Business Investment: Profit And Loss Test

68 Questions | Total Attempts: 67

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Investment Quizzes & Trivia

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Questions and Answers
  • 1. 
    The following information is available for Snowstorm Transit Company:· A machine is purchased on January 1, 2005, for $40,000.· The machine's residual value on January 1, 2005, is estimated to be $5,000· The machine's estimated useful life is five yearsUsing the information above, if Snowstorm Transit has been using the straight-line depreciation method and sells the asset on January 1, 2007, for $30,000, it will have a:
    • A. 

      $5,000 gain

    • B. 

      $5,000 loss

    • C. 

      $4,000 loss

    • D. 

      $4,000 gain

  • 2. 
    The following information is available for Snowstorm Transit Company:· A machine is purchased on January 1, 2005, for $40,000· The machine's residual value on January 1, 2005, is estimated to be $5,000· The machine's estimated useful life is five yearsUsing the information above, if Snowstorm Transit is using the straight-line depreciation method and sells the asset on January 1, 2008, for $15,000, it will have a:
    • A. 

      $1,000 gain

    • B. 

      $4,000 loss

    • C. 

      $4,000 gain

    • D. 

      $1,000 loss

  • 3. 
    The following information is available for Snowstorm Transit Company:· A machine is purchased on January 1, 2005, for $40,000· The machine's residual value on January 1, 2005, is estimated to be $5,000· The machine's estimated useful life is five yearsUsing the information above, if Snowstorm Transit has been using the double-declining-balance depreciation method and sells the asset on January 1, 2007, for $26,000, it will have a:
    • A. 

      $ 8,400 gain

    • B. 

      $2,000 gain

    • C. 

      $11,600 gain

    • D. 

      No gain or loss

  • 4. 
    The following information is available for Snowstorm Transit Company:· A machine is purchased on January 1, 2005, for $40,000· The machine's residual value on January 1, 2005, is estimated to be $5,000· The machine's estimated useful life is five yearsIf Snowstorm Transit has been using the straight-line depreciation method and sells the asset for $22,000 on January 1, 2008, it would have a __________, but if it had used double-declining-balance method it would have a __________.
    • A. 

      $3,000 gain, $ 9,440 gain

    • B. 

      $3,000 gain, $13,360 gain

    • C. 

      $6,000 gain, $13,360 gain

    • D. 

      $6,000 gain, $ 9,440 gain

  • 5. 
    Two companies buy identical assets at the same time and use the same estimated residual value and estimated useful life. One company depreciates the asset using the straight-line method, while the other uses double-declining-balance method. Both companies decide to sell the asset on the same day two years later for the same selling price. The company using the double-declining-balance method has a $58,000 gain, while the company using the straight-line method has a $10,000 loss on the sale. Which statement below regarding this situation is the best answer?
    • A. 

      The loss from the sale of a depreciable asset is bad for the business.

    • B. 

      The company using straight-line depreciation should have used the double-declining-balance method.

    • C. 

      The gain from the sale of a depreciable asset is good for the business.

    • D. 

      Smart financial statement users are not overly impressed by gains or overly alarmed by losses associated with the disposal of depreciable assets.

  • 6. 
    Tony's Tow Truck Services has just spent $40,000 on a new tow truck. Tony then had to spend $5,000 to get the firm's logo stenciled onto the truck. If Tony plans to use the truck for six years, and then hopes to sell it for $6,000, using double-declining-balance depreciation the expense for the second year will be:
    • A. 

      $13,000

    • B. 

      $10,000

    • C. 

      $15,000

    • D. 

      $ 8,667

  • 7. 
    There are several differences in the calculation of depreciation between the straight-line and double-declining-balance methods. Which item below would not be a difference if a company were to calculate depreciation for an asset using the straight-line and double-declining-balance methods?
    • A. 

      Accumulated depreciation in each year of the asset's life

    • B. 

      Net income in each year of the asset's life

    • C. 

      Depreciation expense in each year of the asset's life

    • D. 

      The total accumulated depreciation for the asset

  • 8. 
    If a firm purchases an asset for $10,000 and plans to use it for four years, what would be the difference in depreciation expense each year using the straight-line method if the residual value was estimated to be $2,000 rather than $4,000?
    • A. 

      $ 750

    • B. 

      $1,000

    • C. 

      $ 500

    • D. 

      $1,250

  • 9. 
    A company has a truck that it purchased for $16,000. The truck has an estimated useful life of four years and an estimated residual value of $4,000. What is the depreciable base of the truck?
    • A. 

      None of these answers is correct.

    • B. 

      $12,000

    • C. 

