Accounting

Question 9 2 points Save
Covey Company purchased a machine on January 1, 2008, by paying cash of $250,000. The machine has an estimated useful life of five years (or the production of 500,000 units) and an estimated residual value of $25,000. Required: A. Determine depreciation expense (to the nearest dollar) and book value for each year of the machine’s useful life under (1.) straight-line depreciation; and (2.) the 200% declining balance method. B. If the machine was used to produce and sell 120,000 units in 2008, what would the depreciation expense be under the units of production method?
Question 9 answers
Question 10 text Question 10 2 points Save
A company purchased equipment for $800,000 and has depreciated it using the straight-line method for the past 5 years when its original life was estimated to be 10 years with a $200,000 residual value. The equipment’s utility to the company has declined because they expect it to generate a net cash flow over the remaining years of $200,000 from its operation. If the asset has been impaired, record the journal entry to recognize the loss.

Question 11-

Accounting for Inventory ( put a link for the article to support your answer )

One of the primary differences between US GAAP and international accounting standards is the use of LIFO is permitted for US companies.

How does LIFO affect a company’s financial results?

In your opinion, should LIFO be a permitted inventory costing methods?

Why might companies that currently use LIFO oppose its elimination?

Problem 1

The following is a list of account titles and amounts (in millions) from a recent company annual report:

Buildings and improvements $ 182 Goodwill $ 324
Prepaid expenses 135 Machinery and equipment 521
Allowance for Doubtful Accounts 41 Accumulated Depreciation 382
Other noncurrent assets 248 Inventory 421
Accumulated amortization 800 Other intangibles 1,452
Cash and cash equivalents 710 Accounts receivable 685

Required:

Prepare the asset section of the balance sheet for this company, classifying assets into Current Assets, Property, Plant and Equipment (net), and Other Assets.
Problem 2

Assume that a company sold a delivery van that had been used in the business for three years. Records of the company related to the van reflect the following:

Delivery van cost $42,500

Accumulated Depreciation 25,200

Required:

  1. Prepare the required journal entry to record disposal of the van, assuming the following sales amounts for cash:
    1. $17,300
    2. $20,500
    3. $15,800
  2. Based on the situation above, explain the effects of the disposal of an asset on the company’s financial statements.

Problem 3

At the beginning of the year, a company bought three new machines for its production facilities. The machines were all different so each had to be recorded separately. Below are the costs related to each purchase.

Machine A Machine B Machine C
Amount paid for the machine 14,000 28,500 11,200
Installation cost 600 1,000 400
Delivery cost 600 800 600
Insurance cost 450 600 400

At the end of the first year, each machine had been operated 5,200 hours

Required:

  1. Compute the cost of each machine.
  2. Prepare the journal entry to record depreciation expense at the end of year 1, assuming the following:
Machine Life Residual Value Depreciation Method
A 6 years 1,000 Straight-line
B 50,000 hours 2,000 Units-of-production
C 5 years 1,000 Double-declining-balance

Problem 4

You are a financial analyst for your company and have been asked to determine the impact of various depreciation methods on the company’s financial statements. Your analysis is based on a machine costing $110,000 with an estimated useful life of 12 years and an estimated residual value of $8,000. The machine also has an estimated useful life in output of 220,000 units. Actual output was 21,000 units in year 1 and 15,000 units in year 2.

Required:

  1. For years 1 and 2, prepare depreciation schedules (round all results to the nearest dollar) for the asset assuming:
    1. Straight-line method
    2. Units-of-production method
    3. Double-declining-balance method
Year Computation Depreciation Expense Accumulated Depreciation Net Book Value
Straight-line:
Acquisition
Year 1
Year 2
Units-of-production:
Acquisition
Year 1
Year 2
Double-declining-balance:
Acquisition
Year 1
Year 2
  1. Evaluate each method in terms of its effect on cash flows, fixed asset turnover, and earnings per share. Assuming that the company is most interested in maintaining a high EPS during year 1 and 2, which method would you recommend? Assuming that the company is most interested in reducing taxes during year 1 and 2, which method would you recommend?
Question 9 text Question 9 2 points Save
On January 1, 2009, Clintwood Corporation issued a $1,000, ten-year, 10% bond payable (interest payable each December 31). For the three assumptions below, provide the following information assuming the accounting year ends December 31, and straight-line amortization is used:

