ACCT 2301 Exam 3 V2 Key
1. Land acquired so it can be resold in the future is listed in the balance sheet as a(n)
a. #xed asset
b. current asset
c. investment
d. intangible asset
ANS: C DIF: Easy OBJ: 10-01
NAT: AACSB analytic | AICPA FN-Measurement
2. Which of the following should be included in the acquisition cost of a piece of equipment?
a. transporta0on costs
b. installa0on costs
c. tes0ng costs prior to placing the equipment into produc0on
d. all are correct
ANS: D DIF: Easy OBJ: 10-01
NAT: AACSB analytic | AICPA FN-Measurement
3. A building with an appraisal value of $137,000 is made available at an offer price of $142,000. The
purchaser acquires the property for $30,000 in cash, a 90-day note payable for $40,000, and a mortgage amoun0ng
to $60,000. The cost basis recorded in the buyer’s accoun0ng records to recognize this purchase is
a. $137,000
b. $142,000
c. $130,000
d. $100,000
ANS: C DIF: Moderate OBJ: 10-01
NAT: AACSB analytic | AICPA FN-Measurement
4. A new machine with a purchase price of $94,000, with transporta0on costs of $8,000, installa0on costs of
$6,000, and special acquisition fees of $2,000, would have a cost basis of
a. $ 96,000
b. $108,000
c. $102,000
d. $110,000
ANS: D DIF: Moderate OBJ: 10-01
NAT: AACSB analytic | AICPA FN-Measurement
5. Expenditures that add to the utility of #xed assets for more than one accounting period are
a. commiCed expenditures
b. revenue expenditures
c. current expenditures
d. capital expenditures
ANS: D DIF: Easy OBJ: 10-01
NAT: AACSB analytic | AICPA FN-Measurement
6. A machine with a cost of $65,000 has an es0mated residual value of $5,000 and an es0mated life of 5
years or 15,000 hours. It is to be depreciated by the units-of-produc0on method. What is the amount of
deprecia0on for the second full year, during which the machine was used 5,000 hours?
a. $8,000
b. $20,000
c. $12,000
d. $21,667
ANS: B DIF: DiDcult OBJ: 10-02
NAT: AACSB analytic | AICPA FN-Measurement
7. Equipment with a cost of $160,000 has an es0mated residual value of $10,000 and an es0mated life of 5
years or 12,000 hours. It is to be depreciated by the straight-line method. What is the amount of deprecia0on for
the #rst full year, during which the equipment was used 3,300 hours?
a. $30,000
b. $32,500
c. $34,000
d. $40,000
ANS: A DIF: DiDcult OBJ: 10-02
NAT: AACSB analytic | AICPA FN-Measurement
8. A machine with a cost of $65,000 has an es0mated residual value of $5,000 and an es0mated life of 4
years or 18,000 hours. What is the amount of deprecia0on for the second full year, using the double declining-
balance method ?
a. $15,000
b. $30,000
c. $16,250
d. $32,500
ANS: C DIF: DiDcult OBJ: 10-02
NAT: AACSB analytic | AICPA FN-Measurement
9. If a #xed asset, such as a computer, were purchased on January 1st for $1,950 with an es0mated life of 3
years and a salvage or residual value of $150, the journal entry for monthly expense under straight-line
deprecia0on is:
(Note: EOM indicates the last day of each month.)
a. EOM Deprecia0on Expense 50.00
Accumulated depreciation 50.00
b. EOM Deprecia0on Expense 600.00
Accumulated depreciation 600.00
c. EOM Accumulated Deprecia0on 600.00
Deprecia0on Expense 600.00
d. EOM Accumulated Deprecia0on 50.00
Deprecia0on Expense 50.00
ANS: A DIF: Easy OBJ: 10-02
NAT: AACSB analytic | AICPA FN-Measurement
10. Computer equipment was acquired at the beginning of the year at a cost of $56,000 that has an es0mated
residual value of $3,000 and an es0mated useful life of 5 years. Determine the 2nd year’s depreciation using
straight-line depreciation.
