistributinganyremainingcashtopartnersinapartnershipliquidation,itis necessarytodoeachof thefollowingexcept

a.sellnoncashassetsforcash.

 b.recognizeagainorlossonrealization.

 c.allocatethegainorlosstothepartnersbasedontheircapitalbalances. d.paypartnershipliabilitiesincash.

12-18TestBankforAccountingPrinciples,EighthEdition

  109.     Kate,Sue,andTinaformedapartnershipwithincome-sharingratiosof50%,30%,and 20%,respectively.Cashof$180,000wasavailableafterthepartnership’sassetswere liquidated.Priortothefinaldistributionofcash,Kate’scapitalbalancewas$200,000, Sue’scapitalbalancewas$150,000,andTinahadacapitaldeficiencyof$50,000.Based uponacashpaymentsschedule,Kateshouldreceive

a.$175,000. b.$168,750. c.$131,250. d.$200,000.

 110.     A,BandCarepartners,sharingincome2:1:2.Aftersellingalloftheassetsforcash, dividinggainsandlossesonrealization,andpayingliabilities,thebalancesinthecapital accountsareasfollows:A,$10,000Cr;B,$10,000Cr;andC,$30,000Cr.Howmuch cashshouldbedistributedtoA?

a.$6,000 b.$20,000 c.$10,000 d.$16,667

 111.     Inliquidation,balancespriortothedistributionofcashtothepartnersare:Cash$300,000; Moorman,Capital$140,000;Simpson,Capital$130,000,andKelton,Capital$30,000. Theincomeratiois6:2:2,respectively.Howmuchcashshouldbedistributedto Moorman?

a.$125,000 b.$136,250 c.$140,000 d.$150,000

 112.     Assumethesamefactsinquestion111above,exceptthatthereisonly$255,000incash andKeltonhasacapitaldeficiencyof$15,000.Howmuchcashshouldbedistributedto SimpsonifKeltondoes notpayhisdeficiency?

a.$122,500 b.$126,250 c.$118,750 d.$130,000

 a113.    D.Givenspurchasesa25%interestfor$30,000whentheSuppan,Porter,James partnershiphastotalcapitalof$270,000.PriortotheadmissionofGivens,eachpartner hasacapitalbalanceof$90,000.Eachpartnerrelinquishesanequalamountofhiscapital balancetoGivens.TheamounttoberelinquishedbyJamesis

a.$15,000. b.$19,000. c.$22,500. d.$37,500.

 a114.Bryantisadmittedtoapartnershipwitha25%capitalinterestbyacashinvestmentof $90,000.Iftotalcapitalofthepartnershipis$390,000beforeadmittingBryant,thebonus toBryantis

a.$30,000. b.$15,000. c.$45,000. d.$60,000.

AccountingforPartnerships       12-19

  Usethefollowinginformationforquestions115–116.

  CarleyandKingmanarepartnerswhoshareincomeandlossesintheratioof3:2,respectively. OnAugust31,theircapitalbalanceswere:Carley,$175,000andKingman,$150,000.Onthat date,theyagreetoadmitLernerasapartnerwithaone-thirdcapital interest.

 a115.IfLernerinvests$125,000inthepartnership,whatisCarley'scapitalbalanceafter Lerner'sadmittance?

a.$150,000 b.$158,333 c.$160,000 d.$175,000

 a116.IfLernerinvests$200,000inthepartnership,whatisKingman'scapitalbalanceafter Lerner'sadmittance?

a.$175,000 b.$160,000 c.$157,500 d.$150,000

 a117.KingandNottarepartnerswhoshareprofitsandlossesequallyandhavecapital balancesof$560,000and$490,000,respectively.Starrisadmittedintothepartnership byinvesting$490,000for30%capitalinterest.TheaccountbalanceofNott,Capitalafter theadmissionofStarrwouldbe

a.$462,000. b.$476,000. c.$504,000. d.$490,000.

 a118.StineandWatsonhavepartnershipcapitalbalancesof$320,000and$240,000, respectively.WatsonnegotiatestosellhispartnershipinteresttoLearyfor$280,000. StineagreestoacceptLearyasanewpartner.Thepartnershipentrytorecordthis transactionis

a.Cash.....................................................................................           280,000

 Leary,Capital..............................................................                             280,000 b.Watson,Capital....................................................................     280,000

Leary,Capital..............................................................                             280,000 c.Cash.....................................................................................       40,000

Watson,Capital....................................................................        240,000

 Leary,Capital..............................................................                             280,000 d.Watson,Capital....................................................................     240,000

Leary,Capital..............................................................                             240,000

 a119.HillandEddysharepartnershipprofitsandlossesintheratioof6:4.Hill'sCapitalaccount balanceis$320,000andEddy’sCapitalaccountbalanceis$200,000.Porterisadmittedto thepartnershipbyinvesting$360,000andistoreceiveaone-fourthownershipinterest.Hill, Eddy andPorter's capitalbalancesafter Porter'sinvestment will be

Hill         Eddy       Porter

 a.$320,000            $200,000         $360,000 b.$404,000                              $256,000         $220,000 c.$396,000                              $264,000         $220,000 d.$390,000                              $270,000         $220,000

12-20TestBankforAccountingPrinciples,EighthEdition

 a120.JudyandDebhavepartnershipcapitalaccountbalancesof$600,000and$450,000, respectivelyandshareprofitsandlossesequally.Anneisadmittedtothepartnershipby investing$250,000foraone-fourthownershipinterest.ThebalanceofDeb'sCapital accountafterAnneisadmittedis

a.$412,500. b.$450,000. c.$487,500. d.$325,000.

 a121.Theadmissionofanewpartnertoanexistingpartnership

 a.maybeaccomplishedonlybyinvestingassetsinthepartnership. b.requirespurchasingtheinterestofoneormoreexistingpartners. c.causesalegaldissolutionoftheexistingpartnership.

d.isalmostalwaysaccompaniedbytheliquidationofthebusiness.

 a122.Whenapartnershipinterestispurchased

 a.everypartner’scapitalaccountisaffected.

 b.thetransactionisapersonaltransactionbetweenthepurchaserandtheselling partner(s).

c.thebuyerreceivesequityequaltotheamountofcashpaid. d.allpartnerswillreceivesomepartofthepurchaseprice.

 a123.AdlerandLynneachsell1/3oftheirpartnershipinteresttoSele,receiving$140,000each. Atthetimeoftheadmission,eachpartnerhasa$420,000capitalbalance.Theentryto recordtheadmissionofSelewillshowa

a.debittoCashfor$280,000.

 b.credittoSele,Capitalfor$420,000. c.debittoLynn,Capitalfor$420,000. d.debittoAdler,Capitalfor$140,000.

 a124.BallandGantsell1/4oftheirpartnershipinteresttoIvesreceiving$200,000each.Atthe timeofadmission,BallandGanteachhada$350,000capitalbalance.Theadmissionof Iveswillcausethenetpartnershipassetsto

a.increaseby$400,000. b.remainat$700,000.

c.decreaseby$400,000. d.remainat$1,100,000.

 a125.ColeandGlennselltoNabba1/3interestintheCole-Glennpartnership.Nabbwillpay ColeandGlenneach$70,000foradmissionintotheorganization.Beforethistransaction, ColeandGlennshowcapitalbalancesof$105,000each.Thejournalentrytorecordthe admissionofNabbwill

a.showadebittoCashfor$140,000. b.notshowadebittoCash.

c.showadebittoGlenn,Capitalfor$70,000. d.showacredittoNabb,Capitalfor$140,000.

AccountingforPartnerships       12-21

 a126.Foxxinvests$20,000incash(admissionbyinvestment)intheMassey-Dixpartnershipto acquirea1/4interest.Inthiscase

a.theaccountingwillbethesameasapurchaseofaninterest.

 b.thetotalnet assets of thenewpartnershipareunchanged fromthepreviouspartnership. c.thetotalcapitalofthenewpartnershipisgreaterthanthetotalcapitaloftheold

partnership.

 d.Foxx'sincomeratiowillautomaticallybe1/4.

 a127.Whichofthefollowingiscorrectwhenadmittinganewpartnerintoanexisting partnership?

PurchaseofanInterest                    AdmissionbyInvestment a.Totalnetassets                    unchanged                                       unchanged

b.Totalcapital                        increased                                          unchanged c.Totalnetassets                    unchanged                                        increasedd.Totalcapital                                             unchanged                                        unchanged

 a128.Whenadmittinganewpartnerbyinvestment,abonustooldpartners

 a.isusuallyunjustifiedbecausebookvaluesclearlyreflectpartnershipnetworth.

 b.issometimes justifiedbecause goodwill may exist andit isnot reflected in theaccounts. c.resultsifthedebittocashislessthanthenewpartner'scapitalcredit.

d.resultsifthedebittocashisequaltothenewpartner'scapitalcredit.

 a129.Whenadmittinganewpartnerbyinvestment,abonustooldpartnersisallocatedon a.thebasisofcapitalbalances.

b.thebasisoftheoriginalinvestmentoftheoldpartners.

 c.thebasisofincomeratiosbeforetheadmissionofthenewpartner. d.asenioritybasis.

 a130.Abonustoanewpartner a.isprohibitedbyGAAP.

b.resultswhenthenewpartner'scapitalcreditislessthanhisorherinvestmentof assetsinthefirm.

c.mayoccurwhenrecordedbookvaluesarelowerthanmarketvalues.

 d.resultswhenthenewpartner'scapitalcreditisgreaterthanhisorherinvestmentof assetsinthefirm.

 a131.Abonustoanewpartnerwill

 a.increasethecapitalbalancesofexistingpartnersbasedontheirincomeratiosbefore theadmissionofthenewpartner.

b.increasethecapitalbalancesofexistingpartnersbasedontheirincomeratiosafter theadmissionofthenewpartner.

c.decreasethecapitalbalancesofexistingpartnersbasedontheirincomeratiosbefore theadmissionofthenewpartner.

d.decreasethecapitalbalancesofexistingpartnersbasedontheircapitalbalances beforetheadmissionofthenewpartner.

 a132.Jane,Ken,andMarkhavepartnershipcapitalaccountbalancesof$225,000,$450,000 and$105,000,respectively.TheincomesharingratioisJane,50%;Ken,40%;andMark, 10%.Janedesirestowithdrawfromthepartnershipanditisagreedthatpartnership assetsof$195,000willbeusedtopayJaneforherpartnershipinterest.Thebalancesof Ken'sandMark'sCapitalaccountsafterJane'swithdrawalwouldbe

12-22TestBankforAccountingPrinciples,EighthEdition

  a.Ken,$450,000;Mark,$105,000. b.Ken,$474,000;Mark,$111,000. c.Ken,$426,000;Mark,$99,000. d.Ken,$435,000;Mark,$90,000.

 a133.Ace,Bell,andColehavepartnershipcapitalaccountbalancesof$400,000each.Income andlossesaresharedequally.Coleagreestosellthree-fourthsofhisownershipinterest toAcefor$350,000andone-fourthtoBellfor$125,000.AceandBellwillusepersonal assetstopurchaseCole'sinterest.Thepartnership'sentrytorecordCole'swithdrawal fromthepartnershipwouldbe

a.Cole,Capital.......................................................................             475,000

 Cash..........................................................................                               475,000 b.Cole,Capital.......................................................................     475,000

Ace,Capital...............................................................                               350,000 Bell,Capital................................................................                              125,000

c.Cole,Capital.......................................................................             400,000

 Ace,Capital...............................................................                               300,000 Bell,Capital................................................................                              100,000

d.Ace,Capital........................................................................             356,250 Bell,Capital.........................................................................         118,750

Cole,Capital.............................................................                                475,000

 a134.Whenapartnerwithdrawsfromthefirm,whichofthefollowingreflectsthecorrect partnershipeffects?

Paymentfrom                         Paymentfrom Partners'PersonalAssetsPartnershipAssets

a.Totalnetassets                       decreased                                decreased b.Totalcapital                           decreased                                decreased c.Totalnetassets                       unchanged                               decreased d.Totalcapital                          unchanged                               unchanged

 a135.Whichofthefollowingisnotanecessaryactionthatthepartnershipmusttakeuponthe deathofapartner?

a.Determinethenetincomeornetlossfortheyeartodate. b.Discontinuebusinessoperations.

c.Closethebooks.

 d.Preparefinancialstatements.

  Usethefollowinginformationforquestions136–138.

  OnNovember30,capitalbalancesareGray$90,000,Carr$75,000andMelton$75,000.The incomeratiosare20%,20%and60%,respectively.Graydecidestoretirefromthepartnership.

 a136.ThepartnershippaysGray$105,000cashforherpartnershipinterest.AfterGray's retirement,whatisthebalanceof Carr'scapitalaccount?

a.$71,250 b.$72,000 c.$75,000 d.$97,500

AccountingforPartnerships       12-23

 a137.ThepartnershippaysGray$75,000cashforherpartnershipinterest.AfterGray's retirement,whatisthebalanceofMelton'scapitalaccount?

a.$66,000 b.$75,000 c.$84,000 d.$86,250

 a138.InorderforCarrandMeltontohaveequalcapitalinterestsaftertheretirementofGray, howmuchpartnershipcashwouldhavetobepaidtoGrayforherpartnershipinterest?

a.$0

 b.$80,000 c.$90,000

d.AnyamountpaidtoGraywillcauseCarrandMeltontostillhaveequalcapital balances.

 AdditionalMultipleChoiceQuestions

  139.     Allofthefollowingarecharacteristicsofpartnershipsexcept a.co-ownershipofproperty.

b.mutualagency. c.unlimitedlife.

d.association ofindividuals.

  140.     TheButkus,Sayers,andHalaspartnershipisterminatedwhentheclaimsofcompany creditorsexceedpartnershipassetsby$50,000.ThecapitalbalancesforButkus,Sayers, andHalasare$35,000,$5,000,and$0,respectively.Theoriginalclaimsofthecreditors werenegotiatedbySayersandHalas.Whichpartner(s)is(are)personallyandindividually liableforallpartnershipliabilities?

a.Butkus b.Sayers

c.SayersandHalas

 d.Butkus,Sayers,andHalas

  141.     Whenapartnerinvestsnoncashassetsinapartnership,theassetsshouldberecordedat their

a.bookvalue.

 b.carryingvalue.

 c.fairmarketvalue. d.originalcost.

 142.     ThepartnershipagreementofRossiandPetryprovidesforsalaryallowancesof$45,000 toRossiand$35,000toPetry,withtheremainingincomeorlosstobedividedequally. Duringtheyear,RossiandPetryeachwithdrawcashequalto80%oftheirsalary allowances.Ifpartnershipnetincomeis$100,000,Rossi'sequityinthepartnershipwould a.increasemorethanPetry’s.

b.decreasemorethanPetry's.c.increasethesameasPetry's. d.decreasethesameasPetry's.

12-24TestBankforAccountingPrinciples,EighthEdition

  143.     Whichofthefollowingstatementsiscorrect?

 a.Salariestopartnersandinterestonpartners'capitalareexpensesofthepartnership.b.Salariestopartnersareexpensesofthepartnershipbutnotinterestonpartners'

capital.

 c.Interestonpartners'capitalisanexpenseofthepartnershipbutnotsalariesto partners.

d.Neithersalariestopartnersnorinterestonpartners'capitalareexpensesofthe partnership.

 144.     Intheliquidationofapartnership,thegainsandlossesfromassetssoldare a.dividedequallyamongthepartners.

b.dividedamongthepartnersinthestatedincomeratio.

 c.dividedamongthepartnersinproportiontotheircapitalequityinterests. d.ignored.

 145.     Ifapartnerwithacapitaldeficiencyisunabletopaytheamountowedtothepartnership, thedeficiencyisallocatedtothepartnerswithcreditbalances

a.equally.

 b.onthebasisoftheirincomeratios.

 c.onthebasisoftheircapitalbalances.

 d.onthebasisoftheiroriginalinvestments.

  146.     Anentryisnotrequiredintheliquidationofapartnershiptorecordthe a.paymentofcashtocreditors.

b.distributionofcashtothepartners. c.saleofnoncashassets.

d.allocationofacapitaldeficiencytopartnerswithcreditbalanceswhenthedeficient partnerisexpectedtopaythedeficiency.

 147.     Thefirststepintheliquidationofapartnershipisto

 a.allocateagainorlossonrealizationtothepartners. b.distributeremainingcashtothepartners.

c.paypartnershipliabilities.

 d.sellnoncash assetsandrecognizeagainorlossonrealization.

  148.     BakerjoinsthepartnershipofKubekandMusialbypaying$30,000incash.Ifthenet assetsofthepartnershiparestillthesameamountafterBakerhasbeenadmittedasa partner,thenBaker

a.musthavebeenadmittedbyinvestmentofassets.

 b.musthavebeenadmittedbypurchaseofapartner'sinterest. c.musthavereceivedabonusuponbeingadmitted.

d.couldhavebeenadmittedbyaninvestmentofassetsorbyapurchaseofapartner's interest.

  149.     Loweisadmittedtoapartnershipwitha25%capitalinterestbyacashinvestmentof $120,000.Iftotalcapitalofthepartnershipis$520,000beforeadmittingLowe,thebonus toLoweis

a.$40,000. b.$20,000. c.$60,000. d.$80,000.

       BRIEFEXERCISES

BE150

BrandyandJohnsondecidetoorganizeapartnership.Brandyinvests$25,000cash,and Johnsoncontributes$5,000andequipmenthavingabookvalueof$3,500andafairmarket valueof$10,000.

 Instructions

 Preparetheentrytorecordeachpartner’sinvestment.

    BE151

 TontoCompanyandRangerCompanydecidetomergetheirproprietorshipsintoapartnership calledWestwardHoCompany.ThebalancesheetofRangerCompanyshows:

 AccountsReceivable

 Less:Allowancefordoubtfulaccounts

  Equipment

Less:Accumulateddepreciation

$15,000

     1,500

  $20,000

10,000

 $13,500

   $10,000

  Thepartnersagreethatthenetrealizablevalueofthereceivablesis$12,500andthatthefair marketvalueoftheequipmentis$15,000.

 Instructions

 Indicatehowthefouraccountsshouldappearintheopeningbalancesheetofthepartnership.

    BE152

 TheJill&FrillCo.reportsnetincomeof$28,000.InterestallowancesareJill$3,000andFrill $5,000;partnersalaryallowancesareJill$18,000andFrill$10,000andtheremainderisshared equally.

   Instructions

 Indicatethedivisionofnetincometoeachpartner,andpreparetheentrytodistributethenet income.

    BE153

 DebaugeCo.hadbeginningcapitalbalancesonJanuary1,2008,asfollows:NickFoley$30,000 andTomWenger$25,000.Duringtheyear,drawingswereFoley$15,000andWenger$8,000. Netincomewas$50,000,andthepartnersshareincomeequally.

 Instructions

 Preparethepartners’capitalstatementfortheyear.

    BE154

 Afterliquidatingnoncashassetsandpayingcreditors,accountbalancesintheMainCo.areCash $29,000,ACapital(Cr.)$11,000,BCapital(Cr,)$8,000andCCapital(Cr.)$10,000.The partnersshareincomeequally.

 Instructions

 Journalizethefinaldistributionofcashtothepartners.

    BE155

 BarnesCompanyatDecember31hascash$40,000,noncashassets$200,000,liabilities $110,000,andthefollowingcapitalbalances:Carpenter$90,000andPendleton$40,000.The firmisliquidated,and$240,000incashisreceivedforthenoncashassets.Carpenterand Pendletonincomeratiosare60%and40%,respectively.

 Instructions

 Prepareacashdistributionschedule.

    BE156

 InNelsonCo.,capitalbalancesareOzzie$60,000andHarriet$75,000.Thepartnersshare incomeequally.Dennyisadmittedtothefirmwitha40%interestbyaninvestmentofcashof $65,000.JournalizetheadmissionofDenny.

  BE157

 BobandKathyarepartnerswhoshareprofits60%and40%.Theircapitalbalanceswereboth $90,000beforeBettywasadmittedtothepartnership.Bettycontributed$120,000incashtothe partnershipfora30%interest.

 Instructions

 ComputethecapitalbalancesofBobandKathyafterBettyisadmittedtothepartnership.

AccountingforPartnerships       12-29

 BE158

 CapitalbalancesinJetsonCo.areGeorge$50,000,Jane$38,000,andFrank$25,000.The partnersshareincomeequally.Frankreceives$35,000frompartnershipassetsinwithdrawing fromthefirm.

 Instructions

 JournalizethewithdrawalofFrank.

   BE159

 Mike,Andy,andJoearepartnerswhoshareprofits40%,20%,and40%.Theircapitalbalances were$630,000,$420,000,and$210,000,respectively,beforeJoe’sretirement.Joewaspaid $270,000frompartnershipassetstobuyhisinterest.

 Instructions

 ComputethecapitalbalancesofMikeandAndyafterJoehaswithdrawn.

   EXERCISES

Ex.160

DickAcerandGeorgeDooleydecidetoformapartnership.Acerinvests$25,000cashand accountsreceivableof$30,000lessallowancefordoubtfulaccountsof$2,000.Dooley contributes$20,000cashandequipmenthavinga$6,000bookvalue.Itisagreedthatthe allowanceaccountshouldbe$3,000andthefairmarketvalueoftheequipmentis$10,000.

 Instructions

 Preparethenecessaryjournalentrytorecordtheformationofthepartnership.

    Ex.161

 KenLottandJimStineoperateseparateautorepairshops.OnJanuary1,2008,theydecideto combinetheirseparatebusinesseswhichwereoperatedasproprietorshipstoformL&SAuto Repair,apartnership.Informationfromtheirseparatebalancesheetsispresentedbelow:

  Cash

Accountsreceivable

Allowancefordoubtfulaccounts Accountspayable

Notespayable Salariespayable Equipment

Accumulatedamortization—Equipment

LottAutoRepair $10,000

9,000 1,000 5,000

— 1,000

12,000 2,000

StineAutoRepair $12,000

10,000 500 6,000 3,000 1,500 24,000 4,000

  ItisagreedthattheexpectedrealizablevalueofLott'saccountsreceivableis$8,000andStine's receivablesis$7,000.ThefairmarketvalueofLott'sequipmentis$13,000andthevalueof Stine'sequipmentis$20,000.Itisfurtheragreedthatthenewpartnershipwillassumeall liabilitiesoftheproprietorshipswiththeexceptionofthenotespayableonStine'sbalancesheet whichhewillpayhimself.

 Instructions

 Preparethejournalentriesnecessarytorecordtheformationofthepartnership.

AccountingforPartnerships       12-31

   Ex.162

 TheSmithandWilsonpartnershipreportsnetincomeof$45,000.Partnersalaryallowancesare Smith$18,000andWilson$12,000.Anyremainingincomeisshared60:40.

 Instructions

 Determinetheamountofnetincomeallocatedtoeachpartner.

    Ex.163

 Bass,Ellis,andGorenformedapartnershiponJanuary1,2008.Bassinvested$60,000,Ellis $60,000andGoren$140,000.Basswillmanagethestoreandwork40hoursperweekinthe store.Elliswillwork20hoursperweekinthestore,andGorenwillnotwork.Eachpartner withdrew30percentofhisincomedistributionduring2008.Iftherewasnoincomedistributionto apartner,therewerenowithdrawalsofcash.

 Instructions

 Computethepartners'capitalbalancesattheendof2008underthefollowingindependent conditions:(Hint:useTaccountstodetermineeachpartner'scapitalbalances.)

  Ex.163         (cont.)

 (1)    Netincomeis$120,000 andtheincomeratioisBass40%,Ellis35%,andGoren25%.

 (2)    Netincomeis$140,000andthepartnershipagreementonlyspecifiesasalaryof$50,000to Bassand$30,000toEllis.

(3)    Netincomeis$86,000andthepartnershipagreementprovidesfor(a)asalaryof$40,000to Bassand$40,000toEllis,(b)interestonbeginningcapitalbalancesattherateof10%,and (c)anyremainingincomeorlossistobesharedbyBass40%,Ellis35%,andGoren25%.

    Ex.164

 CarlinandLarvehaveapartnershipagreementwhichincludesthefollowingprovisionsregarding sharingnetincomeornetloss:

 1.Asalaryallowanceof$54,000toCarlinand$36,000toLarve.

 2.Aninterestallowanceof10%oncapitalbalancesatthebeginningoftheyear. 3.Theremaindertobedivided60%toCarlinand40%toLarve.

 ThecapitalbalanceonJanuary1,2008,forCarlinandLarvewas$90,000and$120,000, respectively.During2008,theCarlinandLarvePartnershiphadsalesof$495,000,costofgoods soldof$290,000,andoperatingexpensesof$75,000.

 Instructions

 PrepareanincomestatementfortheCarlinandLarvePartnershipfortheyearendedDecember 31,2008.Asapartoftheincomestatement,includeaDivisionofNetIncometoeachofthe partners.

   Ex.165

 Hope&CrosbyCo.reportsnetincomeof$34,000.Thepartnershipagreementprovidesfor annualsalariesof$24,000forHopeand$15,000forCrosbyandinterestallowancesof$4,000to Hopeand$6,000toCrosby.Anyremainingincomeorlossistobeshared70%byHopeand 30%byCrosby.

 Instructions

 Computetheamountofnetincomedistributedtoeachpartner.

   Ex.166

 TheadjustedtrialbalanceoftheKarrisandWattsPartnershipfortheyearendedDecember31, 2008,appearsbelow:

KARRISANDWATTSPARTNERSHIP AdjustedTrialBalance

FortheYearEndedDecember31,2008

  CurrentAssets....................................................................................... PlantAssets.......................................................................................... CurrentLiabilities................................................................................... Long-termDebt..................................................................................... Karris,Capital........................................................................................ Karris,Drawing...................................................................................... Watts,Capital........................................................................................ Watts,Drawing...................................................................................... Sales..................................................................................................... CostofGoodsSold............................................................................... OperatingExpenses..............................................................................

Debit

 19,000 80,000

    4,000

  7,000

  62,000

23,000195,000

Credit

   7,000 50,000 20,000

 18,000

  100,000

   195,000

  Thepartnershipagreementstipulatesthatadivisionofpartnershipnetincomeornetlossistobe madeasfollows:

1.Asalaryallowanceof$12,000toKarrisand$23,000toWatts. 2.Theremainderistobedividedequally.

 Instructions

 (a)    Prepareaschedulewhichshowsthedivisionofnetincometoeachpartner.

 (b)    Preparetheclosingentriesforthedivisionofnetincomeandforthedrawingaccountsat December31,2008.

    Ex.167

 KimCareyandMaryHallhaveformedtheCHPartnership,andhavecapitalbalancesof $130,000and$100,000,respectively,onJanuary1,2008.OnJune1,2008,Hallinvestedan additional$30,000.Alsoduringtheyear,Careywithdrew$60,000andHallwithdrew$48,000. Salesfortheyearamountedto$360,000andexpenseswere$260,000.CareyandHallshare incomeandlossesona3:1basis.

 Instructions

 (a)     PreparetheclosingentriesatDecember31,2008,fortheCHPartnership. (b)         Prepareapartners'capitalstatementfor2008.

   Ex.168

 Prepareapartners'capitalstatementforCrestwoodCompanybasedonthefollowinginformation.

 Crest      Wood

 Beginningcapital                    $30,000           $27,000 Drawingsduringyear              15,000               8,000

 Netincomewas$35,000,andthepartnersshareincome60%toCrestand40%toWood.

    Ex.169

 OnDecember31,ThompsonCompanyhascash$30,000,noncashassets$150,000,and liabilities$80,000.CapitalbalanceswereTerry$55,000andNott$45,000.Thefirmisliquidated, andthenoncashassetsaresoldfor$125,000.TerryandNottshareincomeina60:40ratio.

 Instructions

 Prepareentriestorecord(a)thesaleofnoncashassetsand(b)theallocationofthegain(loss) onliquidationtothepartners.

AccountingforPartnerships       12-37

   Ex.170

 TheABCPartnershipistobeliquidatedandyouhavebeenhiredtoprepareaScheduleofCash Paymentsforthepartnership.PartnersA,B,andCshareincomeandlossesintheratioof4:3:3, respectively.Assumethefollowing:

 1.Thenoncashassetsweresoldfor$75,000. 2.Liabilitieswerepaidinfull.

3.Theremainingcashwasdistributedtothepartners.(Ifanypartnerhasacapital deficiency,assumethatthepartnerisunabletomakeupthecapitaldeficiency.)

 Instructions

 Usingtheaboveinformation,completetheScheduleofCashPaymentsbelow:

  ABCPARTNERSHIP ScheduleofCashPayments

  Item                       Cash+ Balancesbefore

liquidation         25,000+

Noncash

 Assets=

  150,000=

 Liabilities+

  50,000      +

A Capital+

 25,000+

B Capital+

 35,000+

C Capital

 65,000

    Ex.171

 TheODSPartnershipistobeliquidatedwhentheledgershowsthefollowing:

 Cash

NoncashAssets Liabilities

Oslo,Capital Decker,Capital Silas,Capital

$50,000 200,000 50,000 75,000 100,000 25,000

  Oslo,Decker,andSilas'incomeratiosare6:3:1,respectively.

  Instructions

 Prepareseparateentriestorecordtheliquidationofthepartnershipassumingthatthenoncash assetsare soldfor$150,000incash.

   Ex.172

 Priortothedistributionofcashtothepartners,theaccountsofABCCompanyare:Cash $30,000,AltCapital(Dr.)$10,000,BellCapital(Cr.)$25,000,andColeCapital(Cr.)$15,000. Theyshareincomeona5:3:2basis.

 Instructions

 Prepareentriestorecord(a)theabsorptionofAlt'scapitaldeficiencybytheotherpartnersand (b)thedistributionofcashtothepartnerswithcreditbalances.

AccountingforPartnerships       12-39

   Ex.173

 TheGFPartnershipisliquidatedwhentheledgershows:

 Cash

NoncashAssets Liabilities

Grant,Capital Fleming,Capital

$60,000 90,000 44,000 100,000 6,000

  GrantandFleming'sincomeratiosare3:2,respectively.

  Instructions

 Prepareascheduleofcashpayments,assumingthatthenoncashassetsweresoldfor$70,000. Assumethatanypartner’scapitaldeficienciescannotbepaidtothepartnership.

    Ex.174

 TheHowellandParksPartnershiphaspartnercapitalaccountbalancesasfollows:

 Howell,Capital Parks,Capital

$550,000 250,000

  Thepartnersshareincomeandlossesintheratioof60%toHowelland40%toParks.

  Instructions

 PreparethejournalentryonthebooksofthepartnershiptorecordtheadmissionofTylerasa newpartnerunderthefollowingthreeindependentcircumstances.

 1.Tylerpays$350,000toHowelland$150,000toParksforone-halfofeachoftheirownership interestinapersonaltransaction.

 2.Tylerinvests$850,000inthepartnershipforaone-thirdinterestinpartnershipcapital. 3.Tylerinvests$175,000inthepartnershipforaone-thirdinterestinpartnershipcapital.

    Ex.175

 Key,Riser,andStoneshareincomeona6:3:1basis.Theyhavecapitalbalancesof$80,000, $60,000,and$45,000,respectively,whenHortonisadmittedtothepartnership.

 Instructions

 PreparethejournalentrytorecordtheadmissionofHortonintothepartnershipifHorton purchasesone-halfofKey'sequityfor$45,000;one-halfofRiser'sequityfor$22,000;andone-thirdofStone'sequityfor$18,000.

   Ex.176

 TomRosenandJoeFinneysharepartnershipincomeona3:2basis.Theyhavecapitalbalances of$560,000and$280,000,respectively,whenEdVannisadmittedtothepartnership.

 Instructions

 PreparethejournalentrytorecordtheadmissionofVannundereachofthefollowing assumptions:

 (a)Vanninvests$340,000fora25%ownershipinterest. (b)Vanninvests$200,000fora25%ownershipinterest.

(c)Vanninvestsanamountthatgiveshima25%ownershipinterest.

 Ex.177

 CindyMillsandAmyPetershavecapitalaccountsof$480,000and$420,000,respectively.Bill DennyandMarkMorganaretojointhepartnership.Dennyinvests$450,000inthepartnership forwhichhereceivesacapitalcreditof$450,000.Morganpurchasesaone-halfinterestfrom Millsfor$300,000andaone-fourthinterestfromPetersfor$90,000.

 Instructions

 (a)    PreparethejournalentriestorecordtheadmissionofDennyandMorgantothepartnership.

 (b)    DeterminethecapitalbalancesofthepartnersaftertheadmissionofDennyandMorgan.

AccountingforPartnerships       12-43

 Ex.178

 Adel,Gaines,andYockeyshareincomeandlossesinaratioof3:2:5,respectively.Thecapital accountbalancesofthepartnersareasfollows:

 Adel,Capital Gaines,Capital Yockey,Capital

$600,000 360,000 240,000

  Instructions

 PreparethejournalentryonthebooksofthepartnershiptorecordthewithdrawalofYockey underthefollowingindependentcircumstances:

 1.ThepartnersagreethatYockeyshouldbepaid$280,000bythepartnershipforhisinterest. 2.ThepartnersagreethatYockeyshouldbepaid$180,000bythepartnershipforhisinterest.

3.AdelagreestopayYockey$180,000forone-halfofhiscapitalinterestandGainesagreesto payYockey$180,000forone-halfofhiscapitalinterestinapersonaltransactionamongthe partners.

   Ex.179

 Dixon,Larsen,andPolleyhavecapitalbalancesof$150,000,$100,000,and$75,000, respectively,andtheirincomeratiosare4:2:4.

 Instructions

 RecordthewithdrawalofPolleyfromthepartnershipundereachofthefollowingassumptions: 1.Polleyispaid$75,000frompartnershipassets.

2.Polleyispaid$90,000frompartnershipassets. 3.Polleyispaid$55,000frompartnershipassets.

   COMPLETIONSTATEMENTS

  180.The______________Actprovidesthebasicrulesfortheformationandoperationof partnershipsinmorethan90%ofthestates.

 181.Apartnershipcharacteristicwhichenableseachpartnertoactonbehalfofthepartnership whenengaginginpartnershipbusinessiscalled______________.

 182.Amajordisadvantageofthepartnershipformoforganizationis______________,which makeseach partnerpersonallyandindividuallyliableforallpartnershipliabilities.

 183.Thecapitalaccountsindicateeachpartner's______________investment,whilethe partner'sdrawingaccountsare______________owner'sequityaccounts.

 184.The______________ratiospecifiesthebasisforsharingincomeandlosses.

 185.Anincomeratiobasedon______________balancesmaybeappropriatewhenthe amountoffundsinvestedinthepartnershipiscriticaltothepartnership.

 186.A______________allowanceor______________onpartners'capitalaccountsarenot expensesofthepartnershipwhentheyarespecifiedasthebasisforsharingincomeand losses.

 187.Inliquidatingapartnership,itisnecessarytoconvert______________intocashandto allocateany______________or______________tothepartnersbasedontheirincome ratios.

 188.Adebitbalanceinapartner'scapitalaccountiscalleda_____________.

 a189.Anewpartnermaybeadmittedtothepartnershipby______________theinterestofan existingpartner,orby______________assetsinthepartnership.

 a190.Whenanewpartner'scapitalinterestonthedateofadmittanceislessthanhisorher investmentinthefirm,a______________resultsforthe______________partner(s).

 a191.Ifabonusisgiventoanewpartner,theoldpartners'capitalaccountsaredecreased basedontheir______________ratiopriortotheadmissionofthenewpartner.

     MATCHING

  192.Matchtheitemsbelowbyenteringtheappropriatecodeletterinthespaceprovided.

  A.    MutualagencyB.  Unlimitedliability

C.Partnershipagreement D.Incomeratio

E.    Partners'capitalstatement F.         Admissionbyinvestment

G.     Purchaseofaninterest H. Partnershipliquidation

I.    Capitaldeficiency

J.     Distributionofcashtopartnersin liquidationofapartnership.

  ____    1.Eachpartnerispersonallyandindividuallyliableforpartnershipdebts.

 ____    2.Madeonbasisofpartners'capitalbalances.

 ____    3.Explainschangesinindividualpartner'scapitalaccountsduringaperiod.

 ____    4.Eachpartnercanbindthepartnershipsolongastheactionappearstobeappropriate forthepartnership.

 ____    5.Businessterminates.

 ____a6.Resultsinanincreaseintotalnetassetsandtotalcapitalofthepartnership.

 ____    7.Capitalaccountwithadebitbalance.

 ____    8.Thebasisforsharingincomeandlosses.

 ____a9.Totalnetassetsandtotalcapitalofthepartnershipdonotchange.

 ____10.Writtenorverbalcontractestablishingdutiesandresponsibilitiesofpartners.

      SHORT-ANSWERESSAYQUESTIONS

S-AE193

Identifyandexplaintheprincipal characteristicsofthepartnershipformofbusinessorganization.

    S-AE194

 Apartnershipisliquidatedbysellingthenon-cashassets,payingthecreditorsinfull,and distributingtheremainingassetstothepartners.Explainwhygainsandlossesontherealization ofnon-cashassetsaredistributedtothepartnersbasedontheirincomeratios,whereascashis distributedtothepartnersbasedontheirequityasshownintheircapitalaccounts.Whateffects doesthepaymentornonpaymentofacapitaldeficiencyhaveonthedistributionofcashtothe partners?

    S-AE195(Ethics)

 Threedoctors,FrankWhite,MarkRosen,andSteveJenner,openedafamilymedicineclinic.All threedoctorshadbeenlifelongfriends.Allbelongedtothesamereligiousfaith.Allwerevery activeinchurchaffairs,andtriedtomoldtheirprofessionalbehaviortotheirreligiousbeliefs.

 Aboutayearago,Dr.Whiteannouncedthathewasleavingthechurch.Theothersnoticedthat hispersonalityalsobegantochange.Hebegantodressinflamboyantstyles,andhestarted wearingexpensive-lookingjewelry.Histemperbecameunstable—oneminutehewascalm,and thenext,hemightbethrowingchartsdownthehallandscreaming.Hestartedcomingtothe officelate,andforgettingtoseesomeofhispatientsbeforeheleftagain.Theothertwoatfirst werestunnedatthechanges.Hiswifeaskedthemwhethertheythoughthemighthaveadrinking problem.Afterfinallydecidingtoinvestigate,theyfoundwhatlookedtothemlikealargeamount ofcocaine,(hundredsofplasticsacksofwhitepowder)tuckedawayinboxesofoldmedical equipment.

 Frightened,Drs.RosenandJennerdecidedtoactquickly.Theirpartnershipagreementsaid nothingaboutdissolvingthepartnership—onlyaboutwhattodoifoneofthemdied.They thereforesecretlyrentedofficespaceacrosstownandbegantomovethemostnecessary equipmentandsuppliestothenewoffice.Amonthlater,theychangedthelocksontheoldoffice andbeganseeingpatientsinthenewofficewithoutanynoticetoDr.Whiteatall.Dr.White simplycameinataroundteno'clockasusual,andfoundhimselflockedoutofanemptyoffice.

 Required:

 DidDrs.RosenandJenneractethicallyintheirendingofthepartnership?Explain.

    S-AE196(Communication)

 MattJonesandJerryWatsonbegandetailworkonautomobilesasahobby.First,theyuseda mail-orderkittoadd"pinstriping"totheirowncars,a1968Mustanganda1970GTOJudge, respectively.ThenMattaddedmoreflourishes,includinghisname.Jerrypracticedpainting flamesonhisJudge.Gradually,theircarsbecamerecognizedaroundtownandothersbeganto askthemtoaddaflourishhereortheretotheircars.Theyweretalkedintoattendinga"muscle car"showinanearbylargecitytoshowofftheircars.Theyhadmorerequestsforworkthanthey couldhandle.Now,theyareconsideringquittingtheirotherjobsandmakingthisapermanent business.Jerry,forexample,turnsdownmorejobsthanheacceptsandstillgetsmorerequests everyweek.

  S-AE196(cont.)

 MattandJerryareunsurehowtoproceed.Theyliketheideaofapartnership,buttheyonlyknow theyworkwelltogether—thingslikehowtosplitpaymenthavejustbeensettledindividuallyfor eachjob,dependingonwhichonedidmorework.Matt'sfathersuggestsawrittenpartnership agreement.Mattdisagrees.Hebelievesthatitwillspoilthewholearrangementbyreducingitto words.

 Required:

 WriteabriefnotetoMattexplainingwhyheneedsapartnershipagreement.

      CHAPTER13

  CORPORATIONS:ORGANIZATIONANDCAPITALSTOCKTRANSACTIONS

     CHAPTERSTUDYOBJECTIVES

  1.Identifythemajorcharacteristicsofacorporation.

 2.Differentiatebetweenpaid-incapitalandretainedearnings.

 3.Recordtheissuanceofcommonstock.

 4.Explaintheaccountingfortreasurystock.

 5.Differentiatepreferredstockfromcommonstock.

 6.Prepareastockholders'equitysection.

 7.Computebookvaluepershare.

   TRUE-FALSESTATEMENTS

  1.     A corporationisnotanentitywhichis separateand distinctfrom itsowners.

 2.     A corporationcanbeorganizedforthepurposeof makingaprofitor it maybenonprofit.

 3.     A corporationactsunderits ownname ratherthaninthename of its stockholders.

 4.     Ifacorporationpaystaxesonitsincome,thenstockholderswillnothavetopaytaxeson thedividendsreceivedfrom thatcorporation.

 5.     A corporationmust be incorporatedineachstateinwhichitdoesbusiness.

 6.     A stockholderhastherightto voteintheelectionof theboard ofdirectors.

 7.     Aproxyisalegaldocumentthatinstructsastockholder’sagenthowtovotesharesof stock for thestockholder.

 8.     Assoon as acorporationisauthorizedtosell stock,an accountingjournalentry shouldbe maderecordingthetotalvalueof thesharesauthorized.

 9.     Theparvalueofcommonstockmustalwaysbeequaltoitsmarketvalueonthedatethe stockisissued.

 10.     Whenno-parvaluestockdoesnothaveastatedvalue,theentireproceedsfromthe issuance ofthestock becomes legalcapital.

 11.     Acorporationcanissuemoresharesthanitisauthorizedinitscharter,iftheboardof directorsapprovesof anincreaseinthenumberof authorizedshares.

 12.     Themarketvalueofacorporation's stockisdeterminedbythenumberofsharesthatthe corporation has beenauthorized to issue.

 13.     Eachstockholderinacorporationhasaseparatecapitalaccountinthestockholders' equitysection of thebalancesheet.

 14.     Thestockholders'equitysectionofacorporation'sbalancesheetconsistsof(1)paid-in capital, (2)retainedearnings,and(3)drawings.

 15.     Dividendsaredeclaredout ofretainedearnings.

 16.     Whenacorporationhasonlyoneclass of capitalstock,it is identifiedaspreferredstock.

 17.     Retainedearningsare apartof stockholders'equity.

Corporations:OrganizationandCapitalStockTransactions          13-5

 18.     Retainedearningsaresubtractedfrompaid-incapitaltoarriveattotalstockholders' equity.

 19.     Stockcanbeissuedonly inexchangefor cash.

 20.     Theparvalueofstockissuedfornoncashassetsisneverafactorindeterminingthecost of the assetsreceived.

 21.     Theacquisitionoftreasurystockbyacorporationincreasestotalassetsandtotal stockholders' equity.

 22.     Treasurystockshouldnotbeclassifiedasacurrent asset.

 23.     Treasury stockpurchasedfor$25persharethatisreissued at$20pershare,resultsina Losson SaleofTreasuryStockbeingrecognizedontheincomestatement.

 24.     Treasurystockisacontrastockholders'equityaccount.

 25.     Thenumberofcommonsharesoutstandingcanneverbegreaterthanthenumberof shares issued.

 26.     Preferredstock hascontractualpreferenceover commonstockincertainareas.

 27.     Preferredstockholdersgenerallydo nothavetherighttovoteforthe board of directors.

 28.     Dividendsinarrearsoncumulativepreferredstockareconsidereda liability.

 29.     Inpublishedannualreports,subclassificationswithinthestockholders'equitysectionare seldompresented,butadditionalinformationisfrequentlyincludedinthefootnotestothe financialstatements.

 30.     Bookvaluepershareofcommonstockisthesameamountasthemarketvalueper share.

 Additional True-FalseQuestions

 31.     A successfulcorporationcan haveacontinuousandperpetuallife.

 32.     OrganizationalcostsarecapitalizedbydebitinganintangibleassetentitledOrganization Costs.

 33.     Thecashproceedsfromissuingparvaluestockmaybeequaltoorgreaterthan,butnot less thanparvalue.

 34.     Thecostofanoncashassetacquiredinexchange forcommonstockshouldbeeitherthe fairmarketvalueoftheconsiderationgivenuportheconsiderationreceived,whicheveris more clearlydeterminable.

 35.     Underthecostmethod,TreasuryStockisdebitedatthepricepaidtoreacquirethe shares, andthesameamountiscreditedtoTreasuryStockwhenthe sharesaresold.

 36.     Bookvaluepershareis thesamethingas liquidationvalueper share.

    MULTIPLECHOICEQUESTIONS

  37.     Whichoneof thefollowingisaprivatelyheldcorporation? a.Intel

b.GeneralElectric c.CaterpillarInc.d.CargillInc.

 38.     ThedominantformofbusinessorganizationintheUnitedStatesintermsofdollarsales volume,earnings,andemployees is

a.thesoleproprietorship. b.thepartnership.

c.thecorporation. d.notknown.

 39.     Underthecorporateformofbusinessorganization

a.a stockholderispersonallyliableforthedebtsof thecorporation.

b.stockholders'actscanbindthecorporationeventhoughthestockholdershavenot been appointedasagents of thecorporation.

c.thecorporation'slife isstipulated inits charter.

d.stockholderswishingtoselltheircorporationsharesmustgettheapprovalofother stockholders.

 40.     Stockholdersof acorporationdirectlyelect a.thepresidentof thecorporation.

b.theboardof directors.

c.thetreasurerofthecorporation.

d.allof theemployeesof thecorporation.

 41.     Thechief accountingofficerinacompanyisknownasthe a.controller.

b.treasurer.

c.vice-president. d.president.

 42.     Afactorwhichdistinguishesthecorporateformoforganizationfromasoleproprietorship orpartnershipisthata

a.corporationis organizedforthepurposeof makingaprofit.

b.corporationissubjecttonumerousfederalandstategovernmentregulations. c.corporationisanaccountingeconomicentity.

d.corporation’stemporaryaccountsareclosedattheend oftheaccountingperiod.

Corporations:OrganizationandCapitalStockTransactions          13-7

 43.     Whichoneof thefollowingwouldnotbeconsideredan advantage of the corporate form of organization?

a.Limitedliabilityofowners b.Separatelegalexistence c.Continuouslife

d.Governmentregulation

 44.     Theconceptof an"artificialbeing"referstowhichform of businessorganization? a.Partnership

b.Soleproprietorship c.Corporation

d.Limitedpartnership

 45.     Thetwowaysthatacorporationcanbeclassifiedbypurposeare a.generalandlimited.

b.profitandnonprofit. c.stateandfederal.

d.publiclyheldandprivatelyheld.

 46.     Thetwowaysthatacorporationcanbeclassifiedbyownershipare a.publiclyheldandprivatelyheld.

b.stockandnon-stock. c.insideandoutside.d.majorityandminority.

 47.     Whichofthefollowingwouldnotbetrue of aprivatelyheldcorporation? a.Itissometimescalleda closelyheldcorporation.

b.Its sharesareregularlytradedontheNewYork Stock Exchange. c.Itdoesnotofferitssharesfor saletothegeneralpublic.

d.Itisusuallysmallerthana publiclyheld company.

