Question: 1. Skysong Company follows the practice of pricing its inventory at LCNRV, on an individual-item basis.
|
Item No.
|
Quantity
|
Cost
per Unit
|
Estimated
Selling Price
|
Cost to Complete
and Sell
|
|
1320
|
1,500
|
$3.55
|
$5.00
|
$1.78
|
|
1333
|
1,200
|
3.00
|
3.77
|
1.11
|
|
1426
|
1,100
|
5.00
|
5.55
|
1.55
|
|
1437
|
1,300
|
4.00
|
3.55
|
1.50
|
|
1510
|
1,000
|
2.50
|
3.61
|
1.55
|
|
1522
|
800
|
3.33
|
4.33
|
0.89
|
|
1573
|
3,300
|
2.00
|
2.78
|
1.33
|
|
1626
|
1,300
|
5.22
|
6.66
|
1.67
|
From the information above, determine the amount of Skysong Company inventory.
The amount of Skysong Company's inventory $
2. Sarasota Company follows the practice of pricing its inventory at the lower-of-cost-or-market, on an individual-item basis.
|
Item No.
|
Quantity
|
Cost per Unit
|
Cost to Replace
|
Estimated Selling Price
|
Cost of Completion and Disposal
|
Normal Profit
|
|
1320
|
1,900
|
$3.62
|
$3.39
|
$5.09
|
$0.40
|
$1.41
|
|
1333
|
1,600
|
3.05
|
2.60
|
3.96
|
0.57
|
0.57
|
|
1426
|
1,500
|
5.09
|
4.18
|
5.65
|
0.45
|
1.13
|
|
1437
|
1,700
|
4.07
|
3.50
|
3.62
|
0.28
|
1.02
|
|
1510
|
1,400
|
2.54
|
2.26
|
3.67
|
0.90
|
0.68
|
|
1522
|
1,200
|
3.39
|
3.05
|
4.29
|
0.45
|
0.57
|
|
1573
|
3,700
|
2.03
|
1.81
|
2.83
|
0.85
|
0.57
|
|
1626
|
1,700
|
5.31
|
5.88
|
6.78
|
0.57
|
1.13
|
From the information above, determine the amount of Sarasota Company inventory.
The amount of Sarasota Company's inventory $
3. Metlock Realty Corporation purchased a tract of unimproved land for $52,000. This land was improved and subdivided into building lots at an additional cost of $27,000. These building lots were all of the same size but owing to differences in location were offered for sale at different prices as follows.
Group No. of Lots Price per Lot
1 9 $5,700
2 15 7,600
3 15 4,560
Operating expenses for the year allocated to this project total $16,000. Lots unsold at the year-end were as follows.
Group 1 5 lots
Group 2 7 lots
Group 3 2 lots
At the end of the fiscal year Metlock Realty Corporation instructs you to arrive at the net income realized on this operation to date.
Net income $
4. Newman Legler requires an estimate of the cost of goods lost by fire on March 9. Merchandise on hand on January 1 was $34,600. Purchases since January 1 were $71,200; freight-in, $3,600; purchase returns and allowances, $2,700. Sales are made at 33 1/3% above cost and totaled $105,300 to March 9. Goods costing $11,400 were left undamaged by the fire; remaining goods were destroyed.
Compute the cost of goods destroyed. (Round gross profit percentage and final answer to 0 decimal places, e.g. 15% or 125.)
Cost of goods destroyed $
Compute the cost of goods destroyed, assuming that the gross profit is 33 1/3% of sales. (Round ratios for computational purposes to 5 decimal places, e.g. 78.72345% and final answer to 0 decimal places, e.g. 28,987.)
Cost of goods destroyed $
5. Presented below is information related to Splish Company.
| |
Cost
|
Retail
|
|
Beginning inventory
|
$103,820
|
$278,000
|
|
Purchases
|
1,402,000
|
2,152,000
|
|
Markups
|
|
93,600
|
|
Markup cancellations
|
|
13,900
|
|
Markdowns
|
|
34,600
|
|
Markdown cancellations
|
|
5,000
|
|
Sales revenue
|
|
2,206,000
|
Compute the inventory by the conventional retail inventory method. (Round ratios for computational purposes to 0 decimal places, e.g. 78% and final answer to 0 decimal places, e.g. 28,987.)
Ending inventory using conventional retail inventory method $
6. Bonita Company determined its ending inventory at cost and at LCNRV at December 31, 2017, December 31, 2018, and December 31, 2019, as shown below.
Cost NRV
12/31/17 $607,100 $607,100
12/31/18 828,900 759,400
12/31/19 841,400 764,600
Prepare the journal entries required at December 31, 2018, and at December 31, 2019, assuming that a perpetual inventory system and the cost-of-goods-sold method of adjusting to LCNRV is used. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)
7. Cheyenne Company lost most of its inventory in a fire in December just before the year-end physical inventory was taken. Corporate records disclose the following.
Inventory (beginning) $ 81,600
Sales revenue $410,400
Purchases 287,000
Sales returns 20,700
Purchase returns 27,800
Gross profit % based
on net selling price 33 %
Merchandise with a selling price of $29,700 remained undamaged after the fire, and damaged merchandise has a net realizable value of $8,100. The company does not carry fire insurance on its inventory.
Compute the amount of inventory fire loss. (Do not use the retail inventory method.)
Inventory fire loss $
8. Bridgeport Specialty Company, a division of Lost World Inc., manufactures three models of gear shift components for bicycles that are sold to bicycle manufacturers, retailers, and catalog outlets. Since beginning operations in 1993, Bridgeport has used normal absorption costing and has assumed a first-in, first-out cost flow in its perpetual inventory system. The balances of the inventory accounts at the end of Bridgeport's fiscal year, November 30, 2017, are shown below. The inventories are stated at cost before any year-end adjustments.
Finished goods $648,200
Work in process 102,800
Raw materials 285,600
Factory supplies 68,300
The following information relates to Bridgeport's inventory and operations.
1. The finished goods inventory consists of the items analyzed below.
| |
Cost
|
NRV
|
|
Down tube shifter
|
|
|
|
Standard model
|
$66,700
|
$66,200
|
|
Click adjustment model
|
97,900
|
94,600
|
|
Deluxe model
|
98,200
|
100,200
|
|
Total down tube shifters
|
262,800
|
261,000
|
|
Bar end shifter
|
|
|
|
Standard model
|
88,500
|
91,100
|
|
Click adjustment model
|
105,000
|
103,600
|
|
Total bar end shifters
|
193,500
|
194,700
|
|
Head tube shifter
|
|
|
|
Standard model
|
81,600
|
81,300
|
|
Click adjustment model
|
110,300
|
112,500
|
|
Total head tube shifters
|
191,900
|
193,800
|
|
Total finished goods
|
$648,200
|
$649,500
|
2. One-half of the head tube shifter finished goods inventory is held by catalog outlets on consignment.
3. Three-quarters of the bar end shifter finished goods inventory has been pledged as collateral for a bank loan.
4. One-half of the raw materials balance represents derailleurs acquired at a contracted price 20% above the current market price. The NRV of the rest of the raw materials is $121,300.
5. The total NRV of the work in process inventory is $101,100.
6. Included in the cost of factory supplies are obsolete items with an historical cost of $4,700. The market value of the remaining factory supplies is $65,400.
7. Bridgeport applies the LCNRV method to each of the three types of shifters in finished goods inventory. For each of the other three inventory accounts, Bridgeport applies the LCNRV method to the total of each inventory account.
8. Consider all amounts presented above to be material in relation to Bridgeport's financial statements taken as a whole.
(a) Prepare the inventory section of Bridgeport's balance sheet as of November 30, 2018. (Round answers to 0 decimal places, e.g. 2,556.)
9. Martinez Corporation operates a retail computer store. To improve delivery services to customers, the company purchases four new trucks on April 1, 2017. The terms of acquisition for each truck are described below.
