CHAPTER 3BALANCE SHEET

MULTIPLE CHOICE 1. The balance sheet reports: a the assets, liabilities, gains, and losses for a period of time . b the changes in assets, liabilities, and equity for a period of time . c the assets, expenses, and liabilities as of a certain date . d the probable future benefits, probable future sacrifices, and residual interest for a period . of time e the financial condition of an accounting entity as of a particular date . ANS: E . !hich of the follo"ing "ould not appear on a con#entional balance sheet$ a income taxes payable . b funds from operations . c cash surrender #alue of life insurance . d appropriation for contingencies %restriction of retained earnings& . e patents . ANS: ' (. At the beginning of the year, Execon )ompany had total assets of * ++,+++, total liabilities of *11+,+++, and shareholders, equity of *-+,+++. .or the year, Execon )ompany earned net income of */0,+++ and declared cash di#idends of *(+,+++. At the end of the year, the company had total assets of *(++,+++ and its shareholders, equity "as at *1(0,+++. At the end of the year, Execon )orporation had total liabilities of: a *+ . b *10,+++ . c *0+,+++ . d *120,+++ . e none of the ans"ers are correct . ANS: 3

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1.

:"nership of debt instruments of the go#ernment and other companies that can be readily con#erted to cash are best reported as: a long4term in#estments . b cash . c mar;etable securities . d intangibles . e in#entory of near4cash items . ANS: )

0. Tangible assets on the balance sheet should include: a equipment . b taxes payable . c trademar;s . d bonds payable . e none of the ans"ers are correct . ANS: A 2. The current asset section of the balance sheet should include: a land . b trademar;s . c in#estment in ) )ompany %for purposes of control& . d di#idends payable . e "or; in process in#entory .

ANS: E /. The current liability section of the balance sheet should include: a buildings . b good"ill . c land held for speculation purposes . d accounts payable .

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e .

none of the ans"ers are correct

ANS: 3 <. !hich of the follo"ing is not a current asset$ a mar;etable securities . b material in#entory . c unearned rent income . d prepaid interest . e prepaid insurance .

ANS: ) -. =f a parent has some control o#er a subsidiary but the subsidiary is not consolidated, the subsidiary is accounted for as: a a mar;etable security . b an in#estment . c a liability . d a fixed asset . e none of the ans"ers are correct .

ANS: ' 1+. !hich of the follo"ing is not a proper use of notes$ a To describe the nature and effect of a change in accounting principle, such as from .=.: . to 6=.:. b To indicate the basis for asset #aluation. . c To indicate the method of depreciation. . d To correct an improper financial statement presentation. . e To describe a firm,s debt. .

ANS: 3

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11.

)ompany A o"ns shares of )ompany ' and )ompany ). The statements of )ompany ' are consolidated "ith those of )ompany A. The statements of )ompany ) are not consolidated. )ompany A reports >9inority =nterest> on its balance sheet. This account represents: a A,s minority share of the stoc; of ' . b A,s minority share of the stoc; of ) . c the minority share by outside o"ners of the stoc; of A . d the minority share by outside o"ners of the stoc; of ' . e the minority share by outside o"ners of the stoc; of ) . ANS: 3

1 . 3rama ?roducts =nc. has issued redeemable preferred stoc;. .or analysis purposes, these securities are best classified as: a mar;etable securities . b long4term in#estments . c long4term debt . d paid4in capital . e retained earnings . ANS: ) 1(. Treasury stoc; is best classified as: a a current asset . b a long4term in#estment . c a contra liability . d a reduction of stoc;holders, equity . e a reduction of retained earnings . ANS: 3 11. !hich of the follo"ing is not a common characteristic of preferred stoc;$ a #oting rights . b preference as to di#idends . c preference in liquidation