a. $11,200
b. $22,400
c. $10,600
d. $13,600
ANS: C DIF: Easy OBJ: 10-02
NAT: AACSB analytic | AICPA FN-Measurement
11. An asset was purchased for $60,000 and originally es0mated to have a useful life of 10 years with a
residual value of $3,000. AGer two years of straight line deprecia0on, it was determined that the remaining useful
life of the asset was only 2 years with a residual value of $2,000. Calculate this year’s deprecia0on using the
revised amounts and straight line method.
a. $22,800
b. $11,400
c. $23,300
d. $24,000
ANS: C DIF: Moderate OBJ: 10-02
NAT: AACSB analytic | AICPA FN-Measurement
12. A #xed asset with a cost of $30,000 and accumulated depreciation of $27,500 is sold for $3,500. What is
the amount of the gain or loss on disposal of the #xed asset?
a. $2,500 loss
b. $1,000 loss
c. $2,500 gain
d. $1,000 gain
ANS: D DIF: DiDcult OBJ: 10-03
NAT: AACSB analytic | AICPA FN-Measurement
13. On December 31, Reach It BaIng Cages Company has decided to trade-in one of its baIng cages for
another one that has a cost of $500,000. The seller of the baIng cage is willing to allow a trade-in amount of
$12,000. The initial cost of the old equipment was $225,000 with an accumulated deprecia0on of $195,000.
Deprecia0on has been taken up to the end of the year. The difference will be paid in cash. What is the amount of
the gain or loss on this transaction?
a. Loss of $12,000
b. Gain of $12,000
c. Loss of $18,000
d. No loss or gain will be recorded.
ANS: C DIF: DiDcult OBJ: 10-03
NAT: AACSB analytic | AICPA FN-Measurement
14. The Weber Company purchased a mining site for $500,000 on July 1, 2007. The company expects to mine
ore for the next 10 years and an0cipates that a total of 100,000 tons will be recovered. The es0mated residual
value of the property is $80,000. During 2007 the company extracted 6,000 tons of ore. The deple0on expense for
2007 is
a. $12,600
b. $42,000
c. $25,200
d. $50,000
ANS: C DIF: DiDcult OBJ: 10-04
NAT: AACSB analytic | AICPA FN-Measurement
15. XYZ Company purchased a patent from ABC for $144,000. At the 0me of purchase the patent had been in
existence for 8 years. What is the first year’s amor0za0on?
a. $7,200
b. $18,000
c. $12,000
d. $144,000
ANS: C DIF: DiDcult OBJ: 10-05
NAT: AACSB analytic | AICPA FN-Measurement
Chapter 11—Current Liabilities and Payroll
16. On June 8, Acme Co. issued an $80,000, 6%, 120-day note payable to still Co. What is the due date of the
note?
a. October 8
b. October 7
c. October 6
d. October 5
ANS: C DIF: Easy OBJ: 11-01
NAT: AACSB analytic | AICPA FN-Measurement
17. On June 8, Acme Co. issued an $80,000, 6%, 120-day note payable to still Co. What is the maturity value
of the note?
a. $80,100
b. $84,800
c. $81,600
d. $81,200
ANS: C DIF: Moderate OBJ: 11-01
NAT: AACSB analytic | AICPA FN-Measurement
18. On June 8, Acme Co. issued an $80,000, 6%, 120-day note payable to still Co. Assume that the #scal year
of Acme Co. ends June 30. What is the amount of interest expense recognized by Acme in the current #scal year?
a. $293.33
b. $400.00
c. $391.11
d. $1,600.00
ANS: A DIF: Moderate OBJ: 11-01
NAT: AACSB analytic | AICPA FN-Measurement
19. Current liabilities are due
a. and receivable within one year.
b. but not receivable for more than one year.
c. but not payable for more than one year.
d. and payable within one year.
