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Quiz 3 Name: Start: Finish: Multiple Choice Questions –2 points each (1) Which of the following represents the largest number of common shares? a. b. c. d. Treasury Shares Issued shares Outstanding shares Authorized shares (2) If Keene Company issues 4,500 shares of $5 par value common stock for $80,000, the account a. Common Stock will be credited for $22,500. b. Paid-in Capital in Excess of Par will be credited for $22,500. c. Paid-in Capital in Excess of Par will be credited for $80,000. d. Cash will be debited for $57,500. (3) The following data is available for Blaine Corporation at December 31, 2013: Common stock, par $10 (authorized 25,000 shares) $200,000 Treasury Stock (at cost $15 per share) $900 Based on the data, how many shares of common stock are outstanding? a. 25,000 b. 20,000 c. 24,940 d. 19,940 (4) Treasury stock is a. stock issued by the U.S. Treasury Department. b. stock purchased by a corporation and held as an investment in its treasury. c. corporate stock issued by the treasurer of a company. d. a corporation's own stock which has been reacquired but not retired. 1 (5) The date on which a cash dividend becomes a binding legal obligation is on the a. declaration date. b. date of record. c. payment date. d. last day of the fiscal year-end. (6) The cumulative effect of the declaration and payment of a cash dividend on a company's financial statements is to a. decrease total liabilities and stockholders' equity. b. increase total expenses and total liabilities. c. increase total assets and stockholders' equity. d. decrease total assets and stockholders' equity. (7) Which of the following is not a significant date with respect to dividends? a. The declaration date b. The incorporation date c. The record date d. The payment date (8) Dividends Payable is classified as a a. long-term liability. b. contra stockholders' equity account to Retained Earnings. c. current liability. d. stockholders' equity account. (9) Story Inc. has 5,000 shares of 6%, $100 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2013. What is the annual dividend on the preferred stock? a. $60 per share b. $30,000 in total c. $50,000 in total 2 d. $0.60 per share (10) Entries for cash dividends are required on the: (a) declaration date and the payment date. (b) record date and the payment date. (c) declaration date, record date, and payment date. (d) declaration date and the record date. (11) Which of the following is not reported under additional paid-in capital? (a) Paid-in capital in excess of par value. (b) Treasury Stock (c) Paid-in capital in excess of stated value. (d) Paid-in capital from treasury stock. (12) Depreciation is a process of: (a) valuation. b) cost allocation. (c) cash accumulation. (d) appraisal. (13) All of the following factors in computing depreciation are estimates except a. cost. b. residual value. c. salvage value. d. useful life. (14) The balance in the Accumulated Depreciation account represents the a. cash fund to be used to replace plant assets. b. amount to be deducted from the cost of the plant asset to arrive at its fair market value. c. amount charged to expense in the current period. 3 d. amount charged to expense since the acquisition of the plant asset. (15) The book value of an asset is equal to the a. asset's fair value less its historical cost. b. blue book value relied on by secondary markets. c. replacement cost of the asset. d. asset's cost less accumulated depreciation. (16) In computing depreciation, salvage value is a. the fair value of a plant asset on the date of acquisition. b. subtracted from accumulated depreciation to determine the plant asset's depreciable cost. c. an estimate of a plant asset's value at the end of its useful life. d. ignored in all the depreciation methods. (17) A truck was purchased for $120,000 and it was estimated to have a $24,000 salvage value at the end of its useful life. Monthly depreciation expense of $2,000 was recorded using the straight-line method. The annual depreciation rate is a. 20%. b. 2%. c. 8%. d. 25%. (18) The units-of-activity method is generally not suitable for a. airplanes. b. buildings. c. delivery equipment. d. factory machinery. (19) Costs incurred to increase the operating efficiency or useful life of a plant asset are referred to as a. capital expenditures. 