SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.

1) Jackson and Truman each own and operate separate construction companies. Each bought a new bulldozer costing $250,000 on January 2, Year 1. Each bulldozer had an estimated useful life of five years and no salvage value. Jackson used straight-line depreciation, and Truman used double-declining-balance depreciation. At the end of Year 3, each of them sold his bulldozer for $75,000. Required: A. Compute the depreciation for both Truman and Jackson for Years 1, 2, and 3. B. Compute the gain or loss that each would recognize on the sale of the machines. C. If the gain or loss is different for each of them, explain why. 1) _____________ 2) City Hospital and Regional Hospital each bought MRI scanning equipment for $80,000 cash on January 2 of Year 1. The equipment was estimated to have a four-year life and no salvage value. City used straightline depreciation, and Regional used double-declining-balance depreciation. At the end of Year 2, each hospital sold the MRI scanning equipment for $25,000 cash. Required: A. Prepare the general journal entry for City to record the purchase of the equipment. B. Prepare general journal entries for City for Years 1 and 2 to record annual depreciation expense. C. Prepare the general journal entry for City to record the sale of the equipment at the end of Year 2. D. Prepare the general journal entry for Regional to record the purchase of the equipment. E. Prepare general journal entries for Regional for Years 1 and 2 to record annual depreciation expense. F. Prepare the general journal entry for Regional to record the sale of the equipment at the end of Year 2. 2) _____________ 3) The Rosenfeld Company reported the following information for the month of January 200X, regarding its Product Z: Purchases Unit Total Date (Units) Cost Cost January 1, 200X Beginning Inventory 700 $12 $8,400 January 5 Sold 400 units. January 10 Purchases 100 $13 1,300 January 16 Sold 200 units. January 21 Purchases 200 $14 2,800 January 26 Sold 300 units. Goods available for sale 1,000 $12,500 The unit selling price was $30 each. Required: A. Compute the cost of goods sold, the cost of the ending inventory, and the gross margin using the perpetual inventory system and the FIFO cost flow assumption. B. Compute the cost of goods sold, the cost of the ending inventory, and the gross margin using the perpetual inventory system and the LIFO cost flow assumption. C. Compute the cost of goods sold, the cost of the ending inventory, and the gross margin using the perpetual inventory system and the average cost flow assumption. 3) _____________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 4) Tony's Tow Truck Services has just spent $40,000 on a new tow truck. Tony then had to spend $5,000

to get the firm's logo stenciled onto the truck. If Tony plans to use the truck for six years, and then hopes to sell it for $6,000, using double-declining-balance depreciation the expense for the second year will be: 4) _______ A) $ 8,667 B) $15,000 C) $13,000 D) $10,000 SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 5) Allen Edwards Co. had the following transactions in June 200X: 1. 2. 3. 4. Bought four units of Product W for $100 per unit from Richards Co. on June 1, on account. Returned one defective unit of Product W on June 5. Paid balance due to Richards Co. on June 10. On June 12, sold three units of Product W for $150 per unit to Kramer Corporation, on account.

Required: Prepare general journal entries on Edwards' books for the above transactions using the perpetual inventory system. 5) _____________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 6) Superstar Sports Supplies has started the period with 800 soccer balls. During the period it sold 2,000 soccer balls. A physical count at the end of the month reveals that Superstar has 600 soccer balls still on hand. How many soccer balls did Superstar purchase during the current month? 6) _______ A) 1,400 B) 1,800 C) 600 D) 2,200

1) A. Straight-line (Jackson): $250,000 / 5 years = $50,000 per year 3 years = $150,000 total depreciation Double declining-balance (Truman): 1/5 2 = 2/5 = 40% DDB rate Year 1 40% $250,000 = $100,000 depreciation expense Year 2 40% 150,000 = $ 60,000 depreciation expense Year 3 40% 90,000 = $ 36,000 depreciation expense Total depreciation = $196,000 B. Straight-line (Jackson): $250,000 - $150,000 = $100,000 book value $75,000 cash received - $100,000 book value = $25,000 loss Double-declining balance (Truman): $250,000 - $196,000 = $54,000 book value $75,000 cash received - $54,000 book value = $21,000 gain C. Jackson recognized less depreciation expense over three years than Truman, so Jackson's book value is higher than Truman's. Since Jackson's book value is higher than the cash received, Jackson incurs a loss. Truman's book value is less than the cash received, so Truman has a gain. 2) A.For City Hospital: Year 1 Jan 2 Equipment Cash To record equipment purchase. B. For City Hospital: Year 1 Dec 31 Depreciation Expense Accumulated Depreciation To record annual depreciation expense ($80,000 / 4 years). Year 2 Dec 31 Depreciation Expense Accumulated Depreciation To record annual depreciation expense ($80,000 / 4 years). C. For City Hospital: Year 2 Dec 31 Cash Accumulated Depreciation Loss on Sale of Equipment Equipment To record the sale of MRI scanning equipment. D. For Regional Hospital: Year 1 Jan 2 Equipment Cash To record equipment purchase. E. For Regional Hospital: Year 1

