Question

For each of the following items, select the correct type of expenditure. Transactions Type of Expenditure (1) Purchased a patent, $4,300 cash (2) Paid $10,000 for monthly salaries. (3) Paid cash dividends, $20,000 (4) Purchased a machine, $7,000; gave a long-term note. (5) Paid three-year insurance premium, $900 (6) Paid for routine maintenance, $200, on credit. (7) Paid $400 for ordinary repairs. Paid $6,000 for improvements that lengthened the (8) asset's productive life. (9) Paid $20,000 cash for addition to old building. The following information applies to the questions displayed below During Year 1, Ashkar Company ordered a machine on January 1 at an invoice price of $23,000. On the dete of delivery, January 2, the company paid $7000 on the machine, with the balance on credit at 9 percent interest due in six months. On January 3, it paid $900 for freight on the machine. On January 5, Ashkar paid installation costs relating to the machine amounting to $2,600. On July 1, the company paid the balance due on the machine plus the interest. On December 31 (the end of the accounting period), Ashkar recorded depreciation on the machine using the straight-line method with an estimated useful life of 10 years and an estimated residual value of $4,500 value: Required information 10.00 points Required: 1. Indicate the effects (accounts, amounts, and + or -)of each transaction on the accounting equation. Use the following schedule: (If the transaction does not impact the accounting equation choose "No effect" in the first column under "Assets".) Date Assets Liabilities Stockholders' Equity January 1 January 2 January 3 January 5 July 1 3 value: 10.00 points 2. Compute the acquisition cost of the machine. Acquisition Cost of the Machine Acquisition cost Shining Cookie Company, Inc., in Murfreesboro, TN bought a new ice cream maker at the beginning of the year at a cost of $26,000. The estimated useful life was four years, and the residual value was $2,900. Assume that the estimated productive life of the machine was 10,500 hours. Actual annual usage was 4,200 hours in year 1; 3,150 hours in year 2, 2,100 hours in year 3, and 1,050 hours in year 4 Required: 1. Complete a separate depreciation schedule for each of the alternative methods. (Do not round intermediate calculations.) a Straight-line Accumulated Depreciation Depreciation Еxpense Net Book Value Year At acquisition 1 2 3 4 b. Units-of-production (use four decimal places for the per unit output factor). Depreciation Еxpense Accumulated Net Book Value Year Depreciation At acquisition 2 3 4 c. Double-declining-balance. Depreciation Accumulated Еxpense Net Book Value Year Depreciation At acquisition 1 2 3 Strong Metals Inc. purchased a new stamping machine at the beginning of the year at a cost of $960,000. The estimated residual value was $80,800. Assume that the estimated useful life was five years, and the estimated productive life of the machine was 314,000 units. Actual annual production was as follows: Year 1 2 Units 84.000 72,000 39.000 67.000 52,000 4 5 Required: 1. Complete a separate depreciation schedule for each of the alternative methods. (Do not round your intermediate calculations.) a. Straight-line. Accumulated Depreciation Depreciation Еxpense Net Book Value Year At acquisition 2 3 4 b. Units-of-production. Depreciation Expense Accumulated Net Book Value Year Depreciation At acquisition 1 2 3 4 c. Double-declining-balance. Depreciation Accumulated Expense Net Year Book Value Depreciation At acquisition 2 3 5

Answer 1

Type of Expenditure Capital Expenditure 2 Revenue Expenditure 3 Revenue Expenditure 4 Capital Expenditure Capital Expenditure 6 Revenue Expenditure 7 Revenue Expenditure 8 Capital Expenditure Capital Expenditure Note Capital Expenditure is for long term benefiting more than a year Revenue Expenditure just benefits the current year

Ashkar Company Stockholders Equity Assets Liabilties Date + $ $ $ Account Account Account + 1-Jan No effect + Notes Payable 2-Jan Cash (7,000) 16,000 + Machine 23,000 + 3-Jan Cash (900) Machine 900 + 5-Jan Cash (2,600) 2,600 Machine + Interest expense 1-Jul Cash = Notes Payable (16,000) (16,720) (720) 16,000*9% *6/12 31-Dec Accumuated Dep (2,200) =(26,500-4,500)/10 (2,200) Depreciation expense + Acquisition cost Invoice Price 23,000 Freight 006 Installation costs 2,600 Acquisition cost 26,500 Depreciation expense (Cost-Residual Value)/Useful Life =(26,500-4,500)/10 Annual depreciation 2,200

Shining Cookie Company Inc Straight line Annual depreciation (Cost-Residual Value)/Useful Life (26000-2900)/4 5,775 Years of Useful life Accumulated Dep Net book value Dep expense At Acquistion 26,000 Year 1 5,775 5,775 20,225 Year 2 5,775 14,450 11,550 Year 3 17,325 5,775 8,675 5,775 23,100 Year 4 2,900 Cost less Acc. Dep Units of production (Cost-Residual Value)/Production Units =(26000-2900)/10500 Dep per unit of production 2.20 Calculation Years of Useful life Accumulated Dep Net book value Dep expense Dep expense At Acquistion 26,000 16,760 4200*2.20 Year 1 9,240 9,240 6,930 -3150*2.20 Year 2 16,170 9,830 Year 3 -2100*2.20 4,620 20,790 5,210 2,900 =1050*2.20 Year 4 2,310 23,100 Double declining balance 100%/Useful Life*2 Double declining rate -100%/4*2 50% Calculation Net book value Years of Useful life Accumulated Dep Dep expense Dep expense At Acquistion 26,000 - 26000*50 % Year 1 13,000 13,000 13,000 6,500 13000*50 % 19,500 Year 2 6,500 22,750 3,250 6500*50% Year 3 3,250 2,900 3250-2900 Year 4 350 23,100 Note Last year dep of 350 is remaining figure to keep net book value at residual value of 2,900 Net book value of last useful year cant be less than residual value of 2,900

Strong Metals Inc Straight line Annual depreciation (Cost-Residual Value)/Useful Life (960000-80800)/5 175,840 Years of Useful life Accumulated Dep Dep expense Net book value At Acquistion 960,000 Year 1 175,840 175,840 784,160 Year 2 175,840 608,320 351,680 Year 3 175,840 527,520 432,480 703,360 Year 4 175,840 256,640 Year 5 175,840 879,200 80,800 Cost less Acc. Dep Units of production (Cost-Residual Value)/Production Units Dep per unit of production =(960000-80800)/314000 2.80 Calculation Accumulated Dep Net book value Years of Useful life Dep expense Dep expense At Acquistion 960,000 =84000*2.80 Year 1 235,200 235,200 724,800 = 72000*2.80 Year 2 201,600 436,800 523,200 Year 3 =39000*2.80 109,200 546,000 414,000 -67000 2.80 187,600 Year 4 733,600 226,400 879,200 =52000*2.80 Year 5 145,600 80,800 Double declining balance 100%/Useful Life*2 Double declining rate -100%/5*2 40% Calculation Accumulated Dep Net book value Years of Useful life Dep expense Dep expense At Acquistion 960,000 576,000 960000*40% Year 1 384,000 384,000 345,600 576000*40% Year 2 230,400 614,400 138,240 207,360345600*40% Year 3 752,640 124,416 207360*40 % Year 4 82,944 835,584 43,616 80,800 124416-80800 Year 5 879,200 Note Last year dep of 43,616 is remaining figure to keep net book value at residual value of 80,800 Net book value of last useful year cant be less than residual value of 80,800