BACC370-Extra Questions
Spring 2023-2024
PROBLEM ONE:
Instruction:
Put an “X” in the appropriate box to indicate whether the following expenditures are included in
the cost of land, land improvements, or building.
#
Expenditures
1.
Cash purchase price of land $120,000.
2.
Architect’s fees for building plans $10,000.
3.
4.
5.
6.
Land
Land
Improvements
Building
Parking lots and driveways with a total cost
of $18,000.
Demolition and removal costs of the old
building $22,000.
Attorney’s fees for legal services provided
during land purchases $2,000.
Cost of fences $6,000.
Instructions:
a) Write an "X" in the appropriate box to indicate whether each of the following
expenditures should be included or not included in the cost of the machine.
PROBLEM TWO:
Put an X if the transaction is or is not included in the cost of machine.
#
Description
Included
1.
Cash price of $40,000.
2.
Sales taxes of $2,000 and freight costs of $500.
3.
Electricity bill of $200 was paid for the current
month for using the machine.
4.
One year fire insurance policy covering the
machine at a cost of $3,000.
5.
Material and labor costs in installing and testing
the machine of $1,500.
Not Included
b) Prepare the journal entries to record the purchase of the machine and all other
expenditures.
PROBLEM THREE:
On January 1, 2013, Beta Company purchased two buses; the accounting of the company selected
a depreciation method for each bus. Information concerning the buses is summarized here:
Bus
Cost
Salvage
value
Useful life
Actual driven
miles
Depreciation method
1
$25,000
$5,000
5 years
50,000 miles per
year
Double-declining
balance
2
30,000
5,000
2 years
50,000 miles per
year
Units-of-activity
Instructions:
a) Compute the bus 1 depreciation expense for 2013.
b) Prepare the journal entry to record the depreciation on December 31, 2013 for bus 1.
c) Prepare the bus 2 depreciation schedule.
PROBLEM FOUR:
On January 1, 2014, Rim Company purchased a new van at a cost of $30,000 with salvage value
of $3,000. The new van has a useful life of 4 years or 180,000 miles.
During 2014, the van was driven 32,000 miles, while it was driven 44,000 miles in 2015.
Instructions:
a) Compute the depreciation expense for the years 2014 and 2015 assuming that the
company uses the units of activity method.
b) Compute the depreciation expense for the years 2014 and 2015 assuming that the
company uses the declining-balance method.
c) Which method (declining-balance method or units of activity method) results a
decreasing amount in the annual depreciation expense?
a)
Depreciable cost per unit = ($30,000 – $3,000) / 180,000 miles = $0.15/mile
2014 Depreciation Expense = 32,000 miles x 0.15 = $4,800
2015 Depreciation Expense = 44,000 miles x 0.15 = $6,600
b)
DDB Rate = 2 x (100% / 4 years) = 50%
2014 Depreciation Expense = $30,000 x 50% = $15,000
Book Value (beginning 2015) = $30,000 – $15,000 = $15,000
2015 Depreciation Expense = $15,000 x 50% = $7,500
PROBLEM FIVE:
On January 1, 2014; Younger Bus Lines purchased a new bus for $30,000. The estimated salvage
value of the bus was $3,000, and the estimated useful life was 5 years. On January 1, 2017; the
management reviewed the depreciation data and decided to increase the useful life of the bus by
one year. The management also decided to increase the salvage value of the bus to $4,800 due to
its good condition.
Instruction:
Compute the revised annual depreciation expense for the bus.
Depreciation Expense before revising =
$30,000 - $3,000
5 𝑦𝑒𝑎𝑟𝑠
= $5,400/year
Accumulated depreciation before revising = $5,400 x 3 years = $16,200
Net Book Value (January 1, 2017) = $30,000 - $16,200 = $13,800
Revised Annual Depreciation =
$13,800−$4,800
3 𝑦𝑒𝑎𝑟𝑠
= $3,000/year
PROBLEM SIX:
On April 1, 2013, George Company acquired equipment at a cost of $35,000 with a salvage
value of $6,000 and a useful life of 5 years. On January 1, 2016, the company decided to increase
the equipment salvage value to $8,000 and its useful life by one year. George Company uses the
straight-line method of depreciation to depreciate the equipment.
