Answer:
Current price of stock = $130.76(Approx).
Explanation:
Given:
Dividend paid = $4.25
Required return of return = 10%
Growth rate = 6.75%
Find:
Current price of stock = ?
Computation:
Current price of stock = D1 / (Required return of return - Growth rate)
Current price of stock = 4.25 / (0.1 - 0.0675)
Current price of stock = 4.25 / 0.0325
Current price of stock = $130.76(Approx).
A mother, aged 60, wishes to withdraw monies from her variable annuity to pay for her son's college education. Which statement is true regarding the taxation of the withdrawal?
A. The withdrawal is 100% taxable
B. Any amount withdrawn above the cost basis is taxable
C. Any amount withdrawn above the cost basis is taxable, and is subject to a 10% penalty tax
D. The withdrawal is not subject to tax
Answer:
Any amount withdrawn above the cost basis is taxable
Explanation:
This woman is above 59½ years at age 60. If she was least than 60, she would be owing a 10% penalty on the taxable amount of this withdrawal. But since she is above this age she has to pay income taxes on the whole taxable amount of the funds she withdrew. Variable annuities would never be taxed the money is withdrawn. Therefore option B is the best answer for This question.
A coworker of Connor's recommends that she maximize the shelf space devoted to those drinks with the highest contribution margin per case. Do you agree with this recommendation? Explain briefly.
Answer:
Yes
Explanation:
Ultimately I agree with the recommendation that has been given by Connor's coworker. By maximizing the shelf space specifically devoted to these drinks it will cause two things to happen. First, customers will mostly notice those drinks which will entice them to buy those drinks instead of the ones they cannot see. The second is that since customers are buying more of these drinks, the increase in sales will also increase profits, but since these items contribution margins are significantly higher than the others, it will cause profits to drastically increase.
Consider a $1,000-par-value 20-year zero-coupon bond issued at a yield to maturity of 10%. If you buy that bond when it is issued and continue to hold the bond as yields decline to 9%, the imputed interest income for the first year of that bond is
Answer:
$14.87
Explanation:
Computation the imputed interest income for the first year of the bond
First step
Using this formula
Imputed interest income= Par value/(1+yield to maturity)^Numbers of years
Let plug in the formula
Imputed interest income$1,000/(1.10)^20
Imputed interest income= $1,000/6.72749
Imputed interest income=$148.64
Second step
Imputed interest income=$1,000/(1.10)^19= Imputed interest income=$1,000/6.11590
Imputed interest income=$163.51
Hence,
Imputed interest income=$163.51 - $148.64
Imputed interest income= $14.87
Therefore the imputed interest income for the first year of the bond will be $14.87
Interviews are designed to determine if the employer feels a candidate is a good fit for the job. What benefit does an interview offer the job candidate
Explanation:
The job interview is a form of selection used by companies to select candidates for a job more effectively, because through it, the recruiter will meet the candidate in person, ask questions about issues related to his resume and his professional experiences , as well as the opportunity to analyze the way you communicate, your interests and your personality.
The advantage of the interview for the job candidate is to demonstrate your good intentions when occupying the job through an ethical, cordial posture and to have the opportunity to talk about some professional experiences that may be of interest to the employer and the company. It is also an opportunity for the candidate to clarify doubts about the responsibilities of the position and any other doubts related to the company or job function.
Prepare journal entries to record each of the following four separate issuances of stock. A corporation issued 10,000 shares of $20 par value common stock for $240,000 cash. A corporation issued 5,000 shares of no-par common stock to its promoters in exchange for their efforts, estimated to be worth $45,500. The stock has a $1 per share stated value. A corporation issued 5,000 shares of no-par common stock to its promoters in exchange for their efforts, estimated to be worth $45,500. The stock has no stated value. A corporation issued 2,500 shares of $50 par value preferred stock for $170,500 cash.
Answer:
1.
DR Cash.................................................$240,000
CR Common Stock................................................... $200,000
Paid in Excess of Par- Common Stock.....................$40,000
Working
Common Stock = $20 * 10,000 = $200,000
Paid in Excess of Par- Common Stock = 240,000 - 200,000 = $40,000
2.
