Accounting Principles 2 - Exercises

Question 1: Papaya, a specialtyr greeting card company, purchased a photocopier costing $43,000 on January l, 201?. Installation costs were $2,000. The equipment is expected to produce a total of 4,500,000 copies over its productive life. Its residual value at the end of its useful life is estimated to be $5,000. The equipment actually produced: Flscal 1Iterar Copies Produced 201? 550,000 cars qu_t}m 201a 424nm Calculate depreciation for 201'? through to 2021 using the tmitsofproduction method. Papaya's yearend is December 31- Question 2: Pattys Pies acquired a delivery truck on January ], 2017', for $90,000. It is expected to last ve years and then sell for about $15,000. [11 year 3, major repairs of $9,000 were made to the truck. Calculate depreciation for each year of the truck's life using the doubledecliningbalance method. Pattys Pies year-end is December 31. Question 3: On January 2, 201?, Crossre acquired sound equipment for concert performances at a cost of $55,000. The rock hand estimated that it would use this equipment for four years, and then sell the equipment for $2,000- Calculate depreciation for each year of the sound equipment's estimated life using the straightline method. Crossre's yearend is December 31. Simply type T or F for the True or False questions. Highlight your answer in yellow for the multiple choice questions. For the Short answers, show your journal entries or calculations (as required in the question) T'RUE'T'ALSE. Write 'T' if the statement is true and T' if the statement is false- I) Depreciation amounts can be revised because of changes in the estimates for residual value, useful life or because of subsequent revenue expenditures. SHORT ANSWER 1|Write the word or phrase that best completes each statement or answers the question. 2) ISold Grain Construction (GGC) exchanged a threeyearold excavator for a new excavator that had a list price of $78,000, which was its fair value. The old excavator originally cost $35,000 and has accumulated depreciation of $45,000 to the date of exchange. In addition to the $45,000 tradein given for the old excavator, GGC paid $8,000 cash to complete the deal. Record the asset exchange. TRUEJFALSE. Write 'T' if the statement is true and T' if the statement is false- 3) Because land has unlimited life, it is not subject to depreciation. Therefore, items that increase the useslness of the land such as parking lots are also not depreciated. SHORT ANSWER 1|Write the word or phrase that best completes each statement or answers the question. 4) During 2021, Melanie's Emporium exchanged an old truck costing $13,000 with accumulated depreciation of $13,000 to the date of exchange for a new truck. The new truck had a cash price of $30,000 and Melanie received a $6,000 tradein allowance on the old truck. This transaction has commercial substance. Prepare the journal entry to record the exchange. 5) On April l= 213213, Lockhart Company discarded equipment that cost $E, had a useful life of 5 years= a residual value of $14,0DD, and, under straightline depreciation, accumulated depreciation as of December 31, 2019 of $26,4. (a) Prepare the journal entry to record depreciation up to the date of disposal of the equipment. (h) Prepare the journal entry to record the disposal of the equipment. MULTIPLE CHOICE- Choose the one alternative that best completes the statement or answers the question. 6) The cost of land can include A] Real estate commissions B) Costs of removing existing buildings C} Back property taxes D] Purchase price E} All of these SHORT ANSWER 1|Write the word or phrase that best completes each statement or answers the question. TI") Explain the difference between revenue and capital expenditures and how they are recorded in the accounting system. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 8) Once the estimated depreciation for an asset is calculated A) It may be revised based on new information and any changes are accumulated and recognized when the asset is sold B) Any changes are accumulated and recognized when the asset is sold C) It cannot be changed due to the historical cost principle D) It may be revised based on new information E) The estimate itself cannot be changed, however, new information should be disclosed in financial statement footnotes TRUE/FALSE. Write 'T' if the statement is true and F' if the statement is false. 9) A depreciable asset that is purchased on March 18 would be depreciated for nine months of the first year, if the fiscal year ends on December 31 using nearest whole month method SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 10) On January 1, 2019 a machine costing $330,000 with a 4-year service life and an estimated $3,000 residual value was purchased. It was also estimated that the machine would produce 50,000 units during its life. The actual units produced during its first 2 years of operation were 9,000 and 10,000 respectively. Calculate the amount of depreciation expense for the 2019 and 2020 under each of the following assumptions: (a) Straight-line. (b) Double-declining-balance. (c) Units-of-production.TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 11) Treating small-dollar-amount capital expenditures as revenue expenditures is likely to mislead users of financial statements. 12) Capital expenditures are also called balance sheet expenditures. SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 13) Headstrom Industries (HI) exchanged a three-year-old truck for a new truck that had a list price of $50,000, which was its fair value. The old truck originally cost $65,000 and has accumulated depreciation of $25,000 to the date of exchange. In addition to the $45,000 trade-in given for the old truck, HI paid $8,000 cash to complete the deal. Record the asset exchange. TRUE/FALSE. Write 'T' if the statement is true and 'F if the statement is false. 