Financial Accounting Questions and Answers

The following data relate to notes receivable and interest for Viking Co., a cable manufacturer and supplier. (All notes are dated as of the day they are received.) June  3. Received a $24,000, 4%, 60-day note on account. July 26. Received a $27,000, 5%, 120-day note on account. Aug.  2. Received $24,160 on note of June 3. Sept.  4. Received a $60,000, 3%, 60-day note on account. Nov.  3. Received $60,300 on note of September 4.           5. Received a $36,000, 7%, 30-day note on account.           23. Received $27,450 on note of July 26.           30. Received an $18,000, 5%, 30-day note on account. Dec.  5. Received $36,210 on note of November 5.           30. Received $18,075 on note of November 30. Instructions Journalize entries to record the transactions. Answer: June 3 Notes Receivable............................................... 24,000 ...

The following table shows the revenues and average net fixed assets for a recent fiscal year for three different companies from three different industries: retailing, manufacturing, and communications. Revenues (in millions) Average Net Fixed Assets (in millions) Wal-Mart $405,607 $96,335 Occidental Petroleum Corporation 15,403 32,856 Comcast Corporation 34,256 24,034 a. For each company, determine the fixed asset turnover ratio. Round to two decimal places. b. Explain Wal-Mart’s ratio relative to the other two companies. Answer: a. Fixed Asset Turnover =  AssetsFixedofValueBookAverage Revenue    Wal-Mart: $96,335 $405,607  = 4.21    Occidental Petroleum: $32,856 $15,403  = 0.47    Comcast Corporation: $24,034 $34,256  = 1.43   b. The fixed asset turnover measures the amount of revenue earned per dollar of fixed assets. Wal-Mart earns $4.21 of revenue for every dollar of fixed assets, while Occidental earns $0.47 and Comcast Corpora...

Atlas Construction Co. specializes in building replicas of historic houses. Paul Raines, president of Atlas Construction, is considering the purchase of various items of equipment on July 1, 2010, for $500,000. The equipment would have a useful life of five years and no residual value. In the past, all equipment has been leased. For tax purposes, Paul is considering depreciating the equipment by the straight-line method. He discussed the matter with his CPA and learned that, although the straight-line method could be elected, it was to his advantage to use the Modified Accelerated Cost Recovery System (MACRS) for tax purposes. He asked for your advice as to which method to use for tax purposes. 1. Compute depreciation for each of the years (2010, 2011, 2012, 2013, 2014, and 2015) of useful life by (a) the straight-line method and (b) MACRS. In using the straight-line method, one-half year’s depreciation should be computed for 2010 and 2015. Use the MACRS rates presented on page 457. 2....

Group Project Go to the Internet and review the procedures for applying for a patent, a copyright, and a trademark. You may find information available on Wikipedia (Wikipedia.org) useful for this purpose. Prepare a brief written summary of these procedures. Answer: The following is some information on patents, copyrights, and trademarks that you may find helpful in your discussions.   Patents A patent is requested by filing a written application at the relevant patent office. The person or company filing the application is referred to as “the applicant.” The applicant may be the inventor or its assignee. The application contains a description of how to make and use the invention that must provide sufficient detail for a person skilled in the art (i.e., the relevant area of technology) to make and use the invention. In some countries, there are requirements for providing specific information such as the usefulness of the invention, the best mode of performing the invention known to ...

Data related to the acquisition of timber rights and intangible assets during the current year ended December 31 are as follows: a. On December 31, the company determined that $1,800,000 of goodwill was impaired. b. Governmental and legal costs of $900,000 were incurred on June 30 in obtaining a patent with an estimated economic life of 10 years. Amortization is to be for one-half year. c. Timber rights on a tract of land were purchased for $1,560,000 on February 4. The stand of timber is estimated at 12,000,000 board feet. During the current year, 3,200,000 board feet of timber were cut and sold. Instructions 1. Determine the amount of the amortization, depletion, or impairment for the current year for each of the foregoing items. 2. Journalize the adjusting entries to record the amortization, depletion, or impairment for each item. Answer: 1. a. Loss on impairment of goodwill, $1,800,000 b. $900,000/10 years = $90,000; 1/2 of $90,000 = $45,000 c. $1,560,000/12,000,000 board feet = $0...