1. Truck #1 has a list price of $42,150 and is acquired for a cash payment of $39,059.
2. Truck #2 has a list price of $44,960 and is acquired for a down payment of $5,620 cash and a zero-interest-bearing note with a face amount of $39,340. The note is due April 1, 2018. Martinez would normally have to pay interest at a rate of 10% for such a borrowing, and the dealership has an incremental borrowing rate of 8%.
3. Truck #3 has a list price of $44,960. It is acquired in exchange for a computer system that Martinez carries in inventory. The computer system cost $33,720 and is normally sold by Martinez for $42,712. Martinez uses a perpetual inventory system.
4. Truck #4 has a list price of $39,340. It is acquired in exchange for 900 shares of common stock in Martinez Corporation. The stock has a par value per share of $10 and a market price of $13 per share.
Prepare the appropriate journal entries for the above transactions for Martinez Corporation. (Round present value factors to 5 decimal places, e.g. 0.52587 and final answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
10. Plant acquisitions for selected companies are as follows.
1. Ayayai Industries Inc. acquired land, buildings, and equipment from a bankrupt company, Torres Co., for a lump-sum price of $924,000. At the time of purchase, Torres's assets had the following book and appraisal values.
Book Values Appraisal Values
Land $264,000 $198,000
Buildings 330,000 462,000
Equipment 396,000 396,000
To be conservative, the company decided to take the lower of the two values for each asset acquired. The following entry was made.
Land 198,000
Buildings 330,000
Equipment 396,000
Cash 924,000
2. Pina Enterprises purchased store equipment by making a $2,640 cash down payment and signing a 1-year, $30,360, 10% note payable. The purchase was recorded as follows.
Equipment 36,036
Cash 2,640
Notes Payable 30,360
Interest Payable 3,036
3. Grouper Company purchased office equipment for $19,400, terms 2/10, n/30. Because the company intended to take the discount, it made no entry until it paid for the acquisition. The entry was:
Equipment 19,400
Cash 19,012
Purchase Discounts 388
4. Monty Inc. recently received at zero cost land from the Village of Cardassia as an inducement to locate its business in the Village. The appraised value of the land is $35,640. The company made no entry to record the land because it had no cost basis.
5. Flounder Company built a warehouse for $792,000. It could have purchased the building for $976,800. The controller made the following entry.
Buildings 976,800
Cash 792,000
Profit on Construction 184,800
Prepare the entry that should have been made at the date of each acquisition. (Round intermediate calculations to 5 decimal palces, e.g. 0.56487 and final answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
11. The following three situations involve the capitalization of interest.
Situation I: On January 1, 2017, Coronado, Inc. signed a fixed-price contract to have Builder Associates construct a major plant facility at a cost of $4,443,000. It was estimated that it would take 3 years to complete the project. Also on January 1, 2017, to finance the construction cost, Coronado borrowed $4,443,000 payable in 10 annual installments of $444,300, plus interest at the rate of 10%. During 2017, Coronado made deposit and progress payments totaling $1,666,125 under the contract; the weighted-average amount of accumulated expenditures was $888,600 for the year. The excess borrowed funds were invested in short-term securities, from which Coronado realized investment income of $270,600.
What amount should Coronado report as capitalized interest at December 31, 2017?
Capitalized interest $
Situation II: During 2017, Whispering Corporation constructed and manufactured certain assets and incurred the following interest costs in connection with those activities.
| |
Interest Costs Incurred
|
|
Warehouse constructed for Whispering's own use
|
$34,410
|
|
Special-order machine for sale to unrelated customer, produced according
to customer's specifications
|
9,810
|
|
Inventories routinely manufactured, produced on a repetitive basis
|
8,630
|
All of these assets required an extended period of time for completion.
Assuming the effect of interest capitalization is material, what is the total amount of interest costs to be capitalized?
The total amount of interest costs to be capitalized $
Situation III: Metlock, Inc. has a fiscal year ending April 30. On May 1, 2017, Metlock borrowed $9,658,000 at 11% to finance construction of its own building. Repayments of the loan are to commence the month following completion of the building. During the year ended April 30, 2018, expenditures for the partially completed structure totaled $6,760,600. These expenditures were incurred evenly throughout the year. Interest earned on the unexpended portion of the loan amounted to $627,770 for the year.
