Depreciation Computations Five Methods Wenner Furnace Corp. purchased machinery for $279,000 on May 1, 2010. It is estimated that it will have a useful life of 10 years, salvage value of $15,000, production of 240,000 units, and working hours of 25,000. During 2011 Wenner Corp. uses the machinery for 2,650 hours, and the machinery produces 25,500 units. From the information given, compute the depreciation charge for 2011 under each of the following methods. (Round to the nearest dollar)
(a) Straight-line. (b) Units-of-output. (c) Working hours. (d) Sum-of-the-years -digits. (e) Double-declining-balance.
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Purchase of Equipment with Zero-Interest-Bearing Debt Sterling Inc. has decided to purchase equipment from Central Michigan Industries on January 2, 2010, to expand its production capacity to meet customer demand for its product. Sterling issues a $900,000, 5-year, zero-interest-bearing note to Central Michigan for the new equipment when the prevailing market rate of interest for obligations of this nature is 12%. The company will pay off the note in five $180,000 installments due at the end of each year over the life of the note.
(a) Prepare the journal entry (ies) at the date of purchase. (Round to nearest dollar in all computations.) (b) Prepare the journal entry (ies) at the end of the first year to record the payment and interest, assuming that the company employs the effective-interest method. (c) Prepare the journal entry (ies) at the end of the second year to record the payment and interest. (d) Assuming that the equipment had a 10-year life and no salvage value, prepare the journal entry necessary to record depreciation in the first year. (Straight-line depreciation is employed.) McCormick Corporation Ltd., a public company following IFRS, recorded a finance lease at $150,000 on May 1, 2011. The interest rate is 10%. McCormick Corporation made the first lease payment of $25,561 on May 1, 2011.
The lease requires a total of eight annual payments. The equipment has a useful life of eight years with no residual value. Prepare McCormick Corporation December 31, 2011 adjusting entries. Merrill Corporation, which uses private enterprise GAAP, enters into a six-year lease of machinery on September 13, 2011, that requires six annual payments of $28,000 each, beginning September 13, 2011. In addition, Merrill guarantees the lessor a residual value of $17,000 at lease end. The machinery has a useful life of six years. Prepare Merrill September 13, 2011 journal entries, assuming an interest rate of 9%.
Bronson, Inc. changed from the average cost formula to the FIFO cost formula in 2011. The increase in the prior years income before taxes as a result of this change is $435,000. The tax rate is 35%. Prepare Bronson 2011 journal entry to record the change in accounting principle, assuming that the company financial statements were determined to have better predictive value as a result of the change.
Bailey Corp. changed depreciation methods in 2011 from straight-line to double-declining-balance because management argued that the change would improve the relevance of the information to financial statement readers. The assets involved were acquired early in 2008 for $185,000 and had an estimated useful life of eight years, with no residual value. The 2011 income using the double-declining-balance method was $490,000. Bailey had 10,000 common shares outstanding all year. What is the effect of the accounting change on the reported income and EPS for 2011? Bailey follows IFRS. Ignore income taxes.
Horace Greeley Corporation was organized in 2013 and began operations at the beginning of 2014. The company is involved in interior design consulting services. The following costs were incurred prior to the start of operations. Instructions (a) Compute the total amount of organization costs incurred by Greeley. (b) Prepare the journal entry to record organization costs for2014. |
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May 2021
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