Rosa Salinas, CPA, is an assistant to the controller of Zebra Consulting Co. In her spare time, Rosa also prepares tax returns and performs general accounting services for clients. Frequently, Rosa performs these services after her normal working hours, using Zebra Consulting Co.’s computers and laser printers. Occasionally, Rosa’s clients will call her at the office during regular working hours. Discuss whether Rosa is performing in a professional manner. Answer: It is considered unprofessional for employees to use company assets for  personal reasons, because such use reduces the useful life of the assets for normal business purposes. Thus, it is unethical for Rosa Salinas to use Zebra Consulting Co.’s computers and laser printers to service her part-time accounting business, even on an after-hours basis. In addition, it is improper for Rosa’s clients to call her during regular working hours. Such calls may interrupt or interfere with Rosa’s ability to carry out her assigned duti...

The following is an excerpt from a conversation between two employees of Omni Technologies, Jay Bach and Cora Hardaway. Jay is the accounts payable clerk, and Cora is the cashier. Jay: Cora, could I get your opinion on something? Cora: Sure, Jay. Jay: Do you know Jo, the fi xed assets clerk? Cora: I know who she is, but I don’t know her real well. Why? Jay: Well, I was talking to her at lunch last Monday about how she liked her job, etc. You know, the usual . . . and she mentioned something about having to keep two sets of books . . . one for taxes and one for the fi nancial statements. That can’t be good accounting, can it? What do you think? Cora: Two sets of books? It doesn’t sound right. Jay: It doesn’t seem right to me either. I was always taught that you had to use generally accepted accounting principles. How can there be two sets of books? What can be the diff erence between the two? How would you respond to Jay and Cora if you were Jo? Answer: You should explain to Jay and Cor...

New tire retreading equipment, acquired at a cost of $72,000 at the beginning of a fiscal year, has an estimated useful life of four years and an estimated residual value of $5,400. The manager requested information regarding the effect of alternative methods on the amount of depreciation expense each year. On the basis of the data presented to the manager, the double-declining-balance method was selected. In the first week of the fourth year, the equipment was sold for $13,750. Instructions 1. Determine the annual depreciation expense for each of the estimated four years of use, the accumulated depreciation at the end of each year, and the book value of the equipment at the end of each year by (a) the straight-line method and (b) the doubledeclining-balance method. The following columnar headings are suggested for each schedule: Year Depreciation Expense Accumulated Depreciation, End of Year Book Value, End of Year 2. Journalize the entry to record the sale. 3. Journalize the entry to...

The following transactions, adjusting entries, and closing entries were completed by McHenry Furniture Co. during a three-year period. All are related to the use of delivery equipment. The double-declining-balance method of depreciation is used. 2010 Jan.   4. Purchased a used delivery truck for $54,000, paying cash. Feb.  24. Paid garage $275 for changing the oil, replacing the oil fi lter, and tuning the engine on the delivery truck. Dec. 31. Recorded depreciation on the truck for the fi scal year. The estimated useful life of the truck is eight years, with a residual value of $12,000 for the truck. 2011 Jan.   3. Purchased a new truck for $60,000, paying cash. Mar.   7. Paid garage $300 to tune the engine and make other minor repairs on the used truck. Apr.    30 Sold the used truck for $35,000. (Record depreciation to date in 2011 for the truck.) Dec. 31. Record depreciation for the new truck. It has an estimated residual value of $16,000 and an estimated...

Plum Coatings Company purchased waterproofing equipment on January 2, 2011, for $450,000. The equipment was expected to have a useful life of four years, or 10,000 operating hours, and a residual value of $50,000. The equipment was used for 3,000 hours during 2011, 4,000 hours in 2012, 2,500 hours in 2013, and 500 hours in 2014. Instructions 1. Determine the amount of depreciation expense for the years ended December 31, 2011, 2012, 2013, and 2014, by (a) the straight-line method, (b) the units-of-production method, and (c) the double-declining-balance method. Also determine the total depreciation expense for the four years by each method. The following columnar headings are suggested for recording the depreciation expense amounts: Depreciation Expense Year StraightLine Method Units-ofProduction Method Double-DecliningBalance Method 2. What method yields the highest depreciation expense for 2011? 3. What method yields the most depreciation over the four-year life of the equipment? Answ...

