BACC370 Intermediate Financial Accounting II

Midterm Revision Sheet

Fall 2022/2023

Exercise One: Multiple Choice Questions:

Select the appropriate answer.

1. An equipment that had an original cost of $70,000 with an estimated salvage value of
$10,000, was sold for cash of $22,000 after 3 years of use. The equipment was depreciated
using the straight-line method of depreciation and it has an annual depreciation expense of
$15,000.
1.1 The estimated useful life of the tractor is:
a. 8 years
b. 4 years
c. 3 years
d. None of the above
1.2 The entry to record the sale will include:

a. Credit Cash $22,000

b. Debit Accumulated Depreciation $45,000
c. Credit Equipment $60,000
d. None of the above
2. On April 1, 2018, Magnum Company purchased a delivery equipment for $88,000, with an
expected useful life of 4 years and an estimated salvage value of $8,000. On January 1, 2021, the
company decided to exchange its old delivery equipment for a similar new one. At the time of
exchange, $60,000 cash was paid and the new delivery equipment had a fair market value of
$92,000. The company uses the straight-line method of depreciation. The cost of the new
equipment is:
a. $88,000
b. $148,000
c. $92,000
d. None of the above
 Exercise Two:

Instructions: Put an “X” in the appropriate box to indicate whether the following expenditures
are included in the cost of land, land improvements, building, or equipment.

Land
# Expenditures Land Building Equipment
Improvements

1. Real estate $200,000.

2. Installation $300.

3. Architect’s fees $10,000.

4. Private parking lots and driveways $5,000

Demolition and removal costs of the old

5.
building $30,000.

6. Accrued property taxes $9,000.

7. Cost of property fences $3,000.

Exercise Three:

On January 1, 2021 X Company started to construct a building which was completed on December
31 of the same year. Expenditures were as follows:

April 1 $900,000
May 1 $600,000
September 1 $300,000
December 1 $90,000
To help finance the construction the company borrowed $600,000 on January 1, 2021 on a 4 year,
10% note. Moreover, the company had outstanding all year a 12%, 4 year, $3,000,000 notes
payable and a 14%, 6 years, $4,000,000 note payable.

Instructions: Compute the cost of building

Exercise Four:

On December 31, 2020, HTC Company sold its equipment for $25,000 cash. The equipment was
purchased on January 1, 2017 at a cost of $42,000 with an estimated salvage value of $4,000 and
8-years useful life. The equipment has been depreciated using the straight-line method of
depreciation, and the accumulated depreciation on sale date was $19,000.

Instruction:
Prepare the journal entry to record the sale of the office equipment on December 31, 2020.

Date Account Title & Explanation Ref Debit Credit

Exercise Five:

On December 31, 2020; Lula Company exchanged its old equipment for a new one and paid
$10,000 cash. The old equipment was purchased on January 1, 2016 at an original cost of $35,000
with an estimated salvage value of $5,000 and 12-years useful life. At the date of exchange, the
accumulated depreciation of the old equipment was $12,500 and its fair value was $15,000.
Instruction:
Prepare the journal entry to record the exchange of the office equipment on December 31, 2020.

Date Account Title & Explanation Ref Debit Credit

 Exercise Six:

On January 1, 2016, Rim Company purchased a new van at a cost of $30,000 with salvage value
of $3,000. The new van has a useful life of 4 years or 180,000 miles.
During 2016, the van was driven 32,000 miles, while it was driven 44,000 miles in 2017.
Instructions:
a) Assuming that the company uses the straight-line method, prepare the depreciation
schedule.
DEPRECIATION ACCUMULATED BOOK VALUE
YEAR COST
EXPENSE DEPRECIATION (year-end)
 b) Compute the depreciation expense for the years 2016 and 2017 assuming that the company
uses the units of activity method, and record the depreciation expense at year end 2017.

Date Account Title & Explanation Ref Debit Credit

Exercise Seven:

On Jan 1, 2013, George Company acquired equipment at a cost of $35,000 with a salvage value
of $6,000 and a useful life of 5 years. On January 1, 2016, the company decided to increase the
equipment salvage value to $8,000 and its useful life by one year. George Company uses the
straight-line method of depreciation to depreciate the equipment.

Instructions:
Compute the revised annual depreciation.
Exercise Eight:

On October 1, 2021 ABC Company purchased $90,000 of inventory, terms 5/10, n/30. On October
5 the company returned damaged goods worth $10,000. On October 9 ABC Company paid for the
goods. What is the amount of Cash paid?

Exercise Nine:
King Manufacturing Company purchased a machine on January 1, 2016 at a cost of $60,000. The
company estimates that the useful life of the machine is 5 years and the salvage value is $5,000.
The company uses the Double Declining Balance Method of depreciation.
Book Value Depreciation Accumulated Book Value
Year DDB Rate
(Year Start) Expense Depreciation (Year End)
2016 (A) 40% (B) $24,000 $36,000
2017 (C) 40% 14,400 38,400 21,600
2018 21,600 40% 8,640 47,040 12,960
2019 12,960 40% 5,184 52,224 7,776
2020 7,776 40% (D) 55,000 ( E)

Missing amount Computation

A