Question 3 (14 Marks) On January 1, 2019 Safe Consulting Inc. (SCI) acquired heavy construction equipment for $1,010,000. SCI expects that the residual value of the equipment at the end of its 5-year life will be $200,000 and expects that equipment will operate for a total of 90,000 equipment working hours. Actual equipment working hours used for the years ended December 31, 2019 and December 31, 2020 are 15,000 and 24,000, respectively. Required: a) Compute the depreciation expense for the years ended December 31, 2019 and December 31, 2020 under the Straight line, Declining Balance at 30% rate, and the Units of Production methods and insert your answers into the table below. Round to the nearest whole number (6 Marks) Depreciation Depreciation Expense for 2019 Depreciation Expense for 2020 Method Straight Line Method Declining Balance (30% rate) Units-of- Production Method b) Assuming that the manager's bonus depends on the total reported income for the first two years (i.e. for 2019 and 2020), which method of depreciation would the manager prefer? Briefly explain why? (2 marks) c) Assume that SCI used the straight-line method of depreciation and decided to sell the equipment on July 1, 2021 for $800,000. Calculate the amount of the gain or loss on the sale of equipment below and state whether it is a gain or loss_(2 Marks) d) Assume that on January 1, 2021, SCI determined that the total useful life of equipment should be 8 years instead of 5 years, and the straight line method of depreciation is used. The residual value is unchanged. Compute the following (2 marks each): 1.The book value of the equipment on January 1, 2021: 2. The depreciation expense for 2021: Question 4 (12 Marks). Parts A, B and C below are independent of each other. Part A. (4 Marks). Ace Appliances Inc. offers a 12-month warranty on all its appliances. Ace Appliances estimates that one appliance out of each 1000 sold will require warranty service and that the average cost per warranty claim is $300. Ace sold 30,000 appliances during 2020.The estimated warranty liability at the beginning of the year was $ 4,500. Claims of $7,000 were actually paid during the year to honour warranties. Ace Appliances has a December 31 year-end. Required: i. Calculate the estimated warranty expense for Ace Appliances for 2020.[2 marks) 2. Calculate the balance of the Estimated Warranty Liability account at December 31, 2020.(2 marks) Part B. (4Marks). For the month of November 2020, Ace Appliances recorded $ 280,000 in sales, which were all on account. The company is required to charge 6% PST and 5% GST on all sales. Required: Prepare the journal entry to record the company's sales activity for November 2020. Part C (4 marks).On September 30, 2020, Ace Appliances (above) borrowed $250,000 from the People's National Bank on a nine-month, 7% note. Required: Give the journal entry on June 30, 2021 when the note is paid by Ace Appliances
