Exam 2- Accounting 2010 Mizzou with
Complete Solutions
The Miller Company recognized $190,000 of service revenue earned on account during
Year 2. There was no beginning balance in the accounts receivable and allowance
accounts. During Year 2, Miller collected $136,000 of cash from accounts receivable.
The company estimates that it will be unable to collect 3% of its sales on account.
The net realizable value of Miller's receivables at the end of Year 2 was: - ANSWER-
$48,300
explanation: $0 beginning balance + $190,000 revenue on account − $136,000
collections = $54,000 ending accounts receivable balance; $0 beginning balance +
$5,700 uncollectible accounts expense − $0 write-offs = $5,700 ending allowance for
doubtful accounts balance; $54,000 − $5,700 = $48,300 net realizable value
explanation: The cost includes the purchase price (less discounts) plus any costs
necessary to get the asset in the location and condition for its intended use.
Maintenance costs are the costs of routine maintenance and minor repairs that are
incurred to keep an asset in good working order. These costs are expensed in the
period in which they are incurred.
Cost of machine = $34,000 − ($34,000 × 5%) + $550 transportation + $1,360 sales tax
+ $450 installation = $34,660.
At the end of the current accounting period, Ringgold Company recorded depreciation
of $15,000 on its equipment. The effect of this entry on the company's balance sheet is
to decrease: - ANSWER-stockholders' equity and decrease assets
Jing Company was started on January 1, Year 1 when it issued common stock for
$50,000 cash. Also, on January 1, Year 1 the company purchased office equipment that
cost $34,000 cash. The equipment was delivered under terms FOB shipping point, and
transportation cost was $2,000. The equipment had a five-year useful life and a $12,000
expected salvage value.
At the end of Year 5, assuming the equipment had not been sold, the book value of the
office equipment using straight-line depreciation and double-declining-balance
depreciation, respectively, would be: - ANSWER-$12,000 and $12,000
explanation: At the end of Year 5, the end of the office equipment's 5-year useful life,
the book value will be equal to the $12,000 salvage value, regardless of which
depreciation method is used.
, Jing Company was started on January 1, Year 1 when it issued common stock for
$50,000 cash. Also, on January 1, Year 1 the company purchased office equipment that
cost $34,000 cash. The equipment was delivered under terms FOB shipping point, and
transportation cost was $2,000. The equipment had a five-year useful life and a $12,000
expected salvage value.
Assume that Jing Company earned $30,000 cash revenue and incurred $19,000 in cash
expenses in Year 3. Using straight-line depreciation and assuming that the office
equipment was sold on December 31, Year 3 for $16,000, the amount of net income or
(loss) appearing on the December 31, Year 3 income statement would be: - ANSWER-
$600
explanation: ($36,000 cost − $12,000 salvage value) ÷ 5 years = $4,800 annual
depreciation expense; $36,000 cost − (3 years × $4,800) accumulated depreciation =
$21,600 book value at the end of Year 3. $16,000 proceeds from sale − $21,600 =
($5,600) loss on sale of equipment; $30,000 revenue − $19,000 cash expenses −
$4,800 depreciation expense − $5,600 loss on sale = $600 net income
On January 1, Year 1, Missouri Company purchased a truck that cost $57,000. The
truck had an expected useful life of 10 years and a $6,000 salvage value. The amount
of depreciation expense recognized in Year 2 assuming that Missouri uses the double
declining-balance method is: - ANSWER-$9,120
explanation: $57,000 × (2 × 10%) = $11,400 depreciation expense in Year 1. ($57,000 −
$11,400) × (2 × 10%) = $9,120 depreciation expense in Year 2.
Madison Company owned an asset that had cost $44,000. The company sold the asset
on January 1, Year 4, for $16,000. Accumulated depreciation on the day of sale
amounted to $32,000. Based on this information, the sale would result in: - ANSWER-A
$16,000 cash inflow in the investing activities section of the cash flow statement.
On January 1, Year 1, Eller Company purchased an asset that had cost $24,000. The
asset had an 8-year useful life and an estimated salvage value of $1,000. Eller
depreciates its assets on the straight-line basis. On January 1, Year 5, the company
spent $6,000 to improve the quality of the asset. Based on this information, the
recognition of depreciation expense in Year 5 would: - ANSWER-reduce total
stockholders' equity by $4,375
explanation: ($24,000 cost − $1,000 salvage) ÷ 8 years = $2,875 original annual
depreciation; $2,875 × 4 years = $11,500 accumulated depreciation at time of
improvement; ($24,000 original cost − $11,500 accumulated depreciation + $6,000
improvement − $1,000 salvage) ÷ 4 remaining years = $4,375 new annual depreciation;
Recognizing the Year 5 depreciation expense decreases assets (book value of the
asset) and increases expenses (depreciation expense) by $4,375. Net income and
stockholders' equity (retained earnings) also decrease by $4,375.