      $16,000

    • D. 

      $ 4,000

  • 10. 
    Which cost below is not part of the cost of a depreciable asset?
    • A. 

      Repairs and maintenance

    • B. 

      Installation costs

    • C. 

      Applicable sales tax

    • D. 

      Invoice price

  • 11. 
    What is not a step in calculating the straight-line depreciation of an asset?
    • A. 

      Estimate residual value

    • B. 

      Estimate repairs and maintenance costs

    • C. 

      Estimate useful life

    • D. 

      Determine cost

  • 12. 
    The shares of stock currently being held by stockholders are called:
    • A. 

      Outstanding shares

    • B. 

      Authorized shares

    • C. 

      Treasury stock

    • D. 

      Issued shares

  • 13. 
    What two items will be estimated when calculating the amount of depreciation expense for an asset?
    • A. 

      Residual value and historical cost

    • B. 

      Historical cost and useful life

    • C. 

      Useful life and residual value

    • D. 

      None of these answers is correct.

  • 14. 
    If a company acquires an asset at a total cost of $5,000, plans to use it for four years and then sell it for $500, how much depreciation will be recognized each year under the straight-line method?
    • A. 

      $1,000

    • B. 

      $ 500

    • C. 

      $1,250

    • D. 

      $1,125

  • 15. 
    If common stock does not carry a par value:
    • A. 

      Less manipulation is possible on the balance sheet

    • B. 

      Any amount received in excess of the stock's market value is classified as "Additional Paid-in Capital - Common"

    • C. 

      There is no need for the classification "Additional Paid-in Capital - Common" on the balance sheet

    • D. 

      The stock cannot be sold to shareholders

  • 16. 
    The two basic classes of stock are:
    • A. 

      Preferred and treasury stock

    • B. 

      Common and preferred stock

    • C. 

      Common and treasury stock

    • D. 

      There is only one class of stock in a corporation.

  • 17. 
    The maximum number of shares of stock a corporation can legally sell are called:
    • A. 

      Outstanding shares

    • B. 

      Treasury stock

    • C. 

      Issued shares

    • D. 

      Authorized shares

  • 18. 
    The shares of stock a corporation has already distributed to stockholders in exchange for cash or other assets are called:
    • A. 

      Investment stock

    • B. 

      Treasury stock

    • C. 

      Issued stock

    • D. 

      Authorized stock

  • 19. 
    For corporations, owners' equity is called stockholders' equity. The amount a corporation receives in exchange for shares of stock is called:
    • A. 

      Retained earnings

    • B. 

      Dividends

    • C. 

      Paid-in capital

    • D. 

      Reinvested earnings

  • 20. 
    __________ stock causes the number of shares outstanding to be less than the number of shares issued.
    • A. 

      Common

    • B. 

      Preferred

    • C. 

      Treasury

    • D. 

      Authorized

  • 21. 
    Cash is what type of account on the balance sheet?
    • A. 

      Net worth

    • B. 

      Asset

    • C. 

      Liability

    • D. 

      Equity

  • 22. 
    A constant relationship exists among the three elements in the balance sheet. This relationship can be expressed as:
    • A. 

      Owners' equity + assets = liabilities

    • B. 

      Liabilities - owners' equity = assets

    • C. 

      Assets = liabilities + owners' equity

    • D. 

      Assets + liabilities = owners' equity

  • 23. 
    Tami and Sue decide to go into business together, forming a partnership. Tami and Sue each take $6,500 from their personal bank accounts and deposit the money into a business bank account they started for the partnership. The accounting equation for the partnership would show $__________ in __________ equals $__________ in __________.
    • A. 

      $6,500; assets; $6,500; capital

    • B. 

      $13,000; assets; $13,000; liabilities

    • C. 

      $13,000; assets; $6,500; liabilities and $6,500 in capital

    • D. 

      $13,000; assets; $13,000; total owners' equity

  • 24. 
    The owners' equity section for a sole proprietorship differs from the owners' equity section of a partnership because:
    • A. 

      A sole proprietorship has more than one capital account

    • B. 

      A partnership has more than one capital account

    • C. 

      There is no difference in the owners' equity section of a sole proprietorship and a partnership

    • D. 

      A partnership has a common stock account

  • 25. 
    Merinda starts a new business by taking $5,000 out of her personal savings account and depositing the money into a business bank account. When Merinda does this, the accounting equation would show that $5,000 in __________ equals $5,000 in __________ for her business.
    • A. 

      Assets; owners' equity

    • B. 

      Owners' equity; owners' equity

    • C. 

      Assets; liabilities

    • D. 

      Owners' equity; liabilities