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. d callability by the corporation . e none of the ans"ers are correct . ANS: A 10. !hich of the follo"ing is not a problem inherent in balance sheet presentation$ a 9ost assets are #alued at cost. . b @arying methods are used for asset #aluation. . c Not all items of #alue to the firm are included as assets. . d 6iabilities related to contingencies may not appear on the balance sheet. . e The o"ners, interest "ill be indicated. . ANS: E 12. !hich of the follo"ing is not true relating to treasury stoc;$ a A firm creates treasury stoc; "hen it repurchases its o"n stoc; and does not retire it. . b Treasury stoc; lo"ers the stoc; outstanding. . c Treasury stoc; may be recorded at the cost of the stoc;. . d Treasury stoc; may be recorded at par or stated #alue. . e Treasury stoc; is, in essence, an increase in paid4in capital. . ANS: E 1/. !hich of the follo"ing is not true about an ES:?$ a An ES:? "ill reduce the amount of #oting stoc; in the hands of employees. . b An ES:? must be a permanent trusted plan for the exclusi#e benefit of the employees. . c The plan participants become eligible for fa#orable taxation of distributions from the . plan. d )ommercial lending institutions, insurance companies, and mutual funds are permitted . an exclusion from income for 0+A of the interest recei#ed on loans used to finance an ES:?,s acquisition of company stoc;. e An ES:? may reduce the potential of an unfriendly ta;eo#er. .

ANS: A

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1<. is the follo"ing: a units4of4production . b sum4of4the4yearsB4digits . c declining4balance . d straight4line . e other .

The most popular depreciation method for financial reporting

ANS: 3 1-. !hich of the follo"ing is a current liability$ a prepaid insurance . b account recei#able . c unearned rent re#enue . d building . e common stoc; .

ANS: ) +. !hich of the follo"ing accounts "ould not be classified as an intangible$ a franchises . b research and de#elopment . c patent . d trademar;s . e good"ill .

ANS: '

TRUE/FALSE 1. The purpose of a balance sheet is to sho" the financial condition of an accounting entity for a period of time.

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ANS: . . =n a period of rising prices, 6=.: usually results in a realistic cost of goods sold. ANS: T (. Cenerally accepted accounting principles and the =nternal 7e#enue )ode of tax la" require that the same depreciation method be used for both the financial statements and the federal tax return. ANS: . 1. All intangibles are amortiDed o#er their useful li#es or their legal li#es, "hiche#er is shorter. ANS: . 0. 3eferred taxes are caused by using different accounting methods for tax and financial reporting purposes. ANS: T 2. Assets are probable future economic benefits obtained or controlled by an entity as a result of past transactions or e#ents. ANS: T /. 9inority interest reflects the o"nership of minority shareholders in the equity of consolidated subsidiaries that are less than "holly o"ned. ANS: T <. The stoc;holders, equity section of the balance sheet includes redeemable preferred stoc;. ANS: . -. !hen a firm repurchases its o"n stoc; and retires it, the stoc; is called treasury stoc;. ANS: . 1+. A sole proprietorship form of business has only one o"ner. ANS: T 11. The financial statements of legally separate entities may be issued to sho" the financial position and income as they "ould appear if the companies "ere one legal entity. Such statements reflect a legal, rather than an economic, concept of the entity. ANS: . 1 . )urrent assets are listed on the balance sheet in order of liquidity.

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ANS:

1(. 6ong4term in#estments, usually stoc;s and bonds of other companies, are often held to maintain a business relationship or exercise control. ANS: T 11. !hen preferred stoc; has a preference as to di#idends, the current year,s preferred di#idend must be paid before a di#idend can be paid to common stoc;holders. ANS: T 10. =f di#idends are not declared by the board of directors in a particular year, a holder of cumulati#e preferred stoc; "ill ne#er be paid that di#idend. ANS: . 12. ?referred stoc; usually has #oting rights. ANS: . 1/. !arranty obligations are estimated in order to recogniDe the obligation at the balance sheet date and to charge the expense to the period of the sale. ANS: T 1<. )orporations do not use a standard title for o"ners, equity. ANS: T 1-. A quasi4reorganiDation is an accounting procedure equi#alent to an accounting fresh start. ANS: T +. The principal financial statements are the balance sheet, income statement, and statement of cash flo"s. ANS: T 1. The deferred compensation element of an equity4based deferred compensation arrangement is the amount of compensation cost deferred and amortiDed %expensed& to future periods as the ser#ices are pro#ided. ANS: T . An ES:? is a qualified stoc;4bonus or combination stoc;4bonus and money4purchase pension plan designed to in#est primarily in stoc;, other than the employer,s securities. ANS: .

