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# Exam3solutions - MGT 340 ONLINE EXAM 3 CHAPTERS 10-12 FALL...

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MGT 340 ONLINE EXAM 3 CHAPTERS 10-12 FALL 2007 NAME ____ Answer Key _____________________ General Instructions: The exam should be completed with no assistance. You MUST show ALL your calculations in order to receive full credit. Problem 1 (8 pts) Eli Company purchased assets of Whitney Inc. at auction for \$1,560,000. An independent appraisal of the market value of the assets acquired is listed below: Land \$171,600 Building 514,800 Equipment 600,600 Inventories 429,000 Required: Prepare the journal entry to record the purchase of the assets. Answer: Appraised Allocated Values Percent Costs Land \$171,600 10% \$156,000 Building 514,800 30 468,000 Equipment 600,600 35 546,000 Inventory 429,000 25 390,000 \$1,716,000 100% \$1,560,000 Land 156,000 Building 468,000 Equipment 546,000 Inventory 390,000 Cash 1,560,000 1

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Problem 2 (8 pts) Eckland Manufacturing Co. purchased equipment on January 1, 2004, at a cost of \$90,000. Depreciation for 2004 and 2005 was based on an estimated eight-year life and \$2,000 estimated residual value. In 2006, Eckland revised its estimate and now believes the equipment will have a total service life of only six years and a \$8,000 residual value. Required: Compute depreciation expense for 2006 and 2007. Answer: Cost \$90,000 Residual value 2,000 Depreciable base 88,000 Estimated life (years) ÷ 8 Annual depreciation charge (2004 and 2005) \$11,000 Cost \$90,000 Depreciation: 2004 \$11,000 2005 11,000 22,000 Book value, Dec. 31, 2005 68,000 Residual value 8,000 Remaining depreciable base 60,000 Remaining life (years) ÷ 4 Annual depreciation expense 2006 and 2007 \$15,000 2
Problem 3 – (25 pts) Arrow Construction Company, Inc., is constructing an office building for its own use. The following expenditures relating to the construction of the office building were made during the 2002: Total construction expenditures: January 2, 2002. ............................................................................ \$500,000 April 1, 2002. ................................................................................ 500,000 October 1, 2002. ............................................................................ 400,000 Outstanding company debt: \$800,000 note issue directly related to the new office building; interest rate, 12%; term, 5 years from beginning of construction \$400,000 bond issued just prior to construction of building; interest rate, 10% for 10 years

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Exam3solutions - MGT 340 ONLINE EXAM 3 CHAPTERS 10-12 FALL...

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