Helix Company purchased tool sharpening equipment on April 1, 2010, for $72,000. The equipment was expected to have a useful life of three years, or 9,000 operating hours, and a residual value of $2,700. The equipment was used for 2,400 hours during 2010, 4,000 hours in 2011, 2,000 hours in 2012, and 600 hours in 2013. Instructions Determine the amount of depreciation expense for the years ended December 31, 2010, 2011, 2012, and 2013, by (a) the straight-line method, (b) the units-of-production method, and (c) the double-declining-balance method. Answer: a. Straight-line method:   2010: [($72,000 – $2,700)/3] × 9/12............................................$17,325   2011: ($72,000 – $2,700)/3..................................................... 23,100   2012: ($72,000 – $2,700)/3..................................................... 23,100   2013: [($72,000 – $2,700)/3] × 3/12............................................. 5,775 b. Units-of-production method:   ...

The following payments and receipts are related to land, land improvements, and buildings acquired for use in a wholesale apparel business. The receipts are identified by an asterisk. a.  Finder’s fee paid to real estate agency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $    5,000  b.  Cost of real estate acquired as a plant site: Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000  Building  . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000  c.  Fee paid to attorney for title search  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500 d.  Delinquent real estate taxes on property, assumed by purchaser  . . . . . . . . . . . . . . . . 15,000 e.  Architect’s and engineer’s fees for plans and supervision  . . . . . . . . . . . . . . . . . . . . . . . 36,000 f.  Cost of removing building purchased with l...

Data related to the acquisition of timber rights and intangible assets during the current year ended December 31 are as follows: a. Timber rights on a tract of land were purchased for $864,000 on July 10. The stand of timber is estimated at 3,600,000 board feet. During the current year, 1,500,000 board feet of timber were cut and sold. b. On December 31, the company determined that $4,000,000 of goodwill was impaired. c. Governmental and legal costs of $1,170,000 were incurred on April 10 in obtaining a patent with an estimated economic life of 12 years. Amortization is to be for threefourths of a year. Instructions 1. Determine the amount of the amortization, depletion, or impairment for the current year for each of the foregoing items. 2. Journalize the adjusting entries required to record the amortization, depletion, or impairment for each item. Answer: 1. a. $864,000/3,600,000 board feet = $0.24 per board foot; 1,500,000 board feet × $0.24 per board foot = $360,000 b. Loss on impai...

New lithographic equipment, acquired at a cost of $787,500 at the beginning of a fiscal year, has an estimated useful life of five years and an estimated residual value of $67,500. The manager requested information regarding the effect of alternative methods on the amount of depreciation expense each year. On the basis of the data presented to the manager, the double-declining-balance method was selected. In the first week of the fifth year, the equipment was sold for $115,000. Instructions 1. Determine the annual depreciation expense for each of the estimated five years of use, the accumulated depreciation at the end of each year, and the book value of the equipment at the end of each year by (a) the straight-line method and (b) the double-declining-balance method. The following columnar headings are suggested for each schedule: Year Depreciation Expense Accumulated Depreciation, End of Year Book Value, End of Year 2. Journalize the entry to record the sale. 3. Journalize the entry to...

The following transactions, adjusting entries, and closing entries were completed by D. Hurd Furniture Co. during a three-year period. All are related to the use of delivery equipment. The double-declining-balance method of depreciation is used. 2010 Jan.  9. Purchased a used delivery truck for $30,000, paying cash. Mar. 17. Paid garage $400 for miscellaneous repairs to the truck. Dec. 31. Recorded depreciation on the truck for the year. The estimated useful life of the truck is four years, with a residual value of $6,000 for the truck. 2011 Jan.   2. Purchased a new truck for $48,000, paying cash. Aug   1. Sold the used truck for $12,500. (Record depreciation to date in 2011 for the truck.) Sept. 23. Paid garage $325 for miscellaneous repairs to the truck. Dec. 31. Record depreciation for the new truck. It has an estimated residual value of $11,000 and an estimated life of fi ve years. 2012 July    1. Purchased a new truck for $52,000, paying cash. Oct.   ...

