Financial Accounting Questions and Answers

Financial statement data for years ending December 31 for Fallon Company are shown below.                                                                                        2012               2011 Net sales                                                                   $740,000         $520,000 Fixed assets: Beginning of year                                                      425,000         ...

Financial statement data for years ending December 31 for Winnett Company are shown below.                                                                                  2012      2011 Net sales                                                             $3,572,000 $3,526,000 Fixed assets: Beginning of year                                                 900,000   820,000 End of year                                 ...

On December 31, it was estimated that goodwill of $1,200,000 was impaired. In addition, a patent with an estimated useful economic life of 12 years was acquired for $288,000 on April 1. a. Journalize the adjusting entry on December 31 for the impaired goodwill. b. Journalize the adjusting entry on December 31 for the amortization of the patent rights. Answer: a.  Dec.  31  Loss from Impaired Goodwill...................... 1,200,000                                            Goodwill ..................................................  1,200,000                                                        Impaired goodwill. b. Dec. 31 Amortization Expense—Patents................. 18,000             ...

Silver Tip Mining Co. acquired mineral rights for $300,000,000. The mineral deposit is estimated at 400,000,000 tons. During the current year, 84,000,000 tons were mined and sold. a. Determine the depletion rate. b. Determine the amount of depletion expense for the current year. c. Journalize the adjusting entry on December 31 to recognize the depletion expense. Answer: a.  $0.75 per ton = $300,000,000/400,000,000 tons b.  $63,000,000 = (84,000,000 tons × $0.75 per ton) c.  Dec. 31 Depletion Expense....................................... 63,000,000                                         Accumulated Depletion..........................  63,000,000                                                 Depletion of mineral deposit.

On December 31, it was estimated that goodwill of $750,000 was impaired. In addition, a patent with an estimated useful economic life of 18 years was acquired for $864,000 on August 1. a. Journalize the adjusting entry on December 31 for the impaired goodwill. b. Journalize the adjusting entry on December 31 for the amortization of the patent rights. Answer: a.  Dec. 31 Loss from Impaired Goodwill...................... 750,000                                        Goodwill ..................................................  750,000                                                        Impaired goodwill. b. Dec. 31 Amortization Expense—Patents................. 20,000                     ...

Big Horn Mining Co. acquired mineral rights for $90,000,000. The mineral deposit is estimated at 250,000,000 tons. During the current year, 30,000,000 tons were mined and sold. a. Determine the depletion rate. b. Determine the amount of depletion expense for the current year. c. Journalize the adjusting entry on December 31 to recognize the depletion expense. Answer: a.  $0.36 per ton = $90,000,000/250,000,000 tons b.  $10,800,000 = (30,000,000 tons × $0.36 per ton) c.  Dec. 31 Depletion Expense....................................... 10,800,000                                         Accumulated Depletion..........................  10,800,000                                                             Depletion of mineral...

Equipment was acquired at the beginning of the year at a cost of $450,000. The equipment was depreciated using the double-declining-balance method based on an estimated useful life of 10 years and an estimated residual value of $60,000. a. What was the depreciation for the first year? b. Assuming the equipment was sold at the end of the second year for $319,500, determine the gain or loss on the sale of the equipment. c. Journalize the entry to record the sale. Answer: a.  $90,000 = $450,000 × [(1/10) × 2)] = $450,000 × 20% b. $31,500 gain, computed as follows: Cost .................................................... $450,000 Less:  First-year depreciation........... (90,000)              Second-year depreciation......  (72,000) [($450,000 – $90,000) × 20%] Book value at end of second year.... $288,000   Gain on sale ($319,500 – $288,000) = $31,500 c.  Cash..........................................................................

Equipment was acquired at the beginning of the year at a cost of $215,000. The equipment was depreciated using the straight-line method based on an estimated useful life of 18 years and an estimated residual value of $39,500. a. What was the depreciation for the first year? b. Assuming the equipment was sold at the end of the eighth year for $128,000, determine the gain or loss on the sale of the equipment. c. Journalize the entry to record the sale. Answer: a.  $9,750 [($215,000 – $39,500)/18] b.  $9,000 loss {$128,000 – [$215,000 – ($9,750 × 8)]} c. Cash................................................................................ 128,000 Accumulated Depreciation—Equipment ..................... 78,000 Loss on Sale of Equipment........................................... 9,000                                             Equipment.........................................

