Chapter 9 sample test

Chapter 9 sample test - Chapter 9 sample test 1. On January...

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Chapter 9 sample test 1. On January 9, the First Corporation purchased a computer to use in its office for the next three years. The computer was purchased on account for $7,000. Prepare the journal entry needed to account for this information. The keys to this problem are to recognize that the computer is a resource (asset) and that assets increase with debits. The purchase results in an increase in office equipment and an increase in accounts payable (liability). Date Description Debits Credits January 9 Office Equipment 7,000 Accounts Payable 7,000 Computer purchase See text exercise 9.1 for similar material. 2. The Second Corporation depreciated its office equipment by $150 during February. How does this event affect the company’s resources and sources of resources? The key to this problem is to recognize that depreciation reduces a company's resources. Since the resources (office equipment) are being used up by management, sources of management-generated resources also are reduced. Resources = Sources of Resources Resources = Borrowed Resources + Owner Invested Resources + Management Generated Resources - $150 = $0 + $0 + - $150 See text exercise 9.2 for similar material. 3. The Third Corporation depreciated its office equipment by $150 during March. Prepare the journal entry needed to account for this information. The keys to this problem are to recognize that depreciation reduces a company's resources (assets) and its management-generated sources of resources. The asset reduction is recorded by a credit to an accumulated depreciation account. The reduction of management-generated sources of resources is recorded by a debit to a depreciation expense account. Date Description Debits Credits March 31 Depreciation Expense, Office Equipment 150 Accumulated Depreciation, Office Equip. 150 Office equipment March depreciation
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See text exercise 9.2 for similar material. 4. The Fourth Corporation is going to buy $4,000 of additional equipment. The company estimates the use of the equipment will increase the company’s cash by $1,500 each year in Years 1 and 2, and by $1,000 in Years 3, 4, and 5. Calculate the company's payback period for the additional equipment. The key to this problem is to recognize that the payback period represents the amount of time it will take for the company to recover its $4,000 purchase of the equipment. The company's payback period for the equipment is three years. After three years, the company will have recovered its $4,000 investment in the equipment. Year Yearly Cash Flows Total Cash Flows 1 - $4,000 cost of buying new equipment + $1,500 cash generated by new equipment - $2,500 2 + $1,500 cash generated by new equipment - $1,000 3 + $1,000 cash generated by new equipment $0 See text exercise 9.3 for similar material. 5. The Fifth Corporation purchased a computer to use in its office for the next three
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Chapter 9 sample test - Chapter 9 sample test 1. On January...

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