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Unformatted text preview: Summer2006 Term Test #2 Part A (10 marks) 1. Rant Enterprises Ltd. purchases a truck for $32,000 on July 1, 2004. The truck has an estimated salvage value of $2,000, and estimated useful life of five years, and an estimated total mileage of 300,000 km. If 50,000km are driven in 2004, what amount of amortization expense would Rant record at December 31, 2004, assuming it uses the units-of-activity method? a) $2,500 b) $3,000 c) $5,000 d) $5,333 2. Which of these would cause the inventory turnover ratio to increase the most? a) Increasing the amount of inventory on hand. b) Keeping the amount of inventory on hand constant but increasing sales. c) Keeping the amount of inventory on hand constant but decreasing sales. d) Decreasing the amount of inventory on hand and increasing sales. 3. Lolla Ltds ending inventory is understated by $4,000. The effects of this error on the current years cost of good sold and net earnings, respectively are: a) Understated and overstated b) Overstated and understated c) Overstated and overstated d) Understated and understated 4. A company would minimize its amortization expense in the first year of owning an asset if it: a) Used a low estimated life, a low salvage value, and straight-line amortization. b) Used a high estimated life, a high salvage value, and straight-line amortization. c) Used a low estimated life, a low salvage value, and declining-balance amortization. d) Used a high estimated life, a high salvage value, and declining-balance amortization. 5. Which of these statements about stock dividends is true? a) A debit should be made to cash dividends for the market value of the shares issued. b) Market value per share should be assigned to the dividend shares. c) A stock dividend decreases total shareholders equity....
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- Winter '08