Balance sheet multiple choice



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     Account Descriptions

a.

Stocks and bonds of other companies held for the purpose of exercising control.

b.

An accumulation of the sum of the expense since the beginning of the benefit period.

c.

Outside ownership in the equity of consolidated subsidiaries.

d.

Machinery and tools, valued at historical cost.

e.

Monies due because expenses, such as salaries, are incurred in a different period than when the cash outlay occurs.

f.

The most liquid of assets, it may also include savings accounts.

g.

Goods on hand.

h.

A potential liability created by differing tax and reporting methods.

i.

Ownership and debt instruments readily converted to cash.

j.

An expenditure made in advance of the use of the service or good.

k.

Monies due from customers arising from sale or service rendered.

l.

The capital stock of residual owners.

m.

Bonds that can be exchanged for stock at the option of the holder.

n.

Undistributed earnings of the corporation.

o.

Shares of the firm's own stock that have been repurchased.

p.

Monies due for goods bought for use or resale.

q.

Excess over legal par paid at time of sale.

r.

Nondepreciable real estate.

s.

Collections in advance of service.

t.

Securities that give the holder the right to buy additional shares of common stock at a fixed price.

ANS:



1.

p

2.

k

3.

e

4.

b

5.

f

6.

l

7.

m

8.

h

9.

d

10.

g

11.

r

12.

i

13.

c

14.

q

15.

n

16.

o

Account Descriptions a, j, s, and t are not used.

9. An item of equipment acquired on January 1, at a cost of $100,000, has an estimated use of 50,000 hours. During the first three years, the equipment was used 11,000, 8,000, and 7,000 hours, respectively. The equipment has an estimated life of five years and an estimated salvage of $10,000.
Required:

Determine the depreciation for each of the three years, using the straight-line method, the double declining-balance method, the sum-of-the-years'-digits method, and the units-of-production method.

ANS:


Straight-Line:

$100,000 - $10,000

= $18,000 Each Year




5



Declining-Balance =




Year 1:







1/5 ´ 2 ´ $100,000 = $40,000 1st Year

Year 2:







1/5 ´ 2 ´ ($100,000 - $40,000) = $24,000 2nd Year

Year 3:







1/5 ´ 2 ´ ($100,000 - $64,000) = $14,400 3rd Year

Sum-of-the-Years'-Digits:




Year 1:







5/15 ´ ($100,000 - $10,000) = $30,000

Year 2:







4/15 ´ ($100,000 - $10,000) = $24,000

Year 3:







3/15 ´ ($100,000 - $10,000) = $18,000

Units-of-Production Method:




Year 1:







11,000 ´ $1.80 = $19,800 ($100,000 - $10,000) ÷ 50,000 = $1.80 per unit)

Year 2:







8,000 ´ $1.80 = $14,400

Year 3:







7,000 ´ $1.80 = $12,600

10. Smith Company has had 10,000 shares of 8%, $100 par-value preferred stock, and 15,000 shares of $10 par-value common stock outstanding for the last two years. During the most recent year, dividends paid totaled $100,000; in the prior year, dividends paid totaled $60,000.


Required: Compute the amount of dividends that must have been paid to preferred stockholders and common stockholders in each of the years, given the following independent assumptions:


a.

Preferred stock is nonparticipating and noncumulative.

b.

Preferred stock is nonparticipating and cumulative.

ANS:


a.





Preferred

  Stock  

Common

  Stock  

Year 1 Dividends, $60,000
















Preferred Stock







10,000 ´ $100 ´ 8% = $80,000

$ 60,000

-0-










Year 2 Dividends, $100,000
















Preferred Stock







10,000 ´ $100 ´ 8% = $80,000

$ 80,000

$20,000

b.


Year 1 Dividends, $60,000
















Preferred Stock







10,000 ´ $100 ´ 8% = $80,000

$ 60,000

-0-










Year 2 Dividends, $100,000
















Preferred Stock







Carryover from Year 1

$ 20,000




10,000 ´ $100 ´ 8% = $80,000

 80,000

-0-




$100,000






3-

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