accounting test 3

Stockholders' equity consists of:

Contributed capital and retained earnings

The relevant factor(s) in computing depreciation include:

Cost Residual value Useful life Depreciation method

A company issued 60 shares of $100 par value stock for $7,000 cash. The total amount of contributed capital in excess of par is:

$1000

A depreciation method in which a plant asset's depreciation expense for a period is determined by applying a constant depreciation rate each period to the asset's beginning book value is called:

Declining-balance depreciation

The useful life of a plant asset is:

The length of time it is productively used in a company's operations.

Par value of a stock refers to the:

Value assigned to a share of stock by the corporate charter.

Promissory notes that require the issuer to make a series of payments consisting of both interest and principal are:

installment notes

A method that charges the same amount of expense over each period of the asset's useful life is called:

straight-line depreciation

A company purchased a delivery van for $23,000 with a residual value of $3,000 on September 1, 2007. It has an estimated useful life of 5 years. Using the straight-line method, how much depreciation expense should the company recognize on December 31, 2007?

$1333

Lomax Enterprises purchased a depreciable asset for $22,000 on March 1, 2007. The asset will be depreciated on the straight-line method over its four-year useful life. Assuming the asset's residual value is $2,000, what will be the amount of accumulated depreciation on this asset on December 31, 2010?

$19,166.67

Nelson Company purchase equipment on July 1 for $27,500 and decided to depreciate the equipment on the straight-line method over its useful life of five years. Assuming the equipment's residual value is $3,500, the amount of monthly depreciation expense Nelson should recognize is:

$400

A company had a beginning balance in retained earnings of $43,000. It had net income of $6,000 and paid out cash dividends of $5,625 in the current period. The ending balance in retained earnings equals:

$43,375

A company's board of directors votes to declare a cash dividend of 75₵ per share. The company has 15,000 shares authorized, 10,000 issued, and 9,500 shares outstanding. The total amount of the cash dividend is:

$7,125

A company issued 60 shares of $100 par value stock for $7,000 cash. The total amount of contributed capital is:

$7000

A corporation sold 14,000 shares of its $10 par value common stock at a cash price of $13 per share. The entry to record this transaction would include:

A credit to Common Stock for $140,000.

A corporation issued 6,000 share of its $10 par value common stock in exchange for land that has a market value of $84,000. The entry to record this transaction would include:

A credit to Contributed Capital in Excess of Par Value, Common Stock for $24,000.

On October 1, a $30,000, 6%, 3-year installment note payable is issued by a company. The note requires that $10,000 of principal plus accrued interest be paid at the end of each year on September 30. The issuer's journal entry to record the second annual interest payment would include:

A debit to Interest Expense for $1,200

An asset's book value is $18,000 on June 30, 2007. The asset is being depreciated at an annual rate of $3,000 on the straight-line method. Assuming the asset is sold on December 31, 2008 for $15,000, the company should record:

A gain on sale of $1,500.

An asset's book value is $36,000 on January 1, 2007. The asset is being depreciated at a rate of $500 per month on the straight-line method. Assuming the asset is sold on July 1, 2008 for $25,000, the company should record:

A loss on sale of $2,000.

Salvage value is:

Also called residual value. Also called scrap value. An estimate of the asset's value at the end of its benefit period. A factor relevant to determining depreciation.

Betterments:

Are expenditures making a plant asset more efficient or productive Are also called improvements Do not always increase an asset's life Are capital expenditures, if material

Ordinary repairs:

Are expensed to keep an asset in normal operating condition Are necessary if an asset is to perform to expectations over its useful life Are treated as expenses Include cleaning, lubricating, and normal adjusting

The formula for computing annual straight-line depreciation is:

Cost less residual value divided by the useful life in years.

An asset can be disposed of by:

Discarding it Selling it Exchanging it for another asset. Donating it to charity

Extraordinary repairs:

Extend an asset's useful life beyond its original estimate

A corporation borrowed $125,000 cash by signing a 5-year, 9% installment note requiring annual payments each December 31 of accrued interest plus equal amounts of principal. What journal entry would the issuer record for the first payment?

Interest Expense 11,250 Notes Payable 25,000 Cash 36,250

A premium on common stock:

Is the amount paid in excess of par by purchasers of newly issued stock

Depreciation:

Is the process of allocating to expense the cost of a plant asset

Plant assets include:

Land Land improvements Buildings Machinery and equipment

A corporation issued 5,000 shares of $10 par value common stock in exchange for some land with a market value of $60,000. The entry to record this exchange is:

Land 60,000 Common Stock 50,000 Contributed Capital in Excess of Par Value, Common Stock 10,000

On January 1, 2007, Merrill Company borrowed $100,000 on a 10-year, 7% installment note payable. The terms of the note require Merrill to pay 10 equal payments of $14,238 each December 31 for 10 years. The required general journal entry to record the first payment on the note on December 31, 2007 is:

Notes payable 7,238 Interest expense 7,000 Cash 14,238

The straight-line depreciation method and double-declining-balance depreciation method:

Produce the same total depreciation over an asset's useful life

The cost of land can include:

Purchase price Assessments by local government Costs of removing existing buildings Fees for insuring the title

A company declared a $0.50 per share cash dividend. The company has 20,000 shares authorized, 9,000 shares issued, and 8,000 shares of common stock outstanding. The journal entry to record the dividend declaration is:

Retained Earnings 4,000 Common Dividends Payable 4,000

A company issued 7% preferred stock with a $100 par value. This means that:

The amount of the potential dividend is $7 per year per preferred stock.

A method that allocates an equal portion of the total depreciation cost for a plant asset to each unit produced is called:

Units-of-production depreciation

The total amount of stock that a corporation's charter allows it to issue is referred to as:

authorized stock

The total cost of an asset less its accumulated depreciation is called:

book value

When all of the authorized shares have the same rights and characteristics, the stock is called:

common stock