Question

Acccounting questions I have on capital assets:

1.

The Electric Company buys machinery for $500,000 and gives a promissory note to pay dated 2 years from the purchase date. Interest at 10% and principal are to be repaid at maturity. The life of the asset is also estimated to be two years with no salvage and straight line depreciation is used. The charge to earnings in year 2 resulting from this will be:

$250,000

$300,000

$350,000

None of the above

$200,000

2.

A company sells a piece of equipment half way through the accounting year. The straight-line rate of amortization on the equipment is $40,000 a year. Before recording the asset sale, the company should debit:

amortization expense for $20,000 and credit accumulated amortization for $20,000

none of the above

cash for $20,000 and credit amortization expense for $20,000.

amortization expense for $40,000 and credit long-lived assets for $40,000.

accumulated amortization for $40,000 and credit cash for $40,000

3.

Shark Ltd. buys a building on April 1, 2010 for $600,000. The building will last for 40 years, but Shark expects to use the building for 25 years. At the end of 40 years the building will have no disposal value, but is expected to have a $100,000 disposal value at the end of 25 years. Shark uses the straight-line method of depreciation.


The depreciation expense at for the year-ended December 31, 2010 is:

$7,500

$10,800

$9,375

$11,200

None of the above

4.

Val Ltd. began the year with capital assets of $743,000 and accumulated amortization of $121,000. During the year, capital assets were purchased for $78,000 and capital assets were sold for proceeds of $27,000. Amortization expense for the year was $31,000. At the end of the year, Val had capital assets of $757,000 and accumulated amortization of $103,000. What was the gain/loss on the disposal of capital assets?

$49,000 loss

$12,000 loss

$64,000 gain

Unable to determine from data provided

$12,000 gain

Answer 1

The Electric Company buys machinery for $500,000 and gives a promissory note to pay dated 2 years from the purchase date. Interest at 10% and principal are to be repaid at maturity. The life of the asset is also estimated to be two years with no salvage and straight line depreciation is used. The charge to earnings in year 2 resulting from this will be:
$250,000.00
$300,000.00
$350,000.00
None of the above
$200,000.00
a)
Interest = $500,000 x 10%	$50,000.00
Depreciation = $500,000/2	$250,000.00
Charge to earnings in year 2 resulting	$300,000.00
b)
A company sells a piece of equipment half way through the accounting year. The straight-line rate of amortization on the equipment is $40,000 a year. Before recording the asset sale, the company should debit:
amortization expense for $20,000 and credit accumulated amortization for $20,000
none of the above
cash for $20,000 and credit amortization expense for $20,000.
amortization expense for $40,000 and credit long-lived assets for $40,000.
accumulated amortization for $40,000 and credit cash for $40,000
c)
Shark Ltd. buys a building on April 1, 2010 for $600,000. The building will last for 40 years, but Shark expects to use the building for 25 years. At the end of 40 years the building will have no disposal value, but is expected to have a $100,000 disposal value at the end of 25 years. Shark uses the straight-line method of depreciation.
The depreciation expense at for the year-ended December 31, 2010 is:
$7,500.00
$10,800.00
$9,375.00
$11,200.00
None of the above
Annual Depreciation Expenses = $600,000 - $100,000/40 years	$15,000.00
Depreciation for 9 months = $15000/12 x 9 Months	$11,250.00
d)
Val Ltd. began the year with capital assets of $743,000 and accumulated amortization of $121,000. During the year, capital assets were purchased for $78,000 and capital assets were sold for proceeds of $27,000. Amortization expense for the year was $31,000. At the end of the year, Val had capital assets of $757,000 and accumulated amortization of $103,000. What was the gain/loss on the disposal of capital assets?
$49,000 loss
$12,000 loss
$64,000 gain
Unable to determine from data provided
$12,000 gain
Book value of old machine = $743,000 + $78000 - $757,000	$64,000.00
Accumulated Depreciation old machine = $121000 +31000 - $103000	$49,000.00
Net book value of old machine	$15,000.00
Gain = $27000 - $15000	$12,000.00