# Financial Accounting Post Exam Project #2

Pages: 5 (961 words) Published: March 5, 2012
Accounting 1B - Post Exam 2 Project

1. Jensen Company purchased a new machine on September 1, 2012, at a cost of \$128,000. The company estimated that the machine has a salvage value of \$8,000. The machine is expected to be used for 80,000 working hours during its 8-year life.

Instructions:
Compute depreciation using the following methods in the year indicated. (a) Straight-line for 2012 and 2013, assuming a December 31 year-end. (b) Declining-balance using double the straight-line rate for 2012 and 2013. (c) Units-of-activity for 2012, assuming machine usage was 2,900 hours. (Round depreciation per unit to the nearest cent.)

A) 15,0001 / 8= .125128,000-8,000=120,000 120,000 x .125= \$15,000 B) 32,000128,000 x 25% = 32,000
C) 4,350120,000 / 80,000 = 1.501.50 x 2,900 = 4,350

2. Nichols Company purchased a new machine for \$200,000. It is estimated that the machine will have a \$20,000 salvage value at the end of its 5-year useful service life. The double-declining-balance method of depreciation will be used.

Instructions:
Prepare a depreciation schedule that shows the annual depreciation expense on the machine for its 5- year life.
200,000 – 20,000 = 180,000180,000 / 5 = 36,000 for 1 year1 / 5 = 20% (Doubles to 40%) Computation| Annual Depreciation Expense| End of Year|
Year| Depreciable Cost| Depreciable Rate| | Accumulated Depreciation| Book Value| 2010| 180,000 x| 40% =| 36,000| 36,000| 164,000|
2011| 180,000 x| 40% =| 36,000| 72,000| 128,000|
2012| 180,000 x| 40% =| 36,000| 108,000| 92,000|
2013| 180,000 x| 40% =| 36,000| 144,000| 56,000|
2014| 180,000 x| 4 0% =| 36,000| 180,000| 20,000|
| | | Total: 180,000| | |

3. Railsback Company purchased a machine on January 1, 2012, at a cost of \$64,000. The machine is expected to have an estimated salvage value of \$4,000 at the end of its 5-year life. The company capitalized the machine and depreciated it in 2012 using the double-declining-balance method of depreciation. The company has a policy of using the straight-line method to depreciate equipment but the company accountant neglected to follow company policy when he used the double-declining-balance method. Net income for the year ended December 31, 2012, was \$55,000 before taxes as the result of depreciating the machine incorrectly.

Instructions
Using the method of depreciation that the company normally follows, prepare the correcting entry and determine the corrected net income for 2012. (Show computations.)

Double-Declining Method
64,000 – 4,000 = 60,0001 / 5 =20% (doubles to 40%)60,000 x 40% = 24,000

Straight Line Method
64,000 – 4,000 = 60,0001 / 5 =20%60,000 x 20% = 12,000

December 31 2012
Accumulated Deprecation (Machines)12,000
Deprecation Expense12,000

4. Mantle Publications publishes a golf magazine for women. The magazine sells for \$4.00 a copy on the newsstand. Yearly subscriptions to the magazine cost \$36 per year (12 issues). During December 2009, Expert Publications sells 4,000 copies of the golf magazine at newsstands and receives payment for 5,000 subscriptions for 2010. Financial statements are prepared monthly. Instructions

(a) Prepare the December 2009 journal entries to record the newsstand sales and subscriptions received. (b) Prepare the necessary adjusting entry on January 31,2010. The January 2010 issue has been mailed to subscribers.

December 2009
Cash196,000
Unearned Subscription Revenue180,000
Newsstand Revenue 16,000

January 31 2010

Unearned Subscription Revenue15,000
Subscription Revenue15,000
(36/12=\$3 3x5,000=\$15,000)

5. On March 1, Cooper Company borrows \$60,000 from New National Bank by signing a 6-month, 8%, interest-bearing note.
Instructions
Prepare the necessary -entries below associated with the note payable on the books of Cooper Company. (a) Prepare the entry on March 1 when the note was issued....