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# Calculating cost of truck purchase, depreciation expense

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HeFlin Company incurs these expenditures in purchasing a truck: cash price \$18,100; accident insurance (during use) \$2,210; sales taxes \$1,730; motor vehicle license \$220; and painting and lettering \$1,170.
What is the cost of the truck? \$
Apex Chemicals Company acquires a delivery truck at a cost of \$26,600 on January 1, 2007. The truck is expected to have a salvage value of \$3,800 at the end of its 5-year useful life. Compute annual depreciation for the first and second years using the straight-line method. (Round your answers to 0 decimal places.)
First year depreciation \$
second year depreciation \$
On January 1, 2007, the Ewing Company ledger shows Equipment \$32,000 and Accumulated Depreciation \$14,000. The depreciation resulted from using the straight line method with a useful life of 10 years and a salvage value of \$2,000. On this date the company concludes that the equipment has a remaining useful life of only 2 years with the same salvage value. Compute the revised annual depreciation

Prepare journal entries to record these transactions: (For multiple debit/credit entries, list in order of magnitude.)
(a) Blaska Company retires its delivery equipment, which cost \$41,000. Accumulated depreciation is also \$41,000 on this delivery equipment. No salvage value is received.
Account / Description Debit Credit

(b) Assume the same information as in part (a), except that accumulated depreciation for Blaska Company is \$36,800 instead of \$41,000.
Account / Description Debit Credit

Jazz Company purchases a patent for \$176,800 on January 2, 2007. Its estimated useful life is 7 years.
(a) Prepare the journal entry to record amortization expense for the first year. (Round your answers to 0 decimal places.)
Date Account / Description Debit Credit
Jan. 2
\$

\$

(b) Show how this patent is reported on the balance sheet at the end of the first year.
Intangible Assets:
Patent \$

In its 2004 annual report, McDonald's Corporation reports beginning total assets of \$25.5 billion; ending total assets of \$27.8 billion; net sales of \$19.1 billion, and net income of \$2.3 billion. (Round your answers to 2 decimal places.)
(a) Compute McDonald's return on assets ratio. %
(b) Compute McDonald's asset turnover ratio. times

P9-2

At December 31, 2007, Ruiz Corporation reported the following plant assets.
Debits
Land \$3,000,000
Buildings \$26,500,000
Less: Accumulated depreciation - buildings 12,100,000 14,400,000
Equipment 40,000,000
Less: Accumulated depreciation - equipment 5,000,000 35,000,000
Total plant assets \$52,400,000
During 2008, the following selected cash transactions occurred.

Apr. 1 Purchased land for \$2,200,000.
May 1 Sold equipment that cost \$660,000 when purchased on January 1, 2001. The equipment was sold for \$200,000.
June 1 Sold land for \$1,800,000. The land cost \$700,000.
July 1 Purchased equipment for \$1,300,000.
Dec. 31 Retired equipment that cost \$500,000 when purchased on December 31, 1998. No salvage value was received.

Journalize the transactions. (Hint: You may wish to set up T accounts, post beginning balances, and then post 2008 transactions.) Ruiz uses straight-line depreciation for buildings and equipment. The buildings are estimated to have a 40-year life and no salvage value; the equipment is estimated to have a 10-year useful life and no salvage value. Update depreciation on assets disposed of at the time of sale or retirement. (For multiple debit/credit entries, list in order of magnitude.)
Date Account / Description Debit Credit
Apr. 1
\$

\$

May 1
\$

\$

(To record depreciation on asset sold.)
May 1

(To record sale of equipment.)
June 1
\$

\$

\$

July 1
\$

\$

Dec. 31
\$

\$

(To record depreciation on equipment.)
Dec. 31
\$

\$

(To record retirement of equipment.)

Record adjusting entries for depreciation for 2008.
Date Account / Description Debit Credit
Dec. 31
\$

\$

(To record depreciation on buildings.)
Dec. 31
\$

\$

(To record depreciation on equipment.)
Complete the plant assets section of Ruiz's balance sheet at December 31, 2008.
RUIZ CORPORATION
Balance Sheet (Partial)
12/31/08
Land \$

Buildings \$

Less: Accumulated depreciation - buildings

Equipment

Less: Accumulated depreciation - equipment

Total plant assets \$

#### Solution Preview

HeFlin Company incurs these expenditures in purchasing a truck: cash price \$18,100; accident insurance (during use) \$2,210; sales taxes \$1,730; motor vehicle license \$220; and painting and lettering \$1,170.
What is the cost of the truck? \$ 18,100 + 1,730 + 220 + 1,170 = 21,220
Apex Chemicals Company acquires a delivery truck at a cost of \$26,600 on January 1, 2007. The truck is expected to have a salvage value of \$3,800 at the end of its 5-year useful life. Compute annual depreciation for the first and second years using the straight-line method. (Round your answers to 0 decimal places.)
Straight line depreciation method = (Total cost - Salvage value)/Useful life
= (26,000 - 3,800)/5
Depreciation expense per year = 4,440
First year depreciation \$ 4,440
second year depreciation \$ 4,440
On January 1, 2007, the Ewing Company ledger shows Equipment \$32,000 and Accumulated Depreciation \$14,000. The depreciation resulted from using the straight line method with a useful life of 10 years and a salvage value of \$2,000. On this date the company concludes that the equipment has a remaining useful life of only 2 years with the same salvage value. Compute the revised annual depreciation

Remaining balance of the Equipment = Total Cost - Accumulated Depreciation
= 32,000 - 14,000
= 18,000
Straight line depreciation method = (Total cost - Salvage value)/Useful life
= (18,000 - 2,000)2
Depreciation expense per year = 8,000
Prepare journal entries to record these transactions: (For multiple debit/credit entries, list in order of magnitude.)
(a) Blaska Company retires its delivery equipment, which cost \$41,000. Accumulated depreciation is also \$41,000 on this delivery equipment. No salvage value is received
Accumulated depreciation 41,000
Equipment 41,000
Account / Description Debit Credit

\$

\$

(b) Assume the same information as in part (a), except that accumulated depreciation for Blaska Company is \$36,800 instead of \$41,000.
Accumulated depreciation 36,800
Loss from Disposal 4,200
Equipment 41,000
Account / Description Debit Credit

\$

\$

\$ ...

#### Solution Summary

This solution is comprised of a detailed explanation to calculate cost of truck purchase, calculate depreciation expenses, and prepare journal entries and adjusting entries.

\$2.19