Question

1. 1. Issued common stock for cash.

Purchased equipment by signing a note payable. Provided services to customers on account.

Collected cash from customers on account.

How many of the above transactions increased the given company's total liabilities?

1. Two.                             B) One.                             C) Four. D) Three.

1. 2 ABC purchased a computer that cost $10,000. It had an estimated useful life of 5 years and no residual value. The computer was depreciated by the straight-line method and was sold at the end of the fourth year of use for $3,000 cash. ABC should record:
   1. a loss of $1,000.
   2. neither a gain nor a loss - the gain that occurred in this case would not be recognized.
   3. a gain of $1,000.
   4. neither a gain nor a loss - the computer was sold at its book value.

2. 3. ABC purchased equipment for $60,000 on January 1, 2018. The equipment is expected to have a five-year life, with a residual value of $5,000 at the end of five years.

Using the straight-line method, depreciation expense for 2019 and the book value at December 31, 2019 would be:

A) $12,000 and $36,000.                                           B) $11,000 and $38,000.

C) $11,000 and $33,000.                                           D) $12,000 and $31,000.

3. 4.At the end of a reporting period, ABC determines that its ending inventory has a cost of $300,000 and a net realizable value of $230,000. What would be the effect(s) of the adjustment to write down inventory to net realizable value?
   1. Decrease total assets.                                            B) Decrease net income.

C) Decrease total assets and net income.                  D) Increase retained earnings.

1. 5.The sale of a good or service is classified in the statement of cash flows as a(n):
   1. Noncash activity.                                                  B) Financing activity.

C) Operating activity.                                                D) Investing activity.

2. 6.When we sign an Executory Contract, generally
   1. Expenses Increase
   2. Liabilities Increase
   3. No change to the Balance Sheet and no change to the Income Statement

Assets increase

1. 7.Suppose that ABC overstates its ending inventory for 2018. What effect will this have on the reported amount of cost of goods sold for 2018?
   1. Cannot be determined given the information provided.
   2. Have no effect on cost of goods sold.
   3. Understate cost of goods sold.
   4. Overstate cost of goods sold.

33. 8. If your employer declares bankruptcy, this can have a major effect on your pension if you are in a
    1. Either plan                                                            B) Defined Benefit Plan

C) Neither Plan                                                          D) Defined Contribution Plan

Answer 1

1. Solution: the correct option is “ A” i.e Two

• Issued Common Stock for cash
• Purchased Equipment by signing a note payable

2. Solution: the correct option is “ C” i.e a gain of $ 1000

Depreciation under straight line method= ($10,000-$0)/5 years=$ 2000

Written down value at the end of the fourth year=$ 2000

Since the asset is sold for $ 3000, Gain on sale=Sale value –book value at the end of 4^th year

=$ 3000-$ 2000= $ 1000

3. Solution: the correct option is “ B” i.e $ 11000 and $ 38000

Depreciation=( Cost—Residual value)/Life of asset

Depreciation=( $ 60000-$ 5000)/5 years=$ 11000 p.a

Written down value at the end of 2019=$ 60,000-$ 11,000-$ 11000= $ 38000

Therefore Depreciation for 2019= $11000 and Book value at the end of December 31 ,2019=$ 38000

4. Solution: the correct option is “ C” i.e Decrease Total Assets and Net Income

Inventory forms part of Cost of Goods Sold and Total Assets in the Balance sheet.

Therefore decrease in value of inventory decreases the net income as it is a loss to the Cost of Goods sold expense and also reduces the value of Inventory thereby reducing the value of Total Assets.