Question

Abdulaziz Co. purchased a machine in 2013 for 50,000 that has a useful life of 5 years with a salvage value of 5,000.
Calculate the depreciation expense, accumulated depreciation, book value throughout its useful life using:
1- Straight-line Method.
2- Units of Production Method if the machine produces 100,000 units.
Here is a table of units produced each year:
First Second Third Fourth Fifth
23,000 25,000 - 30,000 22,000

3- Double Declining Balance Method

Q2- On June 1, 2019, ABC Company signed a $25,000, 120-day, 6% note payable to cover a past due account payable.
a. What is the total amount of interest to be paid on this note?
b. Prepare ABC Company's general journal entry to record the issuance of the note payable
c. Prepare ABC Company's general journal entry to record the payment of the note on
September 29, 2019
Q3. What are the characteristics of corporations

Answer 1

Answer -

Q. 1 Answer -

As per given information

Cost of machine = $50000

Salvage value = $5000

Useful life = 5 years

1. Straight-line method:

Depreciation expense = (Cost of machine - Salvage value) / Useful life

Depreciation expense = ($50000 - $5000) / 5 years

Depreciation expense = $9000 per year

Hence, the Abdulaziz Co. will depreciate the machine by $9000 every year for 5 years

Accumulated depreciation = $45000

Here,

Book value throughout its useful life:

Year	Book value (Beginning of year)	Depreciation expense	Book value (End of year)
2013	$50000	$9000	$41000
2014	$41000	$9000	$32000
2015	$32000	$9000	$23000
2016	$23000	$9000	$14000
2017	$14000	$9000	$5000
Total		$45000

2. Units of Production Method:

Depreciation expense = [(Cost of machine - Salvage value) / Total units produced over useful life] * Actual units produced

So,

First year

Depreciation expense = [($50000 - $5000) / 100000 units] * 23000 units

Depreciation expense = $10350

Second year,

Depreciation expense = [($50000 - $5000) / 100000 units] * 25000 units

Depreciation expense = $11250

Third year,

Depreciation expense = [($50000 - $5000) / 100000 units] * 0 units

Depreciation expense = $0

Fourth year,

Depreciation expense = [($50000 - $5000) / 100000 units] * 30000 units

Depreciation expense = $13500

Fifth year,

Depreciation expense = [($50000 - $5000) / 100000 units] * 22000 units

Depreciation expense = $9900

So,

Accumulated depreciation = $10350 + $11250 + $0 + $13500 + $9900

Accumulated depreciation = $45000

Here,

Book value throughout its useful life:

Year	Book value (Beginning of year)	Depreciation expense	Book value (End of year)
1	$50000	$10350	$39650
2	$39650	$11250	$28400
3	$28400	$0	$28400
4	$28400	$13500	$14900
5	$14900	$9900	$5000
Total		$45000

3. Double declining balance method:

Depreciation expense = 2 * Cost of the machine / Useful life

Or

Depreciation expense = 2 * Cost of the machine * Depreciation rate

Here,

Depreciation rate = 1 / Useful life * 100 = (1 / 5 years) * 100 = 20%

So,

First year

Depreciation expense = 2 * $50000 * 20%

Depreciation expense = $20000

Second year,

Depreciation expense = 2 * $30000 * 20%

Depreciation expense = $12000

Third year,

Depreciation expense = 2 * $18000 * 20%

Depreciation expense = $7200

Fourth year,

Depreciation expense = 2 * $10800 * 20%

Depreciation expense = $4320

Fifth year,

Depreciation expense = 2 * $6480 * 20%

Depreciation expense = $2592

So,

Accumulated depreciation = $20000 + $12000 + $7200 + $4320 + $2592

Accumulated depreciation = $46112

Here,

Book value throughout its useful life:

Year	Book value (Beginning of year)	Depreciation expense	Book value (End of year)
1	$50000	$20000	$30000
2	$30000	$12000	$18000
3	$18000	$7200	$10800
4	$10800	$4320	$6480
5	$6480	$2592	$3888
Total		$46112

Q. 2 Answer -

a. Answer -

Total interest = Principal * Interest rate * Maturity term

Total interest = $25000 * 6% * (120 / 360 days)

Total interest = $500

Note : Assuming 1 year = 360 days

b. Answer -

Date	Account	Debit	Credit
June 01, 2019	Cash	$25000
	Notes payable		$25000

c. Answer -

Date	Account	Debit	Credit
Sept. 29, 2019	Notes payable	$25000
	Interest expense	$500
	Cash		$25500

Q.3 Answer -

Characteristics of Corporations :

1. Separate legal existence: Corporation acts under its own name rather than in the name of its stockholders.

2. Limited liability of stockholders: Limited liability of stockholders limited to their investment.

3. Transferable ownership rights: Shareholders quite easily sell their stock.

4. Ability to acquire capital: Corporation can obtain capital through the issuance of stock.

5. Continuous life: Continuance as going concern is not affected by the withdrawal, death or incapacity of a stockholder, employee.

6. Corporate management: Separation of ownership and management prevents owners from having an active role in managing the company.

7. Government regulations: Publicly traded corporations are subjected to extensive government oversight and regulations.

8. Additional taxes: Corporations pay income taxes as a separate legal entity. In additions, stockholders pay taxes on cash dividends.