Q1. DBC Corporation purchased a new machine on January 1st, 2010. The cost of this machine was $200,000. The company estimated that the machine would have a salvage value of $20,000 at the end of its service life. Its life is estimated at 5 years and its working hours are estimated at 40,000 hours. (2 Marks)
Calculate deprecation expenses, accumulated depreciation and book value of the machine for each of the year using:
i.Straight Line Method
ii.Declining balance method (Based on twice the straight line rate)
iii.Activity Method if DBC uses the machine hours as follows:
|
Year |
Hours used |
|
2010 |
7,000 |
|
2011 |
8,500 |
|
2012 |
8,000 |
|
2013 |
9,000 |
|
2014 |
7,500 |
You can use following table to present your answer:
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Year |
Depreciation Expense |
Accumulated Depreciation |
Book Value |
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Answer:
Q2. ABC Company exchanged equipment used in its manufacturing operations plus $4,500 in cash for similar equipment used in the operations of XYZ Company. The following information pertains to the exchange: (2 Marks)
|
ABC |
XYZ |
|
|
Equipment (cost) |
$63,000 |
$63,000 |
|
Accumulated Depreciation |
42,750 |
22,500 |
|
Fair value of equipment |
30,375 |
34,875 |
|
Cash given up |
4,500 |
Required:
i. Calculate gain or loss on exchange.
ii. Prepare the journal entries to record the exchange on the books of both companies when:
a)ABC has commercial substance
b)ABC lacks commercial substance
c)XYZ has commercial substance
d)XYZ lacks commercial substance
Answer:
Q3. Discuss the Gross Profit Method and Retail inventory method of estimating inventory. Outline the basic differences between these methods. Provide numerical examples for each method. (1 Mark)
Answer:
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