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(. ANS: .

The =nternal 7e#enue )ode penaliDes borro"ing for an ES:?.

1. The balance sheet is presented "ith the assets equal to liabilities plus equity. !hen this presentation is presented side by side, it is called the account form. ANS: T 0. The analyst must assume that securities classified as mar;etable securities are readily mar;etable. ANS: T

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2.

There are many alternati#e titles for the statement of stoc;holdersB equity. The most frequently used alternati#e title is the statement of shareholdersB equity. ANS: T

/. !hen the bond mar;et interest rate is 2A and the bond contractual interest rate is <A, the bond "ill sell at a premium. ANS: T

<. Noncontrolling interest reflects the o"nership of noncontrolling shareholders in the equity of
consolidated subsidiaries less than "holly occurred. ANS: T

-. Noncontrolling interest should be presented at the bottom of stoc;holders equity.

ANS: T

(+. =.7S require a standard format for the balance sheet.

ANS: .

(1. 8sing =.7S, usually noncurrent assets are presented first, follo"ed by current assets.
ANS: T

( . 8nder =.7S, reser#es may result from up"ard re#aluations of properties and in#estments.
ANS: T PROBLEMS 1. Assume that Eugene 9otor )orp. uses the follo"ing headings on its balance sheet: A. '. ). 3. E. .. C. E. =. )urrent Assets =n#estments ?roperty, ?lant, and Equipment =ntangible Assets )urrent 6iabilities 6ong4Term 6iabilities )apital Stoc; 7etained Earnings Stoc;holders, Equity

7equired:

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=ndicate by letter ho" each of the follo"ing should be best classified. =f an item "ould not appear on the balance sheet but "ould appear in a note to the financial statements, use the letter >N> to indicate this. =f an item is neither reported on the balance sheet nor disclosed as a note, use the letter >F> to indicate this. =f the account balance is normally opposite that of a typical account in that classification, indicate this by placing the letter in parentheses. a . b . c . d . e . f. g . h . i. G. ; . l. m . n . o . p . q . r. s. t. u . # . " . x . ?atents 9erchandise =n#entory Taxes ?ayable Employee ?ayroll 3eduction for State =ncome Taxes )ash :ffice Supplies ?referred Stoc; )ommon Stoc; !or; in ?rocess 6and Accounts 7ecei#able Accumulated 3epreciation 8nearned 7ent =ncome 8namortiDed 'ond ?ayable 3iscount %bond payable fi#e years from current balance sheet date& 7ecei#able from :fficerHdue in 2 months Accumulated 3eficit %losses incurred since inception& =nsurance Expense Cood"ill =nterest Accrued on 8.S. Co#ernment Securities :"ned Accounts payable Treasury Stoc; !ages ?ayable 6and ?urchased as .uture 3e#elopment Site 8nexpired 7ent Expense %prepaid rent&

ANS: a 3

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. b A . c E . d E . e A . f. A g C . h C . i. A G. ) ; A . l. %)& m E . n %.& . o A . p %E& . q F . r. 3 s. A t. E u %=& . # E . " ' . x A . . 7equired: 8sing the letters pro#ided, classify items %1I1(& according to the most commonly preferred balance sheet presentation. Assets a. )urrent Assets b. Tangible Assets c. =n#estments d. =ntangibles e. :ther 6iabilities and Stoc;holders, Equity f. )urrent 6iability g. 6ong4Term 6iability h. )apital Stoc; i. 7etained Earnings G. =tems Not =ncluded on 'alance Sheet

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1. . (. 1. 0. 2. /. <. -. 1+ . 11 . 1 . 1( .