 48.     Whichofthefollowingisnottrueof acorporation? a.It maybuy,own,andsellproperty.

b.It maysueandbesued.

c.Theacts of itsownersbindthecorporation.

d.It mayenterintobindinglegalcontractsin its own name.

 49.     EdStonehasinvested$400,000inaprivatelyheldfamilycorporation.Thecorporation does not do wellandmustdeclarebankruptcy.WhatamountdoesStonestandto lose?a.Uptohistotal investmentof $400,000.

b.Zero.

c.The$400,000plusanypersonalassetsthecreditors demand. d.$200,000.

 50.     Whichofthefollowingstatementsreflectsthetransferabilityofownershiprightsina corporation?

a.Ifa shareholderdecidesto transferownership,hemust transferallofhisshares. b.Ashareholdermaydisposeof partor allof hisshares.

c.A shareholdermustobtainpermissionfromtheboardof directorsbeforesellingshares. d.Ashareholdermustobtainpermissionfromatleastthreeotherstockholdersbefore

sellingshares.

13-8        

 51.     A corporateboardofdirectorsdoesnotgenerally a.selectofficers.

b.formulateoperatingpolicies. c.declaredividends.

d.executepolicy.

 52.     A typicalorganizationchart showingdelegationof authoritywouldshow a.stockholdersdelegatingtotheboard of directors.

b.theboardof directorsdelegatingtostockholders.

c.thechief executiveofficerdelegatingtotheboard of directors. d.thecontrollerdelegatingtothechiefexecutiveofficer.

 53.     Theofficerwhoisgenerallyresponsibleformaintainingthecashpositionofthe corporation is the

a.controller. b. treasurer. c.cashier.

d.internalauditor.

 54.     Thechief accountingofficerinacorporationis the a.treasurer.

b.president. c.controller.

d.vice-presidentoffinance.

 55.     Theabilityofacorporationtoobtaincapitalis

a.enhancedbecauseof limitedliabilityandeaseofsharetransferability. b.lessthanapartnership.

c.restrictedbecause ofthe limitedlifeof thecorporation. d.aboutthesame asapartnership.

 56.     Whichofthefollowingstatements concerningtaxationisaccurate?

a.Partnerships paystateincometaxesbutnotfederalincometaxes. b.Corporationspay federal income taxes butnotstateincome taxes. c.Corporationspayfederaland stateincometaxes.

d.Onlytheownersmustpaytaxesoncorporateincome.

 57.     Whichofthefollowingstatementsisnotconsideredadisadvantageofthecorporateform oforganization?

a.Additionaltaxes

b.Governmentregulations

c.Limitedliabilityofstockholders

d.Separationof ownershipandmanagement

 58.     Whatis ordinarilythefirststepintheformationofa corporation? a.Developmentofby-lawsforthecorporation

b.Issuanceof thecorporatecharter

c.Applicationfor incorporationtothe appropriate SecretaryofState d.RegistrationwiththeSEC

Corporations:OrganizationandCapitalStockTransactions          13-9

 59.     Whichoneof thefollowingisnotanownership right ofastockholderinacorporation? a.Tovoteintheelectionof directors

b.Todeclaredividends onthecommonstock c.Toshareinassetsuponliquidation

d.Toshareincorporateearnings

 60.     Ifno-parstock isissuedwithoutastatedvalue,then a.thepar valueis automatically$1 pershare.

b.theentire proceedsareconsideredto be legalcapital. c.thereis nolegalcapital.

d.thecorporationisautomaticallyin violationofits statecharter.

 61.     Ifastockholdercannotattendastockholder's meeting,hemaydelegatehisvotingrights bymeansof

a.an absenteeballot. b.aproxy.

c.a certifiedletter. d.atelegram.

 62.     Ifa corporationhasonlyoneclassof stock,itisreferredto as a.ClasslessStock.

b.PreferredStock. c.SolitaryStock.d.CommonStock.

 63.     Thetermresidualclaimreferstoashareholder'srightto a.receivedividends.

b.shareinassetsuponliquidation.

c.acquireadditionalshares whenoffered. d.exerciseaproxyvote.

 64.     Whichofthefollowingfactors doesnotaffecttheinitialmarketpriceofa stock? a.Thecompany'santicipatedfutureearnings

b.Theparvalueof thestock

c.Thecurrentstateof theeconomy

d.Theexpecteddividendratepershare

 65.     Ifan investmentfirm underwritesastockissue,the

a.riskof beingunabletoselltheshares stays withthe issuingcorporation. b.corporationobtainscash immediatelyfromtheinvestmentfirm.

c.investmentfirm hasguaranteedprofitsonthesaleofthestock. d.issuanceofstockis likelytobedirectlyto creditors.

 66.     Theparvalueofastock a.is legallysignificant.

b.reflectsthemostrecentmarket price. c.isselectedbythe SEC.

d.isindicativeof the worthof thestock.

13-10

 67.     Acorporation hasthefollowingaccountbalances:Commonstock,$1parvalue,$30,000; Paid-in CapitalinExcess ofParValue,$1,350,000.Basedonthisinformation,the

a.legalcapitalis$1,380,000.

b.numberof sharesissuedare30,000.

c.numberof sharesoutstanding are1,380,000. d.averagepricepershareissuedis$4.60.

 68.     Theauthorizedstock of acorporation

a.onlyreflectstheinitialcapital needsofthecompany. b.isindicatedinits by-laws.

c.is indicatedinitscharter.

d.mustberecordedinaformalaccountingentry.

 69.     Owners'equityfor acorporationis identified aseach ofthefollowingexcept a.corporatecapital.

b.paid-incapital.

c.shareholders'equity. d.stockholders'equity.

 70.     Retainedearnings

a.isuniquetothecorporateformofbusiness.

b.isanoptionalaccountinthepartnershipformofbusiness. c.reflectscashpaidinbyshareholderstodate.

d.isclosed attheendof the year.

 71.     Dividendsaredeclaredout of a.CapitalStock.

b.Paid-inCapitalinExcessofPar Value. c.RetainedEarnings.

d.TreasuryStock.

 72.     Retainedearningsis

a.alwaysequaltotheamountofcashthatthecorporationhasgeneratedfrom operations.

b.a part ofthepaid-incapitalof thecorporation.

c.a partofthestockholders'claimonthetotal assetsofthecorporation. d.closedat theendof eachaccountingperiod.

 73.     Whenstockisissuedforlegalservices,thetransactionisrecordedbydebiting OrganizationExpenseforthe

a.statedvalueofthestock. b.parvalueof thestock.

c.marketvalueof thestock. d.bookvalueof thestock.

 74.     IfVickersCompanyissues2,000sharesof $5par valuecommonstockfor$140,000, a.CommonStock willbe creditedfor$140,000.

b.Paid-InCapitalinExcessofPar Valuewillbecreditedfor $10,000.c.Paid-InCapitalin ExcessofPar Valuewillbecreditedfor $130,000. d.Cashwill bedebitedfor $130,000.

Corporations:OrganizationandCapitalStockTransactions          13-11

 75.     Ifcommonstockisissuedforanamountgreaterthanparvalue,theexcessshouldbe creditedto

a.Cash.

b.RetainedEarnings.

c.Paid-inCapitalinExcessofPar Value. d.LegalCapital.

 76.     Ifstockisissuedforanoncashasset,theassetshouldberecordedonthebooksofthe corporation at

a.fairmarketvalue. b.cost.

c.zero.

d.a nominalamount.

 77.     Ifstockis issuedforlessthanpar value,the accounta.Paid-InCapitalin ExcessofPar Valueis credited.

b.Paid-InCapitalinExcessofParValueisdebitedifadebitbalanceexistsinthe account.

c.Paid-InCapitalinExcessofParValueisdebitedifacreditbalanceexistsinthe account.

d.RetainedEarningsiscredited.

 78.     Thesaleof commonstockbelowpar

a.isacommonoccurrenceinmoststates. b.isnotpermittedinmost states.

c.isapracticethatmostshareholdersencourage.

d.requiresthataliabilityberecordedforthedifferencebetweenthesalespriceandthe parvalueof theshares.

 79.     Paid-InCapitalin ExcessofStatedValue

a.iscreditedwhenno-parstockdoesnothaveastatedvalue. b.isreportedaspart ofpaid-incapitalonthebalancesheet.c.representstheamountof legalcapital.

d.normallyhas a debitbalance.

 80.     Aseparatepaid-incapitalaccountisusedtorecordeachofthefollowingexceptthe issuance of

a.no-parstock.

b.par valuestock.

c.stated valuestock.

d.treasurystockabovecost.

 81.     BeckerCompany isapubliclyheldcorporation whose$1parvaluestockisactivelytraded at$20pershare.Thecompanyissued2,000sharesofstocktoacquirelandrecently advertised at$50,000.Whenrecordingthistransaction, Becker Companywill

a.debitLandfor $50,000.

b.creditCommonStockfor $40,000. c.debitLandfor $40,000.

d.creditPaid-InCapitalinExcessofParValuefor $48,000.

13-12

 82.     SimonCompanyissued6,000sharesofits$5parvaluecommonstockinpaymentofits attorney'sbillof$45,000.Thebillwasforservicesperformedinhelpingthecompany incorporate. Simonshouldrecordthistransactionbydebiting

a.LegalExpensefor $30,000. b.LegalExpensefor $45,000.

c.OrganizationExpensefor $30,000. d.OrganizationExpensefor $45,000.

 83.     Inthefinancialstatements,organizationcostsappears

a.immediatelybelowRetainedEarningsinthestockholders' equity section. b.intheincomestatement.

c.aspartof paid-in capitalinthe stockholders' equitysection. d.asanintangibleasset.

 84.     Whichofthefollowingrepresentsthelargestnumberof commonshares? a.Treasuryshares

b.Issuedshares

c.Outstandingshares d.Authorizedshares

 85.     NewCorp.issues1,000sharesof$10parvaluecommonstockat$14pershare.When the transactionisrecorded,creditsaremadeto

a.CommonStock$10,000andPaid-inCapitalin Excess of StatedValue$4,000. b.CommonStock$14,000.

c.CommonStock $10,000andPaid-inCapitalinExcess of Par Value$4,000. d.CommonStock$10,000andRetainedEarnings$4,000.

 86.     IfKinerCompanyissues1,000sharesof$5parvaluecommonstockfor$70,000,the account

a.CommonStockwillbe creditedfor$5,000.

b.Paid-inCapitalinExcessofPar Valuewill becreditedfor $5,000.c.Paid-inCapitalin ExcessofParValuewillbecreditedfor $70,000. d.Cashwill bedebitedfor $65,000.

 87.     JansenPackagingCorporationbeganbusinessin2008byissuing40,000sharesof$5 parcommonstockfor$8pershareand10,000sharesof6%,$10parpreferredstockfor par.Atyearend,thecommonstockhadamarket value of$10.OnitsDecember31,2008 balance sheet, JansenPackagingwould report

a.CommonStockof$400,000. b.CommonStockof$200,000. c.Common Stockof$320,000. d.Paid-InCapitalof $300,000.

 88.       Kim,Inc.issued5,000sharesofstockatastatedvalueof$10/share.Thetotalissueof stock soldfor $15/share.Thejournalentrytorecordthistransactionwouldincludea

a.debitto Cashfor $50,000.

b.creditto Common Stockfor $50,000.

c.credittoPaid-inCapitalinExcessofParValuefor $25,000. d.creditto CommonStockfor $75,000.

Corporations:OrganizationandCapitalStockTransactions          13-13

 89.     FoleyManufacturingCorporationpurchased3,000sharesofitsownpreviouslyissued $10parcommonstockfor $69,000.Asaresultofthisevent,

a.Foley’sCommonStockaccountdecreased$30,000. b.Foley’stotalstockholders’equitydecreased$69,000.

c.Foley’sPaid-inCapitalin Excessof ParValueaccountdecreased $39,000. d.All of theabove.

 90.     Acorporationpurchases20,000sharesofitsown$20parcommonstockfor$35per share, recordingit atcost.Whatwill bethe effectontotalstockholders’equity?

a.Increaseby$700,000 b.Decreaseby$400,000 c.Decreaseby$700,000 d.Increaseby$400,000

 91.     Acorporationpurchases10,000sharesofitsown$10parcommonstockfor$25per share, recordingit atcost.Whatwill bethe effectontotalstockholders’equity?

a.Increaseby$100,000 b.Decreaseby$250,000 c.Increaseby$250,000 d.Decreaseby$100,000

 92.     BeckhamCompanyhas1,000sharesof4%,$100parcumulativepreferredstock outstandingatDecember31, 2008.No dividendshave been paid on thisstockfor2007 or 2008.Dividendsinarrearsat December31,2008total

a.$0.b.$400.

c.$4,000. d.$8,000.

 93.     EphramCompanyhas2,000sharesof5%,$100parnon-cumulativepreferredstock outstandingatDecember31, 2008.No dividendshave been paid on thisstockfor2007 or 2008.Dividendsinarrearsat December31,2008total

a.$0.

b.$1,000.c.$10,000. d.$20,000.

 94.     RebelInc.issued2,000sharesofno-parcommonstockwithastatedvalueof$3per share.The marketpriceofthestockonthedate ofissuancewas$12pershare. Theentry to recordthistransactionincludesa

a.debitto Cashfor $6,000.

b.creditto Common Stockfor $24,000. c.creditto CommonStockfor $6,000.

d.debitto Paid-inCapitalin Excessof ParValuefor $24,000.

 95.     RanchoCorporationsold100sharesoftreasurystockfor$40pershare.Thecostforthe shares was$30.Theentry torecordthesalewillincludea

a.credittoGainon SaleofTreasuryStockfor $3,000.

b.creditto Paid-inCapitalfromTreasuryStockfor $1,000.c.debittoPaid-in Capitalin Excessof ParValuefor $1,000. d.credittoTreasuryStockfor $4,000.

13-14

 96.     Eachof thefollowingiscorrectregardingtreasurystockexceptthatit has been a.issued.

b.fullypaidfor. c.reacquired. d.retired.

 97.     Treasurystockis

a.stockissuedbytheU.S.TreasuryDepartment.

b.stockpurchased byacorporationandheldasan investmentin itstreasury. c.corporatestockissuedbythetreasurerof acompany.

d.a corporation'sownstockwhichhasbeenreacquiredbutnotcanceled.

 98.     Theacquisitionoftreasurystock byacorporation

a.increasesitstotalassetsandtotal stockholders' equity. b.decreasesitstotalassetsandtotal stockholders'equity.

c.hasnoeffectontotalassetsandtotalstockholders'equity.

d.requiresthatagain or lossberecognizedontheincomestatement.

 99.     Treasurystockshouldbereportedinthefinancialstatementsof acorporationasa(n) a.investment.

b.liability.

c.deductionfromtotalpaid-incapital.

d.deductionfromtotal paid-incapitalandretainedearnings.

 100.     A companywouldnot acquiretreasurystock a.inordertoreissuesharesto officers.

b.as anassetinvestment.

c.inordertoincreasetrading of thecompany's stock.

d.tohaveadditionalsharesavailabletouseinacquisitions of othercompanies.

 101.     Accountingfor treasurystock isdonebythe a.FIFOmethod.

b.LIFOmethod. c.costmethod.

d.lower ofcostormarketmethod.

 102.     Treasurystockisgenerallyaccountedfor bythe a.costmethod.

b.marketvaluemethod. c.parvaluemethod.

d.statedvaluemethod.

 103.     TreasuryStockis a(n)

a.contra assetaccount.

b.retainedearningsaccount. c.assetaccount.

d.contrastockholders’equityaccount.

Corporations:OrganizationandCapitalStockTransactions          13-15

 104.   FourthousandsharesoftreasurystockofMeyer,Inc.,previouslyacquiredat$12per share, aresoldat $18per share.Theentrytorecordthistransactionwill includea

a.credittoTreasuryStockfor $72,000.

b.debitto Paid-In CapitalfromTreasuryStockfor $24,000. c.debittoTreasuryStockfor $48,000.

d.creditto Paid-InCapitalfromTreasuryStockfor $24,000.

 105.     ReevesCompanyoriginallyissued2,000sharesof$10parvaluecommonstockfor $60,000($30pershare).Reevessubsequentlypurchases200sharesoftreasurystock for$27pershareandresellsthe200sharesoftreasurystockfor$29pershare.Inthe entry torecordthesaleof thetreasurystock,therewill bea

a.creditto Common Stockfor $5,400. b.credittoTreasuryStockfor $2,000.

c.debittoPaid-In CapitalinExcessofParValueof$6,000. d.creditto Paid-InCapitalfromTreasuryStockfor$400.

 106.     Whenpreferredstockiscumulative,preferreddividendsnotdeclaredinaperiodare a.consideredaliability.

b.calleddividendsinarrears. c.distributionsof earnings.d.neverpaid.

 107.     Whichofthefollowingisnot aright or preferenceassociatedwith preferredstock? a.Therighttovote

b.Firstclaimtodividends

c.Preferencetocorporateassetsincase of liquidation

d.Toreceivedividendsin arrears beforecommonstockholdersreceivedividends

 Usethefollowing informationforquestions108and 109.

 ColeCorporationissues15,000sharesof$50parvaluepreferredstockforcashat$60per share.

 108.     Theentrytorecordthetransactionwill consistofadebitto Cashfor $900,000 anda credit or credits to

a.PreferredStockfor $900,000.

b.PreferredStockfor$750,000andPaid-inCapitalinExcessofParValue—Preferred Stockfor $150,000.

c.PreferredStockfor $750,000andPaid-inCapitalfromPreferredStockfor$150,000. d.Paid-inCapitalfromPreferredStockfor$900,000.

 109.     Inthe stockholders'equitysection,theeffectsofthe transactionabove will bereported a.entirelywithinthecapitalstocksection.

b.entirelywithinthe additionalpaid-incapitalsection.

c.underboththecapitalstock andadditionalpaid-incapitalsections. d.entirelyundertheretainedearningssection.

 110.     Dividendsinarrearsoncumulativepreferredstock a.neverhavetobepaid.

b.mustbepaidbeforecommonstockholderscanreceivea dividend. c.shouldberecordedasacurrentliabilityuntiltheyarepaid.

d.enablethepreferredstockholderstoshareequallyincorporateearningswiththe commonstockholders.

13-16

 111.     Dividendsinarrearsoncumulativepreferredstock a.areconsideredtobea non-current liability.

b.areconsideredto bea currentliability.

c.onlyoccurwhenpreferreddividendshavebeendeclared.d.shouldbedisclosedinthenotestothefinancialstatements.

 112.     Ifpreferredstockiscumulative, the

a.preferreddividendsnot declaredinagivenyeararecalleddividendsinarrears. b.preferredshareholders andthecommonshareholdersreceiveequaldividends.

c.preferredshareholdersandthecommonshareholdersreceivethesametotaldollar amount of dividends.

d.commonshareholders willshareinthe preferreddividends.

 113.     TheNiceCorporationissues10,000sharesof$100parvaluepreferredstockforcashat $110pershare.TheentrytorecordthetransactionwillconsistofadebittoCashfor $1,100,000andacreditor creditsto

a.PreferredStockfor $1,100,000.

b.Paid-inCapitalfromPreferredStockfor$1,100,000.

c.PreferredStockfor $1,000,000 andRetainedEarningsfor $100,000.

d.PreferredStockfor$1,000,000andPaid-inCapitalinExcessofParValue—Preferred Stockfor $100,000.

 Usethefollowing informationforquestions114–116.

 TriadCorporation’sDecember31,2008balancesheetshowedthefollowing:

 8%preferredstock,$20par value,cumulative,10,000sharesauthorized; 5,000sharesissued

Commonstock,$10parvalue,1,000,000sharesauthorized;650,000 sharesissued,640,000sharesoutstanding

Paid-incapitalinexcessofparvalue—preferredstock Paid-incapitalinexcessofparvalue—commonstock Retainedearnings

Treasurystock(10,000shares)

     $100,000

 6,500,000 20,000 9,000,000 2,500,000 210,000

  114.     Triaddeclaredandpaida$25,000 cashdividendonDecember 15,2008.Ifthecompany’s dividendsinarrearspriortothatdatewere$6,000,Triad’scommonstockholdersreceived a.$19,000.

b.$9,000.c.$11,000.

d.no dividend.

 115.     Triad’stotalpaid-incapital was a.$15,620,000.

b.$15,830,000. c.$15,410,000. d.$9,020,000.

 116.     Triad’stotalstockholders’equitywas a.$18,380,000.

b.$15,620,000. c.$18,170,000. d.$17,910,000.

Corporations:OrganizationandCapitalStockTransactions          13-17

 117.     BurgessCorporationbeganbusinessbyissuing100,000sharesof$5parvaluecommon stockfor$24pershare.Duringitsfirstyear,thecorporationsustainedanetlossof $20,000.Theyear-endbalancesheet wouldshow

a.Commonstock of $500,000.b.Commonstockof $2,400,000.

c.Totalpaid-incapitalof $2,380,000. d.Totalpaid-incapitalof $1,900,000.

 Usethefollowing informationforquestions118–119.

 StarrCorporation’sDecember31,2008BalanceSheetshowedthefollowing:

 8%preferredstock,$20par value,cumulative,20,000shares authorized;10,000shares issued

Commonstock,$10parvalue,2,000,000sharesauthorized; 1,300,000sharesissued,1,280,000sharesoutstanding

Paid-incapitalinexcessofparvalue–preferredstock Paid-incapitalinexcessofparvalue–commonstock Retainedearnings

Treasurystock(10,000shares)

   $     200,000

 13,000,000 40,000 18,000,000 5,100,000 420,000

  118.     Starr’stotalpaid-incapitalwas a.$31,240,000.

b.$31,660,000. c.$30,820,000. d.$18,040,000.

  119.     Starr’stotalstockholders’equitywas a.$36,760,000.

b.$31,240,000. c.$36,340,000. d.$35,920,000.

 120.     AdcockCorporationbeganbusinessbyissuing150,000sharesof$5parvaluecommon stockfor$24pershare.Duringitsfirstyear,thecorporationsustainedanetlossof $30,000.Theyear-endbalancesheet wouldshow

a.Commonstock of $750,000.b.Commonstockof $3,600,000.

c.Totalpaid-incapitalof $3,570,000. d.Totalpaid-incapitalof $2,850,000.

 121.    ThetrialbalanceofHackmanInc.includesthefollowingbalances:CommonStock, $39,000;Paid-inCapitalinExcessofPar,$96,000;TreasuryStock,$9,000;Preferred Stock,$30,000.Capitalstocktotals

a.$69,000. b.$126,000. c.$165,000. d.$174,000.

13-18

 122.     Eachof thefollowingisreportedforcommonstock exceptthe a.parvalue.

b.sharesissued.

c.sharesoutstanding. d.liquidationvalue.

 123.     Paid-incapitalfromtreasurystock wouldappearon abalancesheetunderthecategory a.capitalstock.

b.treasurystock.

c.additionalpaid-incapital. d.contratoowners'equity.

 124.     Twoclassificationsappearing inthepaid-incapitalsectionof thebalancesheetare a.preferredstockandcommonstock.

b.paid-incapitalandretainedearnings.

c.capitalstockandadditionalpaid-incapital. d.capitalstockandtreasurystock.

 125.     Informationthatis notgenerallyreportedfor eachclassof stockonthe balancesheetis a.the marketvalue.

b.theparvalue.

c.sharesauthorized. d.sharesissued.

 126.     Inpublishedannualreports

a.subclassificationswithinthestockholders’equitysectionareroutinelyreportedin detail.

b.capitalsurplusisused inplaceofretained earnings.

c.theindividualsourcesofadditionalpaid-incapitalareoftencombined. d.retainedearnings isoftennotshownseparately.

 127.     Additionalpaid-in capitalincludesallof thefollowingexcept a.paid-incapitalfromtreasurystock.

b.paid-incapitalin excessof par.

c.paid-incapitalinexcessof statedvalue. d.paid-incapitalin excessof bookvalue.

 128.     Bookvaluepershareiscomputedbydividingtotal

a.paid-incapitalbythenumberofcommonsharesoutstanding. b.paid-incapitalbythenumberof commonsharesissued.

c.stockholders'equitybythenumberof commonsharesoutstanding. d.stockholders'equitybythe numberofcommonsharesissued.

 129.     Bookvaluepershareisusually

a.equaltothemarketvalueper share. b.lessthanthemarketvaluepershare.

c.greaterthanthemarketvaluepershare. d.equaltothepar valuepershare.

Corporations:OrganizationandCapitalStockTransactions          13-19

 130.     Bookvaluepershareis

a.theequityacommonstockholderhasinthenetassetsofthecorporationfromowning one share ofstock.

b.theequityacommonstockholderhasinthetotalassetsofthecorporationfrom owningoneshareof stock.

c.alwaysequaltothemarketvalueofthestock. d.computedonlyforpreferredstockholders.

 131.     Thebookvaluepershare

a.isusuallya closeapproximationofthemarketpricepershare. b.isthesameastheparvaluepershare.

c.maybeusefulindeterminingthetrendofastockholder'spershareequityina corporation.

d.alwaysfalls withintheannualrangeof acompany'smarketvaluepershare.

 132.     Barr,Inc.reports$3,000,000ofcommonstock,and$4,500,000ofadditionalpaid-in capitalonitsbalancesheet.Thenumberofcommonsharesissuedandoutstandingis 500,000shares.Thebook valuepershareis

a.$15. b.$9.c.$6.

d.notdeterminable.

   Additional MultipleChoiceQuestions

 133.    Whichofthefollowingisan incorrectstatementaboutacorporation? a.Acorporationis anentityseparateanddistinctfrom its owners.

b.Creditorsordinarilyhaverecourseonlytocorporateassetsinsatisfactionoftheir claims.

c.Acorporationmaybeformedinwriting,orally,or implied.

d.Acorporationis subjecttonumerousstateandfederalregulations.

 134.     Capitalstockto whichthe charterhasassignedavalueper shareiscalled a.parvaluestock.

b.no-parvaluestock. c.statedvaluestock.

d.assignedvaluestock.

 135.     Legalcapitalpersharecannotbeequaltothe a.parvaluepershareofpar valuestock.

b.totalproceedsfromthesaleof parvaluestockabove parvalue. c.statedvaluepershareof no-parvaluestock.

d.totalproceedsfromthesaleof no-parvaluestock.

 136.    Whencommonstockisissuedforservicesor non-cashassets,costshouldbe a.onlythefairmarketvalueoftheconsiderationgivenup.

b.onlythefairmarket valueoftheconsiderationreceived. c.thebookvalue of thecommonstockissued.

d.eitherthefairmarketvalueoftheconsiderationgivenuportheconsideration received,whicheverismoreclearlyevident.

13-20

 137.     Whenthesellingpriceoftreasurystockisgreaterthanitscost,thecompanycreditsthe differenceto

a.GainonSaleof TreasuryStock.

b.Paid-inCapitalfromTreasuryStock.

c.Paid-inCapitalin ExcessofPar Value. d.TreasuryStock.

 138.     RobersonCorporationwasorganizedonJanuary1,2008,withauthorizedcapitalof 750,000sharesof$10parvaluecommonstock.During2008,Robersonissued30,000 sharesat$12pershare,purchased3,000sharesoftreasurystockat$13pershare,and sold3,000sharesoftreasurystockat$14pershare.Whatistheamountofadditional paid-in capitalat December31,2008?

a.$0

b.$3,000c.$60,000 d.$63,000

 139.     Thepurchaseof treasurystock

a.decreasescommonstockauthorized. b.decreasescommonstock issued.

c.decreasescommonstockoutstanding.

d.hasnoeffectoncommonstockoutstanding.

 140.     Preferredstockholdershavea priorityovercommonstockholdersasto a.dividendsonly.

b.assetsin theeventofliquidationonly. c.votingrights.

d.bothdividendsand assetsintheeventof liquidation.

 141.     OnJanuary2,2005,RileyCorporationissued20,000sharesof6%cumulativepreferred stockat$100parvalue.OnDecember31,2008,RileyCorporationdeclaredandpaidits firstdividend.Whatdividendsarethepreferredstockholdersentitledtoreceiveinthe currentyearbeforeanydistributionismadetocommonstockholders?

a.$0

b.$120,000 c.$360,000 d.$480,000

 142.     Additionalpaid-in capitalincludesallof thefollowingexceptthe amountspaidin a.overpar value.

b.overstated value.c.fromtreasurystock.

d.fortheparvalueofcommonstock.

 143.     Inthestockholders'equitysectionofthebalancesheet,theclassificationofcapitalstock consistsof

a.additionalpaid-in capital andcommonstock. b.commonstockandtreasurystock.

c.commonstock,preferredstock,andtreasurystock. d.commonstockandpreferredstock.

Corporations:OrganizationandCapitalStockTransactions          13-21

 144.    AtDecember31,thestockholders’equitysectionshows:

 Commonstock,$5parvalue;1,320,000sharesissued

and1,200,000sharesoutstanding.................................................. Additionalpaid-in capital....................................................................... Retainedearnings................................................................................. Treasurystock,(120,000shares).......................................................... Totalstockholders’equity......................................................................

 Thebookvaluepershare ofcommonstockis a.$5.91.

b.$6.50. c.$7.08. d.$6.44.

   $6,600,000 1,400,000 500,000

   (700,000) $7,800,000

     BRIEFEXERCISES

  BE145

 Identify(by letter) each of the followingcharacteristicsasbeing anadvantage,adisadvantage, or notapplicabletothecorporateformof businessorganization.

 A= Advantage

D= Disadvantage N= NotApplicable

 Characteristics

 1.Separatelegalentity

 2.Taxableentityresultinginadditionaltaxes

 3.Continuouslife

 4.Unlimitedliability of owners

 5.Governmentregulation

 6.Separationof ownershipandmanagement

 7.Abilitytoacquirecapital

 8.Easeoftransferof ownership

    BE146

 OnJuly6,XOTCorporationissued2,300sharesofits$1.50parcommonstock.Themarket price of thestockonthatdate was$17 pershare.Journalizethe issuanceof thestock.

    BE147

 BennettCorporationisauthorizedtoissue1,000,000sharesof$1parvaluecommonstock. During2008,thecompanyhasthefollowingstocktransactions.

 Jan.15        Issued500,000sharesof stockat$7per share.

 Sept.5        Purchased20,000sharesofcommonstockforthetreasuryat $8pershare.

 Instructions

Journalizethetransactionsfor BennettCorporation.

    BE148

 AninexperiencedaccountantforDuranCorporationmadethefollowingentries.

 July1          Cash.....................................................................................       170,000 CommonStock............................................................                         170,000

(Issued20,000sharesof commonstock, parvalue$6pershare)

 Sept.1        CommonStock.....................................................................          36,000 RetainedEarnings................................................................         24,000

Cash............................................................................                              60,000 (Purchased4,000sharesissuedonJuly1forthe

treasuryat$15pershare)

 Instructions

 Onthebasis oftheexplanation foreachentry,preparetheentry thatshouldhavebeenmadefor the transactions.

   BE149

 OnSeptember5,BertolliCorporationacquired2,500sharesofitsown$1parcommonstockfor $23pershare.OnOctober 15,1,000sharesofthetreasurystock is soldfor $25pershare.

 Instructions

 Journalizethepurchaseandsaleofthetreasurystockassumingthatthecompanyusesthecost method.

   BE150

 WarrenCompanyhadthefollowingtransactions.

1.Issued6,000sharesofcommonstockwithastatedvalueof$10for $110,000. 2.Issued3,000sharesof$100parpreferredstockat$107forcash.

 Instructions

 Preparethejournalentriestorecordtheabove stocktransactions.

   BE151

 OnFebruary1,BurchessCorporationissued4,000 sharesofits$20par valuepreferredstockfor $24pershare.

 Instructions Journalizethetransaction.

Corporations:OrganizationandCapitalStockTransactions          13-25

  BE152

 BellinghamCorporationhasthefollowing stockholders’ equitybalancesatDecember31,2008:

 CommonStock,$1par

Paid-inCapitalin ExcessofPar RetainedEarnings

Total

$3,500 24,500

62,500$90,500

 Calculatebookvaluepershare.

   EXERCISES

Ex.153

Thefollowingselectedtransactionspertainto LintonCorporation:

 Jan.     3     Issued150,000shares,$10parvalue,commonstockfor $22 pershare.

 Feb.10       Issued8,000shares,$10parvalue,commonstockinexchangeforspecialpurpose equipment.LintonCorporation'scommonstockhasbeenactivelytradedonthestock exchange at $25pershare.

 InstructionsJournalizethetransactions.

  Ex.154

 ThecorporatecharterofHunterCorporationallowstheissuanceofamaximumof2,500,000 sharesof$1parvaluecommonstock.Duringitsfirstthreeyearsofoperation,Hunterissued 1,500,000sharesat$15pershare.Itlateracquired30,000ofthesesharesastreasurystockfor $25pershare.

 Instructions

Basedonthe aboveinformation,answerthefollowingquestions: (a)Howmanyshareswereauthorized?

(b)Howmanyshareswereissued?

(c)Howmanyshares areoutstanding?

(d)Whatisthebalanceof the CommonStockaccount? (e)Whatisthebalanceof theTreasuryStockaccount?

    Ex.155

 GarnerCorporationisauthorizedtoissue1,000,000sharesof$5parvaluecommonstock. During2008,itsfirst yearofoperation,thecompanyhasthefollowingstock transactions.

 Jan.     1    Paidthe state$2,000forincorporationfees.Jan.15            Issued500,000sharesofstock at$7 pershare.

Jan.30        Attorneysforthecompanyaccepted500sharesofcommonstockaspaymentfor legalservicesrenderedinhelpingthecompanyincorporate.Thelegalservicesare estimatedtohavea valueof $8,000.

 July     2    Issued100,000sharesofstockforland.Thelandhadanaskingpriceof$900,000. Thestockiscurrentlyselling onanational exchangeat $8pershare.

 Sept.5        Purchased15,000sharesofcommonstockforthetreasuryat $10pershare. Dec.6                  Sold11,000sharesofthe treasurystockat$11per share.

 Instructions

 JournalizethetransactionsforGarnerCorporation.

  Ex.156

 Preparethenecessaryjournalentryfor eachofthefollowingtransactionsfor Starr Corporation.

 (a)Issued2,000sharesofits$5par valuecommonstockfor $16pershare.

(b)Issued5,000sharesofitsstockforlandadvertisedforsaleat$80,000.Starr'sstockis activelytradedat amarketpriceof $15pershare.

  Solution156      (5 min.)

 (a)Cash(2,000× $16,000)..................................................................               32,000 CommonStock.....................................................................                           10,000 Paid-inCapitalin Excess ofParValue.................................                            22,000

 (b)Land(5,000×$15).........................................................................              75,000 CommonStock.....................................................................                           25,000 Paid-inCapitalin Excess ofParValue.................................                            50,000

    Ex.157

 1.Nameatleastthreefactorsthat influencethemarketvalueofstock.

2.Corporationsacquiretreasurystockforavarietyofpurposes.Namethreereasonswhy treasurystockmaybeacquiredbyacorporation.

13-28

 Ex.158

 ThefollowingitemswereshownonthebalancesheetofHermanCorporationonDecember31, 2008:

 Stockholders’Equity Paid-InCapital

CapitalStock

Commonstock,$5parvalue,360,000shares

authorized;              sharesissuedand                  outstanding...................

 Additionalpaid-in capital

Inexcessof par value.............................................................................. Totalpaid-incapital............................................................................

 RetainedEarnings............................................................................................... Totalpaid-incapitalandretainedearnings..............................................

Less:Treasurystock(15,000shares)................................................................ Totalstockholders' equity........................................................................

     $1,650,000

   165,000 1,815,000

   750,000 2,565,000

   (180,000) $2,385,000

 Instructions

Completethefollowingstatementsandshowyourcomputations.

 (a)Thenumberofsharesof commonstockissuedwas                                            . (b)Thenumberofsharesof commonstockoutstandingwas. (c)Thesalespriceof thecommonstockwhenissuedwas$                        . (d)Thecostpershareof thetreasurystock was$                              .

(e)Theaverageissuepriceof thecommonstockwas$                                           .

 (f)Assumingthat25%ofthetreasurystockissoldat$20pershare,thebalanceinthe TreasuryStockaccountwouldbe$                                                                                        .

  Ex.159

 OnMay1,Hite Corporationpurchased1,000shares ofits$10par value commonstockat acash price of$13/share.OnJuly15, 600sharesof thetreasurystockweresoldforcashat$15/share.

 Instructions

Journalizethetwotransactions.

    Ex.160

 WernerCorporationhasthefollowingstockholders'equityaccountsonJanuary1, 2008:

 CommonStock,$10parvalue............................................ Paid-inCapitalinExcess ofPar........................................... RetainedEarnings................................................................ TotalStockholders'Equity..............................................

$1,500,000 200,000

           500,000$2,200,000

 Thecompanyusesthecostmethodtoaccountfortreasurystocktransactions.During2008,the followingtreasurystocktransactionsoccurred:

 April         1 August    1 October        1

Purchased9,000sharesat $16pershare. Sold3,000sharesat $18pershare.

Sold3,000sharesat $15pershare.

 Instructions

 (a)Journalizethetreasurystocktransactionsfor 2008.

 (b)PreparetheStockholders'EquitysectionofthebalancesheetforWernerCorporationat December31, 2008.Assumenet incomewas$110,000for2008.

    Ex.161

 BatesCorporationpurchased2,000sharesofits$5parvaluecommonstockforacashpriceof $12pershare.Twomonths later,Bates soldthetreasurystockfor acashpriceof$10pershare.

 Instructions

Preparethejournalentrytorecordthesaleofthetreasurystockassuming (a)Nobalancein Paid-inCapitalfromTreasuryStock.

(b)A$3,000balanceinPaid-inCapitalfromTreasuryStock.

    Ex.162

 AninexperiencedaccountantforMoonCorporationmadethefollowingentries.

 July1          Cash.....................................................................................       210,000 CommonStock............................................................                         210,000

(Issued15,000sharesof no-parcommonstock, statedvalue$10pershare)

 Sept.1        CommonStock.....................................................................          28,000 RetainedEarnings................................................................         6,000

Cash............................................................................                              34,000 (Purchased2,000sharesissuedonJuly1forthe

treasuryat$17pershare)

 Dec.1        Cash.....................................................................................          18,000 CommonStock............................................................                           14,000 Gainon Sale of Stock..................................................                             4,000

(Sold 1,000sharesof the treasurystockat$18per share)

 Instructions

(a)Onthebasisoftheexplanationforeachentry,preparetheentrythatshouldhavebeen madefor thetransactions.(Omitexplanations.)

 (b)PreparethecorrectingentriesthatshouldbemadetocorrecttheaccountsofMoon Corporation.(Donotreversetheoriginalentry.)

13-32

  Ex.163

 OnJanuary1,2008,EdmondCompanyissued30,000sharesof$2parvaluecommonstockfor $150,000.OnMarch1,2008,thecompanypurchased4,000sharesofitscommonstockfor$8 pershareforthetreasury.OnJune1,2008,1,000ofthetreasurysharesaresoldfor$10per share.On September1,2008,2,000treasurysharesaresold at $6pershare.

 Instructions

 Journalizethestocktransactionsof EdmondCompanyin2008.

   Ex.164

 WixenCompanyoriginallyissued30,000sharesof$5parcommonstockfor$180,000on January3,2008.Wixenpurchased1,500sharesoftreasurystockfor$12,000onNovember2, 2008.OnDecember6,2008,600sharesof thetreasurystockaresoldfor$6,000.

 Instructions

Preparejournalentriesto recordthesestocktransactions.

     Ex.165

 Thestockholders'equitysectionofPalmerCorporation'sbalancesheetatDecember31,2007, appearsbelow:

 Stockholders'equity Paid-incapital

Commonstock,$10 parvalue,400,000sharesauthorized; 250,000issuedandoutstanding

Paid-incapitalinexcessofpar Totalpaid-incapital

Retainedearnings

Totalstockholders'equity

    $2,500,000

1,200,000 3,700,000

           600,000$4,300,000

 During2008,thefollowingstocktransactionsoccurred:

 Jan.18          Issued50,000sharesofcommonstock at $30per share.

 Aug.20         Purchased25,000shares ofPalmer Corporation'scommonstockat$24pershareto be held inthe treasury.

 Nov.     5      Reissued9,000 sharesof treasurystockfor $28per share.

 Instructions

 (a)Preparethejournalentriestorecordtheabovestocktransactions.

 (b)Preparethestockholders'equitysectionofthebalancesheetforPalmerCorporationat December31,2008.Assumethatnetincomefortheyearwas$100,000andthatno dividends weredeclared.

13-34

  Ex.166

 TylerCorporationhas100,000sharesof$40parvaluepreferredstockauthorized.Duringthe year,ithadthefollowingtransactionsrelatedto its preferredstock.

(a)Issued30,000sharesat$55pershare.

(b)Issued10,000sharesfor equipmenthavinga$700,000askingprice.Thestockhadamarket value of$60pershare

 InstructionsJournalizethetransactions.

   Ex.167

 CarsonCorporationhasthefollowingcapitalstockoutstandingat December31,2008:

 9%Preferredstock,$100parvalue,cumulative

15,000sharesissuedand outstanding....................................................

 Commonstock,nopar,$10 statedvalue,500,000sharesauthorized, 350,000shares issuedand outstanding..................................................

 $1,500,000

   3,500,000

  Thepreferredstock wasissued at$110pershare.Thecommonstockwas issuedatanaverage persharepriceof$16.

 Instructions

 Preparethepaid-incapitalsection ofthebalancesheetat December31,2008.

    Ex.168

 Initsfirstyearofoperations, WebberCorporationhadthefollowingtransactionspertainingtoits $30parvaluepreferredstock.

 Feb.1         Issued6,000sharesforcashat $41pershare. Nov.1                  Issued3,000sharesforcashat $44pershare.

 Instructions

 (a)Journalizethetransactions.

 (b)Indicatetheamounttobe reportedfor (1)preferredstock, and (2)paid-incapital in excess of parvalue—preferredstock attheend oftheyear.

13-36

  Ex.169

 BoswellCorporationhasthefollowingstockholders'equityaccounts:

 Preferred Stock

Paid-inCapitalinExcess ofParValue—PreferredStock CommonStock

Paid-inCapitalinExcess ofStatedValue—CommonStock Paid-inCapitalfromTreasuryStock—Common RetainedEarnings

TreasuryStock—Common

 Instructions

Classifyeach accountusing thefollowingtabularalignment.

             Paid-inCapital              Retained

      Account                                              CapitalStock      Additional     Earnings          Other

     Ex.170

 Thefollowinginformationis availableforStewartCorporation:

 CommonStock($10par)

Paid-inCapitalin ExcessofParValue—Preferred Paid-inCapitalin ExcessofStatedValue—Common PreferredStock

RetainedEarnings TreasuryStock—Common

$1,000,000 180,000 600,000 550,000 750,000 50,000

  Instructions

Basedonthe precedinginformation,calculateeach of thefollowing: (a)Totalpaid-incapital.

(b)Totalstockholders'equity.

    Ex.171

 Placeeachoftheitemslistedbelowintheappropriatesubdivisionofthestockholders'equity section ofabalancesheet.

 Commonstock,$10statedvalue Retainedearnings

8%Preferredstock,$100parvaluePaid-in capitalinexcessofparvalue Paid-in capital inexcessofstatedvalue Treasury stock

Paid-incapitalfromtreasurystock

 Stockholders'equity Paid-incapital

Capitalstock

    Additionalpaid-in capital

    Totaladditionalpaid-incapital

 Totalpaid-incapital Retainedearnings

13-38

 Ex.171         (cont.)

 Totalpaid-incapitalandretainedearnings

    Totalstockholders' equity

     Ex.172

 ThefollowinginformationisavailableforGordonCorporation:

 Commonstock($5par)

Paid-incapitalinexcessofpar—common Retainedearnings

Treasurystock Commonsharesissued Commonsharesoutstanding

$500,000 200,000 360,00070,000100,000shares 90,000shares

  Instructions

Basedonthe precedinginformation,calculatethebookvaluepershare.

    Ex.173

 OnDecember 31,2008,ColawCompanyreportsthe following amountsinitsstockholders'equity section:

Commonstock                                                                           $2,400,000 Paid-incapitalinexcessofstatedvalue—common                     900,000 Retainedearnings                                                                     1,180,000 Treasurystock—common                                                             180,000

 Thecommon stockhasastated value of$10 per share.Onemillion shares ofcommonstock are authorizedand 40,000sharesareheld inthetreasury.

 Instructions

Computethebookvalueper shareof commonstock.

    COMPLETIONSTATEMENTS

  174.Acorporationhasaseparate                                                                 apartfromitsowners.

 175.Themajoradvantagesofthecorporateformoforganizationinclude(1)limited

                                                                                                                         ofowners,(2)continuous                                   and(3)easeof transferring.

 176.Stockholderselectthe                                       ,whointurnhirethe                                       ofthe companywhohavedaytodayresponsibilityforrunningthecorporation.

 177.Ifacorporation'sstockistradedonthemajorstockexchanges,thecorporationmust generallyreportperiodicallyto afederalagencyknownasthe                                                   .

 178.Stockholdersgenerallyhavetherighttoshareincorporate                                                      andin

                               uponliquidation.

 179.Parvalueofstockrepresentsthe                                                 persharethatmustberetained in thebusinessforthe protection ofcorporate.

 180.Thestockholders'equitysectionofacorporation'sbalancesheetisgenerallydividedin two majorsections:(1)                                                                   and(2)                                .

 181.Ifstockisissuedinexchangefornoncashassets,theassetsshouldbevaluedatthe

                                            oftheconsideration                                                  ortheassets

                                          ,whicheveris moreclearlyevident.

 182.Acorporation'sownstockthathasbeenreacquiredbythecorporationbutnotcanceledis called                                                  andisdeductedfromtotal                                                     on thebalancesheet.

 183.The                                      featureofpreferredstockgivesthepreferredstockholdersthe righttoreceivecurrent-yeardividendsandunpaidprior-yeardividendsbeforecommon stockholders receiveanydividends.

 184.Preferredstockhascontractualprovisionsthat giveitapreferenceovercommonstockas to andtoin the eventof liquidation.

 185.Thepaid-incapitalsectionofthebalancesheetconsistsoftwoclassifications:

                                               and                                              .

 186.Bookvaluepersharerepresentstheequityacommonstockholderhasinthe                                        

 ofthecorporationfromowningone shareof stock.

    MATCHING

  187.Matchtheitemsbelowbyenteringtheappropriatecodeletterinthespaceprovided.

 A.Limitedliability B.Capitalstock

C.Board of directors D.Paid-incapital

E.Retainedearnings

F.     Preemptiveright G.Par value

H.Legalcapital

I.     Treasurystock

J.     Cumulativefeature

           1.     Net incomeretainedinthecorporation.

           2.     Theamountthatmustberetainedinthebusinessfortheprotectionof creditors.

           3.     Preferredstockholders havearighttoreceivecurrentandunpaidprior-year dividends before commonstockholdersreceiveanydividends.

           4.     Creditorsonlyhavecorporateassetstosatisfytheirclaims.

           5.     Responsibleto stockholdersfor corporateactivity.

           6.     Theamountassignedtoeachshareof stockinthecorporatecharter.

           7.     Unitofownershipinacorporation.

           8.     Enablesstockholderstomaintaintheirsamepercentageownershipwhennewshares areissued.

           9.     Corporation'sownstockthat has beenreacquiredbythe corporationbutnot retired.

 10.     Totalamountpaid-inoncapitalstock.

     SHORT-ANSWERESSAYQUESTIONS

S-AE188

Identifyatleastsixcharacteristicsofthecorporate formofbusinessorganization.Contrasteach one with thepartnershipformof organization.

