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11 Aug

Assume that a company sold a delivery van


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Problem 2Assume that a company sold a delivery van that had been used in the business for three years.Records of the company related to the van reflect the following:Delivery van costAccumulated Depreciation
Prepare the required journal entry to record disposal of the van, assuming the followingsales amounts for cash:a. $17,300b. $20,500c. $15,800
Based on the situation above, explain the effects of the disposal of an asset on thecompany’s financial statements.
Problem 3At the beginning of the year, a company bought three new machines for its production facilities.The machines were all different so each had to be recorded separately. Below are the costsrelated to each purchase.Machine A14,000600600
Amount paid for the machineInstallation costDelivery cost
Machine B28,5001,000800
Machine C11,200400600
At the end of the first year, each machine had been operated 5,200 hoursRequired:
Compute the cost of each machine.
Prepare the journal entry to record depreciation expense at the end of year 1, assumingthe following:Machine
6 years50,000 hours5 years
Depreciation MethodStraight-lineUnits-of-productionDouble-declining-balance
Problem 4You are a financial analyst for your company and have been asked to determine the impact ofvarious depreciation methods on the company’s financial statements. Your analysis is based on amachine costing $110,000 with an estimated useful life of 12 years and an estimated residualvalue of $8,000. The machine also has an estimated useful life in output of 220,000 units. Actualoutput was 21,000 units in year 1 and 15,000 units in year 2.Required:
For years 1 and 2, prepare depreciation schedules (round all results to the nearest dollar)for the asset assuming:a. Straight-line methodb. Units-of-production methodc. Double-declining-balance methodYear
Net Book Value
Straight-line:AcquisitionYear 1Year 2Units-of-production:AcquisitionYear 1Year 2Double-declining-balance:AcquisitionYear 1Year 2
Evaluate each method in terms of its effect on cash flows, fixed asset turnover, andearnings per share. Assuming that the company is most interested in maintaining a highEPS during year 1 and 2, which method would you recommend? Assuming that thecompany is most interested in reducing taxes during year 1 and 2, which method wouldyou recommend?

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