Question

The following information relates to R-U Ready Company, a publicly traded company:

1. R. U. Ready acquired Machine B on 1/1/13 by signing a 9% installment note to be paid in 5 equal installments of $65,000. Each payment is due on 12/31, with the first payment due 12/31/13. The useful life of Machine B is 8 years with no residual value. Assume double declining balance depreciation.

Requirement:

Present the accounts and dollar amounts that would appear on comparative balance sheets and income statements for the years ending 12/31/16 and 12/31/15.

List all accounts and dollar amounts. Round dollar amounts to the nearest dollar. You do not need to include cash.  

• For the Classification (Class) column of the Balance Sheet use:
• A for Asset
• L for Liability
• E for Equity

For the Classification (Class) column of the Income Statement use:

• R for Revenue
• E for Expense

Answer 1

Cost of the asset = Annuity x [ { 1 - ( 1 / 1+r) ⁿ} / r ] = $ 65,000 x [ { 1 - ( 1 / 1.09 ) ⁵ } / 0.09 ] = $ 65,000 x 3.8897 = $ 252,830

Double declining rate of depreciation = 100 / 8 years * 2 = 25 %

Balance Sheet
	12/31/16	12/31/15
Asset
Cost	252,830	252,830
Less: Accumulated Depreciation	172,834	146,168
Asset, net of depreciation	79,996	106,662
Liability
Note Payable	59,637	114,346

Income Statement
	Year ended 12/31/16	Year ended 12/31/15
Expense
Depreciation Expense	26,666	35,554
Interest Expense	10,291	14,808

Workings:

Amortization Schedule of Note Payable:

Date	Amount Paid	Interest Expense	Principal Repaid	Carrying Amount of Note Payable
1/1/13				252,830
12/31/13	65,000	22,755	42,245	210,585
12/31/14	65,000	18,953	46,047	164,538
12/31/15	65,000	14,808	50,192	114,346
12/31/16	65,000	10,291	54,709	59,637
12/31/17	65,000	5,363	59,637	0

Schedule of Depreciation:

Year Ended	Depreciation Expense	Accumulated Depreciation	Book Value
1/1/13			252,830
12/31/13	63,208	63,208	189,622
12/31/14	47,406	110,614	142,216
12/31/15	35,554	146,168	106,662
12/31/16	26,666	172,834	79,996