Question

51–54

CFIFO will have the highest cost of goods sold. D) FIFO will have the highest ending inventory 51. Marvin Services Corporation had the following accounts and balances: Accounts payable $18,000 Equipment $21,000 21,000 Accounts receivable Buildings Cash 3,000 Land ? Unearned service revenue. 9,000 Total stockholders' equity If total stockholder's equity was $$7,000, what would be the balance of the Buildngs Account? A) $87,000 B) $21,000 C) $27,000 D) $81,000 52. The Paid-in Capital in Excess of Par Value is increased in the accounting records when A the stated value of capital stock is greater than the par value. B) capital stock is issued at an amount greater than par valuce. C) the number of shares issued exceeds par value. D) the market value of the stock rises above par value. 53. Bond discount should be amortized to comply with A) conservatism. B) the historical cost principle. C) the expense recognition principle. D) the revenue recognition principle. 54. The purchase or sale of long-lived assets used in operating the business is A) an investing activity. B) a financing activity. C) an operating activity. D) None of these answer choices are correct. Version 1 Page 13

Answer 1

Answer to Question No. 51.

Option C i.e. $27,000

Total Assets = Total Liabilities + Total Stockholders’ Equity
Total Liabilities = Accounts Payable + Unearned Service Revenue
Total Liabilities = $18,000 + $6,000 = $24,000

Total Assets = $24,000 + $57,000
Total Assets = $81,000

Total Assets = Accounts Receivable + Buildings + Cash + Equipment + Land
$81,000 = $3,000 + Buildings + $9,000 + $21,000 + $21,000
$81,000 = $54,000 + Buildings
Buildings = $27,000

Answer to Question No. 52.

Option B is Correct.

Paid -in Capital in Excess of Par Value is the amount received in excess of Par Value of Stock Issued.

Therefore, Paid-in Capital in excess of par value increases when the Capital Stock is issued at an amount more than the Par Value and the amount of Paid -in Capital in Excess of Par Value will be amount in excess of Par Value.

Answer to Question No. 53.

Option C i.e. the Expense recognition principle is Correct.

Bond Discount should be amortized over the life of Bonds and as per Expense recognition principle, expenses should be recorded in the year in which they are expenses to generate Revenue.

Answer to Question No. 54.

Option A i.e. An Investing activity is Correct.

Purchase of Sale of Non-Current Assets or Long Lived Assets are recorded under the head of Cash Flow from Investing Activities.

Cash Flow due to Change in Current Assets are recorded under the Cash flow from Operating Activities. And, Cash flow due to amount financed during the operation of Business are recorded under the Cash Flow from Financing Activities.