Instructions:
a) Compute the net book value of the equipment on January 1, 2016.
b) Compute the revised annual depreciation expense assuming that the net book value of the
equipment on January 1, 2016 is $19,050.
c) Prepare the journal entry to record the depreciation on December 31, 2016.
) Annual Depreciation Expense before revising = ($35,000 - $6,000) / 5years = $5,800/year
Accumulated Depreciation before revising = ($5,800 x 9/12) + ($5,800 x 2) = $15,950
Net Book Value (January 1, 2016) = $35,000 - $15,950 = $19,050
b) 2016 Revised Annual Depreciation = ($19,050 - $8,000) / 3.25 years = $3,400/year
c)
Date
Dec. 31
Account Title and Explanation
Ref
Depreciation Expense
2016
Debit
Credit
3,400
Accumulated Depreciation - Equipment
3,400
PROBLEM SEVEN:
Consider the below four independent cases on the disposal of plant assets:
Case One
On April 30, 2012, McDonalds Company sold a machine for $48,000
that was purchased on January 1, 2009. The machine costs $85,000,
and had a useful life of 5 years with $10,000 salvage value.
Case Two
On April 30, 2012, Alfa Company exchanged old office equipment
and paid $50,000 for new office equipment. The old office equipment
originally cost $100,000 and had accumulated depreciation to the date
of disposal of $45,000. It is estimated that the fair market value of the
old office equipment on April 30 to be $50,000.
Case Three
Burger King restaurant has a delivery car that costs $15,000 with an
accumulated depreciation of $7,000. The car is traded for a new car
with a fair market value of $18,000, and the company paid $3,500
cash to acquire the new car.
Instructions:
a) Indicate whether the disposal would result in a gain on disposal of plant assets, a loss
on disposal of plant assets or neither.
b) Determine the amount of gain/loss on disposal of plant assets (if any).
Case
Gain on
Disposal
Loss on
Disposal
Neither
AMOUNT
Depreciation Expense = ($85,000 - $10,000) / 5years
= $15,000/year
Accumulated Depreciation = ($15,000 x 3years) +
One
X
($15,000 x 4/12) = $50,000
Book Value = $85,000 - $50,000 = $35,000
 Gain = $48,000 – $35,000 = $13,000
Book Value = $100,000 - $45,000 = $55,000
X
Two
Fair Value (old) = $50,000
 Loss = $55,000 - $50,000 = $5,000
Book Value = $15,000 - $7,000 = $8,000
Three
Fair Value (old) = $18,000 – $3,500 = $14,500
X
 Gain = $6,500
Depreciation Expense = $60,000 / 5years
= $12,000/year
Four
X
Accumulated Depreciation = $12,000 x 5years
= $60,000
Book Value = $60,000 - $60,000 = 0
PROBLEM EIGHT:
Solve the following two independent cases:
Case Two:
On December 31, 2014, HTC Company sold its equipment for $10,600 cash. The equipment was
purchased on January 1, 2008 at a cost of $42,000 with an estimated salvage value of $4,000 and
8 years useful life. The equipment has been depreciated using the straight-line method of
depreciation, and the adjusting entries have been recorded on December 31, 2014.
Instruction:
Prepare the journal entry to record the sale of the office equipment on December 31, 2014.
(Show your calculation)
Case One:
On August 1, 2014, Aramco Inc. traded its old delivery truck (cost $100,000, accumulated
depreciation $90,000) for a new delivery truck. The old truck and $8,000 in cash were given for
the new truck, and the old truck had a fair value of $20,000. Adjusting entry for depreciation has
been recorded prior to disposal.
Instruction:
Prepare the necessary entry to record the exchange of the delivery truck.