Breyer Company purchased packaging equipment on January 3, 2010, for $101,250. The equipment was expected to have a useful life of three years, or 25,000 operating hours, and a residual value of $7,500. The equipment was used for 9,500 hours during 2010, 8,400 hours in 2011, and 7,100 hours in 2012. Instructions 1. Determine the amount of depreciation expense for the years ended December 31, 2010, 2011, and 2012, by (a) the straight-line method, (b) the units-of-production method, and (c) the double-declining-balance method. Also determine the total depreciation expense for the three years by each method. The following columnar headings are suggested for recording the depreciation expense amounts: Depreciation Expense Year StraightLine Method Units-of- Production Method Double-DecliningBalance Method 2. What method yields the highest depreciation expense for 2010? 3. What method yields the most depreciation over the three–year life of the equipment? Answer: 1.   Depreciation Expens...

Security IDs Company purchased equipment on July 1, 2010, for $135,000. The equipment was expected to have a useful life of three years, or 12,000 operating hours, and a residual value of $6,000. The equipment was used for 1,500 hours during 2010, 3,500 hours in 2011, 5,000 hours in 2012, and 2,000 hours in 2013. Instructions Determine the amount of depreciation expense for the years ended December 31, 2010, 2011, 2012, and 2013, by (a) the straight-line method, (b) the units-of-production method, and (c) the double-declining-balance method. Round to the nearest dollar. Answer: a. Straight-line method:   2010: [($135,000 – $6,000)/3] × 1/2........................................... $21,500   2011: ($135,000 – $6,000)/3....................................................... 43,000 2012: ($135,000 – $6,000)/3....................................................... 43,000   2013: [($135,000 – $6,000)/3] × 1/2........................................... 21,500 b. Units-of-produ...

The following payments and receipts are related to land, land improvements, and buildings acquired for use in a wholesale ceramic business. The receipts are identified by an asterisk. a.  Fee paid to attorney for title search  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $   3,000  b.  Cost of real estate acquired as a plant site: Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320,000  Building  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000  c.   Special assessment paid to city for extension of water main to the property. . . . . . . 18,000  d.  Cost of razing and removing building  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000  e.  Proceeds from sale of salvage materials from old building  . . . . . . . . . . . . . . . . . . . . . . . 3,000*  f.   Delinquent real estate taxes...

On April 1, Clear Water Co., a water distiller, acquired new bottling equipment with a list price (fair market value) of $350,000. Clear Water received a trade-in allowance of $50,000 on the old equipment of a similar type and paid cash of $300,000. The following information about the old equipment is obtained from the account in the equipment ledger: cost, $280,000; accumulated depreciation on December 31, the end of the preceding fiscal year, $216,000; annual depreciation, $18,000. Assuming the exchange has commercial substance, journalize the entries to record (a) the current depreciation of the old equipment to the date of trade-in and (b) the exchange transaction on April 1. Answer: a. Depreciation Expense—Equipment............................. 4,500     Accumulated Depreciation—Equipment................  4,500     Equipment depreciation ($18,000 × 3/12). b. Accumulated Depreciation—Equipment ..................... 220,500   Equipment....................

On July 1, Potts Delivery Services acquired a new truck with a list price (fair market value) of $80,000. Potts received a trade-in allowance of $15,000 on an old truck of similar type and paid cash of $65,000. The following information about the old truck is obtained from the account in the equipment ledger: cost, $60,000; accumulated depreciation on December 31, the end of the preceding fiscal year, $42,000; annual depreciation, $7,500. Assuming the exchange has commercial substance, journalize the entries to record (a) the current depreciation of the old truck to the date of trade-in and (b) the transaction on July 1. Answer: a. Depreciation Expense—Trucks.................................... 3,750     Accumulated Depreciation—Trucks...............................  3,750     Truck depreciation ($7,500 × 6/12). b. Accumulated Depreciation—Trucks............................ 45,750   Trucks..................................................... 80,000 ...

