Question

Question 4

A machine was acquired on January 1, 2015, at a cost of $80,000. The machine was originally estimated to have a residual value of $5,000 and an estimated life of 5 years. The machine is expected to produce a total of 100,000 components during its life, as follows: 15,000 in 2015, 20,000 in 2016, 20,000 in 2017, 30,000 in 2018, and 15,000 in 2019.

Instructions

(a)   Calculate the amount of depreciation to be charged each year, using each of the following methods:

       1.    Straight-line method

       2.    Units-of-production

       3.    Double diminishing-balance

(b)   Which method results in the highest depreciation expense during the first two years? Over all five years?

Question 5

Certossi Service Ltd. uses straight-line depreciation. The company's fiscal year end is December 31. The following transactions and events occurred during their first three years of operations:

2014    Jul       1          Purchased equipment for $32,000 cash, with shipping costs of $2,000.

            Nov     3          Incurred ordinary repairs on the computer of $360.

            Dec     31        Recorded 2014 depreciation on the basis of a four-year life and estimated residual value of $200.

2015    Dec     31        Recorded 2015 depreciation.

2016    Jan      1          Paid $1,600 for a major upgrade of the equipment. This expenditure is expected to increase the operating efficiency and capacity of the equipment.

Instructions

Prepare journal entries to record the above events. (Show calculations.)

Question 6

Comparative statements of financial position for Campbell Inc. appear below:

CAMPBELL INC.

Comparative Statements of Financial Position

–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

Assets

                                                                                                Dec. 31, 2016 Dec. 31, 2015

Cash                                                                                        $ 29,000         $15,000

Accounts receivable                                                                   28,000         19,000

Prepaid expenses                                                                         9,000         12,000

Merchandise inventory                                                               37,000         27,000

Long-term investments                                                               35,000         53,000

Equipment                                                                                   75,000         48,000

Accumulated depreciation—equipment                                   (26,000)        (22,000)

Total assets                                                                             $187,000         $152,000

Liabilities and Shareholders' Equity

Accounts payable                                                                   $ 21,000         $ 9,000

Mortgage payable                                                                       37,000         45,000

Common shares                                                                         40,000         23,000

Retained earnings                                                                       89,000         75,000

            Total liabilities and shareholders' equity                    $187,000         $152,000

Additional information regarding fiscal 2016:

1.         Profit for the year was $27,000.

2.         Cash dividends of $13,000 were declared and paid during the year.

3.         Long-term investments with a carrying amount of $53,000 were sold for $48,000 cash.

Instructions

Using the indirect method, prepare a statement of cash flows for the year ended December 31, 2016.

Answer 1