PROBLEM NINE:
On September 1, 2014, TDC Inc. borrowed $30,000 from Ram Bank by issuing a 6-month, 7%
note. At maturity, TDC Inc. paid the amount in full to Ram Bank. TDC Inc. prepared its financial
statements annually on December 31.
Instruction:
Prepare the appropriate entries, in the books of TDC Inc., for the:
a) Issuance of the note.
b) Accrual of interest (if any).
c) Payment of principle and interest on the maturity date.
PROBLEM TEN:
On November 1, 2015, Alice Company received $15,000 cash in advance from customers for
services to be provided over the following 5-months. Alice Company prepares its financial
statements annually.
Instruction:
Journalize the above transaction in the books of Alice Company and prepare the appropriate
adjusting entry on December 31, 2015.
PROBLEM ELEVEN:
Select the appropriate answer.
1. An equipment that had an original cost of $70,000 with an estimated salvage value of
$10,000, was sold for cash of $22,000 after 3 years of use. The equipment was depreciated
using the straight-line method of depreciation and it has an annual depreciation expense of
$15,000.
1.1 The estimated useful life of the tractor is:
a. 8 years
b. 4 years
c. 3 years
d. None of the above
1.2 The entry to record the sale will include:
a. Credit Cash $22,000
b. Debit Accumulated Depreciation $45,000
c. Credit Equipment $60,000
d. None of the above
2. On April 1, 2018, Magnum Company purchased a delivery equipment for $88,000, with an
expected useful life of 4 years and an estimated salvage value of $8,000. On January 1, 2021, the
company decided to exchange its old delivery equipment for a similar new one. At the time of
exchange, $60,000 cash was paid and the new delivery equipment had a fair market value of
$92,000. Accumulated depreciation at the date of exchange is:
a. $88,000
b. $148,000
c. $55,000
d. None of the above
PROBLEM TWELVE:
On January 1, 2021 X Company started to construct a building which was completed on
December 31 of the same year. Expenditures were as follows:
April 1
$900,000
May 1
$600,000
September 1
$300,000
December 1
$90,000
To help finance the construction the company borrowed $600,000 on January 1, 2021 on a 4
year, 10% note. Moreover, the company had outstanding all year a 12%, 4 year, $3,000,000
notes payable and a 14%, 6 years, $4,000,000 note payable.
Instructions:
a. Compute the weighted average accumulated expenditure.
b. Compute the weighted average interest rate.
c. Compute the avoidable interest.
d. What is the cost of building?
PROBLEM THIRTEEN:
On October 1, 2021 ABC Company purchased $90,000 of inventory, terms 5/10, n/30. On
October 5 the company returned damaged goods worth $10,000. On October 9 ABC Company
paid for the goods. What is the amount of Cash paid?
PROBLEM FOURTEEN:
King Manufacturing Company purchased a machine on January 1, 2016 at a cost of $60,000. The
company estimates that the useful life of the machine is 5 years and the salvage value is $5,000.
The company uses the Double Declining Balance Method of depreciation.
Year
Book Value
(Year Start)
DDB Rate
Depreciation
Accumulated
Book Value
Expense
Depreciation
(Year End)
$24,000
$36,000
2016
(A)
40%
(B)
2017
(C)
40%
14,400
2018
21,600
40%
8,640
47,040
12,960
2019
12,960
40%
5,184
52,224
7,776
2020
7,776
40%
(D)
55,000
( E)
Instructions: Compute the missing amounts.
PROBLEM FIFTEEN:
38,400
21,600
On March 1, 2020 ABC Company issues a $42,000, four- month, zero- interest bearing note to
Castle National Bank. The present value of the note is $40,000.
Instructions: Record the transaction on March 1, 2020.
Date
Account Title and Explanation
Ref
Debit
Credit
PROBLEM ONE:
#
Description
Included
Not Included
1.
Cash price of $40,000.
X
2.
Sales taxes of $2,000 and freight costs of $500.
