Estimated salvage value


Question 1. Equipment was purchased for $100,000 and has a book value of $44,000 and a depreciable cost of $76,000. The estimated salvage value is

a.    $44,000.
b.    $56,000.
c.    $32,000.
d.    $24,000.

Question 2. The purchase of office equipment for $15,000 cash

a.    is a cash outflow from financing activities.
b.    is a cash outflow from operating activities.
c.    is a cash outflow from investing activities.
d.    does not affect cash flows.

Question 3. Notes or accounts receivables that result from sales transactions are often called

a.    sales receivables.
b.    non-trade receivables.
c.    trade receivables.
d.    merchandise receivables.

Question 4. When the allowance method is used to account for uncollectible accounts, Bad Debts Expense is debited when

a.    a sale is made.
b.    an account becomes bad and is written off.
c.    management estimates the amount of uncollectibles.
d.    a customer's account becomes past-due.

Question 5. When an account becomes uncollectible and must be written off,

a.    Allowance for Doubtful Accounts should be credited.
b.    Accounts Receivable should be credited.
c.    Bad Debts Expense should be credited.
d.    Sales should be debited.

Question 6. Allowance for Doubtful Accounts on the balance sheet

a.    is offset against total current assets.
b.    increases the cash realizable value of accounts receivable.
c.    appears under the heading "Other Assets."
d.    is offset against accounts receivable.

Question 7. Two bases for estimating uncollectible accounts are:

a.    percentage of assets and percentage of sales.
b.    percentage of receivables and percentage of total revenue.
c.    percentage of current assets and percentage of sales.
d.    percentage of receivables and percentage of sales.

Question 8. A company purchased land for $80,000 cash. Real estate brokers' commission was $5,000 and $7,000 was spent for demolishing an old building on the land before construction of a new building could start. Under the cost principle, the cost of land would be recorded at

a.    $87,000.
b.    $80,000.
c.    $85,000.
d.    $92,000.

Question 9. The balance in the Accumulated Depreciation account represents the

a.    cash fund to be used to replace plant assets.
b.    amount to be deducted from the cost of the plant asset to arrive at its fair market value.
c.    amount charged to expense in the current period.
d.    amount charged to expense since the acquisition of the plant asset.

Question 10. The book value of an asset is equal to the

a.    asset's market value less its historical cost.
b.    blue book value relied on by secondary markets.
c.    replacement cost of the asset.
d.    asset's cost less accumulated depreciation.

Question 11. On October 1, 2003, Nance Company places a new asset into service. The cost of the asset is $20,000 with an estimated 5-year life and $5,000 salvage value at the end of its useful life. What is the depreciation expense for 2003 if Nance Company uses the straight-line method of depreciation?

a.    $750.
b.    $4,000.
c.    $1,000.
d.    $2,000.

Question 12. A company sells a plant asset that originally cost $180,000 for $60,000 on December 31, 2003. The accumulated depreciation account had a balance of $72,000 after the current year's depreciation of $18,000 had been recorded. The company should recognize a

a.    $120,000 loss on disposal.
b.    $48,000 gain on disposal.
c.    $48,000 loss on disposal.
d.    $30,000 loss on disposal.

Question 13. A current liability is a debt that can reasonably expected to be paid

a.    within one year.
b.    between 6 months and 18 months.
c.    out of currently recognized revenues.
d.    out of cash currently on hand.

Question 14. From a liquidity standpoint, it is most desirable for a company to have current

a.    assets equal current liabilities.
b.    liabilities exceed current assets.
c.    assets exceed current liabilities.
d.    liabilities exceed long-term liabilities.

Question 15. A retail store credited the Sales account for the sales price and the amount of sales tax on sales. If the sales tax rate is 5% and the balance in the Sales account amounted to $168,000, what is the amount of the sales taxes owed to the taxing agency?

a.    $160,000.
b.    $168,000.
c.    $8,400.
d.    $8,000.

Question 16. Sales taxes collected by a retailer are reported as

a.    contingent liabilities.
b.    revenues.
c.    expenses.
d.    current liabilities.

Question 17. Santo Company typically sells subscriptions on an annual basis, and publishes six times a year. The magazine sells 30,000 subscriptions in January at $15 each. What entry is made in January to record the sale of the subscriptions?

a.    Subscriptions Receivable 450,000
Subscription Revenue 450,000
b.    Cash 450,000
Unearned Subscription Revenue 450,000
c.    Subscriptions Receivable 75,000
Unearned Subscription Revenue 75,000
d.    Prepaid Subscriptions 450,000
Cash 450,000

Question 18. Stockholders of a corporation directly elect

a.    the president of the corporation.
b.    the board of directors.
c.    the treasurer of the corporation.
d.    all of the employees of the corporation.

Question 19. Bob Rice has invested $400,000 in a privately held family corporation. The corporation does not do well and must declare bankruptcy. What amount does Rice stand to lose?

a.    Up to his total investment of $400,000.
b.    Zero.
c.    The $400,000 plus any personal assets the creditors demand.
d.    $200,000.

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Accounting Basics: Estimated salvage value
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