ANS: D DIF: Easy OBJ: 11-01
NAT: AACSB analytic | AICPA FN-Measurement
20. Which of the following taxes would be deducted in determining an employee’s net pay?
a. FUTA taxes
b. SUTA taxes
c. FICA taxes
d. all of the above
ANS: C DIF: Easy OBJ: 11-02
NAT: AACSB analytic | AICPA FN-Measurement
21. For which of the following taxes is there no ceiling on the amount of employee annual earnings subject to
the tax?
a. only Social Security tax
b. only Medicare tax
c. only unemployment compensation tax
d. none of the above
ANS: B DIF: Easy OBJ: 11-02
NAT: AACSB analytic | AICPA BB-Legal
22. An employee receives an hourly rate of $25, with 0me and a half for all hours worked in excess of 40
during a week. Payroll data for the current week are as follows: hours worked, 46; federal income tax withheld,
$350; cumula0ve earnings for year prior to current week, $99,700; social security tax rate, 6.0% on maximum of
$100,000; and Medicare tax rate, 1.5% on all earnings. What is the gross pay for the employee?
a. $775.00
b. $752.50
c. $1,225.00
d. $1,102.50
ANS: C DIF: Moderate OBJ: 11-02
NAT: AACSB analytic | AICPA FN-Measurement
23. An employee receives an hourly rate of $25, with 0me and a half for all hours worked in excess of 40
during a week. Payroll data for the current week are as follows: hours worked, 46 federal income tax withheld,
$350; cumula0ve earnings for year prior to current week, $99,700; social security tax rate, 6.0% on maximum of
$100,000; and Medicare tax rate, 1.5% on all earnings. What is the net amount to be paid the employee?
a. $875.00
b. $838.62
c. $857.00
d. $1133.14
ANS: B DIF: Moderate OBJ: 11-02
NAT: AACSB analytic | AICPA FN-Measurement
24. An employee receives an hourly rate of $30, with 0me and a half for all hours worked in excess of 40
during a week. Payroll data for the current week are as follows: hours worked, 46; federal income tax withheld,
$300; cumula0ve earnings for year prior to current week, $90,700; social security tax rate, 6.0% on maximum of
$100,000; and Medicare tax rate, 1.5% on all earnings. What is the net amount to be paid the employee?
a. $1,470
b. $1,059.75
c. $1,381.80
d. $1,249.50
ANS: B DIF: Moderate OBJ: 11-02
NAT: AACSB analytic | AICPA FN-Measurement
25. Which of the following will have no e;ect on an employee’s take-home pay?
a. Social security tax
b. Unemployment tax
c. Marital status
d. Number of exemp0ons claimed
ANS: B DIF: Easy OBJ: 11-02
NAT: AACSB analytic | AICPA FN-Measurement
26. Which of the following are included in the employer’s payroll taxes?
a. SUTA taxes
b. FUTA taxes
c. FICA taxes
d. all of the above
ANS: D DIF: Easy OBJ: 11-02
NAT: AACSB analytic | AICPA BB-Legal
27. Each year there is a ceiling for the amount that is subject to all of the following except
a. Social security tax
b. Federal income tax
c. federal unemployment tax
d. state unemployment tax
ANS: B DIF: Easy OBJ: 11-02
NAT: AACSB analytic | AICPA BB-Legal
28. Searches Company sells merchandise with a one year warranty. In 2007, sales consisted of 2,500 units. It
is es0mated that warranty repairs will average $10 per unit sold, and 30% of the repairs will be made in 2007 and
70% in 2008. In the 2007 income statement, Searches should show warranty expense of
a. $25,000
b. $7,500
c. $17,500
d. $0
ANS: A DIF: Moderate OBJ: 11-05
NAT: AACSB analytic | AICPA FN-Measurement
29. During September, Eltronics sold 100 radios for $50 each. Each radio cost Eltronics $30 to purchase, and
carried a two-year warranty. If 5% typically need to be replaced over the warranty period and one is actually
replaced during September, for what amount in September would Eltronics debit Product Warranty Expense?
