Question

Kansas Enterprises purchased equipment for $60,000 on January 1, 2015. The equipment is expected to have a five-year life, with a residual value of $5,000 at the end of five years.

(1) Using the straight-line method, depreciation expense for 2015 would be: $   




(2) Using the double-declining balance method, depreciation expense for 2016 would be: $   



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4. Crestview Estates purchased a tractor on January 1, 2015, for $65,000. The tractor’s useful life is estimated to be 30,000 miles and has a residual value of $5,000. If Crestview used the tractor 5,000 miles in 2015 and 3,000 miles in 2016, what is the balance for accumulated depreciation at the end of 2016 using the activity-based method?

$   



5. The Surf’s Up issues 2,000 shares of 5%, $100 par value preferred stock at the beginning of 2014. All remaining shares are common stock. The company was not able to pay dividends in 2014, but plans to pay dividends of $28,000 in 2015. Assuming the preferred stock is cumulative.  

(1) The annual cash dividend normally paid to preferred stock is:

$   



(2) The cash dividend paid to common stockholders in 2015 is:

$   

Answer 1

Question 3

Calculations

Straight line Method
A	Cost		$ 60,000.00
B	Residual Value		$    5,000.00
C=A - B	Depreciable base		$ 55,000.00
D	Life [in years]		5
E=C/D	Annual SLM depreciation		$ 11,000.00

Year	Book Value	Depreciation expense	Ending Book Value	Accumulated Depreciation
2015	$     60,000.00	$ 11,000.00	$         49,000.00	$       11,000.00

Double-declining balance method

A	Cost	$ 60,000.00
B	Residual Value	$    5,000.00
C=A - B	Depreciable base	$ 55,000.00
D	Life [in years]	5
E=C/D	Annual SLM depreciation	$ 11,000.00
F=E/C	SLM Rate	20.00%
G=F x 2	DDB Rate	40.00%

Year	Beginning Book Value	Depreciation rate	Depreciation expense	Ending Book Value	Accumulated Depreciation
2015	$     60,000.00	40.00%	$         24,000.00	$       36,000.00	$        24,000.00

1. Using the straight-line method, depreciation expense for 2015 would be: $ 11,000.
2. Using the double-declining balance method, depreciation expense for 2016 would be: $ 24,000.00

Question 4

Calculations

Activity-based method of depreciation

A	Cost	$ 65,000.00
B	Residual Value	$    5,000.00
C=A - B	Depreciable base	$ 60,000.00
D	Usage in Miles	30000
E	Depreciation per Mile	$ 2.00

Year	Book Value	Usage	Depreciation expense	Ending Book Value	Accumulated Depreciation
2015	$     65,000.00	5000	$ 10,000.00	$ 55,000.00	$ 10,000.00
2016	$     55,000.00	3000	$    6,000.00	$ 49,000.00	$ 16,000.00

Balance for accumulated depreciation at the end of 2016 using the activity-based method will be $ 16000.

Question 5

Calculations

Number of preference shares (A)	Par value(B)	Issue value of Shares (C=AxB)	Interest on Cumulative preference shares shares (Cx5%)
2000	$ 100.00	$ 200,000.00	$ 10,000.00

Dividends on Cumulative Preference shares

Year 2014	$ 10,000.00
Year 2015	$ 10,000.00
Total Dividends Payable	$ 20,000.00

Dividends available for Common stockholders

Total Dividends to be paid	$ 28,000.00
Less : Dividends on Cumulative preference shares	$ 20,000.00
Dividend paid to Common Stock	$    8,000.00

1. The annual cash dividend normally paid to preferred stock is $ 10,000 per year.
2. The cash dividend paid to common stockholders in 2015 is: $ 8,000.