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11. Royal Company purchased a dump truck at the beginning of 2014 at a cost of $60,000. The truck had an estimated life of 6 years and an estimated residual value of $24,000. On January 1, 2016, the company made major repairs of $20,000 to the truck that extended the life 1 year. Thus, starting with 2016, the truck has a remaining life of 5 years and a new salvage value of $8,000. Royal uses the straight-line depreciation method. What amount should be recorded as depreciation expense each year starting in 2016?
a. $6,000
b. $12,000
c. $13,600
d. $14,400
12. At the end of 2016, Clock Products, Inc. determined that one of its patents was worthless. The patent had a cost of $300,000. The patent had been amortized for 5 years of its estimated 15-year legal life. Which of the following statements is correct?
a. Clock Products must continue to amortize the patent over its remaining 10 years of life.
b. The patent must be reduced to 5/15, or 33.3% of its original cost and amortized over the remaining 10 years.
c. The remaining unamortized cost must be removed from the accounting records and treated as a loss on the income statement.
d. Clock Products must correct its financial statements for the past five years, so that the entire cost is allocated to that five-year period.
13. At the end of 2016, Mirror Productions determined that one of its copyrights was worthless. The copyright had a cost of $320,000. The copyright had been amortized for 8 years of its estimated 25-year legal life. Which of the following statements is the justification for removing the remaining cost of the copyright from the accounting records?
a. The copyright no longer represents a future benefit to the company.
b. The federal government does not allow copyrights to be recorded as assets once they are deemed worthless.
c. The cost of the copyright represents an obligation to return capital contributions to the stockholders.
d. The cost of the copyright has usefulness that will impact the net income of future accounting periods.
14. A bank loaned Darden Company $10,000 on a 1-year, 6% note, but deducted the interest in advance. The journal entry made by Darden to record receipt of the cash would include a
a. an increase in Cash for $9,400
b. an increase in Cash for $600
c. a decrease in Notes Payable for $10,600
d. a decrease in Notes Payable for $9,400
15. Assume the current ratio is 2 to 1. Payment on accrued salaries payable would cause the current ratio to
a. increase
b. decrease
c. be unchanged since the effects offset one another
d. be unchanged since it has no impact on any current accounts
16. Proctor Inc. has a weekly payroll of $8,000 for a 5-day workweek, Monday through Friday. If December 31, the last day of the accounting year, falls on Wednesday, Proctor would make an adjusting entry that would
a. increase wages expense $4,800.
b. decrease wages payable $4,800.
c. decrease cash $4,800.
d. increase wages payable $8,000.
17. On May 1, the Chris Company borrowed $30,000 from the Third Street Bank on a 1-year, 6% note. If the company keeps its records on a calendar year, an entry is needed on December 31 to increase
a. Interest Expense, $600.
b. Interest Expense, $1,800.
c. Interest Payable, $900.
d. Interest Payable, $1,200.
18. Almost all current liabilities affect the operating category of the statement of cash flows, but one that does not affect cash provided by operating activities is
a. accounts payable.
b. interest payable.
c. notes payable.
d. taxes payable.
19. Which of the following is an example of a contingent liability?
a. A liability for notes payable with interest included in the face amount.
b. The liability for future warranty repairs on computers sold during the current period.
c. A lawsuit pending against a restaurant chain for improper preparation of food.
d. A corporate long-term employment contract with the chief executive officer.
20. To determine whether a lottery winner would prefer to receive the money in a single lump sum immediately or receive an equal amount over a period of years, you would use which type of time value of money calculation?
a. The future value of a single amount.
b. The present value of a single amount.
c. The future value of an annuity.
d. The present value of an annuity.
