7111AFE_Solution_Topic09_new

# 7111AFE_Solution_Topic09_new - 7111AFE Tutorial Solution...

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7111AFE Tutorial Solution: Topic 9 (10-15 min.) E 11-6 Depreciation Expense Per Year Year Straight-Line Units-of-Production Reducing-Balance 20X6 \$ 3,000 \$ 1,200 \$ 4,965 20X7 3,000 3,600 3,322 20X8 3,000 2,160 1,856.5 20X9 3,000 2,400 1,856.5 \$12,000 \$12,000 \$12,000 __________ Calculations: Straight-line: (\$15,000 - \$3,000) ÷ 4 = \$3,000 per year. Units-of-production: (\$15,000 - \$3,000) ÷ 1,000 operations = \$12 per operation; 100 x \$12= \$1,200; 300 x \$12 = \$3,600; 400 x \$12 = \$4,800; 200 x \$12 = \$2,400. Reducing-balance: \$15,000 x (1 - .669 = .331) = \$4,965; (\$15,000 - \$4,965) x .331= \$3,322; Switching to straight-line method (\$15,000 - \$4,965 - \$3,322) = \$6,713 - \$3,000 residual value = \$3,713 ÷ 2 = \$1,856.5 The units-of-production method tracks the wear and tear on the equipment most closely. For income-tax purposes, the reducing-balance method is best because it provides the most depreciation and thus the largest tax deductions in the early life of the asset. This conserves cash.

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(10-15 min.) E 11-11 General Journal DATE ACCOUNT TITLES AND EXPLANATIONS POST. REF. DEBIT CREDIT 20X4 Jul. 1 Accumulated Depreciation - Property 500,000 Property 1,000,000 Asset Revaluation Reserve 1,500,000 Jun. 30 Depreciation Expense (\$3,000,000 ÷ 20) 150,000 Accumulated Depreciation - Property 150,000 20X5 20X6 20X7 Jun. 30 Depreciation Expense 150,000 Accumulated Depreciation - Property 150,000 20X7 Jul. 1 Accumulated Depreciation - Property (\$150,000 x 4) 600,000 Asset Revaluation Reserve 200,000 Property 800,000
(10-15 min.) E 11-12 General Journal DATE

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