6and 9ar;etable Securities Cood"ill =n#entories ?remium on ?referred Stoc; Appropriation for Expansion 3epreciation Expense =n#estment in J )ompany 'onds %long4term in#estment& Accounts ?ayable 'onds ?ayable Equipment )opyright 8namortiDed ?remium on 'onds ?ayable

ANS: 1. . (. 1. 0. 2. /. <. -. 1+ . 11 . 1 . 1( . b a d a h i G c f g b d g

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(. alphabetical order, is presented belo":

A partial list of accounts for Kohnson and )lar;, in Accounts ?ayable Accounts 7ecei#able Accrued Salaries ?ayable Accumulated 3epreciationH'uildings Accumulated 3epreciationHEquipment Additional ?aid4=n )apitalH)ommon Stoc; Allo"ance for 3oubtful Accounts 'an; 6oan %long4term& 'onds ?ayable 'uildings )ash in 'an; )ommission Expense )ommon Stoc; )urrent ?ortion of 6ong4Term 3ebt Equipment .=)A Taxes ?ayable .ranchise Cood"ill =nterest =ncome =nterest 7ecei#able =n#entoryHEnding 'alance 6and 6and Eeld for .uture ?lant Site 6oss on Sale of Equipment 9ar;etable Securities 9inority =nterest Notes ?ayable %long4term& :bligations on 6ong4Term 6oans ?atent ?referred Stoc; ?remium on 'onds ?ayable ?repaid Expenses ?urchases 7etained Earnings Sales Sales Salaries Expense Treasury Stoc; 8nearned 7ent 7e#enue 7equired: ?repare a balance sheet in good format, "ithout monetary amounts, for 3ecember (1, +1+. 8se the format )urrent AssetsL ?roperty, ?lant, and EquipmentL =n#estmentsL =ntangiblesL )urrent 6iabilitiesL 6ong4Term 6iabilitiesL and Stoc;holders, Equity. 3o not use the accounts not found on the balance sheet.

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ANS: Kohnson and )lar; 'alance Sheet 3ecember (1, +1+ Assets )urrent Assets: )ash in 'an; 9ar;etable Securities Accounts 7ecei#able 6ess: Allo"ance for 3oubtful Accounts =nterest 7ecei#able =n#entory %ending balance& ?repaid Expenses Total )urrent Assets ?roperty, ?lant, and Equipment: 6and 'uildings 6ess: Accumulated 3epreciationH'uildings Equipment 6ess: Accumulated 3epreciationHEquipment =n#estments: 6and Eeld for .uture ?lant Site =ntangibles: .ranchise ?atent Cood"ill Total Assets 6iabilities and Stoc;holders, Equity )urrent 6iabilities: Accounts ?ayable Accrued Salaries ?ayable .=)A Taxes ?ayable 8nearned 7ent 7e#enue )urrent ?ortion of 6ong4Term 3ebt Total )urrent 6iabilities 6ong4Term 6iabilities: 'onds ?ayable ?lus: ?remium on 'onds ?ayable Notes ?ayableH6ong4Term 'an; 6oanH6ong4Term :bligations on 6ong4Term 6oans 9inority =nterest

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Stoc;holders, Equity: ?referred Stoc; )ommon Stoc; Additional ?aid4=n )apitalH)ommon Stoc; 7etained Earnings 6ess: Treasury Stoc; Total 6iabilities and Stoc;holders, Equity

1. The follo"ing is a partial listing of accounts for Euisara, =nc., for the year ended 3ecember (1, +1+. 7equired: ?repare a balance sheet in good format for 3ecember (1, +1+. .inished Coods )urrent 9aturities of 6ong4Term 3ebt Accumulated 3epreciation Accounts 7ecei#able Sales 7e#enue Treasury Stoc; ?repaid Expenses 3eferred Taxes %long4term liability& =nterest Expense Allo"ance for 3oubtful Accounts 7etained Earnings 7a" 9aterials Accounts ?ayable )ash and )ash Equi#alents Sales Salaries Expense )ost of Coods Sold =n#estment in 8nconsolidated Subsidiaries =ncome Taxes ?ayable !or; =n ?rocess Additional ?aid4=n )apital Equipment 6ong4Term 3ebt 7ent =ncome )ommon Stoc; Notes ?ayable %short4term& =ncome Tax Expense
$ 9,718 1,257 9,980 24,190 127,260 251 2,199 8,506 2,410 915 18,951 9,576 19,021 8,527 872 82,471 3,559 8,356 1,984 9,614 41,905 15,258 2,468 3,895 6,156 2,461

