Question

43. Cirrus Ltd. purchased a new machine on April 1, 2018 at a cost of $320.000. The company estimated that the machine would have a residual value of 532.000 with a four- year life. The company has a December 31 year end. A Complete the deprecation schedule assuming the company uses the straight-line method (20 marks) January 1 Carrying Amount Depreciation Accumulated Depreciation Period 2018 Expense Carrying Amount 2019 2020 2021 2022 B. Complete the depreciation schedule assuming the company uses the double- diminishing balance method (20 marks) January 1 Carrying Amount Depreciation Expense Accumulated Depreciation Dec 31 Carrying Amount Period 2018 2019 2020 2021 2022 C. If the company could not find a buyer at the end of the machine useful life, what journal entry would be required to dispose of the asset. (6 marks)

Answer 1

Question 43:

Requirement A:

Period	January 1 Carrying Amount	Depreciation Expense	Accumulated Depreciation	Dec 31 Carrying Amount
2018	$320,000	$54,000	$54,000	$266,000
2019	$266,000	$72,000	$126,000	$194,000
2020	$194,000	$72,000	$198,000	$122,000
2021	$122,000	$72,000	$270,000	$50,000
2022	$50,000	$18,000	$288,000	$32,000

Calculations:

i. Depreciation Expense:

Depreciation expense = (Cost - Salvage value) ÷ Useful life = ($320,000-$32,000)/4 = $288,000/4 = $72,000

Depreciation expense for 2018 [Apr. to Dec.] = $72,000 x 9/12 = $54,000

Depreciation expense for 2022 [Jan. to Mar.] = $72,000 x 3/12 = $18,000

ii. Accumulate depreciation = Cumulative of Depreciation expense

iii.Dec 31 Carrying amount = Jan 1 carrying amount - Depreciation expense

Requirement B:

Period	January 1 Carrying Amount	Depreciation Expense	Accumulated Depreciation	Dec 31 Carrying Amount
2018	$320,000	$120,000	$120,000	$200,000
2019	$200,000	$100,000	$220,000	$100,000
2020	$100,000	$50,000	$270,000	$50,000
2021	$50,000	$18,000	$288,000	$32,000
2022

Calculations:

i. Depreciation expense:

Depreciation Rate = (100% ÷ 4 years) x 2 = 25% x 2 = 50%

Depreciation expense = January 1 carrying amount x Depreciation Rate

Depreciation expense for 2018 [Apr. to Dec.] = $320,000 x 50% x 9/12 = $160,000 x 9/12 = $120,000

Depreciation expense for 2021 = Dec 31,2020 carrying amount - Salvage value = $50,000-$32,000 = $18,000

ii. Accumulate depreciation = Cumulative of Depreciation expense

iii.Dec 31 Carrying amount = Jan 1 carrying amount - Depreciation expense

Requirement C:

Account title and Explanation	Debit	Credit
Accumulated depreciation	$288,000
Loss on retirement of machine	$32,000
Machine		$320,000
[To record retirement of machine]

Question 41:

Requirement 1

	Amount	SFP or IS
Accounts payable	$37,000	SFP
Accounts receivable	$42,000	SFP
Advance to employees	$2,500	SFP
Bad debt expense	$15,000	IS
Cash	$58,000	SFP
Interest expense	$7,000	IS
Interest revenue	$1,500	IS
Merchandise inventory	$22,000	SFP
Notes receivable (current)	$5,000	SFP
Notes receivable (non-current)	$65,000	SFP
Prepaid insurance	$8,000	SFP
Retained earnings	$129,000	SFP
Sales	$128,000	IS
Sales discounts	$25,000	IS
Supplies	$17,500	SFP

Requirement 2:

Corp XYZ
Statement of Financial Position (Current Assets)
As at Dec 31, 20XX
Current Assets:
Cash	$58,000
Accounts receivable	$42,000
Notes receivable (current)	$5,000
Advance to employees	$2,500
Merchandise inventory	$22,000
Supplies	$17,500
Prepaid insurance	$8,000
Total current assets	$155,000