Question 9 2 points Covey Company purchased a machine on January 1, 2008, by paying cash of…

 
   

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Question 9

2 points

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
10

2 points

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:

Prepare the required journal entry to record disposal of the van,
assuming the following sales amounts for cash:

$17,300
$20,500
$15,800

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:

Compute the cost of each machine.
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:

For years 1 and 2, prepare depreciation schedules (round all
results to the nearest dollar) for the asset assuming:

Straight-line method
Units-of-production method
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

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

2 points

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
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:

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

Problem 2
On January 1, a
company completed the following transactions.

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.
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.
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):

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

Sold 150,000 shares of common stock in an initial public offering
of $15 per share
Repurchased 35,000 shares of previously common stock at $20 to be
held as treasury shares.
Resold 5,000 of the treasury stock at $22 per share.
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.