Question 1: Classic Irons, Inc. purchased manufacturing equipment with an expected useful life of five years or 5,000 hours of usage. The equipment was purchased on January 1, 2008, for $460,000. It is expected to have a salvage value of $60,000 at the end of five years. During 2008, the equipment was used for 1,200 hours. Assume that usage for the next four years will be $1,100 hours, 900 hours, 1,300 hours, and 500 hours, respectively.
a.) What is the amount of depreciation expense for each of the five years using the straight-line method?
b.) What is the amount of depreciation expense for each of the five years using the double declining balance method?
c.) What is the amount of depreciation expense for each of the five years using the units of production method? (Hours are production units in this example).
Question 2: Smith Steakhouse is a restaurant catering to variety of customers. They purchased a new high power over at the cost of $100,000 on January 1, 2006. The over has expected useful life of four uses and estimated salvage of $10,000. Smith Steakhouse uses straight-line depreciation for all of its depreciable assets. On May 1, 2008 the owner of the restaurant was persuaded to purchase a new oven that operated more efficiently. The old oven was sold at the time for $15,000.
(a). What is the amount of depreciation expense recorded on the old machine for each year of use? (Show your computation)
(b). what is the amount of gain or loss on the disposed of the old machine? (show your computation)
Question 3: Staffing Company purchased the net assets Line, assets minus (i. e., assets minus liabilities) of Time Management, Inc. for $390,000. Time Management, Inc. is a retailer of software, book, seminars, and related items. Its net assets have been carried on its own book at a total of $183,000. An appraisal of Time Management assets and liabilities revealed a net fair market value of $299,000. Staffing Company is willing to pay extra retail customers most of who have dealt exclusively with the company for many years and also their loyal employees who have also been with the company for many years. What is the amount of goods will the Staffing Company should record at acquisition of Time Management, Inc.