Question

7.

Johnson Co. uses the production method to depreciate its manufacturing equipment. The equipment cost $120,000 and has an estimated useful life of 100,000 machine hours, with a $10,000 residual value. What would be the depreciation expense for the current period if the machine was used for 800 machine hours?

		a. $960
		b. $920
		c. $1,040
		d. $880

8.

A truck was purchased for $25,000. It had a five-year life and a $4,000 residual value. Under the double-declining-balance method, what is depreciation expense in year two?

		a. $6,000
		b. $5,040
		c. $8,000
		d. $8,400

9.

A note made on July 24 and due in 90 days will mature on what date?

		a. October 23
		b. October 21
		c. October 22
		d. October 24

10.

Assume that the semi-annual cash payments on a particular bond issue are $25,000, and that the accrued interest on the bonds for the first 6 month period is only $24,300. The carrying value of the bonds will change by an amount of:

		a. $700 decrease
		b. $700 increase
		c. cannot be determined from the information given

Answer 1

Answer:

1)

Depreciation expense for Current Period         =    ( Cost of Equipment (-) Residual Value) / Useful life x Hours Used         =    ( $ 120,000 (-) $ 10,000 ) / 100,000 Hours x 800 Hours          =     $ 1.10 x 800 hours          =    $ 880

Depreciation expense for Current Period = $ 880 Option (d) is Correct

2)

Depreciation rate under Double decling balance method         = 2 x 1 /useful life x 100         = 2 x 1/ 5 x 100         = 40%

Deprecition for first year as per Double decling balance method           = (Cost (-) Accumulated Dep) x Depreciation rate           = ( $ 25,000 (-) $ 0 ) x 40%           = $ 10,000

Deprecition for Second year as per Double decling balance method           = (Cost (-) Accumulated Dep) x Depreciation rate           = ( $ 25,000 (-) $ $ 10,000 ) x 40%           = $ 6,000

Depreciation expense in year - 2 = $ 6,000 Option (a) is Correct

3)

Date of Note = July 24

Maturity date =   July 7 days + Aug. 31 days + Sept. 30 days + Oct. 22 days

Maturity date   = October 22 Option (c ) is Correct

4)

Carrying value of the bonds                = issue price (-) Accrued interest                = $ 25,000 (-) $ 24,300                 =     $ 700 decrease

Option (a) is Correct