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ANS: Euisara, =nc. 'alance Sheet 3ecember (1, +1+ Assets )urrent Assets: )ash and )ash Equi#alents Accounts 7ecei#able 6ess: Allo"ance for 3oubtful Accounts =n#entories: 7a" 9aterials !or; =n ?rocess .inished Coods ?repaid Expenses Total )urrent Assets Tangible Assets: Equipment 6ess: Accumulated 3epreciation =n#estments: =n#estments in 8nconsolidated Subsidiaries Total Assets 6iabilities and Stoc;holders, Equity )urrent 6iabilities: )urrent 9aturities of 6ong4Term 3ebt Notes ?ayable Accounts ?ayable =ncome Taxes ?ayable Total )urrent 6iabilities 6ong4Term 6iabilities: 6ong4Term 3ebt 3eferred Taxes Total 6ong4Term 6iabilities Stoc;holders, Equity: )ommon Stoc; Additional ?aid4=n )apital 7etained Earnings 6ess: Treasury Stoc; Total 6iabilities and Stoc;holders, Equity
$ 8,527 $ 24,190 (915) 23,275

9,576 1,984 9,718

21,278 2,199 $ 55,279

$ 41,905 (9,980)

31,925

3,559 $ 90,763

$ 1,257 6,156 19,021 8,356 $ 34,790

$15,258 8,506 23,764

$ 3,895 9,614 18,951 $32,460 (251)

32,20 9 $ 90,763

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(415 +11 )engage 6earning. All 7ights 7eser#ed. This edition is intended for use outside of the 8.S. only, "ith content that may be different from the 8.S. Edition. 9ay not be scanned, copied, duplicated, or posted to a publicly accessible "ebsite, in "hole or in part.

0.

The follo"ing balance sheet, prepared by a careless boo;;eeper, has been gi#en to you to re#ie". 7equired: 6ist any corrections that need to be made. Errors can be in classification, lac; of disclosure, format, or terminology. Eldorado, =nc. 'alance Sheet .or the Mear Ended Kune (+, +1+ Assets )urrent Assets: Accounts 7ecei#able 9erchandise =n#entory )ash =n#estments: 9ar;etable Securities Treasury Stoc; Tangible Assets: 'uildings 6ess: 7eser#e for 3epreciation :ther Assets: 8namortiDed ?ortion of 'ond ?ayable 3iscount 6iabilities and Stoc;holders, Equity )urrent 6iabilities: Accounts ?ayable 'an; Note ?ayable %due 2N1N +11& 6ong4Term 6iabilities: 'onds ?ayable )apital Stoc;: )ommon Stoc; Earned Surplus
$ 49,000 92,000 141,000 $301,000 $ 37,000 62,000 17,000

$116,000

$ 18,000 4,000

22,000

$194,000 (34,000)

160,000

3,000 $301,000

$ 26,000 22,000

$ 48,000

112,000

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ANS: 1. . (. 1. 0. 2. /. <. -. The date should read >Kune (+, +1+,> as a balance sheet is at a particular point in time. )ash should be listed first under current assets. 9ar;etable securities should be a current asset, listed after cash. Treasury stoc; should be deducted from stoc;holders, equity. >Allo"ance> is a better term than >7eser#e> in relation to depreciation. The bond discount should be subtracted from bonds payable rather than being sho"n as an asset. The ban; note payable is not due "ithin a year and should be classified as long4term. 7etained earnings is no" common terminology to replace earned surplus. The par #alue and number of shares should be disclosed for the stoc;.

