ACC* - Accounting ACC* M115 Lecture Notes - Lecture 31: Illus

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redminnow421

5 Oct 2020

School

CCC

Department

ACC* - Accounting

Course

ACC* - Accounting ACC* M115

Professor

Murphy

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Document Summary

Financial accounting: factors in computing depreciation 3 factors, cost, useful life: is estimate of expected productive life. Once method is chosen it should be applied consistently. 100,000 miles: straight-line method: depreciation is the same for each year of the asset"s useful life. Depreciable cost useful life = annual depreciation expense. You can also compute an annual rate 20% (100% 5 years). Under straight-line annual depreciation is the same each year and the book value (bv) at the end of the useful life equals salvage value. If the asset is purchased during the year it is necessary to prorate the annual depreciation. It is simple and matches expenses with revenues when the use of the asset is reasonably uniform throughout the service life. expected from the asset. Method works well for factory machinery, delivery trucks. Not suitable for buildings or furniture, they depreciate with passage of time.

Related Questions

Your company has recently decided to change its method ofdepreciating long-term assets to be consistent with majorcompetitors. Your company has always used the straight-line methodwhile most other companies in the industry use a declining-balancemethod. Preliminary computations indicate that changing thisaccounting principle will reduce Earnings per Share by about 10% inthe current year. Naturally, those to whom you report would like toknow if there is any way to lessen the impact of this change.

You know that other factors in computing depreciation expenseare the estimates of useful life and salvage value. You reason thatif the estimated useful life of long-term assets is reassessed withminor modifications to the estimated lives, then switching thedepreciation method will not decrease net income this period.

1) Can the plan of reassessing the estimated lives of long-termassets achieve the desired result of allowing the company to changedepreciation accounting methods to a declining-balance methodwithout reducing net income this period?

2) Will the company have a higher cash inflow as a result ofeither the change in principle or the change in estimate?

3) Should the level of a companyâs income determine theaccounting methods that it uses and the accounting estimates thatit makes? Why or why not?

QUESTION 1 Which of the following is considered in computing depreciation expense using the straight-line method? A. Net income of the company B. Balance in accumulated depreciation C. Asset's fair value D. Cost of inventory produced by equipment E. Asset's historical cost

QUESTION 2 Which of the following methods of depreciation allocates an equal expense to each period in which the asset is used to generate revenue? A. The sum-of-years' digits method B. The units-of-production method C. The double-declining balance method D. The straight-line method E. The activity depreciation method

QUESTION 3 What type of an account is accumulated depreciation? A. Expense B. Equity C. Loss D. Liability E. Contra asset

4 Which of the following accounting principles dictates that an asset's cost should be expensed over its useful life? A. Matching B. Revenue recognition C. Going concern D. Conservatism E. Consistency 1

QUESTION 5 Opine Company uses the double-declining-balance method of depreciation. It purchases a building with a cost of $560,000, a salvage value of $32,000 and a useful life of 16 years. What is the depreciation expense for the second year? A. $61,250 B. $60,000 C. $57,750 D. $70,000 E. $66,000

QUESTION 6 Clark Company acquired a desk for $500. The estimated salvage value is $50 and the estimated life is 5 years. What journal entry should Clark make to record depreciation expense? A. Depreciation Expense 100 Desk 100 B. Depreciation Expense 90 Desk 90 C. Accumulated Depreciation 90 Depreciation Expense 90 D. Depreciation Expense 90 Accumulated Depreciation 90 E. Depreciation Expense 100 Accumulated Depreciation 100

QUESTION 7 Jacobs Company estimates that its new equipment will last 6 years and have a residual value of $3,000. The original cost of the equipment was $39,000. What would be the balance in the accumulated depreciation account at the end of year 4? A. $0 B. $26,000 C. $24,000 D. $39,000 E. $6,000

QUESTION 18 Which of the following accounts will be shown on the balance sheet with accumulated depreciation account? A. Building B. Prepaid rent C. Cash D. Land E. Goodwill

coralhippopotamus930

I need the following events entered into a general journal.

Thank you.

(1) Kevin and Gloria got together with thedocumentation and began to review the long-term asset activities.On January 15, 20x7, the company disposed of a stamping machine.The machine was originally purchased on January 15, 20x0 for$84,000. The machine was estimated to have a useful life of 10years with a zero salvage value. (Note: Gray & Greene use astraight-line method of depreciation for all long-term assetsunless otherwise noted.) No effort was made to sell or trade themachine because the machine was broken beyond repair. $100 was alsopaid to a salvage company to disassemble and remove the machinefrom the plant.

(2) The next activity occurred on February 1,20x7. A molding machine was purchased for $247,000. The machinecost an additional $10,000 to have it shipped to the plant. Once onlocation, the company had $5,000 in installation and operatingcosts before the machine was ready to begin full operation. Twoemployees went to a one-day training school to learn how to operatethe new machine at a cost of $1,400. The molding machine has an8-year useful life and a salvage value of $22,000. Thecompany paid cash for the shipping, installation, and trainingcharges plus $25,000 for the machine. The balance due on themachine was set up with a note payable.

(3) On March 1, 20x7, a cutting machine wastraded in for a similar new computerized cutting machine. The oldmachine, which originally cost $130,000, had been at the companysince January 1, 20x1 and had 1 year and 10 months of useful liferemaining. The salvage value of the old machine was estimated at$10,000, but the company received $36,000 as a trade in value. Thenew machine cost $280,000, which included delivery andinstallation. The new machine has an expected life of 10 years atwhich time it could probably be sold for $40,000. The company madea down payment of $20,000 and signed a five year note payable forthe balance due.

(4) April 1, 20x7 a pressing machine was soldfor $71,000. It originally cost $185,000 and had a book value onDecember 31, 20x6 of $72,500. The annual depreciation for thismachine was $18,000. The machine was expected to have a $5,000salvage value in about four years.

(5) To celebrate April 15, 20x7, the companyacquired a new utility van, which would be used to pick up anddeliver parts to customers and suppliers in the immediate vicinity.The van has a sticker price of $37,595, but the company was able tosecure the vehicle for $35,000. The van will probably have a usefullife of 5 years with a book value of $5,000 at the end of thattime. The company paid $7,000 and signed a 3 year note for thebalance due.

(6) On May 1, 20x7 an old pressing machine wastraded in for a new computerized processing machine. These machineswere used on different production lines and considered asdissimilar equipment. The old pressing machine cost $157,000 whenit was purchased on May 1, 20x3 and had a useful life of 8 yearswith a salvage value of $13,000. A $90,000 trade-in allowance wasgiven for the pressing machine. The new processing machine had alist price of $350,000, but only cost the company $260,000 afterthe trade-in. The new machine had a nine-year useful life with a$26,000 salvage value. The company paid $52,000 down and signed anote payable for the balance due.

(7) August 1, 20x7 the company had to completea major overhaul on an assembly machine. The machine had beenpurchased for $430,000 on August 1, 20x2. The machine was expectedto last for 12 years with a $70,000 salvage value. If the repairshad not been completed, the machine would not function efficientlyin the company and would have to be disposed for its parts, whichwould have brought the company about $30,000. The cost of therepairs was $33,000, but the overhaul was expected to add 2 yearsonto the remaining life of the machine. The repairs were paid forin cash.

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ACC* - Accounting ACC* M115 Lecture Notes - Lecture 31: Illus

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