DR Promotion Expenses................................$45,500
CR Common Stock.........................................................$5,000
Paid in Excess of Par- Common Stock ........................$40,500
Working
Common stock = 5,000 * 1 = $5,000
Paid in Excess of Par- Common Stock = 45,500 - 5,000 = $40,500
3
DR Promotion Expenses..........................$45,500
CR Common Stock....................................................$45,500
4
DR Cash ...................................................$170,500
CR Preferred Stock .....................................................$125,000
CR Paid in Excess of Par - Preferred Stock ..............$45,500
Working
Preferred Stock = 50 * 2,500 = $125,000
Paid in Excess of Par - Preferred Stock = 170,500 - 125,000 = $45,500
Which of the following statements about collateral contracts is true? Group of answer choices The guarantor promises to pay only if the principal debtor fails to do so. The principal debtor's debt is secondary. A collateral contract involves three parties and one promise to perform. The guarantor's debt is primary.
Answer:
The principal debtor's debt is secondary
Explanation:
The collateral contracts involves three parties and one promise to perform.
What is a Collateral Contract?A collateral contract is a separate contract which exists beside the main contract. Largely, where a written contract, the term of agreement base on the contract.
The collateral contracts are independent oral or written contracts that are made between two parties to a separate agreement or between one of the original parties and a third party.
This type of contract is usually made before or simultaneously with the original contract.
A collateral contract is a secondary agreement added to the original contract that is meant to ensure that the pre-contract promise are met.
Collateral contracts contain terms that conflict with the terms of the primary agreement.
Learn more about Collateral contracts here:
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You consider undertaking the research project. It will increase sales by $100K per year starting next year and its life is 10 years. The maintenance cost is $50K and the depreciation of the equipment is 20K per year. The tax rate is 40% and there are no changes in net operating working capital. What is the annual operating cash flow from the project? A. $10,000 B. $18,000 C. $38,000 D. $30.000
Answer: C. $38,000
Explanation:
The Operating cashflow for a project will be the net income earned from it less any taxes but including depreciation.
In formula form;
Operating cash flow = EBIT - tax paid + depreciation
Earnings Before Interest and Tax
= Sales - Expenses
= 100,000 - 50,000 - 20,000
= $30,000
Tax paid
= EBT * 40%
= 30,000 * 40%
= $12,000
Operating cash flow = EBIT - tax paid + depreciation
= 30,000 - 12,000 + 20,000
= $38,000
Note; Depreciation is added back because it is a non-cash expense.
Long-term debt ratio 0.3
Times interest earned 10.0
Current ratio 1.2
Quick ratio 1.0
Cash ratio 0.4
Inventory turnover 3.0
Average collection period 73 days
Use the above information from the tables to work out the following missing entries, and then calculate the company’s return on equity.
Net sales _____$
Cost of goods sold
Selling, general, and administrative expenses 20.00
Depreciation 30.00
Earnings before interest and taxes (EBIT) _____$
Interest expense
Income before tax _____$
Tax (35% of income before tax)
Net income _____$
Rahman stock just paid a dividend of $3.00 per share. Future dividends are expected to grow at a constant rate of 6% per year. What is the value of the stock if the required return is 12%
Answer:value of stock for the required return of 12 % = $53
Explanation:
Given
current dividend just paid = $3.00
dividend to grow at constant rate of 6%
required rate of return =12%
to calculate the value of stock for the requitred return of 12 % , we use the dividend growth model which is
Current price = dividend ( 1 + growth rate )/ (required rate -growth rate )
= 3 x (1+6%) / 12-6 = 3 x 1.06 /6% =3.18/0.06= $53
Therefore value of stock for the requitred return of 12 % ,= $53
Why must corporate managers use multiple techniques of project evaluation? Which technique is most commonly used and why? Describe several ways you may be able to use the techniques above as you progress in your professional career.
Answer:
The most important technique for project evaluation is the net present value (NPV) which compares the present value of discounted cash flows against the initial costs associated with the project. The other two most important techniques used are the payback period (either regular or discounted) and the internal rate of return (IRR).
Depending on the company's needs, sometimes one technique might be used instead of others. E.g. technological firms generally use the payback period because most of their projects have a very short life, 1 or 2 years. Other times, you might have to compare different projects and even if they are not mutually exclusive, no company can dispose of money freely. It only invests in certain projects that have a minimum required rate of return.
But the basic technique, the NPV, is the most relevant in a sense that no project with a negative NPV should be accepted.
Concord Corporation has 8,800 shares of common stock outstanding. It declares a $3 per share cash dividend on November 1 to stockholders of record on December 1. The dividend is paid on December 31. Prepare the entries on the appropriate dates to record the declaration and payment of the cash dividend
Answer:
Declaration date:
Dr retained earnings $26400
Cr dividends payable $26400
Payment date:
Dr dividends payable $26400
Cr Cash $26400
Explanation:
Total dividend declared is the number of shares multiplied by cash dividend per share
total dividend=$3*8,800=$26400
On the record date no entries are required since record date, is just about verifying the bonafide shareholders.
On declaration date,dividends payable would be credited with $26,400 while retained earnings is debited.
On payment date,dividends payable is debited and cash credited
Blue Cab Company had 69,000 shares of common stock outstanding on January 1, 2021. On April 1, 2021, the company issued 39,000 shares of common stock. The company had outstanding fully vested incentive stock options for 14,500 shares exercisable at $11 that had not been exercised by its executives. The end-of-year market price of common stock was $32 while the average price for the year was $31. The company reported net income in the amount of $364,915 for 2021. What is the diluted earnings per share (rounded)
Answer:
$3.38
Explanation:
The diluted earnings per share is calculated as;
First, we need to calculate the weighted average outstanding shares.
Weighted average outstanding share is
= Common shares + (Issued shares × 9/12[April - December] + [(Issued shares - Shares exercisable)
= 69,000 shares + (39,000 shares × 9/12) + ( 14,750* - 5,145*)
= 69,000 + 29,250 + 9,605
= 107,855
Therefore, the diluted earnings per share is;
= Net income / Weighted average outstanding shares
= $364,915 / 107,855
= $3.38
Note : (14,500 shares × 11) / 31
= 5,145
A customer redeems 1,000 shares of ABC Fund on Wednesday, June 14th. Under the provisions of the Investment Company Act of 1940, the customer must be paid the money no later than:
Answer:
Wednesday, June 21st
Explanation:
In this scenario, since the customer redeemed the shares on Wednesday, June 14th then he must be paid before Wednesday, June 21st. This is 7 days after the redemption. According to section 22 article (e) of the Investment Company Act of 1940, all companies are prevented from postponing the date of payment for more than seven days as stated below.
(e) No registered investment company shall suspend the right
of redemption, or postpone the date of payment or satisfaction upon
redemption of any redeemable security in accordance with its terms
for more than seven days after the tender of such security to the
company or its agent designated for that purpose for redemption
In a production bottleneck situation, the product with the highest contribution margin per unit should be given priority over a product that has the highest contribution margin per bottleneck hour.
a. True
b. False
Answer:
b. false
Explanation:
A bottleneck is a point at which there is the stoppage in the system of production. The inefficiencies that are generated through the bottleneck developed the delays and leads to the high cost of production
Here in the given situation, since there is the highest contribution margin per unit that gives more priority as compared with the contribution margin per bottleneck hour i.e. totally wrong as it should give the priority to the contribution margin per bottleneck hour
Therefore the given statement is false
Lance contributed investment property worth $507,500, purchased Five years ago for $312,500 cash, to Cloud Peak LLC in exchange for an 70 percent profits and capital interest in the LLC. Cloud Peak owes $380,000 to its suppliers but has no other debts.
Required information
A. What is Lance’s tax basis in his LLC interest?
B. What is Lance’s holding period in his interest?
C. What is Cloud Peak’s basis in the contributed property?
D. What is Cloud Peak’s holding period in the contributed property?
Answer:
a. Lance's Tax basis in his LLC interest
= Basis of investment property + Shares in LLC debt
= $312,500 + ($380,000 * 70%)
= $312,500 + $266,000
= $578,500
Therefore, LLC common debt obligation treated as non-recourse debt, lance income allocation ratio is used to allocate a share of LLC debt to him
b. Lance holding period in his interest is 5 years. The holding period of the contributed assets "tacks onto" his partnership interest because Lance contributed a capital asset
c. Cloud Peak's basis in the contributed property is $312,500. Also, the carryover basis would be taken by the LLC in the contributed property
d. Cloud's Peak holding period in the contributed property is 3 years
Instead of a dividend of $1.60 per share, the company has announced a share repurchase of $16,000 worth of stock. How many shares will be outstanding after the repurchase?
