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Cheyenne Company purchased a machine on January 1, 2013, for$65,000. The estimated life is 8 years and the estimated salvagevalue is $5,000. The machine has an estimated service life of48,000 hours. In 2013, 6,900 hours were used. REQUIRED: Compute thedepreciation to be recorded for the year ending December 31, 2013using the: Straight-line method Production hours method Sum-of-theyears' digits method Double-declining balance method B. Presentedbelow is information related to equipment owned by Swiss Company atDecember 31, 2013: Cost $9,000,000 Acc. depreciation to date1,000,000 Expected undiscounted future cash flows 7,000,000 FairValue 4,800,000 Assume that Swiss Company will continue to use theasset in the future. As of December 31, 2013, the equipment has aremaining useful life of 4 years and Swiss uses the straight linemethod of depreciation. REQUIRED: Prepare the journal entry torecord the impairment at December 31, 2013. Prepare the journalentry to record depreciation expense for 2014. Prepare the journalentry (if any) necessary to record the increase in fair value to$5,100,000 as of December 31, 2014. Would your answer to (3) bedifferent if Swiss intended to dispose of the equipment rather thanuse it in the future?

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Beverley Smith
Beverley SmithLv2
28 Sep 2019

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On January 1, 2012, JacksonCompany purchased factory equipment priced at $55,000. Sales tax was an additional 6%, and the company spent $4,000 toinstall the machinery. After the company began using the machine(placed in service), there were additional costs of $800 forinsurance and $1,200 for maintenance.

The estimated useful life ofthe machine was five years and residual value was expected to be$6,300. The equipment is expected toproduce 200,000 units during its useful life.

Required:

1. At whatamount should Jackson record the purchase of themachine?

$____________

What is the appropriate treatment for the maintenance andinsurance?

(i.e., Are they capital orrevenue expenditures? Check one. Do they belong on the incomestatement or the balance sheet? Check one.)

Capital expenditure ____ Balance Sheet ____

Revenue expenditure____ Income Statement ____

2. Prepare thejournal entry to record depreciation for 2012, assuming the companyuses the straight-line method. .

_________________________________________________________

_________________________________________________________

Computation:

3. Computedepreciation for 2012, assuming the company uses the units of production method. The equipment produced30,000 units in 2012.

$_____________


4. Compute depreciation for 2012 AND 2013, assuming the company usesthe double-declining balancemethod. .

2012: $_____________

2013: $_____________

5. Assume that thecompany chose straight-line (as you did in#2). On March 31, 2014, Jackson sold theequipment for $35,000 in cash. Notice that the sale didnot occur on December 31!

a. What was the accumulated depreciation of this equipment on thedate

of sale?

$_____________

b. What was the book value on the date of sale?

$_____________

c. What was the gain/loss on sale?

Gain Loss $______________

(Circle one)

Prepare the journal entry torecord the sale:

_______________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

On January 1, 2012, JacksonCompany purchased factory equipment priced at$55,000. Sales tax was an additional 6%,and the company spent $4,000 to install the machinery. After thecompany began using the machine (placed in service), there wereadditional costs of $800 for insurance and $1,200 formaintenance.

The estimated useful life ofthe machine was five years and residual value was expected to be$6,300. The equipment is expected to produce 200,000 units duringits useful life.

Required:

1. At what amount should Jackson record the purchase of themachine?

$____________

What is the appropriate treatment for the maintenance andinsurance?

(i.e., Are they capital orrevenue expenditures? Check one. Do they belong on the incomestatement or the balance sheet? Check one.)

Capital expenditure ____ BalanceSheet ____

Revenue expenditure____ Income Statement ____

2. Prepare the journal entry to record depreciation for 2012, assumingthe company uses the straight-line method..

_________________________________________________________

_________________________________________________________

Computation:

3. Compute depreciation for 2012, assuming the company uses theunits of production method. The equipmentproduced 30,000 units in 2012.

$_____________

4. Compute depreciation for 2012 AND 2013, assuming the companyuses the double-declining balance method..

2012: $_____________

2013: $_____________

5. Assume that the company chose straight-line (as you did in #2). On March 31, 2014,Jackson sold the equipment for $35,000 incash. Notice that the sale did notoccur on December 31!

a. What was the accumulated depreciation of this equipment on thedate

of sale?

$_____________

b. What was the book value on the date of sale?

$_____________

c. What was the gain/loss on sale?

Gain Loss $______________

(Circleone)

d.Prepare the journal entry to record the sale?

Molina Companys reported net incomes for 2013 and the previoustwo years are presented below.

2013 2012 2011

$105,000 $95,000 $70,000

2015s net income was properly determined after giving effect tothe following accounting changes, error corrections, etc. whichtook place during the year. The incomes for 2013 and 2014 do nottake these items into account and are stated at the amountsdetermined in those years. Ignore income taxes.

Instructions

(a)For each of the six accounting changes, errors, or priorperiod adjustment situations described below, prepare the journalentry or entries Molina Company should record during 2015 . If noentry is required, write none.

(b)After recording the situation in part (a) above, prepare theyear-end adjusting entry for December 31, 2015 . If no entry, writenone.

1>Early in 2013, Molina determined that equipment purchasedin January, 2011 at a cost of $645,000, with an estimated life of 5years and salvage value of $45,000 is now estimated to continue inuse until December 31, 2017 and will have a $15,000 salvage value.Molina recorded its 2013 depreciation at the end of 2013 .

2>Molina determined that it had understated its depreciationby $20,000 in 2012 owing to the fact that an adjusting entry didnot get recorded.

3>Molina bought a truck January 1, 2010 for $50,000 with a$5,000 estimated salvage value and a six-year life. The companydebited an expense account and credited cash on the purchase date.The truck is expected to be traded at the end of 2015 . Molina usesstraight-line depreciation for its trucks.

4>During 2013, Molina changed from the straight-line methodof depreciating its cement plant to the double-declining-balancemethod. The following calculations present depreciation on bothbases. (Ignore income taxes.) The 2013 amount appliesdouble-declining balance to the 1/1/13 carrying amount afterstraight-line was used.

2013 2012 2011

Straight-line $100,000 $100,000 $100,000

Double-declining $200,000 $160,000 $200,000

5>Molina, in reviewing its provision for uncollectiblesduring 2013, has determined that 1/2 of 1% is the appropriateamount of bad debt expense to be charged to operations. The companyhad used 1% as its rate in 2012 and 2011 when the expense had been$20,000 and $14,000, respectively. The company would have recorded$50,000 of bad debt expense on December 31, 2013 under the oldrate.

6>During 2013, Molina decided to change from the LIFO methodof valuing inventories to average cost. The net incomes involvedunder each method were as follows:

2013 2012 2011

LIFO $51,000 $59,000 $42,000

Average cost $63,000 $67,000 $48,000

Assume no difference between LIFO and average cost inventoryvalues in years prior to 2011 .

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