a. $50
b. $150
c. $30
d. $120
ANS: B DIF: Moderate OBJ: 11-05
NAT: AACSB analytic | AICPA FN-Measurement
30. The journal entry a company uses to record the es0mated accrued product warranty liability is
a. debit Product Warranty Expense; credit Product Warranty Payable
b. debit Product Warranty Payable; credit Cash
c. debit Product Warranty Expense; credit Cash
d. debit Product Warranty Payable; credit Product Warranty Expense
ANS: A DIF: Easy OBJ: 11-05
NAT: AACSB analytic | AICPA FN-Measurement
31. One of the main disadvantages of the corporate form is the
a. professional management
b. double taxa0on of dividends
c. charter
d. corpora0on must issue stock
ANS: B DIF: Easy OBJ: 13-01
NAT: AACSB analytic | AICPA BB-Industry
32.Which one of the following would not be considered an advantage of the corporate form of organiza0on?
a. Government regula0on
b. Separate legal existence
c. continuous life
d. Limited liability of stockholders
ANS: A DIF: Easy OBJ: 13-01
NAT: AACSB analytic | AICPA BB-Legal
33. The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that
40,000 shares were originally issued and 5,000 were subsequently reacquired. What is the number of shares
outstanding?
a. 5,000
b. 35,000
c. 45,000
d. 55,000
ANS: B DIF: Easy OBJ: 13-03
NAT: AACSB analytic | AICPA FN-Measurement
34. The price at which a stock can be sold depends upon a number of factors. Which statement below is not
one of those factors?
a. the financial condition, earnings record, and dividend record of the corpora0on
b. investor expecta0ons of the corpora0on’s earning power
c. how high the par value
d. general business and economic conditions and prospects
ANS: C DIF: Easy OBJ: 13-03
NAT: AACSB analytic | AICPA FN-Measurement
35. A corpora0on issues 2,000 shares of common stock for $ 32,000. The stock has a stated value of $10 per
share. The journal entry to record the stock issuance would include a credit to Common Stock for
a. $20,000
b. $32,000
c. $12,000
d. $2,000
ANS: A DIF: Easy OBJ: 13-03
NAT: AACSB analytic | AICPA FN-Measurement
36. Hurd Company acquired a building valued at $160,000 for property tax purposes in exchange for 10,000
shares of its $5 par common stock. The stock is widely traded and selling for $15 per share. At what amount should
the building be recorded by Hurd Company?
a. $50,000
b. $150,000
c. $160,000
d. $200,000
ANS: B DIF: Easy OBJ: 13-03
NAT: AACSB analytic | AICPA FN-Measurement
37.If Larger Company issues 1,000 shares of $5 par value common stock for $70,000, the account
a. Common Stock will be credited for $70,000.
b. Paid-in Capital in excess of Par Value will be credited for $5,000.
c. Paid-in Capital in excess of Par Value will be credited for $65,000.
d. Cash will be debited for $65,000.
ANS: C DIF: Moderate OBJ: 13-03
NAT: AACSB analytic | AICPA FN-Measurement
38. The Snow Corpora0on issues 10,000 shares of $50 par value preferred stock for cash at $60 per share. The
entry to record the transaction will consist of a debit to Cash for $600,000 and a credit or credits to
a. Preferred Stock for $600,000.
b. Preferred stock for $500,000 and Paid-in Capital in Excess of Par Value—Preferred Stock for
$100,000.
c. Preferred Stock for $500,000 and Retained Earnings for $100,000.
d. Paid-in Capital from Preferred Stock for $600,000.
ANS: B DIF: Moderate OBJ: 13-03
NAT: AACSB analytic | AICPA FN-Measurement
39. Alliance Corp. issues 1,000 shares of $10 par value common stock at $14 per share. When the transaction
is recorded, credits are made to:
a. Common Stock $14,000.
b. Common Stock $10,000 and Paid-in Capital in Excess of Par Value $4,000.
c. Common Stock $10,000 and Paid-in Capital in Excess of Stated Value $4,000.
d. Common Stock $10,000 and Retained Earnings $4,000.
ANS: B DIF: Easy OBJ: 13-03
NAT: AACSB analytic | AICPA FN-Measurement
40.New Corp. issues 1,000 shares of $10 par value common stock at $15 per share. When the transaction is
recorded, credits are made to:
a. Common Stock $10,000 and Paid-in Capital in Excess of Par Value $5,000.
b. Common Stock $10,000 and Retained Earnings $5,000.
c. Common Stock $10,000 and Paid-in Capital in Excess of Stated Value $5,000.
d. Common Stock $15,000.
ANS: A DIF: Easy OBJ: 13-03
NAT: AACSB analytic | AICPA FN-Measurement
41. On January 1, 20xx, Sunshine Corpora0on had 40,000 shares of $10 par value common stock issued and
outstanding. All 40,000 shares had been issued in a prior period at $20.00 per share. On February 1, 20xx,
Sunshine purchased 2,000 shares of treasury stock for $23 per share and later sold the treasury shares for $21 per
share on March 1, 20xx.
The journal entry to record the purchase of the treasury shares on February 1, 20xx, would include a
a. credit to Treasury Stock for $46,000.
b. debit to Treasury Stock for $46,000.
c. debit to a loss account for $6,000
d. credit to a gain account for $6,000.
ANS: B DIF: Moderate OBJ: 13-03
NAT: AACSB analytic | AICPA FN-Measurement
42. The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that
50,000 shares were originally issued and 5,000 were subsequently reacquired. What is the amount of cash
dividends to be paid if a $1 per share dividend is declared?
a. $50,000
b. $5,000
c. $100,000
d. $45,000
ANS: D DIF: Moderate OBJ: 13-04
NAT: AACSB analytic | AICPA FN-Measurement
43. The date on which a cash dividend becomes a binding legal obliga0on is on the
a. declara0on date.
b. date of record.
c. payment date.
d. last day of the #scal year end.
ANS: A DIF: Easy OBJ: 13-04
NAT: AACSB analytic | AICPA BB-Legal
44. Which of the following is the appropriate general journal entry to record the declaration of a cash
dividends?