How much should be shown as capitalized interest on Metlock's financial statements at April 30, 2018?
Capitalized interest on Metlock's financial statements $
12. Larkspur Corporation purchased a computer on December 31, 2016, for $111,300, paying $31,800 down and agreeing to pay the balance in five equal installments of $15,900 payable each December 31 beginning in 2017. An assumed interest rate of 9% is implicit in the purchase price.
Prepare the journal entry at the date of purchase. (Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Prepare the journal entry at December 31, 2017, to record the payment and interest (effective-interest method employed). (Round answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Prepare the journal entry at December 31, 2018, to record the payment and interest (effective-interest method employed). (Round answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
13. Crane Corporation, which manufactures shoes, hired a recent college graduate to work in its accounting department. On the first day of work, the accountant was assigned to total a batch of invoices with the use of an adding machine. Before long, the accountant, who had never before seen such a machine, managed to break the machine. Crane Corporation gave the machine plus $476 to Cheyenne Business Machine Company (dealer) in exchange for a new machine. Assume the following information about the machines.
| |
Crane Corp.
(Old Machine)
|
Cheyenne Co.
(New Machine)
|
|
Machine cost
|
$406
|
$378
|
|
Accumulated depreciation
|
196
|
-0-
|
|
Fair value
|
119
|
595
|
For each company, prepare the necessary journal entry to record the exchange. (The exchange has commercial substance.) (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
14. On April 1, 2017, Oriole Company received a condemnation award of $541,800 cash as compensation for the forced sale of the company's land and building, which stood in the path of a new state highway. The land and building cost $75,600 and $352,800, respectively, when they were acquired. At April 1, 2017, the accumulated depreciation relating to the building amounted to $201,600. On August 1, 2017, Oriole purchased a piece of replacement property for cash. The new land cost $113,400, and the new building cost $504,000.
Prepare the journal entries to record the transactions on April 1 and August 1, 2017. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
15. Coronado Company was incorporated on January 2, 2018, but was unable to begin manufacturing activities until July 1, 2018, because new factory facilities were not completed until that date.
The Land and Buildings account reported the following items during 2018.
|
January 31
|
Land and building
|
$162,500
|
|
February 28
|
Cost of removal of building
|
9,964
|
|
May 1
|
Partial payment of new construction
|
63,950
|
|
May 1
|
Legal fees paid
|
4,490
|
|
June 1
|
Second payment on new construction
|
40,600
|
|
June 1
|
Insurance premium
|
2,280
|
|
June 1
|
Special tax assessment
|
4,130
|
|
June 30
|
General expenses
|
38,413
|
|
July 1
|
Final payment on new construction
|
32,950
|
|
December 31
|
Asset write-up
|
56,442
|
| |
|
415,719
|
|
December 31
|
Depreciation-2018 at 1%
|
(3,773)
|
|
December 31, 2018
|
Account balance
|
$411,946
|
The following additional information is to be considered.
1. To acquire land and building, the company paid $82,500 cash and 800 shares of its 8% cumulative preferred stock, par value $100 per share. Fair value of the stock is $126 per share.
2. Cost of removal of old buildings amounted to $9,964, and the demolition company retained all materials of the building.
3. Legal fees covered the following.
|
Cost of organization
|
$650
|
|
Examination of title covering purchase of land
|
1,640
|
|
Legal work in connection with construction contract
|
2,200
|
| |
$4,490
|
4. Insurance premium covered the building for a 2-year term beginning May 1, 2018.
5. The special tax assessment covered street improvements that are permanent in nature.
6. General expenses covered the following for the period from January 2, 2018, to June 30, 2018.
President's salary $34,412
Plant superintendent's salary-supervision of new building 4,001
$38,413
7. Because of a general increase in construction costs after entering into the building contract, the board of directors increased the value of the building $56,442, believing that such an increase was justified to reflect the current market at the time the building was completed. Retained earnings was credited for this amount.
8. Estimated life of building-50 years.
Depreciation for 2018-1% of asset value (1% of $377,300, or $3,773).