Answer:
9,690 stocks
Explanation:
some information is missing:
Market Value Balance Sheet
Cash $45,300 Equity $515,300
Fixed assets $470,000
Total $515,300 Total $515,300
total number of shares outstanding = 10,000
stock's market price = $515,300 / 10,000 = $51.53
stocks repurchased = $16,000 / $51.53 = 310.50, but we must round down to 310 stocks
stocks outstanding after repurchase = 10,000 - 310 = 9,690
Night Shades, Inc. (NSI), manufactures biotech sunglasses. The variable materials cost is $11.13 per unit, and the variable labor cost is $7.29 per unit.Required:a. What is the variable cost per unit?b. Suppose the company incurs fixed costs of $875,000 during a year in which total your answer to 2 decimal places, e.g., 32.16.) production is 190,000 units. What are the total costs for the year?c. If the selling price is $44.99 per unit, does the company break even on a cash basis? I depreciation is $435,000 per year, what is the accounting break-even point?
Answer:
Explanation:
Giving the following information:
Unitary direct material cost= $11.13
Unitary direct labor cost= $7.29
A.
Total variable cost per unit= 11.13 + 7.29= $18.42
B. Fixed costs= $875,000
Production= 190,000
Total costs= 875,000 + 18.42*190,000= $4,374,800
C.
To calculate the break-even point in units, we need to use the following formula:
Break-even point in units= fixed costs/ contribution margin per unit
Break-even point in units= 875,000 / (44.99 - 18.42)
Break-even point in units= 32,932 units
D. Depreciation= $435,000
Accounting break-even point= (875,000 - 435,000) / 26.75
Accounting break-even point= 16,449 units
The operating margin measures tells you that for every dollar of sales XXXX dollars makes it to the net income line on the income statement.
A. True
B. False
Answer:
A. True
Explanation:
The Operating Margin is the profit obtained for every dollar of sale and this is the sames as saying a certain amount of sales makes it to the net income line on the income statement.
When comparing investment opportunities with approximately the same cost and risk level, choose the investment with the:
Answer: highest positive net present value
Explanation:
Net present value is typically used by organizations in order to know the projects that will bring more profit to an organization.
Therefore, when comparing investment opportunities with approximately the same cost and risk level, choose the investment with the highest positive net present value.
The company currently markets McDog T-bone, Lapdog Lunchtreats, Rover's Potroast, and Puppy Porterhouse in the dog food market. Prime Cuts will be an addition to the
Answer:
company's product line in the dog food market
Explanation:
In the description provided, it can be said that Prime Cuts will be an addition to the company's product line in the dog food market. A product line is a group of related products all marketed under a single brand name and are sold by the same company to the same targeted group of consumers. Such as in this scenario, all of the products listed are dog treats/food with different ingredients and are all sold by the same company to people looking for dog food.
Phoenix Agency leases office space for $7,000 per month. On January 3, Phoenix incurs $65,000 to improve the leased office space. These improvements are expected to yield benefits for 8 years. Phoenix has 5 years remaining on its lease. Compute the amount of expense that should be recorded the first year related to the improvements.
Answer:
$13,000
Explanation:
The computation of the expense recorded in the first year is shown below:
Here the leasehold improvement should be depreciation by considering the lease term left or the estimated useful life whichever is lesser
Now the depreciation expense is
= Improvement cost ÷ lease term left
= $65,000 ÷ 5 years
= $13,000
hence, the amount of expense for the first year is $13,000
. Which of these statements is true about the field of organizational behavior? 1 point A. It examines how individuals and teams in organizations relate to one another and to their counterparts in other organizations. B OB researchers systematically study various topics at a common level rather than at multiple levels. C. Information technology has almost no effect on organizational behavior. D. The field of organizational behavior relies exclusively on ideas generated within the field by organizational behavior scholars. E. The origins of organizational behavior are traced mainly to the field of economics.
Answer:
A. It examines how individuals and teams in organizations relate to one another and to their counterparts in other organizations.
Explanation:
Organizational behavior examines how individuals and teams in organizations relate to one another and to their counterparts in other organizations.
An organizational behavior can be defined as the study of people's opinions, feelings, actions and how people perceive an organization.
This ultimately implies that, an organizational behavior is the study of people's opinions, feelings, actions and how people perceive an organization.
Basically, it measures how an organization relates with its external environments. This is very key to formulating policies, mission and achieving a successful long-term organizational goals and objectives.
According to empirical studies, greater consumption is likely to lead to unhappiness. This condition is called _____.
Answer:
Affluenza.
Explanation:
It is a term that described to be psychological and socio-metaphorical illness seen amongst children or also in teens who grow up in a privileged lifestyle, largely isolated emotionally and developmentally from their working parents etc. In most cases according to research, it is seen to make such children feel more isolated than their friends, while at the same time feeling an increase in pressure to perform.
The effect of this affluenza is also seen to make such people to have a feeling of giving themselves excessive pressure to achieving things, these includes in both academic and extracurricular activities.
