Scenario Questions
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Tulip’s Flower Shop
Tulip’s Flower Shop purchased a new van to use for delivering flowers. The van cost $40,000, and the store’s accountant believes the service life of the van will be 6 years. With this information, the accountant can now allocate the van’s cost over 6 years. This process is known as which of the following?
Adjustment
Depreciation
Estimation
Forecasting
accounting periods
Allocating the cost of an oil reserve to accounting periods that benefit from its use is a process known as
amortization.
depletion.
retirement.
depreciation
Dobson Enterprises
In May, 2015, the owner of Dobson Enterprises sells a piece of equipment before the end of the asset’s service life because the equipment is no longer useful to the business. The company’s accountant needs to create two journal entries in this scenario. The first journal entry records depreciation for the first 5 months of the year. The purpose of the second journal entry is to ________.
remove the asset and its accumulated depreciation from the books.
record the salvage value of the asset at the time of disposal.
debit Accounts Receivable and credit Accounts Payable for the sale.
remove the asset from the books and record its capital expenditures.
Southern Airlines
Southern Airlines purchased a new jet engine for $3,500,000. The engine has a 50,000 hour life and no salvage value. The accounting department at Southern Airlines determines asset depreciation using the units-of-activity method. The engine was flown 250 hours in February. What is the depreciation expense for the engine in February?
$12,500
$17,500
$8,750
$31,250
depreciation
Which method of depreciation assigns an equal amount of depreciation to each period of the asset’s service life?
Units-of-activity
Salvage value
Double-declining balance
Straight-line
dividend accounts
When asset, expense, and dividend accounts have more debits than credits, they are said to have a
normal debit balance.
general ledger balance.
normal credit balance.
contra account balance.
financial statements
Retrievable documentation for every transaction and the basis for preparing financial statements are the two basic core elements of a proper __________.
accounting system
database structure
accounting equation
contra account
business costs
The expense recognition principle that explains the manner in which a large proportion of business costs are to be recorded is called the ___________.
systematic allocation.
immediate recognition.
matching principle.
periodicity assumption.
Trial balance
Which of the following requires an understanding of how to increase or decrease an account using debits and credits?
Transaction analysis
Adjusting entry
Trial balance
Journal entry
