Lethbridge College ACC 1175 Unit 1 Practice Questions PDF

# Lethbridge College ACC 1175 Unit 1 Review ## Problem 9-1A: Cost of Capital Assets & Recording Costs of Real Estate On March 1, 2024, ABC Holdings purchased land and three buildings for $1,200,000. The plan was to use "Building 1" as an office and to demolish "Building 2" as it was not needed and...

# Lethbridge College ACC 1175 Unit 1 Review ## Problem 9-1A: Cost of Capital Assets & Recording Costs of Real Estate On March 1, 2024, ABC Holdings purchased land and three buildings for $1,200,000. The plan was to use "Building 1" as an office and to demolish "Building 2" as it was not needed and of no use. An appraisal established the following values: - Land: $750,000 - Building 1: $250,000 - Building 2: $0 In addition to the purchase of the land and buildings, ABC paid to have the following done: - Clean-up & level land to prepare land for use: $20,000 - Renovation on Building 1: $5,000 - Demolish old building: $12,000 - Construct parking lot: $5,000 Also, ABC received $2,000 cash for salvage of fixtures from "Building 2". Prepare the journal entries for the purchase and the work done, assuming everything was completed on March 1, 2014. ### Journal Entries | Description | Debit | Credit | |---|---|---| | **Purchase of Land and Buildings** | | | | Land | $900,000 | | | Building | $300,000 | | | Total | $1,200,000 | | | Cash | | $1,200,000 | | **Add to appraised cost** | | | | Land | $20,500 | | | Building | $5,000 | | | Land Improvements | $5,000 | | | Cash | | $30,500 | | **Journal Entries** | | | | Land | $930,000 | | | Building | $305,000 | | | Land Improvements | $5,000 | | | Cash | | $1,240,000 | | **Salvage of Fixtures** | | | | Cash | $2,000 | | | Land | | $2,000 | ## Problem 9-12: Depreciation On July 1, 2014 your company purchased a vehicle for $42,500. You expect to use it for 4 years or 100,000 km, at which point you will sell it for $2,500. Calculate and journalize depreciation at December 31, 2014 and December 31, 2015 using: - Straight line - Double-declining balance - Units of production methods. In 2014 you drove the vehicle for 20,000 km and in 2015 you drove it 25,000 km. ### Straight Line Depreciation - Cost: $42,500 - Salvage Value: $2,500 - Useful Life: 4 years - Depreciation Expense: (Cost-Salvage Value) / Useful Life = ($42,500 - $2,500) / 4 = $10,000 per year - Depreciation Expense for 2014: $10,000 - Depreciation Expense for 2015: $10,000 ### Double Declining Balance Depreciation - Depreciation Rate: 2 / Useful Life = 2 / 4 = 50% - 2014 - Book Value at Beginning of Year: $42,500 - Depreciation Expense: $42,500 x 50% = $21,250 - Book Value at End of Year: $42,500 - $21,250 = $21,250 - 2015 - Book Value at Beginning of Year: $21,250 - Depreciation Expense: $21,250 x 50% = $10,625 - Book Value at End of Year: $21,250 - $10,625 = $10,625 ### Units of Production Method - Depreciable Cost: $42,500 - $2,500 = $40,000 - Depreciable Cost per Kilometers: $40,000 / 100,000 km = $0.40/km - Depreciation Expense for 2014: $0.40/km * 20,000 km = $8,000 - Depreciation Expense for 2015: $0.40/km * 25,000 km = $10,000 ## Problem 9-16: Revised Depreciation Machine Cost: $50,000 Salvage Value: $5,000 Useful Life: 5 years Depreciation Rate: 1/5 = 20% In the beginning of year 4, a module is added that increases usefulness and life: - Cost of Module: $10,000 - Extends life to a total of 8 years - SV decreases to: $3,000 ### Journal Entries for Year 4 | Description | Debit | Credit | |---|---|---| | Machinery | $10,000 | | | Cash | | $10,000 | ### Calculate Depreciation Expense for End of Year 4 - Book Value: $50,000 - $20,000 = $30,000 - New Depreciation Rate: ($30,000 - $3,000) / 8 = $3,375 - Journal Entry - Depreciation Expense | $3,375 | | - Accumulated Depreciation | |$3,375 | ## Problem 9-20: Disposal of Capital Asset - Asset Cost: $100,000 - Accumulated Depreciation to date: $75,000 - Proceeds: $20,000 ### Journal Entries for Disposal | Description | Debit | Credit | |---|---|---| | Loss | $5,000 | | | Cash | $20,000 | | | Accumulated Depreciation | $75,000 | | | Asset | | $100,000 | ## Problem 10-10: Estimated Warranty Liability - 2014: Sold 200 computers at $1,000 each (cost: $700). - Estimated warranty work is about 10% - Average cost of warranty work: $200 ($100 on parts and $100 on labor) - 2015: Actually spent $1,550 on warranty work (labor: $850) ### Journal Entries #### 2014: | Description | Debit | Credit | |---|---|---| | Sales | $200,000 | | | Cash | | $200,000 | | Merchandise Inventory | $140,000 | | | Cost of Goods Sold | | $140,000 | | Warranty Expense | $4,000 | | | Estimated Warranty Liability | | $4,000 | #### 2015: | Description | Debit | Credit | |---|---|---| | Estimated Warranty Liability | $1,550 | | | Cash | | $850 | | Parts Inventory | | $700 | ## Problem 11-6: Partnership & Net Income - A invests: $100,000 - B invests: $50,000 - Net income: $50,000 ### Agreement on how to split net income - A's salary allowance: $40,000 - B's salary allowance: $30,000 - 10% interest on investment - Remainder equally ### Journal Entries to Allocate Net Income | Description | Debit | Credit | |---|---|---| | Income Summary | $50,000 | | | A, Capital | | $32,500 | | B, Capital | | $17,500 | ## Problem 11-13: Admission of a New Partner - A equity: $60,000 - B equity: $40,000 - Share profits and losses in a ratio of 3:2 - Admit C for $60,000 cash, 25% interest ### Journal Entry for Admission of C | Description | Debit | Credit | |---|---|---| | Cash | $60,000 | | | A, Capital | | $40,000 | | B, Capital | | $8,000 | | C, Capital | | $12,000 | ## Problem 11-16: Withdrawal of a Partner - A, B, and C have capital balances of 100K, 200K and 300K respectively. - C leaves the partnership and accepts $220,000 cash as full payment. - Profits are shared equally. ### Journal Entry to Record C's Withdrawal | Description | Debit | Credit | |---|---|---| | C, Capital | $300,000 | | | Cash | | $220,000 | | A, Capital | | $40,000 | | B, Capital | | $40,000 |