UNIVERSIDAD METROPOLITANA

ESCUELA DE ESTUDIOS PROFESIONALES

PROGRAMA AHORA
INTRODUCTION TO ACCOUNTING 1 - ACCO 112
NAME: __DARWIN J. MORALES______________________
STUDENT NO. S00-281690________
TEST 1 (100 POINTS)
PROF. HCTOR CRUZ
VARGAS
Date: _______________________

I.

True (T) or

False (F) (40 points)

T 1.

Current liabilities are expected to be paid within one year or the operating cycle, whichever is longer.

T 2.

A company whose current liabilities exceed its current assets may have a liquidity problem.

F 3.

Book value is equal to the cost of the asset less the expected residual value.

T 4.

A $30,000, 8%, 9-month note payable requires an interest payment of $1,800 at maturity.

T 5.

The depreciation cost of a plant asset is the original costs less accumulated depreciation.

F 6.

The higher the sales tax rate, the more profit a retailer can earn.

T 7.

During the month, a company sells goods for a total of $108,000, which includes sales taxes of $8,000;
therefore, the company should recognize $100,000 in Sales Revenues and $8,000 in Sales Tax
Expense.

T 8.

Contingent liabilities should be recorded in the accounts if there is a remote possibility that the
contingency will actually occur.

T 9.

FICA taxes withheld and federal income taxes withheld are mandatory payroll deductions.

T 10.

If a firm changes its estimate of the useful life on an asset, the accumulated depreciation account must
be adjusted.

T 11.

The cost of land improvements includes fencing, paving, sprinklers systems, and lighting.

F 12. FICA taxes are a voluntary deduction from employee earnings.

T 13. FICA taxes are a deduction from employee earnings and are also imposed upon employers as an
expense.
T 14. The objectives of internal accounting control for payrolls are (a) to safeguard company assets from
unauthorized payments of payrolls and (b) to assure accuracy and reliability of the accounting records
pertaining to payroll.
F 15. All plant assets (fixed assets) must be depreciated for accounting purposes.
F 16. Land improvements are generally charged to the Land account.
F 17. The book value of a plant asset is always equal to its fair market value. (It is recorded at cost. Cost of
plant assets includes all expenditures necessary to acquire the asset and make it ready for its intended
use.)
F 18. The depreciable cost of a plant asset is its original cost minus obsolescence.
F 19. The Accumulated Depreciation account represents a cash fund available to replace plant assets.
F 20. Using the units-of-activity method of depreciating factory equipment will generally result in more
depreciation expense being recorded over the life of the asset than if the straight-line method had been
used.
F 21. The declining-balance method of depreciation is called an accelerated depreciation method because it
depreciates an asset in a shorter period of time than the asset's useful life.
T 22. Once an asset is fully depreciated, no additional depreciation can be taken even though the asset is still
being used by the business.
T 23. If the proceeds from the sale of a plant asset exceed its book value, a gain on disposal occurs.
F 24. The book value of a plant asset is the amount originally paid for the asset less anticipated salvage
value.
F 25. A plant asset must be fully depreciated before it can be removed from the books.
F 26. Depletion cost per unit is computed by dividing the total cost of a natural resource by the estimated
number of units in the resource.

T 27.

The balances of the major classes of plant assets and accumulated depreciation by major classes
should be disclosed in the balance sheet or notes.

F 28. When an asset is purchased during the year, it is not necessary to record depreciation expense in the
first year under the declining-balance depreciation method.
T 29. Payroll deductions withheld from employees become an expense for the employer.
T 30. The personal assets, liabilities, and personal transactions of partners are excluded from the accounting
records of the partnership.
F 31. A major advantage of the partnership form of organization is that the partners have unlimited liability.
T 32. If a partner invests noncash assets in a partnership, they should be recorded by the partnership at their
fair market value.
F 33. Two proprietorships cannot combine and form a partnership.
F 34. Unless stated otherwise in the partnership contract, profits and losses are shared among the partners
in the ratio of their capital equity balances.
F 35. Unless the partnership agreement specifically indicates an income ratio, partnership net income or loss
is not allocated to the partners.
T 36. If a partnership has a loss for the period, the closing entry to transfer the loss to the partners will require
a credit to the Income Summary account.
F 37. Salary allowances to partners are a major expense on most partnership income statements.
F 38. The income earned by a partnership will always be greater than the income earned by a proprietorship
because in a partnership there is more than one owner contributing to the success of the business.
T 39. Total partners' equity of a partnership is equal to the sum of all partners' capital account balances.
F 40. The liquidation of a partnership means that a new partner has been admitted to the partnership.
T 41. The admission of a new partner results in the legal dissolution of the existing partnership and the
beginning of a new partnership.
T 42. Payroll tax expense is debited when recording the employees deductions.
F 43. A partnership is an association of no more than two persons to carry on as co-owners of a business for
profit.

