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# Multiple Choice Accounting Problems

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1. A characteristic of a fixed asset is that it is:

a. intangible
b. used in the operations of a business
c. held for sale in the ordinary course of the business
d. not currently used in the business but held for future use

2. Which of the following is included in the cost of constructing a
building?

a. interest on money borrowed to finance construction
b. cost of paving parking lot
c. cost of repairing vandalism damage during construction
d. cost of removing the demolished building existing on the land when it was
purchased

3. A machine with a cost of \$65,000 has an estimated residual value of
\$5,000 and an estimated life of 5 years or 15,000 hours. It is to be
depreciated by the units-of-production method. What is the amount of
depreciation for the second full year, during which the machine was used
5,000 hours?

a. \$8,000
b. \$20,000
c. \$12,000
d. \$21,667

4. Equipment purchased May 1, 200X for \$90,000 has an estimated residual
value of \$6,000 and an estimated life of 4 years. What is the amount of
depreciation for the second full year, using the declining-balance method at
double the straight-line rate?

a. \$30,000
b. \$28,000
c. \$22,500
d. \$21,000

5. Equipment with a cost of \$80,000, an estimated residual value of \$5,000,
and an estimated life of 15 years was depreciated by the straight-line
method for 5 years. Due to obsolescence, it was determined that the useful
life should be shortened by 5 years and the residual value changed to zero.
The depreciation expense for the current and future years is:

a. \$5,500
b. \$11,000
c. \$10,000
d. \$5,000

6. A fixed asset with a cost of \$40,000 and accumulated depreciation of
\$38,500 is traded for a similar asset priced at \$60,000. Assuming a trade-in
allowance of \$3,500, the cost basis of the new asset is:

a. \$59,000
b. \$58,000
c. \$60,000
d. \$62,000

7. A fixed asset with a cost of \$30,000 and accumulated depreciation of
\$27,500 is sold for \$3,500. What is the amount of the gain or loss on
disposal of the fixed asset?

a. \$2,500 loss
b. \$1,000 loss
c. \$2,500 gain
d. \$1,000 gain

8. When a company discards machinery that is fully depreciated, this
transaction would be recorded with the following entry:

a. debit Accumulated Depreciation; credit Machinery
b. debit Machinery; credit Accumulated Depreciation
c. debit Cash; credit Accumulated Depreciation
d. debit Depreciation Expense; credit Accumulated Depreciation

9. When a company exchanges machinery and receives a trade-in allowance less
than the book value, this transaction would be recorded with the following
entry:

a. debit Machinery and Accumulated Depreciation; credit Machinery and Cash
b. debit Cash and Machinery; credit Accumulated Depreciation
c. debit Cash and Machinery; credit Accumulated Depreciation and Machinery
d. debit Machinery, Accumulated Depreciation, and Loss on Disposal; credit
Machinery and Cash

10. Which one of the following is not an internal control procedure for
fixed assets?

a. ensuring that fixed assets are acquired at the lowest possible costs
b. training employees to properly operate fixed assets
c. tagging assets as they are acquired
d. recording assets in the subsidiary ledger only at year end

11. The accumulated depletion account is:

a. an expense account
b. an intangible asset account
c. reported on the income statement as other expense
d. reported on the balance sheet as a deduction from the cost of the mineral
deposit

12. Expenditures for research and development are generally recorded as:

a. current operating expenses
b. assets and amortized over their estimated useful life
c. assets and amortized over 40 years
d. current assets

13. Which of the following is characteristic of a corporation?

a. The financial loss that a stockholder may suffer from owning stock in a
public company is unlimited.
b. Cash dividends paid by a corporation are deductible as expenses by the
corporation.
c. A corporation can own property in its name.
d. Corporations are not required to file federal income tax returns.

14. Organization Costs is included on the balance sheet as a(n):

a. fixed asset
b. intangible asset
c. investment
d. current asset

15. The major subdivisions of the Stockholders' Equity section of the
balance sheet are:

a. Paid-in Capital and Retained Earnings
b. Common Stock and Retained Earnings
c. Stock, Paid-In Capital, and Retained Earnings
d. Common Stock and Preferred Stock

16. The outstanding stock is composed of 10,000 shares of \$100 par,
cumulative, nonparticipating preferred \$8 stock, and 50,000 shares of no-par
common stock. Preferred dividends have been paid every year except for the
preceding two years and the current year. If \$160,000 is to be distributed
as a dividend of the current year, what total amount will be distributed to
the preferred shareholders?