   S-AE189

 Companiesfrequentlyissuebothpreferredstockandcommonstock.Whatarethemajor differences intherightsof stockholdersbetweenthesetwoclassesof stock?

  S-AE190

 Definepar value,anddiscussitssignificanceinaccounting.

   S-AE191(Ethics)

 JeffMadden,thepresidentandCEOofEarthSystems,Inc.,awastemanagementfirm,was recentlyhospitalized,sufferingfromexhaustionandaheartailment.Immediatelypriortohis hospitalization,EarthSystemshadexperiencedasharpdeclineinitsstockprice,andtrading activitybecamealmostnonexistent.Theprimaryreasonforthiswasconcernexpressedinthe mediaoveranewuntestedwastemanagementsystemimplementedbythecompany.Mr. Maddenhadbeenunwillingtosubmittheproceduretotestingbeforeimplementation,buthe reluctantlyagreedtolimitedtestsafterthesystemwasoperational.Noproblemshavebeen identifiedbytheteststodate.

 Theothermembersofmanagementcalledameetingtodeterminewhattheyshoulddo.Rick Farrell,themarketingmanager,suggestedthatthecompanypurchasealargenumberofshares oftreasurystock.Inthat way,investors mightnoticethatactivityhadpicked up,and mightdecide tobuysomemoreshares.Thisplanwoulduseupmostofthecompany'savailablecash,sothat therewillbenomoneyavailableforacashdividend.EarthSystemshaspaidcashdividends everyquarterfor overtenyears.

 Required:

1.IsMr. Farrell'ssuggestionethical?Explain.

2.Isitethicaltodiscontinuethecashdividend?Explain.

    S-AE192(Communication)

 AspartofaCareersinAccountingprogramsponsoredbyaccountingorganizationsand supportedbyyourcompany,youwillbetakingagroupofhighschoolstudentsthroughthe accountingdepartmentinyourcompany.Youwillalsoprovidethemwithvariousmaterialsto explaintheworkofanaccountant.OneofthematerialsyouwillprovideistheStockholders’ Equity sectionofarecent balancesheet.

 Required:

Prepareasentenceortwoexplainingeachmajorsection:CommonStock,AdditionalPaid-in Capital,andRetainedEarnings.Youshouldtrytobebriefbut clear.

[clearlylegendarydream-blog]

ACC 206 Week 5 Mid-Term Exam – Strayer

Click on the Link Below to Purchase A+ Graded Course Material

 http://budapp.net/ACC-206-Accounting-Principles-II-Week-5-Mid-Term-Exam-Strayer-263.htm

 Chapters 10 Through 13

 CHAPTER10

 PLANTASSETS,NATURALRESOURCES,ANDINTANGIBLEASSETS

   CHAPTERSTUDYOBJECTIVES

  1.Describehowthecostprincipleappliestoplantassets.

 2.Explaintheconceptofdepreciation..

 3.Computeperiodicdepreciationusingdifferentmethods.

 4.Describetheprocedureforrevisingperiodicdepreciation.

 5.Distinguishbetweenrevenueandcapitalexpenditures,andexplaintheentriesforeach.

 6.Explainhowtoaccountforthedisposalofaplantasset.

 7.Computeperiodicdepletionofnaturalresources.

 8.Explainthebasicissuesrelatedtoaccountingforintangibleassets.

 9.Indicatehowplantassets,naturalresources,andintangibleassetsarereported.

 10.Explainhowtoaccountfortheexchangeofplantassets.

  TRUE-FALSESTATEMENTS

  1.     Allplantassets(fixedassets)mustbedepreciatedfor accountingpurposes.

 2.     Whenpurchasingland,thecostsforclearing,draining,filling,andgradingshouldbe chargedto aLandImprovementsaccount.

 3.     Whenpurchasingdeliveryequipment,salestaxesandmotorvehiclelicensesshouldbe chargedto DeliveryEquipment.

 4.     Landimprovementsaregenerallychargedto theLandaccount.

 5.     Oncecostisestablishedforaplantasset,itbecomes thebasis ofaccounting fortheasset unlesstheassetappreciatesinvalue,inwhichcase,marketvaluebecomesthebasisfor accountability.

 6.     Thebookvalueof aplantassetisalwaysequaltoitsfairmarketvalue.

 7.     Recordingdepreciationonplantassetsaffectsthebalancesheetandtheincome statement.

 8.     Thedepreciablecostof aplant asset is itsoriginalcostminusobsolescence.

 9.     Recordingdepreciationeachperiodisanapplicationof thematchingprinciple.

 10.     TheAccumulatedDepreciationaccountrepresentsacashfundavailabletoreplaceplant assets.

 11.     Incalculatingdepreciation,bothplantassetcost andusefullifearebasedonestimates.

 12.     Usingtheunits-of-activitymethodofdepreciatingfactoryequipmentwillgenerallyresultin moredepreciationexpensebeingrecordedoverthelifeoftheassetthanifthestraight-line method hadbeenused.

 13.     Salvagevalueisnotsubtractedfromplantassetcostindeterminingdepreciationexpense underthedeclining-balancemethodofdepreciation.

 14.     Thedeclining-balancemethodofdepreciationiscalledanaccelerateddepreciation methodbecauseitdepreciatesanassetinashorterperiodoftimethantheasset'suseful life.

 15.     Underthedouble-declining-balancemethod,thedepreciationrateusedeachyear remainsconstant.

 16.     TheIRSdoesnotrequirethetaxpayertousethesamedepreciationmethodonthetax returnthatisusedinpreparingfinancialstatements.

 17.     Achangeintheestimatedusefullifeofaplantassetmaycauseachangeintheamount ofdepreciationrecognizedinthecurrentandfutureperiods,but nottopriorperiods.

 18.     Achangeintheestimatedsalvagevalueofaplantassetrequiresarestatementofprior years'depreciation.

 19.     Todetermineanewdepreciationamountafterachangeinestimateofaplantasset's useful life, the asset'sremaining depreciablecost isdividedbyits remainingusefullife.

 20.     Additionsand improvementstoaplantassetthatincreasethe asset'soperatingefficiency, productive capacity,or expectedusefullife aregenerallyexpensed intheperiodincurred.

 21.     Capitalexpendituresareexpendituresthatincreasethecompany'sinvestmentin productive facilities.

 22.     Ordinaryrepairs shouldberecognizedwhenincurredas revenueexpenditures.

 23.     A characteristicofcapitalexpendituresis that theexpendituresoccurfrequently duringthe period ofownership.

 24.     Onceanassetisfullydepreciated,noadditionaldepreciationcanbetakeneventhough theasset is still beingusedbythebusiness.

 25.     Thefairmarketvalueof a plantasset isalwaysthesameasits bookvalue.

 26.     Iftheproceedsfromthesaleofaplantassetexceeditsbookvalue,againondisposal occurs.

 27.     Alossondisposalofaplantassetcanonlyoccurifthecashproceeds received fromthe assetsaleis lessthanthe asset'sbook value.

 28.     Thebookvalueofaplantassetistheamount originallypaid fortheassetlessanticipated salvagevalue.

 29.     Alossondisposal ofaplantasset asaresult ofasaleoraretirementiscalculated inthe sameway.

 30.     A plantassetmustbefullydepreciatedbeforeit canberemovedfromthe books.

 31.     Ifaplantasset issoldata gain,thegain ondisposal shouldreducethecost ofgoodssold section of the incomestatement.

 32.     Depletioncostperunitiscomputedbydividingthetotalcostofanaturalresourcebythe estimatednumberof unitsintheresource.

 33.     TheAccumulatedDepletionaccountisdeductedfromthecostofthenaturalresourcein thebalancesheet.

 34.     Depletionexpenseforaperiodisonlyrecognizedonnaturalresourcesthathavebeen extractedandsoldduringtheperiod.

 35.     Naturalresourcesarelong-livedproductiveassetsthatareextractedinoperationsand arereplaceableonlybyanactof nature.

 36.     Thecostofnaturalresourcesisnotallocatedtoexpensebecausethenaturalresources arereplaceableonlybyanactof nature.

 37.     Conceptually,thecostallocationproceduresfornaturalresourcesparallelsthatofplant assets.

 38.     Naturalresourcesincludestandingtimberandundergrounddepositsofoil,gas,and minerals.

 39.     Ifanacquiredfranchiseorlicensehasanindefinitelife,thecostoftheassetisnot amortized.

 40.     Whenanentirebusinessispurchased,goodwillistheexcessofcostoverthebookvalue of thenet assetsacquired.

 41.     Researchand development costswhich result in asuccessful product which ispatentable arechargedtothePatentaccount.

 42.     Thecostof apatentmustbeamortizedovera 20-yearperiod.

 43.     Thecostofapatentshouldbeamortizedoveritslegallifeorusefullife,whicheveris shorter.

 44.     The balancesofthe majorclassesofplantassetsand accumulated depreciationby major classes shouldbedisclosedinthebalance sheetornotes.

 45.     Theassetturnover ratioiscalculated astotalsales dividedbyendingtotalassets.

 46.     Researchanddevelopmentcostscanbeclassifiedasaproperty,plant,andequipment itemoras an intangibleasset.

 a47.     An exchangeofplantassetshas commercial substanceifthe futurecashflows change as a resultofthe exchange.

 a48.     Companiesrecordagainorlossontheexchangeofplantassetsbecausemost exchangeshavecommercialsubstance.

 a49.     Whenplantassetsareexchanged,thecostofthenewassetisthebookvalueoftheold assetplus anycashpaid.

 Additional True-FalseQuestions

 50.     Whenconstructingabuilding,acompanyispermittedtoincludetheacquisitioncostand certaininterest costs incurredinfinancingtheproject.

 51.     Recognitionofdepreciationpermitstheaccumulationofcashforthereplacementofthe asset.

 52.     Whenanassetispurchasedduringtheyear,itisnotnecessarytorecorddepreciation expense inthefirst yearunderthedeclining-balancedepreciationmethod.

 53.     Depletionexpenseisreported intheincomestatementas anoperatingexpense.

 54.     Goodwillisnotrecognizedinaccountingunlessitisacquiredfromanotherbusiness enterprise.

 55.     Researchanddevelopmentcostsshouldbechargedtoexpensewhenincurred.

 56.       Alossontheexchangeofplantassetsoccurswhenthefairmarketvalueoftheoldasset islessthanitsbookvalue.

       MULTIPLECHOICEQUESTIONS

  57.     Thecostof apurchasedbuildingincludes allofthefollowingexcept a.closingcosts.

b.realestatebroker's commission. c.remodeling costs.

d.Allof theseareincluded.

 58.     Acompanypurchasedlandfor$90,000cash.Realestatebrokers'commissionwas $5,000and$7,000wasspentfordemolishinganoldbuildingonthelandbefore constructionofanewbuildingcouldstart.Underthecostprinciple,thecostoflandwould be recordedat

a.$97,000. b.$90,000. c.$95,000. d.$102,000.

 59.     Whichoneofthefollowingitemsisnotconsideredapartofthecostofatruckpurchased for businessuse?

a.Salestax

b.Trucklicensec.Freightcharges

d.Costofletteringonsideoftruck

 60.     Whichofthefollowingassetsdoesnotdeclineinservicepotentialoverthecourseofits useful life?

a.Equipment b.Furnishings c.Land

d.Fixtures

 61.     Thefoursubdivisions forplantassetsare

a.land,landimprovements,buildings,andequipment. b.intangibles,land,buildings,andequipment.

c.furnishingsandfixtures,land,buildings, andequipment. d.property,plant,equipment,andland.

 62.     Thecostof landdoesnotinclude

a.realestatebrokers' commission. b.annualpropertytaxes.

c.accruedpropertytaxesassumedbythepurchaser. d.title fees.

 63.     FeeneyClinicpurchaseslandfor$130,000cash.Theclinicassumes$1,500inproperty taxesdueontheland.Thetitleandattorneyfeestotaled$1,000.Theclinichastheland gradedfor $2,200.WhatamountdoesFeeneyClinicrecordasthecostforthe land?

a.$132,200 b.$130,000 c.$134,700 d.$132,500

 64.     BelleCompanybuyslandfor$50,000on12/31/07.Asof3/31/08,thelandhas appreciatedinvalueto$50,700.On12/31/08,thelandhasanappraisedvalueof $51,800.Bywhatamountshouldthe Landaccount beincreasedin 2008?

a.$0b.$700

c.$1,100 d.$1,800

 65.     PineCompanyacquireslandfor$86,000cash.Additional costsareasfollows:

 Removalof shed                                        $300 Fillingandgrading                                      1,500 Salvagevalue oflumberofshed                   120 Brokercommission                                     1,130 Pavingofparkinglot                                 10,000 Closingcosts                                                 560

 Pinewillrecordtheacquisitioncostof thelandas a.$86,000.

b.$87,690. c.$89,610. d.$89,370.

 66.     ShawneeHospitalinstallsanewparkinglot.Thepavingcost$30,000andthelightsto illuminatethenewparkingareacost$15,000.Whichofthefollowingstatementsistrue with respecttotheseadditions?

a.$30,000shouldbedebitedtothe Landaccount.

b.$15,000shouldbedebitedtoLandImprovements. c.$45,000shouldbedebitedtotheLandaccount.d.$45,000shouldbedebitedtoLandImprovements.

10-10

 67.     Landimprovementsshouldbedepreciatedovertheusefullife of the a.land.

b.buildingsontheland.

c.land or landimprovements,whicheverislonger. d.landimprovements.

 68.     GeneralMoldingisbuildinganewplantthatwilltakethreeyearstoconstruct.The constructionwillbefinancedinpartbyfundsborrowedduringtheconstructionperiod. Therearesignificantarchitectfees,excavationfees,andbuildingpermitfees.Whichof the followingstatementsis true?

a.Excavationfeesarecapitalizedbut building permitfeesarenot. b.Architectfeesarecapitalizedbut buildingpermitfeesarenot.

c.Interestiscapitalizedduring theconstructionas partof thecostofthebuilding.

d.The capitalizedcost is equaltothecontractprice tobuildthe plant less any intereston borrowed funds.

 69.     Acompanypurchasesaremotesitebuildingforcomputeroperations.Thebuildingwillbe suitableforoperationsaftersomeexpenditures.Thewiringmustbereplacedtocomputer specifications.Theroofisleakyandmustbereplaced.Allroomsmustberepaintedand recarpetedandtherewillalsobesomeplumbingworkdone.Whichofthefollowing statements is true?

a.Thecost ofthebuildingwillnot includetherepaintingandrecarpeting costs. b.Thecostofthebuildingwillincludethecostof replacing theroof.

c.Thecostofthebuildingisthepurchasepriceofthebuilding,whiletheadditional expendituresareallcapitalizedas BuildingImprovements.

d.Thewiringis partofthecomputercosts,notthebuildingcost.

 70.     CarleyCompany purchasesanewdeliverytruck for$45,000.Thesalestaxesare$3,000. Thelogo of thecompanyis painted on thesideofthe truckfor$1,200.Thetrucklicenseis $120.Thetruckundergoessafetytestingfor$220.WhatdoesCarleyrecordasthecostof thenewtruck?

a.$49,540 b.$49,420 c.$48,000 d.$47,420

 71.     Allof thefollowingfactorsincomputingdepreciationareestimatesexcept a.cost.

b.residualvalue. c.salvagevalue. d.usefullife.

 72.     StoriesCompanypurchasedequipmentandthesecostswereincurred:

 Cashprice Salestaxes

Insuranceduringtransit Installationandtesting Totalcosts

$22,500 1,800 320

           430$25,050

PlantAssets,NaturalResources,andIntangibleAssets             10-11

  Storieswillrecordtheacquisitioncostofthe equipmentas a.$22,500.

b.$24,300. c.$24,620. d.$25,050.

 73.     Becky’sBloomspurchasedadeliveryvanfor$20,000.Thecompany wasgivena$2,000 cashdiscountbythedealer,andpaid$1,000salestax.Annualinsuranceonthevanis $500.Asaresultofthepurchase,byhowmuchwillBecky’sBloomsincreaseitsvan account?

a.$20,000 b.$18,000 c.$19,500 d.$19,000

 74.     UptonCompanypurchasedequipmentonJanuary1atalistpriceof$50,000,withcredit terms2/10,n/30.PaymentwasmadewithinthediscountperiodandUptonwasgivena $1,000cashdiscount.Uptonpaid$2,500salestaxontheequipment,andpaidinstallation chargesof$880.Priortoinstallation,Uptonpaid$2,000topouraconcreteslabonwhich toplacethe equipment.Whatisthetotalcostofthe newequipment?

a.$52,380 b.$54,380 c.$55,380 d.$50,500

 75.     Interestmaybe includedintheacquisitioncost ofa plantasset a.duringtheconstructionperiodof aself-constructedasset.b.if theassetis purchasedoncredit.

c.if theassetacquisitionisfinancedbyalong-termnotepayable. d.ifit isapart of a lump-sumpurchase.

 76.     ThebalanceintheAccumulatedDepreciationaccountrepresentsthe a.cashfundtobeusedtoreplaceplantassets.

b.amounttobedeductedfromthecostoftheplantassettoarriveatitsfairmarket value.

c.amountchargedtoexpenseinthecurrentperiod.

d.amountchargedto expensesincetheacquisitionof theplantasset.

 77.     Whichoneofthefollowingitemsisnotaconsiderationwhenrecordingperiodic depreciationexpenseonplantassets?

a.Salvagevalue

b.Estimatedusefullife

c.Cashneededtoreplacethe plantasset d.Cost

 78.     Depreciationisthe processof allocating thecostof aplantasset overits servicelife in a.anequaland equitablemanner.

b.an acceleratedand accuratemanner. c.asystematicandrationalmanner.

d.a conservativemarket-basedmanner.

10-12

 79.     Thebookvalueof anassetisequaltothe

a.asset'smarketvaluelessits historicalcost.

b.bluebookvaluereliedonbysecondarymarkets. c.replacementcostof theasset.

d.asset'scostlessaccumulateddepreciation.

 80.     Accountantsdonotattempttomeasurethechangeinaplantasset'smarketvalueduring ownership because

a.theassetsare notheldfor resale. b.plantassetscannotbesold.

c.losseswouldhavetoberecognized.

d.itismanagement'sresponsibilityto determinefair values.

 81.     Depreciationis aprocessof a.assetdevaluation.

b.costaccumulation. c.cost allocation.

d.assetvaluation.

 82.     Recordingdepreciationeachperiodisnecessaryinaccordancewiththe a.goingconcernprinciple.

b.costprinciple.

c.matchingprinciple.

d.assetvaluationprinciple.

 83.     Incomputingdepreciation,salvagevalueis

a.thefairmarketvalueofa plantassetonthedate of acquisition.

b.subtractedfromaccumulateddepreciationtodeterminetheplantasset'sdepreciable cost.

c.anestimateof aplantasset'svalueattheendofitsusefullife. d.ignoredinallthedepreciationmethods.

 84.     Whenestimatingtheusefullifeofanasset,accountantsdonotconsider a.thecosttoreplacetheassetat theendofits usefullife.

b.obsolescencefactors.

c.expectedrepairsandmaintenance. d.theintendeduse of theasset.

 85.     Usefullifeisexpressedintermsof useexpectedfromtheassetunderthe a.declining-balancemethod.

b.straight-linemethod.

c.units-of-activitymethod. d.noneof these.

 86.     Equipmentwaspurchasedfor$75,000.Freightchargesamountedto$3,500andthere wasacostof$10,000forbuildingafoundationandinstallingtheequipment.Itis estimatedthattheequipmentwillhavea$15,000salvagevalueattheendofits5-year useful life. Depreciationexpenseeachyearusingthe straight-linemethodwillbe

a.$17,700. b.$14,700. c.$12,300. d.$12,000.

PlantAssets,NaturalResources,andIntangibleAssets             10-13

 87.     Atruckwaspurchasedfor$120,000anditwasestimatedtohavea$24,000salvage valueattheendofitsusefullife.Monthlydepreciationexpenseof$2,000wasrecorded using thestraight-linemethod.Theannualdepreciationrateis

a.20%. b.2%.c.8%. d.25%.

 88.     AcompanypurchasedfactoryequipmentonApril1,2008for$64,000.Itisestimatedthat theequipmentwillhavean$8,000salvagevalueattheendofits10-yearusefullife. Usingthestraight-linemethodofdepreciation,theamounttoberecordedasdepreciation expense atDecember31,2008is

a.$6,400. b.$5,600. c.$4,200. d.$4,800.

 89.     Acompanypurchasedofficeequipmentfor$40,000andestimatedasalvagevalueof $8,000attheendofits5-yearusefullife.Theconstantpercentagetobeappliedagainst book valueeachyearifthedouble-declining-balancemethodisusedis

a.20%. b.25%. c.40%. d.4%.

 90.     Thedeclining-balancemethodofdepreciationproduces a.adecreasingdepreciationexpenseeachperiod.

b.an increasingdepreciationexpenseeachperiod. c.a decliningpercentagerateeachperiod.

d.a constantamount ofdepreciationexpenseeachperiod.

 91.     Acompanypurchasedfactoryequipmentfor$250,000.Itisestimatedthattheequipment willhavea$25,000salvagevalueattheendofitsestimated5-yearusefullife.Ifthe companyusesthedouble-declining-balancemethodofdepreciation,theamountofannual depreciationrecordedforthesecondyear afterpurchasewould be

a.$100,000. b.$60,000. c.$90,000. d.$43,200.

 92.     Theunits-of-activitymethodisgenerallynot suitablefor a.airplanes.

b.buildings.

c.deliveryequipment. d.factorymachinery.

 93.     Aplantassetcost$144,000andisestimatedtohavean$18,000salvagevalueattheend ofits8-yearusefullife.Theannualdepreciation expenserecordedforthethirdyearusing thedouble-declining-balancemethodwouldbe

a.$12,060. b.$20,250. c.$17,718. d.$13,785.

10-14

 94.     Afactorymachinewaspurchased for$75,000onJanuary1,2008.Itwasestimatedthatit wouldhavea$15,000salvagevalueattheendofits5-yearusefullife.Itwasalso estimatedthatthemachinewouldberun40,000hoursinthe5years.Thecompanyran themachinefor4,000actualhoursin2008.Ifthecompanyusestheunits-of-activity methodof depreciation,the amountof depreciationexpensefor 2008 wouldbe

a.$7,500.b.$12,000. c.$15,000. d.$6,000.

 95.     TheModifiedAcceleratedCostRecoverySystem(MACRS)isadepreciationmethod which

a.isusedfortaxpurposes.

b.mustbeusedforfinancialstatementpurposes. c.isrequiredbytheSEC.

d.expensesanassetoverasingleyearbecausecapitalacquisitionsmustbeexpensed in theyearpurchased.

 96.     Whichofthefollowingmethodsof computing depreciationisproductionbased? a.Straight-line

b.Declining-balance c.Units-of-activityd.Noneof these

 97.     Managementshouldselect thedepreciationmethodthat a.iseasiesttoapply.

b.bestmeasurestheplantasset'smarketvalueover its usefullife.

c.bestmeasuresthe plantasset'scontributiontorevenue overits usefullife. d.hasbeenusedmostofteninthepastbythe company.

 98.     Thedepreciationmethodthatappliesaconstantpercentagetodepreciablecostin calculating depreciation is

a.straight-line.

b.units-of-activity.

c.declining-balance. d.noneof these.

 Usethefollowing informationforquestions99–100.

 OnOctober1,2008,DoleCompanyplacesanewassetintoservice.Thecostoftheassetis $60,000withanestimated5-yearlifeand$15,000salvagevalueattheendof its usefullife.

 99.     Whatisthedepreciationexpensefor2008ifDoleCompanyusesthestraight-linemethod ofdepreciation?

a.$2,250 b.$12,000 c.$3,000 d.$6,000

PlantAssets,NaturalResources,andIntangibleAssets             10-15

 100.     WhatisthebookvalueoftheplantassetontheDecember31,2008,balancesheet assuming that DoleCompanyusesthedouble-declining-balancemethodof depreciation? a.$39,000

b.$45,000 c.$54,000 d.$57,000

 101.     Whichdepreciationmethod ismostfrequentlyusedinbusinessestoday? a.Straight-line

b.Declining-balance c.Units-of-activity

d.Double-declining-balance

 102.     WineCompanyusestheunits-of-activitymethodincomputingdepreciation.Anewplant assetispurchased for$24,000thatwillproduceanestimated100,000unitsoveritsuseful life.Estimatedsalvagevalue attheend ofitsuseful lifeis$2,000. Whatis the depreciation costperunit?

a.$2.20 b.$2.40 c.$.22 d.$.24

 103.     Units-of-activityisanappropriatedepreciationmethodtouse when a.it isimpossibleto determinetheproductivityof theasset.

b.theasset'susewillbeconstantoverits usefullife.

c.theproductivityof theassetvariessignificantlyfromoneperiodtoanother. d.thecompanyisamanufacturingcompany.

 104.     Thecalculationof depreciationusingthedecliningbalancemethod,

a.ignoressalvage valueindeterminingtheamounttowhicha constantrateisapplied. b.multipliesaconstantpercentagetimesthepreviousyear'sdepreciationexpense.

c.yieldsan increasingdepreciationexpenseeachperiod.

d.multipliesadecliningpercentagetimesaconstantbookvalue.

 Use thefollowing informationforquestions105–106.

  GreyCompanypurchasedanewvanforfloraldeliveriesonJanuary1,2008.Thevancost $36,000withanestimatedlifeof5yearsand$9,000salvagevalueattheendofitsusefullife. Thedouble-declining-balancemethodof depreciationwillbeused.

 105.     Whatisthedepreciationexpensefor2008? a.$7,200

b.$5,400c.$10,800 d.$14,400

 106.     WhatisthebalanceoftheAccumulatedDepreciationaccountattheendof2009? a.$5,760

b.$17,280 c.$23,040 d.$8,640

10-16

 107.     PorterCompanypurchasedequipmentfor$450,000onJanuary1,2007,andwillusethe double-declining-balancemethodofdepreciation.Itisestimatedthattheequipmentwill havea3-yearlifeanda$20,000salvagevalueattheendofitsusefullife.Theamountof depreciationexpenserecognizedintheyear2009willbe

a.$50,000. b.$30,000. c.$54,440. d.$34,440.

 108.     Aplant asset was purchasedon January 1 for$50,000withan estimatedsalvagevalueof $10,000attheendofitsusefullife.Thecurrentyear'sDepreciationExpenseis$5,000 calculatedonthestraight-linebasisandthebalanceoftheAccumulatedDepreciation accountattheendof theyearis$25,000.Theremainingusefullifeof theplantasset is

a.10 years. b.8years. c.5 years. d.3years.

 109.     Equipmentwaspurchasedfor$60,000.Freightchargesamountedto$2,800andthere wasacostof$8,000forbuildingafoundation andinstallingtheequipment.Itisestimated thattheequipmentwillhavea$12,000salvagevalueattheendofits5-yearusefullife. Depreciation expenseeachyearusingthestraight-linemethodwill be

a.$14,160. b.$11,760. c.$9,840. d.$9,600.

 110.     Equipmentwaspurchased for$17,000onJanuary1,2008.Freightchargesamountedto $700andtherewasacostof$2,000forbuildingafoundationandinstallingthe equipment.Itisestimatedthattheequipmentwillhavea$3,000salvagevalueattheend ofits5-year useful life.What istheamountofaccumulateddepreciationatDecember31, 2009,if thestraight-linemethodof depreciationisused?

a.$6,680 b.$3,340 c.$2,860 d.$5,720

 111.     Acompanypurchasedfactoryequipment onJune 1,2008,for$48,000.Itisestimatedthat theequipmentwillhavea$3,000salvagevalueattheendofits10-yearusefullife.Using thestraight-linemethodofdepreciation,theamounttoberecordedasdepreciation expense atDecember31,2008,is

a.$4,500. b.$2,625. c.$2,250. d.$1,875.

 112.     Aplant asset was purchasedon January 1 for$40,000withan estimatedsalvagevalueof $8,000attheendofitsusefullife.Thecurrentyear'sDepreciationExpenseis$4,000 calculatedonthestraight-linebasisandthebalanceoftheAccumulatedDepreciation accountattheendof theyearis$20,000.Theremainingusefullifeof theplantasset is

PlantAssets,NaturalResources,andIntangibleAssets             10-17

 a.10 years. b.8years. c.5 years. d.3years.

 Usethefollowing informationforquestions113–115.

 BrinkmanCorporationboughtequipmentonJanuary1,2008.Theequipmentcost$90,000and hadanexpectedsalvagevalueof$15,000.Thelifeoftheequipmentwasestimatedtobe6 years.

 113.     Thedepreciablecostof theequipmentis a.$90,000.

b.$75,000. c.$50,000. d.$12,500.

 114.     Thedepreciationexpenseusingthestraight-linemethodof depreciationis a.$17,500.

b.$18,000. c.$12,500.

d.noneof theabove.

 115.     Thebookvalueof the equipmentatthebeginningof thethirdyear wouldbe a.$90,000.

b.$75,000. c.$65,000. d.$25,000.

 116.     BadenCompanypurchasedmachinerywithalistpriceof$32,000.Theyweregivena 10%discountbythemanufacturer.Theypaid$200forshippingandsalestaxof$1,500. Badenestimatesthatthemachinerywillhaveausefullifeof10yearsandaresidual value of$10,000.IfBadenusesstraight-linedepreciation,annualdepreciationwillbe

a.$2,050. b.$2,036. d.$3,050. d.$1,880.

 117.     BatesCompanypurchasedequipmentonJanuary1,2008,atatotalinvoicecostof $600,000.Theequipmenthasanestimatedsalvagevalueof$15,000andanestimated usefullifeof5years.WhatistheamountofaccumulateddepreciationatDecember31, 2009,if thestraight-linemethodof depreciationisused?

a.$120,000 b.$240,000 c.$117,000 d.$234,000

10-18

 118.     OnJanuary1,amachinewithausefullifeoffiveyearsandaresidualvalueof$15,000 waspurchasedfor$45,000.Whatisthedepreciationexpenseforyear2underthe double-declining-balancemethodof depreciation?

a.$10,800 b.$18,000 c.$14,400 d.$8,640

 119.     Amachinewithacostof$160,000hasanestimatedsalvagevalueof$10,000andan estimatedusefullifeof5yearsor15,000hours.Itistobedepreciatedusingtheunits-of-activitymethodofdepreciation.Whatistheamountofdepreciationforthesecondfull year,during whichthe machinewasused5,000hours?

a.$50,000 b.$30,000 c.$43,333 d.$53,333

 120.     Equipmentwithacostof$240,000hasanestimatedsalvagevalueof$15,000andan estimatedlifeof4yearsor15,000hours.Itistobedepreciatedusingtheunits-of-activity method.Whatistheamountofdepreciationforthefirstfullyear,duringwhichthe equipmentwasused 3,300 hours?

a.$60,000 b.$67,800 c.$49,500 d.$56,250

 121.     LarimeCompanypurchasedequipmentfor$40,000onJanuary1,2007,andwillusethe double-declining-balancemethodofdepreciation.Itisestimatedthattheequipmentwill havea5-yearlifeanda$2,000salvagevalueattheendofitsusefullife.Theamountof depreciationexpenserecognizedintheyear2009willbe

a.$5,760. b.$9,120. c.$9,600. d.$5,472.

 122.     InterlineTruckingpurchasedatractortrailerfor$98,000. Interlineusestheunits-of-activity methodfordepreciatingitstrucksandexpectstodrivethetruck1,000,000milesoverits 12-yearusefullife.Salvagevalueisestimated tobe$14,000.Ifthetruckisdriven90,000 miles in itsfirstyear,howmuchdepreciationexpenseshouldInterlinerecord?

a.$7,000 b.$8,820 c.$7,560 d.$8,167

 123.     Anassetwaspurchasedfor$150,000.Ithadanestimatedsalvagevalueof$30,000and anestimatedusefullifeof10years.After5yearsofuse,theestimatedsalvagevalueis revisedto$24,000buttheestimatedusefullifeisunchanged.Assumingstraight-line depreciation, depreciationexpenseinyear6 wouldbe

a.$18,000. b.$13,200. c.$9,000. d.$12,600.

PlantAssets,NaturalResources,andIntangibleAssets             10-19

 124.     Equipmentcosting$30,000withasalvagevalueof$6,000andanestimatedlifeof8 yearshasbeendepreciatedusingthestraight-linemethodfor2years.Assuminga revisedestimatedtotallifeof5yearsandnochangeinthesalvage value,thedepreciation expense for year3wouldbe

a.$3,600. b.$8,000. c.$6,000. d.$4,800.

 125.     Joe'sQuikShopboughtmachineryfor$25,000onJanuary1,2008.Joeestimatedthe usefullifetobe5yearswithnosalvagevalue,andthestraight-line methodofdepreciation willbeused. OnJanuary 1,2009,Joedecidesthatthebusinesswillusethemachineryfor a total of6 years.What is thereviseddepreciationexpensefor2009?

a.$4,000 b.$2,000 c.$3,333 d$5,000

 126.     Eachofthefollowingisusedincomputingrevisedannualdepreciationforachangein estimateexcept

a.bookvalue. b.cost.

c.depreciablecost.

d.remaininguseful life.

 127.     A changeintheestimatedusefullife of equipmentrequires

a.aretroactivechangeintheamountofperiodicdepreciationrecognizedinprevious years.

b.thatnochangebemadeintheperiodicdepreciation sothatdepreciationamounts are comparableoverthelifeof theasset.

c.thattheamountofperiodicdepreciationbechangedinthecurrentyearandinfuture years.

d.that incomeforthecurrent yearbeincreased.

 128.     HuntCompanyhasdecidedtochangetheestimateoftheusefullifeofanassetthathas beeninservicefor2years. Whichofthefollowingstatementsdescribestheproperwayto revise a usefullifeestimate?

a.Revisionsinusefullifeare permittedifapprovedbytheIRS.

b.Retroactivechangesmustbemadeto correctpreviouslyrecordeddepreciation. c.Onlyfuture yearswill beaffectedbytherevision.

d.Bothcurrentandfutureyearswillbeaffectedbythe revision.

 129.     Jim'sCopyShopboughtequipmentfor$90,000onJanuary1,2007.Jimestimatedthe usefullifetobe3yearswithnosalvage value, andthestraight-line methodofdepreciation willbeused.OnJanuary1,2008,Jimdecidesthat the businesswilluse theequipmentfor5years.Whatisthereviseddepreciationexpensefor 2008?

a.$30,000 b.$12,000 c.$15,000 d.$22,500

10-20

 130.     Costsincurredtoincreasetheoperatingefficiencyorusefullifeofaplantassetare referred toas

a.capitalexpenditures.b.expenseexpenditures. c.ordinaryrepairs.

d.revenueexpenditures.

 131.     Expendituresthatmaintain theoperatingefficiencyandexpectedproductivelifeofaplant assetaregenerally

a.expensedwhenincurred.

b.capitalizedasa partofthecostof theasset.

c.debitedto the AccumulatedDepreciationaccount.d.notrecordeduntiltheybecomematerialinamount.

 132.     Whichofthefollowingisnottrue of ordinaryrepairs?

a.Theyprimarilybenefitthecurrentaccountingperiod. b.Theycan bereferredto asrevenueexpenditures.

c.Theymaintaintheexpectedproductivelifeof theasset. d.Theyincreasetheproductivecapacityof theasset.

 133.     Thepaneling ofthe body ofanopenpickuptruckwouldbeclassifiedasa(n) a.revenueexpenditure.

b.addition.

c.improvement.d.ordinaryrepair.

 134.     Additionsand improvements

a.occurfrequentlyduringtheownershipof aplantasset. b.normallyinvolveimmaterialexpenditures.

c.increasethebookvalueof plantassetswhenincurred. d.typicallyonlybenefitthecurrentaccountingperiod.

 135.     Ifa plantassetisretiredbeforeit isfullydepreciatedandnosalvagevalueisreceived, a.againondisposaloccurs.

b.a lossondisposal occurs.

c.eitheragainor a losscan occur. d.neitheragainnor alossoccurs.

 136.     Againorlossondisposalof aplantassetis determinedbycomparingthe a.replacementcost oftheassetwiththeasset'soriginal cost.

b.bookvalueof theassetwiththeasset'soriginalcost.

c.originalcost oftheassetwiththeproceedsreceivedfromitssale. d.bookvalueof the assetwiththe proceedsreceivedfromits sale.

 137.     Thebookvalueof aplantassetisthedifferencebetweenthe a.replacementcost oftheassetandits historicalcost.

b.costof the asset andtheamountofdepreciationexpenseforthe year. c.costoftheasset andtheaccumulateddepreciationtodate.

d.proceedsreceivedfromthesaleoftheassetand its originalcost.

PlantAssets,NaturalResources,andIntangibleAssets             10-21

 138.     Ifa plantassetissoldbefore it isfullydepreciated, a.onlyagainondisposalcanoccur.

b.onlya losson disposalcanoccur.c.eitheragainor a losscan occur.d.neitheragainnor alosscanoccur.

 139.     Ifaplantassetisretiredbeforeitisfullydepreciated,andthesalvagevaluereceivedis less thanthe asset's book value,

a.a gainondisposaloccurs. b.a lossondisposal occurs.

c.thereis nogain or lossondisposal.

d.additionaldepreciationexpensemust berecorded.

 140      Acompanysellsaplantassetwhichoriginallycost$180,000for$60,000onDecember31, 2008.TheAccumulatedDepreciationaccounthadabalanceof$72,000afterthecurrent year'sdepreciationof $18,000 hadbeenrecorded.Thecompanyshouldrecognizea

a.$120,000lossondisposal. b.$48,000gainondisposal. c.$48,000lossondisposal. d.$30,000lossondisposal.

 141.     Ifdisposalofa plantassetoccursduringtheyear,depreciationis a.not recordedfortheyear.

b.recordedforthewholeyear.

c.recordedforthefractionof theyeartothedateof thedisposal. d.not recordediftheasset isscrapped.

 142.     Ifafullydepreciatedplant asset is still usedbya company,the

a.estimatedremainingusefullifemustberevisedtocalculatethecorrectrevised depreciation.

b.assetisremovedfromthebooks.

c.accumulateddepreciationaccountisremovedfromthebooksbuttheassetaccount remains.

d.assetandtheaccumulateddepreciation continue tobereportedonthebalancesheet withoutadjustment untiltheassetisretired.

 143.     Whichofthefollowingstatementsisnottruewhenafullydepreciatedplantassetis retired?

a.Theplantasset'sbookvalue isequaltoitsestimated salvagevalue. b.Theaccumulateddepreciationaccountisdebited.

c.Theassetaccount iscredited.

d.Theplantasset'soriginalcost equalsitsbookvalue.

 144.     Ifaplantassetisretiredbeforeitisfullydepreciated,andnosalvageorscrapvalueis received,

a.againondisposalwillberecorded.

b.phantomdepreciationmustbetakenasthoughtheassetwerestillonthe books. c.a losson disposalwill berecorded.

d.nogainorlossondisposal willberecorded.

10-22

 145.     Thebookvalueof anassetwillequalitsfairmarket valueatthedateofsaleif a.a gainondisposalisrecorded.

b.nogainorlossondisposalisrecorded. c.theplantassetisfully depreciated.

d.a lossondisposal isrecorded.

 146.     Atruckcosting$110,000wasdestroyedwhenitsenginecaughtfire.Atthedateofthe fire,theaccumulateddepreciationonthetruckwas$50,000.Aninsurancecheckfor $125,000wasreceivedbasedonthereplacementcostofthetruck.Theentrytorecord theinsuranceproceedsandthedispositionof the truckwill include a

a.GainonDisposalof $15,000.

b.creditto theTruckaccountof $60,000.

c.credittotheAccumulatedDepreciationaccountfor$50,000. d.GainonDisposalof $65,000.

 147.     OnJuly1,2008,MeedKennelssellsequipmentfor$66,000.Theequipmentoriginally cost$180,000,hadanestimated5-yearlifeandanexpectedsalvagevalueof$30,000. Theaccumulateddepreciationaccounthadabalanceof$105,000onJanuary1,2008, using thestraight-linemethod.Thegainorlossondisposalis

a.$9,000gain. b.$6,000loss. c.$9,000loss. d.$6,000gain.

 148.     A lossondisposalof aplantassetisreportedinthefinancialstatements a.intheOtherRevenuesandGainssection oftheincomestatement.b.intheOtherExpensesandLossessectionof theincomestatement. c.asadirectincreasetothecapitalaccount onthe balancesheet.

d.as adirectdecrease tothecapitalaccount onthe balancesheet.

 149.     WellsCompany'sdeliverytruck,whichoriginallycost$70,000,wasdestroyedbyfire.At thetimeofthefire,thebalanceoftheAccumulatedDepreciationaccountamountedto $47,500.The companyreceived$40,000reimbursementfromits insurancecompany.The gain orlossasaresultof thefire was

a.$30,000loss. b.$17,500loss. c.$30,000gain. d.$17,500gain.

 150.     Atruckthatcost$21,000andonwhich$10,000ofaccumulateddepreciationhasbeen recordedwasdisposedoffor $9,000cash.Theentrytorecordthiseventwouldincludeaa.gainof $2,000.

b.lossof $2,000.

c.credittotheTruckaccountfor$11,000.

d.creditto AccumulatedDepreciationfor$10,000.

 151.     Atruckthatcost$36,000andonwhich$30,000ofaccumulateddepreciationhasbeen recordedwasdisposedoffor $9,000cash.Theentrytorecordthiseventwouldincludeaa.gainof $3,000.

b.lossof $3,000.

c.credittotheTruckaccountfor$6,000.

d.creditto AccumulatedDepreciationfor$30,000.

PlantAssets,NaturalResources,andIntangibleAssets             10-23

 152.     AceCorporationsoldequipmentfor$12,000.Theequipmenthadanoriginalcostof $36,000andaccumulateddepreciationof $18,000.Asaresultof thesale,

a.netincomewill increase$12,000. b.netincomewillincrease$6,000.c. netincomewilldecrease$6,000.d.netincomewilldecrease$12,000.

 153.     Jarman’s CourierServicerecorded alossof$3,000whenitsoldavanthatoriginallycost $28,000for $5,000.Accumulateddepreciationonthevanmusthavebeen

a.$26,000. b.$8,000.c.$25,000. d.$20,000.

 154.     Onabalancesheet,naturalresourcesmaybedescribedmorespecificallyasallofthe followingexcept

a.landimprovements. b.mineraldeposits.

c.oilreserves. d.timberlands.

 155.     Naturalresourcesare

a.depreciatedusingtheunits-of-activity method.

b.physicallyextractedinoperationsandarereplaceableonlybyanact ofnature. c.reportedattheirmarketvalue.

d.amortizedovera periodnolongerthan40years.

 156.     Depletionis

a.a decreaseinmarketvalueof naturalresources.

b.the amountof spoilagethatoccurswhennaturalresourcesareextracted. c.theallocationof the costof naturalresources toexpense.

d.themethodusedtorecordunsuccessfulpatents.

 157.     Toqualifyasnaturalresourcesintheaccountingsense,assetsmustbe a.underground.

b.replaceable.

c.of amineralnature.

d.physicallyextractedinoperations.

 158.     Themethodmostcommonlyusedtocomputedepletionisthe a.straight-linemethod.

b.double-declining-balancemethod. c.units-of-activitymethod.

d.effectiveinterestmethod.

 159.     Incomputingdepletion,salvagevalueis a.alwaysimmaterial.

b.ignored.

c.impossibletoestimate.

d.includedinthe calculation.

10-24

 160.     Ifa miningcompanyextracts1,500,000tonsinaperiodbutonlysells1,200,000 tons, a.totaldepletiononthemineis basedonthe1,200,000tons.

b.depletionexpenseisrecognized onthe1,500,000tonsextracted.

c.depletionexpenseisrecognized onthe1,200,000tonsextractedandsold.

d.aseparateaccumulateddepletionaccountissetuptorecorddepletiononthe 300,000tonsextractedbutnotsold.

 161.     Acoalcompanyinvests$16millioninamineestimatedtohave20milliontonsofcoaland nosalvagevalue.Itisexpectedthattheminewillbeinoperationfor5years.Inthefirst year,1,000,000 tonsofcoalareextractedandsold.Whatisthedepletionexpenseforthe first year?

a.$800,000 b.$320,000 c.$80,000

d.Cannotbedeterminedfromtheinformationprovided.

 162.     AccumulatedDepletion

a.isusedbyallcompanieswithnaturalresources. b.hasanormaldebitbalance.

c.isacontra-assetaccount.

d.isnevershown onthebalancesheet.

 163.     OnJuly4,2008,MontanaMiningCompanypurchasedthemineralrightstoagranite depositfor$800,000.Itisestimatedthattherecoverablegranitewillbe400,000tons. During2008,100,000tonsofgranitewasextractedand60,000tonsweresold.The amount of theDepletionExpenserecognizedfor2008wouldbe

a.$100,000. b.$60,000.c.$120,000. d.$200,000.

 164.     Depletionexpenseiscomputedbymultiplyingthedepletioncostperunitbythe a.totalestimatedunits.

b.totalactualunits.

c.numberof unitsextracted. d.numberof unitssold.

 165.     Intangibleassetsaretherightsandprivilegesthatresultfromownershipoflong-lived assets that

a.mustbegeneratedinternally.

b.aredepletablenaturalresources. c.havebeenexchangedatagain. d.donothavephysicalsubstance.

 166.     Identifytheitembelowwherethetermsarenotrelated. a.Equipment—depreciation

b.Franchise—depreciation c.       Copyright—amortization d.Oilwell—depletion

PlantAssets,NaturalResources,andIntangibleAssets             10-25

 167.     A patentshould

a.be amortizedovera periodof20years.b.notbeamortizedifithas an indefinitelife.

c.beamortizedoveritsusefullifeor20 years,whicheverislonger. d.beamortizedoveritsusefullifeor20 years,whicheveris shorter.

 168.     Theentrytorecordpatent amortizationusuallyincludes a creditto a.AmortizationExpense.

b.AccumulatedAmortization. c.Accumulated Depreciation. d.Patents.

 169.     Thecostof successfullydefendingapatentinaninfringementsuitshouldbe a.chargedtoLegalExpenses.

b.deductedfromthebookvalueof thepatent. c.addedtothecostof thepatent.

d.recognizedasalossinthecurrentperiod.

 170.     Anassetthatcannotbesoldindividuallyinthe marketplaceis a.apatent.

b.goodwill.

c.a copyright.d.a tradename.

 171.     Goodwillcan berecorded

a.whencustomerskeepreturningbecausetheyaresatisfiedwiththecompany's products.

b.whenthe companyacquires agoodlocationforits business. c.whenthecompanyhas exceptionalmanagement.

d.onlywhenthereisanexchangetransactioninvolvingthepurchaseofanentire business.

 172.     OnJuly1,2008,MarshCompanypurchasedthecopyrighttoParsonsComputertutorials for$162,000.Itisestimatedthatthecopyrightwillhaveausefullifeof5yearswithan estimatedsalvagevalueof$12,000.TheamountofAmortizationExpenserecognizedfor theyear2008wouldbe

a.$32,400. b.$15,000. c.$30,000. d.$16,200.

 173.     Allof thefollowingintangibleassetsare amortizedexcept a.copyrights.

b.limited-lifefranchises. c.patents.

d.trademarks.

 174.     Whichofthefollowingisnot anintangibleassetarisingfromagovernmentgrant? a.Goodwill

b.Patent

c.Trademarkd.Tradename

10-26

 175.     Theamortizationperiodforapatentcannotexceed a.50years.

b.40years. c.20years. d.10 years.

