QUESTION: 1549

The following information was taken from the accounting records of Boston Corp. for the year ended December 31, 1996 (in $000):

Proceeds from issuance of preferred stock F$4,000
Dividends paid on preferred stock F400
Bonds payable converted to common stock NC2,000
Payment for purchase of machinery I500
Proceeds from sale of plant building I1,200
2% stock dividend on common stock NC300
Gain on sale of plant building I200

The net cash flows from investing and financing activities that should be presented on Boston's statement of cash flows for the year ended December 31, 1996 are, respectively (in $000) ________.

$700 and $3,600
$700 and $3,900
$700 and $4,000
$900 and $3,900
$900 and $3,600

Answer(s): A

Explanation:

Investing activities include the acquisition and disposal of all long-term assets. Thus, the purchase of machinery and sale of plant building for a total of $700 inflow from investing (-$500 + 1,200). Financing activities include the issuance and repurchase of shares, dividends and changes in long- term liabilities. In this case, the issuance of preferred stock and payment of dividends for a total of $3,600 inflow from financing ($4,000-400).
The conversion of bonds into common stock and the stock dividend do not affect cash.

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QUESTION: 1550

Under GAAP, which of the following costs can be capitalized?

drilling costs for oil wells
public relations expense to develop goodwill
research and development
none of these answers

Answer(s): A

Explanation:

Drilling costs can be either expensed under Successful Efforts method or capitalized under the Full Cost method. R&D costs cannot be capitalized unless the costs are incurred on assets that have alternative uses.
Similarly, internally developed Goodwill cannot be capitalized in the form of an asset. Only if it is purchased during an acquisition can it appear on the balance sheet in a capitalized form.

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QUESTION: 1551

A piece of equipment costs $250,000, has a useful life of 10 years and an estimated salvage value of $50,000. How much depreciation expense should the company recognize in year 7 if it is using the straight-line method of depreciation?

$10,000
$25,000
$140,000
$20,000

Answer(s): D

Explanation:

Using the straight line method an equal amount of the cost of the asset less the salvage value is charged to each year of the assets useful life. In this example the value of the equipment being used during its life is $200,000 divided evenly among 10 years.

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QUESTION: 1552

"Book value per share" refers to:

the per share value of the company's assets less the liabilities.
all of these answers.
the per share value of total equity of the firm.
the per share value of the common stock accounts of a firm.

Answer(s): D

Explanation:

The book value represents the company's liquidation or residual value at the amounts reported on the balance sheet. As such, it represents the "balance sheet" value of the common equity. Since total equity can include senior securities like preferred equity, "the per share value of the company's assets less the liabilities" and "the per share value of total equity of the firm" are incorrect.

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