a. \$0
b. \$80,000
c. \$130,000
d. \$160,000

17. Amos Company acquired land in exchange for 10,000 shares of its \$10 par
common stock. The fair market value of the land is not determinable, but the
stock is widely traded and was selling for \$25 per share when exchanged for
the land. At what amount should the land be recorded by Amos Company?

a. \$150,000
b. \$250,000
c. \$350,000
d. \$100,000

18. The excess of sales price of treasury stock over its cost should be
credited to:

a. Treasury Stock Receivable
c. Paid-In Capital from Sale of Treasury Stock
d. Income from Sale of Treasury Stock

19. What is the total stockholders' equity based on the following account
balances?

Common Stock....................... \$500,000
Paid-In Capital in Excess of Par... 40,000
Retained Earnings.................. 190,000
Treasury Stock..................... 20,000

a. \$540,000
b. \$630,000
c. \$710,000
d. \$750,000

20. A corporation has 50,000 shares of \$100 par value stock outstanding. If
the corporation issues a 4-for-1 stock split, the number of shares
outstanding after the split will be:

a. 200,000 shares
b. 50,000 shares
c. 250,000 shares
d. 12,500 shares

21. A company with 100,000 authorized shares of \$5 par common stock issued
40,000 shares at \$7. Subsequently, the company declared a 2% stock dividend
on a date when the market price was \$9 a share. What is the amount
transferred from the retained earnings account to paid-in capital accounts
as a result of the stock dividend?

a. \$4,000
b. \$5,600
c. \$6,000
d. \$7,200

22. The liability for a dividend is recorded on which of the following
dates?

a. the date of record
b. the date of payment
c. the date of announcement
d. the date of declaration

23. The entry to record the issuance of stock certificates for a common
stock dividend that had been declared would include a credit to:

a. Common Stock
b. Retained Earnings
c. Stock Dividends Distributable
d. Cash

24. Cash or property dividends are usually not paid on which of the
following?

a. class B common stock
b. preferred stock
c. treasury stock
d. class A common stock

25. Which of the following is not a characteristic of a general partnership?
a. the partnership is created by a contract
b. mutual agency
c. partners share equally in net income or net losses unless an agreement
states differently
d. dissolution occurs only when all partners agree

26. X and Y have original investments of \$50,000 and \$100,000 respectively
in a partnership. The articles of partnership include the following
provisions regarding the division of net income: interest on original
investment at 10%, salary allowances of \$27,000 and \$18,000 respectively,
and the remainder equally. How much of the net loss of \$10,000 is allocated
to X? a. \$10,000
b. \$3,000
c. \$5,000
d. \$7,000

27. The articles of partnership for A B Partnership provide for a salary
allowance of \$5,000 per month for partner B, with the balance of net income
to be divided equally. If B made an additional investment of \$10,000 during
the year and withdrew \$4,000 per month, and net income for the year was
\$90,000, by what amount did B's capital increase during the year? a. \$85,000
b. \$10,000
c. \$37,000
d. \$60,000

28. Nellie is admitted to an existing partnership by investing cash. Nellie
agrees to pay a bonus for her ownership interest because of the past success
of the partnership. When Nellie's investment in the partnership is recorded
a. her capital account will be credited for more than the cash she invested
b. her capital account will be credited for the amount of cash she invested
c. a bonus will be credited for the amount of cash she invested
d. a bonus will be distributed to the old partners' capital accounts.

29.A partner withdraws from a partnership by selling her interest to another
person who currently is not associated with the firm. As a results of this
transaction, the capital account balance of the other partners in the
partnership a. will increase
b. will decrease
c. will remain the same
d. may increase, decrease, or remain the same

30.When a new partner is admitted to a partnership, there should be a(n) a.
revaluation of assets
b. realization of assets
c. allocation of assets
d. return of assets

31.Stan and Ollie are partners who share income in the ratio of 2:3 and have
capital balances of \$30,000 and \$50,000 respectively. Ray is admitted to the
partnership and is given a 10% interest by investing \$20,000. What is
Ollie's capital balance after admitting Ray? a. \$56,000
b. \$34,000
c. \$20,000
d. \$44,000

32.Tim, Don, and Hans are partners with capital balances of \$20,000,
\$30,000, and \$50,000 respectively. They share income in the ratio of 3:2:1.
Income Summary with a debit balance of \$30,000 is closed to the capital
accounts. Don withdraws from the partnership. a. \$30,000
b. \$20,000
c. \$40,000
d. \$24,000

