AC301Unit 5 Excel Homework - P11­1 Depreciation Methods...

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Unformatted text preview: P11­1 Depreciation Methods The Winsey Company purchased equipment on January 2, 2010, for $700,000. The eq has the following characteristics: Estimated service life 20 years Estimated residual value $50,000 100,000 hours 950,000 units of output During 2010 and 2011, the company used the machine for 4,500 and 5,500 hours, respectively, and produced 40,00 60,000 units, respectively. Required Compute the depreciation for 2010 and 2011 under each of the following methods: 1. Straight­line $700,000­$50,000/20 years = $32,500 per year Depreciation : 2. Hours worked $700,000 ­ $50,000 / 100,000 hours = $6.50 per year Depreciation: 3. Units of output For 20 years = Depreciation: 5. Double­declining­balance Straight­line rate Depreciation: 6. 150%­declining­balance 2010 2011 $700,000­$50,000/950,000 units = $0.68 per unit Depreciation: 4. Sum­of­the­years’­digits 2010 $32,500 Straight­line rate 2010 2011 20 (21)/2 2010 2011 1/20 = 2010 2011 1/20= Depreciation: 2010 2011 7. Compute the company’s return on assets (net income divided by average total assets, as discussed in Chapter 6) method for 2010 and 2011, assuming that income before depreciation is $100,000. For simplicity, use ending assets ignore interest, income taxes, and other assets. Straight ­ Line RTN on total assets for 2010 = 2010 2011 Hours worked Units of output sum of the years digits Double declining balance 150% declining balance 100,000­32,500/700,000 ­ 32,500 = 10. 100000 ­ 32,500/700,000 ­ (32,500 + 32 2010 2011 100,000 ­ 29,250/700,000 ­ 29,250 = 10 100,000 ­ 35,750/ 700,000 ­ (29,250 + 3 2010 2011 100,000 ­ 27,200/700,000 ­ 27,200 = 10 100,000 ­ 40,800/700,000 ­ (27,200 + 4 2010 2011 100,000 ­ 61,905/700,000 ­ 61,905 = 6. 100,000 ­ 58,810/700,000 ­ (61,905 +58 2010 2011 100,000 ­ 70,000/700,000 ­ 70,000 = 4. 100,000 ­ 63,000 /700,000 ­ (70,000 + 6 2010 2011 100,000 ­ 52,500/700,000 ­ 52,500 = 7. 100,000 ­ 48,563 /700,000 ­(52,500 + 4 January 2, 2010, for $700,000. The equipment ours, respectively, and produced 40,000 and years = $32,500 per year 2011 $32,500 00,000 hours = $6.50 per year 6.5 4500 hours 6.5 4501 hours $29,250 $35,750 ,000 units = $0.68 per unit 0.68 40,000 units 0.68 60,000 units $27,200 $40,800 210 20/210 19/210 (700,000­50,000) (700,000­50,000) 61,905 58,810 5% 700,000 (2x5%) 700000 ­ 700,000 (2 x 5%) 5% 70,000 63,000 700,000 (1.5 x 5%) 700,000 ­ 70,000 (2 x 5%) 52,500 48,563 total assets, as discussed in Chapter 6) for each 0,000. For simplicity, use ending assets, and net income/Total assets 00,000­32,500/700,000 ­ 32,500 = 10.1% 00000 ­ 32,500/700,000 ­ (32,500 + 32,500) = 10.6% 00,000 ­ 29,250/700,000 ­ 29,250 = 10.6% 00,000 ­ 35,750/ 700,000 ­ (29,250 + 35,750) = 10.1% 00,000 ­ 27,200/700,000 ­ 27,200 = 10.8% 00,000 ­ 40,800/700,000 ­ (27,200 + 40,800) = 9.4% 00,000 ­ 61,905/700,000 ­ 61,905 = 6.0% 00,000 ­ 58,810/700,000 ­ (61,905 +58,8810) = 7.1% 00,000 ­ 70,000/700,000 ­ 70,000 = 4.8% 00,000 ­ 63,000 /700,000 ­ (70,000 + 63,000) = 7.3% 00,000 ­ 52,500/700,000 ­ 52,500 = 7.3% 00,000 ­ 48,563 /700,000 ­(52,500 + 48,563) = 8.6% P11­11 Depreciation for Financial Statements and Income Tax Purposes The Hunter Company purchased a light tru January 2, 2010 for $18,000. The truck, which will be used for deliveries, has the following characteristics: Estimated life: 5 years Estimated residual value: $3,000 Depreciation for financial statements: straight­line Depreciation for income tax purposes: MACRS (three­year­life) From 2010 through 2014, each year, the company hadsales of $100,000, cost of goods sold of $60,000, and opera expenses (excluding depreciation) of $15,000. The truck was disposed of on December 31, 2014 for $2,000. Required 1. Prepare an income statement for financial reporting through pretax accounting income for each of the five years, through 2014. 2. Prepare, instead, an income statement for income tax purposes through taxable income for each of the five years through 2014. 