Assignment Questions 5 Marks Q1 Abdulaziz Co Purchased A Mac

Assignment Questions5 Marksq1 Abdulaziz Co Purchased A Mach

Calculate the depreciation expense, accumulated depreciation, and book value of a machine purchased in 2013 for 50,000, with a useful life of 5 years and a salvage value of 5,000, using the following methods:

1. Straight-line Method

2. Units of Production Method, given that the machine produces 100,000 units over its lifespan. A table provides the units produced each year: First, Second, Third, Fourth, Fifth.

Additionally, determine the depreciation using the Double Declining Balance Method.

On June 1, 2019, ABC Company issued a $25,000, 120-day, 6% note payable to settle a past due account payable. The assignment includes:

1. The total interest to be paid on this note.
2. The general journal entry to record the issuance of the note payable.
3. The general journal entry to record the payment of the note on September 29.

Finally, describe the characteristics of corporations.

Paper For Above instruction

Introduction

Financial accounting involves various methods for depreciation, which reflect the reduction in value of assets over time, aiding in accurate financial reporting. The choice of depreciation method impacts the reported income and asset valuation, influencing stakeholders' decisions. Similarly, understanding short-term liabilities and the characteristics of business entities like corporations is essential for comprehensive financial analysis and decision-making. This paper explores depreciation calculations using different methods for a specific machinery asset, examines journal entries for a short-term note payable, and discusses the characteristics that define a corporation.

Depreciation Calculations

1. Straight-line Method

The straight-line method spreads the cost of the asset evenly over its useful life. For the machine purchased for $50,000 with a salvage value of $5,000 over 5 years, the annual depreciation expense is calculated as:

Depreciation Expense = (Cost - Salvage Value) / Useful Life = ($50,000 - $5,000) / 5 = $9,000 per year

Thus, each year from 2013 to 2017, the depreciation expense recorded is $9,000. The accumulated depreciation increases by $9,000 yearly, reducing the book value as follows:

• 2013: Book value = $50,000 - $9,000 = $41,000
• 2014: Book value = $41,000 - $9,000 = $32,000
• 2015: Book value = $32,000 - $9,000 = $23,000
• 2016: Book value = $23,000 - $9,000 = $14,000
• 2017: Book value = $14,000 - $9,000 = $5,000 (salvage value)

2. Units of Production Method

This method allocates depreciation based on actual usage. Assuming the total units produced over the asset's lifespan is 100,000, the depreciation per unit is:

Depreciation per unit = (Cost - Salvage Value) / Total units = ($50,000 - $5,000) / 100,000 = $0.45 per unit

Using the provided yearly production, depreciation expenses are:

Double Declining Balance Method

This is an accelerated depreciation method. The depreciation expense is computed as:

Depreciation Expense = Book Value at Beginning of Year × (2 / Useful Life)

Starting with initial cost of $50,000, the depreciation for each year is:

• 2013: $50,000 × 2/5 = $20,000; Book value = $30,000
• 2014: $30,000 × 2/5 = $12,000; Book value = $18,000
• 2015: $18,000 × 2/5 = $7,200; Book value = $10,800
• 2016: $10,800 × 2/5 = $4,320; Book value = $6,480
• 2017: $6,480 × 2/5 = $2,592; Book value = $3,888 (remaining salvage value consideration applies here)

Interest Calculation and Journal Entries for Note Payable

Interest to be paid

The interest on the $25,000 note for 120 days at 6% annual rate is calculated as:

Interest = Principal × Rate × Time = $25,000 × 6% × (120/360) = $25,000 × 0.06 × 0.3333 = $500

Journal Entry on June 1, 2019

To record the issuance of the note payable:

Dr. Accounts Payable          $25,000
Cr. Notes Payable                $25,000

Journal Entry on September 29, 2019

To record the payment of principal and interest:

Dr. Notes Payable             $25,000
Dr. Interest Expense          $500
Cr. Cash                         $25,500

Characteristics of Corporations

Corporations are distinct legal entities recognized by law, characterized by limited liability, perpetual existence, transferability of shares, centralized management through a board of directors, and ability to raise capital through stock issuance. They are subject to corporate taxation, and their ownership can be easily transferred, which facilitates raising funds and expanding operations. These features make corporations a popular form of business organization for large enterprises (Ross, Westerfield, & Jordan, 2019).

Conclusion

Understanding depreciation methods enables accurate financial reporting and decision-making regarding asset management. The journal entries for short-term liabilities like notes payable ensure proper recording of financial transactions, while awareness of the fundamental characteristics of corporations helps in comprehending their operational and legal framework. Accurate application of these principles is essential for effective financial analysis and strategic planning.

References

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• Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2020). Intermediate Accounting. Wiley.
• Healy, P., & Palepu, K. (2017). Business Analysis & Valuation. Cengage Learning.
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