2. The follo"ing balance sheet, prepared by !hoops 'oo;;eeping Ser#ice, has been gi#en to you to re#ie". 7equired: ?repare a corrected, properly classified balance sheet in report form. 'utler )orporation 'alance Sheet .or Mear Ended 3ecember (1, +1+ )urrent Assets: )ash Accounts 7ecei#able =n#entory Treasury Stoc; ?roperty, ?lant, and Equipment: 6and Trademar;s 'uildings Equipment =ntangibles: :rganiDation )osts 3iscount on 'onds ?ayable =n#estments: 6ong4Term =n#estment in 'onds 9ar;etable SecuritiesH Short4Term Total Assets
$

)urrent 6iabilities: Accounts ?ayable !ages ?ayable Accumulated 3epreciation 30,000 HEquipment Accumulated 3epreciation 10,000 H'uildings
6,200 13,000 7,000 5,000 45,000 17,000 4,000 2,000

$ 15,000 2,000 5,000 10,000

6ong4Term 6iabilities: )urrent Taxes ?ayable ?remium on )ommon Stoc; 'onds ?ayable Notes ?ayableH6ong Term

4,000 3,000 60,000 10,000

:"ners, Equity: )ommon Stoc; 7etained Earnings Allo"ance for 3oubtful 8,000 Accounts
7,000 $154,200

31,200 12,000 2,000

$154,200

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ANS: 'utler )orporation 'alance Sheet 3ecember (1, +1+ Assets )urrent Assets: )ash 9ar;etable Securities Accounts 7ecei#able 6ess: Allo"ance for 3oubtful Accounts =n#entory Total )urrent Assets Tangible Assets: 6and Equipment 6ess: Accumulated 3epreciationH Equipment 'uildings 6ess: Accumulated 3epreciationH 'uildings =n#estments: =n#estment in 'onds =ntangibles: Trademar;s :rganiDation )osts Total Assets 6iabilities and Stoc;holders, Equity )urrent 6iabilities: Accounts ?ayable !ages ?ayable )urrent Taxes ?ayable Total )urrent 6iabilities 6ong4Term 3ebt: Notes ?ayableH6ong4Term 'onds ?ayable 6ess: 3iscount on 'onds ?ayable Total 6ong4Term 3ebt :"ners, Equity: )ommon Stoc; ?remium on )ommon Stoc; 7etained Earnings Treasury Stoc; Total 6iabilities and Stoc;holders, Equity
$ 5,000 4,000

$ 6,200 7,000 $13,000 (2,000) 11,000 30,000 $ 54,200

$ 7,000 $17,000 (5,000) 45,000 (10,000) 12,000

35,000

54,000

8,000

9,000 $125,200

$15,000 2,000 4,000 $ 21,000

$10,000 $60,000 (2,000) 58,000 68,000

31,200 3,000 12,000 (10,000)

36,200 $125,200

(4
5 +11 )engage 6earning. All 7ights 7eser#ed. This edition is intended for use outside of the 8.S. only, "ith content that may be different from the 8.S. Edition. 9ay not be scanned, copied, duplicated, or posted to a publicly accessible "ebsite, in "hole or in part.

/. 7equired: 8sing the information gi#en belo", prepare a classified balance sheet in good form for 'abic )ompany at 3ecember (1, +1+. Accounts ?ayable Accounts 7ecei#able Accrued 6iabilities Accumulated 3epreciation )ash )ommon Stoc; )on#ertible 3ebentures 3eferred =ncome Taxes %long4term liability& Equipment =n#entory 6and 9ar;etable Securities ?aid4=n )apital in Excess of ?ar 7etained Earnings Treasury Stoc;
$ 83,000 109,000 22,000 326,000 32,000 107,000 561,000 117,000 1,070,000 146,000 917,000 11,000 141,000 952,000 24,000

ANS: 'abic )ompany 'alance Sheet 3ecember (1, +1+ Assets )urrent Assets: )ash 9ar;etable Securities Accounts 7ecei#able =n#entory Total )urrent Assets Tangible Assets: 6and Equipment 6ess: Accumulated 3epreciation Total Assets
$1,070,000 (326,000 ) $ $ 32,000 11,000 109,000 146,000 $ 298,000

917,000

744,000

1,661,000 $1,959,000

(4 (
5 +11 )engage 6earning. All 7ights 7eser#ed. This edition is intended for use outside of the 8.S. only, "ith content that may be different from the 8.S. Edition. 9ay not be scanned, copied, duplicated, or posted to a publicly accessible "ebsite, in "hole or in part.

