Question

Selected ledger account balances for Business Solutions follow.

	For Three Months Ended December 31, 2019			For Three Months Ended March 31, 2020
Office equipment	$	8,000		$	8,000
Accumulated depreciation—Office equipment		400			800
Computer equipment		20,000			20,000
Accumulated depreciation—Computer equipment		1,250			2,500
Total revenue		31,284			44,000
Total assets		83,460			120,268

Required:
1. Assume that Business Solutions does not acquire additional office equipment or computer equipment in 2020. Compute amounts for the year ended December 31, 2020, for Depreciation expense—Office equipment and for Depreciation expense—Computer equipment (assume use of the straight-line method).
2. Given the assumptions in part 1, what is the book value of both the office equipment and the computer equipment as of December 31, 2020?
3. Compute the three-month total asset turnover for Business Solutions as of March 31, 2020.

Required 1: Depreciation Expense for:

Office Equipment-

Computer Equipment-

Required 2: Book value for:

Office equipment-

computer equipment-

Required 3:

Total asset turnover-

Answer 1

SOLUTION

PLEASE NOTE AS NO INFORMATION IS PROVIDED FOR QUATER ENDING DECEMBER 31,2019 AND FOR CALCULATION OF DEPRECIATION , IT HAS BEEN ASSUMED THAT COMPANY IS STARTED ON 1 JAN 2020 .

1. . DEPRECIATION EXPENSE - OFFICE EQUIPMENT FOR YEAR ENDING DECEMBER 31,2020

As provision for depreciation is $ 400 for 3 months, for whole year it shall be = $ 400*12/3 = $ 1600

rate of depreciation under straight line method = 1600/8000*100 = 20%

Thus depreciation on office equipment for year ending december ,31 2020= $8000*20% = $ 1600

.DEPRECIATION EXPENSE - COMPUTER EQUIPMENT FOR YEAR ENDING DECEMBER 31,2020

As provision for depreciation is $ 1,250 for 3 months ,for whole year it shall be = $ 1,250*12/3 = $ 5000

rate of depreciation under straight line method = 5000/20000*100 = 25%

Thus depreciation on computer equipment for year ending december 31, 2020= $20000*25% = $ 5000

2. Book value as at December 31,2020

Office equipment ( Book value as at dec 31, 2020) =$ 8000-1600 = $ 6,400

Computer equipment ( Book value as at dec 31, 2020) =$ 20,000-5000 = $ 15,000

3.TOTAL ASSETS TURNOVER RATIO = TOTAL REVENUE / TOTAL ASSETS =31,284/83,460=0.374

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