a. Retained earnings
Cash
b. Cash Dividends payable
Cash
c. Paid-in capital
Cash Dividends payable
d. Cash Dividends
Cash Dividends Payable
ANS: D DIF: Easy OBJ: 13-04
NAT: AACSB analytic | AICPA FN-Measurement
45. The liability for a dividend is recorded on which of the following dates?
a. the date of record
b. the date of payment
c. the date of announcement
d. the date of declaration
ANS: D DIF: Easy OBJ: 13-04
NAT: AACSB analytic | AICPA FN-Measurement
46. When a stock dividend is declared, which of the following accounts is credited?
a. Common Sock
b. Dividend Payable
c. Stock Dividends Distributable
d. Retained Earnings
ANS: C DIF: Easy OBJ: 13-04
NAT: AACSB analytic | AICPA FN-Measurement
47. Which statement below is not a reason for a corporation to buy back its own stock.
a. resale to employees
b. bonus to employees
c. for suppor0ng the market price of the stock
d. to increase the shares outstanding
ANS: D DIF: Easy OBJ: 13-05
NAT: AACSB analytic | AICPA FN-Measurement
48. How is treasury stock shown on the balance sheet?
a. as an asset
b. as a decrease in stockholders’ equity
c. as an increase in stockholders’ equity
d. treasury stock is not shown on the balance sheet
ANS: B DIF: Easy OBJ: 13-05
NAT: AACSB analytic | AICPA FN-Measurement
49. The excess of sales price of treasury stock over its cost should be credited to
a. Treasury Stock Receivable
b. Premium on Capital Stock
c. Paid-In Capital from Sale of Treasury Stock
d. Income from Sale of Treasury Stock
ANS: C DIF: Easy OBJ: 13-05
NAT: AACSB analytic | AICPA FN-Measurement
50. What is the total stockholders’ equity based on the following account balances?
Common Stock $400,000
Paid-In Capital in Excess of Par 40,000
Retained Earnings 190,000
Treasury Stock 20,000
a. $640,000
b. $630,000
c. $610,000
d. $650,000
ANS: C DIF: Easy OBJ: 13-05
NAT: AACSB analytic | AICPA FN-Measurement
51. Treasury stock that had been purchased for $5,400 last month was reissued this month for $7,500. The
journal entry to record the reissuance would include a credit to
a. Treasury Stock for $7,500
b. Paid-In Capital from Treasury Stock for $7,500
c. Paid-In Capital in Excess of Par/Common for $2,100
d. Paid-In Capital from Treasury Stock for $2,100
ANS: D DIF: Easy OBJ: 13-05
NAT: AACSB analytic | AICPA FN-Measurement
52. A corpora0on purchased 1,000 shares of its $5 par common stock at $10 and subsequently sold 500 of the
shares at $20. What is the amount of revenue realized from the sale?
a. $0
b. $5,000
c. $2,500
d. $10,000
ANS: A DIF: Easy OBJ: 13-05
NAT: AACSB analytic | AICPA FN-Measurement
Other descrip0ve title for #xed assets would include
both plant assets and property, plant, and equipment.
A capital expenditure would appear on the
balance sheet under xed assets.
If a capital expenditure is treated as a revenue expenditure, then
expenses are overstated and owners’ equity is understated.
If a revenue expenditure is treated as a capital expenditure, then
expenses are understated and owners’ equity is overstated.
Which of the following expenditures would NOT be included in the cost of an asset?
Vandalism
A company acquired some land for $80,000 to construct a new oDce complex. Legal fees paid were $2,300,
delinquent taxes assumed were $3,400, and $5,850 was paid to remove an old building from which salvaged
materials sold for $1,950. What is the cost basis for the land?
$89,600
All amounts paid to get an asset in place and ready for use are referred to as
cost of an asset.
The removal of an old building to make the land ready for its intended use is charged to
land.
Expenditures that add to the utility of #xed assets for more than one accounting period are
capital expenditures.
Which of the following should be included in the acquisition cost of a piece of equipment?
Transportation costs, Installation costs, & testing costs prior to placing the equipment into production
Which of the following is an example of a capital expenditure?
Replacing an engine in a company car
Land improvements include
fences, trees and shrubs, & outdoor lighting.
Which of the following is NOT a fixed asset?
Land held for investment
Book value is de#ned as
cost less accumulated depreciation.
What type of deprecia0on occurs when an asset can no longer provide services at the level originally intended?
Functional depreciation
Salvage value has a similar meaning as
both residual value and scrap value.
Depreciable cost equals
cost less residual value.
Which of the following is NOT characteris0c of the accumulated deprecia0on account?
Accumulated depreciation represents cash reserved for asset replacement.
Which method of deprecia0on considers residual value in computting the normal periodic deprecia0on?
Straight-line
The accoun0ng term deprecia0on measures
the amount of asset cost allocated to expense over periods bene ted.
Accelerated deprecia0on is primarily used for
income tax purposes.
Recording deprecia0on
decreases net income and has no effect on cash 4ows.
To measure deprecia0on, all of the following must be known EXCEPT
market value.
A machine was purchased for $60,000. It has a useful life of 5 years and a residual value of $6,000. Under the
straight-line method, what is annual deprecia0on expense?
$10,800
Equipment was purchased for $18,000. It has a useful life of 5 years and a residual value of $2,000. What is
deprecia0on expense for year one under the double-declining-balance method?
$7,200