6iabilities and Stoc;holders, Equity )urrent 6iabilities: Accounts ?ayable Accrued 6iabilities Total )urrent 6iabilities )on#ertible 3ebentures 3eferred =ncome Taxes Stoc;holders, Equity: )ommon Stoc; ?aid4=n )apital in Excess of ?ar 7etained Earnings 6ess: Treasury Stoc; Total 6iabilities and Stoc;holders, Equity

$ 83,000 22,00 0 $ 105,000 561,000 117,000

$ 107,000 141,000 952,000 $1,200,000 (24,000)

1,176,000 $1,959,000

<. 7equired: 9atch each account to the proper account description by placing the appropriate letter before the account nameL not all letters "ill be used. Account OOOO 1. Accounts ?ayable OOOO Accounts 7ecei#able . OOOO Accrued 6iabilities (. OOOO Accumulated 3epreciation 1. OOOO )ash 0. OOOO )ommon Stoc; 2. OOOO )on#ertible 3ebentures /. OOOO 3eferred =ncome Taxes <. %liability& OOOO Equipment -. OOOO =n#entory 1+. OOOO 6and 11. OOOO 9ar;etable Securities 1 . OOOO 9inority =nterest 1(. OOOO ?aid4=n )apital in Excess of ?ar

(4 1
5 +11 )engage 6earning. All 7ights 7eser#ed. This edition is intended for use outside of the 8.S. only, "ith content that may be different from the 8.S. Edition. 9ay not be scanned, copied, duplicated, or posted to a publicly accessible "ebsite, in "hole or in part.

11. OOOO 10. OOOO 12.

7etained Earnings Treasury Stoc;

(4 0
5 +11 )engage 6earning. All 7ights 7eser#ed. This edition is intended for use outside of the 8.S. only, "ith content that may be different from the 8.S. Edition. 9ay not be scanned, copied, duplicated, or posted to a publicly accessible "ebsite, in "hole or in part.

Account 3escriptions a . b . c . d . e . f. g . h . i. G. ; . l. m . n . o . p . q . r. s. t. Stoc;s and bonds of other companies held for the purpose of exercising control. An accumulation of the sum of the expense since the beginning of the benefit period. :utside o"nership in the equity of consolidated subsidiaries. 9achinery and tools, #alued at historical cost. 9onies due because expenses, such as salaries, are incurred in a different period than "hen the cash outlay occurs. The most liquid of assets, it may also include sa#ings accounts. Coods on hand. A potential liability created by differing tax and reporting methods. :"nership and debt instruments readily con#erted to cash. An expenditure made in ad#ance of the use of the ser#ice or good. 9onies due from customers arising from sale or ser#ice rendered. The capital stoc; of residual o"ners. 'onds that can be exchanged for stoc; at the option of the holder. 8ndistributed earnings of the corporation. Shares of the firm,s o"n stoc; that ha#e been repurchased. 9onies due for goods bought for use or resale. Excess o#er legal par paid at time of sale. Nondepreciable real estate. )ollections in ad#ance of ser#ice. Securities that gi#e the holder the right to buy additional shares of common stoc; at a fixed price.

ANS: 1. . (. 1. 0. 2. /. <. -. 1+ . 11 p ; e b f l m h d g r

(4 2
5 +11 )engage 6earning. All 7ights 7eser#ed. This edition is intended for use outside of the 8.S. only, "ith content that may be different from the 8.S. Edition. 9ay not be scanned, copied, duplicated, or posted to a publicly accessible "ebsite, in "hole or in part.

. 1 . 1( . 11 . 10 . 12 .

i c q n o

Account 3escriptions a, G, s, and t are not used.

