Question

1. ) Prepare a depreciation schedule for the assets in the following transactions using the straight line method of depreciation:

A. Flash Enterprises purchased 3 new delivery trucks at a cost of $45,000 each. Each truck has an estimated useful life of 5 years.

B. Flash needed a new forklift to be used in warehouse operations at a cost of $12,500. The old forklift was traded in for $1,500. The new forklift has an estimated useful life of 4 years.

2.) Analyze the results of the below:

A. Flash has an opportunity to sell one of the trucks from (1A) above after 3 years for a price of $19,000. Should they accept the offer? Why or why not?

B. The used forklift from (1B) above had an original cost of $10,000 and a book value of $500 at the time of trade in. Calculate any gain or loss and show the appropriate journal entry.

3. Inventory Evaluation:

Units Units Cost Total Cost

Beginning Inventory 160,000 $2.00 $320,000

Purchase #1 60,000 $2.50 $150,000

Purchase #2 60,000 $3.50 $210,000

Ending Inventory 30,000

A. Calculate the value/cost of ending inventory & cogs using the following methods:

LIFO

FIFO

AVG COST (round unit cost to nearest cent)

B. Assuming the company has NOT determined which inventory method to use, Which method should they use for income tax purposes? Why?

C. The sold units had an average price of $5.00. Calculate gross profit and gross profit % using the method you chose in (B).

Answer 1

1) A. Amount of Depreciation per annum (1 trucks) =

= = $9,000 p.a. PER TRUCK
  

DEPRECIATION SCHEDULE FOR 3 TRUCKS

YEAR	OPENING BALANCE	DEPRECIATION CHARGED	CLOSING BALANCE
1	$135,000 ($45,000*3)	$27,000 ($9000*3)	$108,000
2	$108,000	$27,000	$81,000
3	$81,000	$27,000	$54,000
4	$54,000	$27,000	$27,000
5	$27,000	$27,000	0

B. Amount of depreciation p.a. =

= = $3,125

DEPRECIATION SCHEDULE FOR FORKLIFT

YEAR	OPENING BALANCE	DEPRECIATION CHARGED	closing balance
1	$12,500	$3,125	$9,375
2	$9,375	$3,125	$6,250
3	$6,250	$3,125	$3,125
4	$3,125	$3,125	0

2) A. Book Value of 1 Truck at the end of 3 years = ( Closing Balance of Year 3 in Table above / 3 )
= ($54,000 / 3 )
= $18,000
or = (purchase price - 3 years depreciation )
= ( $45,000 - (3*$9,000)) = $18,000
Sales Price being Offered = $19,000

Since sales price being offered is greater than the book value by $1,000, Flash should sell the truck.

B. Value offered at the time of Trade-In : $1,500
Book Value at the time of trade in : $500
Gain = $1,500 - $500 = $1,000
Journal:
New Forklift Dr. $1,500
To Old Forklift $500
To Profit & Loss A/c $1,000