The following table shows the revenue and average net fixed assets (in millions) for a recent fiscal year for Best Buy and RadioShack: Revenue Average Net Fixed Assets Best Buy $45,015 $3,740 RadioShack 4,225 312  a. Compute the fixed asset turnover for each company. Round to two decimal places. b. Which company uses its fixed assets more efficiently? Explain. Answer: a. Best Buy: 12.04 ($45,015/$3,740)   RadioShack: 13.54 ($4,225/$312) b. RadioShack’s fixed asset turnover ratio of 13.54 is higher than Best Buy’s fixed asset turnover ratio of 12.04. Thus, RadioShack is generating $1.50 ($13.54 – $12.04) more revenue for each dollar of fixed assets than is Best Buy. On this basis, RadioShack is managing its fixed assets slightly more  efficiently than is Best Buy.

A printing press priced at a fair market value of $400,000 is acquired in a transaction that has commercial substance by trading in a similar press and paying cash for the difference between the trade-in allowance and the price of the new press. a. Assuming that the trade-in allowance is $175,000, what is the amount of cash given? b. Assuming that the book value of the press traded in is $160,000, what is the gain or loss on the exchange? Answer: a. Price (fair market value) of new equipment ............................... $400,000 Trade-in allowance of old equipment .........................................  175,000 Cash paid on the date of exchange ............................................ $225,000 b. Price (fair market value) of new equipment.........................  $400,000 Less assets given up in exchange:   Book value of old equipment.............................. $160,000   Cash paid on the exchange..................................  225,000  38...

Verizon Communications is a major telecommunications company in the United States. Verizon’s balance sheet disclosed the following information regarding fixed assets: Dec. 31, 2009 (in millions) Dec. 31, 2008 (in millions) Plant, property, and equipment $228,518 $215,605 Less accumulated depreciation 137,052 129,059 $   91,466 $   86,546 Verizon’s revenue for 2009 was $107,808 million. The fixed asset turnover for the telecommunications industry averages 1.10. a. Determine Verizon’s fixed asset turnover ratio. Round to two decimal places. b. Interpret Verizon’s fixed asset turnover ratio. Answer: a. Fixed Asset Turnover Ratio =  AssetsFixedofValueBookAverage Revenue      Fixed Asset Turnover Ratio =  $86,546)/2 + ($91,466 $107,808    Fixed Asset Turnover Ratio = 1.21    b. Verizon earns $1.21 revenue for every dollar of fixed assets. This is a low fixed asset turnover ratio, reflecting the high fixed asset intensity in a telecommuni...

List the errors you find in the following partial balance sheet: Contours Company Balance Sheet December 31, 2012 Assets Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $350,000 Replacement Cost Accumulated Depreciation Book Value Property, plant, and equipment: Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,000 $   25,000 $   75,000  Buildings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256,000 90,000 166,000  Factory equipment  . . . . . . . . . . . . . . . . . . . . . . . . . . 297,000 110,000 187,000  Office equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,000 48,000 24,000  Patents  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,000 — 48,000  Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...

Apple Computer, Inc., designs, manufactures, and markets personal computers and related software. Apple also manufactures and distributes music players (iPod) and mobile phones (iPhone) along with related accessories and services including online distribution of thirdparty music, videos, and applications. The following information was taken from a recent annual report of Apple: Property, Plant, and Equipment (in millions): Current Year Preceding Year Land and buildings $    955 $    810 Machinery, equipment, and internal-use software 1,932 1,491 Offi  ce furniture and equipment 115 122 Other fi xed assets related to leases 1,665 1,324 Accumulated depreciation and amortization 1,713 1,292 a. Compute the book value of the fixed assets for the current year and the preceding year and explain the differences, if any. b. Would you normally expect the book value of fixed assets to increase or decrease during the year? Answer: a. Property, Plant, and Equipment (in milli...

Greenleaf Company acquired patent rights on January 6, 2009, for $300,000. The patent has a useful life equal to its legal life of 12 years. On January 3, 2012, Greenleaf successfully defended the patent in a lawsuit at a cost of $72,000. a. Determine the patent amortization expense for the current year ended December 31, 2012. b. Journalize the adjusting entry to recognize the amortization. Answer: a. ($300,000/12) + ($72,000/9) = $33,000 total patent expense b. Amortization Expense—Patents .................................. 33,000 Patents.................................................  33,000     Amortized patent rights ($25,000 + $8,000).