Complete Solutions
The Miller Company recognized $190,000 of service revenue earned on account during
Year 2. There was no beginning balance in the accounts receivable and allowance
accounts. During Year 2, Miller collected $136,000 of cash from accounts receivable.
The company estimates that it will be unable to collect 3% of its sales on account.
The net realizable value of Miller's receivables at the end of Year 2 was: - ANSWER-
$48,300
explanation: $0 beginning balance + $190,000 revenue on account − $136,000
collections = $54,000 ending accounts receivable balance; $0 beginning balance +
$5,700 uncollectible accounts expense − $0 write-offs = $5,700 ending allowance for
doubtful accounts balance; $54,000 − $5,700 = $48,300 net realizable value
explanation: The cost includes the purchase price (less discounts) plus any costs
necessary to get the asset in the location and condition for its intended use.
Maintenance costs are the costs of routine maintenance and minor repairs that are
incurred to keep an asset in good working order. These costs are expensed in the
period in which they are incurred.
Cost of machine = $34,000 − ($34,000 × 5%) + $550 transportation + $1,360 sales tax
+ $450 installation = $34,660.
At the end of the current accounting period, Ringgold Company recorded depreciation
of $15,000 on its equipment. The effect of this entry on the company's balance sheet is
to decrease: - ANSWER-stockholders' equity and decrease assets
Jing Company was started on January 1, Year 1 when it issued common stock for
$50,000 cash. Also, on January 1, Year 1 the company purchased office equipment that
cost $34,000 cash. The equipment was delivered under terms FOB shipping point, and
transportation cost was $2,000. The equipment had a five-year useful life and a $12,000
expected salvage value.
At the end of Year 5, assuming the equipment had not been sold, the book value of the
office equipment using straight-line depreciation and double-declining-balance
depreciation, respectively, would be: - ANSWER-$12,000 and $12,000
explanation: At the end of Year 5, the end of the office equipment's 5-year useful life,
the book value will be equal to the $12,000 salvage value, regardless of which
depreciation method is used.
, Jing Company was started on January 1, Year 1 when it issued common stock for
$50,000 cash. Also, on January 1, Year 1 the company purchased office equipment that
cost $34,000 cash. The equipment was delivered under terms FOB shipping point, and
transportation cost was $2,000. The equipment had a five-year useful life and a $12,000
expected salvage value.
Assume that Jing Company earned $30,000 cash revenue and incurred $19,000 in cash
expenses in Year 3. Using straight-line depreciation and assuming that the office
equipment was sold on December 31, Year 3 for $16,000, the amount of net income or
(loss) appearing on the December 31, Year 3 income statement would be: - ANSWER-
$600
explanation: ($36,000 cost − $12,000 salvage value) ÷ 5 years = $4,800 annual
depreciation expense; $36,000 cost − (3 years × $4,800) accumulated depreciation =
$21,600 book value at the end of Year 3. $16,000 proceeds from sale − $21,600 =
($5,600) loss on sale of equipment; $30,000 revenue − $19,000 cash expenses −
$4,800 depreciation expense − $5,600 loss on sale = $600 net income
On January 1, Year 1, Missouri Company purchased a truck that cost $57,000. The
truck had an expected useful life of 10 years and a $6,000 salvage value. The amount
of depreciation expense recognized in Year 2 assuming that Missouri uses the double
declining-balance method is: - ANSWER-$9,120
explanation: $57,000 × (2 × 10%) = $11,400 depreciation expense in Year 1. ($57,000 −
$11,400) × (2 × 10%) = $9,120 depreciation expense in Year 2.
Madison Company owned an asset that had cost $44,000. The company sold the asset
on January 1, Year 4, for $16,000. Accumulated depreciation on the day of sale
amounted to $32,000. Based on this information, the sale would result in: - ANSWER-A
$16,000 cash inflow in the investing activities section of the cash flow statement.
On January 1, Year 1, Eller Company purchased an asset that had cost $24,000. The
asset had an 8-year useful life and an estimated salvage value of $1,000. Eller
depreciates its assets on the straight-line basis. On January 1, Year 5, the company
spent $6,000 to improve the quality of the asset. Based on this information, the
recognition of depreciation expense in Year 5 would: - ANSWER-reduce total
stockholders' equity by $4,375
explanation: ($24,000 cost − $1,000 salvage) ÷ 8 years = $2,875 original annual
depreciation; $2,875 × 4 years = $11,500 accumulated depreciation at time of
improvement; ($24,000 original cost − $11,500 accumulated depreciation + $6,000
improvement − $1,000 salvage) ÷ 4 remaining years = $4,375 new annual depreciation;
Recognizing the Year 5 depreciation expense decreases assets (book value of the
asset) and increases expenses (depreciation expense) by $4,375. Net income and
stockholders' equity (retained earnings) also decrease by $4,375.
