Business Investment: Profit And Loss Test

68 Questions | Total Attempts: 81

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Investment Quizzes & Trivia

What is a business investment in terms of profit and loss? A business investment refers explicitly to accounting assets purchased with the intent of getting money on their own, as contrasting to something like a car to make deliveries for a restaurant. The most common way to invest is to purchase stock or lend money. If you are curious to learn more about business investments, this is the quiz for you.


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

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