Equipment acquired on January 4, 2009, at a cost of $425,000, has an estimated useful life of nine years and an estimated residual value of $65,000. a. What was the annual amount of depreciation for the years 2009, 2010, and 2011, using the straight-line method of depreciation? b. What was the book value of the equipment on January 1, 2012? c. Assuming that the equipment was sold on January 9, 2012, for $290,000, journalize the entry to record the sale. d. Assuming that the equipment had been sold on January 9, 2012, for $310,000 instead of $290,000, journalize the entry to record the sale. Answer: a. 2009 depreciation expense: $40,000 [($425,000 – $65,000)/9] 2010 depreciation expense: $40,000 2011 depreciation expense: $40,000 b. $305,000 [$425,000 – ($40,000 × 3)] c. Cash...................................................290,000 Accumulated Depreciation—Equipment ..................... 120,000 Loss on Disposal of Fixed Assets ..................... 15,000     Equipmen...

Ashwood Mining Co. acquired mineral rights for $15,000,000. The mineral deposit is estimated at 120,000,000 tons. During the current year, 24,000,000 tons were mined and sold. a. Determine the amount of depletion expense for the current year. b. Journalize the adjusting entry to recognize the depletion expense. Answer: a. $15,000,000/120,000,000 tons = $0.125 depletion per ton 24,000,000 × $0.125 = $3,000,000 depletion expense b. Depletion Expense......................................................... 3,000,000     Accumulated Depletion ...........................................  3,000,000   Depletion of mineral deposit.

Viking Company purchased and installed carpet in its new general offices on June 30 for a total cost of $15,000. The carpet is estimated to have a 12-year useful life and no residual value. a. Prepare the journal entries necessary for recording the purchase of the new carpet. b. Record the December 31 adjusting entry for the partial-year depreciation expense for the carpet, assuming that Viking Company uses the straight-line method. Answer: a. June 30 Carpet............................................................ 15,000       Cash.........................................................  15,000 b. Dec. 31 Depreciation Expense.................................. 625       Accumulated Depreciation.....................  625       Carpet depreciation  [($15,000/12 years) × 1/2].

Equipment acquired on January 5, 2009, at a cost of $380,000, has an estimated useful life of 16 years, has an estimated residual value of $40,000, and is depreciated by the straight-line method. a. What was the book value of the equipment at December 31, 2012, the end of the year? b. Assuming that the equipment was sold on July 1, 2013, for $270,000, journalize the entries to record (1) depreciation for the six months until the sale date, and (2) the sale of the equipment. Answer: a. Cost of equipment....................................................................  $380,000   Accumulated depreciation at December 31, 2012   (4 years at $21,250* per year).............................................   85,000 Book value at December 31, 2010...........................................  $295,000  *($380,000 – $40,000)/16 = $21,250 b. (1) Depreciation Expense—Equipment ...................... 10,625     Accumulated Depreciation—Equipment............

Sandblasting equipment acquired at a cost of $64,000 has an estimated residual value of $4,000 and an estimated useful life of eight years. It was placed in service on April 1 of the current fiscal year, which ends on December 31. Determine the depreciation for the current fiscal year and for the following fiscal year by (a) the straight-line method and (b) the double-declining-balance method. Answer: a. Year 1: 9/12 × [($64,000 – $4,000)/8] = $5,625    Year 2: ($64,000 – $4,000)/8 = $7,500 b. Year 1: 9/12 × 25% of $64,000 = $12,000    Year 2: 25% of ($64,000 – $12,000) = $13,000

A building with a cost of $900,000 has an estimated residual value of $250,000, has an estimated useful life of 40 years, and is depreciated by the straight-line method. (a) What is the amount of the annual depreciation? (b) What is the book value at the end of the twenty-fourth year of use? (c) If at the start of the twenty-fifth year it is estimated that the remaining life is nine years and that the residual value is $240,000, what is the depreciation expense for each of the remaining nine years? Answer: a. $16,250 [($900,000 – $250,000)/40] b. $510,000 [$900,000 – ($16,250 × 24 yrs.)] c. $30,000 [($510,000 – $240,000)/9 yrs.]

