1. Which of the following expenditures would not be capitalized as part of the cost
of purchasing a piece of equipment?
principle or assumption?
On January 1, Smith & Sons purchased a delivery truck for $24,000, having a
salvage value of $2,000, and an estimated useful life of 4 years. Calculate the
depreciation expense in Year 2 assuming the use of straight-line depreciation.
Which of the following statements is false?
Accounting for the periodic amortization of intangible assets is similar to which
depreciation method?
An example of a current liability that must be accrued at the end of a fiscal period
is:
On October 1, Smith & Sons borrowed $60,000 from Bank of America on a 6
month, 7 percent note. If the company’s fiscal year ends on December 31 and
no adjusting entries have been made since the initial journal entry on October 1,
Smith & Sons should make a year-end adjusting entry involving a debit to:
Cave Creek Harley Davidson sells motorcycles. During the first year of
operations, the company sold 3,000 motorcycles, each with a 3 year warranty.
The company estimates that 10 percent of the motorcycles sold will need
warranty repair work at an average cost of $600 per motorcycle. In the second
year of operations, Cave Creek HD performed warranty work on the motorcycles
sold in the first year at a total cost of $30,000. When Cave Creek HD performs
the repairs in the second year, they will debit the Warranty Expense account for:
Italian Garden Restaurant sold $20,000 of gift cards in May. These gift cards
may be used anytime before their expiration on May 31 of the following year. In
May, when the gift cards are sold, Italian Garden will credit:
General Mills sells cereal and other food items to Safeway. General Mills mails
out 1,000,000 coupons to consumers on January 1 for $0.50 off a box of cereal.
Based on past experience with this type of coupon, General Mills estimates that
five percent of the coupons will be redeemed at Safeway. How much of a
“coupon liability” will General Mills record on January 1 when the coupons are
mailed?
Which of the following is not considered to be a contingent liability?
Contingent Liabilities
Smith & Sons, Inc., received notification from a local attorney that the company was being sued for $5,000,000 for patent infringement. A review of the situation by the company’s CEO led to the conclusion that Smith & Sons had indeed infringed upon the other company’s patented product. Nonetheless, the CEO thought the amount of $5,000,000 was excessive and intended to litigate the issue. How should the lawsuit be reported in Smith & Sons’ annual report?
