Practice Midterm Quiz 14 Flashcards
- Hane Company purchased a machine for $30,000. Also associated with this purchase were $1,800 in sales taxes and $4,000 in machine preparation, shipping, and installation costs. Hane paid a total of $10,000 cash and signed a note payable agreeing to pay the remaining $25,800 in the future.
Which ONE of the following is included in the single journal entry necessary to record this purchase of a machine? Again, assume that all of these data are recorded in a single journal entry.
a. DEBIT to Machine for $35,800
b. DEBIT to Machine for $24,800
c. DEBIT to Machine for $31,800
d. DEBIT to Machine for $21,800
e. DEBIT to Machine for $30,000
f. DEBIT to Machine for $34,000
57.
Solution = A
Machine ($30,000 + $1,800 + $4,000) 35,800 Cash 10,000 Notes Payable 24,800
- Pecos Yo Company purchased a machine for $100,000 in cash on August 1 of Year 1. The machine has an estimated useful life of 10 years and an estimated salvage value of $10,000. Pecos Yo Company uses the straight-line method for computing depreciation expense.
Which ONE of the following is included in the journal entry necessary to record depreciation expense on the machine for Year 2?
a. CREDIT to Accumulated Depreciation for $9,000
b. CREDIT to Accumulated Depreciation for $12,750
c. CREDIT to Accumulated Depreciation for $5,250
d. CREDIT to Accumulated Depreciation for $14,750
e. CREDIT to Accumulated Depreciation for $18,000
58.
Solution = A
($100,000 - $10,000) / 10 years = $9,000
Year 1: $9,000 × (5/12) = $3,750
Year 2: $9,000
Year 3: $9,000
December 31, Year 2
Depreciation Expense 9,000
Accumulated Depreciation 9,000
- Pecos Yo Company purchased a machine for $100,000 in cash on August 1 of Year 1. The machine has an estimated useful life of 10 years and an estimated salvage value of $10,000. Pecos Yo Company uses the straight-line method for computing depreciation expense.
What is the BOOK VALUE of the machine as of the END of Year 3?
a. $70,000
b. $73,000
c. $66,667
d. $78,250
e. $82,000
f. $24,1667
59.
Solution = D
($100,000 - $10,000) / 10 years = $9,000
Year 1: $9,000 × (5/12) = $3,750
Year 2: $9,000
Year 3: $9,000
Cost $100,000
Less: Accumulated Depreciation (21,750)
= Book Value $78,250
- Pecos Yo Company purchased a machine for $100,000 in cash on August 1 of Year 1. The machine has an estimated useful life of 10 years and an estimated salvage value of $10,000. Pecos Yo Company uses the straight-line method for computing depreciation expense.
Which ONE of the following is included in the journal entry necessary to record the sale of the machine for $75,000 cash at the end of Year 5?
a. DEBIT to Accumulated Depreciation for $45,000
b. CREDIT to Machine for $100,000
c. CREDIT to Loss on Sale of Machine for $14,750
d. DEBIT to Accumulated Depreciation for $9,000
e. CREDIT to Accumulated Depreciation for $14,750
60.
Solution = B
($100,000 - $10,000) / 10 years = $9,000 Year 1: $9,000 × (5/12) = $3,750 Year 2: $9,000 Year 3: $9,000 Year 4: $9,000 Year 5: $9,000
Cost $100,000
Less: Accumulated Depreciation (39,750)
= Book Value $60,250
Cash 75,000 Accumulated Depreciation 39,750 Gain on Sale of Machine 14,750 Machine 100,000
- Hahnny Company purchased a machine for $100,000 in cash on January 1 of Year 1. The machine has an estimated salvage value of $20,000. It is expected that the machine will be used for 20,000 hours during its useful life. During the first four years of use, the machine usage was as follows: Year 1, 2,500 hours; Year 2, 3,000 hours; Year 3, 4,000 hours; Year 4, 5,000 hours. Hahnny Company uses the units-of-production method for computing depreciation expense.
What is the BOOK VALUE of the machine as of the END of Year 4?
a. $22,000
b. $62,000
c. $72,500
d. $37,500
e. $42,000
f. $58,000
61.
Solution = E
($100,000 - $20,000) / 20,000 hours = $4.00 per hour
Year 1: $4.00 per hour × 2,500 hours = $10,000
Year 2: $4.00 per hour × 3,000 hours = $12,000
Year 3: $4.00 per hour × 4,000 hours = $16,000
Year 4: $4.00 per hour × 5,000 hours = $20,000
Cost $100,000
Less: Accumulated Depreciation (58,000)
= Book Value $42,000
- Large Company purchased Small Company for $90,000 cash. At the time of the purchase, Small Company had assets with a fair value of $50,000. Small Company also had liabilities with a fair value of $70,000; Large Company assumed responsibility for the liabilities of Small Company on the date of the purchase. Note that the fair value of Small Company’s reported liabilities exceeded the fair value of the company’s reported assets.
How much GOODWILL should be recorded by Large Company in connection with this acquisition of Small Company for $90,000 cash?
a. $20,000
b. $40,000
c. $70,000
d. $90,000
e. $110,000
62.
Solution = E
$50,000 - $70,000 = negative $20,000 fair value of net “assets” acquired
$90,000 purchase price – (negative $20,000) = $110,000 goodwill
In this case, the most important reason for Large Company to acquire Small Company is to get Small Company’s very valuable goodwill.
- Smart Company purchased a patent for $100,000 in cash on April 1 of Year 1. The patent has an estimated remaining economic and legal life of 10 years. As is typical with intangible assets, the patent is assumed to have no estimated salvage value. Smart Company uses the straight-line method for computing amortization expense for its intangible assets.
Which ONE of the following is included in the journal entry necessary to record amortization expense on the patent for Year 3?
a. CREDIT to Accumulated Amortization for $10,000
b. CREDIT to Accumulated Amortization for $7,500
c. CREDIT to Accumulated Amortization for $30,000
d. CREDIT to Accumulated Amortization for $27,500
63.
Solution = A
($100,000 - $0) / 10 years = $10,000
Year 1: $10,000 × (9/12) = $7,500
Year 2: $10,000
Year 3: $10,000
Amortization Expense 10,000 Accumulated Amortization 10,000
- On January 1 of Year 1, Amber Company purchased a silver mine for $100,000. The mine will have a salvage value of $15,000 when all of the silver is removed. As of January 1 of Year 1, it was expected that the mine contained 20,000 ounces of silver. During Year 1, Amber Company removed 1,000 ounces of silver from the mine. On January 1 of Year 2, Amber Company spent $20,000 to make some mine improvements. The salvage value is still expected to be $15,000 at the end of the life of the mine. It is also estimated that the total amount of silver left in the mine is not impacted by the improvements, so with 1,000 ounces of silver removed during Year 1 there are 19,000 ounces remaining as of the beginning of Year 2. – During Year 2, Amber Company removed 2,000 ounces of silver from the mine.
What is the amount of DEPLETION EXPENSE for Year 2?
a. $11,050
b. $9,750
c. $10,600
d. $8,500
e. $9,125
64.
Solution = C
Year 1
($100,000 - $15,000) / 20,000 ounces = $4.25 per ounce
$4.25 per ounce × 1,000 ounces = $4,250
Book value at end of Year 1: $100,000 - $4,250 = $95,750
Year 2
[($95,750 + $20,000) - $15,000] / 19,000 remaining ounces = $5.30 per ounce
$5.30 per ounce × 2,000 ounces = $10,600