 176.     Costallocationof anintangibleassetisreferredto as a.amortization.

b.depletion. c.accretion.

d.capitalization.

 177.     A patent

a.hasa legallifeof 40years. b.is nonrenewable.

c.canberenewedindefinitely.

d.israrelysubjectto litigationbecauseitis anexclusiveright.

 178.     Ifacompanyincurslegalcostsinsuccessfullydefendingitspatent,thesecostsare recordedbydebiting

a.LegalExpense.

b.anIntangibleLossaccount. c.thePatentaccount.

d.a revenueexpenditureaccount.

 179.     Copyrightsaregrantedbythefederalgovernment

a.forthe lifeofthecreatoror70 years, whicheverislonger. b.forthelife ofthe creatorplus70 years.

c.forthelifeofthe creatoror70years,whicheveris shorter. d.andthereforecannotbeamortized.

 180.     Goodwill

a.isonlyrecordedwhengeneratedinternally. b.canbesubdividedandsoldinparts.

c.canonlybeidentifiedwith thebusinessasawhole.

d.canbedefinedas normalearningsless accumulatedamortization.

 181.     Inrecordingtheacquisitioncost ofanentirebusiness,

a.goodwillis recordedas theexcessof costoverthefair valueof identifiablenetassets. b.assetsarerecordedattheseller'sbookvalues.

c.goodwill,ifit exists,is never recorded.

d.goodwillisrecordedastheexcessofcostoverthebookvalueofidentifiablenet assets.

 182.     Researchanddevelopmentcosts

a.areclassifiedasintangibleassets.

b.mustbeexpensed whenincurredundergenerallyacceptedaccountingprinciples. c.shouldbe included in thecostofthepatenttheyrelateto.

d.arecapitalizedandthenamortizedovera periodnotto exceed40 years.

PlantAssets,NaturalResources,andIntangibleAssets             10-27

 183.     Acomputercompanyhas$2,000,000inresearchanddevelopmentcosts.Before accountingforthesecosts,thenetincomeofthecompanyis$1,600,000.Whatisthe amount of netincomeorlossafter theseR&D costsareaccountedfor?

a.$400,000loss

b.$1,600,000netincome c.$0

d.Cannotbedeterminedfromtheinformationprovided.

 184.     DentonCompanyincurred$300,000ofresearchanddevelopmentcostsinitslaboratory todevelopa newproduct.Itspent$40,000 in legalfeesfora patentgrantedon January2, 2008.OnJuly31,2008, Dentonpaid $30,000for legalfees inasuccessfuldefenseofthe patent.Whatisthetotalamountthatshouldbedebitedto PatentsthroughJuly31, 2008?a.$300,000

b.$70,000c.$370,000

d.Someotheramount

 185.     Giventhefollowingaccountbalancesatyearend,computethetotalintangibleassetson thebalancesheet of AnishaEnterprises.

 Cash AccountsReceivable TrademarksGoodwill

Research& DevelopmentCosts

 a.$11,500,000 b.$7,500,000c.$5,500,000 d.$9,500,000

$1,500,000 4,000,000 1,000,000 4,500,000 2,000,000

  186.     During2008,SitterCorporationreportednetsalesof$2,000,000,netincomeof $1,200,000,anddepreciationexpenseof$100,000.Sitteralsoreportedbeginningtotal assetsof$1,000,000,endingtotalassetsof$1,500,000,plantassetsof$800,000,and accumulated depreciationof$500,000.Sitter’sassetturnoverratiois

a.2 times.b.1.6times. c.1.3times. d..96times.

 187.     During2008,TylerCorporationreportednetsalesof$3,000,000andnetincomeof $1,800,000.Tyleralsoreportedbeginningtotalassetsof$1,000,000andendingtotal assets of $1,500,000.Tyler’sassetturnoverratiois

a.3.0times. b.2.4times. c.2.0times. d.1.4times.

 188.     Naturalresourcesaregenerallyshownonthebalancesheetunder a.Intangibles.

b.Investments.

c.Property,Plant, andEquipment. d.Owner'sEquity.

10-28

 189.     Whichofthefollowingstatementsconcerningfinancialstatementpresentationisnota truestatement?

a.IntangiblesarereportedseparatelyunderIntangibleAssets.

b.Thebalancesofmajorclassesof assets maybe disclosedinthefootnotes.

c.Thebalancesoftheaccumulateddepreciationofmajorclassesofassetsmaybe disclosed inthefootnotes.

d.Thebalancesofallindividualassets,astheyappearinthesubsidiaryplantledger, shouldbedisclosedinthefootnotes.

 190.     Intangibleassets

a.shouldbereported undertheheadingProperty,Plant, andEquipment.

b.arenotreportedonthebalancesheet becausetheylackphysicalsubstance. c.shouldbereportedasCurrentAssets onthebalancesheet.

d.shouldbereported asaseparateclassification onthebalancesheet.

 191.     Acompanyhasthefollowing assets:

 BuildingsandEquipment,lessaccumulateddepreciationof$2,000,000 Copyrights

Patents

Timberlands,lessaccumulateddepletionof$2,800,000

 Thetotal amountreportedunderProperty,Plant,andEquipmentwouldbe a.$19,360,000.

b.$14,400,000. c.$18,400,000. d.$15,360,000.

$9,600,000 960,000 4,000,000 4,800,000

 a192.Acompanydecidestoexchangeitsoldmachineand$77,000cashforanewmachine. Theoldmachinehasabookvalueof$63,000andafairmarketvalueof$70,000onthe date of theexchange.Thecostof thenewmachinewouldberecordedat

a.$140,000. b.$147,000. c.$133,000.

d.cannotbedetermined.

 a193.Acompanyexchanges itsoldofficeequipmentand$40,000 fornewofficeequipment.The oldofficeequipmenthasabookvalueof$28,000andafairmarketvalueof$20,000on thedate ofthe exchange.Thecostofthe newoffice equipment wouldberecordedat

a.$68,000. b.$60,000. c.$48,000.

d.cannotbedetermined.

 a194.Inanexchangeofplantassetsthathascommercialsubstance,anydifferencebetween the fair marketvalueandthebookvalueof theoldplantassetis

a.recordedasagainorloss.

b.recorded ifagainbutisdeferredifaloss. c.recordedifaloss but isdeferredifa gain. d.deferredifeitheragainor loss.

PlantAssets,NaturalResources,andIntangibleAssets             10-29

 a195.Gainsonanexchangeof plantassetsthathascommercialsubstanceare a.deductedfromthecostofthenewassetacquired.

b.deferred.

c.not possible.

d.recognizedimmediately.

 a196.Lossesonanexchangeofplantassetsthathascommercialsubstanceare a.notpossible.

b.deferred.

c.recognizedimmediately.

d.deductedfromthecost of thenewassetacquired.

 a197.Thecostofanewassetacquiredinanexchangethathascommercialsubstanceisthe cashpaid plusthe

a.bookvalueof theoldasset.

b.fairmarketvalueoftheoldasset. c.       bookvalueoftheassetacquired. d.fair marketvalueof thenewasset.

  Additional MultipleChoiceQuestions

 198.     Thecostof landincludesallof thefollowingexcept a.realestatebrokers’commissions.

b.closingcosts.

c.accruedpropertytaxes. d.parkinglots.

 199.     A termthatisnotsynonymouswith property,plant,and equipmentis a.plantassets.

b.fixedassets.

c.intangibleassets.

d.long-livedtangibleassets.

 200.     Thefactorthat isnotrelevantincomputingdepreciationis a.replacementvalue.

b.cost.

c.salvagevalue. d.usefullife.

 201.     Depreciablecostisthe

a.bookvalueofanassetlessitssalvagevalue. b.costofanasset lessitssalvagevalue.

c.cost of anasset lessaccumulateddepreciation. d.bookvalueofanasset.

 202.     SantayanaCompanypurchasedamachineonJanuary1,2006,for$12,000withan estimatedsalvagevalueof$3,000andanestimatedusefullifeof8years.OnJanuary1, 2008,Santayanadecidesthemachinewilllast12yearsfromthedateofpurchase.The salvagevalueisstillestimatedat$3,000.Usingthestraight-linemethod,thenewannual depreciation will be

10-30

  a.$675. b.$750. c.$900. d.$1,000.

  203.     Ordinaryrepairs are expenditurestomaintaintheoperatingefficiencyof aplantassetand arereferredto as

a.capitalexpenditures.b.expenseexpenditures. c.improvements.

d.revenueexpenditures.

 204.     Improvementsare

a.revenueexpenditures.

b.debitedtoanappropriateassetaccountwhentheyincreaseusefullife.

c.debitedtoaccumulateddepreciationwhentheydo not increaseusefullife.

d.debitedtoanappropriateassetaccountwhentheydonotincreaseusefullife.

 205.     Againon sale of aplantassetoccurs whentheproceedsofthesalearegreaterthanthe a.salvagevalueof theassetsold.

b.marketvalueof the assetsold. c.bookvalueoftheassetsold.

d.accumulateddepreciationontheassetsold.

 206.     Theentrytorecorddepletionexpense

a.decreasesowner'sequityandassets.

b.decreasesnet incomeandincreasesliabilities. c.decreasesassets and liabilities.

d.decreasesassets andincreasesliabilities.

 207.     Allof thefollowingare intangibleassetsexcept a.copyrights.

b.goodwill. c.patents.

d.researchand developmentcosts.

 208.     A purchasedpatenthasa legallifeof 20years.Itshouldbe a.expensedintheyearofacquisition.

b.amortizedover20 yearsregardlessof itsusefullife. c.amortizedoverits usefullife iflessthan20years.d.notamortized.

 209.     Theassetturnover ratioiscomputedbydividing a.netincomebyaveragetotalassets.

b.netsalesbyaveragetotalassets. c.netincomebyendingtotalassets. d.net salesbyendingtotalassets.

PlantAssets,NaturalResources,andIntangibleAssets             10-31

 a210.In anexchangeof plantassetsthathascommercialsubstance a.neithergainsnorlossesarerecognizedimmediately.

b.gains,butnotlosses,arerecognizedimmediately. c.losses,butnotgains,arerecognizedimmediately. d.bothgainsand lossesarerecognizedimmediately.

      BRIEFEXERCISES

BE211

Indicatewhethereachofthefollowingexpendituresshouldbeclassifiedasland(L),land improvements (LI),buildings(B),equipment(E), ornone ofthese(X).

            1.Parkinglots

            2.Electricityused byamachine

            3.Excavationcosts

            4.Interestonbuilding constructionloan

            5.Costof trialrunsformachinery

            6.Drainagecosts

            7.Costto installa machine

            8.Fences

            9.Unpaid(past)propertytaxesassumed

           10.Costoftearingdownabuilding whenlandandabuildingonitare purchased

    BE212

 SellerCorporationpurchasedlandadjacenttoitsplanttoimproveaccessfortrucksmaking deliveries.Expendituresincurredinpurchasingthelandwereasfollows:purchaseprice, $50,000;broker’sfees,$6,000;titlesearchandotherfees,$5,000;demolitionofanoldbuilding ontheproperty,$5,700;grading,$1,200;diggingfoundationfortheroad,$3,000;layingand pavingdriveway,$25,000;lighting$7,500;signs,$1,500.Listtheitemsandamountsthatshould be includedin theLand account.

   BE213

 EastmanCompanypurchasedadeliverytruckfor$35,000onJanuary1,2008.Thetruckwas assignedanestimatedusefullifeof5yearsandhasaresidualvalueof$10,000.Compute depreciationexpenseusingthedouble-declining-balancemethodforthe years2008and2009.

    BE214

 EastmanCompanypurchasedadeliverytruckfor$35,000onJanuary1,2008.Thetruckwas assignedanestimatedusefullifeof100,000milesandhasaresidual valueof$10,000.Thetruck wasdriven18,000miles in2008and22,000milesin2009.Computedepreciationexpenseusing theunits-of-activitymethodfor the years2008and 2009.

    BE215

 PorikaCompanypurchasedatruckfor$57,000.Thecompanyexpectedthetrucktolastfour yearsor100,000miles,withanestimatedresidualvalueof$6,000attheendofthattime.During thesecond yearthetruckwasdriven27,000 miles.Computethedepreciationforthesecond year undereachof themethods belowand placeyouranswersintheblanksprovided.

 Units-of-activity                                          $                                  

 Double-declining-balance                            $                                  

   BE216

 On January 1,2006,EckerCompanypurchasedacomputersystemfor$20,500. Thesystemhad anestimatedusefullifeof5yearsandnosalvagevalue.AtJanuary1,2008,thecompany revisedtheremainingusefullifetotwoyears.Whatamountofdepreciationwillberecordedfor 2008and2009?

    BE217

 RobotEnterprisessoldequipmentonJanuary1,2008for$5,000.Theequipmenthadcost $24,000.ThebalanceinAccumulatedDepreciationatJanuary1is$20,000.Whatentrywould Robotmaketorecordthe saleof theequipment?

    BE218

 OnJanuary1,2008,FreeportEnterprisespurchasednaturalresourcesfor$1,200,000.The companyexpectstheresourcestoproduce12,000,000unitsofproduct.(1)Whatisthedepletion costperunit?(2)Ifthecompanyminedandsold20,000unitsinJanuary,whatisdepletion expense forthemonth?

   BE219

 OnJanuary2,2008,ElneerCompanypurchasedapatentfor$38,000.Thepatenthasan estimatedusefullifeof25yearsanda20-yearlegallife.Whatentrywouldthecompanymakeat December31, 2008torecordamortizationexpenseonthepatent?

    BE220

 Usingthefollowingdatafor Rocky,Inc.,computeits assetturnoverratio.

 Rocky, Inc.NetIncome2008

TotalAssets12/31/08 TotalAssets12/31/07 NetSales2008

 $123,000 2,443,000 1,880,000 2,135,000

   $2,135,000

  EXERCISES

Ex.221

HuntCompanypurchasedfactoryequipmentwithaninvoicepriceof$80,000.Othercosts incurredwerefreightcosts,$1,100;installationwiringandfoundation,$2,200;materialandlabor costsintestingequipment, $700;oillubricantsandsupplies tobeusedwithequipment, $500;fire insurancepolicycoveringequipment,$1,400.Theequipmentisestimatedtohavea$5,000 salvagevalueat theendofits5-yearusefulservicelife.

 Instructions

 (a)Computetheacquisitioncostofthe equipment.Clearlyidentifyeachelement ofcost.

 (b)Ifthedouble-declining-balancemethodofdepreciationwasused,theconstantpercentage applied toa decliningbookvalue wouldbe                                            .

 Ex.222

 Foreachentrybelowmake acorrectingentry ifnecessary.Ifthe entry given iscorrect,then state "Noentryrequired."

 (a)The$60cost of repairinga printerwaschargedtoComputerEquipment.

 (b)The $5,000cost ofa major engineoverhaulwas debitedto RepairExpense. The overhaulis expected to increasetheoperatingefficiencyof the truck.

 (c)    The$6,000closingcostsassociatedwiththeacquisitionoflandweredebitedtoLegal Expense.

 (d)A$500chargefortransportationexpensesonnewequipmentpurchasedwasdebitedto Freight-In.

    Ex.223

 BenedictCompanywasorganized onJanuary1.Duringthefirstyearofoperations,the following expendituresandreceipts wererecordedinrandom orderinthe account,Land.

 Debits

1.Costofrealestatepurchasedasaplantsite(landandbuilding).

2.Accruedrealestatetaxespaidatthetimeofthepurchaseoftherealestate. 3.Costof demolishingbuilding tomakelandsuitablefor constructionofanew

building.

4.Architect'sfeesonbuildingplans.5.Excavationcostsfor newbuilding. 6.Costoffilling andgradingtheland.

7.Insuranceandtaxesduringconstructionof building.

8.Costofrepairstobuilding underconstructioncaused byasmallfire.

9.Interestpaidduringthe year,of which$54,000pertainstotheconstruction period.

10.Fullpaymentto buildingcontractor. 11.Costof parkinglotsanddriveways.

12.Realestatetaxespaidfor thecurrentyearontheland. TotalDebits

  Credits 13.Insuranceproceedsforfire damage.

14.Proceedsfrom salvageof demolishedbuilding TotalCredits

 $220,000 4,000

 15,000 14,000 24,000 5,000 6,000 7,000

 64,000 760,000 36,000

           4,000$1,159,000

   $3,000

3,500$6,500

 Instructions

 Analyzetheforegoingtransactionsusingthefollowingtabulararrangement. Insertthenumberof each transactionintheItemspaceandinserttheamountsintheappropriatecolumns.

 Item                    Land                         Building                   Other                     Account Title

    Ex.224

 DuncanCompanypurchaseda machine atacost of$90,000.The machineisexpected to have a $5,000salvagevalueatthe endof its 5-yearusefullife.

 Instructions

Computeannualdepreciationforthefirstandsecond yearsusingthe (a)straight-linemethod.

(b)double-declining-balancemethod.

    Ex.225

 ReynoldsCompanypurchasedanewmachinefor$300,000.Itisestimatedthatthemachinewill havea$30,000salvagevalueattheendofits5-yearusefulservicelife.Thedouble-declining-balance method of depreciationwillbeused.

 Instructions

Prepareadepreciationschedulewhich showstheannualdepreciation expense onthemachine for its5-yearlife.

   Ex.226

 TannerCompanypurchasedequipmentonJanuary1,2007for$70,000.Itisestimatedthatthe equipmentwillhavea$5,000salvagevalueattheendofits5-yearusefullife.Itisalsoestimated that theequipmentwillproduce100,000unitsoverits 5-yearlife.

 Instructions

 Answerthefollowingindependentquestions.

 1.ComputetheamountofdepreciationexpensefortheyearendedDecember31,2007,using thestraight-linemethodofdepreciation.

 2.If16,000unitsofproductareproducedin2007and24,000unitsareproducedin2008,what isthebookvalueoftheequipmentatDecember31,2008?Thecompanyusestheunits-of-activitydepreciationmethod.

 3.Ifthecompanyusesthedouble-declining-balancemethodofdepreciation,whatisthe balance of theAccumulatedDepreciation—Equipment accountat December31,2009?

    Ex.227

 AplantassetacquiredonOctober1,2008,atacostof$300,000hasanestimatedusefullifeof 10years.Thesalvagevalueis estimated tobe$30,000 attheendofthe asset'suseful life.

 Instructions

Determinethedepreciationexpenseforthefirsttwoyearsusing: (a)        thestraight-linemethod.

(b)     the double-declining-balancemethod.

50,000miles

60,000miles

70,000miles

  Ex.228

 Tony’s,apopularpizzahang-out,hasathrivingdeliverybusiness.Tony’shasafleetofthree deliveryautomobiles.Priortomakingtheentryforthisyear'sdepreciationexpense,the subsidiary ledgerforthefleet is asfollows:

Accumulated

Estimated              Depr.—Beg.      MilesOperated Car           Cost      SalvageValue          Life in Miles           of the YearDuringYear

1       $21,000                $3,000                   50,000                   $2,520                   20,000 2         18,000                 2,400 60,000                    2,340                    22,000 3         20,000                 2,500         70,000                    2,000           ��       19,000

 Instructions

(a)Determinethedepreciationratespermileforeachcar.

(b)DeterminetheDepreciationExpenseforeachcarforthecurrent year.

(c)MakeonecompoundjournalentrytorecordtheannualDepreciationExpenseforthefleet.

   $21,000– $3,000

  Ex.229

 TheBarnettClinicpurchasedanewsurgicallaserfor$80,000.Theestimatedsalvagevalueis $5,000.Thelaserhasausefullifeoffiveyearsandtheclinicexpectstouseit10,000hours.It wasused1,600hours inyear1;2,200 hours in year2;2,400 hoursinyear 3;1,800 hours in year 4;2,000hoursin year5.

 Instructions

(a)Computetheannualdepreciationforeachofthefiveyearsundereachofthefollowing methods:

(1)straight-line.(2)units-of-activity.

 (b)Ifyouweretheadministratoroftheclinic,whichmethodwouldyoudeemasmost appropriate? Justifyyouranswer.

 (c)Whichmethodwouldresultinthelowestreportedincomeinthefirstyear?Whichmethod would resultinthelowesttotalreportedincomeoverthefive-yearperiod?

   Ex.230

 TheDecember31,2007balancesheetofRitterCompanyshowedEquipmentof$64,000and AccumulatedDepreciationof$18,000.OnJanuary1,2008,thecompanydecidedthatthe equipmenthasaremainingusefullifeof 6yearswitha $4,000salvagevalue.

 Instructions

Computethe (a)depreciablecost ofthe equipmentand(b) revisedannualdepreciation.

    Ex.231

 SoutheastAirlinespurchaseda747aircraftonJanuary1,2007,atacostof$35,000,000.The estimateduseful lifeoftheaircraftis20years,withanestimated salvagevalue of$5,000,000.On January1,2010theairlinerevisesthetotalestimatedusefullifeto15yearswitharevised salvagevalueof$3,500,000.

 Instructions

 (a)ComputethedepreciationandbookvalueatDecember31,2009usingthestraight-line methodandthedouble-declining-balancemethod.

 (b)Assumingthestraight-linemethodisused,computethedepreciationexpensefortheyear ended December31, 2010.

     Ex.232

 SeymorCompanypurchasedamachineonJanuary1,2008,atacostof$80,000.Itisexpected tohaveanestimatedsalvagevalueof$5,000attheendofits5-yearlife.Thecompany capitalizedthemachineanddepreciateditin2008usingthedouble-declining-balancemethodof depreciation.Thecompany hasapolicyofusingthestraight-linemethod todepreciateequipment butthecompanyaccountantneglectedtofollowcompanypolicywhenheusedthedouble-declining-balancemethod.NetincomefortheyearendedDecember31,2008was$55,000as the resultof depreciatingthemachineincorrectly.

 Instructions

 Usingthemethodofdepreciationwhichthecompanynormallyfollows,preparethecorrecting entry and determinethecorrectednet income.(Showcomputations.)

    Ex.233

 Equipment wasacquiredonJanuary1,2005,atacostof$80,000.Theequipmentwasoriginally estimatedtohaveasalvagevalueof$5,000andanestimatedlifeof10years.Depreciationhas beenrecordedthroughDecember31,2008,usingthestraight-linemethod.OnJanuary1,2009, theestimatedsalvagevaluewasrevisedto$6,000andtheusefullifewasrevisedtoatotalof8 years.

 Instructions

DeterminetheDepreciationExpensefor 2009.

  Ex.234

 GantnerCompanypurchasedamachineonJanuary1,2008.Inadditiontothepurchaseprice paid,thefollowingadditionalcostswereincurred:(a)salestaxpaidonthepurchaseprice,(b) transportationandinsurancecostswhilethemachinerywasintransitfromtheseller,(c) personneltrainingcosts forinitial operationofthemachinery,(d)annualcityoperatinglicense,(e) majoroverhaultoextendthelifeofthemachinery,(f)lubricationofthemachinerygearingbefore themachinerywasplacedintoservice,(g)lubricationofthemachinerygearingafterthe machinerywasplacedintoservice,and(h)installationcostsnecessarytosecurethemachinery to thebuildingflooring.

 Instructions

Indicatewhethertheitems(a)through(h)arecapitalorrevenueexpendituresinthespaces provided: C= Capital,R=Revenue.

 (a)                                (b)                                 (c)                                 (d)                            

 (e)                                (f)                                  (g)                                 (h)                            

    Ex.235

 CareyWordProcessingServiceusesthestraight-linemethodofdepreciation.Thecompany's fiscalyearendisDecember31.Thefollowingtransactionsandeventsoccurredduringthefirst three years.

 2007July         1

 Nov.3 Dec.31

   2008Dec.31

PurchasedacomputerfromtheComputerCenterfor$2,300cashplussales tax of$150,andshippingcosts of$50.

Incurredordinaryrepairsoncomputerof $140.

Recorded2007depreciationonthebasisofafouryearlifeandestimated salvagevalueof$500.

 Recorded2008depreciation.

  2009Jan.         1     Paid$400foranupgradeofthecomputer.Thisexpenditureisexpectedto increasetheoperatingefficiency andcapacityofthecomputer.

 Instructions

Preparethenecessaryentries.(Showcomputations.)

    Ex.236

 Identifythefollowingexpendituresascapitalexpenditures orrevenueexpenditures. (a)Replacementof wornoutgearsonfactorymachinery.

(b)Constructionof anewwing onanofficebuilding. (c)Paintingtheexteriorof abuilding.

(d)Oilchangeonacompanytruck.

 (e)ReplacingaPentiumIIcomputerchipwithaPentiumIVchip,whichincreasesproductive capacity.Noextensionofusefullifeexpected.

 (f)     Overhaulofa truckmotor.Oneyearextensioninusefullifeis expected. (g)Purchasedawastebasketatacostof $10.

(h)Paintingandletteringofa usedtruck uponacquisitionofthetruck.

    Ex.237

 OnJanuary1,2006RosenCompanypurchasedandinstalledatelephonesystematacostof $20,000.Theequipmentwasexpectedtolastfiveyearswithasalvagevalueof$3,000.On January1,2007moretelephoneequipmentwaspurchasedtotie-inwiththecurrentsystemfor $10,000.Thenewequipmentisexpectedtohaveausefullifeoffouryears.Throughanerror,the newequipmentwasdebitedtoTelephoneExpense.RosenCompanyusesthestraight-line methodofdepreciation.

 Instructions

PrepareascheduleshowingtheeffectsoftheerroronTelephoneExpense,Depreciation Expense,andNetIncomeforeachyearandintotalbeginningin2007throughtheusefullifeof thenewequipment.

 TelephoneExpense Overstated

Year                 (Understated)

Depreciation Expense Overstated

(Understated)

NetIncome Overstated

(Understated)

 2007

 2008

 2009

 2010

  Ex.238

 BermanCompanysoldequipmentonJuly31,2008for$50,000.Theequipmenthadcost $140,000 andhad$80,000ofaccumulateddepreciationasofJanuary1,2008.Depreciationfor thefirst6monthsof2008 was$8,000.

 Instructions

Preparethejournalentrytorecordthesaleoftheequipment.

    Ex.239

 (a)WattsCompanypurchasedequipmentin2001for$90,000andestimateda$6,000salvage valueattheendoftheequipment's10-yearusefullife.AtDecember31,2007,therewas $58,800intheAccumulatedDepreciationaccountforthisequipmentusingthestraight-line methodof depreciation.On March31, 2008,theequipmentwassoldfor$24,000.

 PreparetheappropriatejournalentriestoremovetheequipmentfromthebooksofWatts CompanyonMarch31, 2008.

 (b)GormanCompanysoldamachine for$15,000. Themachineoriginallycost$35,000in2005 and$8,000wasspentonamajoroverhaulin2008(chargedtoMachineaccount). AccumulatedDepreciationonthemachinetothe date of disposalwas$28,000.

 Preparetheappropriatejournalentrytorecordthedispositionofthemachine.

 (c)KlingerCompanysoldofficeequipmentthathadabookvalueof$6,000for$8,000.The officeequipmentoriginallycost$20,000anditisestimatedthatitwouldcost$25,000to replace theofficeequipment.

 Preparetheappropriatejournalentrytorecordthedispositionofthe officeequipment.

  Ex.240

 Fleming'sLumberMillsoldtwomachinesin2009.Thefollowinginformationpertainstothetwo machines:

Purchase       Useful      Salvage      Depreciation                                     Sales

MachineCost    Date      Life    Value     Method           Date Sold               Price

#1       $66,000      7/1/05        5yrs.         $6,000         Straight-line               7/1/09          $15,000 #2           $40,000      7/1/08        5yrs.         $5,000         Double-declining-      12/31/09      $24,000

balance

 Instructions

(a)Computethedepreciationoneachmachinetothedateofdisposal.

 (b)Preparethejournalentriesin2009torecord2009depreciationandthesaleofeach machine.

    Ex.241

 Presentedbelowareselectedtransactionsfor MiltonCompanyfor 2008.

 Jan.     1     Received$9,000scrapvalueonretirementofmachinerythatwaspurchasedon January1,1998.Themachinecost$90,000onthatdate,andhadausefullifeof10 yearswithno salvagevalue.

 April30

  Dec.31

Soldamachinefor$28,000thatwaspurchasedonJanuary1,2005.Themachine cost$75,000,andhadausefullifeof 5 years withnosalvagevalue.

 DiscardedabusinessautomobilethatwaspurchasedonOctober1,2003.Thecar cost$32,000andwasdepreciatedona5-yearusefullifewithasalvagevalueof $2,000.

 Instructions

Journalizeallentriesrequiredasaresultoftheabovetransactions.MiltonCompanyusesthe straight-linemethodof depreciationandhasrecordeddepreciationthroughDecember31,2007.

     Ex.242

 WatsonCompanysoldthefollowingtwomachinesin 2008:

  Cost Purchasedate Usefullife Salvagevalue

Depreciationmethod Datesold

SalesPrice

MachineA

$68,000 7/1/048years $4,000

Straight-line 7/1/08 $30,000

Machine B $80,000 1/1/055years $4,000

Double-declining-balance 8/1/08$16,000

 Instructions

Journalizeallentriesrequiredtoupdatedepreciationandrecordthesalesofthetwoassetsin 2008.ThecompanyhasrecordeddepreciationonthemachinethroughDecember31, 2007.

   Ex.243

 GirardMininginvested$960,000inamineestimatedtohave1,200,000tonsoforewithno salvagevalue.Duringthefirst year,200,000tons of orewereminedandsold.

 Instructions

 Preparethejournalentrytorecorddepletionexpense.

    Ex.244

 Eddy MiningCompanypurchaseda minefor$70 million which isestimated tohave250,000tons ofore anda salvagevalueof $10million.

 (a)Inthefirstyear,50,000tonsoforeareextractedandsold.Preparethejournalentryto recorddepletionexpenseforthefirstyear.

 (b)Inthesecondyear,150,000tonsoforeareextractedbutonly125,000tonsaresold. Preparethejournalentrytorecorddepletionexpenseforthesecondyear.

 (c)Whatamountandinwhataccountare thetonsof orenotsoldreported?

     Ex.245

 HarperMiningCompanypurchasedlandcontaininganestimated15milliontonsoforeatacost of$4,500,000.Thelandwithouttheoreisestimatedtobeworth$600,000. Thecompany expects tooperatetheminefor10years.Buildingscosting$600,000areerectedonthesiteandare expectedtolastfor25years.Equipmentcosting$300,000withanestimatedlifeof12yearsis installed.Thebuildingsandtheequipmentpossessnosalvagevalueafterthemineisclosed. During thefirst yearof operations,theminingcompanyminedandsold2milliontons ofore.

 Instructions

(a)Computethedepletionchargeperton.

(b)Computethedepletionexpensefor thefirst year.

(c)Computetheappropriatefirstyear'sdepreciationexpenseforthebuildings. (d)Computetheappropriatefirstyear'sdepreciationexpensefortheequipment.

(e)Preparejournalentriestorecorddepletionanddepreciationexpensesfortheyear.

   Ex.246

 (a)AcompanypurchasedapatentonJanuary1,2008, for$2,000,000.Thepatent'slegallifeis 20yearsbutthecompanyestimates thatthepatent'susefullifewillonlybe5yearsfromthe dateofacquisition.OnJune30,2008,thecompanypaidlegalcostsof$135,000in successfullydefendingthepatentinaninfringementsuit.Preparethejournalentryto amortize the patentatyearendonDecember31,2008.

 (b)FoleyCompanypurchasedafranchisefromYummieFoodCompanyfor$400,000on January1,2008.Thefranchise isforanindefinite timeperiodandgivesFoleyCompanythe exclusiverightstosellYummieWingsinaparticularterritory.Preparethejournalentryto recordtheacquisitionofthefranchiseandanynecessaryadjustingentryatyearendon December 31, 2008.

 (c)DryerCompanyincurredresearchanddevelopmentcostsof$500,000in2008in developinganewproduct.Preparethenecessaryjournalentriesduring2008torecord these eventsandanyadjustmentsat yearendonDecember31,2008.

    Ex.247

 OnJanuary2,2008,HolmesCompanypurchasedapatentfor$200,000.Thepatenthasan8-yearestimatedusefullife andalegallife of 20years.

 Instructions

Preparethejournalentrytorecordpatent amortization.

  Ex.248

 Foreachitemlistedbelow,enteracodeletterintheblankspacetoindicatetheallocation terminology fortheitem.Usethefollowing codesfor youranswer:

 A—Amortization

 D—Depreciation

P—Depletion

 N—Noneof these

 1.Goodwill

 2.Land

 3.Buildings

 4.Patents

 5.Copyrights

 6.Researchanddevelopmentcosts

7.Timberlands

 8.Franchises(indefinite life)

 9.Licenses(limitedlife)

 10.LandImprovements

 11.OilDeposits

 12.Equipment

     Ex.249

 Foreachofthefollowingunrelatedtransactions,(a)determinetheamountoftheamortizationor depletionexpenseforthecurrentyear,and(b)presenttheadjustingentriesrequiredtorecord each expenseatyearend.

 (1)Timberrightswerepurchasedonatractoflandfor$360,000.Thetimberisestimatedat 1,200,000boardfeet.Duringthecurrentyear,75,000boardfeetoftimberwerecutand sold.

 (2)Costsof$8,000wereincurredonJanuary1toobtainapatent.Shortlythereafter,$22,000 wasspentinlegalcoststosuccessfullydefendthepatentagainstcompetitors.Thepatent has anestimatedlegallifeof12years.

  Ex.250

 Duringthecurrentyear,LymonCompanyincurredseveralexpenditures.Brieflyexplainwhether theexpenditureslistedbelowshouldberecordedasanoperatingexpenseorasanintangible asset.Ifyouview theexpenditure asanintangibleasset,indicatethenumberofyearsoverwhich theassetshouldbe amortized.Explainyouranswer.

 (a)Spent$30,000inlegalcostsinapatentdefensesuit.Thepatentwasunsuccessfully defended.

 (b)Purchased atrademark fromanothercompany.Thetrademarkcanberenewedindefinitely. LymonCompanyexpectsthetrademarkto contributetorevenueindefinitely.

 (c)LymonCompanyacquiresapatentfor$2,000,000.Thecompanysellingthepatenthas spent$1,000,000ontheresearchanddevelopmentofit.Thepatenthasaremaininglifeof 15years.

 (d)LymonCompanyisspendingconsiderabletimeandmoneyindevelopingadifferentpatent foranotherproduct.Sofar$3,000,000hasbeenspentthisyearonresearchand development.LymonCompanyisveryconfidenttheywillobtainthispatentinthenextfew years.

    Ex.251

 Presentedbelowisinformationrelatedtoplantassets,naturalresources,andintangiblesatyear end on December31,2008,forNortenCompany:

 Buildings Goodwill Patents CoalMine

AccumulatedDepreciation AccumulatedDepletion

$1,080,000 350,000 480,000 440,000 670,000 275,000

 Instructions

 Prepareapartialbalancesheetfor NortenCompanythat showshowtheabovelisted itemswould be presented.

     Ex.252

 Computetheassetturnover ratiobasedonthefollowing:

 Beginningtotal assets Endingtotal assetsNetincome

Netsales

$800,000 1,200,000 300,000 2,200,000

    Ex.253

 Indicateinthe blank spaces below,thesectionof the balancesheetwherethefollowingitems are reported. Usethefollowingcodeto identifyyour answer:

 PPE      Property,Plant, andEquipment I     Intangibles

O      Other

N/A     Not onthebalancesheet

 1.     Goodwill

 2.LandImprovements 3.Buildings

4.AccumulatedDepreciation 5.Trademarks

6.Researchand developmentcosts

7.Timberlands 8.Franchises9.Licenses

10.Equipment 11.OilDeposits

12.Land

     *Ex.254

 Presentedbelowaretwoindependentsituations:

 (a)RileyCompanyexchangedanoldmachine(cost$100,000less$60,000accumulated depreciation)plus$7,000cashforanewmachine.Theoldmachinehadafairmarketvalue of$36,000.Preparetheentrytorecordtheexchangeof assets byRileyCompany.

 (b)CarlinCompanytradesoldequipment(cost$90,000less$54,000accumulateddeprecia-tion)fornewequipment.Carlinpaid$36,000cashinthetrade.Theoldequipmentthatwas tradedhadafairmarketvalueof$54,000.Preparetheentrytorecordtheexchangeof assetsbyCarlinCompany.

     *Ex.255

 AglerCompanyexchangesequipmentwithEatonCompanyandPetersCompanyexchanges equipmentwithFieroCompany.Thefollowinginformationpertainstotheexchanges:

  Equipment(cost) Accumulateddepreciation

Fairmarketvalueof theequipment Cashpaid

Agler Company $114,000

50,000 75,000 45,000

Peters Company $96,000

45,000 42,000

-0-

 Instructions

Prepare thejournalentriestorecordtheexchangesonthebooksofAglerCompanyandPeters Company.

    Ex.256

 FarrDeliveryCompanyandBellDeliveryCompanyexchangeddeliverytrucksonJanuary1, 2008.Farr'struckcost$84,000,hadaccumulateddepreciationof$69,000,andhasafairmarket valueof$9,000.Bell'struckcost$63,000,hadaccumulateddepreciationof$54,000,andhasa fair marketvalueof$9,000.

 Instructions

(a)    Journalizetheexchangefor FarrDeliveryCompany. (b)   Journalizetheexchangefor BellDeliveryCompany.

   Ex.257

 Prepare thejournalentriestorecordthefollowingtransactionsforBryantCompanywhichhasa calendaryearendandusesthe straight-linemethodofdepreciation.

 a)      OnSeptember30,2008,thecompanyexchangedolddeliveryequipmentand$24,000for newdeliveryequipment.The olddeliveryequipmentwas purchasedon January1,2006,for $84,000andwasestimatedtohavea$12,000salvagevalueattheendofits5-yearlife. Depreciationonthedelivery equipmenthasbeenrecordedthroughDecember31,2007.Itis estimatedthatthefairmarketvalueoftheolddeliveryequipmentis$36,000onSeptember 30,2008.

 (b)OnJune30,2008,thecompany exchangedoldofficeequipmentand$40,000fornewoffice equipment.Theoldofficeequipmentoriginallycost$80,000andhadaccumulated depreciationtothedateofdisposalof$35,000.Itisestimatedthatthefairmarketvalueof theold officeequipmentonJune30was$60,000.

   COMPLETIONSTATEMENTS

  258.Withtheexceptionofland,plantassetsexperiencea                                                          inservice potentialovertheirusefullives.

 259.Whenvacantlandisacquired,expendituresforclearing,draining,filling,andgrading should bechargedtothe                                                                       account.

 260.Thecostofdemolishinganoldbuildingonlandthathasbeenacquiredsothatanew buildingcanbeconstructedshouldbechargedtothe                                       account.

 261.Thecostofpaving,fencing,andlightinganewcompanyparkinglotischargedtoa

                               account.

 262.Equipmentwithaninvoicepriceof$20,000waspurchasedandfreightcostswere$900. Thecostofthe equipmentwouldbe$                                                         .

 263.                                istheprocessofallocatingthecostofaplantassettoexpense overits service lifeinarationalandsystematicmanner.

 264.Thebookvalueofaplantassetisobtainedbysubtracting                                                      fromthe

                               of theplantasset.

 265.Threefactorsthataffectthecomputationofperiodicdepreciationexpenseare(1)

                                , (2)                                ,and(3)                                      .

 266.The                                      methodofcomputingdepreciationexpenseresultsinanequal amountofperiodicdepreciationthroughouttheservicelife oftheplantasset.

 267.Thedeclining-balancemethodofcomputingdepreciationexpenseinvolvesmultiplyinga

                                 bookvaluebya                                    percentage.

 268.Thedeclining-balancemethodofcomputingdepreciationisknownasan                                          

 depreciationmethod.

 269.Ordinaryrepairswhichmaintainoperatingefficiencyandexpectedproductivelifeare called           .

 270.Additionsandimprovementsarecostsincurredtoincreasetheoperatingefficiency, productive capacity,or expectedusefullife andare referredtoas                                                                                  .

 271.Ifdisposalofaplantassetoccursatany timeduringtheyear,                                                         for the fractionoftheyeartothedate ofdisposalmustberecorded.

 272.Iffullydepreciatedequipmentthatcost$10,000withnosalvagevalueisretired,theentry torecordtheretirementrequiresadebittothe         account and acredittothe                   account.

 273.Iftheproceedsfromthesaleofaplantassetexceedits                                                      ,againon disposalwilloccur.

 274.Aplantassetoriginally cost$48,000andwasestimatedtohavea$3,000salvagevalueat theendofits5-yearusefullife.Ifattheendofthreeyears,theassetwassoldfor$9,000, andhadaccumulateddepreciationrecordedof$27,000,thecompanyshouldrecognizea

                             ondisposalintheamountof $                              .

  275.Naturalresourceshavetwodistinguishingcharacteristics(1)theyarephysically

                                                                                                                       inoperations,and(2)theyare                                onlybyanactof nature.

 276.Inrecordingthepurchaseofabusiness,goodwillshouldberecordedfortheexcessof

                               overthe                                  of thenet assetsacquired.

 277.Theallocationofthecostofanassettoexpenseoveritsusefullifeiscalled

                                                                                                               fortangibleplantassets,                                   fornaturalresources, and for intangibleassets.

 278.Thecostofapatentshouldbeamortizedoverits                                        lifeorits                            

 life,whicheverisshorter.

 279.The                                               ratioiscalculatedbydividingnetsalesbyaveragetotal assets.

 a280.Inthecaseofanexchangeofplantassetsresultinginalossondisposal,thecostofthe newassetacquiredisequaltothe                                                                                       oftheassetgivenupplusanycash paid bythepurchaser.

 a281.Acompanyexchangedanoldmachine,whichoriginallycost$22,000andhas accumulateddepreciationtodateof$12,000,foranewmachine.Theoldmachinehada fairmarketvalueof$14,000.Thecostofthenewmachineshouldberecordedat$   .

                                                                                                 10-63

  MATCHING

 Set1

 282.Matchtheitemsbelowbyenteringtheappropriatecodeletterinthespaceprovided.

 A.Plantassets B.Depreciation C.Bookvalue

D.Salvagevalue

E.Straight-linemethod

F.     Units-of-activitymethod

G.Double-declining-balancemethod H.MACRS

I.     Revenueexpenditure J.   Capitalexpenditure

  1.Smallexpenditureswhichprimarilybenefitthecurrent period.

 2.Costlessaccumulateddepreciation.

 3.Anaccelerateddepreciationmethodusedforfinancialstatementpurposes.

 4.Tangibleresourcesthatareusedinoperationsand arenotintendedforresale.

 5.Equalamountof depreciationeachperiod.

 6.Expectedcashvalueof theassetattheendof itsusefullife.

 7.Allocationof thecostofaplant assetto expenseoverits usefullife.

 8.Materialexpenditureswhichincreaseanasset'soperatingefficiency,productive capacity,orusefullife.

 9.Anaccelerateddepreciationmethodusedfortaxpurposes.

 10.Usefullifeisexpressedintermsof units ofproductionor expecteduse.

    Set2

 283.Matchtheitemsbelowbyenteringtheappropriatecodeletterinthespaceprovided.

 A.Gainondisposal B.Lossondisposal C.Trademark

D.Depletion E.Usefullife

F.     Assetturnoverratio G.Goodwill

H.Amortization

I.     Intangibleasset

J.     Researchanddevelopmentcosts

  1.Processofallocating thecost of anintangibleassettoexpenseoverits useful life.

 2.Isonlyrecorded whenanexchangehascommercialsubstance.

 3.Examplesarefranchisesand licenses.

 4.Theallocationofthecost ofanaturalresourcetoexpenseoverits usefullife.

 5.Canbeidentifiedonlywitha businessasawhole.

 6.Asymbolthat identifiesaparticularenterpriseorproduct.

 7.Whenbookvalue of assetisgreaterthantheproceedsreceivedfromitssale.

 8.Mustbe expensedwhen incurred.

 9.Indicateshowefficientlya companyisabletogenerate saleswithits assets.

 10.Anestimateoftheexpectedproductivelife ofanasset.

     SHORT-ANSWERESSAYQUESTIONS

 S-AE284

 Thedeclining-balancemethodisanacceleratedmethodofdepreciation.Brieflyexplainwhatis meantbyanacceleratedmethodofdepreciationandjustifythechoosingofanaccelerated method.

   S-AE285

 Identifythefactorsthatareconsideredinclassifyinganexpenditureasacapitalorarevenue expenditure.Arethereinstanceswhereitmaybedifficulttoclassifyanexpenditureasoneorthe other(e.g.,thepurchaseofawastebasketthathasausefullifeof5yearsandcost$10)?What basis wouldbe usedin adecision?

   S-AE286

 Ingeneral,howdoesonedeterminewhetherornotanexpenditureshouldbeincludedinthe acquisitioncostof property,plant,andequipment?

  S-AE287

 Commentonthevalidityofthefollowingstatements:―Asanassetlosesitsabilitytoprovide services,cashneedstobesetasidetoreplaceit.Depreciationaccomplishesthisgoal.‖

    S-AE288

 Goodwillisanunusualassetinthatitcannotbesoldindividuallyapartfromabusinessasa whole.Ifgoodwillisanintangibleasset,whycan'titbesoldlikeotherintangibleassetssuchas copyrights andpatents?Brieflyexplainwhatmakesgoodwilldifferent.

    S-AE289(Ethics)

 PhysicianReferenceService(PRS)providesservicestophysiciansincludingresearch assistance,diagnosiscodingandmedicalpracticesoftwareincludinganadvancedmedical recordcross-referencingsystem.PRSisaggressiveinmonitoringotherfirms'offeringsand ensuring thatits servicesarecomparabletoallothers.

 Becauseofitsneedtostayabreastofnewproductofferings,PRSspends alotofmoneysending professionalstotradeshows.Inaddition,PRShasagreementswithseveralclientswherebythe clientrequestsapresentationofacompetitor's services.APRSemployeeposesasanemployee oftheclient'sofficeandattends thepresentation, obtainingasmuchdataandsampleinformation aspossible.ThecostofthetravelandattendingpresentationsischargedtoProduct Developmentandexpensedduring thecurrentyear.

 S-AE289(cont.)

 InAprilofthisyear,PRSbegansellingasoftwareproductsubstitutebeforethecompetitor's softwarewasreleased.Thecompetitor,Compu-Med,suedforcopyrightinfringementandwon. PRShadtowithdrawitsproductfromthemarketandpay$1.5millionindamages.PRS immediatelynegotiatedanagreementwithCompu-MedtosellCompu-Med'sproduct(sinceit wasprohibitedfromofferingitsownversionforfiveyears.)Thisagreementcostanadditional $1.3million,but itallowedPRStocontinuetooffer afulllineofservices.

 PRS'saccountant,JuneBianco,initiallyrecordedthecashpaymentsas"LossfromLawsuit"and "ProductDevelopment,"respectively.However,FredNance,thecontroller,instructedJuneto createanintangibleasset,named"Goodwill"andchargebothcoststothisaccount."We're protectedfromanotherlawsuitaslongasthisagreementisineffect,"hesays."It'saboutas closetogoodwillaswe'llevergetfromourcompetitors.We mightaswellamortizethecostrather thantakethefullhitto income,anyway."

 Required:

 1.Whataretheethicalissues? 2.WhatshouldJunedo?

   S-AE290(Communication)

 TheRestor-Itisacompanyspecializingintherestorationofoldhomes.Toshowcaseitswork, thecompanypurchasedanoldVictorianhomeindowntown Pittsburg,Kansas.Theoriginalhome waspurchasedfor$125,000.Anewheatingandair-conditioningsystemwasaddedfor$30,000. Thehousewascompletelyrewiredandre-plumbedatacostof$50,000.Customcabinetswere added,andthefloorsand trimwererefurbishedto theiroriginalcondition,at acostof $75,000.

