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1)X Company is constructing a building
1)X Company is constructing a building. Construction began in 2018 and the building was completed 31 December, 2018. X made payments to the construction company of $1,000,000 on 1 July, $2,100,000 on 1 September, and $2,000,000 on 31 December. Average accumulated expenditures were ------.
Select one:
a. $5,100,000.
b. $1,200,000.
c. $3,100,000.
d. $1,025,000.
The treasury stocks should be deducted from the stockholder’s equity.
Select one:
a. True.
b. False.
2)On August 1, 2019 X company purchased furniture at $13,000. The salvage value is $1,000 and the useful life is 5 years. X uses the double straight-line method. The depreciation expense for 2019 is ------.
Select one:
a. $833.
b. $1,333.
c. $2,167.
d. $1,000.
Clear my choice
On January 1, 2021, X Co. issued ten-year bonds with a face value of $5,000,000 and a stated interest rate of 10%, payable semiannually on June 30 and December 31. The bonds were sold to yield 12%. The bonds will be issued at
Select one:
a. Premium.
b. Par value.
c. Face value.
d. Discount.
3)The amount of interest to capitalize is limited to the lower of actual interest cost incurred during the period or avoidable interest.
Select one:
a. False
b. True
X company exchanged old equipment with a new one. There is commercial substance of transaction. Cost of old equipment 15000, Accumulated depreciation of old equipment 7000, The list price of new equipment 20000, Trade in allowance for old 11000, Fair market value of old 11500. The cost of new asset is ---------
Select one:
a. $7000.
b. $20500.
c. $9000.
d. $8000.
4)The following information is available for the McCain Manufacturing Company for 2020.
Accounts receivable, January 1, 2020 $120,000
Accounts payable, January 1, 2020 ?
Raw materials, January 1, 2020 10,000
Work in process, January 1, 2020 25,000
Finished goods, January 1, 2020 75,000
Accounts receivable, December 31, 2020 80,000
Accounts payable, December 31, 2020 200,000
Raw materials, December 31, 2020 ?
Work in process, December 31, 2020 60,000
Finished goods, December 31, 2020 50,000
Raw materials used in production 100,000
Raw materials purchased 130,000
Accounts receivable collections ?
Accounts payable payments 80,000
Sales ?
Total manufacturing costs ?
Cost of goods manufactured ?
Cost of goods sold 60% of Sales
Gross margin 400,000
Assume that all raw materials are purchased on credit and all sales are credit sales. Compute the missing amounts above.
5)When the stated interest rate is greater than the market interest rate. The bonds will be issued at -----.
Select one:
a. Premium
b. Discount
When the stated interest rate is greater than the market interest rate. The bonds will be issued at -----.
Select one:
a. Premium
b. Discount
6)X signed a three-month, zero-interest-bearing note on November 1, 2007 for the purchase of $150,000 of inventory. The face value of the note was $152,100. The discount will be amortized equally over the 3-month period, the adjusting entry made at December 31, 2007 will include a -------.
Select one:
a. debit to Interest Expense for $1,400.
b. credit to Interest Expense for $2,500.
c. debit to Interest Expense for $2,500.
d. credit to Interest Expense for $2,000.
Clear my choice
The natural resources are intangible assets
Select one:
a. True
b. False
Expert Solution
1)As the construction period is began in 2018 and the Building was completed 31 December,2018. The expenditure incurred by X in construction of building at periodical intervals is to be taken as weighted average with corresponding period to completion of construction.
| DATE |
EXPENDITURE ($) |
PERIOD TILL COMPLETION (months) |
CALCULAION | AMOUNT ($) |
| 1 July | 1000000 | 6 | 1000000*6/12 = | 500000 |
| 1 September | 2100000 | 4 | 2100000*4/12 = | 700000 |
| 31 December | 200000 | 0 | 200000*0/12 = | 0 |
| TOTAL | 1200000 |
Based on the above calculation Average Accumulated Expenditure is option b. that is $1200000.
Treasury stock is a contra equity account recorded in the shareholder's equity section of the balance sheet. Because treasury stock represents the number of shares repurchased from the open market, it reduces shareholder's equity by the amount paid for the stock.
