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Mgmt_200_Fall_2007_Exam_3_Solution(3,25)

# Mgmt_200_Fall_2007_Exam_3_Solution(3,25) - Name PUID Purdue...

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Name: ________________________ PUID: ________________________ Purdue University Krannert School of Management MGMT 200 – Introductory Financial Accounting Fall 2007 Exam 3 – November 13, 2007 - Solution This exam consists of 4 questions on 9 pages (excluding this cover page and the present value tables’ page) for a total of 100 points. Time allowed: 90 minutes. Answer all questions. To ensure full credit and to maximize partial credit, clearly show all supporting calculations. The exam is closed book. A calculator is permitted. Present value tables are provided on the last page. GOOD LUCK . Question 1 (27 points) ________ Question 2 (24 points) ________ Question 3 (25 points) ________ Question 4 (24 points) ________ TOTAL (100 points) ________

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Question 1. Property, Plant, and Equipment (27 points) A. Tribal Corporation purchased a new garbage truck on January 1, 2005. The truck cost \$540,000 and is expected to have an economic life of 6 years and an estimated salvage value of \$36,000. The truck is to be depreciated using the double-declining-balance method. Required: a. Prepare the journal entry to record depreciation expense for 2005. = 2/6 x book value = 1/3 x [540,000 – 0] = \$180,000 Depreciation expense 180,000 Accumulated depreciation 180,000 b. Prepare the journal entry to record depreciation expense for 2006. = 2/6 x book value = 1/3 x [540,000 – 180,000] = \$120,000 Depreciation expense 120,000 Accumulated depreciation 120,000 c. Due to a down-turn in the economy, Tribal Corporation undertook a restructuring in 2007 and sold the garbage truck on August 1, 2007 for \$170,000. Prepare the journal entries to record depreciation expense for 2007 and the sale of the garbage truck on August 1, 2007. = 7/12 x 2/6 x book value = 7/12 x 1/3 x [540,000 – 300,000] = \$46,667 Depreciation expense 46,667 Accumulated depreciation 46,667 Cash 170,000 Accumulated depreciation 346,667 Loss on sale 23,333 Equipment 540,000 Question 1 continued over . . . Mgmt 200 – Exam 3 – Fall 2007 – page 1
Question 1 continued: B. Undulate Corporation reported Property and Equipment, net as at December 31, 2006 of \$174,800. This Property and Equipment had an original cost of \$276,000. Undulate Corporation depreciates its property and equipment using the straight-line method and an estimated salvage value of zero. Depreciation expense for property and equipment for the year ended December 31, 2006 was \$18,400.

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Mgmt_200_Fall_2007_Exam_3_Solution(3,25) - Name PUID Purdue...

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