Prepare entries to reflect correct land, buildings, and depreciation accounts at December 31, 2018. (Round answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Show the proper presentation of land, buildings, and depreciation on the balance sheet at December 31, 2018. (Round answers to 0 decimal places, e.g. 5,275.)
16. Oriole Landscaping began construction of a new plant on December 1, 2017. On this date, the company purchased a parcel of land for $142,800 in cash. In addition, it paid $2,880 in surveying costs and $4,320 for a title insurance policy. An old dwelling on the premises was demolished at a cost of $3,360, with $720 being received from the sale of materials.
Architectural plans were also formalized on December 1, 2017, when the architect was paid $40,800. The necessary building permits costing $3,360 were obtained from the city and paid for on December 1 as well. The excavation work began during the first week in December with payments made to the contractor in 2018 as follows.
Date of Payment Amount of Payment
March 1 $264,000
May 1 334,800
July 1 63,600
The building was completed on July 1, 2018.
To finance construction of this plant, Oriole borrowed $603,600 from the bank on December 1, 2017. Oriole had no other borrowings. The $603,600 was a 10-year loan bearing interest at 9%.
Compute the balance in each of the following accounts at December 31, 2017, and December 31, 2018. (Round answers to 0 decimal places, e.g. 5,275.)
December 31, 2017 December 31, 2018
(a) Balance in Land Account
(b) Balance in Building
(c) Balance in Interest Expense
17. Whispering Inc. is a book distributor that had been operating in its original facility since 1987. The increase in certification programs and continuing education requirements in several professions has contributed to an annual growth rate of 15% for Whispering since 2012. Whispering' original facility became obsolete by early 2017 because of the increased sales volume and the fact that Whispering now carries CDs in addition to books.
On June 1, 2017, Whispering contracted with Black Construction to have a new building constructed for $5,040,000 on land owned by Whispering. The payments made by Whispering to Black Construction are shown in the schedule below.
Date Amount
July 30, 2017 $1,134,000
January 30, 2018 1,890,000
May 30, 2018 2,016,000
Total payments $5,040,000
Construction was completed and the building was ready for occupancy on May 27, 2018. Whispering had no new borrowings directly associated with the new building but had the following debt outstanding at May 31, 2018, the end of its fiscal year.
10%, 5-year note payable of $2,520,000, dated April 1, 2014, with interest payable annually on April 1.
12%, 10-year bond issue of $3,780,000 sold at par on June 30, 2010, with interest payable annually on June 30.
The new building qualifies for interest capitalization. The effect of capitalizing the interest on the new building, compared with the effect of expensing the interest, is material.
Compute the weighted-average accumulated expenditures on Whispering's new building during the capitalization period.
Compute the avoidable interest on Whispering's new building. (Round intermediate percentage calculation to 1 decimal place, e.g. 15.6% and final answer to 0 decimal places, e.g. 5,125.)
Some interest cost of Whispering Inc. is capitalized for the year ended May 31, 2018. Compute the amount of each items that must be disclosed in Whispering's financial statements.
Total actual interest cost $
Total interest capitalized $
Total interest expensed $
18. Marigold Company purchased a new plant asset on April 1, 2017, at a cost of $718,110. It was estimated to have a service life of 20 years and a salvage value of $60,600. Marigold's accounting period is the calendar year.
Compute the depreciation for this asset for 2017 and 2018 using the sum-of-the-years'-digits method. (Round answers to 0 decimal places, e.g. 45,892.)
Depreciation for 2017 $
Depreciation for 2018 $
Compute the depreciation for this asset for 2017 and 2018 using the double-declining-balance method. (Round answers to 0 decimal places, e.g. 45,892.)
Depreciation for 2017 $
Depreciation for 2018 $
19. Crane Corporation purchased a new machine for its assembly process on August 1, 2017. The cost of this machine was $134,406. The company estimated that the machine would have a salvage value of $14,706 at the end of its service life. Its life is estimated at 5 years, and its working hours are estimated at 21,300 hours. Year-end is December 31.
