ACTG 2P31 Lecture Notes - Lecture 2: Capital Cost Allowance
Get access
Related Questions
Question 1Acompany purchased for cash a machine with a list price of $90,000.The machine was shipped FOB shipping point at a cost of $5,000.Installation and test runs of the machine cost $3,000. Therecorded acquisition costof the machine is whichamount?
1 | $98,000 |
2 | $128,000 |
3 | $90,000 |
4 | $93,000 |
Question 2Small, ordinary repairs made to keepa truck running over its useful life have been debited to theVehicles account. As a result of this, which of the followingoccurred?
1 | The balance in the Vehicles account was correctly stated. |
2 | The balance in the Vehicles account was overstated. |
3 | The expenses for the period were overstated. |
4 | The net income for the period was understated. |
Question 3 Whatis the annual straight-linedepreciation for an asset thatcost $34,600, has an estimated service life of 8 years, and anestimated salvage valueof $1,400?
1 | $4,150 |
2 | $1,450 |
3 | $4,325 |
4 | $4,500 |
Question 4An asset cost $50,000, has anestimated salvage valueof $1,500, and an estimated usefullife of 8 years. What is thedouble-declining-balance depreciationrate?
1 | 20.0% |
2 | 25.0% |
3 | 16.0% |
4 | 32.5% |
Question 5An asset having a four-year servicelife and a salvage valueof $5,000 was acquired for $45,000cash on June 20. Ignore the half-year convention and calculate the depreciation expense at the end of the first year, December 31?
1 | $10,000, under the straight-line method |
2 | $22,500, under the double-declining-balance method |
3 | $7,000, under the straight-line method |
4 | $11,250, under the double-declining-balance method |
Question 6 Publicly traded companies can use adepreciation method that does not conform to generallyaccepted accounting principles but is based on a declining-balancemethod. What is the name of this accelerated depreciation method?
1 | Asset Cost Recovery Statement |
2 | Asset Cost Recognition System |
3 | Modified Accelerated Cost Recovery System |
4 | Accelerated Cost Recovery System |
Question 7 OnJune 28, 2011, a business sold for$1,500 a plant assetthat cost $5,000.The asset had a 5-year useful life, nosalvage value, and had been used by the business sinceJanuary 1, 2008. Straight-linedepreciation was used. Thefiscal year ends on December 31. What was the result of selling theplant asset?
1 | No gain or loss on the disposal of plant assets |
2 | A $1,000 gain on the disposal of plant assets |
3 | A $500 loss on the disposal of plant assets |
4 | A $500 unrecognized gain on the sale of a plant asset. |
Question 8Your company currently is generatingnormal earnings that are equal to a 12% return on net identifiable assets of $450,000. A comparable company is generatingnormal earnings that are equal to 10% return on net identifiableassets of $450,000. What is the estimated goodwill ofyour company, when compared to the other company?
1 | $90,000 |
2 | $45,000 |
3 | $9,000 |
4 | $15,000 |
Question 9The Baker Mining Company acquired aniron ore deposit for $2,000,000. The company's geologist estimatedthe deposit to contain 1,500,000 tons of iron ore. At the end ofthe first year, 60,000 tons had been extracted. The end-of-yearjournal entry to record thedepletion of the iron ore wouldinclude which of the following?
1 | A credit to Iron Ore Inventory of $45,000 |
2 | A credit to Accumulated Depletion of $80,000 |
3 | A debit to Iron Ore Inventory of $50,000 |
4 | None the above, until all of the ore is extracted |
Question 10 Which of the following are investing activities?
1 | Selling a plant asset |
2 | Exchanging an old asset and cash for a new plant asset |
3 | Depreciating or amortizing an asset |
4 | Both (A) and (B) |
Ace Lawn Care Module 5 Mini PracticeProblem
In June, Jim made several purchases to accommodate his growingbusiness.
June2 Jim purchased a storage location for lawn care equipment, paid$45,000 for a building on 1 acre. The land is appraised at $8,000.The building has an estimated life of 10 years with a $5,000salvage value. Jim paid $2,000 down and financed the remainingpurchase price with a 5% 5 year note.
June4 Jim purchased a trailer to haul lawn care equipment for $2,300;estimated life is 5 years with no salvage value. Jim paid for thepurchase in cash.
June5 Jim purchased a gas powered trimmer for $1,200 and a commercialleaf-blower for $1,500. Jim estimates they will each have a twoyear life and no salvage value. Jim paid for both of these piecesof equipment on account.
These are in addition to the three assets Jim acquired inMay:
Date Item Cost Estimated Life Salvage Value
May 2 Truck $7,000 5 years $500
5 LawnMower $300 2 years $0
5 Aerator $500 2years $0
Depreciation was recorded in May for these assets using thestraight-line method however Jim is considering other depreciationmethods and has asked you to prepare a comparison of thestraight-line method with the double declining balance (200% DDB)method before he decides.
Instructions:
Using the chart of accounts provided below and the Exceltemplate provided with this assignment, record the transactions forthe new assets purchased in June, 2014. Start with Page7 for the journal entries. Explanations are optional.