McConnel corporation has bonds on the market with 16.5 years to maturity, a YTM of 7.7 percent, a par value of 1000 and current price of 1065. The bonds make semiannual payment and have a par value of $1,000.Required:What must the coupon rate be on these bonds?
Answer:
Coupon rate = 0.08402 or 8.402%
Explanation:
To calculate the price of the bond, we need to first calculate the coupon payment per period. We assume that the interest rate provided is stated in annual terms. As the bond is a semi annual bond, the coupon payment, number of periods and semi annual YTM will be,
Coupon Payment (C) = x
Total periods (n)= 16.5 * 2 = 33
r or YTM = 7.7% * 1/2 = 3.85% or 0.0385
The formula to calculate the price of the bonds today is attached.
Using the bond price formula and the available values, we calculate the coupon rate to be,
1065 = x * [( 1 - (1+0.0385)^-33) / 0.0385] + 1000 / (1+0.0385)^33
1065 = x * (18.50739407) + 287.4653284
1065 - 287.4653284 = x * 18.50739407
777.5346716 / 18.50739407 = x
x = 42.012 rounded off to $42.01
If the semi annual coupon payment is $42.01, the annual coupon payment will be 42.01 * 2 = $84.02
The coupon rate on bonds is = 84.02 / 1000
Coupon rate = 0.08402 or 8.402%
On July 1, Shady Creek Resort borrowed $400,000 cash by signing a 10-year, 9% installment note requiring equal payments each June 30 of $62,328. What is the journal entry to record the first annual payment
Answer:
Journal Entry
Debit Credit
Interest Expense $36,000
Notes Payable $26,328
Cash $62,328
Workings
Interest portion for one year = 400,000 * 9% = $36,000
Total installment paid = $62,328
So, principal portion repaid = $62,328 - $36,000
= $26,328
Currently Baldwin is paying a dividend of $1.10 (per share). If this dividend stayed the same, but the stock price rose by 10% what would be the dividend yield
Answer:
Dividend yield = 227.06%
Explanation:
Assuming the Closing stock market summary for Baldwin company is $44.05
Dividend yield = Dividend * 100 / (Price* (1 + growth rate) )
Dividend yield = 1.10 * 100 / (44.05 * (1+0.10) )
Dividend yield = 1.10 * 100 / (44.05 * 1.10)
Dividend yield = 110 / 48.455
Dividend yield = 2.2706
Dividend yield = 227.06%
The direct labor budget of Yuvwell Corporation for the upcoming fiscal year contains the following details concerning budgeted direct labor-hours:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Budgeted direct labor-hours 11,000 9,700 10,000 10,800
The company uses direct labor-hours as its overhead allocation base. The variable portion of its predetermined manufacturing overhead rate is $5.75 per direct labor-hour and its total fixed manufacturing overhead is $78,000 per quarter. The only noncash item included in fixed manufacturing overhead is depreciation, which is $19,500 per quarter.
Required:
a. Prepare the company’s manufacturing overhead budget for the upcoming fiscal year.
b. Compute the company’s predetermined overhead rate (including both variable and fixed manufacturing overhead) for the upcoming fiscal year.
Answer:
Manufacturing Overhead Budget
Quarter 1st 2nd 3rd 4th
Variable Overheads $63,250 $55,775 $57,500 $62,100
Fixed Overheads $78,000 $78,000 $78,000 $78,000
Total Overheads $141,250 $133,775 $135,500 $140,100
Explanation:
When Preparing the Manufacturing Overhead Budget Note the following :
The Manufacturing Overheads Include Both Fixed and Variable Overheads.Be careful to absorb the Variable overheads cost at the direct labor-hour.Fixed Overheads can Include both cash and non-cash items.Sea Blue manufactures flotation vests in Charleston, South Carolina. Sea Blue's contribution margin income statement for the month ended December 31, 2018, contains the following data:
Sea Blue
Income Statement
For the Month Ended December 31, 2018
Sales in Units 32,000
Net Sales Revenue $608,000
Variable Costs:
Manufacturing 96,000
Selling and Administrative 108,000
Total Variable Costs 204,000
Contribution Margin 404,000
Fixed Costs:
Manufacturing 124,000
Selling and Administrative 94,000
Total Fixed Costs 218,000
Operating Income $186,000
Suppose Overboard wishes to buy 4,600 vests from Sea Blue. Sea Blue will not incur any variable selling and administrative expenses on the special order. The Sea Blue plant has enough unused capacity to manufacture the additional vests. Overboard has offered $15 per vest, which is below the normal sales price of $19.
