Question

1. On October 1, Organic Farming purchases wind turbines for $270,000. The wind turbines are expected to last six years, have a salvage value of $33,000, and be depreciated using the straight-line method. 1. Compute depreciation expense for the last three months of the first year. 2. Compute depreciation expense for the second year.

straight line depreciation for the last three months of first year

straight line depreciation for the second year

2. A company has net sales of $2,200,000 and average accounts receivable of $440,000. What is its accounts receivable turnover for the period?

Answer 1

1.

Cost of equipment = $270,000

Useful life = 6 years

Salvage value = $33,000

Annual depreciation expense = (Cost of equipment - Salvage value)/Useful life

= (270,000 - 33,000)/6

= 237,000/6

= $39,500

Straight line depreciation for the last three months of first year = Annual depreciation expense x 3/12

= $9,875

Straight line depreciation for the second year = $39,500

2.

Net sales = $2,200,000

Average accounts receivable = $440,000

Accounts receivable turnover = Net sales/Average accounts receivable

= 2,200,000/440,000

= 5