Calculate the book value per share of Quality, Inc.'s common stock, given the following information. Par value of common stock, $2.5 per share; total assets, $19,100,000; retained earnings, $7,375,000; total liabilities, $6,975,000; number of common shares outstanding, 1,250,000; number of preferred sharesoutstanding, 15,000 at $100 par value. Market value of common stock, $24.25. Market value of preferred stock, $106.50.
Answer(s): A
The book value of the firm's common stock is $8.50 which is calculated as follows: total assets of $19,100,000, minus total liabilities of $6,975,000, minus, preferred stock outstanding of $1,500,000 (15,000 X $100), divided by the number of common shares outstanding of 1,250,000.
An organization purchased a computer on January 1, 1996 for $108,000. It was estimated to have a 4- year useful life and a salvage value of $18,000. The double-declining-balance method is to be used. The amount of depreciation to be reported for the year ending December 31, 1996 is ________.
Answer(s): B
When using a declining-balance method, a constant rate is applied to the changing carrying value of the asset.The constant rate for the double-declining-balance method is twice the straight-line rate ((100% / 4 years) X 2)
Which of the following is/are true about depreciation?
Answer(s): C
Depreciation is the accounting device which facilitates a charging of the costs incurred in prior periods on assets that have been used for productive activities in the current period. Note that this is a non- cash expense since the cash left the firm's coffers at the time the asset was purchased (either in part or in full). Remember, however, that depreciation has cash flow consequences indirectly through its effect on taxes. Depreciation expense owes its existence to the accrual method of revenue recognition whichrequires that expenses be matched with the revenues generated. No depreciation charges would exist under Cash accounting, which would allocate expenses as and when cash was used to make payments on asset purchases. Clearly, depreciation does not provide funds for anything for it is an accounting entry.
Which of the following is/are true about trading securities?
Answer(s): D
Marketable securities classified as "Trading securities" are financial securities purchased with the intent to sell in the near future. They are therefore categorized as current assets and reported at the fair market value on the date of the balance sheet. When the classification of a trading security is changed, the assignation of the security to the new account is carried out at the fair market value on the transfer date, with any gain or loss reflected separately on the income statement.
Where is Unearned Revenue reported in the financial statements?
Unearned revenue represents "services owed" and is reported in the liability section of the balance sheet.
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