(4 /
5 +11 )engage 6earning. All 7ights 7eser#ed. This edition is intended for use outside of the 8.S. only, "ith content that may be different from the 8.S. Edition. 9ay not be scanned, copied, duplicated, or posted to a publicly accessible "ebsite, in "hole or in part.

-.

An item of equipment acquired on Kanuary 1, at a cost of *1++,+++, has an estimated use of 0+,+++ hours. 3uring the first three years, the equipment "as used 11,+++, <,+++, and /,+++ hours, respecti#ely. The equipment has an estimated life of fi#e years and an estimated sal#age of *1+,+++. 7equired: 3etermine the depreciation for each of the three years, using the straight4line method, the double declining4balance method, the sum4of4the4years,4digits method, and the units4of4production method. ANS: Straight46ine: *1++,+++ 4 *1+,+++ 0 P *1<,+++ Each Mear

3eclining4'alance P Mear 1: 1N0 *1++,+++ P *1+,+++ 1st Mear Mear : 1N0 %*1++,+++ 4 *1+,+++& P * 1,+++ nd Mear Mear (: 1N0 %*1++,+++ 4 *21,+++& P *11,1++ (rd Mear Sum4of4the4Mears,43igits: Mear 1: 0N10 %*1++,+++ 4 *1+,+++& P *(+,+++ Mear : 1N10 %*1++,+++ 4 *1+,+++& P * 1,+++ Mear (: (N10 %*1++,+++ 4 *1+,+++& P *1<,+++ 8nits4of4?roduction 9ethod: Mear 1: 11,+++ *1.<+ P *1-,<++ %*1++,+++ 4 *1+,+++& Q 0+,+++ P *1.<+ per unit& Mear : <,+++ *1.<+ P *11,1++ Mear (: /,+++ *1.<+ P *1 ,2++

1+. Smith )ompany has had 1+,+++ shares of <A, *1++ par4#alue preferred stoc;, and 10,+++ shares of *1+ par4#alue common stoc; outstanding for the last t"o years. 3uring the most recent year, di#idends paid totaled *1++,+++L in the prior year, di#idends paid totaled *2+,+++. 7equired: )ompute the amount of di#idends that must ha#e been paid to preferred stoc;holders and common stoc;holders in each of the years, gi#en the follo"ing independent assumptions:

(4 <
5 +11 )engage 6earning. All 7ights 7eser#ed. This edition is intended for use outside of the 8.S. only, "ith content that may be different from the 8.S. Edition. 9ay not be scanned, copied, duplicated, or posted to a publicly accessible "ebsite, in "hole or in part.

a . b .

?referred stoc; is nonparticipating and noncumulati#e. ?referred stoc; is nonparticipating and cumulati#e.

(4 5 +11 )engage 6earning. All 7ights 7eser#ed. This edition is intended for use outside of the 8.S. only, "ith content that may be different from the 8.S. Edition. 9ay not be scanned, copied, duplicated, or posted to a publicly accessible "ebsite, in "hole or in part.

ANS: a. ?referred Stoc; Mear 1 3i#idends, *2+,+++ ?referred Stoc; 1+,+++ *1++ <A P *<+,+++ Mear 3i#idends, *1++,+++
$ 80,000 $20, 000 $ 60,000

)omm on Stoc;

-0-

?referred Stoc; 1+,+++ *1++ <A P *<+,+++ b. Mear 1 3i#idends, *2+,+++ ?referred Stoc; 1+,+++ *1++ <A P *<+,+++ Mear 3i#idends, *1++,+++

$ 60,000

-0-

?referred Stoc; )arryo#er from Mear 1 1+,+++ *1++ <A P *<+,+++

$ 20,000 80,00 0 $100,00 0

-0-

(4(+
5 +11 )engage 6earning. All 7ights 7eser#ed. This edition is intended for use outside of the 8.S. only, "ith content that may be different from the 8.S. Edition. 9ay not be scanned, copied, duplicated, or posted to a publicly accessible "ebsite, in "hole or in part.