Q: Which of the following is the correct formula for calculating book value of a plant asset?

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

Question 1

A company uses the periodic inventory system. At year-end, the inventory on hand has a cost of $$\12$$,000$$ and a net realizable value of $$\$$10,500. $$According to the lower of cost or net realizable value rule, what amount should be reported as inventory on the balance sheet?

Accepted Answer

$$\10$$,500$

Question 2

Which of the following journal entries correctly records the adjustment when inventory is written down from cost to net realizable value under the lower of cost or net realizable value rule?

Accepted Answer

Debit Cost of Goods Sold, Credit Inventory

Question 3

A machine was purchased for $$\50$$,000$$ with an estimated salvage value of $$\$$5,000$$ and a useful life of 10 years. What is the annual depreciation expense using the straight-line method?

Accepted Answer

$$\4$$,000$

Question 4

A company uses the double declining balance method to depreciate equipment with a cost of $$\40$$,000$, no salvage value, and a useful life of 5 years. What is the depreciation expense for the first year?

Accepted Answer

$$\16$$,000$

Question 5

A company sold a piece of equipment for $$\7$$,000$$. The equipment originally cost $$\$$20,000$$ and had accumulated depreciation of $$\15$$,000$ at the time of sale. What is the gain or loss on the sale?

Accepted Answer

Gain of $$\2$$,000$

Question 6

Which of the following is the correct formula for calculating book value of a plant asset?

Accepted Answer

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

Question 7

A company issues $$\100$$,000$ of 5-year, 8% bonds at 98. What is the amount of cash received from the bond issuance?

Accepted Answer

$$\98$$,000$

Question 8

Which of the following best describes a contingent liability?

Accepted Answer

A potential liability that depends on the outcome of a future event

Question 9

A company issues 1,000 shares of $$\10$ par value common stock for $$\$$15$$ per share. What is the correct journal entry to record this transaction?

Accepted Answer

Debit Cash $$\15$$,000$$; Credit Common Stock $$\$$10,000$$; Credit Additional Paid-in Capital $$\5$$,000$

Question 10

When a company reacquires its own shares as treasury stock, which of the following is true?

Accepted Answer

Treasury stock is recorded at cost and reduces total equity

Question 11

Which section of the statement of cash flows would the purchase of equipment for cash appear in?

Accepted Answer

Investing activities

Question 12

Which of the following adjustments is made to net income in the operating section of the cash flow statement under the indirect method?

Accepted Answer

Add depreciation expense

Question 13

If accounts receivable increased during the year, how is this reflected in the operating section of the statement of cash flows (indirect method)?

Accepted Answer

It is subtracted from net income

Question 14

A company had the following transactions during the year: issued bonds for $$\50$$,000$$, paid dividends of $$\$$5,000$$, and purchased land for $$\20$$,000$. What is the net cash flow from financing activities?

Accepted Answer

$$\45$$,000$

Question 15

Which of the following is NOT a non-cash adjustment to net income in the operating section of the cash flow statement?

Accepted Answer

Payment of dividends

Question 16

A company uses the units of production method to depreciate a machine costing $$\24$$,000$$ with a salvage value of $$\$$4,000. $$The machine is expected to produce 10,000 units. If 2,500 units are produced in the first year, what is the depreciation expense for that year?

Accepted Answer

$$\5$$,000$

Question 17

Which of the following best describes the effect of issuing bonds at a discount?

Accepted Answer

The company receives less cash than the face value of the bonds

Question 18

Which of the following would increase cash from operating activities under the indirect method?

Accepted Answer

A decrease in accounts receivable

Question 19

A company reacquires 500 shares of its own $$\1$ par value common stock for $$\$$8$$ per share. What is the correct journal entry?

Accepted Answer

Debit Treasury Stock $$\4$$,000$$; Credit Cash $$\$$4,000$$

Question 20

Which of the following is a correct adjustment rule for assets when preparing the operating section of the cash flow statement using the indirect method?

Accepted Answer

A decrease in an asset is added to net income

ACC205 Final Exam Review: Key Financial Accounting Concepts

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