Question

In: Accounting

The following information relates to R-U Ready Company, a publicly traded company: R. U. Ready acquired...

The following information relates to R-U Ready Company, a publicly traded company:

  1. R. U. Ready acquired Machine B on 1/1/13 by signing a 9% installment note to be paid in 5 equal installments of $65,000. Each payment is due on 12/31, with the first payment due 12/31/13. The useful life of Machine B is 8 years with no residual value. Assume double declining balance depreciation.

Requirement:

Present the accounts and dollar amounts that would appear on comparative balance sheets and income statements for the years ending 12/31/16 and 12/31/15.

List all accounts and dollar amounts. Round dollar amounts to the nearest dollar. You do not need to include cash.  

  • For the Classification (Class) column of the Balance Sheet use:
  • A for Asset
  • L for Liability
  • E for Equity

For the Classification (Class) column of the Income Statement use:

  • R for Revenue
  • E for Expense

Solutions

Expert Solution

Cost of the asset = Annuity x [ { 1 - ( 1 / 1+r) n} / r ] = $ 65,000 x [ { 1 - ( 1 / 1.09 ) 5 } / 0.09 ] = $ 65,000 x 3.8897 = $ 252,830

Double declining rate of depreciation = 100 / 8 years * 2 = 25 %

Balance Sheet
12/31/16 12/31/15
Asset
Cost 252,830 252,830
Less: Accumulated Depreciation 172,834 146,168
Asset, net of depreciation 79,996 106,662
Liability
Note Payable 59,637 114,346
Income Statement
Year ended 12/31/16 Year ended 12/31/15
Expense
Depreciation Expense 26,666 35,554
Interest Expense 10,291 14,808

Workings:

Amortization Schedule of Note Payable:

Date Amount Paid Interest Expense Principal Repaid Carrying Amount of Note Payable
1/1/13 252,830
12/31/13 65,000 22,755 42,245 210,585
12/31/14 65,000 18,953 46,047 164,538
12/31/15 65,000 14,808 50,192 114,346
12/31/16 65,000 10,291 54,709 59,637
12/31/17 65,000 5,363 59,637 0

Schedule of Depreciation:

Year Ended Depreciation Expense Accumulated Depreciation Book Value
1/1/13 252,830
12/31/13 63,208 63,208 189,622
12/31/14 47,406 110,614 142,216
12/31/15 35,554 146,168 106,662
12/31/16 26,666 172,834 79,996

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