Question

DCS Company bought equipment on January 1, 2018, for $750,000. SDCS used the sum-of-the-years’-digits (S.Y.D) method and estimated five-year useful life with no salvage value. In 2020, SDCS decided to change to the straight-line depreciation method for this asset. In addition, the company estimated the salvage value for $30,000. The following information shows the depreciation expense under S.Y.D methods for 2018 and 2019:

    2018                2019

Sum-of-the-years’-digits (S.Y.D) 250,000           200,000

What would be the depreciation expense for this equipment in 2020 based on the new method (S.L):

Select one:

a. $90,000

b. $100,000

c. $60,000

d. $54,000

ABC Company bought equipment on January 1, 2018, for $450,000. SDCS used the sum-of-the-years’-digits method and estimated five-year useful life with no salvage value. In 2020, SDCS decided to change to the straight-line depreciation method for this asset. The following information shows the depreciation expense under the two methods for 2018 and 2019:

   2018                2019   

Straight-line (S.L) $90,000         $90,000

Sum-of-the-years’-digits (S.Y.D) 150,000           120,000   

The tax rate is 40%

The cumulative effect of this change on 2020 beginning balance of retained earnings is:

Select one:

a. $54,000

b. $90,000

c. 0

d. $180,000

uring 2019, CGC Company changed from the FIFO method to the Average Cost method for accounting purposes. Gross profit figures under both methods for the last three years appear below:

  FIFO   Average Cost

2017                      $   800,000                        $   500,000

2018                           950,000                             700,000

2019                        1,050,000    600,000

                              $2,800,000                        $1,800,000

Assuming an income tax rate of 30% for all years.

What is the effect of this change on the beginning balance of retained earnings of 2019?

Select one:

a. Credit retained earnings by $550

b. Debit retained earnings by $700,000

c. Credit retained earnings by $1,000,000

d. Debit retained earnings by $385

CBSC Cor reported its first two-year net income as $234,000 for 2018 and $176,000 for 2019. In Early 2020, CBSC discovered the errors:

                                                                   2018                                                    2019               

Ending inventory $10,000 understatement $20,000 overstatement

Depreciation expense 16,000 overstatement 18,000 understatement

(ignore tax effects)

The journal entry to correct the above errors in the year 2020 includes:

Select one:

a. Credit Accumulated depreciation by $38,000

b. Credit inventory by $10,000

c. Debit Retained earnings by $22,000

d. Debit retained earnings by $12,000

Answer 1

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