Question;Problem 11-4;A;depreciation schedule for semi-trucks of Ichiro Manufacturing Company was;requested by your auditor soon after December 31, 2013, showing the additions;retirements, depreciation, and other data affecting the income of the company;in the 4-year period 2010 to 2013, inclusive. The following data were;ascertained.;Balance of Trucks;account, Jan. 1, 2010;Truck No. 1;purchased Jan. 1, 2007, cost;$55,980;Truck No. 2;purchased July 1, 2007, cost;68,420;Truck No. 3;purchased Jan. 1, 2009, cost;93,300;Truck No. 4;purchased July 1, 2009, cost;74,640;Balance, Jan. 1;2010;$292,340;The Accumulated Depreciation?Trucks account previously adjusted to January 1;2010, and entered in the ledger, had a balance on that date of $93,922;(depreciation on the four trucks from the respective dates of purchase, based;on a 5-year life, no salvage value). No charges had been made against the;account before January 1, 2010.;Transactions between January 1, 2010, and December 31, 2013, which were;recorded in the ledger, are as follows.;July 1, 2010;Truck No. 3 was;traded for a larger one (No. 5), the agreed purchase price of which was;$124,400. Ichiro Mfg. Co. paid the automobile dealer $68,420 cash on the;transaction. The entry was a debit to Trucks and a credit to Cash, $68,420.;The transaction has commercial substance.;Jan. 1, 2011;Truck No. 1 was;sold for $10,885 cash, entry debited Cash and credited Trucks, $10,885.;July 1, 2012;A new truck (No.;6) was acquired for $130,620 cash and was charged at that amount to the;Trucks account. (Assume truck No. 2 was not retired.);July 1, 2012;Truck No. 4 was;damaged in a wreck to such an extent that it was sold as junk for $2,177;cash. Ichiro Mfg. Co. received $7,775 from the insurance company. The entry;made by the bookkeeper was a debit to Cash, $9,952, and credits to;Miscellaneous Income, $2,177, and Trucks, $7,775.;Entries for depreciation had been made at the close of each year as follows;2010, $65,310, 2011, $69,975, 2012, $77,906, 2013, $94,544.(a) For each of the 4 years, compute separately;the increase or decrease in net income arising from the company?s errors in;determining or entering depreciation or in recording transactions affecting;trucks, ignoring income tax considerations. (Enter;Credit amounts and Understated Income amounts with a negative sign preceding;the number, e.g. -2,520 or in parenthesis, e.g. (2,520).);Per Company Books;As Adjusted;Net;Trucks dr. (cr.);Acc. Dep. Trucks dr. (cr.);Retained Earnings dr. (cr.);Trucks dr. (cr.);Acc. Dep., Trucks dr, (cr.);Retained Earnings dr, (cr.);Income Overstated (Understated);1/1/10;Balance;$;$;$;$;$;$;$;7/1/10;Purchase Truck #5;Trade Truck #3;12/31/10;Depreciation;12/31/10;Balances;1/1/11;Sale of Truck #1;12/31/11;Depreciation;12/31/11;Balances;7/1/12;Purchase of Truck;#6;7/1/12;Disposal of Truck;#4;12/31/12;Depreciation;12/31/12;Balances;12/31/13;Depreciation;12/31/13;Balance;$;$;$;$;$;$;$;(b) Prepare one compound journal entry as of;December 31, 2013, for adjustment of the Trucks account to reflect the correct;balances as revealed by your schedule, assuming that the books have not been;closed for 2013. (If no entry is required;select "No entry" for the account titles and enter 0 for the amounts.;Credit account titles are automatically indented when amount is entered. Do not;indent manually.);Account Titles;and Explanation;Debit;Credit;Darby;Sporting Goods Inc. has been experiencing growth in the demand for its products;over the last several years. The last two Olympic Games greatly increased the;popularity of basketball around the world. As a result, a European sports;retailing consortium entered into an agreement with Darby?s Roundball Division;to purchase basketballs and other accessories on an increasing basis over the;next 5 years.;To be able to meet the quantity commitments of this agreement, Darby had to;obtain additional manufacturing capacity. A real estate firm located an;available factory in close proximity to Darby?s Roundball manufacturing;facility, and Darby agreed to purchase the factory and used machinery from;Encino Athletic Equipment Company on October 1, 2011. Renovations were;necessary to convert the factory for Darby?s manufacturing use.;The terms of the agreement required Darby to pay Encino $96,000 when;renovations started on January 1, 2012, with the balance to be paid as;renovations were completed. The overall purchase price for the factory and;machinery was $768,000. The building renovations were contracted to Malone;Construction at $192,000. The payments made, as renovations progressed during;2012, are shown below. The factory was placed in service on January 1, 2013.;1/1;4/1;10/1;12/31;Encino;$96,000;$172,800;$211,200;$288,000;Malone;57,600;57,600;76,800;On January 1, 2012, Darby secured a $960,000 line-of-credit with a 12% interest;rate to finance the purchase cost of the factory and machinery, and the;renovation costs. Darby drew down on the line-of-credit to meet the payment;schedule shown above, this was Darby?s only outstanding loan during 2012.;Bob Sprague, Darby?s controller, will capitalize the maximum allowable interest;costs for this project. Darby?s policy regarding purchases of this nature is to;use the appraisal value of the land for book purposes and prorate the balance;of the purchase price over the remaining items. The building had originally;cost Encino $576,000 and had a net book value of $96,000, while the machinery;originally cost $240,000 and had a net book value of $76,800 on the date of;sale. The land was recorded on Encino?s books at $76,800. An appraisal;conducted by independent appraisers at the time of acquisition, valued the land;at $556,800, the building at $201,600, and the machinery at $86,400.;Angie Justice, chief engineer, estimated that the renovated plant would be used;for 15 years, with an estimated salvage value of $57,600. Justice estimated;that the productive machinery would have a remaining useful life of 5 years and;a salvage value of $5,760. Darby?s depreciation policy specifies the 200%;declining-balance method for machinery and the 150% declining-balance method;for the plant. One-half year?s depreciation is taken in the year the plant is;placed in service and one-half year is allowed when the property is disposed of;or retired. Darby uses a 360-day year for calculating interest costs.(a) Determine the amounts to be recorded on the;books of Darby Sporting Goods Inc. as of December 31, 2012, for each of the;following properties acquired from Encino Athletic Equipment Company. (Do not round intermediate calculations for computational;purposes. Round final answers to 0 decimal places, e.g. $45,892.);(1);Land;$;(2);Buildings;$;(3);Machinery;$;(b) Calculate Darby Sporting Goods Inc.?s 2013;depreciation expense, for book purposes, for each of the properties acquired;from Encino Athletic Equipment Company.;Depreciation Expense;(1);Land;$;(2);Buildings;$;(3);Machinery;$;Question 3;You;are the senior accountant for a company that has determined the useful life of;a machine costing $100,000 will be 7 years rather than 10 years as originally;thought. You are in year 6 when this is discovered. Log onto the FASB.org;website and locate guidelines for recording this transaction. Prepare a memo to;the CFO explaining your position on this matter.
Paper#42906 | Written in 18-Jul-2015Price : $39