Question : 51. A company acquires land by issuing 10,000 shares of its : 1228542

 

51. A company acquires land by issuing 10,000 shares of its $10 par value common stock currently trading at $20 per share and the appraised value of the land is $250,000. Which of the following statements correctly describes the recording of the land? 
A. Record the land at its appraised value of $250,000 and recognize a gain of $50,000 since the issued stock is currently worth $200,000.
B. Record the land at the value of the consideration given up, $200,000.
C. Record the land at the average of its appraised value of $250,000 and the $200,000 value of the stock issued, thereby recognizing a $25,000 gain.
D. Record the land at the par value of the stock given up, $100,000.

52. Which of the following statements is incorrect? 
A. Replacement of a truck’s tires would be treated as a capital expenditure.
B. The cost of replacing carpet in a building would be a revenue expenditure.
C. Cost of replacing a roof on a newly purchased building before using it as a store would be a capital expenditure.
D. The cost of repainting a hallway would be a revenue expenditure.

53. Gilbert Company made an ordinary repair to a delivery truck during 2010 at a cost of $500 and capitalized the repair cost. What will be the effect on the 2010 financial statements as a result of the capitalization? 
A. The financial statements aren’t affected.
B. Assets and net income are both overstated.
C. Assets are overstated and net income was understated.
D. Assets and stockholders’ equity are both understated.

54. Which of the following would most likely not be a revenue expenditure? 
A. Repairing the carpet in the sales department offices.
B. Repairing a leaky roof.
C. Putting a hydraulic lift on a delivery truck making it easier and quicker to deliver appliances.
D. Painting the exterior of the factory building.

55. What is the effect on the 2010 financial statements when a capital expenditure during 2010 was incorrectly recorded as a revenue expenditure? 
A. The financial statements aren’t affected.
B. Assets and net income are both overstated.
C. Assets are overstated and net income was understated.
D. Assets and stockholders’ equity are both understated.

56. Which of the following best describes the objective of depreciation? 
A. To allocate the cost of a tangible asset to the periods in which its use contributes to earning revenue.
B. To estimate the remaining useful life of the asset.
C. To report the asset on the balance sheet at the estimated amount for which the asset could be sold on the balance sheet date.
D. To estimate the current replacement cost of the asset.

57. Which of the following doesn’t properly describe the depreciation process? 
A. It is an allocation process.
B. It is consistent with the matching principle.
C. It involves the use of estimates.
D. It attempts to determine an asset’s market value.

58. Which of the following describes the effect of recording depreciation expense at year-end? 
A. Net income decreases and total assets aren’t affected.
B. Total assets decrease and stockholders’ equity is not affected.
C. Net income decreases and total assets decrease.
D. Stockholders’ equity is not affected and net income decreases.

59. Why is the continuity assumption important with respect to the accounting for long-lived tangible assets? 
A. It helps a company decide whether to use straight-line depreciation or an accelerated depreciation method.
B. It justifies depreciating the asset over its expected useful life, without anticipating that the business will liquidate in the near future.
C. It provides justification for including residual values in calculating depreciation.
D. It is consistent with maintaining assets in the accounting records at market value rather than acquisition cost.

60. On January 1, 2010, Woodstock, Inc. purchased a machine costing $40,000. Woodstock also paid $1,000 for transportation and installation. The expected useful life of the machine is 6 years and the residual value is $5,000. How much is the annual depreciation expense assuming use of the straight-line depreciation method? 
A. $6,100
B. $6,000
C. $5,950
D. $5,750

 

 

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