When purchased, plant assets are recorded at ________.
Answer(s): D
Fixed assets are recorded at cost, which includes all normal and reasonable expenditures necessary to get the asset in place and ready to use.
From tax perspective, which of the following depreciation methods is usually the best?
Answer(s): A
Since Double Declining results in the biggest depreciation expense of the four in the initial years, it allows the biggest deferral of tax payments. These deferrals can sometimes be for an indefinite period, thus avoiding them almost altogether.
Gamma-Theta is a financial software firm with gross sales of 176,000 last year. Its cost of goods sold equaled 25,685. Gamma-Theta's corporate tax rate is 35%. If its net income after taxes was 70,279, its operating expenses were ________.
Answer(s): B
Gamma-Theta's pre-tax income equals 70,279/0.65 = 108,122. Now, pre-tax income = gross sales - cost of goods sold - operating expenses. Therefore, 108,122 = 176,000 - 25,685 - operating expenses. This gives operating expenses = 42,193.
Restricted cash balances are ________.
At times, firms earmark cash deposits and balances for meeting longer term obligations like sinking funds or plant expansions. Such restricted cash balances are reported as non-current assets even though they are in a liquid form, since they are not available to satisfy current liabilities.
Which of the following is/are true?
Preferred equity is usually not redeemable, implying that preferred equity holders do not have a right to demand from the company a retirement of their equity through redemption payment. Preferred dividends that are not paid when due remain a liability, though they are not recorded as such. This leads to an understatement of liabilities since someday, these dividends must definitely be paid. In particular, the dividends in arrears are cumulative and must be paid in full before any ordinary dividends can be paid to common stockholders.
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