14) Financial accounting and tax accounting require the same recordkeeping; therefore, there should be no difference in results between the two accounting systems. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 15) The original cost of an asset minus accumulated depreciation is called A) Current value B) Historical cost C) Present value D) Book value E) Replacement costSHORT ANSWER. 1|Write the word or phrase that best completes each statement or answers the question. 16) Discuss accounting for intangible assets. MULTIPLE CHOICE- Choose the one alternative that best completes the statement or answers the question. I?) Faetors) that might limit an intangible asset's useful life include A) Contractual B} Regulatory C) Economic D) Legal E} All of these 13} The formula for calculating straightline depreciation is A] Cost plus residual value divided by the usell life in years B) Cost divided by useful life in units C) Depreciable cost divided by useful life in units D] Cost divided by useful life in years E) Depreciable cost divided by the useil life in years 19) CamCo Lid. leased floor space in a new office building. Rent will cost $10,000 per month for a ten-year lease, but some renovations are needed and will be paid by CamCo to customize the space. The renovations include installing walls to create a new office and boardroom (cost $8,000), new flooring (cost $5,800), painting (cost $1,500) and updated wiring to accommodate computer servers (cost $8,700). How should these costs be handled for accounting purposes by CamCo? A) Painting costs should be capitalized to leasehold improvements and other costs should be charged to rent expense B) Painting costs should be charged to rent expense and the other costs should be capitalized to leasehold improvements C) They should all be charged to rent expense D) They should be capitalized as development costs E) They should all be capitalized as leasehold improvements 20) A method that allocates an equal portion of the total depreciation for a property, plant and equipment asset to each unit produced is called A) Units-of-production depreciation B) Capital cost allowance C) Double-declining-balance depreciation D) Accelerated depreciation E) Straight-line depreciation SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 21) Chervinski Industries recently paid $560,000 to buy a building that has an estimated useful life of 40 years and a residual value of $116,000. Calculate the depreciation expense for the third year after acquisition using double-declining-balance depreciation. Assume a full year of depreciation in the first year.22) ACE Company made the following expendibnu' in connection with the construction of its new cross t facility; Architect's fees 9,000 ltCash paid for land and old building 140,000 Removal of old building 20,000 Survey to site the new building (3,000} Legal fees for title search 1,000 Excavation for construction of basement 2,500 Machinery purchased 22,000 Storage charges on machinery because building was not ready when machinery was delivered: 600 Freight on machinery purchased 2,000 Hauling charges to deliver machinery om storage to new building: 300 Construction costs of new building 615,000 Landscaping 2,050 Installation of machinery 9,000 Prepare a schedule showing the amounts to be recorded as Land, Buildmg, and Machinery and Equipment and Expenses. 23) A new machine is expected to produce 40,000 units of product dining its 5year life. The machine cost $130,000 and is estimated to have a $20,000 residual value. If depreciation on the machine is calculated by the doubledeclinJhgbalanee method, what is the depreciation for the rst year?I 24) Vroom Company sold for $60,000 a machine that originally cost $100,000. The accumulated depreciation on this machine to date of sale was $47,000. What was Vroom Company's gain or loss on this sale? TRUE/FALSE. Write 'T if the statement is true and "F if the statement is false. 25) Because depreciation is based on predictions of residual value and useful life, depreciation is an estimate. 26) Property, plant and equipment can be disposed of by discarding, sale, or exchange of the asset. 27) Residual value is an estimate of an asset's value at the end of its useful life. 28) When the cost of the asset changes because of a subsequent capital expenditure, revised depreciation for current and future periods must be calculated and adjusted. SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. On January 1, 2020, PetraCo ordered a new machine to help increase production for one of its most popular products. The machine had an invoice price of $30,000 and PetraCo was required to pay shipping ($1,200) and insurance during shipping ($300) by train from British Columbia to Toronto. The machine arrived on January 5, 2020 and was installed at a cost of $800 and calibrated and tested for a cost of $200. On February 1, 2020 it was put into operation. PetraCo's fiscal year runs from January to December. Round all final answers to the nearest dollar. 29) Petra Co. sold the machine on July 1, 2020 for $19,000. Prepare all journal entries required in 2020 relating to the machine and its disposal.MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 30) When originally purchased, a vehicle had cost $23,000, with an estimated residual value of $1,500, and an estimated useful life of 8 years. After 4 years of straight-line depreciation, the estimated useful life was revised from 8 to 6 years, but with zero residual value. The depreciation expense in year 5 should be A) $10,750.00 B) $6,125.00 C) $5,543.75 D) $2.687.50 E) $2,856.25