80,000 80,000

20,000 20,000

20,000 20,000

25,000 40,000 15,000 80,000

80,000 80,000

Dec 31

Depreciation Expense Accumulated Depreciation To record annual depreciation expense ($80,000 50%).

40,000 40,000

Year 2 Dec 31

F.

Depreciation Expense 20,000 Accumulated Depreciation 20,000 To record annual depreciation expense ($40,000 50%). For Regional Hospital: Year 2 Dec 31 Cash 25,000 Accumulated Depreciation 60,000 Gain on Sale of Equipment 5,000 Equipment 80,000 To record the sale of MRI scanning equipment.

3) Part A: Goods available before 1/5 sale: BI 700 $12 1/5 sale: 400 $12 COGS for 1/5 Goods available before 1/16 sale: BI 300 $12 1/10 purchase 100 $13 1/16 sale: 200 $12 COGS for 1/16 Goods available before 1/26 sale: BI 100 $12 1/10 purchase 100 $13 1/21 purchase 200 $14 1/26 sale: 100 $12 100 $13 100 $14 COGS for 1/26

= $8,400 = $4,800 $4,800 = $3,600 = $1,300 = $2,400 $2,400 = = = = = = $1,200 $1,300 $2,800 $1,200 $1,300 $1,400 $3,900 $11,100

Total COGS for January, perpetual FIFO Ending inventory: Total goods available (given) $12,500 Less: COGS (11,100) Ending inventory, FIFO perpetual $ 1,400 Or Ending inventory consists of the following units: 100 $14 = $1,400 $ 1,400 Gross margin: Sales (900 $30) $27,000 Less: COGS (11,100) Gross margin $15,900 Part B: Goods available before 1/5 sale: BI 700 $12 = $8,400 1/5 sale: 400 $12 = $4,800 COGS for 1/5 $4,800 Goods available before 1/16 sale: BI 300 $12 = $3,600

1/10 purchase 1/16 sale:

100 $13 = $1,300 100 $13 = $1,300 100 $12 = $1,200 $2,500 = = = = $2,400 $2,800 $2,800 $1,200 $4,000 $11,300

COGS for 1/16 Goods available before 1/26 sale: BI 200 $12 1/21 purchase 200 $14 1/26 sale: 200 $14 100 $12 COGS for 1/26

Total COGS for January, perpetual LIFO Ending inventory: Total goods available (given) $12,500 Less: COGS (11,300) Ending inventory, LIFO perpetual $ 1,200 Or: Ending inventory consists of the following units: 100 $12 = $1,200 $ 1,200 Gross margin: Sales (900 $30) $27,000 Less: COGS (11,300) Gross margin $15,700 Part C: Goods available before 1/5 sale: BI 700 $12 = $8,400 1/5 sale: 400 $12 = $4,800 COGS for 1/5 $4,800 Goods available before 1/16 sale: BI 300 $12 = $3,600 1/10 purchase 100 $13 = $1,300 400 $4,900 $4,900/400 = $12.25 per unit COGS for 1/16 (200 $12.25) Goods available before 1/26 sale: Remaining 200 $12.25 = $2,450 1/21 purchase 200 $14.00 = $2,800 400 $5,250

$2,450

$5,250/400 = $13.125/unit COGS for 1/26 (300 $13.125) 3,938 (rounded) COGS for January, moving average $11,188 Ending inventory: Total goods available (given) $12,500 Less: COGS (11,188) Ending inventory, average perpetual $ 1,312 Or: Ending inventory consists of the following units: 100 $13.125 = $1,313 $ 1,313 Gross margin: Sales (900 $30) $27,000 Less: COGS (11,188) Gross margin: $15,812

4) D 5) 200X Jun 1 Inventory Accounts Payable Purchased 4 units of Product W. 5 Accounts Payable Inventory Returned one defective unit to Richards for credit. Accounts Payable Cash To record payment to Richards. Accounts Receivable Cost of Goods Sold Sales Inventory Sold three units of Product W.

400 400

100 100

10

300 300

12

450 300 450 300

6) B