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1) Claxton, Inc. purchased a van on January 1, 2018, for $800,000. Estimated life of the van was five years, and its estimated residual value was $98,000. Claxton uses the straight-line method of depreciation. At the beginning of 2020, the company revised the total estimated life of the asset from five years to four years. The estimated residual value remained the same as estimated earlier. Calculate the depreciation expense for 2020.
2) On January 1, 2018, Forrest Manufacturing Corporation purchased a machine for $40,000,000. The corporation expects to use the machine for 24,000 hours over the next six years. The estimated residual value of the machine at the end of the sixth year is $40,000. The corporation used the machine for 3,600 hours in 2018 and 5,000 hours in 2019. What is the depreciation expense for 2018 and 2019 if the corporation uses the double-declining-balance method of depreciation?
3) Dynasty Corp sold a truck for $15,000 cash. It was originally purchased for $50,000 and had accumulated depreciation of $30,000 at the time of sale. Prepare the journal entry for the sale of truck. Omit explanation.
4) On April 1, 2018, Morton Company invests $50,000 in Johnson Company stock. Johnson pays Morton a $2,000 dividend on November 30, 2018. Morton sells the Johnson stock on December 31, 2018 for $54,500. Assume the investment is categorized as a short-term equity investment and that Morton does not have significant influence over Johnson.
Requirements:
- Journalize the transactions for Morton’s investment in Johnson’s stock.
- What was the net effect of the investment on Morton’s net income for the year ended December 31, 2018.
5) On January 1, 2018, West Coast Boats paid $ 1,850,000 for its 30% investment in East Coast Autos. After the purchase, West Coast Boats has significant influence over East Coast Autos. East Coast Autos earned net income of $30,000,000 and paid cash dividends of $15,000,000 to all outstanding stockholders during 2018. Assume all outstanding stock is voting stock.
Requirement:
- Journalize all required 2018 transactions related to West Coast Boats’ investment in East Coast Autos. Omit explanations.
- What is the December 31, 2018 balance of the investment account? Label your work.
6) Analyze the following independent situations.
Required: For each situation, state the likelihood of a future event and state how the contingency will be reported.
- Company A estimates it will have to pay $85,000 in warranty repairs next year.
- Company B is being sued by a customer. Company B’s attorneys feel that this is a frivolous lawsuit and there is very little chance that the customer will win.
- Company C co-signed a note payable for Company D. Company D is having serious financial problems and it is reasonably possible that Company C will have to pay the note.
- Company E is being sued for a patent infringement. Company E’s attorney feels that Company E will be found liable for damages caused by the patent infringement. However, the attorney states it is not possible to estimate the amount of the award.
7) Lawrence, an employee of Triple Time, Inc., has gross salary for March of $4,000. The entire amount is under the OASDI limit of $118,500 and thus subject to FICA. He is also subject to federal income tax at a rate of 18%. Provide the journal entry to record salaries expense and payroll withholdings. (Assume a FICA—OASDI Tax of 6.2% and FICA—Medicare Tax of 1.45%.) Salaries will be paid at a later date. Omit explanation.
8) The face value is $82,000, the stated rate is 10%, and the term of the bond is eight years. The bond pays interest semiannually. At the time of issue, the market rate is 8%. What is the present value of the bond at the issue date?
9) On January 1, 2019, Parker Advertising Company issued $50,000 of six-year, 3% bonds when the market interest rate was 4%. The bonds were issued for $47,356. Parker uses the effective-interest method of amortization for bond discount. Semiannual interest payments are made on June 30 and December 31 of each year. Prepare the amortization table for the first four interest payments. (Round your answers to the nearest dollar number.)
10) Perkins Services reported the following balances:
| 31-Dec-18 | 31-Dec-17 | |
| Net Income | $45,000 | $42,000 |
| Preferred Dividends | 5,000 | 3,000 |
| Total Stockholders’ Equity | 375,000 | 368,000 |
| Total Stockholders’ Equity attributable to Preferred Stock | 40,000 | 24,000 |
| Number of Common Shares Outstanding | 16,000 | 12,000 |
Compute earnings per share for 2018, price/earnings ratio for 2018, assuming the market price on December 31, 2018 is $37.50 per share, and the rate of return on common stockholders’ equity for 2018. (Show your computations and round to two decimal places.)