|Accounting I||© 2008 Tibebe S. Mengistu|
A Transport Company has many trucks that are kept for a useful life of 300,000 miles. Depreciation is computed on a mileage basis. Suppose a new truck is purchased for $68,000 cash. Its expected residual value is $5,000. Its mileage during year 1 is 60,000 and during year 2 is 90,000.
1. What is the depreciation expense for each of the two years?
2. Compute the gain or loss if the truck is sold for $40,000 at the end of year two.
The Coca-Cola Company balance sheet of December 31, 1999 included the following ($ in millions):
Property, plant and equipment
Less allowances for depreciation
Note that the company uses "allowance for" instead of "accumulated" depreciation. Assume that on January 1, 2000 some new bottling equipment was acquired for $2.4 million cash. The equipment had an expected useful life of 5 years and an expected terminal scrap value of $200,000. Straight-line depreciation was used.
1. Prepare the journal entry that would be made annually for depreciation.
2. Suppose some of the equipment with an original cost of $55,000 on January 1, 2000, and an expected terminal scrape value of $5,000 was sold for $32,000 cash 2 years later. Prepare the journal entry for the sale.
3. Refer to requirement 2. Suppose the equipment had been sold for $40,000 cash instead of $32,000. Prepare the journal entry for the sale.
ABC Company began business with cash and common stock equity of $150,000. The same day, December 31, 20X1, the company acquired equipment for $50,000 cash. The equipment had an expected useful life of 5 years and a predicted residual value of $5,000. The first year's operations generated cash sales of $180,000 and cash operating expenses of $100,000.
1. Prepare an analysis of income and cash flow for the year 20X2. Assume
a. straight-line depreciation and
b. double declining balance (DDB) depreciation. Assume an income tax rate of 40%. Income taxes are paid in cash. The company uses the same depreciation method for reporting to shareholders and to income tax authorities.
2. Examine your answer to requirement 1. Does depreciation provide cash?
3. Suppose depreciation were tripled under straight-line and DDB methods. How would before tax cash flow be affected?
A Clinic acquired X-ray equipment for $29,000 with an expected useful life of 5 years and a $4,000 expected residual value. Straight-line depreciation was used. The equipment was sold at the end of the fourth year for $12,000 cash.
1. Compute the gain or loss on the sale. Where and how would the sale appear on the income statement?
2. Show the journal entries for the transaction in requirement 1.
3. Repeat 2, assuming that the cash sales price was $7,000 instead of $12,000.
A zinc mine contains an estimated 900,000 tons of zinc ore. The mine cost $14.4 million. The tonnage mined during 20X4, the first year of operations, was 120,000 tons.
1. What was the depletion for 20X4?
2. Suppose that in 20X5 a total of 100,000 tons were mined. What depletion expense would be charged for 20X5?