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ADM 2340C Quiz No. 2 Sol

# ADM 2340C Quiz No. 2 Sol - ADM 2340C Quiz No 2 Fall 2008 25...

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ADM 2340C Quiz No. 2 Fall 2008 . . . . . . . / 25 marks (SOLUTIONS) Question No. 1 (4 marks) Taylor Company has an accounting period which runs from April 1 to March 31. On April 1, 2006, Taylor purchased new machinery for \$200,000. The machinery has an estimated useful life of eight years, and an estimated residual value of \$22,000. Amortization is computed using the double-declining balance method. Required: Calculate the balance in the accumulated amortization account for this machinery at March 31, 2008. Answer : 200,000 x 25 % = \$50,000 to March 31, 2007 Amortization to March 31, 2008 = Book value x 25 % (\$200,000 – \$50,000) x 25 % = \$37,500 Accumulated amortization balance March 31, 2008 = \$50,000 + \$37,500 = \$87,500 . Question No. 2 (4 marks) Raven Incorporated provides a two-year warranty on all its products. Estimates are that warranty costs will be 3% of sales in the year of sale and 5% the following year. Sales and actual warranty costs for Raven’s first two years of operations were as follows: Sales Actual Warranty Costs Incurred During the Year 2006 \$2,000,000 \$ 65,000 2007 \$2,500,000 \$273,000 Required: (a) Calculate the warranty expense and the warranty obligation as at year-end for 2006.

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ADM 2340C Quiz No. 2 Sol - ADM 2340C Quiz No 2 Fall 2008 25...

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