 Theprojectwassuchasuccess, thatRestor-Itdecidedtopurchaseanotherverylargehome,this timeinnearbyJoplin,Missouri.ArealtorofferedtopurchasethehomeinPittsburgfor$175,000. Heplanstoleaseitasluxuryshort-termapartmentsforvisitingdignitaries.Restor-Itdecidedthat amodestreturnwasallthatwasrequired,andsotheyagreedtosell.Onlyafterwarddidthey learnthattheyhada$10,000lossonthesale.Thepresidentofthecompany,JimHerman,does notbelievethatalossispossible."Wesoldthathouseformorethanwepaidforit,"hesaid."I knowweputsomemoneyinit,butwehaddepreciateditforthreeyears.Howintheworldcan we havea loss?"

 S-AE290(cont.)

 Required:

 Writeashort memotoMr.Herman explaining how itwouldbepossibletohavealoss.Do nottry tousespecificnumbersfor costordepreciation.

    CHAPTER11

  CURRENTLIABILITIESANDPAYROLLACCOUNTING

  CHAPTERSTUDYOBJECTIVES

  1.Explainacurrentliability,andidentifythemajortypesofcurrentliabilities.

 2.Describetheaccountingfornotespayable.

 3.Explaintheaccountingforothercurrentliabilities.

 4.Explainthefinancialstatementpresentationandanalysisofcurrentliabilities.

 5.Describetheaccountinganddisclosurerequirementsforcontingentliabilities.

 6.Computeandrecordthepayrollforapayperiod.

 7.Describeandrecordemployerpayrolltaxes.

 8.Discusstheobjectivesofinternalcontrolforpayroll.

 9.Identifyadditionalfringebenefitsassociatedwithemployeecompensation.

   TRUE-FALSESTATEMENTS

 1.     A currentliability must bepaidoutof currentearnings.

 2.     Currentliabilitiesareexpectedtobepaidwithinoneyearortheoperatingcycle, whichever islonger.

 3.     Therelationshipbetweencurrentliabilitiesandcurrentassetsisimportantinevaluatinga company'sabilityto payoffits long-termdebt.

 4.     Acompanywhosecurrentliabilitiesexceeditscurrentassetsmayhavealiquidity problem.

 5.     Notespayableusuallyrequiretheborrowerto payinterest.

 6.     Notespayableare oftenusedinsteadofaccountspayable.

 7.     A notepayablemustalwaysbepaidbeforeanaccountpayable.

 8.     A $30,000,8%,9-monthnotepayablerequiresaninterestpayment of$1,800 atmaturity.

 9.     Mostnotesarenotinterest bearing.

 10.     Withaninterest-bearingnote,theamountofcashreceiveduponissuanceofthenote generallyexceedsthenote'sfacevalue.

 11.     Interestexpenseonanote payableis onlyrecordedatmaturity.

 12.     Interestexpenseis reportedunderOtherExpensesandLossesinthe incomestatement.

 13.    UnearnedrevenuesshouldbeclassifiedasOtherRevenuesandGainsontheIncome Statement.

 14.     Thehigherthesalestaxrate,themoreprofitaretailercanearn.

 15.     MetropolitanSymphonysells200seasonticketsfor$60,000thatincludesafiveconcert season. TheamountofUnearnedTicketRevenueafterthesecondconcertis$24,000.

 16.     Duringthemonth,acompanysellsgoodsforatotalof$108,000,whichincludessales taxesof$8,000;therefore,thecompanyshouldrecognize$100,000inSalesRevenues and $8,000in SalesTaxExpense.

 17.     Current maturitiesoflong-termdebtreferstotheamountofinterestonanotepayable that must be paidinthecurrent year.

 18.     Thecurrentratiopermitsanalyststocomparethe liquidityofdifferent sizedcompanies.

 19.     Workingcapital is currentassetsdivided bycurrentliabilities.

 20.     Contingentliabilitiesshouldberecordedintheaccountsifthereisaremotepossibility that thecontingencywillactuallyoccur.

 21.     A contingentliabilityisa liabilitythatmayoccur ifsomefutureeventtakesplace.

 22.     Inconcept,theestimatingofWarrantyExpensewhenproductsaresoldunderwarrantyis similar to theestimatingofBadDebtsExpensebasedon creditsales.

 23.     FICAtaxesandfederalincometaxesare leviedonemployees'earningswithoutlimit.

 24.     FICAtaxeswithheldandfederalincometaxes withheldaremandatorypayrolldeductions.

 25.     Theemployerincursapayrolltaxexpenseequaltotheamountwithheldfromthe employees'wagesforfederalincometaxes.

 26.     Internalcontroloverpayrollisnotnecessarybecauseemployeeswillcomplainiftheydo not receivethecorrectamount ontheirpayrollchecks.

 27.     Thetimekeepingfunctionincludessupervisorsmonitoringhoursworkedthroughtime cardsandtimereports.

 28.     Thehumanresourcesdepartmentdocumentsandauthorizesemploymentofnew employees.

 29.     Payrollactivitiesinvolvethreefunctions:hiringemployees,preparingthepayroll,and payingthepayroll.

 a30.     Post-retirementbenefitsconsistofpaymentsbyemployerstoretiredemployees forhealth care, life insurance,andpensions.

 Additional True-FalseQuestions

 31.     A debt that isexpectedto be paidwithinone yearthroughthecreationof long-termdebt is a current liability.

 32.     Notespayableusuallyareissuedtomeet long-termfinancingneeds.

 33.     Currentmaturitiesoflong-termdebtareoftenidentifiedaslong-termdebtduewithinone yearon thebalancesheet.

 34.     Inagivenyear,totalwarrantyexpenseisthesumofactualwarrantycostsincurredon unitssoldplustheestimatedcostofservicingthose unitsinthefuture.

 35.     FICAtaxesarea voluntarydeductionfromemployeeearnings.

 36.     FICAtaxesareadeductionfromemployeeearningsandarealsoimposedupon employersas an expense.

 37.     Theobjectivesofinternalaccountingcontrolforpayrollsare(a)tosafeguardcompany assetsfromunauthorizedpaymentsofpayrollsand(b)toassureaccuracyandreliability oftheaccountingrecordspertainingto payroll.

 a38.     Whenacompanygivesemployeesrightstoreceivecompensationforabsencesandthe paymentforsuchabsencesisprobableandtheamountcanbereasonablyestimated, the companyshould accruea liability.

        MULTIPLECHOICEQUESTIONS

 39.     Allof thefollowingarereportedascurrent liabilitiesexcept a.accountspayable.

b.bonds payable. c.notespayable.

d.unearnedrevenues.

 40.     Therelationshipbetweencurrentliabilitiesandcurrentassets is a.usefulindetermining income.

b.usefulinevaluatinga company'sliquidity. c.calledthematchingprinciple.

d.usefulindeterminingtheamountof acompany'slong-termdebt.

 41.     Mostcompaniespaycurrent liabilities a.outof currentassets.

b.by issuinginterest-bearing notespayable. c.byissuingstock.

d.bycreatinglong-term liabilities.

 42.     A currentliability isadebt thatcanreasonably beexpectedtobepaid a.withinoneyear.

b.between6monthsand 18months.

c.outof currentlyrecognizedrevenues. d.outof cashcurrentlyonhand.

 43.     Liabilitiesare classifiedon thebalancesheetascurrentor a.deferred.

b.unearned. c.long-term. d.accrued.

 44.     Froma liquiditystandpoint,itismoredesirablefora companytohavecurrent a.assetsequalcurrentliabilities.

b.liabilitiesexceedcurrentassets. c.assetsexceedcurrentliabilities.

d.liabilitiesexceed long-termliabilities.

 45.     Therelationshipof current assetstocurrentliabilitiesisusedinevaluatinga company's a.operatingcycle.

b.revenue-producingability.

c.short-termdebtpayingability. d.long-rangesolvency.

 46.     Whichofthefollowingisusuallynotan accruedliability? a.Interestpayable

b.Wagespayable c.Taxespayable d.Notespayable

 47.     Inmostcompanies,current liabilitiesarepaidwithin

a.oneyearthroughthecreationof othercurrentliabilities.

b.theoperatingcyclethroughthecreationof othercurrentliabilities. c.oneyearout of currentassets.

d.theoperatingcycle out of currentassets.

 48.     Theentrytorecord theissuance ofaninterest-bearingnotecreditsNotesPayable forthe note's

a.maturityvalue. b.marketvalue. c.facevalue.

d.cashrealizablevalue.

 49.     Withaninterest-bearingnote,theamountofassets receiveduponissuanceofthenoteis generally

a.equaltothenote'sface value.

b.greaterthanthe note'sface value. c.lessthanthenote'sfacevalue.

d.equaltothenote'smaturityvalue.

11-8        

 50.     A notepayableis intheformof

a.a contingencythat isreasonablylikelyto occur. b.awrittenpromissorynote.

c.anoralagreement.

d.a standingagreement.

 51.     Theentrytorecordthe proceedsuponissuinganinterest-bearingnoteis a.InterestExpense

Cash

NotesPayable b.Cash

NotesPayable c.NotesPayable

Cash d.Cash

NotesPayable InterestPayable

 Usethefollowing informationforquestions52–54.

 CoffeyCounty Bank agrees tolend Adcock BrickCompany$200,000on January1.Adcock Brick Companysignsa$200,000,8%,9-monthnote.

 52.     TheentrymadebyAdcockBrickCompanyonJanuary1torecordtheproceedsand issuance ofthenote is

a.InterestExpense..................................................................              12,000 Cash....................................................................................     188,000

NotesPayable............................................................                               200,000 b.Cash....................................................................................     200,000

NotesPayable............................................................                               200,000 c.Cash....................................................................................     200,000

InterestExpense..................................................................           12,000

NotesPayable............................................................                               212,000 d.Cash....................................................................................     200,000

InterestExpense..................................................................           12,000

NotesPayable............................................................                               200,000 InterestPayable..........................................................                            12,000

 53.     WhatistheadjustingentryrequiredifAdcockBrickCompanypreparesfinancial statements onJune30?

a.InterestExpense..................................................................                8,000

InterestPayable..........................................................                                  8,000 b.InterestExpense..................................................................         8,000

Cash...........................................................................                                  8,000 c.InterestPayable...................................................................         8,000

Cash...........................................................................                                  8,000 d.InterestPayable...................................................................         8,000

InterestExpense.........................................................                                  8,000

CurrentLiabilitiesandPayroll Accounting       11-9

 54.     WhatentrywillAdcockBrickCompanymaketopayoffthenoteandinterestatmaturity assumingthat interesthas beenaccruedtoSeptember30?

a.NotesPayable......................................................................            212,000 Cash............................................................................                         212,000

b.NotesPayable......................................................................           200,000 InterestPayable...................................................................       12,000

Cash............................................................................                            212,000 c.InterestExpense..................................................................       12,000

NotesPayable......................................................................        200,000 Cash............................................................................                         212,000

d.InterestPayable...................................................................               8,000 NotesPayable......................................................................     200,000 InterestExpense..................................................................             4,000

Cash............................................................................                            212,000

 55.     As interestisrecordedon an interest-bearingnote, theInterestExpenseaccountis a.increased;the NotesPayableaccountis increased.

b.increased;the NotesPayableaccountisdecreased.c. increased;theInterestPayableaccountisincreased.d. decreased;theInterestPayableaccountis increased.

 56.     Whenaninterest-bearing notematures,thebalance intheNotes Payableaccountis a.lessthanthetotalamountrepaidbythe borrower.

b.thedifferencebetweenthematurityvalueof thenoteandthefacevalueof thenote. c.equal to thetotalamountrepaidbytheborrower.

d.greaterthanthetotalamountrepaidbytheborrower.

 Usethefollowing informationforquestions57–58.

 OnOctober1,Jerry'sCarpetServiceborrows$250,000fromFirstNationalBankona3-month, $250,000,8% note.

 57.     WhatentrymustJerry'sCarpetServicemakeonDecember31beforefinancial statements are prepared?

 a.InterestPayable...................................................................                5,000

InterestExpense..........................................................                                 5,000

 b.InterestExpense..................................................................             20,000

InterestPayable...........................................................                               20,000

 c.InterestExpense..................................................................                5,000

InterestPayable...........................................................                                 5,000

 d.InterestExpense..................................................................               5,000

NotesPayable.............................................................                                 5,000

  58.     Theentry by Jerry's Carpet Serviceto recordpaymentof thenoteandaccrued intereston January1 is

 a.NotesPayable...................................................................... Cash............................................................................

 b.NotesPayable...................................................................... InterestPayable...................................................................

Cash............................................................................

255,000

  250,000 5,000

 255,000

   255,000

11-10

 58.     (cont.)

 c.NotesPayable..................................................................... InterestPayable................................................................... Cash...........................................................................

 d.NotesPayable..................................................................... InterestExpense.................................................................. Cash...........................................................................

250,000 20,000

  250,000 5,000

   270,000

   255,000

 59.     Interestexpenseonaninterest-bearingnoteis a.alwaysequaltozero.

b.accruedoverthelifeof thenote.

c.onlyrecordedatthetimethenoteisissued.

d.onlyrecordedatmaturitywhenthenoteispaid.

 60.     Theentrytorecordthepaymentofaninterest-bearingnoteatmaturityafterallinterest expense has beenrecognizedis

a.NotesPayable InterestPayable

Cash

b.NotesPayable Interest Expense Cash

c.NotesPayable Cash

 d.NotesPayable Cash

InterestPayable

 61.     Salestaxescollectedbya retailerarerecordedby a.creditingSalesTaxesRevenue.

b.debitingSalesTaxesExpense. c.creditingSales TaxesPayable. d.debitingSalesTaxesPayable.

 62.     UnearnedRentalRevenueis

a.a contraaccounttoRentalRevenue. b.a revenueaccount.

c.reportedasacurrentliability.

d.debitedwhenrentis receivedinadvance.

 63.     Salestaxescollectedbytheretailerare recordedasa(n) a.revenue.

b.liability.c.expense. d.asset.

 Usethefollowing informationforquestions64–65.

 OnSeptember1,Ken'sPaintingServiceborrows$50,000fromNationalBankona4-month, $50,000,6%note.

CurrentLiabilitiesandPayroll Accounting       11-11

 64.     WhatentrymustKen'sPaintingServicemakeonDecember31before statements are prepared?

a.InterestPayable...................................................................                1,000 InterestExpense..........................................................

b.InterestExpense..................................................................                3,000 InterestPayable...........................................................

c.InterestExpense..................................................................                1,000 InterestPayable...........................................................

d.InterestExpense..................................................................               1,000 NotesPayable.............................................................

financial

   1,000

 3,000

 1,000

 1,000

  65.     The entrybyKen'sPainting Serviceto recordpayment of thenoteandaccrued intereston January1 is

a.NotesPayable......................................................................              51,000 Cash............................................................................                           51,000

b.NotesPayable......................................................................              50,000 InterestPayable...................................................................         1,000

Cash............................................................................                              51,000 c.NotesPayable......................................................................       50,000

InterestPayable...................................................................             3,000 Cash............................................................................                           53,000

d.NotesPayable......................................................................             50,000 InterestExpense..................................................................         1,000

Cash............................................................................                              51,000

 66.     Theinterestchargedona$100,000notepayable,attherateof8%,ona90-daynote would be

a.$8,000. b.$4,444. c.$2,000. d.$667.

 67.     Theinterestchargedona$100,000notepayable,attherateof6%,ona60-daynote would be

a.$6,000. b.$3,333. c.$1,500. d.$1,000.

 68.     Theinterestchargedona$50,000notepayable,attherateof8%,ona3-monthnote would be

a.$4,000. b.$2,000. c.$1,000. d.$667.

 69.     Theinterestchargedona$50,000notepayable,attherateof6%,ona2-monthnote would be

a.$3,000. b.$1,500. c.$750.d.$500.

11-12

 70.     Acompanyreceives$132,ofwhich$12isforsalestax.Thejournalentrytorecordthe sale wouldincludea

a.debittoSales TaxExpensefor$12. b.credit toSales TaxPayable for$12. c.debit to Salesfor $132.

d.debitto Cashfor $120.

 71.     Acompanyreceives$174,ofwhich$14isforsalestax.Thejournalentrytorecordthe sale wouldincludea

adebittoSalesTaxExpensefor$14. b.debittoSalesTaxPayablefor$14. c.debit to Salesfor $174.

d.debitto Cashfor $174.

 72.     A retailstore creditedtheSalesaccountforthesales priceandtheamount ofsalestaxon sales.Ifthesalestaxrateis5%andthebalanceintheSalesaccountamountedto $315,000,whatisthe amount of thesalestaxesowedto thetaxingagency?

a.$300,000 b.$315,000 c.$15,750 d.$15,000

 73.     OnJanuary1,2008,DunnonCompany,acalendar-yearcompany,issued$600,000of notespayable, ofwhich$150,000 isdueonJanuary 1foreachofthenextfouryears. The properbalancesheetpresentation on December31,2008,is

a.CurrentLiabilities,$600,000. b.Long-termDebt,$600,000.

c.CurrentLiabilities,$300,000;Long-termDebt,$300,000. d.CurrentLiabilities,$150,000;Long-termDebt,$450,000.

 74.     OnJanuary1,2008,BrunsonCompany,acalendar-yearcompany,issued$400,000of notespayable, ofwhich$100,000 isdueonJanuary1foreachofthenextfouryears. The properbalancesheetpresentation on December31,2008,is

a.CurrentLiabilities,$400,000. b.Long-termDebt, $400,000.

c.CurrentLiabilities,$100,000;Long-termDebt,$300,000. d.CurrentLiabilities,$300,000;Long-termDebt,$100,000.

 75.     Acashregistertapeshowscashsalesof$1,500andsalestaxesof$120.Thejournal entry torecordthis information is

a.Cash....................................................................................                1,620 Sales...........................................................................                              1,620

b.Cash....................................................................................                1,620

SalesTaxPayable......................................................                                       120 Sales...........................................................................                              1,500

c.Cash....................................................................................                1,500 SalesTaxExpense..............................................................            120

Sales...........................................................................                                 1,620 d.Cash....................................................................................         1,620

Sales...........................................................................                                 1,500 SalesTaxesRevenue.................................................                                 120

CurrentLiabilitiesandPayroll Accounting       11-13

 76.     Jo’sBookstorehascollected$750insalestaxesduringApril.Ifsalestaxesmustbe remittedtothestategovernmentmonthly,whatentrywillJo'sBookstoremaketoshow theAprilremittance?

a.SalesTaxesPayable............................................................                      750 Cash............................................................................                                750

b.SalesTaxExpense.............................................................                      750 Cash............................................................................                                750

c.SalesTaxExpense..............................................................                     750

SalesTaxesPayable...................................................                                       750 d.Noentryrequired.

 77.     JordonCompanydoesnotringupsalestaxesseparatelyonthecashregister.Total receiptsforOctoberamountedto$18,900.Ifthesalestaxrateis5%,whatamountmust be remittedtothestateforOctober'ssalestaxes?

a.$900 b.$945 c.$45

d.Itcannotbedetermined.

 78.     Enrique'sSalonhastotalreceiptsforthemonthof$16,430includingsalestaxes.Ifthe sales taxrateis 6%,whatareEnrique'ssalesfor themonth?

a.$15,444.20 b.$17,415.80 c.$15,500.00

d.Itcannotbedetermined.

 79.     Theamountof salestaxcollectedbyaretailstore whenmakingsalesis a.amiscellaneousrevenuefor thestore.

b.a currentliability.

c.notrecordedbecauseit isataxpaidbythecustomer. d.recordedasanoperatingexpense.

 80.     Aretailstorecredited theSalesaccount forthesalesprice andtheamountofsales taxon sales.Ifthesalestaxrateis5%andthebalanceintheSalesaccountamountedto $189,000,whatisthe amount of thesalestaxesowedto thetaxingagency?

a.$180,000 b.$189,000 c.$9,450d.$9,000

 81.     Advancesfromcustomersareclassifiedasa(n) a.revenue.

b.expense.

c.currentasset.d.currentliability.

 82.     Thecurrentportionof long-term debtshould a.bepaidimmediately.

b.be reclassifiedasa currentliability. c.beclassifiedasa long-termliability.

d.notbeseparatedfromthelong-termportionof debt.

11-14

 83.     Salestaxescollectedbya retailerareexpenses a.of theretailer.

b.of thecustomers.c.ofthegovernment.

d.that arenotrecognizedbythe retaileruntiltheyaresubmittedtothegovernment.

 84.     Salestaxescollectedbya retailerarereportedas a.contingentliabilities.

b.revenues. c.expenses.

d.currentliabilities.

 85.     Linda'sBoutiquehastotalreceiptsforthemonthof$29,295includingsalestaxes.Ifthe sales taxrateis 5%,whatareLinda'ssalesforthemonth?

a.$27,831 b.$27,900 c.$29,295

d.Itcannotbedetermined.

 86.     A cashregistertapeshowscashsalesof$1,500and salestaxesof $90.Thejournalentry to recordthisinformationis

 a.Cash....................................................................................                1,500 Sales...........................................................................                              1,500

 b.Cash....................................................................................                1,590

SalesTaxRevenue.....................................................                                         90 Sales...........................................................................                              1,500

 c.Cash....................................................................................                1,500 SalesTaxExpense..............................................................              90

Sales...........................................................................                                 1,590

 d.Cash....................................................................................               1,590 Sales...........................................................................                              1,500 SalesTaxesPayable..................................................                                   90

 87.     Tim'sPharmacyhascollected$600insalestaxesduringMarch.Ifsalestaxesmustbe remittedtothestategovernmentmonthly,whatentrywillTim'sPharmacymaketoshow theMarch remittance?

a.SalesTaxExpense..............................................................                      600

Cash...........................................................................                                     600 b.SalesTaxesPayable...........................................................             600

Cash...........................................................................                                     600 c.SalesTaxExpense..............................................................            600

SalesTaxesPayable..................................................                                        600 d.Noentryrequired.

 88.     LangerCompanydoesnotringupsalestaxesseparatelyonthecashregister.Total receiptsforFebruaryamountedto$28,600.Ifthesalestaxrateis4%,whatamountmust be remittedtothestatefor February'ssalestaxes?

a.$1,144 b.$1,100 c.$1,716

d.Itcannotbedetermined.

CurrentLiabilitiesandPayroll Accounting       11-15

 89.     Anybalanceinanunearnedrevenueaccountisreportedasa(n) a.currentliability.

b.long-termdebt. c.revenue.

d.unearnedliability.

 90.     StanleyCompany typicallysellssubscriptionsonanannualbasis,andpublishessixtimes ayear.Themagazinesells60,000subscriptionsinJanuaryat$15each.Whatentryis made inJanuary torecordthesaleof thesubscriptions?

 a.SubscriptionsReceivable..................................................... SubscriptionRevenue.................................................

 b.Cash..................................................................................... UnearnedSubscriptionRevenue.................................

 c.SubscriptionsReceivable..................................................... UnearnedSubscriptionRevenue.................................

 d.PrepaidSubscriptions.......................................................... Cash............................................................................

900,000

  900,000

  150,000

  900,000

 900,000

  900,000

  150,000

  900,000

 91.     Milton Companyissuedafour-year interest-bearingnotepayablefor$300,000on January 1,2007.EachJanuarythecompany isrequiredtopay$75,000onthenote.Howwillthis note be reportedontheDecember31,2008balancesheet?

a.Long-termdebt,$300,000. b.Long-termdebt,$225,000.

c.Long-termdebt,$150,000;Long-termdebtduewithinone year,$75,000. d.Long-termdebt,$225,000;Long-termdebtduewithinone year,$75,000.

 92.     JanisKnothasalargeconsultingpractice.Newclientsarerequiredtopayone-halfofthe consultingfeesupfront.Thebalanceispaidattheconclusionoftheconsultation.How does Knotaccountforthe cashreceivedattheend of theengagement?

a.Cash

UnearnedConsultingRevenue b.Cash

EarnedConsultingRevenue c.PrepaidConsultingFees

EarnedConsultingRevenue

d.Noentryisrequiredwhentheengagementisconcluded.

 93.     Whichoneofthefollowingisshownfirstundercurrentliabilitiesbymanycompaniesasa matter ofcustom?

a.Accruedexpenses

b.Currentmaturities of long-term debt c.Salestaxespayable

d.Notespayableandaccountspayable

 94.     Workingcapital is

a.currentassetspluscurrentliabilities.b.currentassetsminuscurrent liabilities.

c.currentassetsdividedbycurrentliabilities.d.currentassetsmultipliedbycurrentliabilities.

11-16

 95.     Thecurrentratiois

a.currentassetspluscurrentliabilities.b.currentassetsminuscurrent liabilities.

c.currentassetsdividedbycurrentliabilities.d.currentassetsmultipliedbycurrentliabilities.

 96.     Acontingentliabilityneedonlybedisclosedinthefinancialstatementnoteswhenthe likelihood of thecontingencyis

a.reasonablypossible. b.probable.

c.remote. d.unlikely.

 97.     Ifacontingentliabilityisreasonablyestimableanditisreasonablypossiblethatthe contingencywilloccur,thecontingentliability

a.shouldberecorded intheaccounts.

b.shouldbedisclosedin the notesaccompanyingthefinancialstatements.

c.shouldnotberecordedordisclosedinthenotesuntilthecontingencyactually happens.

d.mustbepaidforthe amountestimated.

 98.     Theaccountingforwarrantycostisbasedonthematchingprinciple,whichrequiresthat theestimatedcost of honoring warrantycontractsshouldberecognizedasanexpense

a.whenthe productisbrought inforrepairs.b.intheperiodinwhichtheproductwassold. c.attheendofthewarrantyperiod.

d.onlyif therepairsareexpectedtobemadewithinone year.

 99.     Ifa liabilityis dependentonafutureevent,it iscalleda a.potentialliability.

b.hypotheticalliability. c.probabilisticliability. d.contingentliability.

 100.     Currentmaturities of long-termdebt a.requireanadjustingentry.

b.areoptionallyreportedonthebalancesheet.

c.canbeproperlyclassifiedduringbalancesheetpreparation,withnoadjustingentry required.

d.arenotconsideredtobecurrentliabilities.

 101.     A contingencythatisremote

a.shouldbedisclosedinthefinancialstatements. b.mustbeaccruedasa loss.

c.doesnotneedto bedisclosed.

d.isrecordedasacontingentliability.

 102.     Theaccountingfor warrantycostsisbasedonthe a.goingconcernprinciple.

b.matchingprinciple.

c.conservatismprinciple. d.objectivityprinciple.

CurrentLiabilitiesandPayroll Accounting       11-17

 103.     Warrantyexpensesarereported ontheincomestatementas a.administrativeexpenses.

b.part of costofgoodssold. c.contra-revenues.

d.sellingexpenses.

 Usethefollowing informationforquestions104–105.

 NeerCompanysells2,000unitsofitsproductfor$500each.Thesellingpriceincludesaone-yearwarrantyonparts.Itisexpectedthat3%oftheunitswillbedefectiveandthatrepaircosts willaverage$50perunit.Intheyearofsale,warrantycontractsarehonoredon40unitsfora totalcostof$2,000.

 104.     WhatamountshouldNeerCompanyaccrueonDecember31forestimatedwarranty costs?

a.$3,000 b.$2,000 c.$1,000 d.$15,000

 105.     WhatamountwillbereportedonNeerCompany'sbalancesheetasEstimatedWarranty Liabilityon December31,2008?

a.$2,000 b.$3,000 c.$1,000

d.Itcannotbedetermined.

 106.     Whichofthefollowingitemswouldnotbeidentifiedifacontingentliabilityweredisclosed in a financialstatementfootnote?

a.Thenatureof theitem

b.Theexpectedoutcomeof thefutureeventc.Anumericalprobabilityof theexpectedloss d.Theamountofthecontingency,if known

 107.     Disclosureofa contingentliabilityisusuallymade

a.parenthetically,inthebodyofthebalancesheet.

b.parenthetically,inthebodyoftheincomestatement. c.in anotetothefinancialstatements.

d.inthemanagementdiscussionsectionofthefinancial statement.

 108.     Currentliabilitiesgenerallyappear

a.after long-termdebtonthebalancesheet.

b.indecreasingorderofmagnitudeonthebalancesheet. c.in orderofmaturityonthebalancesheet.

d.in increasingorderofmagnitudeonthe balancesheet.

 109.     Whichofthefollowingemployees wouldlikelyreceivea salaryinsteadofwages? a.Storeclerk

b.Factoryemployee c.Salesmanager

d.Manuallaborer

11-18

 110.     Thetotalcompensationearnedbyanemployeeis called a.take-homepay.

b.netpay.

c.netearnings.d.grossearnings.

 111.     Whichoneofthefollowingpayrolltaxesdoesnotresultinapayrolltaxexpenseforthe employer?

a.FICAtax

b.Federalincometax

c.Federalunemployment tax d.Stateunemploymenttax

 112.     SueStein'sregularrateofpayis$12perhourwithoneandone-halftimesherregular rateforanyhourswhichexceed40hoursperweek.Sheworked48hourslastweek. Therefore, hergross wageswere

a.$576. b.$480. c.$624. d.$864.

 113.     AssumingaFICAtaxrateof8%onthefirst$90,000inwages,andafederalincometax rateof20%onallwages,whatwouldbeanemployee'snetpay fortheyearifheearned $100,000for theyear?

a.$92,800 b.$72,000 c.$80,000 d.$72,800

 114.     Mostcompaniesinvolvedin interstatecommercearerequiredtocomputeovertimeat a.theworker'sregularhourlywage.

b.1.25timestheworker'sregularhourlywage. c.1.5timestheworker'sregularhourlywage. d.2.5timesthe worker'sregularhourlywage.

 115.     SueRicehasworked44hoursthisweek.Sheworkedinexcessof8hourseachday.Her regularhourlywageis$15perhour.WhatareSue'sgrosswagesfortheweek?(The company Sue worksfor is incompliancewiththeFair LaborStandardsAct.)

a.$660 b.$690 c.$990 d.$720

 116.     FICAtaxesdonotprovideworkerswith a.lifeinsurance.

b.supplementalretirement. c.employmentdisability.d.medicalbenefits.

CurrentLiabilitiesandPayroll Accounting       11-19

 117.     Employeepayroll deductionsincludeeachofthefollowingexcept a.federalunemployment taxes.

b.federalincometaxes. c.FICAtaxes.

d.insurance,pension plans,anduniondues.

 118.     ThejournalentrytorecordthepayrollforaperiodwillincludeacredittoWagesand SalariesPayableforthegross

a.amountlessallpayrolldeductions. b.amountof allpaychecksissued.c.paylesstaxespayable.

d.paylessvoluntarydeductions.

 119.     Theamountofincometaxeswithheldfromemployeesisdependentoneachofthe followingexceptthe

a.employee'sgrossearnings. b.employee'snetpay.

c.length ofthepayperiod.

d.numberof allowancesclaimedbytheemployee.

 Use thefollowing informationforquestions120–123.

  Thefollowingtotalsforthemonthof Aprilweretakenfromthepayrollregisterof MainCompany.

 Salaries

FICAtaxeswithheld IncometaxeswithheldMedicalinsurancedeductions Federalunemploymenttaxes Stateunemploymenttaxes

$24,000 1,100 5,000 900

64 432

  120.     Thejournalentrytorecordthemonthlypayrollon April30wouldincludea a.debit toSalariesExpensefor $24,000.

b.credittoSalariesPayablefor$24,000. c.debittoSalariesPayablefor$24,000. d.debit to Salaries Expensefor $17,000.

 121.     Theentrytorecordthe paymentofnetpayroll wouldincludea a.debit toSalariesPayablefor$16,504.

b.debittoSalariesPayable for$17,000. c.debittoSalariesPayablefor$15,900. d.credit to Cashfor $18,100.

 122.     TheentrytorecordaccrualofMainCompany’spayrolltaxeswouldincludea a.debit toPayrollTaxExpensefor$496.

b.debittoPayrollTaxExpensefor$1,596. c.credit toFICA Taxes Payablefor$2,200. d.credit to PayrollTaxExpensefor $496.

11-20

 123.     Theentrytorecordthe accrualof federal unemploymenttaxeswouldincludea a.credit to FederalUnemploymentTaxes Payablefor $64.

b.debitto Federal UnemploymentTaxes Expensefor $64. c.creditto PayrollTaxExpensefor$64.

d.debitto Federal UnemploymentTaxes Payablefor $64

 Usethefollowing informationforquestions124–127.

 Thefollowingtotalsforthemonthof June weretakenfromthepayrollregisterof LaneCompany.

 Salaries

FICAtaxeswithheld IncometaxeswithheldMedicalinsurancedeductions Federalunemploymenttaxes Stateunemploymenttaxes

$20,000 1,533 4,400 800

160 1,000

  124.     Thejournalentrytorecordthemonthlypayrollon June30wouldincludea a.debit toSalariesExpensefor $20,000.

b.credittoSalariesPayablefor$20,000. c.debittoSalariesPayablefor$20,000. d.debit to Salaries Expensefor $13,267

 125.     Theentrytorecordthe paymentofnetpayroll wouldincludea a.debitto SalariesPayablefor$12,107.

b.debittoSalariesPayable for$13,267. c.debittoSalariesPayablefor$12,267. d.credit to Cashfor $12,267.

 126.     TheentrytorecordaccrualofLaneCompany’spayrolltaxeswouldincludea a.debit toPayrollTaxExpensefor$2,693

b.credittoPayrollTaxExpensefor$2,693 c.credit toFICA TaxesPayablefor$1,160. d.credit to PayrollTaxExpensefor $1,160.

 127.     Theentrytorecordthe accrualof federal unemploymenttaxeswouldincludea a.credit to FederalUnemploymentTaxes Payablefor $160.

b.creditto Federal UnemploymentTaxes Expensefor $160. c.creditto PayrollTaxExpensefor$160.

d.debitto Federal UnemploymentTaxes Payablefor $160.

 128.     Whichoneofthefollowingpayrolltaxesisnotwithheldfromanemployee'swages because it is notleviedontheemployee?

a.Federalincometax

b.Federalunemployment tax c.State incometax

d.FICAtax

CurrentLiabilitiesandPayroll Accounting       11-21

 129.     ByJanuary31followingtheendofacalendaryear,anemployerisrequiredtoprovide each employeewitha(n)

a.stateunemploymenttaxform.

b.federalunemployment taxform940. c.wageandtaxstatementformW-2.

d.employee'swithholdingallowancecertificateformW-4.

 130.     Whichofthefollowingpayroll taxesareusuallyfiledandremittedannually? a.Federalunemployment taxes

b.FICAtaxes

c.Stateunemploymenttaxes

d.Federalandstateunemploymenttaxes

 131.     Thetaxthatispaidequallybytheemployerand employeeis the a.federalincometax.

b.federalunemployment tax. c.stateunemploymenttax.d.FICAtax.

  132.     The effectivefederalunemploymenttaxrateisusually a.6.2%.

b.0.8%. c.5.4%. d.8.0%.

 133.     Thetreasurer'sdepartmentisresponsiblefor a.approvingthepayroll.

b.maintainingpayrollrecords.c.preparingpayroll taxreturns. d.signingpayrollchecks.

 134.     Thepayrollis paidbythea.personneldepartment. b.payrolldepartment.

c.cashier.

d.treasurer'sdepartment.

 a135.Post-retirementbenefitsconsistof payments byemployerstoretiredemployeesfor a.healthcareand lifeinsuranceonly.

b.healthcareandpensionsonly.c.lifeinsuranceandpensionsonly.

d.healthcare,lifeinsurance,andpensions.

 a136.Thepaidabsencethat ismostcommonlyaccruedis a.votingleave.

b.vacationtime.c.maternityleave. d.disabilityleave.

11-22

 a137.BlakeCompanyhastenemployeeswhoeachearn$160perday.Iftheyaccumulate vacationtimeattherateof1.5vacationdaysforeachmonthworked,theamountof vacation benefitsthatshouldbeaccruedatthe end of themonthis

a.$160.b.$1,600. c.$2,400. d.$240.

 a138.Anemployer'sestimatedcostfor post-retirement benefitsforitsemployeesshouldbe a.recognizedas anexpensewhenpaid.

b.recognizedasanexpenseduringtheemployees'workyears.

c.recognizedas an expenseduringtheemployees'retirementyears.

d.chargedto thegoodwillaccount because providingemployees with benefits generates employee goodwill.

 Additional MultipleChoiceQuestions

 139.     Acurrentliabilityisadebtthecompanyreasonablyexpectstopayfromexistingcurrent assetswithin

a.oneyear.

b.theoperatingcycle.

c.one yearor theoperatingcycle, whicheverislonger. d.oneyearor theoperatingcycle, whicheveris shorter.

 140.     Whichofthefollowingstatements concerningcurrent liabilitiesis incorrect? a.Currentliabilitiesincludeunearnedrevenues.

b.Acompanythat hasmore currentliabilities thancurrentassets is usuallythesubjectof someconcern.

c.Currentliabilitiesincludeprepaidexpenses.

d.Acurrentliabilityisadebtthatcanreasonablybeexpectedtobepaidoutofexisting currentassetsorresult inthecreationof other currentliabilities.

 141.     OnAugust1,2008,acompanyborrowedcashandsignedaone-yearinterest-bearing noteonwhichboththefacevalueandinterestarepayableonAugust1,2009.Howwill thenotepayableandtherelatedinterestbeclassifiedintheDecember31,2008,balance sheet?

NotePayable                                  Interest Payablea.Currentliability                     Noncurrentliability b.Noncurrentliability                          Currentliability

c.Currentliability                                 Currentliability d.Noncurrentliability                          Notshown

 142.     Companiesreportcurrentliabilitiesonthebalancesheetin a.alphabeticalorder.

b.order ofmaturity. c.randomorder.

d.order ofmagnitude.

CurrentLiabilitiesandPayroll Accounting       11-23

 143.     A contingencyneednotberecordednordisclosedwhen

a.itisprobablethecontingencywillhappenandtheamountcanbereasonably estimated.

b.itisprobablethecontingencywillhappenbuttheamountcannotbereasonably estimated.

c.itisreasonablypossiblethecontingencywillhappenandtheamountcanbe reasonablyestimated.

d.thepossibilityof the contingencyhappeningisremote.

 144.     A contingentliabilityis recordedwhenthe likelihoodof thecontingency is a.remote.

b.reasonablypossible. c.probable.

d.nil or zero.

 145.    MikeKohl,anemployeeofSpottswoodCompany,hasgrossearningsforthemonthof Octoberof$6,000.FICAtaxesare8%ofgrossearnings, federalincometaxesamount to $952forthemonth,stateincometaxesare2%ofgrossearnings,andMikeauthorizes voluntarydeductionsof$15permonthtotheUnitedFund.WhatisthenetpayforMike Kohl?

a.$4,442 b.$4,433 c.$4,448 d.$4,452

 146.    Apayrollrecordthataccumulatesthegrossearnings,deductions,andnetpayby employeefor eachpayperiodis the

a.withholdingtaxtable.

b.employeeearningsrecord. c.payrollregister.

d.WageandTaxStatement.

 147.    ThejournalentrytorecordthepayrollforMarcusGarveyCompanyfortheweekending January8,wouldprobablyincludea

a.creditto OfficeSalaries.b.credittoWages Expense.

c.debittoFederalIncomeTaxesPayable. d.creditto FICATaxesPayable.

 148.    Employerpayroll taxesincludeallofthefollowingexcept a.FICAtaxes.

b.federalunemployment taxes. c.stateunemploymenttaxes.d.federalincometaxes.

 149.    Therecordthatprovidesacumulativesummaryofeachemployee’sgrossearnings, payrolldeductions, and netpayduring theyearandisrequiredtobemaintainedtocomply with stateandlocalfederallawisthe

a.register.

b.employeeearningsrecord. c.statementofearnings.

d.wageandtaxstatement.

11-24

 a150.Post-retirementbenefitsincludeallofthefollowingexcept a.healthcare.

b.lifeinsurance. c.pensions.

d.vacationbenefits.

        BRIEFEXERCISES

  BE151

 SaldanaSalesCompanyhasthefollowingselectedaccountsafterpostingadjustingentries:

 AccountsPayableNotesPayable,3-month

AccumulatedDepreciation—Equipment NotesPayable,5-year,6%

PayrollTax Expense InterestPayable MortgagePayable SalesTaxPayable

$62,000 50,000 14,000 80,000 4,000 3,000 120,000 38,000

  Instructions

PreparethecurrentliabilitysectionofSaldanaSalesCompany'sbalancesheet,assuming $20,000of themortgageispayablenextyear.

  BE152

 Identifywhichof thefollowingwouldbeclassifiedas currentliabilitiesasof December31,2008: 1.WagesPayable

2.BondsPayable, maturingin 2013 3.InterestPayable,dueJuly1,2009 4.TaxesPayable

5.NotesPayable, dueJanuary30,2010

    BE153

 OnDecember1,DestinCorporationborrowed$5,000ona90-day,6%note.Preparetheentries torecordtheissuanceofthenote,theaccrualofinterestatyearend,andthepaymentofthe note.

   BE154

DuringDecember2008,FashionVixenPublishingsold2,50012-monthannualmagazine subscriptionsatarateof$30each.ThefirstissuesweremailedinFebruary2009.Preparethe entriesonFashionVixen’sbookstorecordthesaleofthesubscriptionsandthemailingofthe first issues.

  BE155

 Landen Companyhadcashsalesof$54,250(includingtaxes)forthemonthofJune.Salesare subjectto8.5%salestax.Preparetheentryto recordthesale.

    BE156

 OnDecember1, WynnCompanyintroducesanewproductthatincludesaone-yearwarrantyon parts.InDecember,500unitsaresold.Managementbelievesthat5%oftheunitswillbe defectiveandthattheaveragewarrantycostswillbe$60perunit.Preparetheadjustingentryat December31toaccruethe estimatedwarrantycost.

   BE157

 MaryStine’sregularhourlywagerateis$12,andshereceivesanhourlyrateof$18forworkin excessof40hours.DuringaMarchpayperiod,Maryworks47hours.Mary’sfederalincometax withholdingis$70,andshehasnovoluntarydeductions.ComputeMaryStine’sgrossearnings and netpayforthepayperiod.

   BE158

 Data forMaryStinearepresentedinBE157.PreparethejournalentrytorecordMary’spayfor theperiod.Use March15fortheendof thepayperiod.

    BE159

 InFebruary,grossearningsinZennCompanytotaled$50,000.Allearningsaresubjectto8% FICAtaxes,5.4%stateunemploymenttaxes,and0.8%federalunemploymenttaxes.Prepare theentrytorecordJanuarypayrolltaxexpense.

    *BE160

 WeaverCompanyemployeesareentitledtooneday’svacationforeachmonthworked.In February,60employeesworkedthefullmonth.RecordthevacationpayliabilityforFebruary assuming theaveragedailypayfor eachemployeeis$90.

   EXERCISES

Ex.161

StinerCompanyhasthefollowingselectedaccounts afterpostingadjustingentries:

 AccountsPayableNotesPayable,3-month

AccumulatedDepreciation—Equipment PayrollandBenefitsPayable

NotesPayable,5-year,8% EstimatedWarrantyLiability PayrollTax ExpenseInterestPayable MortgagePayable

SalesTaxPayable

$45,000 80,000 14,000 27,000 30,000 34,000 6,000 3,000 200,000 16,000

  Instructions

(a)PreparethecurrentliabilitysectionofStinerCompany'sbalancesheet,assuming$25,000 of themortgageispayablenextyear. (Listliabilities inmagnitudeorder,withlargestfirst.)

 (b)Commenton Stiner's liquidity,assumingtotalcurrentassetsare$450,000.

    Ex.162

 Preparethenecessaryjournalentriesforthefollowingtransactions:

(a)On September1,LoreCompanyborrowed$150,000fromNationalBankona6-month,8% note.

(b)On December31, LoreCompanyaccruedinterest(assumeadjustingentries areonlymade at theendoftheyear).

CurrentLiabilitiesandPayroll Accounting       11-29

  Ex.163

 OnMarch1,FeltonCompanyborrows$90,000fromOttawaStateBankbysigninga6-month, 8%,interest-bearingnote.

 Instructions

PreparethenecessaryentriesbelowassociatedwiththenotepayableonthebooksofFelton Company.

(a)Preparetheentryon March 1whenthe notewasissued.

(b)PrepareanyadjustingentriesnecessaryonJune30inordertopreparethesemi-annual financialstatements. Assumenootherinterestaccrualentrieshavebeenmade.

(c)Preparetheadjustingentry at August31to accrueinterest. (d)Preparetheentryto recordpaymentof thenote atmaturity.

    Ex.164

 TomByerssellstelevisionswitha2-yearwarranty.Pastexperienceindicatesthat2%oftheunits soldwillbereturnedduringthewarrantyperiodforrepairs.Theaveragecostofrepairsunder warrantyisestimatedtobe$50perunit.During2008,7,000unitsweresoldatanaverageprice of$400.Duringtheyear,repairsweremadeon55unitsatacost of $2,400.

 Instructions

Preparejournalentriestorecordtherepairsmadeunderwarrantyandestimatedwarranty expense fortheyear.

  Ex.165

 SommersCompanybilleditscustomersatotalof$1,575,000forthemonthofNovember.The totalincludesa 5% statesalestax.

 Instructions

(a)Determinetheproperamountof revenuetoreportforthemonth.

(b)Preparethegeneraljournalentrytorecordtherevenue andrelatedliabilitiesforthemonth.

   Ex.166

 StevensCompany does notsegregatesales andsales taxes onitscashregister.Its registertotal for themonthis$259,700, whichincludesa 6%salestax.

 Instructions

 Computesalestaxespayable,andmaketheentrytorecordsalesandsalestaxespayable.

   Ex.167

 SuttonCoatCompany,whichpreparesannualfinancialstatements,ispreparingadjustingentries on December31. Analysisindicatesthefollowing:

 1.Thecompanyisthedefendantinanemployeediscriminationlawsuitinvolving$50,000of damages.Legalcounselbelievesitisunlikelythatthecompanywillhavetopayany damages.

 2.December31stisaFriday.TheemployeesofthecompanyhavebeenpaidonMonday, December27thforthepreviousweekwhichendedonFriday,December24th.Thecompany employs30peoplewhoearn$100perdayand15peoplewhoearn$150perday.All employees work5-day weeks.

 3.Thecompany isadefendantina$500,000productliability lawsuit.Legal counsel believesthe companyprobablywill havetopaytheamountrequested.

 a4.Employeesareentitledtooneday'svacationforeachmonthworked.Allemployees describedabove in(2.) workedthemonthof December.

 Instructions

Prepareanyadjustingentriesnecessaryattheendof theyear.

    Ex.168

 Basedonthefollowinginformation,computethe(1) currentratioand(2) workingcapital.

 Currentassets Totalassets Currentliabilities Totalliabilities

$240,000 900,000 80,000 500,000

  Ex.169

 LindaEstessellsexercisemachinesforhomeuse.Themachinescarrya2-yearwarranty.Past experienceindicatesthat6%oftheunitssoldwillbereturnedduringthewarrantyperiodfor repairs.Theaveragecostofrepairsunderwarrantyis$60forlaborand$90forpartsperunit. During2008,2,500exercise machines weresoldatanaverageprice of$800.Duringtheyear,60 of themachinesthat weresold wererepairedattheaveragepriceper unit.

 Instructions

(a)     Preparethejournalentrytorecordtherepairsmadeunderwarranty.

(b)    Preparethejournalentrytorecordtheestimatedwarrantyexpense fortheyear.