Prior to adjustment at the end of the year, the balance in Trucks is $275,900 and the balance in Accumulated Depreciation—Trucks is $91,350. Details of the subsidiary ledger are as follows: Truck No. Cost Estimated Residual Value Estimated Useful Life Accumulated Depreciation at Beginning of Year Miles Operated During Year 1 $75,000 $15,000 200,000 miles — 19,500 miles 2 38,000 3,000 200,000 $ 8,050 36,000 3 72,900 9,900 300,000 60,900 25,000 4 90,000 20,000 250,000 22,400 26,000 a. Determine the depreciation rates per mile and the amount to be credited to the accumulated depreciation section of each of the subsidiary accounts for the miles operated during the current year. b. Journalize the entry to record depreciation for the year. Answer: a. Depreciation per Rate per Mile: Truck #1 ($75,000 – $15,000)/200,000 = $0.30 Truck #2 ($38,000 – $3,000)/200,000 = $0.175 Truck #3 ($72,900 – $9,900)/300,000 = $0.21 Truck #4 ($90,000 – $20,000)/250,000 = $0.28        Cred...

A Kubota tractor acquired on January 9 at a cost of $80,000 has an estimated useful life of 25 years. Assuming that it will have no residual value, determine the depreciation for each of the first two years (a) by the straight-line method and (b) by the double-decliningbalance method. Answer: First Year  Second Year   a. 4% of $80,000 = $3,200    4% of $80,000 = $3,200    or                                         or   ($80,000/25) = $3,200              ($80,000/25) = $3,200   b. 8% of $80,000 = $6,400 8% of ($80,000 – $6,400) = $5,888

A storage tank acquired at the beginning of the fiscal year at a cost of $344,000 has an estimated residual value of $50,000 and an estimated useful life of 16 years. Determine the following: (a) the amount of annual depreciation by the straight-line method and (b) the amount of depreciation for the first and second years computed by the doubledeclining-balance method. Answer: a. 6 1/4% of ($344,000 – $50,000) = $18,375 or [($344,000 – $50,000)/16] b. Year 1: 12.5% of $344,000 = $43,000    Year 2: 12.5% of ($344,000 – $43,000) = $37,625

Convert each of the following estimates of useful life to a straight-line depreciation rate, stated as a percentage: (a) 4 years, (b) 8 years, (c) 10 years, (d) 16 years, (e) 25 years, (f) 40 years, (g) 50 years. Answer: (a) 25% (1/4), (b) 12.5% (1/8), (c) 10% (1/10), (d) 6.25% (1/16), (e) 4% (1/25), (f) 2.5% (1/40), (g) 2% (1/50)

A refrigerator used by a meat processor has a cost of $120,000, an estimated residual value of $14,000, and an estimated useful life of 16 years. What is the amount of the annual depreciation computed by the straight-line method? Answer: $6,625 [($120,000 – $14,000)/16]

A diesel-powered tractor with a cost of $185,000 and estimated residual value of $37,000 is expected to have a useful operating life of 40,000 hours. During February, the generator was operated 140 hours. Determine the depreciation for the month. Answer: ($185,000 - $37,000)/40,000 hours = $3.70 depreciation per hour 140 hours at $3.70 = $518 depreciation for February

Aubrey Seagars owns and operates Diamond Transport Co. During the past year, Aubrey incurred the following costs related to an 18-wheel truck: 1. Installed a television in the sleeping compartment of the truck. 2. Replaced the old radar detector with a newer model that is fastened to the truck with a locking device that prevents its removal. 3. Installed a wind deflector on top of the cab to increase fuel mileage. 4. Modified the factory-installed turbo charger with a special-order kit designed to add 50 more horsepower to the engine performance. 5. Replaced a headlight that had burned out. 6. Replaced the hydraulic brake system that had begun to fail during his latest trip through the Rocky Mountains. 7. Changed engine oil. 8. Replaced a shock absorber that had worn out. 9. Replaced fog and cab light bulbs. 10. Removed the old CB radio and replaced it with a newer model with a greater range. Classify each of the costs as a capital expenditure or a revenue expenditure. Answer: Capital ...