Assignment
I. A Comparing three depreciation methods ObJ. 2
Waldum Company purchased packaging equipment on January 5, 2012, for $135,000. The equipment was expected to have a useful life of three years, or 18,000 operating hours, and a residual value of $13,500. The equipment was used for 8,600 hours during 2012, 5,300 hours in 2013, and 4,100 hours in 2014.
Instructions:
1. Determine the amount of depreciation expense for the years ended December 31, 2012, 2013, and 2014, by (a) the straight-line method, (b) the units-of-output method, and (c) the double-declining-balance method. Also determine the total depreciation expense for the three years by each method. The following columnar headings are suggested for recording the depreciation expense amounts:
Depreciation Expense
Year Straight-line Method Units-of-Output Method Double-Declining-Balance Method
2. What method yields the highest depreciation expense for 2012?
3. What method yields the most depreciation over the three-year life of the equipment?
II. A Depreciation by three methods; partial years ObJ. 2
Perdue Company purchased equipment on April 1, 2012, for $270,000. The equipment was expected to have a useful life of three years, or 18,000 operating hours, and a residual value of $9,000. The equipment was used for 7,500 hours during 2012, 5,500 hours in 2013, 4,000 hours in 2014, and 1,000 hours in 2015.
Instructions:
Determine the amount of depreciation expense for the years ended December 31, 2012, 2013, 2014, and 2015, by (a) the straight-line method, (b) the units-of-output method, and (c) the double-declining-balance method.
III. A Depreciation by two methods; sale of fixed asset ObJ. 2, 3
New lithographic equipment, acquired at a cost of $800,000 at the beginning of a fiscal year, has an estimated useful life of five years and an estimated residual value of $90,000.
The manager requested information regarding the effect of alternative methods on the amount of depreciation expense each year. On the basis of the data presented to the manager, the double-declining-balance method was selected.
In the first week of the fifth year, the equipment was sold for $135,000.
Instructions:
1. Determine the annual depreciation expense for each of the estimated five years of use, the accumulated depreciation at the end of each year, and the book value of the equipment at the end of each year by (a) the straight-line method and (b) the double-declining-balance method. The following columnar headings are suggested for each schedule:
Year Depreciation Expense Accumulated Depreciation, End of Year Book Value, End of Year
2. Journalize the entry to record the sale.
3. Journalize the entry to record the sale, assuming that the equipment was sold for $88,750 instead of $135,000.
IV. A Wage and tax statement data on employer FICA tax ObJ. 2, 3
Ehrlich Co. began business on January 2, 2013. Salaries were paid to employees on the last day of each month, and social security tax, Medicare tax, and federal income tax were withheld in the required amounts. An employee who is hired in the middle of the month receives half the monthly salary for that month. All required payroll tax reports were filed, and the correct amount of payroll taxes was remitted by the company for the calendar year. Early in 2014, before the Wage and Tax Statements (Form W-2) could be prepared for distribution to employees and for filing with the Social Security Administration, the employees' earnings records were inadvertently destroyed.
None of the employees resigned or were discharged during the year, and there were no changes in salary rates. The social security tax was withheld at the rate of 6.0% and Medicare tax at the rate of 1.5%. Data on dates of employment, salary rates, and employees' income taxes withheld, which are summarized as follows, were obtained from personnel records and payroll records:
Employee Date First Employed Monthly Salary Monthly Income Tax Withheld
Arnett Nov. 16 $5,500 $1,008
Cruz Jan. 2 4,800 833
Edwards Oct. 1 8,000 1,659
Harvin Dec. 1 6,000 1,133
Nicks Feb. 1 10,000 2,219
Shiancoe Mar. 1 11,600 2,667
Ward Nov.16 5,220 938
Instructions:
1. Calculate the amounts to be reported on each employee's Wage and Tax Statement (Form W-2) for 2013, arranging the data in the following form:
Employee Gross Earnings Federal Income Social Security Medicare Tax Withheld Tax Withheld Tax Withheld
2. Calculate the following employer payroll taxes for the year: (a) social security; (b) Medicare; (c) state unemployment compensation at 5.4% on the first $10,000 of each employee's earnings; (d) federal unemployment compensation at 0.8% on the first $10,000 of each employee's earnings; (e) total.
V. A Payroll register ObJ. 2, 3
The following data for Throwback Industries Inc. relate to the payroll for the week ended December 7, 2014:
Employee hours Worked hourly Rate Weekly Salary Federal Income Tax u.S. Savings Bonds
Aaron 46 $68.00 $766.36 $100
Cobb 41 62.00 553.20 110
Clemente 48 70.00 691.60 120
DiMaggio 35 56.00 411.60 0
Griffey, Jr. 45 62.00 618.45 130
Mantle $1,800 432.00 120
Robinson 36 54.00 291.60 130
Williams 2,000 440.00 125
Vaughn 42 62.00 533.20 50
Employees Mantle and Williams are office staff, and all of the other employees are sales personnel. All sales personnel are paid 1½ times the regular rate for all hours in excess of 40 hours per week. The social security tax rate is 6.0%, and Medicare tax is 1.5% of each employee's annual earnings. The next payroll check to be used is No. 901.
Instructions:
1. Prepare a payroll register for Throwback Industries Inc. for the week ended December 7, 2014. Use the following columns for the payroll register: Employee, Total Hours, Regular Earnings, Overtime Earnings, Total Earnings, Social Security Tax, Medicare Tax, Federal Income Tax, U.S. Savings Bonds, Total Deductions, Net Pay, Ck. No., Sales Salaries Expense, and Office Salaries Expense.
2. Journalize the entry to record the payroll for the week.
VI. A Entries and balance sheet for partnership ObJ. 2
On March 1, 2014, Eric Keene and Abigail McKee form a partnership. Keene agrees to invest $21,100 in cash and merchandise inventory valued at $55,900. McKee invests certain business assets at valuations agreed upon, transfers business liabilities, and contributes sufficient cash to bring her total capital to $60,000. Details regarding the book values of the business assets and liabilities, and the agreed valuations, follow:
mcKee's Ledger Balance Agreed-Upon Valuation
Accounts Receivable $18,900 $18,000
Allowance for Doubtful Accounts 1,200 1,500
Equipment 83,500} 54,900
Accumulated Depreciation-Equipment 29,800}
Accounts Payable 15,000 15,000
Notes Payable (current) 36,000 36,000
The partnership agreement includes the following provisions regarding the division of net income: interest on original investments at 10%, salary allowances of $22,500 (Keene) and $30,400 (McKee), and the remainder equally.
Instructions:
1. Journalize the entries to record the investments of Keene and McKee in the partnership accounts.
2. Prepare a balance sheet as of March 1, 2014, the date of formation of the partnership of Keene and McKee.
3. After adjustments and the closing of revenue and expense accounts at February 28, 2015, the end of the first full year of operations, the income summary account has a credit balance of $90,000, and the drawing accounts have debit balances of $28,000 (Keene) and $30,400 (McKee). Journalize the entries to close the income summary account and the drawing accounts at February 28, 2015.