Question

problems 3 and 4 please

Problem III Skyler Corporation purchased a tractor for $105,000. Management expects that the tractor will last 10 years or 150,000 miles. The salvage value at the end of 10 years is expected to be $5,000. The company expects that the tractor will be driven 30,000 miles in year 1 and 28,000 miles in year 2. Instructions: Compute the depreciation expense for year one and year two under the following methods: 1) Straight-Line, 2) Units of Activity, 3) Double- declining balance. You must show computations to receive credit. Problem IV Macy's accepts its own and national credit cards. The following transactions occurred during the first two months of the year. Jan 1 - Made Macy's credit card sales totaling $29,500. There were no balances prior to January 15. January 15 - Made Mastercard sales (service fee 2%) totaling $14,000. January 20 - Collected $20,000 on Macy's credit card sales. February 1 - Added finance charges of 2% to Macy's credit card balance. Instructions: Journalize the transactions for Macy's.

Answer 1

Solution to Problem III

Relevant information given in the Ques is as below :

• Cost of Tractor: $105000
• Useful life: 10 Years or 150000 miles
• Salvage value at the end of year 10: $5000
• Tractor to be driven 30000 miles in year 1 and 28000 miles in year 2

Calculation of Depreciable Amount:

Depreciable amount is the cost of an asset less its residual value.

Depreciable amount: Cost of tractor - Salvage value

Depreciable amount : $105000-$5000 = $100000

1 ) Computation of Depreciation expense for year 1 and year 2 as per Straight- line method:

                                                                                   Year 1                                                Year 2

Depreciation expense                     Depreciable amount/Useful life(in years)        Depreciable amount/Useful life(in years)

                                                            $100000/10 yrs                                                 $100000/10 yrs

Depreciation expense     =                  $10000                                                              $10000

2) Computation of Depreciation expense for year 1 and year 2 as per Units of activity method:

    Depreciation expense   =     Depreciation amount per mile *Miles driven during year

   Depreciation amount per mile = Depreciable amount/ Total expected miles

                                                      $100000/150000 miles = $0.666666667

Depreciation expense for the year : Depreciation per mile * No. of Miles driven during the year

Depreciation expense for the year 1 : $0.666666667 * 30000 = $20000

Depreciation expense for the year 2 : $0.666666667 * 28000 = $18666.6667

3) Computation of Depreciation expense as per Double declining balance method:

Depreciation expense = 2 * Depreciation rate as per SLM * Book value of asset

Depreciation rate as per SLM = Depreciable amount/useful life(in yrs) = $100000/10 yrs = 10%

Depreciation expense for the year 1 = 2 * 10%(Dep. rate) * $105000(Book value of asset)

Therefore, depreciation expense for year 1 = $21000

Book value at year 2 = Cost of asset - Depreciation expense for year 1 = $105000-$21000 =$84000

Depreciation expense for year 2 : 2 * 10% * ($105000 - $21000)

Therefore, Depreciation expense for year 2 = $16800

                                   

Solution to Problem IV:

Journal entries:

Jan 1 :       Debtors A/c Dr.           $29500

                 To Sales Revenue A/c             $29500

                (Being Macy's credit card sales)

Jan 15 : Debtors A/c Dr.             $14280

              To Sales Revenue A/c               $14000

              To Service fee       A/c                $280 (2% * 14000)

              (Being Mastercard's sales at 2% service fee)

Jan 20 : Cash/Bank A/c Dr        $ 20000

              To Debtors A/c                             $20000

             (Being Collection made on Macy's credit card sales)

Feb 1 : Debtors A/c    Dr          $190

            To Finance charges A/c        $190

           (Being 2% finance charges added on $9500 balance amount($29500-$20000)