Chapter 9 — Test 1 Note: Most questions can be placed in more than one of the four achievement categories. The achievement chart designation provided here indicates the category that is predominant within the question. 1. For each of the following, choose the most appropriate response. 1) A one-year insurance policy was purchased for $960 on July 1, 20-1. On December 31, 20-1, it had an unexpired value of: a. $240. b. $480. c. $560. d. $400. e. none of the above. 2) The accountant did not prepare an entry to adjust the Supplies account at the end of the accounting period and, as a result: a. the Supplies account was overstated. b. the total expenses were understated. c. the net income was overstated. d. the …show more content…
3. The unexpired insurance at December 31, 20-2, amounted to $1 040. 4. a) Using the additional information above, complete the eight-column work sheet. GST accounts are not to be considered. b) Prepare the four closing journal entries for Premium Decorating as of December 31, 20-2. Omit explanations. 4. c) Assuming all entries have been posted, calculate the ending Capital balance for Premium Decorating as of December 31, 20-2, in the account provided below. d) Prepare a post-closing trial balance for Premium Decorating as of December 31, 20-2. 5. A company purchases equipment costing $50 000, which it expects to last for 12 years and to have a salvage value of $2 000. a) Prepare a schedule of depreciation for the first five years using the straight-line method. Year Straight-line Depreciation Depreciation Balance $50 000 1 2 3 4 5 b) For the same equipment, prepare a schedule of depreciation for the first five years using the declining-balance method. Canada Customs and Revenue Agency’s prescribed rate for depreciation is 30%. Year Declining Balance Depreciation Balance $50 000.00 1 2 3 4 5 c) Repeat the same type of calculations as in b) above, but this time assume CCRA’s “50% rule” is in effect. Year Declining Balance with 50% Rule Depreciation Balance $50 000.00 1 2 3 4 5 6. Indicate which
Even though Mr. Fordham mentions that he in his “Statement of Cost of Goods Manufactured for Year Ended Dec. 31 1956” that he depreciated $24,000 of Plant and Equipment, I decided to change the depreciation schedule so that PP&E would be fully depreciated by the end of the 5 year period. Thus, I used a straight-line depreciation schedule that accumulated $40,000 worth of depreciation per year, which was spread evenly across the 12 months of this Balance Sheet (or $3,333.33 per month).
State and explain the decision rule behind the IRR method. Assume a hurdle rate of 10%.
a. Joe has signed a contract to sell gadgets to the city. The contract provides that sales of gadgets are dependent upon a test sample of gadgets operating successfully. In December, Joe delivers $12,000 worth of gadgets to the city that will be tested in March. Joe purchased the gadgets especially for this contract and paid $8,500
| In Year 1, depreciation is $5,000 plus 15% of the asset’s outlayFrom Year 2, depreciation is either * 30% of the asset’s book value; or * if the asset’s book value is less than $6,500, depreciation is the asset’s book value (i.e. asset is depreciated to zero once book value < $6,500)
10. What is the correct capital structure and weighted average cost of capital for discounting the investment’s free cash flow. Assume a 35% tax rate. A correct response requires that you define capital structure and Weighted Average Cost of Capital (WACC) with a formula. When defining a term with a formula be sure that all the variables are also defined.
c) The present value of $500 to be received in one year when the opportunity cost rate is 8 percent (discounting):
(b) Recorded an adjusting entry to record use of $20 of the above supplies. Cash 0/ Net Income -20
Student Cases with Solutions to accompany Accounting & Auditing Research: Tools & Strategies (7th edition)
Webmasters.com has developed a powerful new server that would be used for corporations’ Internet activities. It would cost $10 million at Year 0 to buy the equipment necessary to manufacture the server. The project would require net working capital at the beginning of each year in an amount equal to 10% of the year's projected sales; for example, NWC0 = 10%(Sales1). The servers would sell for $24,000 per unit, and Webmasters believes that variable costs would amount to $17,500 per unit. After Year 1, the sales price and variable costs will increase at the inflation rate of 3%. The company’s
If, at year end, 2 months have elapsed, what adjusting entry do you record? 2,000 A. Prepaid Legal Expense Legal Expense 2,000 2,000 B. Legal Expense Prepaid Legal Expense 2,000 Legal Expense 3,000 C. Prepaid Legal Expense 3,000 12,000 D. Prepaid Legal Expense Cash 12,000 [10]BASIC BANK10 - COAE 010 On September 1, your firm incurs a routine $82 expense, mistakenly recording it as follows: Office Expense Accounts Payable 28 28
As opposed to purchasing new equipment, we could opt to maintain the equipment we currently have, which has an estimated service life of 11 years remaining. We could retain all of our claimed Investment Tax Credit for this purchase, which has two years of depreciation left, and would not be required to invest in any new training for our employees. We would recognize $31,000 in depreciation in present value terms, as well as save an estimated $200,000 in training costs and losses due to lower production during the “learning curve”. I estimate these savings to be approximately one month of payroll to include both the time spent on training, and our reduced production as employees learn how to use the new equipment. Additional detail of this option is provided in Appendix B, C, & D.
Natalie estimates that all of her baking equipment will have a useful life of 5 years or 60 months and no salvage value. (Assume Natalie decides to record a full month’s worth of depreciation, regardless of when the equipment was obtained by the business.)
Estimated machinery life: 3 years (after which there will be zero value for the equipment and no further cost savings)
Straight-line depreciation method is used for all property and equipment over the estimated useful life of the assets; 3 to 10 years for furniture, office equipment and