    Ex.170

 GolfWorldPublicationspublishesagolfmagazineforwomen.Themagazinesellsfor$3acopy onthenewsstand.Yearlysubscriptionstothemagazinecost$24peryear(12issues).During December2008,GolfWorldPublicationssells9,000copiesofthegolfmagazineatnewsstands andreceivespaymentfor15,000subscriptionsfor2009.Financialstatementsareprepared monthly.

 Instructions

(a)Preparethe December2008journalentriesto record the newsstandsales and subscriptions received.

 (b)PreparethenecessaryadjustingentryonJanuary31,2009.TheJanuary2009issuehas been mailedto subscribers.

CurrentLiabilitiesandPayroll Accounting       11-33

  Ex.171

 PresleyCompanysellsaproduct thatincludesaone-yearwarrantyonpartsandlabor.During the year,10,000unitsaresold.Presleyexpectsthat3%oftheunitswillbedefectiveandthatthe averagewarrantycostwillbe$50perunit.Actualwarrantycostsincurredduringtheyearwere $14,000.

 Instructions

 Preparethejournalentriestorecord(a)theestimatedwarrantycostsand(b) theactualcosts incurred.

    Ex.172

 DobsonCompanyispreparingadjustingentriesatDecember31.Ananalysisrevealsthe following:

 1.DuringDecember,DobsonCompanysold2,000unitsofaproductthatcarriesa60-day warranty.Thesalesforthisproducttotaled$100,000.Thecompanyexpects4%oftheunits toneedrepairunderthe warrantyanditestimates thattheaveragerepaircostperunitwillbe $15.

 2.Thecompanyhasbeensuedbyadisgruntledemployee.Legalcounselbelievesthatitis reasonablypossiblethatthecompanywillhaveto pay$200,000indamages.

 3.Thecompanyhasbeennamedasoneofseveraldefendantsina$400,000damagesuit. Legalcounselbelievesit is unlikelythatthecompanywillhavetopayanydamages.

 a4.Employeesearnvacationpayatarateof1daypermonth.DuringDecember,tenemployees qualifyforvacationpay.Theiraveragedailywageis $90per employee.

 Instructions

 Prepareadjustingentries,if required,for eachofthefouritems.

  Ex.173

 Matchthecodesassignedtothefollowingpayrollfunctionstotheprocedureslistedbelow:

 H          HiringEmployees T          Timekeeping

PRE        PreparingthePayroll PAY                Payingthe Payroll

 1.Distributionof checksbythetreasurer 2.Supervisorapproveshoursworked

3.Documentationof employeehiring 4.Maintenanceofpayrollrecords

5.Verificationof payrollcalculations

 6.Screeningand interviewingofjobapplicants 7.Useofatimeclock

8.Signingprenumberedpayrollchecks

    Ex.174

 SueWiebe'sregularhourlywageis$14anhour.Shereceivesovertimepayattherateoftime andahalf.TheFICAtaxrateis8%.Sueispaideverytwoweeks.Forthefirstpayperiodin January,Sueworked86hoursofwhich6wereovertimehours.Sue'sfederalincometax withholdingis$300andherstateincometaxwithholding is$100.Suehasauthorizedthat$50be withheldfrom hercheckeachpayperiodforsavingsbonds.

 Instructions

 ComputeSueWiebe'sgrossearningsandnetpayforthepayperiodshowingeachpayroll deductioninarrivingatnet pay.

    Ex.175

 StacyCooper'sregularhourlywagerateis$12,andshereceivesawageof11/2timesher regularrateforworkinexcessof40hours.DuringaJunepayperiod,Stacyworked46hours. Stacy'sfederalincometaxwithholdingis$58,andheronlyvoluntarydeductionis$25forgroup hospitalization insurance.

 Instructions

ComputeStacy's(a)grossearningsand(b) net payforthepayperiod.

   Ex.176

 OatesCompany'spayrollfortheweekendingJanuary15amountedto$95,000forOffice Salariesand$150,000forStoreWages.Noneoftheemployeeshasreachedtheearningslimits specifiedforfederalorstateemployerpayrolltaxes.Thefollowingdeductionswerewithheldfrom employees'salaries andwages:

 FederalIncomeTax StateIncomeTax FICATaxes

UnionDues UnitedFund

$50,000 9,000 19,600 2,700 1,800

  Federalunemploymenttax(FUTA)rateis6.2%lessacreditequaltotheratepaidforstate unemployment taxes.Thestateunemploymenttax(SUTA)rateis5.4%.

 Instructions

 Preparethe journal entrytorecord theweeklypayroll endingJanuary 15 andalsothe employer’s payroll taxexpenseonthe payroll.

    Ex.177

 AnnFinleyhadearned(accumulated)salaryof$86,000throughNovember30.HerDecember salaryamounted to$7,800.JimLanebeganemploymentonDecember1andwillbepaidhisfirst month'ssalaryof$5,000onDecember31.IncometaxwithholdingforDecemberforeach employee isasfollows:

Ann Finley                         JimLane FederalIncomeTax                              $2,180                                 $990 StateIncomeTax                                    390                                   180

CurrentLiabilitiesandPayroll Accounting       11-37

 Ex.177         (cont.)

 Thefollowingpayrolltaxratesareapplicable:

FICAtaxonfirst $90,000                          8% FUTAtaxonfirst $7,000                     6.2%* SUTAtaxonfirst$7,000                     5.4%

 *Lessacredit equaltothe stateunemploymentcontribution

 Instructions

 RecordthepayrollforthetwoemployeesatDecember31andrecordtheemployer'sshareof payroll taxexpenseforthe December31payroll.

   Ex.178

 AssumethatthepayrollrecordsofGibbsOilCompanyprovidedthefollowinginformationforthe weeklypayrollendedNovember30, 2008.

Year-to-Date Hourly                        Federal                                      EarningsThrough

Employee     HoursWorked      PayRate         Income Tax        Union Dues      PreviousWeek

 C.White                 44 J.Ward  46 K.Hurt        39 M.King       42

$45                  $362 10                     65 20                   118 22                   169

$9                      $91,000 5                       23,200 —                         5,700 7                        49,500

 Ex.178         (cont.)

 Additionalinformation:Allemployeesarepaidovertimeattimeandahalfforhoursworkedin excessof40perweek.TheFICAtaxrateis8%forthefirst$90,000ofeachemployee'sannual earnings.Theemployerpaysunemploymenttaxesof6.2%(5.4%forstateand.8%forfederal) on thefirst $7,000ofeachemployee'sannualearnings.

 Instructions

(a)     Preparethepayrollregisterforthepayperiod.

(b)    Preparegeneraljournalentriestorecordthepayrollandpayrolltaxes.

    Ex.179

 DianeJenksearnsasalaryof$8,000permonthduringtheyear.FICAtaxesare8%onthefirst $90,000ofgrossearnings.Federalunemploymentinsurancetaxesare6.2%ofthefirst$7,000; however,acreditisallowedequaltothestateunemploymentinsurancetaxesof5.4%onthe $7,000.During the year, $27,300waswithheldfor federal incometaxesand$5,700was withheld for state incometaxes.

CurrentLiabilitiesandPayroll Accounting       11-39

 Ex.179         (cont.)

 Instructions

(a)PrepareajournalentrysummarizingthepaymentofJenks’total salaryduringthe year.

 (b)PrepareajournalentrysummarizingtheemployerpayrolltaxexpenseonJenks’salaryfor theyear.

 (c)Determinethecostof employing Jenksfor theyear.

     Ex.180

 TolanCompanyhadthefollowingpayroll datafortheyear:

 Grossearningsof employees Employeeearnings notsubjectto FICAtax

Employeeearnings notsubjecttoFUTAor SUTAtax

$640,000 140,000 490,000

 Assumingthefollowing: FICAtaxrate

StateUnemploymenttaxrate Federal Unemploymenttaxrate

 8%

5.4%(SUTA) .8%(FUTA)

 Instructions

ComputeTolan'spayrolltaxexpensefortheyear.Makeasummaryjournalentrytorecordthe payroll taxexpense.

  Ex.181

 InMarch,grossearningsofMilnerCompanytotaled$150,000.AllearningsaresubjecttoFICA taxes,5.4%stateunemploymenttaxes,and0.8%federalunemployment taxes.

 Instructions

 (a)Computetheemployer'spayrolltaxexpense. (b)Preparetheentrytorecordpayrolltaxes.

    Ex.182

 ThefollowingpayrollliabilityaccountsareincludedintheledgerofClementsCompanyon January1,2008:

 FICATaxes Payable                                                     $1,750 FederalIncomeTaxesPayable                                   4,000 StateIncomeTaxesPayable                                          665 FederalUnemploymentTaxesPayable                          175 StateUnemploymentTaxes Payable                           1,190 UnionDuesPayable                                                       400 HealthInsurancePremiumPayable                            5,000 ChristmasClubSavingsPayable                                 1,500

 InJanuary,thefollowingtransactionsoccurred:

 Jan.9          Sentacheckfor $5,000toBlueCrossandBlueShield.

11      Depositedacheckfor$5,750inFederalReserveBankforFICAtaxesandfederal incometaxeswithheld.

14      Sentacheckfor $400totheuniontreasurerforuniondues. 18          Paidstateincometaxeswithheldfromemployees.

21      Paidstateandfederalunemployment taxes.

22      Senta$1,500checktoaSavingsandLoanforthe ChristmasClubwithholdings.

 Instructions

JournalizetheJanuarytransactions

    COMPLETIONSTATEMENTS

  183.Acurrentliabilityisadebtthatcanbeexpectedtobepaidwithin                                                 year or the                                       ,whicheveris longer.

 184.Liabilitiesareclassifiedonthebalancesheetasbeing                                                      liabilitiesor

                               liabilities.

  185.Obligationsinwrittenformarecalled                                      andusuallyrequiretheborrower topayinterest.

 186.Withaninterest-bearingnote,aborrowermustpaythe                                                   ofthenote plus                                            atmaturity.

 187.Salestaxescollectedfromcustomersarea                                             ofthebusinessuntilthey areremittedtothetaxing agency.

 188.Thecurrentratioiscurrent assetsdivided by                                       .

  189.Acontingentliabilityshouldberecordedintheaccountsifitis         thatthe contingencywilloccurand theamountis                                                                            .

 190.Twofederaltaxeswhichareleviedagainstemployees'wagesthatmustbedeductedin arrivingatnetpay are(1)                                                                       taxesand(2)                                taxes.

 191.Theemployerincursapayrolltaxexpenseequaltotheamountcontributedbyeach employeefor       taxes.

 192.Apayrolltaxexpensewhichisborneentirelybytheemployeristhefederal

                                 tax.

    MATCHING

  193.Matchtheitemsbelowbyenteringtheappropriatecodeletterinthespaceprovided.

 A.Currentliability B.NotesPayable

C.WageandTaxStatement D.Currentratio

E.Contingentliabilities

F.     Federalincometaxes G.FICAtaxes

H.Federalunemploymenttaxes aI.       Post-retirementbenefits

aJ.Pensionplan

  1.Leviedagainstemployees'wageswithoutlimit.

 2.Anobligationintheformofa writtenpromissorynote.

 3.Anagreementwherebyanemployerprovidesbenefitsto employeesaftertheyretire.

 4.Apayrolltaxexpenseleviedonlyagainstthe employerbasedonemployees'wages.

 5.Ameasureofacompany’sliquidity.

 6.Adebtthancanreasonablybeexpected tobepaidfromcurrentassets.

 7.Aformshowinggrossearnings andincometaxeswithheld.

 8.Leviedagainstemployees'wageswithamaximumlimit.

 9.Paymentsbyemployerstoretiredemployees.

 10.Apotentialliabilitythat maybecome anactualliability inthefuture.

     SHORT-ANSWERESSAYQUESTIONS

S-AE194

Acompanywillincurproductrepaircostsinthefutureifproductsthatitsellscurrentlyunder warrantyarebroughtinforrepairduringthewarrantyperiod.Thecompanywillalsoincurbad debtsexpenseinthefutureifcustomerswhobuyoncreditcurrentlyareunabletopaytheir accounts.Aretheaccountingproceduresforthesetwocontingentcosts(warrantyexpenseand bad debtexpense)relatedorguidedbythesameaccountingprinciple?Brieflyexplain.

   S-AE195

 Anemployee'snetpayconsistsofgrosspaylessmandatoryandvoluntarypayrolldeductions. Identifythemandatorypayrolldeductionsandgivetwoorthreeexamplesofcommonvoluntary deductions.Arethesedeductionsrecognizedaspayrollexpensesbytheemployer? Whattypeof payroll expensesdoesthe employerincurrelatedto havingapayroll?

  S-AE196(Ethics)

 Quaney Companymaintainstwoseparateaccountspayablecomputersystems.Oneisknownto alltheusers,andisusedtoprocesspaymentstovendors.Employeesenterthevendorcode,or thenameandaddressofnewvendors,theamount,theaccount,andsoon.Theothersystemis asecretone.Itisusedtocross-checkthevendorsagainstanapprovedvendorlist.Ifavendoris notlistedasapproved, thepaymentprocessishalted.Internalauditemployeesseektoverifythe existenceofabonafideclaimbythevendor.Allinquiriesaremadeatthetopmanagement level, andverydiscreetly.Noonebuttopmanagement,theinternalauditstaff,andtheBoardof Directorsofthecompanyis evenawareof thesecondsystem.

 Required:

Isit ethicalforacompanytohavea secretsystemliketheonedescribed?Explain.

  S-AE197(Communication)

 Al-Fabisamanufacturingcompanythatmakesvariousindustrialcomponentsoutofaluminum. Al-FabislocatedinalargecityinthenortheasternUnitedStates.Variouslabordisputeshave occurredinthecity,somewithacrimoniouspublicdebateconcerningthehonestyof management.DuringoneofAl-Fab'sroutineemployeemeetings,JackGrant,aproduction worker, broughtuptheissueof thecostof aworkerasreportedinthecompany'sannualreport.

 Thecostwasgivenas$32,000peryear.Jackpointsoutthattheaveragewagerateof$12per hourisatmostaround$25,000ingrosswages.Heaskswhetherthecompanyisaddingin overtime,becauseifso,thefiguresaremisleadingbecausetheemployeesarenotallowedto workovertime.

 Required:

 PrepareanoteexplainingtoMr.GranthowAl-Fabmightcalculateacostperemployeethatis greater thangross wages.Explainingeneraltermsonly.Do notuseanycalculations.

    CHAPTER12

  ACCOUNTINGFORPARTNERSHIPS

   CHAPTERSTUDYOBJECTIVES

  1.Identifythecharacteristicsofthepartnershipformofbusinessorganization.

 2.Explaintheaccountingentriesfortheformationofapartnership.

 3.Identifythebasesfordividingnetincomeornetloss.

 4.Describetheformandcontentofpartnershipfinancialstatements.

 5.Explaintheeffectsoftheentriestorecordtheliquidationofapartnership.

 6.Explaintheeffectsoftheentrieswhenanewpartnerisadmitted.

 7.Describetheeffectsoftheentrieswhenapartnerwithdrawsfromthefirm.

    TRUE-FALSESTATEMENTS

 1.     Thepersonalassets,liabilities,andpersonaltransactionsofpartnersareexcludedfrom theaccountingrecordsofthepartnership.

 2.     Theactofanypartnerisbindingonallotherpartnersiftheactappearstobeappropriate forthepartnership.

 3.     Amajoradvantageofthepartnershipformoforganizationisthatthepartnershave unlimitedliability.

 4.     Partnershipcreditorsmayhaveaclaimonthepersonalassetsofanyofthepartnersifthe partnershipassetsarenotsufficienttosettleclaims.

 5.     Thepartnershipagreementbetweenpartnersmustbeinwriting.

  6.     Ifapartnerinvestsnoncashassetsinapartnership,theyshouldberecordedbythe partnershipattheirfairmarketvalue.

 7.     L.Hillinveststhefollowingassetsinanewpartnership:$15,000incash,andequipment thatcost$30,000buthasabookvalueof$17,000andfairmarketvalueof$20,000.Hill, Capitalwillbecreditedfor$32,000.

 8.     Twoproprietorshipscannotcombineandformapartnership.

  9.     Ifapartner'sinvestmentinapartnershipconsistsofequipmentthathasaccumulated depreciationof$8,000,itwouldnotbeappropriateforthepartnershiptorecordthe accumulateddepreciation.

 10.     Ifapartner'sinvestmentinapartnershipconsistsofAccountsReceivableof$25,000and anAllowanceforDoubtfulAccountsof$7,000,itwouldnotbeappropriateforthe partnershiptorecordthe AllowanceforDoubtfulAccounts.

 11.     Unlessstatedotherwiseinthepartnershipcontract,profitsandlossesaresharedamong thepartnersintheratiooftheircapitalequitybalances.

 12.     Ifsalaryallowancesandinterestoncapitalarestipulatedinthepartnershipprofitandloss sharingagreement,theyareimplementedonlyifincomeissufficienttocovertheamounts requiredbythesefeatures.

 13.     Unlessthepartnershipagreementspecificallyindicatesanincomeratio,partnershipnet incomeorlossisnotallocatedtothepartners.

AccountingforPartnerships         12-5

  14.     Partnershipincomeorlossneednotbeclosedtopartners'capitalaccountseachperiod becauseoftheunlimitedlifecharacteristicofpartnerships.

 15.     Ifapartnershiphasalossfortheperiod,theclosingentrytotransferthelosstothe partnerswillrequireacredittotheIncomeSummaryaccount.

 16.     Thepartners'drawingaccountsareclosedeachperiodintotheIncomeSummary account.

 17.     Salaryallowancestopartnersareamajorexpenseonmostpartnershipincome statements.

 18.     Aninterestallowanceinsharingpartnershipnetincome(ornetloss)isrelatedtothe amountofpartners'investedcapital duringtheperiod.

 19.     Thefinancialstatementsofapartnershiparesimilartothoseofaproprietorship.

  20.     Theincomeearnedbyapartnershipwillalwaysbegreaterthantheincomeearnedbya proprietorshipbecauseinapartnershipthereismorethanoneownercontributingtothe successofthebusiness.

 21.     ThefunctionofthePartners'CapitalStatementistoexplainthechangesinpartners' capitalaccountbalancesduringaperiod.

 22.     Adetailedlistingofalltheassetsinvestedbyapartnerinapartnershipappearsonthe Partners'CapitalStatement.

 23.     Totalpartners'equityofapartnershipisequaltothesumofallpartners'capitalaccount balances.

 24.     Thedistributionofcashtopartnersinapartnershipliquidationisalwaysmadebasedon thepartners'incomesharingratio.

 25.     Theliquidationofapartnershipmeansthatanewpartnerhasbeenadmittedtothe partnership.

 a26.     Theadmissionofanewpartnerresultsinthelegaldissolutionoftheexistingpartnership andthebeginningofanewpartnership.

 a27.     Ifanewpartnerisadmittedintoapartnershipbyinvestment,thetotalassetsandtotal capitalwillchange.

 a28.     Abonustooldpartnersresultswhenthenewpartner'scapitalcreditonthedateof admittanceisgreaterthanhisorherinvestmentinthefirm.

 a29.     Ifanewpartnerinvestsinapartnershipatbookvalueandacquiresa1/4interestintotal partnershipcapital,itindicatesthatabonuswaspaidtotheoriginalpartners.

 a30.     Abonustotheremainingpartnersresultswhenaretiringpartnerreceivespartnership assetswhicharelessthanhisorhercapitalbalanceonthedateofwithdrawal.

  AdditionalTrue-FalseQuestions

  31.     Apartnershipisanassociationofnomorethantwopersonstocarryonasco-ownersofa businessforprofit.

 32.     Onceassetshavebeeninvestedinthepartnership,theyareownedjointlybyallpartners.

  33.     Eachpartner'sinitialinvestmentinapartnershipshouldberecordedatbookvalue.

  34.     Partnershipincomeissharedinproportiontoeachpartner'scapitalequityinterestunless thepartnershipcontractspecificallyindicatesthemannerinwhichnetincomeornetloss istobedivided.

 35.     Inaliquidation,thefinaldistributionofcashtopartnersshouldbeonthebasisoftheir incomeratios.

 a36.     Inanadmissionofapartnerbyinvestmentofassets,thetotalnetassetsandtotalcapital ofthepartnershipdonotchange.

 a37.     Thewithdrawalofapartnerlegallydissolvesthepartnership.

      MULTIPLECHOICEQUESTIONS

  38.     Ahybridformofbusinessorganizationwithcertainfeatureslikeacorporationisa(n) a.limitedliabilitypartnership.

b.limitedliabilitycompany. c."S"corporation.

d.sub-chapter"S"corporation.

  39.     Apartnership

 a.hasonlyoneowner.

 b.paystaxesonpartnershipincome. c.mustfileaninformationtaxreturn.

d.isnotanaccountingentityforfinancialreporting purposes.

  40.     Ageneralpartnerinapartnership

 a.hasunlimitedliabilityforallpartnershipdebts. b.isalwaysthegeneralmanagerofthefirm.

c.isthepartnerwholacksaspecialization.

 d.isliableforpartnershipliabilitiesonlytotheextentofthatpartner'scapitalequity.

AccountingforPartnerships         12-7

  41.     Theindividualassetsinvestedbyapartnerinapartnership a.revertbacktothatpartnerifthepartnershipliquidates.

b.determinethatpartner'sshareofnetincomeorlossfortheyear. c.arejointlyownedbyallpartners.

d.determinethescopeofauthorityofthatpartner.

  42.     Whichoneofthefollowingwouldnotbeconsideredadisadvantageofthepartnership formoforganization?

a.Limitedlife

 b.Unlimitedliability c.Mutualagency

d.Easeofformation

  43.     Thepartnershipformofbusinessis

 a.restrictedtolawandmedicalpractices.

 b.restrictedtofirmshavingfewerthan10partners. c.notrestrictedtoanyparticulartypeofbusiness. d.mostoftenusedinrelativelylargecompanies.

 44.     Whichofthefollowingisnotaprincipalcharacteristicofthepartnershipformofbusiness organization?

a.Mutualagency

 b.Associationofindividuals c.Limitedliability

d.Limitedlife

  45.     Thepartnershipagreementshouldincludeeachofthefollowingexceptthe a.dateofthepartnershipinception.

b.principallocationofthefirm.

 c.survivingfamilymembersintheeventofapartner'sdeath. d.Eachoftheseshouldbeincluded.

 46.     Whichofthefollowingstatementsistrueregardingtheformofalegallybinding partnershipcontract?

a.Thepartnershipcontractmustbeinwriting.

 b.Thepartnershipcontractmaybebasedonahandshake. c.Thepartnershipcontractmaybeimplied.

d.Thepartnershipcontractcannotbe oral.

  47.     Whichofthefollowingstatementsaboutapartnershipiscorrect?

 a.Thepersonalassetsofapartnerareincludedinthepartnershipaccountingrecords. b.Apartnershipisnotrequiredtofileaninformationtaxreturn.

c.Eachpartner'sshareofincomeistaxabletothepartnership.

 d.Apartnershiprepresentsanaccountingentityforfinancialreportingpurposes.

  48.     Inapartnership,mutualagencymeans

 a.eachpartneractsonhisownbehalfwhenengaginginpartnershipbusiness.

 b.theactofanypartnerisbindingonallotherpartners,onlyifpartnersactwithintheir copeofauthority.

c.anactbyapartnerisjudgedasbindingonotherpartnersdependingonwhetherthe actappearstobeappropriateforthepartnership.

d.thatpartnersmustpaytaxesonamutualorcombinedbasis.

12-8        TestBankforAccountingPrinciples,EighthEdition

  49.     Apartnership

 a.isdissolvedonlybythewithdrawalofapartner.

 b.isdissolvedupontheacceptanceofanewpartner. c.dissolutionmeansthebusinessmustliquidate.

d.hasunlimitedlife.

  50.     Thepartnerinalimitedpartnershipthathasunlimitedliabilityisreferredtoasthe a.leadpartner.

b.headpartner.

 c.generalpartner.d.unlimitedpartner.

 51.     Limitedpartnerships

 a.musthaveatleastonegeneralpartner.

 b.guaranteethatapartnerwillreceiveareturn.

 c.guaranteethatapartnerwillgetbackhisoriginalinvestment. d.arelimitedtoonlythreepartners.

 52.     TheMaris-Cranepartnershipisterminatedwhencreditorclaimsexceedpartnership assetsby$40,000.CraneisamillionaireandMarishasnopersonalassets.Maris' partnershipinterestis75%andCrane'sis25%.Creditors

a.mustcollecttheirclaimsequallyfromMarisandCrane. b.maycollecttheentire$40,000fromCrane.

c.mustcollecttheirclaims75%fromMarisand25%fromCrane.

 d.maynotrequireCranetousehispersonalassetstosatisfythe$40,000inclaims.

  53.     Whichofthefollowingstatementsaboutpartnershipsisincorrect? a.Partnershipassetsareco-ownedbypartners.

b.Ifa partnership isterminated,the assets do not legallyrevert totheoriginal contributor.c.Ifthepartnershipagreementdoesnotspecifythemannerinwhichnetincomeistobe

shared,itisdistributedaccordingtocapitalcontributions.

 d.Eachpartnerhasaclaimonassetsequaltothebalanceinthepartner'scapital account.

 54.     Whichofthefollowingisnotanadvantageofthepartnershipformofbusiness? a.Mutualagency

b.Easeofformation

 c.Easeofdecisionmaking

 d.Freedomfromgovernmentalregulationsandrestrictions

  55.     ThelargestcompaniesintheUnitedStatesareprimarilyorganizedas a.limitedpartnerships.

b.partnerships. c.corporations.

d.proprietorships.

  56.     Thebasisfordividingpartnershipnetincomeornetlossisreferredtoasanyofthe followingexceptthe

a.incomeratio.

 b.incomeandlossratio. c.profitandlossratio.d.incomesharingratio.

AccountingforPartnerships         12-9

  57.     Whichofthefollowingstatementsisincorrectregardingpartnershipagreements? a.Itmaybereferredtoasthe“articlesofco-partnership.”

b.Oralagreementsarepreferabletowrittenarticles.

 c.Itshouldspecifythedifferentrelationshipsthataretoexistamongthepartners. d.Itshouldstateproceduresforsubmittingdisputestoarbitration.

 58.     Nortoninvestspersonallyownedequipment,whichoriginallycost$110,000andhas accumulateddepreciationof$30,000intheNortonandKennettpartnership.Bothpartners agreethatthefairmarketvalueoftheequipmentwas$60,000.Theentrymadebythe partnershiptorecordNorton'sinvestmentshouldbe

a.Equipment............................................................................                                                                                            110,000AccumulatedDepreciation—Equipment......................                            30,000 Norton,Capital.............................................................                            80,000

b.Equipment............................................................................            80,000

 Norton,Capital.............................................................                              80,000 c.Equipment............................................................................       60,000

LossonPurchaseofEquipment..........................................              20,000 AccumulatedDepreciation—Equipment...............................         30,000

Norton,Capital.............................................................                            110,000 d.Equipment............................................................................       60,000

Norton,Capital.............................................................                              60,000

  59.     PartnerBisinvestinginapartnershipwithPartnerA.Bcontributesaspartofhisinitial investment,AccountsReceivableof$80,000;anAllowanceforDoubtfulAccountsof $12,000;and$8,000cash.TheentrythatthepartnershipmakestorecordB'sinitial contributionincludesa

a.credittoB,Capitalfor$88,000.

 b.debittoAccountsReceivablefor$68,000. c.credittoB,Capitalfor$76,000.

d.debittoAllowanceforDoubtfulAccountsfor$12,000.

  60.     Whichofthefollowingwouldnotberecordedintheentryfortheformationofa partnership?

a.Accumulateddepreciation

 b.Allowancefordoubtfulaccounts c.Accountsreceivable

d.Allofthesewouldberecorded.

  61.     BobisinvestinginapartnershipwithJerry.Bobcontributesequipmentthatoriginallycost $63,000,hasabookvalueof$30,000,andafairmarketvalueof$39,000.Theentrythat thepartnershipmakestorecordBob'sinitialcontributionincludesa

a.debittoEquipmentfor$33,000. b.debittoEquipmentfor$63,000. c.debittoEquipmentfor$39,000.

d.credittoAccumulatedDepreciationfor$33,000.

  62.     Apartnercontributes,aspartofherinitialinvestment,accountsreceivablewithan allowancefordoubtfulaccounts.Whichofthefollowingreflectsapropertreatment?

12-10TestBankforAccountingPrinciples,EighthEdition

  a.Thebalanceoftheaccountsreceivableaccountshouldberecordedonthebooksof thepartnershipatitsnetrealizablevalue.

b.Theallowanceaccountmaybesetuponthebooksofthepartnershipbecauseit relatestotheexistingaccountsthatarebeingcontributed.

c.Theallowanceaccountshouldnotbecarriedontothebooksofthepartnership.

 d.Theaccountsreceivableandallowanceshouldnotberecordedonthebooksofthe partnershipbecauseapartnermustinvestcashinthebusiness.

 63.     Whichoneofthefollowingwouldnotbeconsideredanexpenseofapartnershipin determiningincomefortheperiod?

a.Expiredinsurance

 b.Salaryallowancetopartners c.Suppliesused

d.Freight-out

  64.     Apartnerinvestsintoapartnershipabuildingwithanoriginalcostof$90,000and accumulateddepreciationof$40,000.Thisbuildinghasa$70,000fairmarketvalue.Asa resultoftheinvestment,thepartner’scapitalaccountwillbecreditedfor

a.$70,000. b.$50,000. c.$90,000. d.$120,000.

 Usethefollowinginformationforquestions65–67.

  JamesandLauraareformingapartnership.Jameswillinvestatruckwithabookvalueof $10,000andafairmarketvalueof$14,000.Laurawillinvestabuildingwithabookvalueof $30,000andafairmarketvalueof$42,000withamortgageof$15,000.

 65.     Atwhatamountshouldthebuildingberecorded? a.$30,000

b.$27,000 c.$42,000 d.$45,000

 66.     WhatamountshouldberecordedinLaura’scapitalaccount? a.$30,000

b.$27,000 c.$42,000 d.$14,000

 67.     WhatamountshouldberecordedinJames’capitalaccount? a.$30,000

b.$27,000 c.$42,000 d.$14,000

 68.     SpeirandPablodecidetoorganizeapartnership.Speirinvests$15,000cash,andPablo contributes$12,000cashandequipmenthavingabookvalueof$6,000.Choosetheentry torecordPablo’sinvestmentinthepartnershipassumingtheequipmenthasafairmarket valueof$9,000.

AccountingforPartnerships       12-11

  a.Cash.....................................................................................             12,000 Equipment...........................................................................         6,000

Pablo,Capital.............................................................                                18,000 b.Equipment...........................................................................         6,000

Pablo,Capital.............................................................                                   6,000 c.Cash.....................................................................................       12,000

Pablo,Capital.............................................................                                12,000 d.Cash.....................................................................................       12,000

Equipment...........................................................................             9,000

 Pablo,Capital.............................................................                                21,000

   Usethefollowinginformationforquestions69–71.

  PartnersAbelandCainhavecapitalbalancesinapartnershipof$40,000and$60,000, respectively.Theyagreetoshareprofitsandlossesasfollows:

Abel           Cain

 Assalaries                                                                          $10,000                 $12,000 Asinterestoncapitalatthebeginningoftheyear                 10%                       10% Remainingprofitsorlosses                                                     50%                       50%

 69.     Ifincomefortheyearwas$50,000,whatwillbethedistributionofincometoCain? a.$23,000

b.$27,000 c.$20,000 d.$10,000

 70.     Ifincomefortheyearwas$30,000,whatwillbethedistributionofincometoAbel? a.$13,000

b.$77,000 c.$10,000 d.$14,000

 71.     Ifnetlossfortheyearwas$2,000,whatwillbethedistributiontoCain? a.$12,000income

b.$1,000income c.$1,000loss

d.$2,000loss

  72.     PartnersJimandJoehaveagreedtoshareprofitsandlossesinan80:20ratio respectively,afterJimisallowedasalaryallowanceof$140,000andJoeisalloweda salaryallowanceof$70,000.Ifthepartnershiphadnetincomeof$140,000for2008, Joe’sshareoftheincomewouldbe

a.$70,000. b.$56,000. c.$84,000. d.$14,000.

12-12TestBankforAccountingPrinciples,EighthEdition

  73.     Themostappropriatebasisfordividingpartnershipnetincomewhenthepartnersdonot plantotakeanactiveroleindailyoperationsis

a.onafixedratio.

 b.interestoncapitalbalancesandsalariestothepartners. c.onaratiobasedaveragecapitalbalances.

d.salariestothepartnersandtheremainderonafixedratio.

  74.     TheSmithandJonespartnershipagreementstipulatesthatprofitsandlosseswillbe sharedequallyaftersalaryallowancesof$160,000forSmithand$80,000forJones.At thebeginningoftheyear,Smith'sCapitalaccounthadabalanceof$320,000,whileJones' Capitalaccounthadabalanceof$280,000.Netincomefortheyearwas$200,000.The balanceofJones'Capitalaccountattheendoftheyearafterclosingis

a.$380,000. b.$80,000.c.$340,000. d.$360,000.

 75.     Apartner'sshareofnetincomeisrecognizedintheaccountsthrough a.adjustingentries.

b.closingentries.

 c.correctingentries. d.accrualentries.

 76.     ThepartnershipofNottandReesereportsnetincomeof$60,000.Thepartnersshare equallyinincomeandlosses.Theentrytorecordthepartners'shareofnetincomewill includea

a.credittoIncomeSummaryfor$60,000. b.credittoNott,Capitalfor$30,000.

c.debittoReese,Capitalfor$30,000.d.credittoReese,Drawingfor$30,000.

 77.     PartnerAreceives$210,000andPartnerBreceives$140,000inasplitof$350,000net income.Whichexpressiondoesnotreflecttheincomesplittingarrangement?

a.3:2

 b.3/5&2/5 c.6:4

d.2:1

  78.     Anincomeratiobasedoncapitalbalancesmightbeappropriatewhen a.serviceisa primaryconsideration.

b.some,butnotall,partnersplantoworkinthebusiness.

 c.fundsinvestedinthepartnershipareconsideredthecriticalfactor. d.littlenetincomeisexpected.

 79.     Ifthepartnershipagreementspecifiessalariestopartners,interestonpartners'capital, andtheremainderonafixedratio,andpartnershipnetincomeisnotsufficienttocover bothsalariesandinterest,

a.onlysalariesareallocatedtothepartners. b.onlyinterestisallocatedtothepartners.

c.theentirenetincomeissharedonafixedratio.

 d.bothsalariesandinterestareallocatedtothepartners.

AccountingforPartnerships       12-13

  80.     Whichofthefollowingwouldnotbeconsideredanexpenseofapartnershipin determiningincomefortheperiod?

a.Expiredinsuranceb.Incometaxexpense c.Rentexpense

d.Utilitiesexpense

  Usethefollowinginformationforquestions81–82.

 ThenetincomeofthePineandMilespartnershipis$180,000.Thepartnershipagreement specifiesthatPineandMileshaveasalaryallowanceof$48,000and$72,000,respectively.The partnershipagreementalsospecifiesaninterestallowanceof10%oncapitalbalancesatthe beginningoftheyear.Eachpartnerhadabeginningcapitalbalanceof$120,000.Anyremaining netincomeornetlossissharedequally.

 81.     WhatisPine'sshareofthe$180,000netincome? a.$48,000

b.$60,000 c.$66,000 d.$78,000

 82.     WhatisthebalanceofMiles'Capitalaccountattheendoftheyearafternetincomehas beendistributed?

a.$204,000 b.$192,000 c.$222,000 d.$210,000

 83.     ThenetincomeoftheTorreyandGorepartnershipis$250,000.Thepartnership agreementspecifiesthatprofitsandlosseswillbesharedequallyaftersalaryallowances of$200,000(Torrey)and$150,000(Gore)havebeenallocated.Atthebeginningofthe year,Torrey'sCapitalaccounthadabalanceof$500,000andGore'sCapitalaccounthad abalanceof$650,000.WhatisthebalanceofGore'sCapitalaccountattheendofthe yearafterprofitsandlosseshavebeendistributed?

a.$650,000 b.$100,000 c.$750,000 d.$775,000

 84.     Apartners'capitalstatementexplains

 a.theamountoflegalliabilityofeachofthepartners.

 b.thetypesofassetsinvestedinthebusinessbyeachpartner.

 c.howthepartnershipwillbecapitalizedifanewpartnerisadmittedtothepartnership.d.thechangesineachpartner'scapitalaccountandintotalpartnershipcapitalduringa

period.

  85.     Eachofthefollowingisusedinpreparingthepartners’capitalstatementexceptthe a.balancesheet.

b.incomestatement.

 c.partners’capitalaccounts.d.partners’drawingaccounts.

12-14TestBankforAccountingPrinciples,EighthEdition

  86.     Theowners'equitystatementforapartnershipiscalledthe a.partners'proportionalstatement.

b.partners'capitalstatement.

 c.statementofshareholders'equity. d.capitalanddrawingstatement.

 87.     Whichofthefollowingwouldnotcauseanincreaseinpartnershipcapital? a.Drawings

b.Netincome

 c.Additionalcapitalinvestmentbythepartners d.Initialcapitalinvestmentbythepartners

 88.     JillGrier'scapitalstatementrevealsthatherdrawingsduringtheyearwere$50,000.She madeanadditionalcapitalinvestmentof$25,000andhershareofthenetlossforthe yearwas$10,000.Herendingcapitalbalancewas$200,000.WhatwasJillGrier's beginningcapitalbalance?

a.$225,000 b.$185,000 c.$235,000 d.$260,000

 89.     BillWrenstartedtheyearwithacapitalbalanceof$180,000.Duringtheyear,hisshareof partnershipnetincomewas$160,000andhewithdrew$30,000fromthepartnershipfor personaluse.Hemadeanadditionalcapitalcontributionof$50,000duringtheyear.The amountofBillWren'scapitalbalancethatwillbereportedontheyear-endbalancesheet willbe

a.$160,000. b.$390,000. c.$300,000. d.$360,000.

 90.     ThePartners'CapitalStatementfortheUnitedCenterreportedthefollowinginformationin total:

Capital,January1..................................................$120,000 Additionalinvestment.............................................        40,000 Drawings................................................................        80,000 Netincome.............................................................     100,000

 Thepartnershiphasthreepartners:Moon,Garr,andRicewithendingcapitalbalancesin aratio40:20:40.Whataretherespectiveendingbalancesof thethreepartners?

a.Moon,$80,000;Garr,$40,000;Rice, $80,000. b.Moon,$72,000:Garr,$36,000;Rice, $72,000.

c.Moon,$136,000;Garr,$68,000;Rice,$136,000. d.Moon,$90,000;Garr,$48,000;Rice, $90,000.

AccountingforPartnerships       12-15

  91.     ThetotalcolumnofthePartners'CapitalStatementforNorth Companyis asfollows:

 Capital,January1................................................. Additionalinvestment............................................ Drawings............................................................... Netincome............................................................

$150,000 60,000 90,000 180,000

 Thepartnershiphasthreepartners.Thefirsttwopartnershaveendingcapitalbalances thatareequal.Theendingbalanceofthethirdpartnerishalfoftheendingbalanceofthe firstpartner. Whatistheendingcapitalbalanceofthethirdpartner?

a.$72,000 b.$48,000 c.$60,000 d.$66,000

 92.     Thepartners'drawingaccountsare

 a.reportedontheincomestatement. b.reportedonthebalancesheet.

c.closedtoIncomeSummary.

 d.closedtothepartners'capitalaccounts.

 93.     TheUniformPartnershipActprovidesthat

 a.apurchaserofapartnershipinterestisnotapartneruntilheorsheisacceptedinto thefirmbythecontinuingpartners.

b.apartnermustobtaintheapprovalofotherpartnersbeforesellinghisorherinterest.c.thepricepaidinapurchaseofpartner'sinterestmustbeequaltothecapitalequity

acquired.

 d.thepricepaidinapurchaseofpartner'sinterestmustbegreaterthanthecapital equityacquired.

 94.     Thebalancesheetofapartnershipwill

 a.reportretainedearningsbelowthepartnershipcapitalaccounts. b.showaseparatecapitalaccountforeachpartner.

c.showaseparatedrawingaccountforeachpartner.

 d.showtheamountofincomethatwasdistributedtoeachpartner.

 95.     Theliquidationofapartnershipmayresultfromeachofthefollowingexceptthe a.bankruptcyofthepartnership.

b.deathofapartner.

 c.retirementofapartner.

 d.saleofthebusinessbythepartners.

 96.     Intheliquidationofapartnership,anygainorlossontherealizationofnoncashassets shouldbeallocated

a.firsttocreditorsandtheremaindertopartners.

 b.tothepartnersonthebasisoftheircapitalbalances.

 c.tothepartnersonthebasisoftheir income-sharingratio. d.onlyafterallcreditorshavebeenpaid.

 97.     Intheliquidationofapartnership,anypartnerwhohasacapitaldeficiency a.hasapersonaldebttothepartnershipfortheamountofthedeficiency. b.isautomaticallyterminatedasapartner.

c.willreceiveacashdistributiononlyonthebasisofhisorherincome-sharingratio. d.isnotobligatedtomakeupthecapitaldeficiency.

12-16TestBankforAccountingPrinciples,EighthEdition

  98.     PartnersA,B,andChavecapitalaccountbalancesof$120,000each.Theincomeand lossratiois5:2:3,respectively.Intheprocessofliquidatingthepartnership,noncash assetswithabookvalueof$100,000aresoldfor$40,000.ThebalanceofPartnerB's Capitalaccountafterthesaleis

a.$90,000. b.$102,000. c.$108,000. d.$132,000.

 Usethefollowinginformationforquestions99–101.

  Thepartners'incomeandlosssharingratiois2:3:5,respectively.

 D,E,ANDFPARTNERSHIP BalanceSheetDecember31,2008

 Assets                                                        LiabilitiesandOwners'Equity

 Cash

 Noncashassets

   Total

$90,000 570,000

   $660,000

Liabilities D,Capital E,Capital F,Capital

Total

$300,000 120,000 180,000

           60,000$660,000

  99.     IftheD,E,andFPartnershipisliquidatedbysellingthenoncashassetsfor$390,000and creditorsarepaidinfull,whatistheamountofcashthatcanbesafelydistributedtoeach partner?

a.D,$72,000;E,$108,000;F,$0.

 b.D,$84,000;E,$126,000;F,$30,000. c.D,$69,000;E,$111,000;F,$0.

d.D,$66,000;E,$114,000;F,$0.

  100.     IftheD,E,andFPartnershipisliquidatedbysellingthenoncashassetsfor$750,000, andcreditorsarepaidinfull,whatisthetotalamountofcashthatPartnerDwillreceivein thedistributionofcashtopartners?

a.$36,000 b.$234,000 c.$156,000 d.$150,000

 101.     IftheD,E,andFPartnershipisliquidatedandthenoncashassetsareworthless,the creditorswilllooktowhatpartner'spersonalassetsforsettlementofthecreditors'claims? a.ThepersonalassetsofPartnerE.

b.ThepersonalassetsofPartnersDandF.

 c.ThepersonalassetsofPartnersD,E,andF.

 d.Thepersonalassetsofthepartnersarenotavailableforpartnershipdebts.

AccountingforPartnerships       12-17

  102.     Ifapartnerhasacapitaldeficiencyanddoesnothavethepersonalresourcestoeliminate it,

a.thecreditorswillhavetoabsorbthecapitaldeficiency.

 b.theotherpartnerswillabsorbthecapitaldeficiencyonthebasisoftheirrespective capitalbalances.

c.theotherpartnerswillhavetoabsorbthecapitaldeficiencyonthebasisoftheir respectiveincomesharingratios.

d.neitherthecreditorsnortheotherpartnerswillhavetoabsorbthecapitaldeficiency.

  103.     Whenapartnershipterminatesbusiness,thesaleofnoncashassetsiscalled a.liquidation.

b.realization. c.recognition. d.disposition.

 104.     Theliquidationofapartnership

 a.cannotbeavoluntaryactofthepartners. b.terminatesthebusiness.

c.eliminatesthosepartnerswithacapitaldeficiency. d.cannotoccurunlessallpartnersapprove.

 105.     Theliquidationofapartnershipisaprocesscontainingthefollowingsteps:

 1.Paypartnershipliabilitiesincash.

 2.Allocatethegainorlossonrealizationtothepartnersontheirincomeratios. 3.Sellnoncashassetsforcashandrecognizeagainorlossonrealization.

4.Distributeremainingcashtopartnersonthebasisoftheirremainingcapitalbalances.

 Identifythepropersequencingofthestepsintheliquidationprocess. a.3,2,4,1.

b.3,2,1,4. c.1,3,2,4. d.1,4,3,2.

 106.     Inthefinalstepoftheliquidationprocess,remainingcashisdistributedtopartners a.onanequalbasis.

b.onthebasisoftheincomeratios.

 c.onthebasisoftheremainingcapitalbalances. d.regardlessofcapitaldeficiencies.

 107.     Intheliquidationprocess,ifacapitalaccountshowsadeficiency

 a.thepartnerwithadeficiencyhasanobligationtothepartnershipfortheamountofthe deficiency.

b.itmaybewrittenofftoa"Loss"account.

 c.itisdisregardeduntilafterthepartnershipbooksareclosed. d.itcanbewrittenofftoa"Gain"account.

 108.     Beforedistributinganyremainingcashtopartnersinapartnershipliquidation,itis necessarytodoeachof thefollowingexcept

a.sellnoncashassetsforcash.

 b.recognizeagainorlossonrealization.

 c.allocatethegainorlosstothepartnersbasedontheircapitalbalances. d.paypartnershipliabilitiesincash.

12-18TestBankforAccountingPrinciples,EighthEdition

  109.     Kate,Sue,andTinaformedapartnershipwithincome-sharingratiosof50%,30%,and 20%,respectively.Cashof$180,000wasavailableafterthepartnership’sassetswere liquidated.Priortothefinaldistributionofcash,Kate’scapitalbalancewas$200,000, Sue’scapitalbalancewas$150,000,andTinahadacapitaldeficiencyof$50,000.Based uponacashpaymentsschedule,Kateshouldreceive

a.$175,000. b.$168,750. c.$131,250. d.$200,000.

 110.     A,BandCarepartners,sharingincome2:1:2.Aftersellingalloftheassetsforcash, dividinggainsandlossesonrealization,andpayingliabilities,thebalancesinthecapital accountsareasfollows:A,$10,000Cr;B,$10,000Cr;andC,$30,000Cr.Howmuch cashshouldbedistributedtoA?

a.$6,000 b.$20,000 c.$10,000 d.$16,667

 111.     Inliquidation,balancespriortothedistributionofcashtothepartnersare:Cash$300,000; Moorman,Capital$140,000;Simpson,Capital$130,000,andKelton,Capital$30,000. Theincomeratiois6:2:2,respectively.Howmuchcashshouldbedistributedto Moorman?

a.$125,000 b.$136,250 c.$140,000 d.$150,000

 112.     Assumethesamefactsinquestion111above,exceptthatthereisonly$255,000incash andKeltonhasacapitaldeficiencyof$15,000.Howmuchcashshouldbedistributedto SimpsonifKeltondoes notpayhisdeficiency?

a.$122,500 b.$126,250 c.$118,750 d.$130,000

 a113.    D.Givenspurchasesa25%interestfor$30,000whentheSuppan,Porter,James partnershiphastotalcapitalof$270,000.PriortotheadmissionofGivens,eachpartner hasacapitalbalanceof$90,000.Eachpartnerrelinquishesanequalamountofhiscapital balancetoGivens.TheamounttoberelinquishedbyJamesis

a.$15,000. b.$19,000. c.$22,500. d.$37,500.

 a114.Bryantisadmittedtoapartnershipwitha25%capitalinterestbyacashinvestmentof $90,000.Iftotalcapitalofthepartnershipis$390,000beforeadmittingBryant,thebonus toBryantis

a.$30,000. b.$15,000. c.$45,000. d.$60,000.