II. Select the best answer (40 points)

1.

The cost of a purchased building includes all of the following except

a.
b.
c.
d.

2.

A company purchased land for $90,000 cash. Real estate brokers' commission was $5,000 and $7,000
was spent for demolishing an old building on the land before construction of a new building could start.
Under the cost principle, the cost of land would be recorded at
a.
b.
c.
d.

3.

Sales tax
Truck license
Freight charges
Cost of lettering on side of truck

Which of the following assets does not decline in service potential over the course of its useful life?
a.
b.
c.
d.

5.

$97,000.
$90,000.
$95,000.
$102,000.

Which one of the following items is not considered a part of the cost of a truck purchased for business
use?
a.
b.
c.
d.

4.

closing costs.
real estate broker's commission.
remodeling costs.
All of these are included.

Equipment
Furnishings
Land
Fixtures

The cost of land does not include

a.
b.
c.
d.
6.

Gagner Clinic purchases land for $130,000 cash. The clinic assumes $1,500 in property taxes due on
the land. The title and attorney fees totaled $1,000. The clinic has the land graded for $2,200. What
amount does Gagner Clinic record as the cost for the land?
a.
b.
c.
d.

7.

$132,200
$130,000
$134,700
$132,500

Carey Company buys land for $50,000 on 12/31/09. As of 3/31/10, the land has appreciated in value to
$50,700. On 12/31/10, the land has an appraised value of $51,800. By what amount should the Land
account be increased in 2010?
a.
b.
c.
d.

8.

real estate brokers' commission.

annual property taxes.
accrued property taxes assumed by the purchaser.
title fees.

$0
$700
$1,100
$1,800

Hull Company acquires land for $86,000 cash. Additional costs are as follows:
Removal of shed
Filling and grading
Salvage value of lumber of shed
Broker commission
Paving of parking lot
Closing costs

300
1,500
120
1,130
10,000
560

Hull will record the acquisition cost of the land as

a.
b.
c.
d.
9.

Land improvements should be depreciated over the useful life of the

a.
b.
c.
d.

10.

land.
buildings on the land.
land or land improvements, whichever is longer.
land improvements.

All of the following factors in computing depreciation are estimates except

a.
b.
c.
d.

11.

$86,000.
$87,690.
$89,610.
$89,370.

cost.
residual value.
salvage value.
useful life.

Presto Company purchased equipment and these costs were incurred:

Cash price
Sales taxes
Insurance during transit
Installation and testing
Total costs

$22,500
1,800
320
430
$25,050

Presto will record the acquisition cost of the equipment as

a.
b.
c.
d.
12.

The balance in the Accumulated Depreciation account represents the

a.
b.
c.
d.

13.

$22,500.
$24,300.
$24,620.
$25,050.

cash fund to be used to replace plant assets.

amount to be deducted from the cost of the plant asset to arrive at its fair market value.
amount charged to expense in the current period.
amount charged to expense since the acquisition of the plant asset.

Which one of the following items is not a consideration when recording periodic depreciation expense
on plant assets?

a.
b.
c.
d.
14.

Depreciation is the process of allocating the cost of a plant asset over its service life in
a.
b.
c.
d.

15.

useful in determining income.

useful in evaluating a company's liquidity.
called the matching principle.
useful in determining the amount of a company's long-term debt.

Liabilities are classified on the balance sheet as current or

a.
b.
c.
d.

24.

accounts payable.
bonds payable.
notes payable.
unearned revenues.

The relationship between current liabilities and current assets is

a.
b.
c.
d.

23.

straight-line.
units-of-activity.
declining-balance.
none of these.

All of the following are reported as current liabilities except

a.
b.
c.
d.

22.

is easiest to apply.
best measures the plant asset's market value over its useful life.
best measures the plant asset's contribution to revenue over its useful life.
has been used most often in the past by the company.

The depreciation method that applies a constant percentage to depreciable cost in calculating
depreciation is
a.
b.
c.
d.

21.

a decreasing depreciation expense each period.

an increasing depreciation expense each period.
a declining percentage rate each period.
a constant amount of depreciation expense each period.

Management should select the depreciation method that

a.
b.
c.
d.

20.

the fair market value of a plant asset on the date of acquisition.

subtracted from accumulated depreciation to determine the plant asset's depreciable cost.
an estimate of a plant asset's value at the end of its useful life.
ignored in all the depreciation methods.

The declining-balance method of depreciation produces

a.
b.
c.
d.

