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Section A - Quiz No. 1 Sol

Section A - Quiz No. 1 Sol - ADM 2340 A Quiz No 1 Financial...

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ADM 2340 A Quiz No. 1 Financial Accounting - Fall 2006 (Solutions) Question No. 1 (4 marks) Kwan Corporation started operations on January 1, 2005. It is now December 31, 2005, the end of the fiscal year. The part-time bookkeeper needs your help in analyzing the following three transactions: (a) On January 1, 2005, the company purchased a special machine for a cash cost of $12,000. The machine has an estimated useful life of 10 years and no residual value. (b) During 2005, the company purchased office supplies that cost $1,400. At the end of 2005, office supplies worth $350 remained on hand. (c) On July 1, 2005, the company paid cash of $600 for an 18-month insurance policy on the machine. Coverage begins on July 1, 2005. Required: Complete the following schedule of the amounts that should be reported for 2005. Answer : Selected Balance Sheet Amounts at December 31, 2005: Assets: Equipment (recorded at cost per cost principle) $12,000 Accumulated amortization (for one year, $12,000 ÷ 10 yrs.) (1,200 ) Carrying value of equipment (difference) 10,800 Office supplies inventory (on hand, as given) 350 Prepaid insurance (remaining coverage, $600 x 12/18 months) 400 Selected Income Statement Amounts for the Year Ended December 31, 2005: Amortization expense (for one year, $12,000 ÷ 10 yrs.) $ 1,200
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