Compute the depreciation expense under the following methods. Each of the following should be considered unrelated. (Round depreciation rate per hour to 2 decimal places, e.g. 5.35 for computational purposes. Round your answers to 0 decimal places, e.g. 45,892.)
(a) Straight-line depreciation for 2017 $
(b) Activity method for 2017, assuming that machine usage was 770 hours $
(c) Sum-of-the-years'-digits for 2018 $
(d) Double-declining-balance for 2018 $
20. In 1990, Concord Company completed the construction of a building at a cost of $2,420,000 and first occupied it in January 1991. It was estimated that the building will have a useful life of 40 years and a salvage value of $72,600 at the end of that time.
Early in 2001, an addition to the building was constructed at a cost of $605,000. At that time, it was estimated that the remaining life of the building would be, as originally estimated, an additional 30 years, and that the addition would have a life of 30 years and a salvage value of $24,200.
In 2019, it is determined that the probable life of the building and addition will extend to the end of 2050, or 20 years beyond the original estimate.
Using the straight-line method, compute the annual depreciation that would have been charged from 1991 through 2000.
Annual depreciation from 1991 through 2000 $ / yr.
Compute the annual depreciation that would have been charged from 2001 through 2018.
Annual depreciation from 2001 through 2018 $/ yr.
Prepare the entry, if necessary, to adjust the account balances because of the revision of the estimated life in 2019. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Compute the annual depreciation to be charged, beginning with 2019. (Round answer to 0 decimal places, e.g. 45,892.)
21. Presented below is information related to equipment owned by Marigold Company at December 31, 2017.
Cost $10,170,000
Accumulated depreciation to date 1,130,000
Expected future net cash flows 7,910,000
Fair value 5,424,000
Assume that Marigold will continue to use this asset in the future. As of December 31, 2017, the equipment has a remaining useful life of 4 years.
Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2017. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Prepare the journal entry to record depreciation expense for 2018. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
The fair value of the equipment at December 31, 2018, is $5,763,000. Prepare the journal entry (if any) necessary to record this increase in fair value. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
22. Skysong Company owns a 8,540-acre tract of timber purchased in 2003 at a cost of $1,586 per acre. At the time of purchase, the land was estimated to have a value of $366 per acre without the timber. Skysong Company has not logged this tract since it was purchased. In 2017, Skysong had the timber cruised. The cruise (appraiser) estimated that each acre contained 9,760 board feet of timber. In 2017, Skysong built 10 miles of roads at a cost of $9,565 per mile. After the roads were completed, Skysong logged and sold 4,270 trees containing 1,037,000 board feet.
Determine the cost of timber sold related to depletion for 2017. (Round intermediate calculations to 5 decimal places, e.g. 1.24654 and final answer to 0 decimal places, e.g. 5,125.)
If Skysong depreciates the logging roads on the basis of timber cut, determine the depreciation expense for 2017. (Round intermediate calculations to 5 decimal places, e.g. 1.24654 and final answer to 0 decimal places, e.g. 5,125.)
If Skysong plants five seedlings at a cost of $5 per seedling for each tree cut, how should Skysong treat the reforestation?
23. Problem 11-1
Pronghorn Company purchased Machine #201 on May 1, 2017. The following information relating to Machine #201 was gathered at the end of May.
Price $112,200
Credit terms 2/10, n/30
Freight-in $ 1,056
Preparation and installation costs $ 5,016
Labor costs during regular production operations $13,860
It is expected that the machine could be used for 10 years, after which the salvage value would be zero. Pronghorn intends to use the machine for only 8 years, however, after which it expects to be able to sell it for $1,980. The invoice for Machine #201 was paid May 5, 2017. Pronghorn uses the calendar year as the basis for the preparation of financial statements.
Compute the depreciation expense for the years indicated using the following methods.
(1) Straight-line method for 2017 $
(2) Sum-of-the-years'-digits method for 2018 $
(3) Double-declining-balance method for 2017 $
Suppose Kate Crow, the president of Pronghorn, tells you that because the company is a new organization, she expects it will be several years before production and sales reach optimum levels. She asks you to recommend a depreciation method that will allocate less of the company's depreciation expense to the early years and more to later years of the assets' lives.