19.

asset devaluation.
cost accumulation.
cost allocation.
asset valuation.

In computing depreciation, salvage value is

a.
b.
c.
d.

18.

asset's market value less its historical cost.

blue book value relied on by secondary markets.
replacement cost of the asset.
asset's cost less accumulated depreciation.

Depreciation is a process of
a.
b.
c.
d.

17.

an equal and equitable manner.

an accelerated and accurate manner.
a systematic and rational manner.
a conservative market-based manner.

The book value of an asset is equal to the

a.
b.
c.
d.

16.

Salvage value
Estimated useful life
Cash needed to replace the plant asset
Cost

deferred.
unearned.
long-term.
accrued.

Valerie's Salon has total receipts for the month of $16,430 including sales taxes. If the sales tax rate is

6%, what are Valerie's sales for the month?

a.
b.
c.
d.
25.

Advances from customers are classified as a(n)

a.
b.
c.
d.

26.

$576.
$480.
$624.
$864.

Employee payroll deductions include each of the following except

a.
b.
c.
d.

30.

FICA tax
Federal income tax
Federal unemployment tax
State unemployment tax

Ann Ellis's regular rate of pay is $12 per hour with one and one-half times her regular rate for any hours
which exceed 40 hours per week. She worked 48 hours last week. Therefore, her gross wages were
a.
b.
c.
d.

29.

take-home pay.
net pay.
net earnings.
gross earnings.

Which one of the following payroll taxes does not result in a payroll tax expense for the employer?
a.
b.
c.
d.

28.

revenue.
expense.
current asset.
current liability.

The total compensation earned by an employee is called

a.
b.
c.
d.

27.

$15,444.20
$17,415.80
$15,500.00
It cannot be determined.

federal unemployment taxes.

federal income taxes.
FICA taxes.
insurance, pension plans, and union dues.

The journal entry to record the payroll for a period will include a credit to Wages and Salaries Payable
for the gross
a.
b.
c.
d.

amount less all payroll deductions.

amount of all paychecks issued.
pay less taxes payable.
pay less voluntary deductions.

31. The amount of income taxes withheld from employees is dependent on each of the following except the
a.
b.
c.
d.
32.

FICA Taxes Payable was credited for $9,000 in the entry when Peltry Company recorded payroll. When
Peltry Company records employer's payroll taxes, FICA Taxes Payable should be credited for:
a.
b.
c.
d.

33.

$0.
$9,000.
$18,000.
some other amount.

A partnership
a.
b.
c.
d.

34.

employee's gross earnings.

employee's net pay.
length of the pay period.
number of allowances claimed by the employee.

has only one owner.

pays taxes on partnership income.
must file an information tax return.
is not an accounting entity for financial reporting purposes.

A general partner in a partnership

a. has unlimited liability for all partnership debts.
b. is always the general manager of the firm.

c. is the partner who lacks a specialization.

d. is liable for partnership liabilities only to the extent of that partner's capital equity.
35.

Which one of the following would not be considered a disadvantage of the partnership form of
organization?
a.
b.
c.
d.

Limited life
Unlimited liability
Mutual agency
Ease of formation

36. Which of the following is not a principal characteristic of the partnership form of business organization?
a.
b.
c.
d.

Mutual agency
Association of individuals
Limited liability
Limited life

37. Which of the following statements is true regarding the form of a legally binding partnership contract?
a.
b.
c.
d.

The partnership contract must be in writing.

The partnership contract may be based on a handshake.
The partnership contract may be implied.
The partnership contract cannot be oral.

38. Which of the following statements about a partnership is correct?

a.
b.
c.
d.

The personal assets of a partner are included in the partnership accounting records.
A partnership is not required to file an information tax return.
Each partner's share of income is taxable to the partnership.
A partnership represents an accounting entity for financial reporting purposes.

39. A partnership
a.
b.
c.
d.

is dissolved only by the withdrawal of a partner.

is dissolved upon the acceptance of a new partner.
dissolution means the business must liquidate.
has unlimited life.

40. Which of the following statements about partnerships is incorrect?

a. Partnership assets are co-owned by partners.
b. If a partnership is terminated, the assets do not legally revert to the original contributor.
c. If the partnership agreement does not specify the manner in which net income is to be shared, it is
distributed according to capital contributions.
d. Each partner has a claim on assets equal to the balance in the partner's capital account.
41. Which of the following would not be recorded in the entry for the formation of a partnership?
a.
b.
c.
d.

Accumulated depreciation
Allowance for doubtful accounts
Accounts receivable
All of these would be recorded.

42. Sam is investing in a partnership with Jerry. Sam contributes equipment that originally cost $63,000,
has a book value of $30,000, and a fair market value of $39,000. The entry that the partnership makes
to record Sam's initial contribution includes a
a.
b.
c.
d.

debit to Equipment for $33,000.

debit to Equipment for $63,000.
debit to Equipment for $39,000.
credit to Accumulated Depreciation for $33,000.

43. A partner invests into a partnership a building with an original cost of $90,000 and accumulated
depreciation of $40,000. This building has a $70,000 fair market value. As a result of the investment,
the partners capital account will be credited for
a.
b.
c.
d.

$70,000.
$50,000.
$90,000.
$120,000.

44. Danny and Vicky are forming a partnership. Danny will invest a truck with a book value of $10,000 and
a fair market value of $14,000. Vicky will invest a building with a book value of $30,000 and a fair
market value of $42,000 with a mortgage of $15,000. At what amount should the building be recorded?

a.
b.
c.
d.

$30,000
$27,000
$42,000
$45,000

III. Payroll Register and Journal Entries (10 points)

Assume that the payroll records of Darby Oil Company provided the following information for the
weekly payroll ended November 30, 2013.
Year-to-Date
Hourly
Puerto Rico
Earnings Through
Employee Hours Worked Pay Rate
Income Tax
Union Dues
Previous Week
C. Brown
44
$45
$362
$9
$101,000
J. Polk
46
10
65
5
23,200
K. Glass
39
20
118

5,700
M. Raney
42
22
169
7
49,500
Additional information: All employees are paid overtime at time and a half for hours worked in excess
of 40 per week. The FICA tax rate is 8% for the first $100,000 of each employee's annual
earnings. The employer pays unemployment taxes of 6.2% (5.4% for state and .8% for federal)
on the first $7,000 of each employee's annual earnings.
Instructions
(a) Prepare the payroll register for the pay period.
Employee

Earnings
Total

Deductions

Regular

Overtime

Gross

FICA

1,800
400
780
880

270
90

2070
490
780
946

39.20
62.40
75.68

Hours

C. Brown
J. Polk
K. Glass
M. Raney

Total
(b)

44
46
39
42

66

3860

426

4286

177.28

Federal
Income
Tax

State
Income
Tax

Paid

United
Fund

Union
Dues

Total

Net
Pay

362
65
118
169

9
5

371

1699

109.20

251.68

380.80
599.60
694.32

714

21

912.28

3373.72

180.40

Prepare general journal entries to record the payroll and payroll taxes

November 30, 2013

Salaries and Wages Expense

FICA Taxes Payable
PR State Income Taxes Payable
Union Dues
Salaries and Wages Payable
(To record payroll for the week ending

5,198.28
177.28
714.00
21.00
4,286.00

November 30)
State unemployment tax
4286 x 5.4% = 231.444
Federal unemployment tax
4286 x 0.8% = 34.288
November 30, 2013

Payroll Tax Expense

FICA Taxes Payable
Federal Unemployment Taxes Payable
State Unemployment Taxes Payable
(To record employers payroll taxes on
November 30 payroll)

443.01
177.28
34.29
231.44

Account
Debited
Salaries
and
Wages
Expense
2070
490
780
946

4286

IV. Partnership Income Distribution (10 points)

Decker and Mader have a partnership agreement which includes the following provisions regarding sharing net
income or net loss:
1. A salary allowance of $54,000 to Decker and $36,000 to Mader.
2. An interest allowance of 10% on capital balances at the beginning of the year.
3. The remainder to be divided 60% to Decker and 40% to Mader.
The capital balance on January 1, 2013, for Decker and Mader was $90,000 and $120,000, respectively.
During 2013, the Decker and Mader Partnership had sales of $495,000, cost of goods sold of $290,000, and
operating expenses of $75,000.
Instructions
Prepare an income statement for the Decker and Mader Partnership for the year ended December 31, 2013.
As a part of the income statement, include a Division of Net Income to each of the partners.

December 31, 2013

Revenue
Sales
Expenses
Cost of goods sold
Operating Expense
Gross Profit (495,000 290,000)
Net Income (205,000 75,000)

Salary Allowance
Interest Allowance on Partners Capital
Decker (90,000 X 10%)
Mader (120,000 X 10%)
Total Interest Allowance
Total Salaries and Interest
Remaining Income (19,000)
(130,000 111,000)
Decker (19,000 x 60%)
Mader (19,000 x 40%)
Total Remainder
Total Division of Net Income

Division of Net Income

Decker
54,000

495,000
290,000
75,000
205,000
130,000

Mader
36,000

Total
90,000
231.44

9,000
12,000
63,000

48,000

21,000
111,000

11,400
7,600
74,400

55,600

19,000
130,000