Quiz 6 Solution

1. a) Exchange with Choctaw Company

New machine 86,179

Acc. Depr 85,000

Cash 23,000

Old machine 191,000

Gain 3,179

 

b)      Exchange with Shawnee Company

New machine $114,000

Acc. Depr 85,000

Old machine $191,000

Cash 8,000

 

2. a) Accounting Error discovered in the year of the error. First reverse the wrong journal entry and make necessary correction

Asset $35,000

Cash $15,000

Loss 20,000

Depr Exp $1067

A/D $1067

Cash $ 15,000

A/D 20,267

Asset $35,000

Gain 267

 

b) Depr Exp $8,000

A/D $8,000

 

c)      Betterment resulting in new cost basis

Depr Exp $21,716

A/D $21,716

 

d) Method change prospective change

Depr Exp $5,886 (51.2 10)/7

A/D $5,886

 

e)      Past error discovered Prior period adjustment

Asset $45,000

A/D $ 6,750

Retained Earnings $38,250

 

Depr Exp $5,738

A/D $5,738

 

 

3

a) Let c = cost of the machine

6 year A/D = [(c 1800)/12] * 6 = c -22300 c = $42,800

 

b) Two ways to answer this question

i)        Each year the depreciation declines by $14,000 n = 5 years

ii)      n/[(n(n+1)/2] *(240,000 30,000) = 70,000 n = 5 years

 

c) Straight line depreciation = (23mm 2mm)/35 = $600 K

A/D = 23mm 20.6 mm = 2.4mm Hence 4 year depreciation has been taken

Warehouse purchased on January 1, 1996

 

d) i) New depr exp = (BV salv)/useful life (26622 4,000)/5 = $4524

Depr Exp $4524

A/D $4524

ii)New SL depreciation = (26,622 5,000)/8 2703

JE Depr Exp $2,703

A/D $2,703

 

4.

a) On December 31, 2002,

Depreciation Exp $9,600

A/D $9,600

 

b) Now for the 2003 depreciation

Depreciation exp $4,800

A/D $4,800

c) On 3/31/2004

Equipment $15,000

Cash $15,000

New book value following the betterment (40,000 30,400) +15,000 = $24,600 with 5 more years to go and salvage = 900 using DDB

On 12/31/2004

Depreciation Exp $9,840

A/D $9,840

 

d)             Depreciation for 2005 = $5904 ((2/5)*(24,600 9840))

Depreciation for 2006 = $1181 ((2/5)*(24,600 15,744))*(4/12)

4/31/2006

 

Acc. Depr $47,325

Cash 20,000

Asset $55,000

Gain 12,325