Question

34.

Under the equity method, a stock purchase is recorded at its original cost and is not adjusted to fair market value each accounting period.

True

False

36.

Nebraska Inc. issues 4,900 shares of common stock for $156,800. The stock has a stated value of $15 per share. The journal entry to record the stock issuance would include a credit to Common Stock for

a.$83,300

b.$73,500

c.$156,800

d.$4,900

38.

Zach Company owns 45% of the voting stock of Tomas Corporation and uses the equity method in recording this investment. Tomas Corporation reported a $9,100 net loss. Zach Company's entry would include a

a.credit to a loss account for $4,095

b.debit to the investment account for $4,095

c.credit to cash for $4,095

d.credit to the investment account for $4,095

43.

A machine with a cost of $55,000 has an estimated residual value of $4,085 and an estimated life of 5 years or 19,287 hours. What is the amount of depreciation for the second full year, using the double-declining-balance method?

a.$11,000

b.$13,200

c.$20,366

d.$22,000

45.

If the market rate of interest is 7%, the price of 6% bonds paying interest semiannually with a face value of $500,000 will be

a.greater than or less than $500,000, depending on the maturity date of the bonds

b.less than $500,000

c.greater than $500,000

d.equal to $500,000

Answer 1

34. Under the equity method , a stock purchase is recorded at the original cost and its not adjusted to fair market value each accounting period. This statment is false

Reason: et's say that your company acquires a 40% stake in another company for $20 million, and that you're given a seat on the board (influence). You would record the purchase at the $20 million purchase price in the same way described under the cost method. However, if the company produces net income of $5 million during the next year, you would take 40% of that amount, or $2 million, which you would add to your listed value, and record as income.

36. Ans is B $73500

Bank A/c ………….Dr. ______________156800

                To Common Stock A/c ______73500

                To Premium A/c___________83300

38. Ans is D. Loss Credit to the investment account .

43. Ans is B $13200

1st year- Double declining balance method =2 × Straight-line depreciation rate × Book value at the beginning of the year

= 2 x 20 x 55000 = 22000

2nd year- book value = 55000-22000=33000

Double declining balance method = 2 x 20x 33000= 13200

Straight-line depreciation= (cost - residual value) / Estimated life of asset

=(55000-4085)/5 = 10183

there fore, Straight-line depreciation rate= (10183/50915) x 100 = 20 %

45. ans is B. Less then $ 500000

Because market rate of interest is more then the bond paying interest rate