1. Plant assets are depreciated because

a. the accrual basis of accounting requires matching of costs to revenues

b. some plant assets last longer than other

c. useful lived cannot be reasonably estimated

d. the replacement cost of plant assets may fluctuate over time

2. Research and development costs are

a. treated as an expense when incurred

b. capitalized but not amortized

c. capitalized and amortized over the periods that will probably benefit from the research and development

d. included with the cost of the patent resulting from the research and development

3. Which of the following statements is true of liabilities?

a. accounts payable are listed in the current liabilities section in alphabetical order by vendor

b. classification of current liabilities is important because of the liquidity concept

c. current liabilities are listed in order of decreasing amounts in the current liability section of the balance sheet

d. the accounting principles followed in the U.S differ from those of other countries; this is especially true for current liabilities

4. There are some liabilities, such as income tax payable, for which the amounts must be estimated. Failure to estimate these amounts and record them would be a violation of the

a. matching principles

b. convention of conservation

c. practice of consistency

d. concept of historical cost

5. A ten year lease obligation appears on the balance sheet of generic products company. How would it most likely be classified on the balance sheet?

a. current asset

b. long term liability

c. long term asset

d. contra-liability

6. Which of the following accounts would not appear on the balance sheet of a lessee company recording a capital lease?

a. accumulated depreciation on the leased asset

b. lease obligation in the current liability section

c. lease obligation in the long term liability section

d. rent expense on the income statement

7. Which of the following is an account in stockholders equity?

a. dividends payable

b. loss on sale of equipment

c. retained earnings

d. net income

8. A company purchased machinery by issuing 2,000 shares of $3 par value common stock. Since the company is new, there is no established market price for its stock. How would the company record the transaction?

a. in terms of the par value of the machine

b. at the fair market value of the machine

c. at the cost recorded by the previous owner of the machine

d. recording the transaction would be postponed until a market price for the stock could be determined