A truck with a cost of $94,000 has an estimated residual value of $20,500, has an estimated useful life of 15 years, and is depreciated by the straight-line method. (a) Determine the amount of the annual depreciation. (b) Determine the book value at the end of the seventh year of use. (c) Assuming that at the start of the eighth year the remaining life is estimated to be six years and the residual value is estimated to be $15,000, determine the depreciation expense for each of the remaining six years. Answer: a.  $4,900 [($94,000 – $20,500)/15] b.  $59,700 [$94,000 – ($4,900 × 7)] c.  $7,450 [($59,700 – $15,000)/6]

Equipment with a cost of $300,000 has an estimated residual value of $42,000, has an estimated useful life of 24 years, and is depreciated by the straight-line method. (a) Determine the amount of the annual depreciation. (b) Determine the book value at the end of the fourteenth year of use. (c) Assuming that at the start of the fifteenth year the remaining life is estimated to be five years and the residual value is estimated to be $20,000, determine the depreciation expense for each of the remaining five years. Answer: a.  $10,750 [($300,000 – $42,000)/24] b.  $149,500 [$300,000 – ($10,750 × 14)] c.  $25,900 [($149,500 – $20,000)/5]

A building acquired at the beginning of the year at a cost of $820,000 has an estimated residual value of $100,000 and an estimated useful life of 50 years. Determine (a) the double-declining-balance rate and (b) the double-declining-balance depreciation for the first year. Answer: a. 4% = [(1/50) × 2] b. $32,800 ($820,000 × 4%) 

Equipment acquired at the beginning of the year at a cost of $190,000 has an estimated residual value of $30,000 and an estimated useful life of eight years. Determine (a) the double-declining-balance rate and (b) the double-declining-balance depreciation for the first year. Answer: a. 25% = [(1/8) × 2] b. $47,500 ($190,000 × 25%) 

Equipment acquired at the beginning of the year at a cost of $275,000 has an estimated residual value of $30,000 and an estimated useful life of 10 years. Determine (a) the depreciable cost, (b) the straight-line rate, and (c) the annual straight-line depreciation. Answer: a. $245,000 ($275,000 – $30,000) b. 10% = (1/10) c. $24,500 ($245,000 × 10%), or ($245,000/10 years)

A building acquired at the beginning of the year at a cost of $980,000 has an estimated residual value of $60,000 and an estimated useful life of 20 years. Determine (a) the depreciable cost, (b) the straight-line rate, and (c) the annual straight-line depreciation. Answer: a. $920,000 ($980,000 – $60,000) b. 5% = (1/20) c. $46,000 ($920,000 × 5%), or ($920,000/20 years)

A tractor acquired at a cost of $315,000 has an estimated residual value of $27,000, has an estimated useful life of 90,000 hours, and was operated 3,700 hours during the year. Determine (a) the depreciable cost, (b) the depreciation rate, and (c) the units-of-production depreciation for the year. Answer: a. $288,000 ($315,000 – $27,000) b. $3.20 per hour ($288,000/90,000 hours) c. $11,840 (3,700 hours × $3.20) 

A truck acquired at a cost of $150,000 has an estimated residual value of $40,000, has an estimated useful life of 400,000 miles, and was driven 80,000 miles during the year. Determine (a) the depreciable cost, (b) the depreciation rate, and (c) the units-of-production depreciation for the year. Answer: a. $110,000 ($150,000 – $40,000) b. $0.275 per mile ($110,000/400,000 miles) c. $22,000 (80,000 miles × $0.275) 

On June 9, Martin Associates Co. paid $1,300 to repair the transmission on one of its delivery vans. In addition, Martin Associates paid $600 to install a GPS system in its van. Journalize the entries for the transmission and GPS system expenditures. Answer: June  9 Accumulated Depreciation—Delivery Van........ 1,300                 Cash................................................................  1,300             9 Delivery Van........................................................ 600                        Cash................................................................  600

On September 30, Madison River Inflatables Co. paid $1,425 to install a hydraulic lift and $35 for an air filter for one of its delivery trucks. Journalize the entries for the new lift and air filter expenditures. Answer: Sept.  30 Delivery Truck..................................................... 1,425                                           Cash................................................................  1,425   30 Repairs and Maintenance Expense................... 35                         Cash................................................................  35