Problem 1
Dynasty Co. uses straight-line depreciation in its financial statements, with depreciation for a partial year rounded to the nearest full month.
On September 28, 2006 Dynasty purchased equipment at a cost of $140,000. For financial reporting purposes, the useful life of this equipment was estimated at 5 years, with a $30,000 salvage value.
Instructions
- a) Determine the amount of depreciation expense that will be recognized under each of the following depreciation methods.
- Straight-line.
- Double-declining-balance.
- b) Assume that Dynasty Co. sells the equipment on December 31, 2009, for
$55,000 cash. Compute the resulting gain or loss from this sale under each of the depreciation methods used in part a.
Problem 2
On September 5, 2009, Apollo purchased equipment costing $40,000, with an estimated life of 6 years and an estimated salvage value of $4,000.
Instructions
- a) Determine the amount of depreciation expense that will be recognized under each of the following depreciation methods. A full month’s depreciation will be recognized in the first year the equipment is used.
- Straight-line.
- Double-declining-balance.
- b) Assume that Apollo sells the equipment on December 31, 2012, for $15,000 cash. Compute the resulting gain or loss from this sale under each of the depreciation methods used in part a.
Problem 3
On March 24, 2009 Tastee Ice Cream Co. purchased equipment costing $120,000, with an estimated life of 5 years and an estimated salvage value of $20,000.
Instructions
- a) Determine the amount of depreciation expense that will be recognized under each of the following depreciation methods and round to the nearest month.
- Straight-line.
- Double-declining-balance.
- b) Assume that Tastee Ice Cream Co sells the equipment on December 31, 2013, for
$45,000 cash. Compute the resulting gain or loss from this sale under each of the depreciation methods used in part a.
Problem 4
On September 1, 2009, Charles Associates borrowed $600,000 from Diana Credit Union and signed a 9%, one-year note payable, all due at maturity.
Problem 5
On October 31, 2009, Seldon Company incurs a 30-year $600,000 mortgage liability in conjunction with the purchase of a motel. This mortgage is payable in equal monthly installments of $6,485, which include interest computed at an annual rate of 12%. The first monthly payment is made on November 30, 2009. This mortgage is fully amortizing over 360 months.
Complete the amortization table for the first two payments by entering the correct dollar amounts in the blank spaces provided. In addition, answer the questions which follow.
(a) ) With respect to this mortgage, Seldon’s 2009 income statement includes interest expense of $ , and Seldon’s balance sheet at December 31, 2009, includes a total liability for this mortgage of . (Do not separate into current and long-term portions.)
(b) The aggregate monthly cash payments Seldon will make over the 30-year life of the mortgage amount to $ .
(c) Over the 30-year life of the mortgage, the amount Seldon will pay for interest amounts to $ .
Problem 6
On December 1, 2009, Fisher Corporation incurs a 30-year, $400,000 mortgage liability upon purchase of a warehouse. This mortgage is payable in monthly installments of
$4,116, which include interest computed at the rate of 12% per year. The first monthly payment is made on December 31, 2009.
1 How much of the first payment made on December 31, 2009, is allocated to
repayment of principal? $
2 What is the total liability related to this mortgage to be reported in Fisher’s balance sheet at December 31, 2009? (Do not separate into current and long-termportions.)
$
3 The portion of the second monthly payment made on January 31, 2010, which represents interest expense is $
4 What is the aggregate amount paid by Fisher over the 30-year life of the mortgage?
$
5 Over the 30-year life of the mortgage, the total amount Fisher will pay for interest charges is $
Problem 7
Shown below is information relating to the stockholders’ equity of Brookdale Corporation at December 31, 2010:
1 How many shares of common stock are outstanding? 2 What is the amount of legal capital?
3 What was the average issue price per share of common stock?
4 What is the amount of dividends paid to preferred stockholders? 5 What is the book value per share of common stock?
Problem 8
Vision Corporation has the following information on its financial statement:
1 How many shares of common stock are outstanding? 2 What is the amount of legal capital?
3 What was the average issue price per share of common stock?
4 What is the amount of dividends paid to preferred stockholders? 5 What is the book value per share of common stock?
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