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As of January 1, 2011, Survival Industries, Inc. purchased a boat at a cost of \$490,000.

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Question;1) As of January 1, 2011, Survival Industries, Inc. purchased a boat at a cost of \$490,000. When purchased, the company was using the double declining depreciation method. Key info on the asset at time of purchase is the following. Estimated useful life is 7 years.Residual Value is \$0.At the beginning of 2014, the CFO decided to change to straight-line depreciation method. Compute the depreciation expense for 2014. It was explained to me that the correct answer is: [(490,000 - (140,000 ? 100,000 ? 71,429)] / 3 = \$44,643 Purchase Price of Boat = \$490,0003 = 3 years depreciation?However, I do not understand how the other numbers (\$140,000, \$100,000, and \$71,429) were arrived at. 2) Mystical Corporation found the following errors in their year-end financial statements.As of Dec. 2012 As of Dec. 2013Ending Inventory \$32,000 understated \$46,000 overstatedDepreciation Exp. \$7,000 understated On December 31, 2013, a fully depreciated machine was sold for \$35,000 but the sale was not recorded until January 15, 2014 when the cash was received. In 2012, a three-year insurance premium was prepaid for \$45,000, of which the entire amount was expensed in the first year. There were no other errors or corrections. Ignore any tax considerations. What is the total net effect of errors on Mystical's 2013 net income?As explained, \$32,000 + \$46,000 + \$15,000 - \$35,000 = overstated Net Income by \$58,000, where \$32,000 = understated ending inventory for 12/31/2012\$46,000 = overstated ending inventory for 12/31/2013\$35,000 = depreciated sale price of the machineIs \$15,000 = \$45,000/3 years or the amount of depreciation for 2013 only?Why is it important that the sale was not recorded until 1/15/2014 when the cash was received?Could you explain in detail how the answer was arrived at. 3) Financial Data of Johnson Company for 2013 & 2012:Comparative Balance Sheet as of 12/31/2013 & 12/31/20122013 2012Cash \$260,000 \$230,000Receivables \$156,000 \$130,000Inventory \$180,000 \$220,000Plant Assets \$160,000 \$135,000Accumulated Deprec. (\$80,000) (\$76,000)Long Term Invest(Held-To-Maturity) \$80,000 \$93,000Total \$756,000 \$722,000Accounts Payable \$135,000 \$122,000Accrued Liabilities \$30,000 \$33,100Bonds Payable \$135,000 \$166,000Common Stock \$180,000 \$165,000Retained Earnings \$276,000 \$235,000Total \$756,000 \$722,000Income StatementFor the Year Ended 12/31/2013Sales \$750,000Cost of Goods Sold \$530,000Gross Margin \$220,000Selling & Administrative Expenses \$106,000Income from Operations \$114,000Other Revenues & GainsGain on Sale of Investments \$7,000Income Before Tax \$121,000Income Tax Expense \$48,400 Net Income \$72,600Additional Information:During the year, \$9,000 of common stock was issued in exchange for plant assets. No plant assets were sold in 2012. Cash dividends were \$32,500.Required:1) Prepare a statement of cash flows using the Indirect Method2) Prepare a statement of cash flows using the Direct Method. (Do not prepare a Reconciliation Schedule.)

Paper#44690 | Written in 18-Jul-2015

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