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depreciation expense

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Dear Student,

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Below are my answers.


1. Presented below is information related to ABC Corporation:
a. $8,600,000.

2. How should a "gain" from the sale of treasury stock be reflected when using the cost method of recording treasury stock transactions?
Debit: Cash
Credit: Treasury stock
Credit: Paid-in capital - Treasury stock
b. As paid-in capital from treasury stock transactions.

3. ABC Corporation owned 900,000 shares of XYZ Corporation stock. On December 31, 2007, when ABC's account "Investment in Common Stock of XYZ Corporation" had a carrying value of $5 per share, ABC distributed these shares to its stockholders as a dividend. ABC originally paid $8 for each share. XYZ has 3,000,000 shares issued and outstanding, which are traded on a national stock exchange. The quoted market price for a XYZ share was $7 on the declaration date and $9 on the distribution date.
What would be the reduction in ABC's stockholders' equity as a result of the above transactions?
At declaration date, the following is recorded
Debit: Retained earnings ($5x900000)
Credit: Dividends payable
The amount to be distributed is the carrying value of the investment since the company did not realize any gain or loss from the transaction
b. $4,500,000.

4. ABC Company has 350,000 shares of $10 par value common stock outstanding. During the year, ABC declared a 10% stock dividend when the market price of the stock was $30 per share. Four months later ABC declared a $.50 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by:
Stock dividend 350000*10% = 35000 => small stock dividend hence, retained earnings is debited for the market value of the stock = 35000x30=1050000
Cash dividends = (350,000+35000)*0.50=192,500
Total debit to RE=192,500+1050000=1242500
a. $1,242,500.

5. The rate of return on common stock equity is calculated by dividing:
(Net income - dividends to preferred)/CSHE

a. net income less preferred dividends by average common stockholders' equity.

6. ABC Corporation offered detachable 5-year warrants to buy one share of common stock (par value $5) at $20 (at a time when the stock was selling for $32). The price paid for 200, $1,000 bonds with the warrants attached was $205,000. The market price of the ABC bonds without the warrants was $180,000, and the market price of the warrants without the bonds was $20,000. What amount should be allocated to the warrants?
b. $20,500

7. Compensation expense resulting from a compensatory stock option plan is generally:
c. allocated to the periods benefited by the employee's required service.
Source: ...

Solution Summary

Depreciation expenses are evaluated.