AccountingforPartnerships       12-19

  Usethefollowinginformationforquestions115–116.

  CarleyandKingmanarepartnerswhoshareincomeandlossesintheratioof3:2,respectively. OnAugust31,theircapitalbalanceswere:Carley,$175,000andKingman,$150,000.Onthat date,theyagreetoadmitLernerasapartnerwithaone-thirdcapital interest.

 a115.IfLernerinvests$125,000inthepartnership,whatisCarley'scapitalbalanceafter Lerner'sadmittance?

a.$150,000 b.$158,333 c.$160,000 d.$175,000

 a116.IfLernerinvests$200,000inthepartnership,whatisKingman'scapitalbalanceafter Lerner'sadmittance?

a.$175,000 b.$160,000 c.$157,500 d.$150,000

 a117.KingandNottarepartnerswhoshareprofitsandlossesequallyandhavecapital balancesof$560,000and$490,000,respectively.Starrisadmittedintothepartnership byinvesting$490,000for30%capitalinterest.TheaccountbalanceofNott,Capitalafter theadmissionofStarrwouldbe

a.$462,000. b.$476,000. c.$504,000. d.$490,000.

 a118.StineandWatsonhavepartnershipcapitalbalancesof$320,000and$240,000, respectively.WatsonnegotiatestosellhispartnershipinteresttoLearyfor$280,000. StineagreestoacceptLearyasanewpartner.Thepartnershipentrytorecordthis transactionis

a.Cash.....................................................................................           280,000

 Leary,Capital..............................................................                             280,000 b.Watson,Capital....................................................................     280,000

Leary,Capital..............................................................                             280,000 c.Cash.....................................................................................       40,000

Watson,Capital....................................................................        240,000

 Leary,Capital..............................................................                             280,000 d.Watson,Capital....................................................................     240,000

Leary,Capital..............................................................                             240,000

 a119.HillandEddysharepartnershipprofitsandlossesintheratioof6:4.Hill'sCapitalaccount balanceis$320,000andEddy’sCapitalaccountbalanceis$200,000.Porterisadmittedto thepartnershipbyinvesting$360,000andistoreceiveaone-fourthownershipinterest.Hill, Eddy andPorter's capitalbalancesafter Porter'sinvestment will be

Hill         Eddy       Porter

 a.$320,000            $200,000         $360,000 b.$404,000                              $256,000         $220,000 c.$396,000                              $264,000         $220,000 d.$390,000                              $270,000         $220,000

12-20TestBankforAccountingPrinciples,EighthEdition

 a120.JudyandDebhavepartnershipcapitalaccountbalancesof$600,000and$450,000, respectivelyandshareprofitsandlossesequally.Anneisadmittedtothepartnershipby investing$250,000foraone-fourthownershipinterest.ThebalanceofDeb'sCapital accountafterAnneisadmittedis

a.$412,500. b.$450,000. c.$487,500. d.$325,000.

 a121.Theadmissionofanewpartnertoanexistingpartnership

 a.maybeaccomplishedonlybyinvestingassetsinthepartnership. b.requirespurchasingtheinterestofoneormoreexistingpartners. c.causesalegaldissolutionoftheexistingpartnership.

d.isalmostalwaysaccompaniedbytheliquidationofthebusiness.

 a122.Whenapartnershipinterestispurchased

 a.everypartner’scapitalaccountisaffected.

 b.thetransactionisapersonaltransactionbetweenthepurchaserandtheselling partner(s).

c.thebuyerreceivesequityequaltotheamountofcashpaid. d.allpartnerswillreceivesomepartofthepurchaseprice.

 a123.AdlerandLynneachsell1/3oftheirpartnershipinteresttoSele,receiving$140,000each. Atthetimeoftheadmission,eachpartnerhasa$420,000capitalbalance.Theentryto recordtheadmissionofSelewillshowa

a.debittoCashfor$280,000.

 b.credittoSele,Capitalfor$420,000. c.debittoLynn,Capitalfor$420,000. d.debittoAdler,Capitalfor$140,000.

 a124.BallandGantsell1/4oftheirpartnershipinteresttoIvesreceiving$200,000each.Atthe timeofadmission,BallandGanteachhada$350,000capitalbalance.Theadmissionof Iveswillcausethenetpartnershipassetsto

a.increaseby$400,000. b.remainat$700,000.

c.decreaseby$400,000. d.remainat$1,100,000.

 a125.ColeandGlennselltoNabba1/3interestintheCole-Glennpartnership.Nabbwillpay ColeandGlenneach$70,000foradmissionintotheorganization.Beforethistransaction, ColeandGlennshowcapitalbalancesof$105,000each.Thejournalentrytorecordthe admissionofNabbwill

a.showadebittoCashfor$140,000. b.notshowadebittoCash.

c.showadebittoGlenn,Capitalfor$70,000. d.showacredittoNabb,Capitalfor$140,000.

AccountingforPartnerships       12-21

 a126.Foxxinvests$20,000incash(admissionbyinvestment)intheMassey-Dixpartnershipto acquirea1/4interest.Inthiscase

a.theaccountingwillbethesameasapurchaseofaninterest.

 b.thetotalnet assets of thenewpartnershipareunchanged fromthepreviouspartnership. c.thetotalcapitalofthenewpartnershipisgreaterthanthetotalcapitaloftheold

partnership.

 d.Foxx'sincomeratiowillautomaticallybe1/4.

 a127.Whichofthefollowingiscorrectwhenadmittinganewpartnerintoanexisting partnership?

PurchaseofanInterest                    AdmissionbyInvestment a.Totalnetassets                    unchanged                                       unchanged

b.Totalcapital                        increased                                          unchanged c.Totalnetassets                    unchanged                                        increasedd.Totalcapital                                             unchanged                                        unchanged

 a128.Whenadmittinganewpartnerbyinvestment,abonustooldpartners

 a.isusuallyunjustifiedbecausebookvaluesclearlyreflectpartnershipnetworth.

 b.issometimes justifiedbecause goodwill may exist andit isnot reflected in theaccounts. c.resultsifthedebittocashislessthanthenewpartner'scapitalcredit.

d.resultsifthedebittocashisequaltothenewpartner'scapitalcredit.

 a129.Whenadmittinganewpartnerbyinvestment,abonustooldpartnersisallocatedon a.thebasisofcapitalbalances.

b.thebasisoftheoriginalinvestmentoftheoldpartners.

 c.thebasisofincomeratiosbeforetheadmissionofthenewpartner. d.asenioritybasis.

 a130.Abonustoanewpartner a.isprohibitedbyGAAP.

b.resultswhenthenewpartner'scapitalcreditislessthanhisorherinvestmentof assetsinthefirm.

c.mayoccurwhenrecordedbookvaluesarelowerthanmarketvalues.

 d.resultswhenthenewpartner'scapitalcreditisgreaterthanhisorherinvestmentof assetsinthefirm.

 a131.Abonustoanewpartnerwill

 a.increasethecapitalbalancesofexistingpartnersbasedontheirincomeratiosbefore theadmissionofthenewpartner.

b.increasethecapitalbalancesofexistingpartnersbasedontheirincomeratiosafter theadmissionofthenewpartner.

c.decreasethecapitalbalancesofexistingpartnersbasedontheirincomeratiosbefore theadmissionofthenewpartner.

d.decreasethecapitalbalancesofexistingpartnersbasedontheircapitalbalances beforetheadmissionofthenewpartner.

 a132.Jane,Ken,andMarkhavepartnershipcapitalaccountbalancesof$225,000,$450,000 and$105,000,respectively.TheincomesharingratioisJane,50%;Ken,40%;andMark, 10%.Janedesirestowithdrawfromthepartnershipanditisagreedthatpartnership assetsof$195,000willbeusedtopayJaneforherpartnershipinterest.Thebalancesof Ken'sandMark'sCapitalaccountsafterJane'swithdrawalwouldbe

12-22TestBankforAccountingPrinciples,EighthEdition

  a.Ken,$450,000;Mark,$105,000. b.Ken,$474,000;Mark,$111,000. c.Ken,$426,000;Mark,$99,000. d.Ken,$435,000;Mark,$90,000.

 a133.Ace,Bell,andColehavepartnershipcapitalaccountbalancesof$400,000each.Income andlossesaresharedequally.Coleagreestosellthree-fourthsofhisownershipinterest toAcefor$350,000andone-fourthtoBellfor$125,000.AceandBellwillusepersonal assetstopurchaseCole'sinterest.Thepartnership'sentrytorecordCole'swithdrawal fromthepartnershipwouldbe

a.Cole,Capital.......................................................................             475,000

 Cash..........................................................................                               475,000 b.Cole,Capital.......................................................................     475,000

Ace,Capital...............................................................                               350,000 Bell,Capital................................................................                              125,000

c.Cole,Capital.......................................................................             400,000

 Ace,Capital...............................................................                               300,000 Bell,Capital................................................................                              100,000

d.Ace,Capital........................................................................             356,250 Bell,Capital.........................................................................         118,750

Cole,Capital.............................................................                                475,000

 a134.Whenapartnerwithdrawsfromthefirm,whichofthefollowingreflectsthecorrect partnershipeffects?

Paymentfrom                         Paymentfrom Partners'PersonalAssetsPartnershipAssets

a.Totalnetassets                       decreased                                decreased b.Totalcapital                           decreased                                decreased c.Totalnetassets                       unchanged                               decreased d.Totalcapital                          unchanged                               unchanged

 a135.Whichofthefollowingisnotanecessaryactionthatthepartnershipmusttakeuponthe deathofapartner?

a.Determinethenetincomeornetlossfortheyeartodate. b.Discontinuebusinessoperations.

c.Closethebooks.

 d.Preparefinancialstatements.

  Usethefollowinginformationforquestions136–138.

  OnNovember30,capitalbalancesareGray$90,000,Carr$75,000andMelton$75,000.The incomeratiosare20%,20%and60%,respectively.Graydecidestoretirefromthepartnership.

 a136.ThepartnershippaysGray$105,000cashforherpartnershipinterest.AfterGray's retirement,whatisthebalanceof Carr'scapitalaccount?

a.$71,250 b.$72,000 c.$75,000 d.$97,500

AccountingforPartnerships       12-23

 a137.ThepartnershippaysGray$75,000cashforherpartnershipinterest.AfterGray's retirement,whatisthebalanceofMelton'scapitalaccount?

a.$66,000 b.$75,000 c.$84,000 d.$86,250

 a138.InorderforCarrandMeltontohaveequalcapitalinterestsaftertheretirementofGray, howmuchpartnershipcashwouldhavetobepaidtoGrayforherpartnershipinterest?

a.$0

 b.$80,000 c.$90,000

d.AnyamountpaidtoGraywillcauseCarrandMeltontostillhaveequalcapital balances.

 AdditionalMultipleChoiceQuestions

  139.     Allofthefollowingarecharacteristicsofpartnershipsexcept a.co-ownershipofproperty.

b.mutualagency. c.unlimitedlife.

d.association ofindividuals.

  140.     TheButkus,Sayers,andHalaspartnershipisterminatedwhentheclaimsofcompany creditorsexceedpartnershipassetsby$50,000.ThecapitalbalancesforButkus,Sayers, andHalasare$35,000,$5,000,and$0,respectively.Theoriginalclaimsofthecreditors werenegotiatedbySayersandHalas.Whichpartner(s)is(are)personallyandindividually liableforallpartnershipliabilities?

a.Butkus b.Sayers

c.SayersandHalas

 d.Butkus,Sayers,andHalas

  141.     Whenapartnerinvestsnoncashassetsinapartnership,theassetsshouldberecordedat their

a.bookvalue.

 b.carryingvalue.

 c.fairmarketvalue. d.originalcost.

 142.     ThepartnershipagreementofRossiandPetryprovidesforsalaryallowancesof$45,000 toRossiand$35,000toPetry,withtheremainingincomeorlosstobedividedequally. Duringtheyear,RossiandPetryeachwithdrawcashequalto80%oftheirsalary allowances.Ifpartnershipnetincomeis$100,000,Rossi'sequityinthepartnershipwould a.increasemorethanPetry’s.

b.decreasemorethanPetry's.c.increasethesameasPetry's. d.decreasethesameasPetry's.

12-24TestBankforAccountingPrinciples,EighthEdition

  143.     Whichofthefollowingstatementsiscorrect?

 a.Salariestopartnersandinterestonpartners'capitalareexpensesofthepartnership.b.Salariestopartnersareexpensesofthepartnershipbutnotinterestonpartners'

capital.

 c.Interestonpartners'capitalisanexpenseofthepartnershipbutnotsalariesto partners.

d.Neithersalariestopartnersnorinterestonpartners'capitalareexpensesofthe partnership.

 144.     Intheliquidationofapartnership,thegainsandlossesfromassetssoldare a.dividedequallyamongthepartners.

b.dividedamongthepartnersinthestatedincomeratio.

 c.dividedamongthepartnersinproportiontotheircapitalequityinterests. d.ignored.

 145.     Ifapartnerwithacapitaldeficiencyisunabletopaytheamountowedtothepartnership, thedeficiencyisallocatedtothepartnerswithcreditbalances

a.equally.

 b.onthebasisoftheirincomeratios.

 c.onthebasisoftheircapitalbalances.

 d.onthebasisoftheiroriginalinvestments.

  146.     Anentryisnotrequiredintheliquidationofapartnershiptorecordthe a.paymentofcashtocreditors.

b.distributionofcashtothepartners. c.saleofnoncashassets.

d.allocationofacapitaldeficiencytopartnerswithcreditbalanceswhenthedeficient partnerisexpectedtopaythedeficiency.

 147.     Thefirststepintheliquidationofapartnershipisto

 a.allocateagainorlossonrealizationtothepartners. b.distributeremainingcashtothepartners.

c.paypartnershipliabilities.

 d.sellnoncash assetsandrecognizeagainorlossonrealization.

  148.     BakerjoinsthepartnershipofKubekandMusialbypaying$30,000incash.Ifthenet assetsofthepartnershiparestillthesameamountafterBakerhasbeenadmittedasa partner,thenBaker

a.musthavebeenadmittedbyinvestmentofassets.

 b.musthavebeenadmittedbypurchaseofapartner'sinterest. c.musthavereceivedabonusuponbeingadmitted.

d.couldhavebeenadmittedbyaninvestmentofassetsorbyapurchaseofapartner's interest.

  149.     Loweisadmittedtoapartnershipwitha25%capitalinterestbyacashinvestmentof $120,000.Iftotalcapitalofthepartnershipis$520,000beforeadmittingLowe,thebonus toLoweis

a.$40,000. b.$20,000. c.$60,000. d.$80,000.

       BRIEFEXERCISES

BE150

BrandyandJohnsondecidetoorganizeapartnership.Brandyinvests$25,000cash,and Johnsoncontributes$5,000andequipmenthavingabookvalueof$3,500andafairmarket valueof$10,000.

 Instructions

 Preparetheentrytorecordeachpartner’sinvestment.

    BE151

 TontoCompanyandRangerCompanydecidetomergetheirproprietorshipsintoapartnership calledWestwardHoCompany.ThebalancesheetofRangerCompanyshows:

 AccountsReceivable

 Less:Allowancefordoubtfulaccounts

  Equipment

Less:Accumulateddepreciation

$15,000

     1,500

  $20,000

10,000

 $13,500

   $10,000

  Thepartnersagreethatthenetrealizablevalueofthereceivablesis$12,500andthatthefair marketvalueoftheequipmentis$15,000.

 Instructions

 Indicatehowthefouraccountsshouldappearintheopeningbalancesheetofthepartnership.

    BE152

 TheJill&FrillCo.reportsnetincomeof$28,000.InterestallowancesareJill$3,000andFrill $5,000;partnersalaryallowancesareJill$18,000andFrill$10,000andtheremainderisshared equally.

   Instructions

 Indicatethedivisionofnetincometoeachpartner,andpreparetheentrytodistributethenet income.

    BE153

 DebaugeCo.hadbeginningcapitalbalancesonJanuary1,2008,asfollows:NickFoley$30,000 andTomWenger$25,000.Duringtheyear,drawingswereFoley$15,000andWenger$8,000. Netincomewas$50,000,andthepartnersshareincomeequally.

 Instructions

 Preparethepartners’capitalstatementfortheyear.

    BE154

 Afterliquidatingnoncashassetsandpayingcreditors,accountbalancesintheMainCo.areCash $29,000,ACapital(Cr.)$11,000,BCapital(Cr,)$8,000andCCapital(Cr.)$10,000.The partnersshareincomeequally.

 Instructions

 Journalizethefinaldistributionofcashtothepartners.

    BE155

 BarnesCompanyatDecember31hascash$40,000,noncashassets$200,000,liabilities $110,000,andthefollowingcapitalbalances:Carpenter$90,000andPendleton$40,000.The firmisliquidated,and$240,000incashisreceivedforthenoncashassets.Carpenterand Pendletonincomeratiosare60%and40%,respectively.

 Instructions

 Prepareacashdistributionschedule.

    BE156

 InNelsonCo.,capitalbalancesareOzzie$60,000andHarriet$75,000.Thepartnersshare incomeequally.Dennyisadmittedtothefirmwitha40%interestbyaninvestmentofcashof $65,000.JournalizetheadmissionofDenny.

  BE157

 BobandKathyarepartnerswhoshareprofits60%and40%.Theircapitalbalanceswereboth $90,000beforeBettywasadmittedtothepartnership.Bettycontributed$120,000incashtothe partnershipfora30%interest.

 Instructions

 ComputethecapitalbalancesofBobandKathyafterBettyisadmittedtothepartnership.

AccountingforPartnerships       12-29

 BE158

 CapitalbalancesinJetsonCo.areGeorge$50,000,Jane$38,000,andFrank$25,000.The partnersshareincomeequally.Frankreceives$35,000frompartnershipassetsinwithdrawing fromthefirm.

 Instructions

 JournalizethewithdrawalofFrank.

   BE159

 Mike,Andy,andJoearepartnerswhoshareprofits40%,20%,and40%.Theircapitalbalances were$630,000,$420,000,and$210,000,respectively,beforeJoe’sretirement.Joewaspaid $270,000frompartnershipassetstobuyhisinterest.

 Instructions

 ComputethecapitalbalancesofMikeandAndyafterJoehaswithdrawn.

   EXERCISES

Ex.160

DickAcerandGeorgeDooleydecidetoformapartnership.Acerinvests$25,000cashand accountsreceivableof$30,000lessallowancefordoubtfulaccountsof$2,000.Dooley contributes$20,000cashandequipmenthavinga$6,000bookvalue.Itisagreedthatthe allowanceaccountshouldbe$3,000andthefairmarketvalueoftheequipmentis$10,000.

 Instructions

 Preparethenecessaryjournalentrytorecordtheformationofthepartnership.

    Ex.161

 KenLottandJimStineoperateseparateautorepairshops.OnJanuary1,2008,theydecideto combinetheirseparatebusinesseswhichwereoperatedasproprietorshipstoformL&SAuto Repair,apartnership.Informationfromtheirseparatebalancesheetsispresentedbelow:

  Cash

Accountsreceivable

Allowancefordoubtfulaccounts Accountspayable

Notespayable Salariespayable Equipment

Accumulatedamortization—Equipment

LottAutoRepair $10,000

9,000 1,000 5,000

— 1,000

12,000 2,000

StineAutoRepair $12,000

10,000 500 6,000 3,000 1,500 24,000 4,000

  ItisagreedthattheexpectedrealizablevalueofLott'saccountsreceivableis$8,000andStine's receivablesis$7,000.ThefairmarketvalueofLott'sequipmentis$13,000andthevalueof Stine'sequipmentis$20,000.Itisfurtheragreedthatthenewpartnershipwillassumeall liabilitiesoftheproprietorshipswiththeexceptionofthenotespayableonStine'sbalancesheet whichhewillpayhimself.

 Instructions

 Preparethejournalentriesnecessarytorecordtheformationofthepartnership.

AccountingforPartnerships       12-31

   Ex.162

 TheSmithandWilsonpartnershipreportsnetincomeof$45,000.Partnersalaryallowancesare Smith$18,000andWilson$12,000.Anyremainingincomeisshared60:40.

 Instructions

 Determinetheamountofnetincomeallocatedtoeachpartner.

    Ex.163

 Bass,Ellis,andGorenformedapartnershiponJanuary1,2008.Bassinvested$60,000,Ellis $60,000andGoren$140,000.Basswillmanagethestoreandwork40hoursperweekinthe store.Elliswillwork20hoursperweekinthestore,andGorenwillnotwork.Eachpartner withdrew30percentofhisincomedistributionduring2008.Iftherewasnoincomedistributionto apartner,therewerenowithdrawalsofcash.

 Instructions

 Computethepartners'capitalbalancesattheendof2008underthefollowingindependent conditions:(Hint:useTaccountstodetermineeachpartner'scapitalbalances.)

  Ex.163         (cont.)

 (1)    Netincomeis$120,000 andtheincomeratioisBass40%,Ellis35%,andGoren25%.

 (2)    Netincomeis$140,000andthepartnershipagreementonlyspecifiesasalaryof$50,000to Bassand$30,000toEllis.

(3)    Netincomeis$86,000andthepartnershipagreementprovidesfor(a)asalaryof$40,000to Bassand$40,000toEllis,(b)interestonbeginningcapitalbalancesattherateof10%,and (c)anyremainingincomeorlossistobesharedbyBass40%,Ellis35%,andGoren25%.

    Ex.164

 CarlinandLarvehaveapartnershipagreementwhichincludesthefollowingprovisionsregarding sharingnetincomeornetloss:

 1.Asalaryallowanceof$54,000toCarlinand$36,000toLarve.

 2.Aninterestallowanceof10%oncapitalbalancesatthebeginningoftheyear. 3.Theremaindertobedivided60%toCarlinand40%toLarve.

 ThecapitalbalanceonJanuary1,2008,forCarlinandLarvewas$90,000and$120,000, respectively.During2008,theCarlinandLarvePartnershiphadsalesof$495,000,costofgoods soldof$290,000,andoperatingexpensesof$75,000.

 Instructions

 PrepareanincomestatementfortheCarlinandLarvePartnershipfortheyearendedDecember 31,2008.Asapartoftheincomestatement,includeaDivisionofNetIncometoeachofthe partners.

   Ex.165

 Hope&CrosbyCo.reportsnetincomeof$34,000.Thepartnershipagreementprovidesfor annualsalariesof$24,000forHopeand$15,000forCrosbyandinterestallowancesof$4,000to Hopeand$6,000toCrosby.Anyremainingincomeorlossistobeshared70%byHopeand 30%byCrosby.

 Instructions

 Computetheamountofnetincomedistributedtoeachpartner.

   Ex.166

 TheadjustedtrialbalanceoftheKarrisandWattsPartnershipfortheyearendedDecember31, 2008,appearsbelow:

KARRISANDWATTSPARTNERSHIP AdjustedTrialBalance

FortheYearEndedDecember31,2008

  CurrentAssets....................................................................................... PlantAssets.......................................................................................... CurrentLiabilities................................................................................... Long-termDebt..................................................................................... Karris,Capital........................................................................................ Karris,Drawing...................................................................................... Watts,Capital........................................................................................ Watts,Drawing...................................................................................... Sales..................................................................................................... CostofGoodsSold............................................................................... OperatingExpenses..............................................................................

Debit

 19,000 80,000

    4,000

  7,000

  62,000

23,000195,000

Credit

   7,000 50,000 20,000

 18,000

  100,000

   195,000

  Thepartnershipagreementstipulatesthatadivisionofpartnershipnetincomeornetlossistobe madeasfollows:

1.Asalaryallowanceof$12,000toKarrisand$23,000toWatts. 2.Theremainderistobedividedequally.

 Instructions

 (a)    Prepareaschedulewhichshowsthedivisionofnetincometoeachpartner.

 (b)    Preparetheclosingentriesforthedivisionofnetincomeandforthedrawingaccountsat December31,2008.

    Ex.167

 KimCareyandMaryHallhaveformedtheCHPartnership,andhavecapitalbalancesof $130,000and$100,000,respectively,onJanuary1,2008.OnJune1,2008,Hallinvestedan additional$30,000.Alsoduringtheyear,Careywithdrew$60,000andHallwithdrew$48,000. Salesfortheyearamountedto$360,000andexpenseswere$260,000.CareyandHallshare incomeandlossesona3:1basis.

 Instructions

 (a)     PreparetheclosingentriesatDecember31,2008,fortheCHPartnership. (b)         Prepareapartners'capitalstatementfor2008.

   Ex.168

 Prepareapartners'capitalstatementforCrestwoodCompanybasedonthefollowinginformation.

 Crest      Wood

 Beginningcapital                    $30,000           $27,000 Drawingsduringyear              15,000               8,000

 Netincomewas$35,000,andthepartnersshareincome60%toCrestand40%toWood.

    Ex.169

 OnDecember31,ThompsonCompanyhascash$30,000,noncashassets$150,000,and liabilities$80,000.CapitalbalanceswereTerry$55,000andNott$45,000.Thefirmisliquidated, andthenoncashassetsaresoldfor$125,000.TerryandNottshareincomeina60:40ratio.

 Instructions

 Prepareentriestorecord(a)thesaleofnoncashassetsand(b)theallocationofthegain(loss) onliquidationtothepartners.

AccountingforPartnerships       12-37

   Ex.170

 TheABCPartnershipistobeliquidatedandyouhavebeenhiredtoprepareaScheduleofCash Paymentsforthepartnership.PartnersA,B,andCshareincomeandlossesintheratioof4:3:3, respectively.Assumethefollowing:

 1.Thenoncashassetsweresoldfor$75,000. 2.Liabilitieswerepaidinfull.

3.Theremainingcashwasdistributedtothepartners.(Ifanypartnerhasacapital deficiency,assumethatthepartnerisunabletomakeupthecapitaldeficiency.)

 Instructions

 Usingtheaboveinformation,completetheScheduleofCashPaymentsbelow:

  ABCPARTNERSHIP ScheduleofCashPayments

  Item                       Cash+ Balancesbefore

liquidation         25,000+

Noncash

 Assets=

  150,000=

 Liabilities+

  50,000      +

A Capital+

 25,000+

B Capital+

 35,000+

C Capital

 65,000

    Ex.171

 TheODSPartnershipistobeliquidatedwhentheledgershowsthefollowing:

 Cash

NoncashAssets Liabilities

Oslo,Capital Decker,Capital Silas,Capital

$50,000 200,000 50,000 75,000 100,000 25,000

  Oslo,Decker,andSilas'incomeratiosare6:3:1,respectively.

  Instructions

 Prepareseparateentriestorecordtheliquidationofthepartnershipassumingthatthenoncash assetsare soldfor$150,000incash.

   Ex.172

 Priortothedistributionofcashtothepartners,theaccountsofABCCompanyare:Cash $30,000,AltCapital(Dr.)$10,000,BellCapital(Cr.)$25,000,andColeCapital(Cr.)$15,000. Theyshareincomeona5:3:2basis.

 Instructions

 Prepareentriestorecord(a)theabsorptionofAlt'scapitaldeficiencybytheotherpartnersand (b)thedistributionofcashtothepartnerswithcreditbalances.

AccountingforPartnerships       12-39

   Ex.173

 TheGFPartnershipisliquidatedwhentheledgershows:

 Cash

NoncashAssets Liabilities

Grant,Capital Fleming,Capital

$60,000 90,000 44,000 100,000 6,000

  GrantandFleming'sincomeratiosare3:2,respectively.

  Instructions

 Prepareascheduleofcashpayments,assumingthatthenoncashassetsweresoldfor$70,000. Assumethatanypartner’scapitaldeficienciescannotbepaidtothepartnership.

    Ex.174

 TheHowellandParksPartnershiphaspartnercapitalaccountbalancesasfollows:

 Howell,Capital Parks,Capital

$550,000 250,000

  Thepartnersshareincomeandlossesintheratioof60%toHowelland40%toParks.

  Instructions

 PreparethejournalentryonthebooksofthepartnershiptorecordtheadmissionofTylerasa newpartnerunderthefollowingthreeindependentcircumstances.

 1.Tylerpays$350,000toHowelland$150,000toParksforone-halfofeachoftheirownership interestinapersonaltransaction.

 2.Tylerinvests$850,000inthepartnershipforaone-thirdinterestinpartnershipcapital. 3.Tylerinvests$175,000inthepartnershipforaone-thirdinterestinpartnershipcapital.

    Ex.175

 Key,Riser,andStoneshareincomeona6:3:1basis.Theyhavecapitalbalancesof$80,000, $60,000,and$45,000,respectively,whenHortonisadmittedtothepartnership.

 Instructions

 PreparethejournalentrytorecordtheadmissionofHortonintothepartnershipifHorton purchasesone-halfofKey'sequityfor$45,000;one-halfofRiser'sequityfor$22,000;andone-thirdofStone'sequityfor$18,000.

   Ex.176

 TomRosenandJoeFinneysharepartnershipincomeona3:2basis.Theyhavecapitalbalances of$560,000and$280,000,respectively,whenEdVannisadmittedtothepartnership.

 Instructions

 PreparethejournalentrytorecordtheadmissionofVannundereachofthefollowing assumptions:

 (a)Vanninvests$340,000fora25%ownershipinterest. (b)Vanninvests$200,000fora25%ownershipinterest.

(c)Vanninvestsanamountthatgiveshima25%ownershipinterest.

 Ex.177

 CindyMillsandAmyPetershavecapitalaccountsof$480,000and$420,000,respectively.Bill DennyandMarkMorganaretojointhepartnership.Dennyinvests$450,000inthepartnership forwhichhereceivesacapitalcreditof$450,000.Morganpurchasesaone-halfinterestfrom Millsfor$300,000andaone-fourthinterestfromPetersfor$90,000.

 Instructions

 (a)    PreparethejournalentriestorecordtheadmissionofDennyandMorgantothepartnership.

 (b)    DeterminethecapitalbalancesofthepartnersaftertheadmissionofDennyandMorgan.

AccountingforPartnerships       12-43

 Ex.178

 Adel,Gaines,andYockeyshareincomeandlossesinaratioof3:2:5,respectively.Thecapital accountbalancesofthepartnersareasfollows:

 Adel,Capital Gaines,Capital Yockey,Capital

$600,000 360,000 240,000

  Instructions

 PreparethejournalentryonthebooksofthepartnershiptorecordthewithdrawalofYockey underthefollowingindependentcircumstances:

 1.ThepartnersagreethatYockeyshouldbepaid$280,000bythepartnershipforhisinterest. 2.ThepartnersagreethatYockeyshouldbepaid$180,000bythepartnershipforhisinterest.

3.AdelagreestopayYockey$180,000forone-halfofhiscapitalinterestandGainesagreesto payYockey$180,000forone-halfofhiscapitalinterestinapersonaltransactionamongthe partners.

   Ex.179

 Dixon,Larsen,andPolleyhavecapitalbalancesof$150,000,$100,000,and$75,000, respectively,andtheirincomeratiosare4:2:4.

 Instructions

 RecordthewithdrawalofPolleyfromthepartnershipundereachofthefollowingassumptions: 1.Polleyispaid$75,000frompartnershipassets.

2.Polleyispaid$90,000frompartnershipassets. 3.Polleyispaid$55,000frompartnershipassets.

   COMPLETIONSTATEMENTS

  180.The______________Actprovidesthebasicrulesfortheformationandoperationof partnershipsinmorethan90%ofthestates.

 181.Apartnershipcharacteristicwhichenableseachpartnertoactonbehalfofthepartnership whenengaginginpartnershipbusinessiscalled______________.

 182.Amajordisadvantageofthepartnershipformoforganizationis______________,which makeseach partnerpersonallyandindividuallyliableforallpartnershipliabilities.

 183.Thecapitalaccountsindicateeachpartner's______________investment,whilethe partner'sdrawingaccountsare______________owner'sequityaccounts.

 184.The______________ratiospecifiesthebasisforsharingincomeandlosses.

 185.Anincomeratiobasedon______________balancesmaybeappropriatewhenthe amountoffundsinvestedinthepartnershipiscriticaltothepartnership.

 186.A______________allowanceor______________onpartners'capitalaccountsarenot expensesofthepartnershipwhentheyarespecifiedasthebasisforsharingincomeand losses.

 187.Inliquidatingapartnership,itisnecessarytoconvert______________intocashandto allocateany______________or______________tothepartnersbasedontheirincome ratios.

 188.Adebitbalanceinapartner'scapitalaccountiscalleda_____________.

 a189.Anewpartnermaybeadmittedtothepartnershipby______________theinterestofan existingpartner,orby______________assetsinthepartnership.

 a190.Whenanewpartner'scapitalinterestonthedateofadmittanceislessthanhisorher investmentinthefirm,a______________resultsforthe______________partner(s).

 a191.Ifabonusisgiventoanewpartner,theoldpartners'capitalaccountsaredecreased basedontheir______________ratiopriortotheadmissionofthenewpartner.

     MATCHING

  192.Matchtheitemsbelowbyenteringtheappropriatecodeletterinthespaceprovided.

  A.    MutualagencyB.  Unlimitedliability

C.Partnershipagreement D.Incomeratio

E.    Partners'capitalstatement F.         Admissionbyinvestment

G.     Purchaseofaninterest H. Partnershipliquidation

I.    Capitaldeficiency

J.     Distributionofcashtopartnersin liquidationofapartnership.

  ____    1.Eachpartnerispersonallyandindividuallyliableforpartnershipdebts.

 ____    2.Madeonbasisofpartners'capitalbalances.

 ____    3.Explainschangesinindividualpartner'scapitalaccountsduringaperiod.

 ____    4.Eachpartnercanbindthepartnershipsolongastheactionappearstobeappropriate forthepartnership.

 ____    5.Businessterminates.

 ____a6.Resultsinanincreaseintotalnetassetsandtotalcapitalofthepartnership.

 ____    7.Capitalaccountwithadebitbalance.

 ____    8.Thebasisforsharingincomeandlosses.

 ____a9.Totalnetassetsandtotalcapitalofthepartnershipdonotchange.

 ____10.Writtenorverbalcontractestablishingdutiesandresponsibilitiesofpartners.

      SHORT-ANSWERESSAYQUESTIONS

S-AE193

Identifyandexplaintheprincipal characteristicsofthepartnershipformofbusinessorganization.

    S-AE194

 Apartnershipisliquidatedbysellingthenon-cashassets,payingthecreditorsinfull,and distributingtheremainingassetstothepartners.Explainwhygainsandlossesontherealization ofnon-cashassetsaredistributedtothepartnersbasedontheirincomeratios,whereascashis distributedtothepartnersbasedontheirequityasshownintheircapitalaccounts.Whateffects doesthepaymentornonpaymentofacapitaldeficiencyhaveonthedistributionofcashtothe partners?

    S-AE195(Ethics)

 Threedoctors,FrankWhite,MarkRosen,andSteveJenner,openedafamilymedicineclinic.All threedoctorshadbeenlifelongfriends.Allbelongedtothesamereligiousfaith.Allwerevery activeinchurchaffairs,andtriedtomoldtheirprofessionalbehaviortotheirreligiousbeliefs.

 Aboutayearago,Dr.Whiteannouncedthathewasleavingthechurch.Theothersnoticedthat hispersonalityalsobegantochange.Hebegantodressinflamboyantstyles,andhestarted wearingexpensive-lookingjewelry.Histemperbecameunstable—oneminutehewascalm,and thenext,hemightbethrowingchartsdownthehallandscreaming.Hestartedcomingtothe officelate,andforgettingtoseesomeofhispatientsbeforeheleftagain.Theothertwoatfirst werestunnedatthechanges.Hiswifeaskedthemwhethertheythoughthemighthaveadrinking problem.Afterfinallydecidingtoinvestigate,theyfoundwhatlookedtothemlikealargeamount ofcocaine,(hundredsofplasticsacksofwhitepowder)tuckedawayinboxesofoldmedical equipment.

 Frightened,Drs.RosenandJennerdecidedtoactquickly.Theirpartnershipagreementsaid nothingaboutdissolvingthepartnership—onlyaboutwhattodoifoneofthemdied.They thereforesecretlyrentedofficespaceacrosstownandbegantomovethemostnecessary equipmentandsuppliestothenewoffice.Amonthlater,theychangedthelocksontheoldoffice andbeganseeingpatientsinthenewofficewithoutanynoticetoDr.Whiteatall.Dr.White simplycameinataroundteno'clockasusual,andfoundhimselflockedoutofanemptyoffice.

 Required:

 DidDrs.RosenandJenneractethicallyintheirendingofthepartnership?Explain.

    S-AE196(Communication)

 MattJonesandJerryWatsonbegandetailworkonautomobilesasahobby.First,theyuseda mail-orderkittoadd"pinstriping"totheirowncars,a1968Mustanganda1970GTOJudge, respectively.ThenMattaddedmoreflourishes,includinghisname.Jerrypracticedpainting flamesonhisJudge.Gradually,theircarsbecamerecognizedaroundtownandothersbeganto askthemtoaddaflourishhereortheretotheircars.Theyweretalkedintoattendinga"muscle car"showinanearbylargecitytoshowofftheircars.Theyhadmorerequestsforworkthanthey couldhandle.Now,theyareconsideringquittingtheirotherjobsandmakingthisapermanent business.Jerry,forexample,turnsdownmorejobsthanheacceptsandstillgetsmorerequests everyweek.

  S-AE196(cont.)

 MattandJerryareunsurehowtoproceed.Theyliketheideaofapartnership,buttheyonlyknow theyworkwelltogether—thingslikehowtosplitpaymenthavejustbeensettledindividuallyfor eachjob,dependingonwhichonedidmorework.Matt'sfathersuggestsawrittenpartnership agreement.Mattdisagrees.Hebelievesthatitwillspoilthewholearrangementbyreducingitto words.

 Required:

 WriteabriefnotetoMattexplainingwhyheneedsapartnershipagreement.

      CHAPTER13

  CORPORATIONS:ORGANIZATIONANDCAPITALSTOCKTRANSACTIONS

     CHAPTERSTUDYOBJECTIVES

  1.Identifythemajorcharacteristicsofacorporation.

 2.Differentiatebetweenpaid-incapitalandretainedearnings.

 3.Recordtheissuanceofcommonstock.

 4.Explaintheaccountingfortreasurystock.

 5.Differentiatepreferredstockfromcommonstock.

 6.Prepareastockholders'equitysection.

 7.Computebookvaluepershare.

   TRUE-FALSESTATEMENTS

  1.     A corporationisnotanentitywhichis separateand distinctfrom itsowners.

 2.     A corporationcanbeorganizedforthepurposeof makingaprofitor it maybenonprofit.

 3.     A corporationactsunderits ownname ratherthaninthename of its stockholders.

 4.     Ifacorporationpaystaxesonitsincome,thenstockholderswillnothavetopaytaxeson thedividendsreceivedfrom thatcorporation.

 5.     A corporationmust be incorporatedineachstateinwhichitdoesbusiness.

 6.     A stockholderhastherightto voteintheelectionof theboard ofdirectors.

 7.     Aproxyisalegaldocumentthatinstructsastockholder’sagenthowtovotesharesof stock for thestockholder.

 8.     Assoon as acorporationisauthorizedtosell stock,an accountingjournalentry shouldbe maderecordingthetotalvalueof thesharesauthorized.

 9.     Theparvalueofcommonstockmustalwaysbeequaltoitsmarketvalueonthedatethe stockisissued.

 10.     Whenno-parvaluestockdoesnothaveastatedvalue,theentireproceedsfromthe issuance ofthestock becomes legalcapital.

 11.     Acorporationcanissuemoresharesthanitisauthorizedinitscharter,iftheboardof directorsapprovesof anincreaseinthenumberof authorizedshares.

 12.     Themarketvalueofacorporation's stockisdeterminedbythenumberofsharesthatthe corporation has beenauthorized to issue.

 13.     Eachstockholderinacorporationhasaseparatecapitalaccountinthestockholders' equitysection of thebalancesheet.

 14.     Thestockholders'equitysectionofacorporation'sbalancesheetconsistsof(1)paid-in capital, (2)retainedearnings,and(3)drawings.

 15.     Dividendsaredeclaredout ofretainedearnings.

 16.     Whenacorporationhasonlyoneclass of capitalstock,it is identifiedaspreferredstock.

 17.     Retainedearningsare apartof stockholders'equity.

Corporations:OrganizationandCapitalStockTransactions          13-5

 18.     Retainedearningsaresubtractedfrompaid-incapitaltoarriveattotalstockholders' equity.

 19.     Stockcanbeissuedonly inexchangefor cash.

 20.     Theparvalueofstockissuedfornoncashassetsisneverafactorindeterminingthecost of the assetsreceived.

 21.     Theacquisitionoftreasurystockbyacorporationincreasestotalassetsandtotal stockholders' equity.

 22.     Treasurystockshouldnotbeclassifiedasacurrent asset.

 23.     Treasury stockpurchasedfor$25persharethatisreissued at$20pershare,resultsina Losson SaleofTreasuryStockbeingrecognizedontheincomestatement.

 24.     Treasurystockisacontrastockholders'equityaccount.

 25.     Thenumberofcommonsharesoutstandingcanneverbegreaterthanthenumberof shares issued.

 26.     Preferredstock hascontractualpreferenceover commonstockincertainareas.

 27.     Preferredstockholdersgenerallydo nothavetherighttovoteforthe board of directors.

 28.     Dividendsinarrearsoncumulativepreferredstockareconsidereda liability.

 29.     Inpublishedannualreports,subclassificationswithinthestockholders'equitysectionare seldompresented,butadditionalinformationisfrequentlyincludedinthefootnotestothe financialstatements.

 30.     Bookvaluepershareofcommonstockisthesameamountasthemarketvalueper share.

 Additional True-FalseQuestions

 31.     A successfulcorporationcan haveacontinuousandperpetuallife.

 32.     OrganizationalcostsarecapitalizedbydebitinganintangibleassetentitledOrganization Costs.

 33.     Thecashproceedsfromissuingparvaluestockmaybeequaltoorgreaterthan,butnot less thanparvalue.

 34.     Thecostofanoncashassetacquiredinexchange forcommonstockshouldbeeitherthe fairmarketvalueoftheconsiderationgivenuportheconsiderationreceived,whicheveris more clearlydeterminable.

 35.     Underthecostmethod,TreasuryStockisdebitedatthepricepaidtoreacquirethe shares, andthesameamountiscreditedtoTreasuryStockwhenthe sharesaresold.

 36.     Bookvaluepershareis thesamethingas liquidationvalueper share.

    MULTIPLECHOICEQUESTIONS

  37.     Whichoneof thefollowingisaprivatelyheldcorporation? a.Intel

b.GeneralElectric c.CaterpillarInc.d.CargillInc.

 38.     ThedominantformofbusinessorganizationintheUnitedStatesintermsofdollarsales volume,earnings,andemployees is

a.thesoleproprietorship. b.thepartnership.

c.thecorporation. d.notknown.

 39.     Underthecorporateformofbusinessorganization

a.a stockholderispersonallyliableforthedebtsof thecorporation.

b.stockholders'actscanbindthecorporationeventhoughthestockholdershavenot been appointedasagents of thecorporation.

c.thecorporation'slife isstipulated inits charter.

d.stockholderswishingtoselltheircorporationsharesmustgettheapprovalofother stockholders.

 40.     Stockholdersof acorporationdirectlyelect a.thepresidentof thecorporation.

b.theboardof directors.

c.thetreasurerofthecorporation.

d.allof theemployeesof thecorporation.

 41.     Thechief accountingofficerinacompanyisknownasthe a.controller.

b.treasurer.

c.vice-president. d.president.

 42.     Afactorwhichdistinguishesthecorporateformoforganizationfromasoleproprietorship orpartnershipisthata

a.corporationis organizedforthepurposeof makingaprofit.

b.corporationissubjecttonumerousfederalandstategovernmentregulations. c.corporationisanaccountingeconomicentity.

d.corporation’stemporaryaccountsareclosedattheend oftheaccountingperiod.

Corporations:OrganizationandCapitalStockTransactions          13-7

 43.     Whichoneof thefollowingwouldnotbeconsideredan advantage of the corporate form of organization?

a.Limitedliabilityofowners b.Separatelegalexistence c.Continuouslife

d.Governmentregulation

 44.     Theconceptof an"artificialbeing"referstowhichform of businessorganization? a.Partnership

b.Soleproprietorship c.Corporation

d.Limitedpartnership

 45.     Thetwowaysthatacorporationcanbeclassifiedbypurposeare a.generalandlimited.

b.profitandnonprofit. c.stateandfederal.

d.publiclyheldandprivatelyheld.

 46.     Thetwowaysthatacorporationcanbeclassifiedbyownershipare a.publiclyheldandprivatelyheld.

b.stockandnon-stock. c.insideandoutside.d.majorityandminority.

 47.     Whichofthefollowingwouldnotbetrue of aprivatelyheldcorporation? a.Itissometimescalleda closelyheldcorporation.

b.Its sharesareregularlytradedontheNewYork Stock Exchange. c.Itdoesnotofferitssharesfor saletothegeneralpublic.

d.Itisusuallysmallerthana publiclyheld company.

 48.     Whichofthefollowingisnottrueof acorporation? a.It maybuy,own,andsellproperty.

b.It maysueandbesued.

c.Theacts of itsownersbindthecorporation.

d.It mayenterintobindinglegalcontractsin its own name.

 49.     EdStonehasinvested$400,000inaprivatelyheldfamilycorporation.Thecorporation does not do wellandmustdeclarebankruptcy.WhatamountdoesStonestandto lose?a.Uptohistotal investmentof $400,000.

b.Zero.

c.The$400,000plusanypersonalassetsthecreditors demand. d.$200,000.

 50.     Whichofthefollowingstatementsreflectsthetransferabilityofownershiprightsina corporation?

a.Ifa shareholderdecidesto transferownership,hemust transferallofhisshares. b.Ashareholdermaydisposeof partor allof hisshares.

c.A shareholdermustobtainpermissionfromtheboardof directorsbeforesellingshares. d.Ashareholdermustobtainpermissionfromatleastthreeotherstockholdersbefore

sellingshares.

13-8        

 51.     A corporateboardofdirectorsdoesnotgenerally a.selectofficers.

b.formulateoperatingpolicies. c.declaredividends.

d.executepolicy.

 52.     A typicalorganizationchart showingdelegationof authoritywouldshow a.stockholdersdelegatingtotheboard of directors.

b.theboardof directorsdelegatingtostockholders.

c.thechief executiveofficerdelegatingtotheboard of directors. d.thecontrollerdelegatingtothechiefexecutiveofficer.

 53.     Theofficerwhoisgenerallyresponsibleformaintainingthecashpositionofthe corporation is the

a.controller. b. treasurer. c.cashier.

d.internalauditor.

 54.     Thechief accountingofficerinacorporationis the a.treasurer.

b.president. c.controller.

d.vice-presidentoffinance.

 55.     Theabilityofacorporationtoobtaincapitalis

a.enhancedbecauseof limitedliabilityandeaseofsharetransferability. b.lessthanapartnership.

c.restrictedbecause ofthe limitedlifeof thecorporation. d.aboutthesame asapartnership.

 56.     Whichofthefollowingstatements concerningtaxationisaccurate?

a.Partnerships paystateincometaxesbutnotfederalincometaxes. b.Corporationspay federal income taxes butnotstateincome taxes. c.Corporationspayfederaland stateincometaxes.

d.Onlytheownersmustpaytaxesoncorporateincome.