33.A and B are partners who share income in the ratio of 1:2 and have
capital balances of \$40,000 and \$70,000 at the time they decide to terminate
the partnership. After all noncash assets are sold and all liabilities are
paid, there is a cash balance of \$80,000. What amount of loss on realization
should be allocated to A? a. \$80,000
b. \$10,000
c. \$20,000
d. \$30,000

34. The remaining cash of a partnership (after creditors have been paid)
upon liquidation is divided among partners according to their a. capital
balances
b. contribution of assets
c. drawing balances
d. income sharing ratio

35.A gain or loss on realization is divided among partners according to
their a. income sharing ratio
b. capital balances
c. drawing balances
d. contribution of assets

36.A and B are partners who share income in the ratio of 3:2 and have
capital balances of \$50,000 and \$90,000 at the time they decide to terminate
the partnership. After all noncash assets are sold and all liabilities are
paid, there is a cash balance of \$90,000. How much cash should be
distributed to A? a. \$50,000
b. \$20,000
c. \$30,000
d. \$45,000

#### Solution Preview

1. A characteristic of a fixed asset is that it is:

a. intangible
b. used in the operations of a business
c. held for sale in the ordinary course of the business
d. not currently used in the business but held for future use

2. Which of the following is included in the cost of constructing a building?

a. interest on money borrowed to finance construction
b. cost of paving parking lot
c. cost of repairing vandalism damage during construction
d. cost of removing the demolished building existing on the land when it was purchased

3. A machine with a cost of \$65,000 has an estimated residual value of
\$5,000 and an estimated life of 5 years or 15,000 hours. It is to be
depreciated by the units-of-production method. What is the amount of
depreciation for the second full year, during which the machine was used
5,000 hours?

a. \$8,000
b. \$20,000
c. \$12,000
d. \$21,667

\$65,000 - \$5,000 = \$4/hr x 5,000 hrs = \$20,000
15,000 hrs.

4. Equipment purchased May 1, 200X for \$90,000 has an estimated residual
value of \$6,000 and an estimated life of 4 years. What is the amount of
depreciation for the second full year, using the declining-balance method at
double the straight-line rate?

a. \$30,000
b. \$28,000
c. \$22,500
d. \$21,000

(2 x Straight-Line Rate) x (Cost - Depreciation Taken in Prior Periods) = Depreciation for the period

Straight-Line Rate 1/4 year = 25%
Year 1 (2 x 25%) x (90,000 - 0) = 45,000
Year 2 (2 x 25%) x (90,000 - 45,000) = 22,500

5. Equipment with a cost of \$80,000, an estimated residual value of \$5,000,
and an estimated life of 15 years was depreciated by the straight-line
method for 5 years. Due to obsolescence, it was determined that the useful
life should be shortened by 5 years and the residual value changed to zero.
The depreciation expense for the current and future years is:

a. \$5,500
b. \$11,000
c. \$10,000
d. \$5,000

80,000 - 5,000 = 5,000 per year x 5 years = 25,000
15 years

80,000 - 25,000 = 11,000 per year
5 years

6. A fixed asset with a cost of \$40,000 and accumulated depreciation of \$38,500 is traded for a similar asset priced at \$60,000. Assuming a trade-in allowance of \$3,500, the cost basis of the new asset is:

a. \$59,000
b. \$58,000
c. \$60,000
d. \$62,000

Fixed Asset (new) 60,000
Accumulated Depreciation 38,500
Fixed Asset (old) 40,000
Cash 56,500
Gain 2,000

60,000 for new copier - 3,500 trade in balance for old fixed asset = 56,500 cash required

7. A fixed asset with a cost of \$30,000 and accumulated depreciation of
\$27,500 is sold for \$3,500. What is the amount of the gain or loss on
disposal of the fixed asset?

a. \$2,500 loss
b. \$1,000 loss
c. \$2,500 gain
d. \$1,000 gain

8. When a company discards machinery that is fully depreciated, this
transaction would be recorded with the following entry:

a. debit Accumulated Depreciation; credit Machinery
b. debit Machinery; credit Accumulated ...

#### Solution Summary

This solution is comprised the solution to answer the multiple choice of accounting problems such as what is a characteristic of a fixed asset, which of the following is included in the cost of constructing a building.

\$2.49