Accounting Fundamentals For Health Care Management
Chapter 10, Test Your Knowledge
1. Which GAAP requires the use of depreciation for assets thathave useful lives beyond 1 year?
2. Explain why the (the answer to ques 1) GAAP__________requires the use of depreciation fo assets that have useful livesbeyond 1 Year.
3. Explain the four steps in the depreciation process.
4. The York City Hospital has just acquired new equipment. Theequipment cost $4,250,000, and the organization spent $135,000 onupgrading the physical plant the new equipment will be located in.The equipment is expected to have 10- year useful life and asavlvage value of 10% (i.e, $425,000). Calculate the first 5 yearsof depreciation, using the following methods:
a.) Stright Line Method
b.) Double Declining Balance Method
c.) Sum-of the-Years Digits method
4. A new medical practice purchases computer equipment that cost$15,000, to be used for medical billing. In addition, the practicepurchases billing software that cost $5,000. Both the computerequipment and the software are expected to have 3-Year useful livesand no salvage vaule. Calculate the 3 years of depreciation, usingthe following methods:
a.) Stright Line Method
b.) Double Declining Balance Method
c.) Sum-of the-Years Digits method
5. The New Hospital has raised money for a new oncology wing.The hospital has also aquired medical diagnostic equipment thatcost $500,000. In addition, the hospital paid $15,000 to ship theequipment from the manufacturer and $40,000 to install theequipment. The equipment is expected to have a 6-year useful lifeand a $30,000 salvage value. Calculate the 6 years of depreciationusing the following methods:
a.) Stright Line Method
b.) Double Declining Balance Method
c.) Sum-of the-Years Digits method
6. For-profit organizations can use different methods forreporting depreciation to owners and to the government (for taxpurposes). What is the practical effect of theis allowance?
Accounting Fundamentals For Health Care Management
Chapter 10, Test Your Knowledge
1. Which GAAP requires the use of depreciation for assets thathave useful lives beyond 1 year?
2. Explain why the (the answer to ques 1) GAAP__________requires the use of depreciation fo assets that have useful livesbeyond 1 Year.
3. Explain the four steps in the depreciation process.
4. The York City Hospital has just acquired new equipment. Theequipment cost $4,250,000, and the organization spent $135,000 onupgrading the physical plant the new equipment will be located in.The equipment is expected to have 10- year useful life and asavlvage value of 10% (i.e, $425,000). Calculate the first 5 yearsof depreciation, using the following methods:
a.) Stright Line Method
b.) Double Declining Balance Method
c.) Sum-of the-Years Digits method
4. A new medical practice purchases computer equipment that cost$15,000, to be used for medical billing. In addition, the practicepurchases billing software that cost $5,000. Both the computerequipment and the software are expected to have 3-Year useful livesand no salvage vaule. Calculate the 3 years of depreciation, usingthe following methods:
a.) Stright Line Method
b.) Double Declining Balance Method
c.) Sum-of the-Years Digits method
5. The New Hospital has raised money for a new oncology wing.The hospital has also aquired medical diagnostic equipment thatcost $500,000. In addition, the hospital paid $15,000 to ship theequipment from the manufacturer and $40,000 to install theequipment. The equipment is expected to have a 6-year useful lifeand a $30,000 salvage value. Calculate the 6 years of depreciationusing the following methods:
a.) Stright Line Method
b.) Double Declining Balance Method
c.) Sum-of the-Years Digits method
6. For-profit organizations can use different methods forreporting depreciation to owners and to the government (for taxpurposes). What is the practical effect of theis allowance?
Related questions
The Diamond Glitter Company is in the process of preparing itsfinancial statements for 2012. Assume that no entries fordepreciation have been recorded in 2012. The following informationrelated to depreciation of fixed assets is provided to you.
1. The company purchased equipment on January 2, 2009, for$165000. At that time, the equipment had an estimated useful lifeof 7 years with a $25000 salvage value. The equipment isdepreciated on a straight-line basis. On January 2, 2012, as aresult of additional information, the company determined that theequipment has a remaining useful life of 3 years with a $15000salvage value.
2. During 2012, the company changed from thedouble-declining-balance method for its building to thestraight-line method. The building originally cost $625000. It hada useful life of 10 years and a salvage value of $50000. Thefollowing computations present depreciation on both bases for 2010and 2011. | ||||
2011 | 2010 | |||
Straight-line | $ 57,500 | $ 57,500 | ||
Declining-balance | $ 92,000 | $ 115,000 | ||
3. The company purchased a machine on July 1, 2010, at a cost of$450000. The machine has a salvage value of $25000 and a usefullife of 10 years. The company's bookkeeper recorded straight-linedepreciation in 2010 and 2011 but failed to consider the salvagevalue. Ignore Tax effect.
4. The company has failed to accrue sales commissions payable atthe end of each of the last 2 years, as follows. | ||||
December 31, 2011 | $ 5,400 | |||
December 31, 2012 | $ 4,600 | |||
5. In reviewing the December 31, 2011, inventory, the companydiscovered errors in its inventory-taking procedures that havecaused inventories for the last 3 years to be incorrect, asfollows. The company has already made an entry that established theincorrect December 31, 2012, inventory amount. | ||||
December 31, 2010 | Understated | $ 32,000 | ||
December 31, 2011 | Understated | $ 51,000 | ||
December 31, 2012 | Overstated | $ 9,500 | ||
6. At December 31, 2012, the company decided to change to thestraight-line depreciation method on its retail display equipmentfrom double-declining-balance. The equipment had an original costof $250000 when purchased on January 1, 2011. It has a salvagevalue of 0 and a 8-year useful life. Depreciation expense recordedprior to 2012 under the double-declining-balance method was $62500.The company has already recorded 2012 depreciation expense of$46875 using the double-declining-balance method.
7. Before the current year, the company accounted for its incomefrom long-term construction contracts on the completed-contractbasis. Early this year, the company changed to thepercentage-of-completion basis for accounting purposes, butcontinues to use the completed-contract method for tax purposes.Income for the current year has been recorded using the new method.Prior year tax effects must be considered. The followinginformation is available. | ||||
Pretax Income | ||||
Percentage-of-Completion | Completed-Contract | |||
Prior to 2012 | $320,000 | $180,000 | ||
2012 | $140,000 | $120,000 | ||
Required: | |||
Prepare the journal entries necessary at December 31, 2012 torecord the corrections and changes made to date related to theinformation provided. The books are still open for 2012. The incometax rate is 35%. The company has not yet recorded its 2012 incometax expense and payable amounts so current-year tax effects may beignored. | |||
