Problem 1
Assuming the assets increased by $25,000 during the year and liabilities amounted to $75,000 and $65,000 at the beginning and end of the year, respectively, calculate revenues for the year assuming the following additional information:
Dividends for the year - $12,000
Capital contributions during the year - $10,000
Expenses for the year - $100,000
Problem 2
John's Delivery Company purchased a used delivery truck for $20,000 cash on. Additional costs incurred at the time of purchase and paid in cash were $1,200 of sales tax. John had the truck painted for $1,000 and the engine overhauled for $1,800 prior to its initial use.
A. Prepare the journal entry (ies) to record all of the costs to be capitalized as part of the cost of the asset (truck).
B. Prepare the 12/31/X4 and 12/31/X5 adjusting entries to record the 20X4 and 20X5 depreciation expense on the truck using straight-line depreciation and estimating a 7 year useful life with a $3,000 salvage value. (Remember that depreciation in 20X4 should be for a partial year.)
c. Prepare the journal entry to record the payment of $250 for an engine tune-up and oil change and, $750 for a new set of tires in 20X6.
D. Calculate the truck's book value at 12/31/X6 if an appraisal shows that the truck could be sold for $14,000.
E. What would have been the amount of depreciation in the first year given the units of production method? What will be the estimated use of 60,000 miles with 0 salvage value? Actual use in the first year is 10,000 miles.
Problem 3
Heber has spoken to a local injection molding manufacturing business about the possibility of them manufacturing the Jello molds for Heavenly Molds, Inc., on a contract basis at a price of $1.50 per unit assuming Heber provided his own production mold. If Heber contracted out the manufacturing of the Jello molds, he believes he could operate out of his apartment and avoid all manufacturing costs except depreciation of the production molds and the building rent. (Assume for this problem that Heber has already signed a two-year lease on the building beginning September 1, but he expects that he could sublease it for $1,600 per month and make a $200 per month profit on the sublease if he chose not to use it for his own business). If Heber operated out of his house he would still incur all of the budgeted fixed selling and administrative costs. What would be the net effect on Heber's profitability based on 2,750 units of budgeted production if Heber contracted out the manufacturing of those units?
Additional Questions:
What would be the effect on relative costs at higher levels of volume?
What might be some qualitative considerations involved in this decision on whether to contract out the manufacturing process?