Question

1. A company purchased a delivery truck for $40,000 which it will take depreciation using the double declining balance method. The truck was placed in service on 7-1-17 and has a $5,000 salvage value and 5 year useful life.

a. How much depreciation will be taked on the truck in 2017?

b. What will be the book value of the truck on 12-31-18? 5. Which of the depreciation methods learned is not based on the passage of time?

2. A company retired some of its bonds and realized a loss from the redemption of $6,000. They were called in for $515,000. Based on this what was the carrying value of the bonds at the time of redemption?

3. A company retired some of its bonds and realized a gain from the redemption of $4,000. They were called in for $392,000. Based on this what was the carrying value of the bonds at the time of redemption?

Answer 1

O1.)

a. Depriciation for 2017 = [(40,000/5)*2*11.5/12]

= 15,333

Mid month Convention is used.

b.) Book Valuve on 12-31-18 is = 40,000-15,333 = $24,667

Annuity depriciation method is not based on passage of time because in this method depriciation is based on level off activity.

Q2.)

Bond Called in for = $515,000

Loss on redemption= $6,000

Bond Carrying Value in books is $521,000 (515,000+6,000)

beacuse bond call amount is after excluding loss from the redemption.

Q3.)

Bond Call Amount = $392,000

Gain on redemption =$4,000

Carrying Value of Bond = $ 388,000 (392,000-4,000)

because bond call amount is inclusive of gain on redemption.