X
3.
Electricity bill of $200 was paid for the current
month for using the machine.
X
4.
One year fire insurance policy covering the
machine at a cost of $3,000.
X
5.
Material and labor costs in installing and testing
the machine of $1,500.
X
a)
Date
Account Title and Explanation
Ref
Debit
Credit
2014
Equipment
44,000
Cash
April 10
44,000
($40,000 + $2,000 + $500 + $1,500)
Electricity Expense
April 10
200
Cash
200
Prepaid Insurance
April 10
3,000
Cash
3,000
PROBLEM TWO:
a) DDB Rate = 2 * (100% / 5 years) = 40%
Depreciation expense for 2013 = $25,000 * 40% = $10,000
b)
Date
Account Title and Explanation
December
31, 2013
Depreciation Expense
Ref
Debit
Credit
10,000
Accumulated Depreciation - Equipment
10,000
c) Depreciable Cost = $30,000 - $5,000 = $25,000
Total miles driven = 50,000 miles per year * 2 years = 100,000 miles
Depreciable cost per unit = $25,000 / 100,000 miles = $0.25/mile
Units of
Depreciable
Depreciation
Accumulated Book value
Year
Activity
Cost/Unit
Expense
Depreciation (End of year)
2013
50,000 miles
2014
50,000
$0.25/mile
0.25
$12,500
$12,500
$17,500
12,500
25,000
5,000
PROBLEM THREE:
a)
Depreciable cost per unit = ($30,000 – $3,000) / 180,000 miles = $0.15/mile
2014 Depreciation Expense = 32,000 miles x 0.15 = $4,800
2015 Depreciation Expense = 44,000 miles x 0.15 = $6,600
b)
DDB Rate = 2 x (100% / 4 years) = 50%
2014 Depreciation Expense = $30,000 x 50% = $15,000
Book Value (beginning 2015) = $30,000 – $15,000 = $15,000
2015 Depreciation Expense = $15,000 x 50% = $7,500
PROBLEM FOUR:
Calculation
Depreciation Expense before revising =
$30,000 - $3,000
5 𝑦𝑒𝑎𝑟𝑠
= $5,400/year
Accumulated depreciation before revising = $5,400 x 3 years = $16,200
Net Book Value (January 1, 2017) = $30,000 - $16,200 = $13,800
Revised Annual Depreciation =
$13,800−$4,800
3 𝑦𝑒𝑎𝑟𝑠
= $3,000/year
PROBLEM FIVE:
a) Annual Depreciation Expense before revising = ($35,000 - $6,000) / 5years = $5,800/year
Accumulated Depreciation before revising = ($5,800 x 9/12) + ($5,800 x 2) = $15,950
Net Book Value (January 1, 2016) = $35,000 - $15,950 = $19,050
b) 2016 Revised Annual Depreciation = ($19,050 - $8,000) / 3.25 years = $3,400/year
c)
Date
Account Title and Explanation
Dec. 31
Depreciation Expense
2016
Ref Debit
Credit
3,400
Accumulated Depreciation - Equipment
3,400
PROBLEM SIX:
Case
Gain on
Disposal
Loss on
Disposal
Neither
AMOUNT
Depreciation Expense = ($85,000 - $10,000) / 5years
= $15,000/year
One
X
Accumulated Depreciation = ($15,000 x 3years) +
($15,000 x 4/12) = $50,000
Book Value = $85,000 - $50,000 = $35,000
 Gain = $48,000 – $35,000 = $13,000
Book Value = $100,000 - $45,000 = $55,000
X
Two
Fair Value (old) = $50,000
 Loss = $55,000 - $50,000 = $5,000
Book Value = $15,000 - $7,000 = $8,000
Three
Fair Value (old) = $18,000 – $3,500 = $14,500
X
 Gain = $6,500
Depreciation Expense = $60,000 / 5years
= $12,000/year
Four
X
Accumulated Depreciation = $12,000 x 5years
= $60,000
Book Value = $60,000 - $60,000 = 0
PROBLEM SEVEN:
Case Two:
Calculations:
Depreciation Expense = ($42,000 – $4,000) / 8 years = $4,750/year
Accumulated Depreciation = $4,750 x 7 years = $33,250
Book Value = $42,000 – $33,250 = $8,750
Proceeds from Sale = $10,600 > BV
 Gain on Disposal of plant Assets = $10,600 – $8,750 = $1,850
Date
Account Title and Explanation
Ref
Debit
Cash
10,600
Dec. 31
Accumulated Depreciation – Equipment
33,250
2014
Equipment
Credit
42,000
Gain on Disposal of Plant Assets
1,850
PROBLEM EIGHT:
Case One:
Book Value = $100,000 - $90,000 = $10,000
Fair Market Value = $20,000 > BV
 Gain on disposal of Plant Assets = $20,000 - $10,000 = $10,000
Cost of New Equipment = Cash Paid + Fair Market Value (Old Equipment)
= $8,000 + $20,000
= $28,000
Date
Account Title and Explanation
Ref.
