41-49 - HOMEWORK - SPRING 2011 ALL homework assignments...

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HOMEWORK - SPRING 2011 ALL homework assignments must be completed by using some type of computer software program, e.g., word, excel. YOU WILL NOT RECEIVE FULL CREDIT FOR THE HOMEWORK UNLESS IT IS COMPLETED BY USING A COMPUTER. NO CREDIT WILL BE GIVEN FOR LATE HOMEWORK. When completing your homework assignments DO NOT use any abbreviations. As discussed during class, you can work on these homework assignments in groups or as an individual. 41. (3 points) On January 1, 2011, Beach Company signed an eleven-year noncancelable lease for machinery. The terms of the lease called for Beach to make annual payments of $175,000 at the end of each year for eleven years starting December 31, 2011. Title to the machinery passes to Beach at the end of this period. The machinery has an estimated useful life of 16 years and no salvage value. Beach uses the straight-line method of depreciation for all of its fixed assets. At the time the lease was signed, Beach’s incremental borrowing rate was 8%. Prepare the following entries: The January 1, 2011 entry to record signing of the lease The December 31, 2011 entry to record the first lease payment The December 31, 2011 entry to record annual depreciation of the leased machinery 42. (2 points) On January 1, 2011, Sand Company signed a nine-year lease for machinery. The terms of the lease called for Sand to make annual payments of $300,000 at the end of each year for nine years starting December 31, 2011. The machinery has an estimated useful life of 50 years and no salvage value. Sand accounts for the lease transaction as an operating lease. Sand uses the straight-line method of depreciation for all of its fixed assets. At the time the lease was signed, Sand’s incremental borrowing rate was 6%. Prepare the following entries: The January 1, 2011 entry to record signing of the lease. The December 31, 2011 entry to record the first lease payment 43. (2 points) On January 1, 2011, Water Company signed a seven-year lease for machinery. The terms of the lease called for Water to make annual payments of $500,000 at the end of each year for seven years starting December 31, 2011. The machinery has an estimated useful life of 20 years and no salvage value. Water uses the straight-line method of depreciation for all of its fixed assets. At the time the lease was signed, Water’s incremental borrowing rate was 7%. During the last year of the lease, which lease accounting method (operating OR capital) will result in Water reporting a higher amount for income before income taxes? SUPPORT/EXPLAIN YOUR ANSWER . 44. (2 points) Swift Company purchased a machine on January 1, 2008, for $750,000. At the date of acquisition, the machine had an estimated useful life of twelve years with no salvage. The machine is being depreciated on a straight-line basis. On January 1, 2013, Swift determined, as a result of additional information, that the machine had an estimated useful life of nine years from the date of acquisition with
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41-49 - HOMEWORK - SPRING 2011 ALL homework assignments...

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