Q: Which formula correctly calculates annual depreciation expense using the straight-line method?

$$ \text{Annual Depreciation} = \frac{\text{Cost} - \text{Residual Value}}{\text{Useful Life}} $$

Q: Which formula is used to calculate the book value of an asset for depreciation purposes?

$$ \text{Book Value} = \text{Cost} - \text{Accumulated Depreciation} $$

Q: Which formula is used to calculate the present value of a bond's face value?

$$ \text{PV} = \text{Face Value} \times \text{PV Factor} $$

Question 1

Arnold Corporation acquired real estate for a plant site, including $$400,000 for land and 100$$,000 for a building. Which of the following expenditures should NOT be capitalized as part of the cost of land?

Accepted Answer

Payment to building contractor for new building

Question 2

Arrow Corporation acquires a conference room table for $$11,000 with a residual value of 2$$,000 and a useful life of 3 years. Using the straight-line method, what is the annual depreciation expense?

Accepted Answer

$3,000

Question 3

Which formula correctly calculates annual depreciation expense using the straight-line method?

Accepted Answer

$$ 	ext{Annual Depreciation} = \frac{	ext{Cost} - 	ext{Residual Value}}{	ext{Useful Life}} $$

Question 4

Luxly Corporation acquires a machine for $$60,000 with a residual value of 4$$,500 and a useful life of 4 years. What is the double-declining-balance (DDB) depreciation rate?

Accepted Answer

50%

Question 5

Which of the following expenditures related to fixed assets should be expensed rather than capitalized?

Accepted Answer

Cost of repairing vandalism damage during construction

Question 6

Cookson Corporation issues $300,000,000 of 15-year, 8% bonds at a market rate of 10%. Interest is paid semiannually. What is the amount of each interest payment?

Accepted Answer

$12,000,000

Question 7

When calculating the present value of a bond issued at a discount, which two components must be included?

Accepted Answer

Present value of the face value and present value of the interest payments

Question 8

Skystar Corporation issued $$50,000,000 of 12-year, 9% bonds at a premium, receiving 56$$,899,250. What is the journal entry to record the bond issuance?

Accepted Answer

Debit Cash $$56,899,250; Credit Bonds Payable 50$$,000,000; Credit Premium on Bonds Payable $6,899,250

Question 9

A company issues a $$50,000,000 bond at a premium and amortizes the premium using the straight-line method. If the total premium is 6$$,899,250 and there are 24 interest payments, what is the premium amortized per payment?

Accepted Answer

$287,469

Question 10

On July 1, 20Y3, Skystar Corporation redeemed its $$50,000,000 bonds at 115. If the carrying value at redemption was 55$$,461,905, what is the loss on redemption?

Accepted Answer

$2,038,095

Question 11

Which of the following is NOT included in the calculation of the cost of land for a plant site?

Accepted Answer

Cost of paving parking lots

Question 12

A company issues a $30,000 note payable with 8% interest for 2 months. What is the total interest expense for the period?

Accepted Answer

$400

Question 13

Bennet Company issues a $30,000 discounted note at 5% for 12 months. What is the amount of interest expense recorded at issuance?

Accepted Answer

$1,500

Question 14

Which formula is used to calculate the book value of an asset for depreciation purposes?

Accepted Answer

$$ 	ext{Book Value} = 	ext{Cost} - 	ext{Accumulated Depreciation} $$

Question 15

Which of the following is a cash receipt associated with fixed assets that should NOT be included in the asset's cost?

Accepted Answer

Proceeds from sale of salvage materials from old building

Question 16

A partnership is formed and assumes a $19,000 note payable owed by one partner. How does this affect the partner's capital account?

Accepted Answer

The capital account is reduced by $19,000

Question 17

When allocating a loss on realization in partnership liquidation, which account is debited?

Accepted Answer

Partners' capital accounts

Question 18

Which formula is used to calculate the present value of a bond's face value?

Accepted Answer

$$ 	ext{PV} = 	ext{Face Value} 	imes 	ext{PV Factor} $$

Question 19

If a partner is insolvent during partnership liquidation, what is the correct treatment for their capital deficiency?

Accepted Answer

Other partners absorb the deficiency according to their profit-sharing ratio

Fixed Asset Expenditures and Depreciation Methods in Financial Accounting

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