Question

You have been given the following information for Spector Inc.:

Retained earnings as at January 1, 20X7, were $50,000.

The statement of comprehensive income for the year ended December 31, 20X7, reported comprehensive income of $12,000 comprising net income of $5,000 and other comprehensive income of $7,000.

Spector paid out $30,000 in cash dividends during the 20X7 fiscal year. Its dividend payable account increased by $3,000.

What is the balance in Spector Inc.’s retained earnings account as at December 31, 20X7?

Question 3 options:

$22,000

$25,000

$28,000

$29,000

You have been given the following information for Zane Corp.:

Equipment was purchased at a cost of $525,000 on March 1, 20X8, and was ready for use on April 1, 20X8. Zane paid a cash deposit of $25,000 and signed a 7% note for the balance payable in full on March 1, 20X9. The interest rate in the note was the market rate of interest for obligations of this nature. The equipment is estimated to have a seven-year useful life and a $50,000 residual value.

Zane’s depreciation policy is to use the straight-line method to depreciate all equipment, prorating the expense to the nearest full month.

What is the net book value of the equipment held by Zane as at December 31, 20X8? Round each calculation to the nearest whole dollar.

Question 5 options:

$457,140

$468,450

$468,750

$474,105

Answer 1

a) Statement of retained earnings

Opening Retained Earnings	$        50,000
Add-: Profit for the year	$          5,000
Add-: Other Comprehensive Income for the year	$          7,000
Less-: Cash dividends	$      -30,000
Less-: Dividend declared*	$         -3,000
Closing Retained Earnings	$        29,000

* -: assumed paid. The correct answer will be option (d).

b)

Gross Book Value	$      5,25,000
Residual Value	$        -50,000
Depreciable Amount	$      4,75,000
Useful life	7 years
Depreciation amount for 9 months (475,000 / 7 * 0.75)	$          50,893
Net Book Value	$      4,74,107

On the basis of above computation, option (d) is the correct answer.