Part 1: Depreciation Methods.
A high-speed multiple-bit drill press costing $300,000 has an estimated salvage value of $25,000 and a life of ten years. What is the annual depreciation for each of the first two full years under the following depreciation methods?
1. Double-declining-balance method:
a. Year one, $______________.
b. Year two, $______________.
2. Units of production (activity) method (lifetime output is estimated at 110,000 units; the press produced 12,000 units in year one and 18,000 in year two):
a. Year one, $______________.
b. Year two, $______________.
3. Sum-of-the-years'-digits method:
a. Year one, $______________.
b. Year two, $______________.
4. Straight-line depreciation method:
a. Year one, $______________.
b. Year two, $______________.
Part 2: Current Liabilities.
Ritt Company includes 1 coupon in each box of soap powder that it packs, 20 coupons being redeemable for a premium consisting of a kitchen utensil. In 2004, Ritt Company purchased 9,000 premiums at $1.00 each and sold 270,000 boxes of soap powder @ $4.00 per box. Based on past experience, it is estimated that 60% of the coupons will be redeemed. During 2004, 72,000 coupons were presented for redemption.
During 2005, 14,000 premiums were purchased at $1.10. The company sold 600,000 boxes of soap at $4.00 and 250,000 coupons were presented for redemption.
Instructions:
Prepare all the entries that would be made relative to sales of soap powder and to the premium plan in both 2004 and 2005. Assume a FIFO inventory flow.