Quiz 6

 

1.0 Susquehanna Corp. wishes to exchange a machine used in its operations. Original cost of the machine was $191,000. The book value today is $106,000 and fair market value is $123,000. Susquehanna has received the following offers from other companies in the industry:

Choctaw Company offered to exchange a machine with a fair market value of $100,000 and will pay Susquehanna $23,000.

Shawnee Company offered to exchange a machine with a fair market value of $131,000, but     wanted $8,000 in addition to Susquehanna’s machine.

 

For each of the two independent situations assuming the exchanges have no commercial substance prepare the journal entry by Susquehanna to record the asset exchange.

 

a)                              Exchange with Choctaw Company

b)                              Exchange with Shawnee Company

 

 

2.               Depreciation – SYD, Actual, SL and DDB

The following data relate to the to the Plant Asset account of Kay Co., at December 31, 1998

 

                                                                              Plant Asset

                                                A                   B                              C                          D___            

Original cost                      $35,000           $      ?                     $90,000                $100,000

Year purchased                      1993               1997                       1995                       1996

Useful life                         10 years           10 years                 10 years                 10 years

Salvage value                      $3,000           $3,000                  $10,000                   $10,000

Depreciation                      Straight line     Sum-of-Years        Double                 Double

      Method a                                             digits                   declining                 declining

Accum Depr                           ?                 $19,000                 $53,136                      ?

a In the year an asset is purchased or improved, Kay Co. records a full year’s depreciation on the asset.  In the year an asset is retired or traded in, Kay Co. records depreciation expense for the period used (given in months)

 

The following transactions occurred during 1999:

a)      On May 1, Asset A sold for $15,000 cash. The company’s bookkeeper recorded this retirement in the following manner in the cash receipts journal:

 

Cash    $ 15,000

                  Loss        20,000    

                      Asset A       $35,000

 

b) The depreciation expense recorded for Asset B in 1997 and 1998 were $10,000 and $9,000, respectively and has been appropriately recorded.

 

c) On June 1, major repairs were performed on Asset C at a cost $50,000, extending the life of the asset and increasing its salvage value. The management of Kay Co. decided the total useful life of the improved asset was 12 years and salvage was estimated at $15,000.

 

d)     On December 31, 1999 management decides to change the depreciation method for Asset D from double declining to straight line.

 

e) On December 31, 1999 it was discovered that a plant asset purchased in 1998 had been expensed completely in that year. This asset cost $45,000 and has a useful life of 10 years and no salvage. Management has decided to use the 150 percent declining balance for this asset, which can be referred as “Asset E”. Ignore any tax implications.

 

Prepare the necessary correcting journal entries for the year 1999. Record the appropriate depreciation expense on the assets described above.

 

 

3.  The following data relate to the Plant Asset account of Flodder Co., at December 31, 1999.

 

 

Plant Asset

 

A

B

C

D

Original cost

?

$240,000

$23,000,000

$60,000

Year purchased

Jan 1, 1994

Jan 1. 1998

?

Jan 1, 1994

Useful life

12 years

?

35 years

10 years

Salvage Value

$1,800

$30,000

$2,000,000

$4,000

Depreciation Method

Straight Line

Sum-of-Years

Straight line

150% declining balance

Accumulated Depr

 

$126,000*

 

?

Book value

$22,300

 

$20,600,000

 

 

 

 

 

 

 

* For Asset B the depreciation was $70,000 in 1998 and $56,000 in 1999.

 

      a) On December 31, 1999, after all adjusting journal entries are complete, Asset A has a book value of $22,300 as given above. Determine the cost of the machine.

 

b) Determine the useful life of Asset B (or how long Flodder expects Asset B to be used) and provide the appropriate depreciation journal entry for fiscal year 2000?

 

c) On the firm’s December 31, 1999 financial statements, the book value of Asset C is $20.6 million as given above. Determine the year (Jan 1, 19xx) in which Asset C was purchased?

 

d) In 1999, Flodder decides to change the depreciation method of Asset D to the straight line method.

(i)                 Prepare the appropriate journal entry to account for this change in accounting method.

(ii)               In addition to (i) assume Flodder determines that the estimated life (following the change) should be 8 years with a salvage of $5,000 at the end of that time. Prepare the appropriate journal entry to account for this change in estimate.

4.0 Wardell Company purchased a minicomputer on January 1, 2001, at a cost of $40,000. The computer was depreciated using the 200% declining balance method over an estimated five-year life with an estimated residual value of $4,000. The company’s fiscal year ends on December 31.

a)   Prepare the journal entry required for depreciation in 2002

b)  On July 1, 2003, the estimate of useful life was changed to a total of 8 years (from the date of the original purchase), and the estimate of residual value was changed to $900.Prepare the appropriate journal entries required for depreciation in 2003 to reflect the revised estimate.

c)  On March 31, 2004 Wardell spent $15,000 on the minicomputer to improve its performance (consider this a betterment). Prepare the appropriate journal entries for the year 2004 including the adjusting journal entry required for depreciation.

d) On April 31, 2006 Wardell sold the minicomputer for $20,000. Prepare the appropriate journal entries on this date.