Debit
Credit
Equipment (new)
28,000
Aug 1
Accumulated Depreciation - Equipment
90,000
2014
Equipment (old)
100,000
Cash
8,000
Gain on Disposal of Plant Assets
10,000
PROBLEM NINE:
Date
Account Title and Explanation
Ref
Cash
Debit
Credit
30,000
2014
Notes Payable- Ram Bank
30,000
Sept. 1
Interest Expense
Dec. 31
700
Interest Payable
700
($30,000 x 7% x 4/12)
Notes Payable- Ram Bank
30,000
2015
Interest Expense ($30,000 x 7% x 2/12)
350
March 1
Interest Payable
700
Cash
31,050
PROBLEM TEN:
Date
Account Title and Explanation
2015
Cash
Nov. 1
Ref
Debit
Credit
15,000
Unearned Service Revenue
Unearned Service Revenue
Dec. 31
15,000
6,000
6,000
Service Revenue
($15,000 x 2/5)
PROBLEM 11:
1.1 b
1.2 b
2. c
PROBLEM 12:
#
Expenditures
1. Real estate $200,000.
2.
Land
Land
Improvements
5.
X
Installation $300.
X
Private parking lots and driveways
X
$5,000
Demolition and removal costs of the old
building $30,000.
6. Accrued property taxes $9,000.
7. Cost of property fences $3,000.
PROBLEM 13:
Equipment
X
3. Architect’s fees $10,000.
4.
Building
X
X
X
 Weighted Average Accumulated
Expenditure:
Date
April 1
May 1
September 1
December 1
Actual
Expenditure
Capitalization
Period
$900,000
600,000
300,000
90,000
$1,890,000
9/12
8/12
4/12
1/12
Weighted
Average
Accumulated
Expenditure
$675,000
400,000
100,000
7,500
$1,182,500
 Weighted Average
interest rate:
Debt amount
Interest rate
$3,000,000
4,000,000
0.12
0.14
7,000,000
Interest
Amount
360,000
560,000
$920,000
Weighted Average Interest Rate= 920,000/7,000,00= 0.1314= 13.14%
 Avoidable
Interest:
Weighted
Average
Accumulated
Expenditures
Interest
Rate
Avoidable
Interest
600,000
582,500
0.1
0.1314
60,000
76,541
136,541
 Cost of Building = $1,890,000 + 136,541= $2,026,541
PROBLEM 14:
Date
Account Title and Explanation
March 1,
2020
Cash
Discount on NP
Notes Payable
PROBLEM 15:
80,000 x 0.05= $4,000
Cash paid= $76,000
PROBLEM 16:
Missing amount A is: $60,000
Missing amount B is: $24,000
Missing amount C is: $36,000
Missing amount D is: $2,776
Missing amount E is: $5,000
Ref
Debit
Credit
40,000
2,000
42,000