Question

- Flamingo Company borrows $30,000 using a five-year, long-term installment note payable. The rate on the note is 5 percent and Flamingo agrees to make monthly payments of $566.14. When Flamingo records its first payment on the note payable, what will the journal entry look like (without the numbers).

1. Debit Cash

Debit Interest Expense

          Credit Notes Payable

2. Debit Interest Expense

Credit Notes Payable

Credit Cash

3. Debit Notes Payable

Credit Cash

Credit Interest Payable

4. Debit Interest Expense

Debit Notes Payable

           Credit Cash

- Relish Company incurs the following costs associated with the purchase of a new machine:

Purchase Price $20,000

Sales Tax 1,500

Manufacturer testing to ensure proper functioning 500

Shipping costs for the machine paid by Relish Company 200

What is the total cost Relish will capitalize when recording the asset?

1. $20,500

2. $22,200

3. $20,000

4. $22,000

- On January 1, 2017, Jenks Company purchased the copyright to Jackson Computer tutorials for $216,000. It is estimated that the copyright will have a useful life of 5 years and no salvage value. Assuming Jenks has a year-end of December 31, the amount of Amortization Expense recognized for year 2017 should be:

1. $20,000

2. $21,600

3. $43,200

4. $40,000

- On November 6, 2019, Julio paid $650 cash for his airplane ticket home for Christmas break. He leaves Bozeman on December 16, 2019. How would the airline record the transaction where they receive cash from Julio?

1. Debit Cash 650

Credit Deferred Ticket Revenue 650

2. Debit Deferred Ticket Revenue 650

Credit Cash 650

3. Debit Ticket Revenue 650

Credit Deferred Ticket Revenue 650

4. Debit Cash     650

Credit Ticket Revenue 650

- Which of the following expenditures should be expensed (debited to an expense account)?

1. The replacement of an engine on an airplane.

2. An oil change for a delivery vehicle.

3. The addition of a garage to a home.

4. A refrigeration system added to a tractor-trailer.

- Goodwill is:

1. The value of a business as a whole, over and above the value of its net identifiable assets.

2. Recorded when created internally through advertising expenses.

3. Only recorded by the seller of a business.

4. Amortized over the greater of its estimated life or forty years.

Answer 1

Answers:

1) Journal entry would be:
Debit Interest Expense

Debit Notes Payable

           Credit Cash

The last option is the right answer. Other options are incorrect as cash should be credited and interest expense is also involved in the first payment.

2) Total cost of asset is all cost involved in putting the asset to use as below:
Purchase Price $20,000

Sales Tax 1,500

Manufacturer testing to ensure proper functioning 500

Shipping costs for the machine paid by Relish Company 200

Total of all above = $22,200.
Option B is the correct answer. Other options are incorrect as they ignore few cost.

3) Amortization expense:

Total cost/ useful life = 216000/5 = $43,200
Option C is the correct answer

4) Journal entry would be:

Debit Cash 650

Credit Deferred Ticket Revenue 650

the actual revenue would be recorded once service is completed. Option A is the correct answer

5) An oil change for a delivery vehicle would be of least amount and hence needs to be expensed. Other options are of material amount and might need to be capitalised to the asset.

6) Goodwill is "The value of a business as a whole, over and above the value of its net identifiable assets."
Other options are incorrect