Question

Q2. On January 1, 2001, equipment was purchased for $95,000 cash. The equipment is expected produce 100,000 units during its useful life and has an estimated salvage value of $15,000. Units produced from 2011 to 2013 were respectively 30000, 45000, and 25000. What is the amount of depreciation expense and Book Value of the assets each year?

Answer 1

Ans 2.

Depreciation is calculated by applying Unit of Production Method

Depreciation = (Cost - Salvage Value) * No. of units produced/ Units produced during useful life

Depreciation for Year 2011 = ($ 95,000 - $ 15,000) * 30,000/100,000 = $24,000

Book Value ( Year 2011) = Original Cost - Depreciation = $ 95,000 - $ 24,000 = $ 71,000

Depreciation for Year 2012 = ($ 95,000 - $ 15,000) * 45,000/100,000 = $36,000

Book Value ( Year 2012) = Book value (2011) - Depreciation = $ 71,000 - $ 36,000 = $ 35,000

Depreciation for Year 2013 = ($ 95,000 - $ 15,000) * 25,000/100,000 = $20,000

Book Value ( Year 2013) = Book value (2012) - Depreciation = $ 35,000 - $ 20,000 = $ 15,000 = Salvage Value

Ans 1.

The adjusted balances should be equal . This statement is correct.

So the correct ans is C.

Reason: The main purpose of the Bank Reconciliation Statement is to reconcile the bank and cash account balances at the end. So at end the adjusted Cash Balance is equal to the adjusted Bank Balance i.e. adjusted balances should be equal.

Ans 2 . Liquidity means

How easily an asset can be converted into cash to be used to pay for services or obligations.

So correct ans is A.

Ans 3.

Bad Debt expense for Year 2011 is

Credit Sales * 1% (Management estimated rate) = $ 1,250,000 * 1% = $ 12,500

So the correct ans is C.

Ans 4.

Interest Expense is calculated for 90 days @ 10% on $ 15000 (purchase price)

= $ 15,000 * 10 % * 90/360 = $ 375

It is assumed that there are 360 days in a year.

So the correct ans is A.

Ans 5.

Account Receivable Turnover is calculated by dividing Net sales and average account receivable for the period.

Account Receivable Turnover = Net Sales / Average account receivable

= $ 870,000 / $ 174,000 = 5

So the correct ans is B.