What method would you recommend?
24. A depreciation schedule for semi-trucks of Buffalo Manufacturing Company was requested by your auditor soon after December 31, 2018, showing the additions, retirements, depreciation, and other data affecting the income of the company in the 4-year period 2015 to 2018, inclusive. The following data were ascertained.
Balance of Trucks account, Jan. 1, 2015
|
Truck No. 1 purchased Jan. 1, 2012, cost
|
|
$18,540
|
|
Truck No. 2 purchased July 1, 2012, cost
|
|
22,660
|
|
Truck No. 3 purchased Jan. 1, 2014, cost
|
|
30,900
|
|
Truck No. 4 purchased July 1, 2014, cost
|
|
24,720
|
|
Balance, Jan. 1, 2015
|
|
$96,820
|
The Accumulated Depreciation-Trucks account previously adjusted to January 1, 2015, and entered in the ledger, had a balance on that date of $31,106 (depreciation on the four trucks from the respective dates of purchase, based on a 5-year life, no salvage value). No charges had been made against the account before January 1, 2015.
Transactions between January 1, 2015, and December 31, 2018, which were recorded in the ledger, are as follows.
July 1, 2015 Truck No. 3 was traded for a larger one (No. 5), the agreed purchase price of which was $41,200. Buffalo. paid the automobile dealer $22,660 cash on the transaction. The entry was a debit to Trucks and a credit to Cash, $22,660. The transaction has commercial substance.
Jan. 1, 2016 Truck No. 1 was sold for $3,605 cash; entry debited Cash and credited Trucks, $3,605.
July 1, 2017 A new truck (No. 6) was acquired for $43,260 cash and was charged at that amount to the Trucks account. (Assume truck No. 2 was not retired.)
July 1, 2017 Truck No. 4 was damaged in a wreck to such an extent that it was sold as junk for $721 cash. Buffalo received $2,575 from the insurance company. The entry made by the bookkeeper was a debit to Cash, $3,296, and credits to Miscellaneous Income, $721, and Trucks, $2,575.
Entries for straight-line depreciation had been made at the close of each year as follows: 2015, $21,630; 2016, $23,175; 2017, $25,802; 2018, $31,312.
For each of the 4 years, compute separately the increase or decrease in net income arising from the company's errors in determining or entering depreciation or in recording transactions affecting trucks, ignoring income tax considerations. (Enter credit, understated and decrease amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Prepare one compound journal entry as of December 31, 2018, for adjustment of the Trucks account to reflect the correct balances as revealed by your schedule, assuming that the books have not been closed for 2018. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)
25. Bonita Paper Products purchased 10,300 acres of forested timberland in March 2017. The company paid $1,751 per acre for this land, which was above the $824 per acre most farmers were paying for cleared land. During April, May, June, and July 2017, Bonita cut enough timber to build roads using moveable equipment purchased on April 1, 2017. The cost of the roads was $257,500, and the cost of the equipment was $231,750; this equipment was expected to have a $9,270 salvage value and would be used for the next 15 years. Bonita selected the straight-line method of depreciation for the moveable equipment. Bonita began actively harvesting timber in August and by December had harvested and sold 556,200 board feet of timber of the estimated 6,952,500 board feet available for cutting.
In March 2018, Bonita planted new seedlings in the area harvested during the winter. Cost of planting these seedlings was $123,600. In addition, Bonita spent $8,240 in road maintenance and $6,180 for pest spraying during calendar-year 2018. The road maintenance and spraying are annual costs. During 2018, Bonita harvested and sold 797,220 board feet of timber of the estimated 6,643,500 board feet available for cutting.
In March 2019, Bonita again planted new seedlings at a cost of $154,500, and also spent $15,450 on road maintenance and pest spraying. During 2019, the company harvested and sold 669,500 board feet of timber of the estimated 6,695,000 board feet available for cutting.
Compute the amount of depreciation and depletion expense for each of the 3 years (2017, 2018, and 2019). Assume that the roads are usable only for logging and therefore are included in the depletion base. (Round answers to 0 decimal places, e.g. 45,892.)