The above statement shows that the treasury stocks should be deducted from the stockholder’s equity.
therefore this statement is a. TRUE
2)Correct Option is C) $2,167
Explanation:
Double Straight line depreciation = 2 * Straight line depreciattion percent * Book Value of asset
Straight Line Depreciation Percent(SLDP) = 100 / No. of useful life of asset.
Here , SLDP = 100 / 5 = 20%
Therefore , Double Straight Line Depreciation = 2 * 20% * $13,000
= $5,200
This year the asset was put in use from August 1,2019 , so only for that period the depreciation expense will be recorded = $5,200 * (5/12) = $2,166.66
Therefore Depreciation expense for 2019 is $2,167
Correct Option is D) Discount.
Explanation:
Isuue Price :
Present Value of 1 :
Ten year bond face value = $5,000,000
Semi-annual bond , period is 10 years but will be taken as 20 (10*2) . Therefore n = 20 years Interest rate (market) = 12% per annum . So per period rate = 6% (12/2). Thereofre i = 6%
Present Value of Interest factor,PVIF (20,6%) = 0.3118
So Present value of 1 = $5,000,000 * 0.3118
= $1,559,000
[ NOTE: The PVIF can also be rounded to 0.312, a slight amount will be changed in that case. I have taken upto 4 decimal places(0.3118) for more accurate calculations]
Now, Present Value of Annuity :
Total Interest = $5,000,000 * 10% * (6/12)
= $250,000
Present value of annuity,PVAF (20,6%) = 11.470
So, Present value of annuity = $250,000 * 11.470
= $2,867,500
TOTAL ISSUE PRICE OF BOND = $1,559,000 + $2,867,500 = $4,426,500
Therefore we can see that the bond was issued at less than the face value , which means it was issued at DISCOUNT.
3)The avoidable interest is the interest that would have been avoided if the expenditure on asset would not have been made.
Example if the business has cash and decides to spend this on construction of new building instead of using it to reduce borrowing. Since interest would have been avoided had the cash not been spend on building the part of it shall be capitalised
b. B)20500
The asset exchanged shall be measured at fair value hence, cost of new equipment would be 20000+500(excess of fair market value or trade-in value of old equipment)
4)Accounts payable, January 1, 2020 = $150,000
Raw materials, December 31, 2020 = $40,000
Accounts receivable collections = $1,040,000
Sales = $1,000,000
Total manufacturing costs = $610,000
Cost of goods manufactured = $575,000
Cost of goods sold = $600,000
Working notes:
Ending raw materials inventory = Raw materials available - Raw materials used
Raw materials available = Beginning raw materials + Raw materials purchased = $10,000 + $130,000 = $140,000
Raw materials used = $100,000
Ending raw materials inventory = $140,000 - $100,000 = $40,000
Gross margin given is $400,000
Cost of goods sold = 60% of sales.
Gross margin = Sales - Cost of goods sold
Let consider,
Sales as 100%
Gross margin = 100% - 60% = 40%
If cost of of goods sold is 60% of sales, gross margin will be 40% of sales.
Sales = ($400,000/ 40) × 100 = $1,000,000
Cost of goods sold = 60% of sales = $1,000,000 × 60% = $600,000
Cost of goods manufactured = Cost of goods sold + Ending finished goods inventory - Beginning finished goods inventory
= $600,000 + $50,000 - $75,000 = $575,000
Direct labor and manufacturing overhead = Total manufacturing cost - Raw materials used in production = $610,000 - $100,000 = $510,000
Total manufacturing costs = Cost of goods manufactured + Ending work in process - Beginning work in process
= $575,000 + $60,000 - $25,000 = $610,000
Accounts receivable collections = Beginning Accounts receivable + Credit sales - Ending Accounts receivable = $120,000 + $1,000,000 - $80,000 = $1,040,000
Beginning accounts payable = Ending accounts payable + Accounts payable payments - Credit purchases
= + $200,000 + $80,000 - $130,000 = $150,000
please see the attached file.
5)When the stated interest rate for a bond is greater than market interest rate, bond will be issued at above par value (At Premium) because bond provide higher interest compared to market.
When the stated interest rate for a bond is lower than market interest rate, bond will be issued at below par value (At Discount) because bondholders now hold a bond with lower interest payments.
6)
(a) debit to interest expense for $2600
152,100 – 150,000 = 2,100
2,100 x 2/3 = 1,400
The natural resources are intangible assets:
FALSE
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