3. Compare the total income for all five years under Requirement 1 and Requirement 2. Sales cogs gross profit Op expense Dep expense Loss on disposal pretax accounting income 2010 100,000 ­60,000 40,000 ­15,000 ­3,000 0 22,000 sales cogs gross profit op expense Dep expense gain on disposal taxable income 2,010 100,000 ­60,000 40,000 ­15,000 ­5,999 (18,000 x 44.45%) 0 19,001 (18,000 x 33.33%) 2011 100,000 ­60,000 40,000 ­15,000 ­3,000 0 22,000 total pretax accounting 109,000(22,000+22,000+22,000+22,000+21,000) total taxable income 109,000(19,001+16,999+22,334+23,666+27,000) 2012 100,000 ­60,000 40,000 ­15,000 ­3,000 0 22,000 2,011 100,000 ­60,000 40,000 ­15,000 ­8,001 0 16,999 y purchased a light truck on aracteristics: of $60,000, and operating 014 for $2,000. each of the five years, 2010 r each of the five years, 2010 2013 100,000 ­60,000 40,000 ­15,000 ­3,000 0 22,000 (18,000 x 14.81%) 2014 100,000 ­60,000 40,000 ­15,000 ­3,000 ­1,000 21,000 2,012 100,000 ­60,000 40,000 ­15,000 ­2,666 (18,000 x 7.41%) 0 22,334 cost ­ residual value/life = 18,000 ­ 3000/5 = 3,000 2013 100,000 ­60,000 40,000 ­15,000 ­1,334 0 23,666 2014 100,000 ­60,000 40,000 ­15,000 ­3,000 0 27,000 P11­14 Changes and Corrections of Depreciation During 2010, the controller of the Ryel Company asked you to pre correcting journal entries for the following three situations: 1. Machine A was purchased for $50,000 on January 1, 2005. Straight­line depreciation has been recorded for five y and the Accumulated Depreciation account has a balance of $25,000. The estimated residual value remains at $5,0 but the service life is now estimated to be one year longer than estimated originally. 2. Machine B was purchased for $40,000 on January 1, 2008. It had an estimated residual value of $5,000 and an e service life of 10 years. It has been depreciated under the double­declining­balance method for two years. Now, at t beginning of the third year, Ryel has decided to change to the straight­line method. 3. Machine C was purchased for $20,000 on January 1, 2009. Double­declining­balance depreciation has been reco one year. The estimated residual value of the machine is $2,000 and the estimated service life is five years. The com of the depreciation erroneously included the estimated residual value. Required Prepare any necessary correcting journal entries for each situation. Also prepare the journal entry necessary for eac to record the depreciation for 2010. (Assume that the debit is to Depreciation Expense.) 1 change in estimate original life = depreciation base/annual depreciation = 25,000/5 remaining life = (9/5) years + 1 year = 5 years depreciation = book value ­ residual value/remaining life = depreciation exp Accum depreciation for machine a 2 change in depreciation 2008 40,000 x (2 x 10%) 2009 (40,000 ­ 8000) x 2 x 10% 8000 6400 14,400 book value = 40,000 ­ 14,400 = 25,600 depreciation = book value ­ residual value/life 25,600 ­ 5000/8 = depreciation expense accum depreciation Machine B 3 error for period adjustment error numbers correct depreciation 2010 correct deprec retained earnings Machine C accum depreciation prior adjust for error (8,000­7,200) depreciation exp accum depreciation for Machine C l Company asked you to prepare has been recorded for five years, sidual value remains at $5,000, ual value of $5,000 and an estimated thod for two years. Now, at the e depreciation has been recorded for vice life is five years. The computation urnal entry necessary for each situation 45,000/5,000 = 9years ar = 5 years 25,000 ­ 5,000/5 = 4,000 5,600 ­ 5000/8 = 2575 4,000 per year 4,000 2,575 per yr 2575 (20,000 ­ 2,000) x (2 x 20%) = 7,200 (20,000) x (2x20%) = 8,000 (20,000 ­ 8,000) x 2x20%) = 4,800 800 4800 800 4800 ...
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This note was uploaded on 07/10/2011 for the course ACCOUNTING 116 - 301 taught by Professor Levine during the Spring '11 term at Kaplan University.

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