Question

1. Xenox Ltd. bought a machine for $112,000 cash. The estimated useful life was six years, and the estimated
residual value was $10,000. Assume that the estimated useful life is 60,000 units. Units actually produced were
15,000 in year 1 and 11,000 in year 2.
Required:
a) Determine the appropriate amounts to complete the following schedule. Show computations, and round to the
nearest dollar.
Depreciation Expense for Carrying Amount at the End of
Method of Depreciation Year 1 Year 2 Year 1 Year 2
Straight line
Units of production
30% declining balance
b) Which method would result in the lowest earnings per share for year 1? For year 2?
c) Which method would result in the highest amount of cash outflows in year 1? Why?
8. Using the allowance method, is bad debt expense recognized in (a) the period in which sales related to the
uncollectible amounts were made or (b) the period in which the seller learns that the customer is unable to pay?
9. Does a decrease in the receivables turnover ratio generally indicate faster or slower collection of receivables? Explain.
10. Contrast the effects of weighted average versus FIFO on reported assets, specifically on earnings before income
taxes, when (a) prices are rising and (b) prices are falling.
11. Contrast the effects of weighted average versus FIFO on cash outflow and inflow.
12. Briefly explain the application of the LC&NRV concept to the ending inventory and its effect on the statement of
earnings and statement of financial position when the net realizable value of inventory is lower than cost.
13. Define goodwill. When is it appropriate to record goodwill as an intangible asset?

2. For each of the following oversights, state whether total assets will be understated
(U), overstated (O), or not affected (NA).
_____ 1. Failure to record revenue earned but not yet received.
_____ 2. Failure to record expired prepaid rent.
_____ 3. Failure to record accrued interest on the bank savings account.
_____ 4. Failure to record accrued interest on outstanding loan.
_____ 5. Failure to record accrued income taxes.
_____ 6. Failure to recognize the earned portion of unearned revenues.
_____ 7. Failure to record depreciation.
_____ 8. Failure to record accrued salaries.

Answer 1

Ans (a)

1 . According to straight line method =

Total cost of machine-residual value÷estimated life of machine

112000-10000÷6=17000

2. According to production unit method =cost of machine ×unit produce÷total estimated units

• 112000×15000÷60000=28000
• 112000×11000÷60000=20533.33

3. According to declining method

• Year 1 =112000×30÷100=33600
• Year 2=112000-33600×30÷100=23520

Ans (b). With respect to above solving lowest amount is 17000

Under method STRAIGHT LINE METHOD

Ans (c). Highest value of depreciation is 24520 under method DECLINING METHOD.