Question

1. The following expenditures were incurred by ABC Company in purchasing land: cash price Birr 70,000, accrued taxes Birr 3,000, attorneys' fees Birr 2,500, real estate broker's commission Birr 2,000, and clearing and grading Birr 3,500.

Instruction:

What is the cost of the land?

2. On January 1, 2010, the ABC Company ledger shows Equipment Birr 29,000 and Accumulated Depreciation Birr 9,000. The depreciation resulted

from using the straightline method with a useful life of 10 years and salvage value of Birr 2,000. On this date, the company concludes that the

equipment has a remaining useful life of only 4 years with the same salvage value.

Instruction:

Compute the revised annual depreciation.

3. ABC Company sells office equipment on September 30, 2010, for Birr 20,000 cash. The office equipment originally cost Birr 72,000 and as of

January 1, 2010, had accumulated depreciation of Birr 42,000. Depreciation for the first 9 months of 2010 is Birr 5,250.

Instruction:

Prepare the journal entries to

a)update depreciation to September 30, 2010, and

b)record the sale of the equipment.

4. ABC Company exchanges old delivery equipment for new delivery equipment. The book value of the old delivery equipment is Birr 31,000 (cost

Birr 61,000 less accumulated depreciation Birr 30,000). Its fair market value is Birr 19,000, and cash of Birr 5,000 is paid.

Instruction:

Prepare the entry to record the exchange, assuming the transaction has commercial substance.

5. ABC Company purchases a factory machine at a cost of Birr 18,000 on January 1, 2010. ABC expects the machine to have a salvage value of Birr

2,000 at the end of its 4-year useful life. During its useful life, the machine is expected to be used 160,000 hours. Actual annual hourly use was:

2010, 40,000; 2011, 60,000; 2012, 35,000; and 2013, 25,000.

Instructions

Prepare depreciation schedules for the following methods:

(a)straight-line,

(b)units-of-activity, and

(c)declining-balance using double the straight-line rate.