Please select the correct answer for each of the following questions. A brief ex

Question

Please select the correct answer for each of the following questions. A brief explanation of reasoning is fine. Thank you.

Question 1 (1 point) At December 31, 2009, Rob's Home Store has $100,000 of assets and $40,000 of liabilities, and $60,000 of stockholders' equity. On January 15, 2010, Rob's purchased $30,000 of assets by incurring a liability. Rob's total assets, liabilities, and stockholders' equity after the purchase are, respectively, $100,000; $40,000; $60,000. $100,000; $60,000; $40,000. $130,000; $40,000; $70,000. $130,000; $60,000; $70,000. $130,000; $70,000; $60,000. Save Question 2 (1 point) On Jan. 2, 2010, Wright Construction Co. purchased equipment for $50,000. Wright expects to use the equipment for three years, at which time it will have an estimated salvage value of $27,500. What is the depreciation expense for 2010? (Assume S/L depreciation) $7,500 $9,167 $16,667 $27,500 $50,000

Explanation / Answer

Answer to Question 1.

Correct Answer: $130,000; $70,000; $60,000

Details before purchase of Assets:
Assets = $100,000
Liabilities = $40,000
Stockholders’ Equity = $60,000

Details after purchase of Assets:
Purchase of Assets by incurring liability will increase Assets and Liabilities by $30,000.

Assets = $100,000 + $30,000 = $130,000
Liabilities = $40,000 + $30,000 = $70,000
Stockholders’ Equity = $60,000

Answer to Question 2.

Correct Answer: $7,500

Straight Line Depreciation per year = (Cost – Salvage Value) / Useful Life
Straight Line Depreciation per year = (50,000 – 27,500) / 3
Straight Line Depreciation per year = 22,500 / 3
Straight Line Depreciation per year = $7,500

Depreciation expense for the year 2010 is $7,500.

Answer to Question 3.

Correct Answer: Short Term Liability

An amount is borrowed in 2017 by signing Long Term Notes Payable due on May 15, 2011. In December 31, 2010 Balance Sheet, the amount will be represented as Short Term Liability as it is due within a period of 1 year i.e. on May 15, 2011.

Answer to Question 4.

Correct Answer: $75,000

Operating Income = Sales – Cost of Goods Sold – Operating Expenses
Operating Income = $750,000 - $562,500 - $112,500
Operating Income = $75,000

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