Prepare a monthly schedule of depreciation for each of the sevenassets for 2014 using 1) straight-line and 2) 200% DDB. (Assumeassets purchased before the 15th of the month will bedepreciated as if owned for the entire month). Remember that youare calculating monthly depreciation, not annual and adjust yourdepreciation rate. Carry your depreciation rate to four decimalsand round the depreciation expense to two decimals.
Jim has decided that equipment will be depreciated usingstraight-line and the building using 200% DDB. Prepare theadjusting journal entries for depreciation for the month of June,2014. Start with Page 8 for the adjusting journalentries. Explanations are optional.
Ace Lawn Care
Chart of Accounts
Classification | Account Number | Account Name |
---|---|---|
ASSETS | 101 | Cash |
110 | Accounts Receivable | |
112 | Allowance for Doubtful Accounts | |
115 | Notes Receivable | |
116 | Interest Receivable | |
120 | Supplies | |
130 | Prepaid Insurance | |
140 | Inventory | |
150 | Equipment | |
152 | Land | |
153 | Building | |
155 | Accumulated Depreciation â Equipment | |
156 | Accumulated Depreciation - Building | |
LIABILITIES | 201 | Accounts Payable |
220 | Notes Payable | |
225 | Interest Payable | |
OWNERâS EQUITY | 301 | Ownerâs Capital |
305 | Ownerâs Drawings | |
310 | Income Summary | |
REVENUES | 401 | Lawn Service Revenue |
410 | Sales Revenue | |
415 | Sales Returns and Allowances | |
420 | Interest Income | |
COST OF GOODS SOLD | 501 | Purchases |
505 | Purchase Returns and Allowances | |
EXPENSES | 620 | Supplies Expense |
630 | Fuel Expense | |
640 | Repair and Maintenance Expense | |
650 | Advertising Expense | |
660 | Insurance Expense | |
670 | Depreciation Expense | |
680 | Interest Expense | |
690 | Bad Debt Expense | |
695 | Miscellaneous Expense |
Asset Information: Truck, $7,000 cost, 5 year life, $500salvage value | ||||||
Computation | End of Year | |||||
Month | Depreciable | Depreciation | = | Monthly | Accumulated | Book |
May-14 | ||||||
Jun-14 | ||||||
Jul-14 | ||||||
Aug-14 | ||||||
Sep-14 | ||||||
Oct-14 | ||||||
Nov-14 | ||||||
Dec-14 | ||||||
Asset Information: Lawn Mower, $300 cost, 2 year life,$0 salvage value | ||||||
Computation | End of Year | |||||
Month | Depreciable | Depreciation | = | Monthly | Accumulated | Book |
May-14 | ||||||
Jun-14 | ||||||
Jul-14 | ||||||
Aug-14 | ||||||
Sep-14 | ||||||
Oct-14 | ||||||
Nov-14 | ||||||
Dec-14 | ||||||
Asset Information: Aerator, $500 cost, 2 year life, $0salvage value | ||||||
Computation | End of Year | |||||
Month | Depreciable | Depreciation | = | Monthly | Accumulated | Book |
May-14 | ||||||
Jun-14 | ||||||
Jul-14 | ||||||
Aug-14 | ||||||
Sep-14 | ||||||
Oct-14 | ||||||
Nov-14 | ||||||
Dec-14 | ||||||
Asset Information: Building, $37,000 cost, 10 year life,$5,000 salvage value | ||||||
Computation | End of Year | |||||
Month | Depreciable | Depreciation | = | Monthly | Accumulated | Book |
Jun-14 | ||||||
Jul-14 | ||||||
Aug-14 | ||||||
Sep-14 | ||||||
Oct-14 | ||||||
Nov-14 | ||||||
Dec-14 | ||||||
Asset Information: Trailer, $2,300 cost, 5 year life, $0salvage value | ||||||
Computation | End of Year | |||||
Month | Depreciable | Depreciation | = | Monthly | Accumulated | Book |
Jun-14 | ||||||
Jul-14 | ||||||
Aug-14 | ||||||
Sep-14 | ||||||
Oct-14 | ||||||
Nov-14 | ||||||
Dec-14 | ||||||
Asset Information: Trimmer, $1,200 cost, 2 year life, $0salvage value | ||||||
Computation | End of Year | |||||
Month | Depreciable | Depreciation | = | Monthly | Accumulated | Book |
Jun-14 | ||||||
Jul-14 | ||||||
Aug-14 | ||||||
Sep-14 | ||||||
Oct-14 | ||||||
Nov-14 | ||||||
Dec-14 | ||||||
Asset Information: Leaf Blower, $1,500 cost, 2 yearlife, $0 salvage value | ||||||
Computation | End of Year | |||||
Month | Depreciable | Depreciation | = | Monthly | Accumulated | Book |
Jun-14 | ||||||
Jul-14 | ||||||
Aug-14 | ||||||
Sep-14 | ||||||
Oct-14 | ||||||
Nov-14 | ||||||
Dec-14 |