Assumption A – Bonds issued at 100
Assumption B – Bonds issued at 96
Assumption C – Bonds issued at 104

@100 @96 @104
Cash Received at Issuance
Interest Expense for 2009
Net bond carrying value on December 31, 2010
Question 9 answers
Question 10 text Question 10 2 points Save
On January 1, 2009, Schultz Corporation issued $100,000 of its ten-year, 6% bonds payable at $98,000. The bonds were dated January 1, 2009, and interest is paid each December 31. A. Give the entry for the sale of the bonds. B. Give the entry to record the first interest payment. Assume straight-line amortization.

Question 11 –

Allocating the Cost of Long-Lived Assets ( put a link for the article to support your answer )

As you have seen, companies sometimes have choices in financial accounting. In this module, you have learned of three widely

used depreciation methods that can be used. Discuss why these choices exist.

Would it be possible to force all companies to use one depreciation method? Why or why not?

Problem 1

Assume the following transactions occurred during the year. The annual accounting period ends on December 31.

Jan. 15 Purchased and paid for merchandise for resale at an invoice cost of $15,600. A periodic inventory system is used.
Apr. 1 Borrowed $800,000 from a bank for general use, executing a one-year, 5% note payable
June 14 Received a $12,000 customer deposit for services to be performed in the future.
July 15 Performed $4,250 of the services paid for on June 14.
Dec. 15 Received an electric bill for $25,680. The bill will be paid in early January.
Dec. 31 Determined wages owed to employees to be $13,500 that will be paid on January 2.

Required:

  1. Prepare journal entries for each of the transactions listed.
  2. Prepare any required adjusting entries on December 31.

Problem 2

On January 1, a company completed the following transactions.

  1. Borrowed $100,000 for six years. Interest payments of $6,200 will be due at the end of each year and the $100,000 will be repaid at the end of the sixth year.
  2. Established a plant fund of $390,000 to be available at the end of year seven. A single amount will be deposited today to grow to $390,000.
  3. Agreed to a buyout package for a former executive. The company will pay $80,000 at the end of the first year; $120,000 at the end of the second year; and $165,000 at the end of the third year.

Required (assume a 6% annual rate for all transactions and round to the nearest dollar):

  1. For transaction a, determine the present value of the debt.
  2. For transaction b, determine the amount that must be deposited on January 1. How much interest revenue will be earned over the six years?
  3. For transaction c, determine the present value of the obligation.

Problem 3

A company issued a $50,000 four-year, 4% bond on January 1. Bond interest is paid each December 31. The bond was sold to yield 5%.

Required:

Complete a bond amortization schedule for the life of the bond using the effective interest method.
Problem 4

A company with an annual accounting year ending on December 31 issued bonds on January 1 in the amount of $500,000 maturing in 10 years with interest payable each June 30 and December 31 at a 6% annual rate. The company uses straight-line amortization for any bond discounts or premiums.

Required:

Provide the following amounts to be reported in the company financial statements at the end of year one under each scenario.

Issued at Par Issued at 99 Issued at 102
Interest expense
Bonds payable
Unamortized premium or discount
Net bond liability
Cash interest paid

Problem 5

A corporation was formed on January 1 and was authorized to issue 400,000 shares of common stock at $2 par value. During the first year of operations, the company earned $325,000 and the following transactions occurred:

  1. Sold 150,000 shares of common stock in an initial public offering of $15 per share
  2. Repurchased 35,000 shares of previously common stock at $20 to be held as treasury shares.
  3. Resold 5,000 of the treasury stock at $22 per share.
  4. Market price of the outstanding shares on December 31 was $25

Required:

Prepare the stockholders’ equity section of the balance sheet at December 31 of the first year.