1. Identify each cost in the income statement as either relevant or irrelevant to Sea Blue's decision.
a. Variable Manufacturing Costs
b. Variable Selling and Administrative Costs
c. Fixed Manufacturing Costs
d. Fixed Selling and Administrative Costs
2. Prepare a differential analysis to determine whether Sea Blue should accept this special sales order.
3. Identify long-term factors Sea Blue should consider in deciding whether to accept the special sales order. In addition to determining the special order's effect on operating profits, Sea Blue's managers also should consider the following:
A. Will Sea Blue's other customers find out about the lower sale price Sea Blue accepted from Overboard? If so, will these other customers demand lower sale prices?
B. Will the special order customer come back again and again, asking for the same reduced price?
C. How will Sea Blue's competitors react? Will they retaliate by cutting their prices and starting a price war?
D. All of the above
E. None of the above
Answer:
1. Variable Cost
Manufacturing 96,000 ( Relevent )
Selling and administrative 108,000 ( Irrelevent )
Fixed Cost
Manufacturing 124,000 ( Irrelevent )
Selling and administrative 94,000 (Irrelevent )
2. $55,200
3. A. If the regular customer found out about this order and will demand a lower price?
B. Will this order customer come back again and again asking the same reducted price?
C. Will this order price will start a price war with the competitors?
Explanation:
1. Calculation to Identify each cost in the income statement as either relevant or irrelevant to Sea Blue's decision.
Variable Cost
Manufacturing 96,000 ( Relevent )
Selling and administrative 108,000 ( Irrelevent )
Fixed Cost
Manufacturing 124,000 ( Irrelevent )
Selling and administrative 94,000 (Irrelevent )
2. Preparation of a differential analysis to determine whether Sea Blue should accept this special sales order.
Differential analysis
Expected increase in income in revenue
( 4,600 vest * $15 per vest ) 69,000
Less :Expected increase in Variable manufacturing
( 4,600 vest * $3 per vest) (13,800)
=$55,200
Variable manufacturing cost of $96,000 / divide by 32,000 units will give us $3
Based on the above calculation Sea blue should accept this order reason been that the order will increase their operating income by the amount of $55,200.
3. The manager of Sea blue should know that the sale might affect their regular sale in long run.
Therefore In addition to determining the special order's effect on operating profits, Sea Blue's managers also should consider:
A. If the regular customer found out about this order and will demand a lower price?
B. Will this order customer come back again and again asking the same reducted price?
C. Will this order price will start a price war with the competitors?
A manufacturing company has variable overhead costs of $2.50 per unit and fixed costs of $5,000 per month. Each unit requires 4 hours of direct labor and the company expects to produce 2,000 units each month. The standard overhead rate will be
Answer:
Standard Overhead rate is $1.25 per Direct labor hours
Explanation:
Total variable cost (2000 unit * $2.50) = $5,000
Total fixed cost = $5,000
Estimated Overhead cost = $10,000
Estimated Direct labor hour = 2000 unit * 4 hours = 8,000 hours
Standard Overhead rate = Estimated overhead cost / Estimated Direct labor hour
Standard Overhead rate = $10,000 / 8,000 hours
Standard Overhead rate = $1.25 per Direct labor hours
A company purchased a tract of land for its natural resources at a cost of $1,500,000. It expects to mine 2,000,000 tons of ore from this land. The salvage value of the land is expected to be $250,000. If 150,000 tons of ore are mined during the first year, the journal entry to record the depletion is:_______.
a. Debit Depletion Expense $93,750; credit Natural Resources $93,750.
b. Debit Cash $112,500; credit Natural Resources $112,500.
c. Debit Depletion Expense $93,750; credit Accumulated Depletion $93,750.
d. Debit Cash $93,750; credit Accumulated Depletion $93,750.
e. Debit Depletion Expense $112,500; credit Accumulated Depletion $112,500.
Answer:
Option c is the correct answer.
Explanation:
The depletion expense or charge for the period can be calculated using the following formula,
Depletion expense = [(Cost - Salvage Value) / Total units expected to be mined] * Units mined during the period
Depletion expense = [(1500000 - 250000) / 2000000] * 150000
Depletion expense = $93750
The entry to record the expense is,
Depletion expense 93750 Dr
Accumulated depletion 93750 Cr
So, option c is the correct answer.
