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depreciation expense

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ANSWERS

1. Presented below is information related to ABC Corporation:
4300000+550000+2000000+400000+1500000-150000=8600000
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?
20000/(20000+180000)*205000=20500
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.

$2.19
See Also This Related BrainMass Solution

Gitler Department Store: Instructions:
(a) (1) Prepare a multiple-step income statement for the year:
(a) (2) Prepare a retained earnings statement for the year:
(a) (3) Prepare a balance sheet for December 31, 2002.
(b) Journalize the adjusting entries.
(c) Journalize the closing entries that are necessary.

Problem P5-3A
Gitler Department Store is located near the Village Shopping Mall. At the end of the company's fiscal year on
December 31, 2002, the following accounts appeared in two of its trial balances:

Account title Unadjusted Adjusted Account title Unadjusted Adjusted
Accounts payable $79,300 $79,300 Interest revenue $4,000 $4,000
Accounts receivable 50,300 50,300 Merchandise inventory 75,000 75,000
Accumulated depreciation-Building 42,100 52,500 Mortgage payable 80,000 80,000
Accumulated depreciation-Equipment 29,600 42,900 Office salaries expense 32,000 32,000
Building 190,000 190,000 Prepaid insurance 9,600 2,400
Cash 23,000 23,000 Property taxes expense 4,800
Common stock 110,000 110,000 Property taxes payable 4,800
Cost of goods sold 412,700 412,700 Retained earnings 66,600 66,600
Depreciation expense-Building 10,400 Sales salaries expense 76,000 76,000
Depreciation expense-Equipment 13,300 Sales 628,000 628,000
Dividends 28,000 28,000 Sales commissions expense 11,000 15,500
Equipment 110,000 110,000 Sales commissions payable 4,500
Insurance expense 7,200 Sales returns and allowances 8,000 8,000
Interest expense 3,000 11,000 Utilities expense 11,000 11,000
Interest payable 8,000

Analysis reveals the following additional data:
1 Insurance expense and utilities expense are allotted to selling and administrative 60% Selling
40% Administrative
2 The portion of the mortgage payable due for payment the next year $20,000
3 Depreciation on the building and a property tax expense are administrative expenses; depreciation
on the equipment is a selling expense.
Instructions:
(a) (1) Prepare a multiple-step income statement for the year:
(a) (2) Prepare a retained earnings statement for the year:
(a) (3) Prepare a balance sheet for December 31, 2002.
(b) Journalize the adjusting entries.
(c) Journalize the closing entries that are necessary.

Please see attached document.

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