Exam I - Key

# Exam I - Key - Wayne State University ACC 5110 Exam I...

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Wayne State University ACC 5110 Exam I Winter 2010 ANSWER SHEET NAME_____________ KEY ______________________ MULTIPLE CHOICE ANSWERS: 1) A 2) B 3) C 4) D 5) C 6) B 7) C 8) C 9) B 10) C 11) A (or C) 12) C 13) A 14) A 15) C 16) A 17) A 18) D 19) C 20) C

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Problem 1 (15 points) On July 1, 2006, Nyland Company purchased for \$2,160,000 building having an estimated useful life of 5 years with an estimated salvage value of \$90,000. Depreciation is taken for the portion of the year the asset is used. On January 1, 2008, Nyland Company finished the attic of the building at a cost of \$30,000 to provide an additional office. This expenditure does not impact the useful life and salvage value of the building. On March 31, 2008, Management of Nyland Company sells this asset for \$1,700,000. (a)Complete the form below by determining the depreciation expense and year-end book values for 2006 and 2007 using the 1. sum-of-the-years'-digits method. 2. double-declining balance method. Sum-of-the-Years'-Digits Method 2006 2007 Equipment \$2,160,000 \$2,160,000 Less: Accumulated Depreciation 345,000 _ 966,000 _ Year-End Book Value 1,815,000 1,194,000 Depreciation Expense for the Year 345,000 _ 621,000 Double-Declining Balance Method Equipment \$2,160,000 \$2,160,000 Less: Accumulated Depreciation 432,000 _ 1,123,200 Year-End Book Value 1,728,000 1,036,800 Depreciation Expense for the Year 432,000 _ 691,200 (b) Prepare the journal entry to record the sale of the asset on March 31, 2008. Assume that the company depreciates the asset using straight-line method. Gain from sale of asset: Sale price \$1,700,000 Carrying value Cost \$2,160,000 Capitalized expenditure 30,000 Accumulated Dep. (as of 12/31/07) (621,000) (Dep.exp in 2008) (123,250) \$1,445,750 Gain from sale \$254,250 Dr. Cash 1,700,000 Acc.dep 744,250 (=207,000 + 414,000 + 123,250 (=(2,160,000 + 30,000 – 621,000 – 90,000)/3yrs *3/12))
Cr. Equipment 2,190,000 Gain 254,250

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Problem 2 (20 points) Eaton Company, which was formed on July 1, 2009, paid \$870,000 to acquire all of the common stock of Porter Corporation, which became the Porter reporting unit of Eaton, on July 1, 2009. At the time of Porter’s balance sheet reported assets of \$750,000 and liabilities of \$250,000. The fair value of Porter’s asset is estimated to be \$900,000 and the fair value of Porter’s liabilities is same as the book value of the liabilities. Included in the assets is the Porter trademark with a fair value of \$12,000 and a copyright with a fair value of \$36,000. The trademark has a remaining
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## This note was uploaded on 01/18/2011 for the course ACC 5110 taught by Professor Lee during the Winter '10 term at Wayne State University.

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Exam I - Key - Wayne State University ACC 5110 Exam I...

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