Glickman Acc111 End Of Chapter 10 Test

Glickman Acc111 End Of Chapter 10 Test

Glickman Acc111 End Of Chapter 10 Test

Classify each of the following as A – ordinary maintenance and repairs, B – asset improvements, or C – extraordinary repairs.

1. Resurfacing a pool in an apartment building. ___________________

2. Installing a new air conditioner in an old building. ___________________

3. Exterior and interior painting. ___________________

4. Fixing damage due to a car accident. ___________________

Equipment acquired at a cost of $126,000 and has a book value of $42,000. Journalize the disposal of equipment under the following independent assumptions. Identify each assumption by letter.

(a) The equipment had no market value and was discarded.

(b) The equipment is sold for $53,000.

(c) The equipment is sold for $27,000.

(d) The equipment is traded-in for a similar asset. The list price of the new equipment is $63,000.

The exchange has no commercial substance. Journal Date Description Debit Credit

An asset was purchased January 1, 20XX and the fiscal year ends December 31st. Calculate depreciation expense, accumulated depreciation, and net book value under the straight-line and the double declining balance methods. Round your answers to the nearest whole dollar.

• Asset Cost = $200,000
• Salvage Value = $25,000
• Estimated Life = 8 Years

Straight-line method:

Double Declining Balance method:

Sample Paper For Above instruction

The following paper addresses the classification of various expenses, the journalization of equipment disposal under different scenarios, and the calculation of depreciation using both straight-line and double declining balance methods. Proper understanding of these accounting processes is vital for accurate financial reporting and asset management.

Classification of Maintenance, Improvements, and Extraordinary Repairs

Proper classification of expenses related to assets is fundamental in accounting for maintaining transparency and accuracy in financial statements. Repairs and maintenance are classified based on the nature of the expenditure. Ordinary repairs and maintenance (A) are routine activities that keep an asset in working condition without increasing its value or extending its useful life. Typical examples include painting and minor repairs, such as exterior and interior painting or repairs after accidental damage. Asset improvements (B), on the other hand, involve expenditures that enhance the asset's value, extend its useful life, or adapt it to a different use. For example, installing a new air conditioning system in an old building qualifies as an improvement. Extraordinary repairs (C) are significant repairs that substantially restore the asset or extend its useful life; these are often infrequent or unusual, such as resurfacing a pool, which enhances durability but may involve a considerable cost. The classification helps determine whether an expenditure should be expensed immediately or capitalized as part of the asset's cost.

Journal Entries for Equipment Disposal

Disposing of equipment requires careful journal entries to reflect the disposal accurately, especially considering different scenarios:

• (a) Discarding equipment with no market value: Since the equipment has no residual value, the journal involves removing the equipment's accumulated depreciation and recording a loss if necessary.
• (b) Selling equipment for $53,000: The sale involves recognizing cash received, removing the asset and its accumulated depreciation, and recognizing gain or loss based on the book value versus sale price.
• (c) Selling equipment for $27,000: Similar to (b), but resulting in a loss if the book value exceeds the sale price.
• (d) Trading-in for a new asset with no commercial substance: The journal records the new asset at its fair value, removes the old asset and its accumulated depreciation, and recognizes any gain or loss accordingly.

For each case, the impairment or gain/loss affects the financial statements and requires precise calculation to reflect the true economic impact of the disposal.

Calculating Depreciation

Depreciation calculations are essential for allocating the cost of an asset over its useful life. The two common methods are:

Straight-line Method

This method distributes the cost evenly over the useful life of the asset. The annual depreciation expense is calculated as (Cost - Salvage Value) / Useful Life. For the example asset with a cost of $200,000, salvage value of $25,000, and an 8-year life, the annual depreciation expense is (200,000 - 25,000) / 8 = 21,875. The accumulated depreciation increases by this amount each year, and the net book value declines accordingly.

Double Declining Balance Method

This accelerated depreciation method doubles the straight-line rate. The depreciation expense for each year is computed as 2 / Useful Life * Book Value at Beginning of Year. The depreciation decreases the book value more rapidly in the early years, which is useful for assets that lose value quickly. For example, in the first year, the rate is 25% (2/8), applied to the initial cost; in subsequent years, depreciation is calculated on the reduced book value.

Accurate computation of both methods involves meticulous calculations for each year, and understanding their impact on financial statements is crucial for managerial decisions and tax planning.

Conclusion

Proper classification of expenditures, accurate journal entries, and precise depreciation calculations form the backbone of sound accounting practices. These prevent misstatement of financial health, ensure compliance with accounting standards, and facilitate informed managerial decisions. Mastery of these concepts enhances the quality of financial reporting and supports the sustainability of asset management strategies in organizations.

References

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