Question 1: On January 1, 2006 Drummond Company purchased an asset that had cost $26,000. The asset had a 6-year useful life and an estimated salvage value of $2,000. Drummond depreciates its assets on the straight-line basis. On January 1, 2009 the company spent $12,000 to improve the quality of the asset. Based on this information the recognition of depreciation expense in 2010 would act to:
(a) Increase total assets by $12,000
(b) Reduce total equity by $10,000
(c) Reduce total assets by $12,000
(d) Increase total equity by $10,000
Question 2: Maxtor Company is considering a capital project that will return $100,000 each year for five years. The present value of the annuity is $379,100 at the company's minimum rate of return of 10%. What is the return of investment that year if the return on investment in the first year is $37,910?
(a) $137,910
(b) $100,000
(c) $62,090
(d) None of the above
Question 3: Matt wants to determine the net present value for a proposed capital investment. He has determined the desired rate of return, the expected investment time period, a series of cash inflows of equal amount, the salvage value of the investment, and the required cash outflows. Which of the following tables would most likely be used to calculate the net present value of the investment?
(a) Present Value of Annuity
(b) Present Value of a Lump Sum
(c) Both of the above
(d) None of the above
Question 4: Duke Inc. issued bonds with a face value of $50,000 and a stated interest rate of 8%. The bonds have a life of four years and were sold at 96. If Duke amortizes discounts and premiums using the straight-line method the amount of interest expense each year would be:
(a) $4,000
(b) $4,500
(c) $5,000
(d) $6,000