Newton Manufacturing acquired new machinery on January 1 at a cost of $90,000. It is estimated to have a useful life of 10 years and a salvage value of $30,000. Straight-line depreciation was used. On January 1, following six full years of use of the machinery, management decided that the original estimate of useful life had been too long and that the machinery would have to be retired after two more years (at the end of the eighth year of service). Under this revised, the depreciation expense for the seventh year of would be:

 

$11,250. 

$27,000. 

$18,000. 

$12,000.

 

A company purchased office equipment for $40,000 and estimated a salvage value of $8,000 at the end of its 4-year useful life. The constant percentage to be applied against book value each year if the double-declining-balance method is used is

 

25%. 

50%.   

20%. 

5%.

 

Tomko Company purchased machinery with a list price of $32,000. They were given a 10% discount by the manufacturer. They paid $200 for shipping and sales tax of $1,500. Tomko estimates that the machinery will have a useful life of 10 years and a residual value of $10,000. If Tomko uses straight-line depreciation, annual depreciation will be

 

$2,036. 

$2,050.   

$3,050. 

$1,880.

 

On October 1, 2013, Holt Company places a new asset into service. The cost of the asset is $80,000 with an estimated 5-year life and $20,000 salvage value at the end of its useful life. What is the book value of the plant asset on the December 31, 2013, balance sheet assuming that Holt Company uses the double-declining-balance method of depreciation?

 

$52,000 

$60,000 

$72,000 

$76,000

 

Don’s Copy Shop bought equipment for $150,000 on January 1, 2012. Don estimated the useful life to be 3 years with no salvage value, and the straight-line method of depreciation will be used. On January 1, 2013, Don decides that the business will use the equipment for 5 years. What is the revised depreciation expense for 2013?

 

$20,000 

$50,000 

$37,500 

$25,000  

 

If sixty $1,000 convertible bonds with a carrying value of $69,000 are converted into 9,000 shares of $5 par value common stock, the journal entry to record the conversion is

 

Bonds Payable60,000

Premium on Bonds Payable9,000

Common Stock69,000

 

Bonds Payable60,000

Premium on Bonds Payable9,000

Common Stock45,000

Paid-in Capital in Excess of Par24,000

 

Bonds Payable69,000

Discount on Bonds Payable9,000

Common Stock45,000

Paid-in Capital in Excess of Par15,000

 

 

Bonds Payable69,000

Common Stock69,000

 

 

Under IFRS, the proceeds from the issuance of convertible debt are reported as

 

both debt and equity. 

debt only. 

debt or equity depending on the circumstances. 

equity only.

 

Each of the following is correct regarding bonds except they are

 

a form of interest-bearing notes payable. 

attractive to many investors. 

issued by corporations and governmental agencies. 

sold in large denominations.

 

On October 1, Steve’s Carpet Service borrows $250,000 from First National Bank on a 3-month, $250,000, 8% note. The entry by Steve’s Carpet Service to record payment of the note and accrued interest on January 1 is

 

Notes Payable250,000

Interest Payable5,000

Cash255,000

 

Notes Payable255,000

Cash255,000

 

Notes Payable250,000

Interest Payable20,000

Cash270,000

 

Notes Payable250,000

Interest Expense5,000

Cash255,000

 

The current balance sheet of Greyson Inc. reports total assets of $40 million, total liabilities of $4 million, and stockholders’ equity of $36 million. Greyson is considering several financing possibilities in order to expand operations. Each question based on this data is independent of any others. What will be the effect on Greyson’s debt to total assets ratio if Greyson issues an additional $8 million in stock to finance its expansion?

 

The debt to total asset ratio will increase from 40 before to 48 after the additional investment. 

The debt to total asset ratio will decrease from .1(4/40) to .083 (4/48) after the additional stock sale. 

The additional stock issuance will have no effect on the debt to total asset ratio. 

The debt to total asset ratio will decrease from 4/36 before to 4/44 after the additional stock sale.

