Assets Cash $500,000 Accounts Receivable 700,000 Inventory 300,000 Property, Pla
ID: 2517529 • Letter: A
Question
Assets
Cash $500,000
Accounts Receivable 700,000
Inventory 300,000
Property, Plant & Equipment 900,000
Accumulated Depreciation (100,000)
Total Assets $2,300,000
Liabilities & Equity
Accounts Payable $300,000
Notes Payable 1,000,000
Common Stock 500,000
Retained Earnings 500,000
Total Liabilities & Equity $2,300,000
Journal Entries for January 2013
Transaction 1: Sales Return
The buyer returns merchandise to the seller.
Journal Entry: Dr. Cr.
Sales Returns & Allowances 22,000
Accounts Receivable 22,000
Transaction 2: Sales Discounts
Description: Recorded collection within 2/10, n/30 period.
Journal Entry: Dr. Cr.
Cash 24,500
Sales Discounts 500
Accounts Receivable 25,000
Journal Entry: Dr. Cr.
Cash 155,000
Sales Revenue 155,000
Transaction 4: Cost Flow Assumption
Recorded cost of goods sold under one of the cost flow assumptions.
Journal Entry: Dr. Cr.
Cost of Goods Sold 45,000
Inventory 45,000
Transaction 5: Recording Estimated Uncollectible
Description: The credit manager estimates that $16,000 of sales will be uncollectible.
Journal Entry: Dr. Cr.
Bad Debts Expense 16,000
Allowance for Doubtful Accounts 16,000
Transaction 6: Write-off of an uncollectible account
Description: The credit manager authorizes a write-off of a $5,500 balance owed by a customer.
Journal Entry: Dr. Cr.
Allowance for Doubtful Accounts 5,500
Accounts Receivable 5,500
Transaction 7: Depreciation Expense
Recorded depreciation expense under one of the depreciation methods.
Journal Entry: Dr. Cr.
Depreciation Expense 12,000
Accumulated Depreciation 12,000
Transaction 8: Investment by Stockholders
Description: Invested $55,000 cash in the business in exchange for common stock.
Journal Entry: Dr. Cr.
Cash 55,000
Common Stock 55,000
Transaction 9: Dividends
Description: The corporation pays a dividend of $4,700 in cash to the stockholders.
Journal Entry: Dr. Cr.
Dividends 4,700
Cash 4,700
Transaction 10: Purchase of Equipment
Description: Purchases computer equipment for $7,800 cash.
Journal Entry: Dr. Cr.
Equipment 7,800
Cash 7,800
Transaction 11: Purchase of Supplies on Credit
Description: Purchases $4,800 of inventory on credit.
Journal Entry: Dr. Cr.
Inventory 4,800
Accounts Payable 4,800
Use the following information for questions 17 to 20:
Cost: $10,000
Salvage $1,000
Useful life: 5 years
Units over life: 36,000
17. What is the second year depreciation expense under declining-balance = 200%?
A. $4,000
B. $1,440
C. $864
D. $2,400
18. What is the fourth year depreciation expense under sum-of-years digits?
A. $2,400
B. $1,000
C. $1,100
D. $1,200
19. Assume the asset produced 13,000 units. What is the depreciation expense under the units of production method?
A. $1,300
B. $2,500
C. $3,250
D. $4,250
20. Assume the declining-balance = 200% method is used. What is the residual book value at the end of year 2?
A. $6,000
B. $3,600
C. $2,160
D. $1,296
Explanation / Answer
Solution:
There are two problems. First problem is already answered. So I am answering second problem.
Use the following information for questions 17 to 20:
Cost: $10,000
Salvage $1,000
Useful life: 5 years
Units over life: 36,000
17. What is the second year depreciation expense under declining-balance = 200%?
Solution:
Double Declining Depreciation Method
It is a method of depreciation used by the companies when they want to quickly depreciate an asset.
The asset will depreciate much faster under this method than straight-line because we double the percentage that would be depreciated each year under straight-line.
Salvage value is not subtracted from Cost of Asset when depreciation is calculated by using this method.
The formula for double declining balance is:
Annual depreciation = Book Value * 100% / life * 2
Calculate the percentage that should be used first.
Depreciation Rate = 100% / Useful Life x 2 = 100% / 5 x 2 = 40%
First Year Depreciation = Cost of Asset x Depreciation Rate = $10,000*40% = $4,000
Carrying Value at the end of Year 1 = Cost of Asset – 1st year depreciation 4,000 = $6,000
Year 2 Depreciation Expense = Carrying Value at the end of 1st Year $6,000 * Depreciation Rate 40% = $2,400
Hence, the the second year depreciation expense under declining-balance = $2,400
The correct option is D. $2,400
18. What is the fourth year depreciation expense under sum-of-years digits?
Sum of Years digits method
This method of depreciation is accelerated depreciation technique which is based on the assumption that assets are generally more productive when they are new and their productivity decreases as they become old.
SYD Depreciation = Depreciable Base x Remaining Useful Life / Sum of Years Digit
Depreciable Base = Cost of Asset – Salvage Value = $10,000 - $1,000 = $9,000
Sum of Years Digit = n(n+1)/2 = 5(5+1)/2 = 15
Year 1 Depreciation = $9,000 x Remaining useful life 5 / 15 Sum of Years Digit = $3,000
Year 2 Depreciation = $9,000 x 4 / 15 = $2,400
Year 3 Depreciation = $9,000 * 3 / 15
Year 4 Depreciation = $9,000 * 2 /15 = $1,200
Hence, the correct option is D. $1,200
19. Assume the asset produced 13,000 units. What is the depreciation expense under the units of production method?
Under the Units of Production method of depreciation, depreciation is charged according to the actual usage of the asset. Higher depreciation is charged when there is higher activity and less is charged when there is low level of operation. Zero depreciation is charged when the asset is idle for the whole period.
Estimated production Units during life of machine = 36,000 Units
Machine’s Depreciable Cost = Cost of Asset – Salvage Value = $10,000 – 1,000 = $9,000
Under the units of production method, the machine's depreciable cost of $9,000 is divided by estimated production during the life of machine 36,000 Units, resulting in depreciation of $0.25 per unit.
Depreciation Expense = Actual Units Produced x Depreciation Rate = 13,000 Units x 0.25 = $3,250
Hence, the correct option is C. $3,250
20. Assume the declining-balance = 200% method is used. What is the residual book value at the end of year 2?
Refer working for problem 17..
First Year Depreciation = Cost of Asset x Depreciation Rate = $10,000*40% = $4,000
Carrying Value at the end of Year 1 = Cost of Asset – 1st year depreciation 4,000 = $6,000
Year 2 Depreciation Expense = Carrying Value at the end of 1st Year $6,000 * Depreciation Rate 40% = $2,400
Carrying Value at the end of year 2 = $6,000 – Year 2 Depreciation $2,400 = $3,600
Hence, the correct option is B. $3,600
Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you