4 b. expense expenditures. c. ordinary repairs. d. revenue expenditures (20) A gain or loss on disposal of a plant asset is determined by comparing the a. replacement cost of the asset with the asset's original cost. b. book value of the asset with the asset's original cost. c. original cost of the asset with the proceeds received from its sale. d. book value of the asset with the proceeds received from its sale. (21) If disposal of a plant asset occurs during the year, depreciation is a. not recorded for the year. b. recorded for the whole year. c. recorded for the fraction of the year to the date of the disposal. d. not recorded if the asset is scrapped. (22) An asset which costs $29,800 and has accumulated depreciation of $8,000 is sold for $21,600. What amount of gain of loss will be recognized when the asset is sold? a. A gain of $200. b. A loss of $200. c. A loss of $8,200. d. A gain of $8,200. (23) On a balance sheet, natural resources may be described more specifically as all of the following except a. land improvements. b. mineral deposits. c. oil reserves. d. timberlands. (24) Depletion is 5 a. a decrease in market value of natural resources. b. the amount of spoilage that occurs when natural resources are extracted. c. the allocation of the cost of natural resources to expense. d. the method used to record unsuccessful patents (25) A coal company invests $12 million in a mine estimated to have 20 million tons of coal and no salvage value. It is expected that the mine will be in operation for 5 years. In the first year, 1,000,000 tons of coal are extracted and sold. What is the depletion expense for the first year? a. $600,000 b. $240,000 c. $60,000 d. Cannot be determined from the information provided. Exercise #1 10 points The Remove-U-Tattoo Clinic purchased a surgical laser for $84,000 on January 1, 2014. The estimated salvage value is $4,000. The laser has a useful life of five years and the clinic expects to use it 10,000 hours. It was used for 900 hours in 2014; 2,100 hours in 2015; 2,400 hours in 2016. Instructions Showing all of your computations, compute the book value and the balance in the Accumulated Depreciation Account for December 31, 2015 under each of the following three methods after the depreciation for 2015 has been recorded: (1) Straight-line: 2015 accumulated depreciation ____________________ 2015 book value ____________________ (2) Units-of-activity: 2015 accumulated depreciation ____________________ 2015 book value ____________________ (3) Double-declining balance: 6 2015 accumulated depreciation ____________________ 2015 book value ____________________ Exercise #2 10 points On January 1, Steff Corporation had 80,000 shares of no-par common stock issued. 5,000 shares are held as treasury stock. The stock has a stated value of $5 per share. During the year, the following transactions occurred. Apr. 1 Issued 12,000 additional shares of common stock for $18 per share. June 15 Declared a cash dividend of $1 per share to stockholders of record on June 30. July 10 Paid the $1 cash dividend. Dec. 1 Purchased 7,000 additional shares of common stock for $17 per share. Dec. 15 Declared a cash dividend on outstanding shares of $1.20 per share to shareholders of record on December 31. Instructions: Prepare the entries, if any, on each of the dividend dates. Essay Question: 30 Points Dan Ville, the President and CEO of Pick ‘Em Up, Inc., a waste management firm, was recently hospitalized, suffering from exhaustion and a heart ailment. Immediately prior to his hospitalization, Pick ‘Em Up had experienced a sharp decline in its stock price, and trading activity became almost nonexistent. The primary reason for this was concern expressed in the media over a new untested pick up management system implemented by the company. Mr. Ville had been unwilling to submit the procedure to testing before implementation, but he reluctantly agreed to limited tests after the system was operational. No problems have been identified by the tests to date. The other members of management called a meeting to determine what they should do. John King, Sales Manager, suggested that the company purchase a large number of shares of treasury stock. In that way, investors might notice that activity had picked up, and might decide to buy more shares. This plan would use up most of the company's available cash, so that there will be no money available for a cash dividend. Pick ‘Em Up has paid cash dividends every quarter for over ten years. Required: 1. Is Mr. King’s suggestion ethical? Explain. 2. Is it ethical to discontinue the cash dividend? Explain. 7

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