 57.     Whichofthefollowingstatementsisnotconsideredadisadvantageofthecorporateform oforganization?

a.Additionaltaxes

b.Governmentregulations

c.Limitedliabilityofstockholders

d.Separationof ownershipandmanagement

 58.     Whatis ordinarilythefirststepintheformationofa corporation? a.Developmentofby-lawsforthecorporation

b.Issuanceof thecorporatecharter

c.Applicationfor incorporationtothe appropriate SecretaryofState d.RegistrationwiththeSEC

Corporations:OrganizationandCapitalStockTransactions          13-9

 59.     Whichoneof thefollowingisnotanownership right ofastockholderinacorporation? a.Tovoteintheelectionof directors

b.Todeclaredividends onthecommonstock c.Toshareinassetsuponliquidation

d.Toshareincorporateearnings

 60.     Ifno-parstock isissuedwithoutastatedvalue,then a.thepar valueis automatically$1 pershare.

b.theentire proceedsareconsideredto be legalcapital. c.thereis nolegalcapital.

d.thecorporationisautomaticallyin violationofits statecharter.

 61.     Ifastockholdercannotattendastockholder's meeting,hemaydelegatehisvotingrights bymeansof

a.an absenteeballot. b.aproxy.

c.a certifiedletter. d.atelegram.

 62.     Ifa corporationhasonlyoneclassof stock,itisreferredto as a.ClasslessStock.

b.PreferredStock. c.SolitaryStock.d.CommonStock.

 63.     Thetermresidualclaimreferstoashareholder'srightto a.receivedividends.

b.shareinassetsuponliquidation.

c.acquireadditionalshares whenoffered. d.exerciseaproxyvote.

 64.     Whichofthefollowingfactors doesnotaffecttheinitialmarketpriceofa stock? a.Thecompany'santicipatedfutureearnings

b.Theparvalueof thestock

c.Thecurrentstateof theeconomy

d.Theexpecteddividendratepershare

 65.     Ifan investmentfirm underwritesastockissue,the

a.riskof beingunabletoselltheshares stays withthe issuingcorporation. b.corporationobtainscash immediatelyfromtheinvestmentfirm.

c.investmentfirm hasguaranteedprofitsonthesaleofthestock. d.issuanceofstockis likelytobedirectlyto creditors.

 66.     Theparvalueofastock a.is legallysignificant.

b.reflectsthemostrecentmarket price. c.isselectedbythe SEC.

d.isindicativeof the worthof thestock.

13-10

 67.     Acorporation hasthefollowingaccountbalances:Commonstock,$1parvalue,$30,000; Paid-in CapitalinExcess ofParValue,$1,350,000.Basedonthisinformation,the

a.legalcapitalis$1,380,000.

b.numberof sharesissuedare30,000.

c.numberof sharesoutstanding are1,380,000. d.averagepricepershareissuedis$4.60.

 68.     Theauthorizedstock of acorporation

a.onlyreflectstheinitialcapital needsofthecompany. b.isindicatedinits by-laws.

c.is indicatedinitscharter.

d.mustberecordedinaformalaccountingentry.

 69.     Owners'equityfor acorporationis identified aseach ofthefollowingexcept a.corporatecapital.

b.paid-incapital.

c.shareholders'equity. d.stockholders'equity.

 70.     Retainedearnings

a.isuniquetothecorporateformofbusiness.

b.isanoptionalaccountinthepartnershipformofbusiness. c.reflectscashpaidinbyshareholderstodate.

d.isclosed attheendof the year.

 71.     Dividendsaredeclaredout of a.CapitalStock.

b.Paid-inCapitalinExcessofPar Value. c.RetainedEarnings.

d.TreasuryStock.

 72.     Retainedearningsis

a.alwaysequaltotheamountofcashthatthecorporationhasgeneratedfrom operations.

b.a part ofthepaid-incapitalof thecorporation.

c.a partofthestockholders'claimonthetotal assetsofthecorporation. d.closedat theendof eachaccountingperiod.

 73.     Whenstockisissuedforlegalservices,thetransactionisrecordedbydebiting OrganizationExpenseforthe

a.statedvalueofthestock. b.parvalueof thestock.

c.marketvalueof thestock. d.bookvalueof thestock.

 74.     IfVickersCompanyissues2,000sharesof $5par valuecommonstockfor$140,000, a.CommonStock willbe creditedfor$140,000.

b.Paid-InCapitalinExcessofPar Valuewillbecreditedfor $10,000.c.Paid-InCapitalin ExcessofPar Valuewillbecreditedfor $130,000. d.Cashwill bedebitedfor $130,000.

Corporations:OrganizationandCapitalStockTransactions          13-11

 75.     Ifcommonstockisissuedforanamountgreaterthanparvalue,theexcessshouldbe creditedto

a.Cash.

b.RetainedEarnings.

c.Paid-inCapitalinExcessofPar Value. d.LegalCapital.

 76.     Ifstockisissuedforanoncashasset,theassetshouldberecordedonthebooksofthe corporation at

a.fairmarketvalue. b.cost.

c.zero.

d.a nominalamount.

 77.     Ifstockis issuedforlessthanpar value,the accounta.Paid-InCapitalin ExcessofPar Valueis credited.

b.Paid-InCapitalinExcessofParValueisdebitedifadebitbalanceexistsinthe account.

c.Paid-InCapitalinExcessofParValueisdebitedifacreditbalanceexistsinthe account.

d.RetainedEarningsiscredited.

 78.     Thesaleof commonstockbelowpar

a.isacommonoccurrenceinmoststates. b.isnotpermittedinmost states.

c.isapracticethatmostshareholdersencourage.

d.requiresthataliabilityberecordedforthedifferencebetweenthesalespriceandthe parvalueof theshares.

 79.     Paid-InCapitalin ExcessofStatedValue

a.iscreditedwhenno-parstockdoesnothaveastatedvalue. b.isreportedaspart ofpaid-incapitalonthebalancesheet.c.representstheamountof legalcapital.

d.normallyhas a debitbalance.

 80.     Aseparatepaid-incapitalaccountisusedtorecordeachofthefollowingexceptthe issuance of

a.no-parstock.

b.par valuestock.

c.stated valuestock.

d.treasurystockabovecost.

 81.     BeckerCompany isapubliclyheldcorporation whose$1parvaluestockisactivelytraded at$20pershare.Thecompanyissued2,000sharesofstocktoacquirelandrecently advertised at$50,000.Whenrecordingthistransaction, Becker Companywill

a.debitLandfor $50,000.

b.creditCommonStockfor $40,000. c.debitLandfor $40,000.

d.creditPaid-InCapitalinExcessofParValuefor $48,000.

13-12

 82.     SimonCompanyissued6,000sharesofits$5parvaluecommonstockinpaymentofits attorney'sbillof$45,000.Thebillwasforservicesperformedinhelpingthecompany incorporate. Simonshouldrecordthistransactionbydebiting

a.LegalExpensefor $30,000. b.LegalExpensefor $45,000.

c.OrganizationExpensefor $30,000. d.OrganizationExpensefor $45,000.

 83.     Inthefinancialstatements,organizationcostsappears

a.immediatelybelowRetainedEarningsinthestockholders' equity section. b.intheincomestatement.

c.aspartof paid-in capitalinthe stockholders' equitysection. d.asanintangibleasset.

 84.     Whichofthefollowingrepresentsthelargestnumberof commonshares? a.Treasuryshares

b.Issuedshares

c.Outstandingshares d.Authorizedshares

 85.     NewCorp.issues1,000sharesof$10parvaluecommonstockat$14pershare.When the transactionisrecorded,creditsaremadeto

a.CommonStock$10,000andPaid-inCapitalin Excess of StatedValue$4,000. b.CommonStock$14,000.

c.CommonStock $10,000andPaid-inCapitalinExcess of Par Value$4,000. d.CommonStock$10,000andRetainedEarnings$4,000.

 86.     IfKinerCompanyissues1,000sharesof$5parvaluecommonstockfor$70,000,the account

a.CommonStockwillbe creditedfor$5,000.

b.Paid-inCapitalinExcessofPar Valuewill becreditedfor $5,000.c.Paid-inCapitalin ExcessofParValuewillbecreditedfor $70,000. d.Cashwill bedebitedfor $65,000.

 87.     JansenPackagingCorporationbeganbusinessin2008byissuing40,000sharesof$5 parcommonstockfor$8pershareand10,000sharesof6%,$10parpreferredstockfor par.Atyearend,thecommonstockhadamarket value of$10.OnitsDecember31,2008 balance sheet, JansenPackagingwould report

a.CommonStockof$400,000. b.CommonStockof$200,000. c.Common Stockof$320,000. d.Paid-InCapitalof $300,000.

 88.       Kim,Inc.issued5,000sharesofstockatastatedvalueof$10/share.Thetotalissueof stock soldfor $15/share.Thejournalentrytorecordthistransactionwouldincludea

a.debitto Cashfor $50,000.

b.creditto Common Stockfor $50,000.

c.credittoPaid-inCapitalinExcessofParValuefor $25,000. d.creditto CommonStockfor $75,000.

Corporations:OrganizationandCapitalStockTransactions          13-13

 89.     FoleyManufacturingCorporationpurchased3,000sharesofitsownpreviouslyissued $10parcommonstockfor $69,000.Asaresultofthisevent,

a.Foley’sCommonStockaccountdecreased$30,000. b.Foley’stotalstockholders’equitydecreased$69,000.

c.Foley’sPaid-inCapitalin Excessof ParValueaccountdecreased $39,000. d.All of theabove.

 90.     Acorporationpurchases20,000sharesofitsown$20parcommonstockfor$35per share, recordingit atcost.Whatwill bethe effectontotalstockholders’equity?

a.Increaseby$700,000 b.Decreaseby$400,000 c.Decreaseby$700,000 d.Increaseby$400,000

 91.     Acorporationpurchases10,000sharesofitsown$10parcommonstockfor$25per share, recordingit atcost.Whatwill bethe effectontotalstockholders’equity?

a.Increaseby$100,000 b.Decreaseby$250,000 c.Increaseby$250,000 d.Decreaseby$100,000

 92.     BeckhamCompanyhas1,000sharesof4%,$100parcumulativepreferredstock outstandingatDecember31, 2008.No dividendshave been paid on thisstockfor2007 or 2008.Dividendsinarrearsat December31,2008total

a.$0.b.$400.

c.$4,000. d.$8,000.

 93.     EphramCompanyhas2,000sharesof5%,$100parnon-cumulativepreferredstock outstandingatDecember31, 2008.No dividendshave been paid on thisstockfor2007 or 2008.Dividendsinarrearsat December31,2008total

a.$0.

b.$1,000.c.$10,000. d.$20,000.

 94.     RebelInc.issued2,000sharesofno-parcommonstockwithastatedvalueof$3per share.The marketpriceofthestockonthedate ofissuancewas$12pershare. Theentry to recordthistransactionincludesa

a.debitto Cashfor $6,000.

b.creditto Common Stockfor $24,000. c.creditto CommonStockfor $6,000.

d.debitto Paid-inCapitalin Excessof ParValuefor $24,000.

 95.     RanchoCorporationsold100sharesoftreasurystockfor$40pershare.Thecostforthe shares was$30.Theentry torecordthesalewillincludea

a.credittoGainon SaleofTreasuryStockfor $3,000.

b.creditto Paid-inCapitalfromTreasuryStockfor $1,000.c.debittoPaid-in Capitalin Excessof ParValuefor $1,000. d.credittoTreasuryStockfor $4,000.

13-14

 96.     Eachof thefollowingiscorrectregardingtreasurystockexceptthatit has been a.issued.

b.fullypaidfor. c.reacquired. d.retired.

 97.     Treasurystockis

a.stockissuedbytheU.S.TreasuryDepartment.

b.stockpurchased byacorporationandheldasan investmentin itstreasury. c.corporatestockissuedbythetreasurerof acompany.

d.a corporation'sownstockwhichhasbeenreacquiredbutnotcanceled.

 98.     Theacquisitionoftreasurystock byacorporation

a.increasesitstotalassetsandtotal stockholders' equity. b.decreasesitstotalassetsandtotal stockholders'equity.

c.hasnoeffectontotalassetsandtotalstockholders'equity.

d.requiresthatagain or lossberecognizedontheincomestatement.

 99.     Treasurystockshouldbereportedinthefinancialstatementsof acorporationasa(n) a.investment.

b.liability.

c.deductionfromtotalpaid-incapital.

d.deductionfromtotal paid-incapitalandretainedearnings.

 100.     A companywouldnot acquiretreasurystock a.inordertoreissuesharesto officers.

b.as anassetinvestment.

c.inordertoincreasetrading of thecompany's stock.

d.tohaveadditionalsharesavailabletouseinacquisitions of othercompanies.

 101.     Accountingfor treasurystock isdonebythe a.FIFOmethod.

b.LIFOmethod. c.costmethod.

d.lower ofcostormarketmethod.

 102.     Treasurystockisgenerallyaccountedfor bythe a.costmethod.

b.marketvaluemethod. c.parvaluemethod.

d.statedvaluemethod.

 103.     TreasuryStockis a(n)

a.contra assetaccount.

b.retainedearningsaccount. c.assetaccount.

d.contrastockholders’equityaccount.

Corporations:OrganizationandCapitalStockTransactions          13-15

 104.   FourthousandsharesoftreasurystockofMeyer,Inc.,previouslyacquiredat$12per share, aresoldat $18per share.Theentrytorecordthistransactionwill includea

a.credittoTreasuryStockfor $72,000.

b.debitto Paid-In CapitalfromTreasuryStockfor $24,000. c.debittoTreasuryStockfor $48,000.

d.creditto Paid-InCapitalfromTreasuryStockfor $24,000.

 105.     ReevesCompanyoriginallyissued2,000sharesof$10parvaluecommonstockfor $60,000($30pershare).Reevessubsequentlypurchases200sharesoftreasurystock for$27pershareandresellsthe200sharesoftreasurystockfor$29pershare.Inthe entry torecordthesaleof thetreasurystock,therewill bea

a.creditto Common Stockfor $5,400. b.credittoTreasuryStockfor $2,000.

c.debittoPaid-In CapitalinExcessofParValueof$6,000. d.creditto Paid-InCapitalfromTreasuryStockfor$400.

 106.     Whenpreferredstockiscumulative,preferreddividendsnotdeclaredinaperiodare a.consideredaliability.

b.calleddividendsinarrears. c.distributionsof earnings.d.neverpaid.

 107.     Whichofthefollowingisnot aright or preferenceassociatedwith preferredstock? a.Therighttovote

b.Firstclaimtodividends

c.Preferencetocorporateassetsincase of liquidation

d.Toreceivedividendsin arrears beforecommonstockholdersreceivedividends

 Usethefollowing informationforquestions108and 109.

 ColeCorporationissues15,000sharesof$50parvaluepreferredstockforcashat$60per share.

 108.     Theentrytorecordthetransactionwill consistofadebitto Cashfor $900,000 anda credit or credits to

a.PreferredStockfor $900,000.

b.PreferredStockfor$750,000andPaid-inCapitalinExcessofParValue—Preferred Stockfor $150,000.

c.PreferredStockfor $750,000andPaid-inCapitalfromPreferredStockfor$150,000. d.Paid-inCapitalfromPreferredStockfor$900,000.

 109.     Inthe stockholders'equitysection,theeffectsofthe transactionabove will bereported a.entirelywithinthecapitalstocksection.

b.entirelywithinthe additionalpaid-incapitalsection.

c.underboththecapitalstock andadditionalpaid-incapitalsections. d.entirelyundertheretainedearningssection.

 110.     Dividendsinarrearsoncumulativepreferredstock a.neverhavetobepaid.

b.mustbepaidbeforecommonstockholderscanreceivea dividend. c.shouldberecordedasacurrentliabilityuntiltheyarepaid.

d.enablethepreferredstockholderstoshareequallyincorporateearningswiththe commonstockholders.

13-16

 111.     Dividendsinarrearsoncumulativepreferredstock a.areconsideredtobea non-current liability.

b.areconsideredto bea currentliability.

c.onlyoccurwhenpreferreddividendshavebeendeclared.d.shouldbedisclosedinthenotestothefinancialstatements.

 112.     Ifpreferredstockiscumulative, the

a.preferreddividendsnot declaredinagivenyeararecalleddividendsinarrears. b.preferredshareholders andthecommonshareholdersreceiveequaldividends.

c.preferredshareholdersandthecommonshareholdersreceivethesametotaldollar amount of dividends.

d.commonshareholders willshareinthe preferreddividends.

 113.     TheNiceCorporationissues10,000sharesof$100parvaluepreferredstockforcashat $110pershare.TheentrytorecordthetransactionwillconsistofadebittoCashfor $1,100,000andacreditor creditsto

a.PreferredStockfor $1,100,000.

b.Paid-inCapitalfromPreferredStockfor$1,100,000.

c.PreferredStockfor $1,000,000 andRetainedEarningsfor $100,000.

d.PreferredStockfor$1,000,000andPaid-inCapitalinExcessofParValue—Preferred Stockfor $100,000.

 Usethefollowing informationforquestions114–116.

 TriadCorporation’sDecember31,2008balancesheetshowedthefollowing:

 8%preferredstock,$20par value,cumulative,10,000sharesauthorized; 5,000sharesissued

Commonstock,$10parvalue,1,000,000sharesauthorized;650,000 sharesissued,640,000sharesoutstanding

Paid-incapitalinexcessofparvalue—preferredstock Paid-incapitalinexcessofparvalue—commonstock Retainedearnings

Treasurystock(10,000shares)

     $100,000

 6,500,000 20,000 9,000,000 2,500,000 210,000

  114.     Triaddeclaredandpaida$25,000 cashdividendonDecember 15,2008.Ifthecompany’s dividendsinarrearspriortothatdatewere$6,000,Triad’scommonstockholdersreceived a.$19,000.

b.$9,000.c.$11,000.

d.no dividend.

 115.     Triad’stotalpaid-incapital was a.$15,620,000.

b.$15,830,000. c.$15,410,000. d.$9,020,000.

 116.     Triad’stotalstockholders’equitywas a.$18,380,000.

b.$15,620,000. c.$18,170,000. d.$17,910,000.

Corporations:OrganizationandCapitalStockTransactions          13-17

 117.     BurgessCorporationbeganbusinessbyissuing100,000sharesof$5parvaluecommon stockfor$24pershare.Duringitsfirstyear,thecorporationsustainedanetlossof $20,000.Theyear-endbalancesheet wouldshow

a.Commonstock of $500,000.b.Commonstockof $2,400,000.

c.Totalpaid-incapitalof $2,380,000. d.Totalpaid-incapitalof $1,900,000.

 Usethefollowing informationforquestions118–119.

 StarrCorporation’sDecember31,2008BalanceSheetshowedthefollowing:

 8%preferredstock,$20par value,cumulative,20,000shares authorized;10,000shares issued

Commonstock,$10parvalue,2,000,000sharesauthorized; 1,300,000sharesissued,1,280,000sharesoutstanding

Paid-incapitalinexcessofparvalue–preferredstock Paid-incapitalinexcessofparvalue–commonstock Retainedearnings

Treasurystock(10,000shares)

   $     200,000

 13,000,000 40,000 18,000,000 5,100,000 420,000

  118.     Starr’stotalpaid-incapitalwas a.$31,240,000.

b.$31,660,000. c.$30,820,000. d.$18,040,000.

  119.     Starr’stotalstockholders’equitywas a.$36,760,000.

b.$31,240,000. c.$36,340,000. d.$35,920,000.

 120.     AdcockCorporationbeganbusinessbyissuing150,000sharesof$5parvaluecommon stockfor$24pershare.Duringitsfirstyear,thecorporationsustainedanetlossof $30,000.Theyear-endbalancesheet wouldshow

a.Commonstock of $750,000.b.Commonstockof $3,600,000.

c.Totalpaid-incapitalof $3,570,000. d.Totalpaid-incapitalof $2,850,000.

 121.    ThetrialbalanceofHackmanInc.includesthefollowingbalances:CommonStock, $39,000;Paid-inCapitalinExcessofPar,$96,000;TreasuryStock,$9,000;Preferred Stock,$30,000.Capitalstocktotals

a.$69,000. b.$126,000. c.$165,000. d.$174,000.

13-18

 122.     Eachof thefollowingisreportedforcommonstock exceptthe a.parvalue.

b.sharesissued.

c.sharesoutstanding. d.liquidationvalue.

 123.     Paid-incapitalfromtreasurystock wouldappearon abalancesheetunderthecategory a.capitalstock.

b.treasurystock.

c.additionalpaid-incapital. d.contratoowners'equity.

 124.     Twoclassificationsappearing inthepaid-incapitalsectionof thebalancesheetare a.preferredstockandcommonstock.

b.paid-incapitalandretainedearnings.

c.capitalstockandadditionalpaid-incapital. d.capitalstockandtreasurystock.

 125.     Informationthatis notgenerallyreportedfor eachclassof stockonthe balancesheetis a.the marketvalue.

b.theparvalue.

c.sharesauthorized. d.sharesissued.

 126.     Inpublishedannualreports

a.subclassificationswithinthestockholders’equitysectionareroutinelyreportedin detail.

b.capitalsurplusisused inplaceofretained earnings.

c.theindividualsourcesofadditionalpaid-incapitalareoftencombined. d.retainedearnings isoftennotshownseparately.

 127.     Additionalpaid-in capitalincludesallof thefollowingexcept a.paid-incapitalfromtreasurystock.

b.paid-incapitalin excessof par.

c.paid-incapitalinexcessof statedvalue. d.paid-incapitalin excessof bookvalue.

 128.     Bookvaluepershareiscomputedbydividingtotal

a.paid-incapitalbythenumberofcommonsharesoutstanding. b.paid-incapitalbythenumberof commonsharesissued.

c.stockholders'equitybythenumberof commonsharesoutstanding. d.stockholders'equitybythe numberofcommonsharesissued.

 129.     Bookvaluepershareisusually

a.equaltothemarketvalueper share. b.lessthanthemarketvaluepershare.

c.greaterthanthemarketvaluepershare. d.equaltothepar valuepershare.

Corporations:OrganizationandCapitalStockTransactions          13-19

 130.     Bookvaluepershareis

a.theequityacommonstockholderhasinthenetassetsofthecorporationfromowning one share ofstock.

b.theequityacommonstockholderhasinthetotalassetsofthecorporationfrom owningoneshareof stock.

c.alwaysequaltothemarketvalueofthestock. d.computedonlyforpreferredstockholders.

 131.     Thebookvaluepershare

a.isusuallya closeapproximationofthemarketpricepershare. b.isthesameastheparvaluepershare.

c.maybeusefulindeterminingthetrendofastockholder'spershareequityina corporation.

d.alwaysfalls withintheannualrangeof acompany'smarketvaluepershare.

 132.     Barr,Inc.reports$3,000,000ofcommonstock,and$4,500,000ofadditionalpaid-in capitalonitsbalancesheet.Thenumberofcommonsharesissuedandoutstandingis 500,000shares.Thebook valuepershareis

a.$15. b.$9.c.$6.

d.notdeterminable.

   Additional MultipleChoiceQuestions

 133.    Whichofthefollowingisan incorrectstatementaboutacorporation? a.Acorporationis anentityseparateanddistinctfrom its owners.

b.Creditorsordinarilyhaverecourseonlytocorporateassetsinsatisfactionoftheir claims.

c.Acorporationmaybeformedinwriting,orally,or implied.

d.Acorporationis subjecttonumerousstateandfederalregulations.

 134.     Capitalstockto whichthe charterhasassignedavalueper shareiscalled a.parvaluestock.

b.no-parvaluestock. c.statedvaluestock.

d.assignedvaluestock.

 135.     Legalcapitalpersharecannotbeequaltothe a.parvaluepershareofpar valuestock.

b.totalproceedsfromthesaleof parvaluestockabove parvalue. c.statedvaluepershareof no-parvaluestock.

d.totalproceedsfromthesaleof no-parvaluestock.

 136.    Whencommonstockisissuedforservicesor non-cashassets,costshouldbe a.onlythefairmarketvalueoftheconsiderationgivenup.

b.onlythefairmarket valueoftheconsiderationreceived. c.thebookvalue of thecommonstockissued.

d.eitherthefairmarketvalueoftheconsiderationgivenuportheconsideration received,whicheverismoreclearlyevident.

13-20

 137.     Whenthesellingpriceoftreasurystockisgreaterthanitscost,thecompanycreditsthe differenceto

a.GainonSaleof TreasuryStock.

b.Paid-inCapitalfromTreasuryStock.

c.Paid-inCapitalin ExcessofPar Value. d.TreasuryStock.

 138.     RobersonCorporationwasorganizedonJanuary1,2008,withauthorizedcapitalof 750,000sharesof$10parvaluecommonstock.During2008,Robersonissued30,000 sharesat$12pershare,purchased3,000sharesoftreasurystockat$13pershare,and sold3,000sharesoftreasurystockat$14pershare.Whatistheamountofadditional paid-in capitalat December31,2008?

a.$0

b.$3,000c.$60,000 d.$63,000

 139.     Thepurchaseof treasurystock

a.decreasescommonstockauthorized. b.decreasescommonstock issued.

c.decreasescommonstockoutstanding.

d.hasnoeffectoncommonstockoutstanding.

 140.     Preferredstockholdershavea priorityovercommonstockholdersasto a.dividendsonly.

b.assetsin theeventofliquidationonly. c.votingrights.

d.bothdividendsand assetsintheeventof liquidation.

 141.     OnJanuary2,2005,RileyCorporationissued20,000sharesof6%cumulativepreferred stockat$100parvalue.OnDecember31,2008,RileyCorporationdeclaredandpaidits firstdividend.Whatdividendsarethepreferredstockholdersentitledtoreceiveinthe currentyearbeforeanydistributionismadetocommonstockholders?

a.$0

b.$120,000 c.$360,000 d.$480,000

 142.     Additionalpaid-in capitalincludesallof thefollowingexceptthe amountspaidin a.overpar value.

b.overstated value.c.fromtreasurystock.

d.fortheparvalueofcommonstock.

 143.     Inthestockholders'equitysectionofthebalancesheet,theclassificationofcapitalstock consistsof

a.additionalpaid-in capital andcommonstock. b.commonstockandtreasurystock.

c.commonstock,preferredstock,andtreasurystock. d.commonstockandpreferredstock.

Corporations:OrganizationandCapitalStockTransactions          13-21

 144.    AtDecember31,thestockholders’equitysectionshows:

 Commonstock,$5parvalue;1,320,000sharesissued

and1,200,000sharesoutstanding.................................................. Additionalpaid-in capital....................................................................... Retainedearnings................................................................................. Treasurystock,(120,000shares).......................................................... Totalstockholders’equity......................................................................

 Thebookvaluepershare ofcommonstockis a.$5.91.

b.$6.50. c.$7.08. d.$6.44.

   $6,600,000 1,400,000 500,000

   (700,000) $7,800,000

     BRIEFEXERCISES

  BE145

 Identify(by letter) each of the followingcharacteristicsasbeing anadvantage,adisadvantage, or notapplicabletothecorporateformof businessorganization.

 A= Advantage

D= Disadvantage N= NotApplicable

 Characteristics

 1.Separatelegalentity

 2.Taxableentityresultinginadditionaltaxes

 3.Continuouslife

 4.Unlimitedliability of owners

 5.Governmentregulation

 6.Separationof ownershipandmanagement

 7.Abilitytoacquirecapital

 8.Easeoftransferof ownership

    BE146

 OnJuly6,XOTCorporationissued2,300sharesofits$1.50parcommonstock.Themarket price of thestockonthatdate was$17 pershare.Journalizethe issuanceof thestock.

    BE147

 BennettCorporationisauthorizedtoissue1,000,000sharesof$1parvaluecommonstock. During2008,thecompanyhasthefollowingstocktransactions.

 Jan.15        Issued500,000sharesof stockat$7per share.

 Sept.5        Purchased20,000sharesofcommonstockforthetreasuryat $8pershare.

 Instructions

Journalizethetransactionsfor BennettCorporation.

    BE148

 AninexperiencedaccountantforDuranCorporationmadethefollowingentries.

 July1          Cash.....................................................................................       170,000 CommonStock............................................................                         170,000

(Issued20,000sharesof commonstock, parvalue$6pershare)

 Sept.1        CommonStock.....................................................................          36,000 RetainedEarnings................................................................         24,000

Cash............................................................................                              60,000 (Purchased4,000sharesissuedonJuly1forthe

treasuryat$15pershare)

 Instructions

 Onthebasis oftheexplanation foreachentry,preparetheentry thatshouldhavebeenmadefor the transactions.

   BE149

 OnSeptember5,BertolliCorporationacquired2,500sharesofitsown$1parcommonstockfor $23pershare.OnOctober 15,1,000sharesofthetreasurystock is soldfor $25pershare.

 Instructions

 Journalizethepurchaseandsaleofthetreasurystockassumingthatthecompanyusesthecost method.

   BE150

 WarrenCompanyhadthefollowingtransactions.

1.Issued6,000sharesofcommonstockwithastatedvalueof$10for $110,000. 2.Issued3,000sharesof$100parpreferredstockat$107forcash.

 Instructions

 Preparethejournalentriestorecordtheabove stocktransactions.

   BE151

 OnFebruary1,BurchessCorporationissued4,000 sharesofits$20par valuepreferredstockfor $24pershare.

 Instructions Journalizethetransaction.

Corporations:OrganizationandCapitalStockTransactions          13-25

  BE152

 BellinghamCorporationhasthefollowing stockholders’ equitybalancesatDecember31,2008:

 CommonStock,$1par

Paid-inCapitalin ExcessofPar RetainedEarnings

Total

$3,500 24,500

62,500$90,500

 Calculatebookvaluepershare.

   EXERCISES

Ex.153

Thefollowingselectedtransactionspertainto LintonCorporation:

 Jan.     3     Issued150,000shares,$10parvalue,commonstockfor $22 pershare.

 Feb.10       Issued8,000shares,$10parvalue,commonstockinexchangeforspecialpurpose equipment.LintonCorporation'scommonstockhasbeenactivelytradedonthestock exchange at $25pershare.

 InstructionsJournalizethetransactions.

  Ex.154

 ThecorporatecharterofHunterCorporationallowstheissuanceofamaximumof2,500,000 sharesof$1parvaluecommonstock.Duringitsfirstthreeyearsofoperation,Hunterissued 1,500,000sharesat$15pershare.Itlateracquired30,000ofthesesharesastreasurystockfor $25pershare.

 Instructions

Basedonthe aboveinformation,answerthefollowingquestions: (a)Howmanyshareswereauthorized?

(b)Howmanyshareswereissued?

(c)Howmanyshares areoutstanding?

(d)Whatisthebalanceof the CommonStockaccount? (e)Whatisthebalanceof theTreasuryStockaccount?

    Ex.155

 GarnerCorporationisauthorizedtoissue1,000,000sharesof$5parvaluecommonstock. During2008,itsfirst yearofoperation,thecompanyhasthefollowingstock transactions.

 Jan.     1    Paidthe state$2,000forincorporationfees.Jan.15            Issued500,000sharesofstock at$7 pershare.

Jan.30        Attorneysforthecompanyaccepted500sharesofcommonstockaspaymentfor legalservicesrenderedinhelpingthecompanyincorporate.Thelegalservicesare estimatedtohavea valueof $8,000.

 July     2    Issued100,000sharesofstockforland.Thelandhadanaskingpriceof$900,000. Thestockiscurrentlyselling onanational exchangeat $8pershare.

 Sept.5        Purchased15,000sharesofcommonstockforthetreasuryat $10pershare. Dec.6                  Sold11,000sharesofthe treasurystockat$11per share.

 Instructions

 JournalizethetransactionsforGarnerCorporation.

  Ex.156

 Preparethenecessaryjournalentryfor eachofthefollowingtransactionsfor Starr Corporation.

 (a)Issued2,000sharesofits$5par valuecommonstockfor $16pershare.

(b)Issued5,000sharesofitsstockforlandadvertisedforsaleat$80,000.Starr'sstockis activelytradedat amarketpriceof $15pershare.

  Solution156      (5 min.)

 (a)Cash(2,000× $16,000)..................................................................               32,000 CommonStock.....................................................................                           10,000 Paid-inCapitalin Excess ofParValue.................................                            22,000

 (b)Land(5,000×$15).........................................................................              75,000 CommonStock.....................................................................                           25,000 Paid-inCapitalin Excess ofParValue.................................                            50,000

    Ex.157

 1.Nameatleastthreefactorsthat influencethemarketvalueofstock.

2.Corporationsacquiretreasurystockforavarietyofpurposes.Namethreereasonswhy treasurystockmaybeacquiredbyacorporation.

13-28

 Ex.158

 ThefollowingitemswereshownonthebalancesheetofHermanCorporationonDecember31, 2008:

 Stockholders’Equity Paid-InCapital

CapitalStock

Commonstock,$5parvalue,360,000shares

authorized;              sharesissuedand                  outstanding...................

 Additionalpaid-in capital

Inexcessof par value.............................................................................. Totalpaid-incapital............................................................................

 RetainedEarnings............................................................................................... Totalpaid-incapitalandretainedearnings..............................................

Less:Treasurystock(15,000shares)................................................................ Totalstockholders' equity........................................................................

     $1,650,000

   165,000 1,815,000

   750,000 2,565,000

   (180,000) $2,385,000

 Instructions

Completethefollowingstatementsandshowyourcomputations.

 (a)Thenumberofsharesof commonstockissuedwas                                            . (b)Thenumberofsharesof commonstockoutstandingwas. (c)Thesalespriceof thecommonstockwhenissuedwas$                        . (d)Thecostpershareof thetreasurystock was$                              .

(e)Theaverageissuepriceof thecommonstockwas$                                           .

 (f)Assumingthat25%ofthetreasurystockissoldat$20pershare,thebalanceinthe TreasuryStockaccountwouldbe$                                                                                        .

  Ex.159

 OnMay1,Hite Corporationpurchased1,000shares ofits$10par value commonstockat acash price of$13/share.OnJuly15, 600sharesof thetreasurystockweresoldforcashat$15/share.

 Instructions

Journalizethetwotransactions.

    Ex.160

 WernerCorporationhasthefollowingstockholders'equityaccountsonJanuary1, 2008:

 CommonStock,$10parvalue............................................ Paid-inCapitalinExcess ofPar........................................... RetainedEarnings................................................................ TotalStockholders'Equity..............................................

$1,500,000 200,000

           500,000$2,200,000

 Thecompanyusesthecostmethodtoaccountfortreasurystocktransactions.During2008,the followingtreasurystocktransactionsoccurred:

 April         1 August    1 October        1

Purchased9,000sharesat $16pershare. Sold3,000sharesat $18pershare.

Sold3,000sharesat $15pershare.

 Instructions

 (a)Journalizethetreasurystocktransactionsfor 2008.

 (b)PreparetheStockholders'EquitysectionofthebalancesheetforWernerCorporationat December31, 2008.Assumenet incomewas$110,000for2008.

    Ex.161

 BatesCorporationpurchased2,000sharesofits$5parvaluecommonstockforacashpriceof $12pershare.Twomonths later,Bates soldthetreasurystockfor acashpriceof$10pershare.

 Instructions

Preparethejournalentrytorecordthesaleofthetreasurystockassuming (a)Nobalancein Paid-inCapitalfromTreasuryStock.

(b)A$3,000balanceinPaid-inCapitalfromTreasuryStock.

    Ex.162

 AninexperiencedaccountantforMoonCorporationmadethefollowingentries.

 July1          Cash.....................................................................................       210,000 CommonStock............................................................                         210,000

(Issued15,000sharesof no-parcommonstock, statedvalue$10pershare)

 Sept.1        CommonStock.....................................................................          28,000 RetainedEarnings................................................................         6,000

Cash............................................................................                              34,000 (Purchased2,000sharesissuedonJuly1forthe

treasuryat$17pershare)

 Dec.1        Cash.....................................................................................          18,000 CommonStock............................................................                           14,000 Gainon Sale of Stock..................................................                             4,000

(Sold 1,000sharesof the treasurystockat$18per share)

 Instructions

(a)Onthebasisoftheexplanationforeachentry,preparetheentrythatshouldhavebeen madefor thetransactions.(Omitexplanations.)

 (b)PreparethecorrectingentriesthatshouldbemadetocorrecttheaccountsofMoon Corporation.(Donotreversetheoriginalentry.)

13-32

  Ex.163

 OnJanuary1,2008,EdmondCompanyissued30,000sharesof$2parvaluecommonstockfor $150,000.OnMarch1,2008,thecompanypurchased4,000sharesofitscommonstockfor$8 pershareforthetreasury.OnJune1,2008,1,000ofthetreasurysharesaresoldfor$10per share.On September1,2008,2,000treasurysharesaresold at $6pershare.

 Instructions

 Journalizethestocktransactionsof EdmondCompanyin2008.

   Ex.164

 WixenCompanyoriginallyissued30,000sharesof$5parcommonstockfor$180,000on January3,2008.Wixenpurchased1,500sharesoftreasurystockfor$12,000onNovember2, 2008.OnDecember6,2008,600sharesof thetreasurystockaresoldfor$6,000.

 Instructions

Preparejournalentriesto recordthesestocktransactions.

     Ex.165

 Thestockholders'equitysectionofPalmerCorporation'sbalancesheetatDecember31,2007, appearsbelow:

 Stockholders'equity Paid-incapital

Commonstock,$10 parvalue,400,000sharesauthorized; 250,000issuedandoutstanding

Paid-incapitalinexcessofpar Totalpaid-incapital

Retainedearnings

Totalstockholders'equity

    $2,500,000

1,200,000 3,700,000

           600,000$4,300,000

 During2008,thefollowingstocktransactionsoccurred:

 Jan.18          Issued50,000sharesofcommonstock at $30per share.

 Aug.20         Purchased25,000shares ofPalmer Corporation'scommonstockat$24pershareto be held inthe treasury.

 Nov.     5      Reissued9,000 sharesof treasurystockfor $28per share.

 Instructions

 (a)Preparethejournalentriestorecordtheabovestocktransactions.

 (b)Preparethestockholders'equitysectionofthebalancesheetforPalmerCorporationat December31,2008.Assumethatnetincomefortheyearwas$100,000andthatno dividends weredeclared.

13-34

  Ex.166

 TylerCorporationhas100,000sharesof$40parvaluepreferredstockauthorized.Duringthe year,ithadthefollowingtransactionsrelatedto its preferredstock.

(a)Issued30,000sharesat$55pershare.

(b)Issued10,000sharesfor equipmenthavinga$700,000askingprice.Thestockhadamarket value of$60pershare

 InstructionsJournalizethetransactions.

   Ex.167

 CarsonCorporationhasthefollowingcapitalstockoutstandingat December31,2008:

 9%Preferredstock,$100parvalue,cumulative

15,000sharesissuedand outstanding....................................................

 Commonstock,nopar,$10 statedvalue,500,000sharesauthorized, 350,000shares issuedand outstanding..................................................

 $1,500,000

   3,500,000

  Thepreferredstock wasissued at$110pershare.Thecommonstockwas issuedatanaverage persharepriceof$16.

 Instructions

 Preparethepaid-incapitalsection ofthebalancesheetat December31,2008.

    Ex.168

 Initsfirstyearofoperations, WebberCorporationhadthefollowingtransactionspertainingtoits $30parvaluepreferredstock.

 Feb.1         Issued6,000sharesforcashat $41pershare. Nov.1                  Issued3,000sharesforcashat $44pershare.

 Instructions

 (a)Journalizethetransactions.

 (b)Indicatetheamounttobe reportedfor (1)preferredstock, and (2)paid-incapital in excess of parvalue—preferredstock attheend oftheyear.

13-36

  Ex.169

 BoswellCorporationhasthefollowingstockholders'equityaccounts:

 Preferred Stock

Paid-inCapitalinExcess ofParValue—PreferredStock CommonStock

Paid-inCapitalinExcess ofStatedValue—CommonStock Paid-inCapitalfromTreasuryStock—Common RetainedEarnings

TreasuryStock—Common

 Instructions

Classifyeach accountusing thefollowingtabularalignment.

             Paid-inCapital              Retained

      Account                                              CapitalStock      Additional     Earnings          Other

     Ex.170

 Thefollowinginformationis availableforStewartCorporation:

 CommonStock($10par)

Paid-inCapitalin ExcessofParValue—Preferred Paid-inCapitalin ExcessofStatedValue—Common PreferredStock

RetainedEarnings TreasuryStock—Common

$1,000,000 180,000 600,000 550,000 750,000 50,000

  Instructions

Basedonthe precedinginformation,calculateeach of thefollowing: (a)Totalpaid-incapital.

(b)Totalstockholders'equity.

    Ex.171

 Placeeachoftheitemslistedbelowintheappropriatesubdivisionofthestockholders'equity section ofabalancesheet.

 Commonstock,$10statedvalue Retainedearnings

8%Preferredstock,$100parvaluePaid-in capitalinexcessofparvalue Paid-in capital inexcessofstatedvalue Treasury stock

Paid-incapitalfromtreasurystock

 Stockholders'equity Paid-incapital

Capitalstock

    Additionalpaid-in capital

    Totaladditionalpaid-incapital

 Totalpaid-incapital Retainedearnings

13-38

 Ex.171         (cont.)

 Totalpaid-incapitalandretainedearnings

    Totalstockholders' equity

     Ex.172

 ThefollowinginformationisavailableforGordonCorporation:

 Commonstock($5par)

Paid-incapitalinexcessofpar—common Retainedearnings

Treasurystock Commonsharesissued Commonsharesoutstanding

$500,000 200,000 360,00070,000100,000shares 90,000shares

  Instructions

Basedonthe precedinginformation,calculatethebookvaluepershare.

    Ex.173

 OnDecember 31,2008,ColawCompanyreportsthe following amountsinitsstockholders'equity section:

Commonstock                                                                           $2,400,000 Paid-incapitalinexcessofstatedvalue—common                     900,000 Retainedearnings                                                                     1,180,000 Treasurystock—common                                                             180,000

 Thecommon stockhasastated value of$10 per share.Onemillion shares ofcommonstock are authorizedand 40,000sharesareheld inthetreasury.

 Instructions

Computethebookvalueper shareof commonstock.

    COMPLETIONSTATEMENTS

  174.Acorporationhasaseparate                                                                 apartfromitsowners.

 175.Themajoradvantagesofthecorporateformoforganizationinclude(1)limited

                                                                                                                         ofowners,(2)continuous                                   and(3)easeof transferring.

 176.Stockholderselectthe                                       ,whointurnhirethe                                       ofthe companywhohavedaytodayresponsibilityforrunningthecorporation.

 177.Ifacorporation'sstockistradedonthemajorstockexchanges,thecorporationmust generallyreportperiodicallyto afederalagencyknownasthe                                                   .

 178.Stockholdersgenerallyhavetherighttoshareincorporate                                                      andin

                               uponliquidation.

 179.Parvalueofstockrepresentsthe                                                 persharethatmustberetained in thebusinessforthe protection ofcorporate.

 180.Thestockholders'equitysectionofacorporation'sbalancesheetisgenerallydividedin two majorsections:(1)                                                                   and(2)                                .

 181.Ifstockisissuedinexchangefornoncashassets,theassetsshouldbevaluedatthe

                                            oftheconsideration                                                  ortheassets

                                          ,whicheveris moreclearlyevident.

 182.Acorporation'sownstockthathasbeenreacquiredbythecorporationbutnotcanceledis called                                                  andisdeductedfromtotal                                                     on thebalancesheet.

 183.The                                      featureofpreferredstockgivesthepreferredstockholdersthe righttoreceivecurrent-yeardividendsandunpaidprior-yeardividendsbeforecommon stockholders receiveanydividends.

 184.Preferredstockhascontractualprovisionsthat giveitapreferenceovercommonstockas to andtoin the eventof liquidation.

 185.Thepaid-incapitalsectionofthebalancesheetconsistsoftwoclassifications:

                                               and                                              .

 186.Bookvaluepersharerepresentstheequityacommonstockholderhasinthe                                        

 ofthecorporationfromowningone shareof stock.

    MATCHING

  187.Matchtheitemsbelowbyenteringtheappropriatecodeletterinthespaceprovided.

 A.Limitedliability B.Capitalstock

C.Board of directors D.Paid-incapital

E.Retainedearnings

F.     Preemptiveright G.Par value

H.Legalcapital

I.     Treasurystock

J.     Cumulativefeature

           1.     Net incomeretainedinthecorporation.

           2.     Theamountthatmustberetainedinthebusinessfortheprotectionof creditors.

           3.     Preferredstockholders havearighttoreceivecurrentandunpaidprior-year dividends before commonstockholdersreceiveanydividends.

           4.     Creditorsonlyhavecorporateassetstosatisfytheirclaims.

           5.     Responsibleto stockholdersfor corporateactivity.

           6.     Theamountassignedtoeachshareof stockinthecorporatecharter.

           7.     Unitofownershipinacorporation.

           8.     Enablesstockholderstomaintaintheirsamepercentageownershipwhennewshares areissued.

           9.     Corporation'sownstockthat has beenreacquiredbythe corporationbutnot retired.

 10.     Totalamountpaid-inoncapitalstock.

     SHORT-ANSWERESSAYQUESTIONS

S-AE188

Identifyatleastsixcharacteristicsofthecorporate formofbusinessorganization.Contrasteach one with thepartnershipformof organization.

   S-AE189

 Companiesfrequentlyissuebothpreferredstockandcommonstock.Whatarethemajor differences intherightsof stockholdersbetweenthesetwoclassesof stock?

  S-AE190

 Definepar value,anddiscussitssignificanceinaccounting.

   S-AE191(Ethics)

 JeffMadden,thepresidentandCEOofEarthSystems,Inc.,awastemanagementfirm,was recentlyhospitalized,sufferingfromexhaustionandaheartailment.Immediatelypriortohis hospitalization,EarthSystemshadexperiencedasharpdeclineinitsstockprice,andtrading activitybecamealmostnonexistent.Theprimaryreasonforthiswasconcernexpressedinthe mediaoveranewuntestedwastemanagementsystemimplementedbythecompany.Mr. Maddenhadbeenunwillingtosubmittheproceduretotestingbeforeimplementation,buthe reluctantlyagreedtolimitedtestsafterthesystemwasoperational.Noproblemshavebeen identifiedbytheteststodate.

 Theothermembersofmanagementcalledameetingtodeterminewhattheyshoulddo.Rick Farrell,themarketingmanager,suggestedthatthecompanypurchasealargenumberofshares oftreasurystock.Inthat way,investors mightnoticethatactivityhadpicked up,and mightdecide tobuysomemoreshares.Thisplanwoulduseupmostofthecompany'savailablecash,sothat therewillbenomoneyavailableforacashdividend.EarthSystemshaspaidcashdividends everyquarterfor overtenyears.

 Required:

1.IsMr. Farrell'ssuggestionethical?Explain.

2.Isitethicaltodiscontinuethecashdividend?Explain.

    S-AE192(Communication)

 AspartofaCareersinAccountingprogramsponsoredbyaccountingorganizationsand supportedbyyourcompany,youwillbetakingagroupofhighschoolstudentsthroughthe accountingdepartmentinyourcompany.Youwillalsoprovidethemwithvariousmaterialsto explaintheworkofanaccountant.OneofthematerialsyouwillprovideistheStockholders’ Equity sectionofarecent balancesheet.

 Required:

Prepareasentenceortwoexplainingeachmajorsection:CommonStock,AdditionalPaid-in Capital,andRetainedEarnings.Youshouldtrytobebriefbut clear.