Scribd
Upload
105 views

FINACIAL ACCOUNTING 1 - Revision

EZ Repair Company purchased repair equipment for $1,250,000 that has an estimated useful life of 8 years and salvage value of $50,000. The document provides instructions to journalize straight-line and double declining depreciation for years 20X0-20X1, and calculates straight-line depreciation for 20X2 after the estimates are updated. It also describes an exchange transaction between Wintor and Maxim companies and provides instructions to record the exchange under commercial substance and lack of commercial substance. Finally, it discusses inventory costing methods including FIFO, average cost, and perpetual vs. periodic systems as they relate to a computer merchandising company's inventory changes and cost of goods

Uploaded by

Đông Just
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
105 views

FINACIAL ACCOUNTING 1 - Revision

EZ Repair Company purchased repair equipment for $1,250,000 that has an estimated useful life of 8 years and salvage value of $50,000. The document provides instructions to journalize straight-line and double declining depreciation for years 20X0-20X1, and calculates straight-line depreciation for 20X2 after the estimates are updated. It also describes an exchange transaction between Wintor and Maxim companies and provides instructions to record the exchange under commercial substance and lack of commercial substance. Finally, it discusses inventory costing methods including FIFO, average cost, and perpetual vs. periodic systems as they relate to a computer merchandising company's inventory changes and cost of goods

Uploaded by

Đông Just
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 3

FINACIAL ACCOUNTING 1 – Revision session

Topic 1: Plant assets


Depreciation: straight-line method, double-declining method
On August 1, 20X0, EZ Repair Company purchases $1,250,000 repair equipment having an
estimated useful life of 8 years with an estimated salvage value of $50,000.
Instructions
(a) Journalize the entries for depreciation expense for Year 20X0 and 20X1, assuming the
company uses Straight-line depreciation.
(b) Repeat part a, assuming the company uses double-declining method.
(c) At the beginning of 20X2, the company determined that the equipment would still be
useful to the company for the next 5 years, and salvage value is estimated at $70,000.
Assuming the company still uses straight-line method, compute the amount of
depreciation expense for 20X2.
Exchange transaction: commercial substance and lacks commercial substance
Wintor Company exchanged a used van with market value of $155,000, a recorded cost of
$200,000 and Accumulated Depreciation of $50,000 with Maxim Corporation for the truck
Maxim owns. The truck has market value of $169,000, a recorded cost of $240,000, and
Accumulated Depreciation of $82,000. Wintor also gave Maxim $14,000 in the exchange.
Assume depreciation has already been updated.
Instructions
(a) Prepare the entries on both companies' books assuming that the exchange has commercial
substance. (Round all computations to the nearest dollar)
(b) Prepare the entries on both companies' books assuming that the exchange lacks
commercial substance. (Round all computations to the nearest dollar)

Topic 2: Accounting for receivables


Parisien Company provides for Doubtful Account based on 5% of gross Account Receivable.
The following data is available for 20X0
Credit sales during 20X0 $800,000
Account Receivable (31/12/20X0) 50,000
Allowance for Doubtful Accounts (1/1/20X0) 4,000 credit
Collections of accounts written off in prior year (Customers credit was re-established)
5,000
Customer accounts written off as uncollectibles during 20X0 4,000
a. Make the adjusting entry to record the Allowance for Doubtful Account on
December 31, 20X0
b. Repeat part a, assuming that Allowance for Doubtful Account has the balance of
5,000 debit as of 1/1/20X0.
c. According to part a, what is the balance for Cash Realizable Value as of December
31, 20X0?
d. Discuss the reasons why the allowance method is preferable to direct write-off
method.
e. Describe the steps necessary to record payments from customers that had already
declared bankrupt before.

Topic 3: Inventories

During December, the following changes in inventory item for a computer merchandising
company took place:

December 1.Balance 160 units @ $440

4 Purchased 80 units @ $460

24 Purchased 75 units @ $465

8 Sold 200 units @ $550

20 Sold 50 units @ $580

29 Sold 45 units @ $600

Periodic inventory system is maintained.


Instructions

What is the cost of the ending inventory under the following methods? (Show calculations.)

a. FIFO.

b. Average cost.

c. Repeat Part a, assume that the Perpetual inventory system is maintained instead. Explain
the similarity (If you notice any).
d. In the period of rising cost, will the COGS be higher under FIFO or under Average-cost
method? Explain.

You might also like