Question

On January 3, 2020, Serrato Corp. issued 40,000 shares of $10 par value common stock for $11 per share. Which of the following statements is true?

Multiple Choice

• The Common Stock account will increase by $440,000.

• The Cash account will increase by $400,000.

• Total stockholders' equity will increase by $400,000.

• The Additional Paid-in Capital account will increase by $40,000.

XYZ, Inc. purchased an office building on October 1, 2020, that was put on the books at $800,000.  The building is expected to be used for 35 years and at the end of the 35 years will be sold for an estimated selling price of $100,000.  XYZ closes its books at the end of every calendar year.  XYZ, Inc. uses the straight-line method of depreciation.  Based on this information, which of the following is correct?

Multiple Choice

• Depreciation Expense at 12/31/20 is $20,000.

• Accumulated Depreciation at 12/31/20 is $20,000

• Depreciation Expense at 12/31/2021 is $5,000

• Accumulated Depreciation at 12/31/21 is $25,000

Answer 1

1
The entry to record transaction is:
Cash	440000		=40000*11
Common Stock		400000	=40000*10
Additional Paid-in Capital		40000
The Additional Paid-in Capital account will increase by $40,000.
Option D is correct
2
Cost of Building	800000
Less: Salvage value	100000
Depreciable cost	700000
Divide by Useful life	35
Annual Depreciation	20000
Depreciation for 2020 (3 months)	5000	=20000*3/12
Depreciation for 2021	20000
Accumulated Depreciation 2021	25000
Accumulated Depreciation at 12/31/21 is $25,000
Option D is correct