1. What is depreciation and what does it do?

Process of allocating the cost of a plant asset to expense in the accounting periods
benefiting from its use. It does not measure the decline in the assets market value each
period, nor does it measure the assets physical deterioration. Only recorded when the
asset is actually in service.
2. How do you handle changes in accounting estimates?
Use the new estimate to compute depreciation for the current and future periods
3. You first purchase a vehicle with an estimated useful life of 8 years, after 4 years of
straight line depreciation we changed the estimated useful life, no change in salvage
value, what is depreciation expense in the following year? Straight line depreciation,
modifying our accounting estimates, halfway.
Cost salvage value
Useful life in periods
4. What are the similarities and differences between straight line depreciation and double
declining depreciation?
Depreciation expense per period differs for different methods, total depreciation expense
is the same over the useful life. The book value of the asset when using the straight-line is
always greater than the book value from using double declining balance except at the
beginning and end of the assets useful life, when it is the same.
5. Company bought a cash register (ex. 10,000), given the amount they paid for it, has a
useful life of 10 years (ex. 5 years), salvage value of $500 (ex. 1000). What would the
depreciation expense be for the second year of its useful life using the double declining
method?
1) compute the assets straight-line depreciation rate
2) double the straight-line rate
3) compute depreciation expense by multiplying this rate by the assets beginning-ofperiod book value
Step 1 straight-line rate = 100% useful life =
100% 5 years = 20%
Step 2 double-declining balance rate = 2 x straight-line rate =
2 x 20% = 40%
Step 3 depreciation expense = double-declining balance rate x beginning period book
value 40% x $10,000 = $4,000 (for 2013)
And then repeat step 3 until useful life ends. BUT the book value cannot be lower
than salvage value.

6. Company purchased property for $120,000. Property included a building, parking lot and
land. The building was appraised for $65,000, the land was appraised for $52,000, and
the parking lot for $23,000. How much should the land be recorded in the accounting
record?
120,000 x 52,000
(65,000 + 52,000 + 23,000) = 44571.43
7. What is the total cost of an asset less accumulated depreciation?
Book value
8. Company purchased a rope braiding machines for $200,000. The machine has a useful
life of 8 years, a residual value of $10,000. It is estimated the machine could produce
750,000 units of rope over its useful life. The first year, 95,000 units were produced, the
second year, production increased to 105,000. Using the units of production method,
what is the amount of depreciation for the second year?
Step 1 Cost salvage value
200,000 10,000 = 0.253
Total units of production =
750,000
Step 2 depreciation per unit x units produced in period
0.253 x 105,000 = 26600
9. Know about liabilities. All of the following are true about liabilities except for which
one?
1) a past transaction
2) a present obligation
3) a future payment of assets or services.
No liability is reported when one or more of those characteristics is absent.
10. What do amounts received in advance from customers for future products or services do
to the financial statement?
Records as liabilities
11. On nov. 1, carter company signed a 120 day note, 8% interest with a face value of
$10,000. What is the adjusting entry for the accrued interest on dec. 31?
$10,000 X 8% = $800 (annual interest expense)
$800 / 12 = $66.67 (the monthly interest expense)
$66.67 X 2 = $133.34 (the accrued interest for the months of November and December)
12. Using the same info from 11, what is the maturity value on the note on march 1?
2/12 = 0.167
2/12 * 0.08 = T
T * 10000 = A
A + 10,000 = Final answer
13. Same info again. What is the journal entry, as of march 1 to record the payment of the
note, assuming no reversing entry was made in January?
Debit Interest Expense $133.34

Debit Interest Payable $133.34

Debit Notes Payable $10,000
Credit Cash Final answer for 12
14. Company sold $15,000 worth of trampolines with an extended warranty. It estimates that
2% of these sales will result in warranty work. What should the company do?
Recognize warranty expense and liability at the time of sale.
15. What does mutual agency mean?
Implies that each partner is a fully authorized agent of the partnership. The partner can
commit or bind the partnership to any contract within the scope of the partnership
business.
16. Wenn invested $105,000, and Hansen invested $190,000 in a partnership. They agreed to
share incomes and losses by allowing a $50,000 per year salary to wenn and a $40,000
per year salary to Hansen, plus an interest allowance on the partners beginning capital of
10% per year and the balance to be shared equally. Under this agreement, how should
income of $100,000 be divided?
Nguyen
Net income
Salary allowance
Interest allowance
Balance of income
Balance divided
equally

Total

Hansen

$50,000
10,500
-

Total
$100,000
$40,000
(90,000)
19,000
(29,500)
- (19,500)

(9750)

(9750)

$50,750

$49,250

19,500

17. Chase and hatch are partners who share equally in income and loss. Chases current
capital balance $130,000 and hatchs is $125,000. Chase and hatch agree to accept Flax
into the partnership with a 30% interest. Flax invests $115,000 (or $150,000). What is the
amount credited to Flaxs capital account?
$130,000 + $125,000 + $115,000 = $370,000 x .30 = $111,000
18. A partnership designed to protect innocent partners from malpractice of negligence
claims resulting from the acts of another partner is called what kind of partnership?
Limited liability partnership

19. The right of common shareholders protecting their proportional interest in a corporation
by having the first opportunity to buy additional proportional shares of common stock is
called what?
Preemptive rights
20. How do the members of the board of directors get their jobs and what are they
responsible for?
Are responsible for and have final authority for managing corporate activities.
21. The number of shares in a corporations charter allows it to sell is referred to as what?
Authorized stock
22. A company issues 5,000 shares of $100 par value stock for $6,000. What is the total
amount of paid in capital?
$5,000+$6,000 = $11,000
23. A corporation issues 5,000 shares of $10 par common stock in exchange for some land
with a market value of $60,000. What is the journal entry to record this exchange?
Debit Land $60,000; credit Common Stock $50,000; credit Paid-In Capital in Excess
of Par Value, Common Stock $10,000
24. A companys board of directors declares cash dividend at $1 per share. The company has
20,000 shares authorized. 15,000 shares issued. And 12,000 shares outstanding. What is
the total amount of the cash dividend?
$1*12,000 = 12,000
25. Preferred stock with a feature allowing preferred stockholders to share with common
shareholders in any dividends in excess of the stated amount of the preferred stock is
called what type of stock?
Participating preferred stock
26. Extreme sports has $100,000 of 8% non cumulative non participating preferred stock
outstanding. Extreme sports also has $50,000 of common stock outstanding. In the
companys first year of operation, no dividends were paid during the second year the
company paid the cash dividends $30,000. How should that dividend be distributed to
preferred and to common stock?
= preferred, 0.08($100,000); common, $30,000 - 0.08($100,000)
= preferred, $8,000; common, $30,000 - $8,000
= preferred, $8,000; common, $22,000
Answer: a. $8,000 preferred, $22,000 common