 

The relationship of current assets to current liabilities is used in evaluating a company’s

 

operating cycle. 

revenue-producing ability. 

short-term debt paying ability. 

long-range solvency

 

The discount on bonds payable or premium on bonds payable is shown on the balance sheet as an adjustment to bonds payable to arrive at the carrying value of the bonds. Indicate the appropriate addition or subtraction to bonds payable:

Premium on  Bonds PayableDiscount onBonds Payable 

 

Deduct                                       Add

Add                                              Deduct 

Add                                                Add 

Deduct                                      Deduct

 

Jarrett Company issued 600 shares of no-par common stock for $8,800. Which of the following journal entries would be made if the stock has no stated value?

 

Cash 8,800

Common Stock600

Paid-in Capital in Excess of Par8,200

 

Common Stock8,800

Cash8,800

 

Cash 8,800

Common Stock600

Paid-in Capital in Excess of Stated Value8,200

 

Cash 8,800

Common Stock8,800

 

Crawl Inc., has 1,000 shares of 6%, $50 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2012, and December 31, 2013. The board of directors declared and paid a $2,000 dividend in 2012. In 2013, $12,000 of dividends are declared and paid. What are the dividends received by the common stockholders in 2013?

 

$8,000 

$4,000 

$3,000 

$6,000

 

Bacon Corporation began business by issuing 150,000 shares of $5 par value common stock for $25 per share. During its first year, the corporation sustained a net loss of $25,000. The year-end balance sheet would show

 

Common stock of $750,000.      

Total paid-in capital of $3,725,000. 

Total paid-in capital of $775,000. 

Common stock of $3,750,000.

 

A small stock dividend is defined as

 

between 50% and 100% of the corporation’s issued stock. 

more than 30% of the corporation’s issued stock. 

less than 30% but greater than 25% of the corporation’s issued stock. 

less than 20–25% of the corporation’s issued stock

 

Rouse Corporation’s December 31, 2013 balance sheet showed the following:

8% preferred stock, $10 par value, cumulative, 20,000 shares authorized; 15,000 shares issued$150,000

Common stock, $10 par value, 2,000,000 shares authorized; 1,950,000 shares issued, 1,930,000 shares outstanding19,500,000

Paid-in capital in excess of par—preferred stock60,000

Paid-in capital in excess of par—common stock27,000,000

Retained earnings7,650,000

Treasury stock (20,000 shares)630,000

 

Rouse’s total stockholders’ equity was

 

$53,730,000.   

$46,710,000. 

$54,360,000. 

$54,990,000

 

Information that is not generally reported for each class of stock on the balance sheet is

 

the par value. 

shares authorized. 

shares issued. 

the market value.

 

The authorized stock of a corporation

 

must be recorded in a formal accounting entry. 

is indicated in its by-laws. 

only reflects the initial capital needs of the company. 

is indicated in its charter.

 

A corporation purchases 30,000 shares of its own $30 par common stock for $45 per share, recording it at cost. What will be the effect on total stockholders’ equity?

 

Increase by $900,000 

Decrease by $900,000 

Decrease by $1,350,000   

Increase by $1,350,000

 

Which of the following factors does not affect the initial market price of a stock?

 

the company’s anticipated future earnings 

the expected dividend rate per share 

the par value of the stock 

the current state of the economy

 

A corporation is not committed to a legal obligation when it declares

 

a cash dividend. 

either a cash dividend or a stock dividend. 

a stock dividend. 

None of the above

 

The effect of the declaration of a cash dividend by the board of directors is to

IncreaseDecrease

 

LiabilitiesAssets 

Stockholders’ equityAssets 

AssetsLiabilities 

LiabilitiesStockholders’ equity

 

Corporations generally issue stock dividends in order to

 

increase the marketability of the stock. 

exceed stockholders’ dividend expectations. 

decrease the amount of capital in the corporation. 

increase the market price per share.

 

Ralston Company is authorized to issue 10,000 shares of 8%, $100 par value preferred stock and 500,000 shares of no-par common stock with a stated value of $1 per share. If Ralston issues 6,000 shares of common stock to pay its recent attorney’s bill of $25,000 for legal services on a land access dispute, which of the following would be the journal entry for Ralston to record?

 

Legal Expense25,000

Common Stock6,000

Paid-in Capital in Excess of Par – Preferred19,000

 

Legal Expense6,000

Common Stock6,000

 

Legal Expense25,000

Common Stock25,000

 

Legal Expense25,000

Common Stock6,000

Paid-in Capital in Excess of Stated

Value – Common19,000