problem 1: Gunawardena Ltd. has a building that it originally bought for $100,000. As of December 31, 2012, there is $10,000 of Accumulated Depreciation on the building (it was being straight-line depreciated over 10 years with no salvage value). On January 1, 2013, the company decides to change the remaining useful life to 5 years (starting now) with a $50,000 salvage value.

What will be the depreciation on the building in 2013?

a) $8,000
b) $20,000
c) $13,000
d) $10,000
e) $12,500

problem 2: On January 1, 2012, Krishnan Ltd. signed a three-year lease on a delivery truck. The lease requires annual payments of $29,103, which are due at the end of each year. Krishnan’s managers computed the present value of the lease payments as $75,000 using an effective interest rate of 8%. Krishnan had to use capital lease accounting treatment for the truck.

What was the total expense related to this lease during the fiscal year ended December 31, 2012?

a) $6,000
b) $31,000
c) $0
d) $29,103
e) $25,000

problem 3: After completing its preliminary financial statements for 2012, Alexander-Martin Inc. found a mistake in computing its straight-line Depreciation Expense. After fixing the mistake, Alexander-Martin’s Depreciation Expense was now $10,000 higher. Alexander-Martin is a US company with a 35% Federal Statutory Tax Rate.

How did the $10,000 increase in Depreciation Expense affect Net Income for 2012?

a) Net Income dropped by $10,000
b) Net Income increased by $3,500
c) Net Income dropped by $6,500
d) Net Income dropped by $3,500
e) Net Income increased by $10,000

problem 4: For the year ended 12/31/2013, Baumgart Corp. reported Net Income of $100,000, including $10,000 of Interest Expense on convertible debt. Baumgart had 10,000 common shares outstanding throughout 2013. Baumgart paid $4,000 of preferred dividends during 2013. Baumgart’s convertible debt is convertible into 2,000 shares of common stock. Baumgart is a US company with a 35% Federal Statutory Tax Rate.

What is Baumgart Corp.’s Diluted EPS for fiscal year 2013?

a) $8.83
b) $7.17
c) $8.29
d) $7.46
e) $8.54

problem 5: Nguyen Industries decides to sell an old piece of equipment and receives $5,000 cash for it. The original cost of the equipment was $50,000 and it had accumulated depreciation of $47,000 associated with it.

Which of the following items would be increased by the sale of the old equipment? (check all that apply)

a) Cash from Financing Activities
b) Cash from Operating Activities
c) Total Shareholders’ Equity
d) Total Assets
e) Cash from Investing Activities