MGTB06-Midterm Review Question and Answer

MGTB06-Midterm Review Question and Answer - MGTB06...

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
MGTB06 Financial Accounting II – Midterm Exam Review Questions Question 1: Grindstone Corp. (Grindstone) produces fad toys for children. In 2014, Grindstone purchased a new stamping machine to produce the latest fad toy. The machine cost $100,000 plus taxes of $13,000, and delivery and installation of $12,000. Grindstone's management estimates that the market for the toy is about 600,000 units and demand will last no more than three years. Management expects that it will be able to produce and sell 320,000 units in 2014, 210,000 units in 2015, and 70,000 units in 2016. Once the fad dies, the machine won't be useful for any purpose and will have to be sold for scrap, about $4,000. Grindstone will use unit-of-production depreciation for the machine. Required: 1. Prepare the journal entry to record the purchase of the new machine. 2. Prepare a depreciation schedule showing the depreciation expense for each year and the carrying amount of the machine at the end of each year. 3. Suppose that at the end of 2015, Grindstone's management realized the fad had died more quickly than expected and there was no more demand for the toy. Prepare the journal entry to record the sale and any other journal entries required with respect to the machine in 2015. Assume that Grindstone produced and sold 75,000 units in 2015 and received $2,000 from a scrap dealer for the machine. 4. Repeat Requirements (2-3) assuming that Grindstone will use straight-line depreciation for the machine. 5. Repeat Requirements (2-3) assuming that Grindstone will use declining balance depreciation at a rate of 50 percent for the machine. Evaluate the appropriateness of the rate Grindstone will use to depreciate the machine. Page 1
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
MGTB06 Financial Accounting II – Midterm Exam Review Questions Question 2: Arnison Corp. purchased land and a building on May 1, 2011 for $ 385,000. The company paid $ 115,000 in cash and signed a 5% note payable for the balance. The note is due on February 1, 2013. At that time, Arnison estimated that the land was worth $ 150,000 and the building $ 235,000. The building was estimated to have a 25-year useful life with a $ 35,000 residual value, The company has a December 31 year end and uses the single declining balance depreciation. The following are related transactions and adjustments during the next three years: 2011: Dec. 31 Record the annual depreciation. Paid the interest owning on the notes payable. 2012: Feb. 17 Paid $ 225 to have the furnace cleaned and serviced. Dec. 31 Recorded the annual depreciation. Paid the interest owing on the note payable. The land and building were tested for impairment. The land had a net realizable value amount of $ 120,000 and the value in use of $ 110,000. The building has a net realizable value of $ 220,000 and a value in use of $ 240,000. 2013: Jan. 31 Sold the land and building for $ 320,000 cash - $ 110,000 for the land and $ 210,000 for the building. Feb. 1 Paid the note payable and interest owing.
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern