Question

Use the following information for the next 5 questions:

On January 1, 2008, KA Company purchased equipment for $105,000. The estimated useful life of the equipment is 10 years, during which time it will be produce 100,000 units. Estimated residual value is $5,000. KA’s fiscal year is January 1 to December 31.

46. If KA Company uses the straight-line method of depreciation, the net book value of the asset at the end of the second year will be:

47. If KA Company uses the units method of depreciation and produced 30,000 units in the first year, the depreciation expense for the first year will be:

48. If KA Company uses the double-declining-balance method of depreciation, the balance in accumulated depreciation at the end of the second year will be:

49. If KA Company uses the straightline method of depreciation and sold the equipment for $35,000 at the end of the eighth year, after recording depreciation expense, the company should recognize a:

a. $70,000 loss on the sale

b. $35,000 gain on the sale

c. $10,000 gain on the sale

d. $10,000 loss on the sale

e.None of the above.

50. Assume KA Company purchased the equipment on July 1, 2008. What is the net book value of the equipment on December 31, 2010, after adjusting entries, if KA Company uses the straight-line method of depreciation?

Answer 1

46) Depreciation expense per year = (105000-5000/10) = 10000 per year

Net book value at the end of second year = 105000-10000-10000 = 85000

47) First year depreciation expense = (105000-5000/100000)*30000 = $30000

48) First year dep = 105000*20% = 21000

Second year dep = 105000*80%*20% = 16800

Accumlated depreciation at the end of second year = 21000+16800 = 37800

49) Book value = 105000-(10000*8%) = 25000

Sale value = 35000

So answer is c) $10000 Gain on the sale

50) Depreciation expense per year = 10000

Accumlated dep (july 1,2008 to december 31,2008) = 10000*2.5 = 25000

Net book value at the end of december 31,2008 = 105000-25000 = $80000