A company purchased a delivery van for $18,200 with a salvage value of $2,200 on September 1, Year 1. It has an estimated useful life of 5 years. Using the straight-line method, how much depreciation expense should the company recognize on December 31, Year 1?

A company purchased a delivery van for $18,200 with a salvage value of $2,200 on September 1, Year 1. It has an estimated useful life of 5 years. Using the straight-line method, how much depreciation expense should the company recognize on December 31, Year 1?

$1,213.

$3,640.

$1,067.

$3,200.

$800.

Depreciation Expense = (Cost - Salvage Value)/Est Useful Life * Length of Ownership

Depreciation Expense = ($18,200 − $2,200)/5 × 4/12; Depreciation Expense = $1,067

A company had a tractor destroyed by fire. The tractor originally cost $130,000 with accumulated depreciation of $64,500. The proceeds from the insurance company were $92,500. The company should recognize

A company had a tractor destroyed by fire. The tractor originally cost $130,000 with accumulated depreciation of $64,500. The proceeds from the insurance company were $92,500. The company should recognize:

A gain of $27,000.

A loss of $27,000.

A gain of $92,500.

A loss of $65,500.

A gain of $65,500.

Cost of tractor	$ 130,000
Accumulated depreciation	(64,500)
Book value	$    65,500
Cash received	92,500
Gain	$    27,000

A company purchased a weaving machine for $256,560. The machine has a useful life of 8 years and a residual value of $14,000. It is estimated that the machine could produce 758,000 bolts of woven fabric over its useful life. In the first year, 109,000 bolts were produced. In the second year, production increased to 113,000 units. Using the units-of-production method, what is the amount of depreciation expense that should be recorded for the second year?

A company purchased a weaving machine for $256,560. The machine has a useful life of 8 years and a residual value of $14,000. It is estimated that the machine could produce 758,000 bolts of woven fabric over its useful life. In the first year, 109,000 bolts were produced. In the second year, production increased to 113,000 units. Using the units-of-production method, what is the amount of depreciation expense that should be recorded for the second year?

$34,880.

$71,040.

$36,893.

$36,160.

$38,247.

Depreciation Expense = [(Cost - Salvage Value)/Estimated Useful Life (in units)] * Units Produced

Depreciation per unit = ($256,560 - $14,000)/758,000 units = $.32 per unit

Depreciation Expense = $.32 * 113,000 = $36,160

A company discarded a computer system originally purchased for $8,350. The accumulated depreciation was $6,850. The company should recognize a(an)

A company discarded a computer system originally purchased for $8,350. The accumulated depreciation was $6,850. The company should recognize a(an):

$1,500 loss.

$6,850 loss.

$8,350 gain.

$0 gain or loss.

$1,500 gain.

Cost of computer system	$ 8,350
Accumulated depreciation	(6,850)
Book value	$    1,500
Cash received	(0)
Loss on disposal	$    1,500

A company purchased a tract of land for its natural resources at a cost of $1,500,000. It expects to mine 2,000,000 tons of ore from this land. The salvage value of the land is expected to be $250,000. The depletion expense per ton of ore is

A company purchased a tract of land for its natural resources at a cost of $1,500,000. It expects to mine 2,000,000 tons of ore from this land. The salvage value of the land is expected to be $250,000. The depletion expense per ton of ore is:

$0.750.

$6.000.

$8.000.

$0.625.

$0.875.

Depletion Expense per ton = (Cost - Salvage Value)/Estimated Useful Life (in tons)
Depletion Expense per ton = ($1,500,000 − $250,000)/2,000,000 tons = $0.625/ton

A company purchased a plant asset for $60,000. The asset has an estimated salvage value of $4,000, and an estimated useful life of 7 years. The annual depreciation expense using the straight-line method is $4,000 per year.

A company purchased a plant asset for $60,000. The asset has an estimated salvage value of $4,000, and an estimated useful life of 7 years. The annual depreciation expense using the straight-line method is $4,000 per year.

True

False

Depreciation Expense = (Cost - Salvage Value)/Estimated Useful Life
Depreciation Expense = ($60,000 - $4,000)/7; Depreciation Expense = $8,000

A company borrowed $12,000 by signing a 120-day promissory note at 15%. The maturity value of the note is

A company borrowed $12,000 by signing a 120-day promissory note at 15%. The maturity value of the note is: (Use 360 days a year.)

$12,600.00

$15,900.00

$15,640.00

$16,500.00

$17,400.00

$12,000 + ($12,000 * 0.15 * 120/360) = $12,600.00

High Desert Potteryworks makes a variety of pottery products that it sells to retailers such as Home Depot. The company uses a job-order costing system in which predetermined overhead rates are used to apply manufacturing overhead cost to jobs. The predetermined overhead rate in the Molding Department is based on machine-hours, and the rate in the Painting Department is based on direct labor-hours. At the beginning of the year, the company's management made the following estimates:

High Desert Potteryworks makes a variety of pottery products that it sells to retailers such as Home Depot. The company uses a job-order costing system in which predetermined overhead rates are used to apply manufacturing overhead cost to jobs. The predetermined overhead rate in the Molding Department is based on machine-hours, and the rate in the Painting Department is based on direct labor-hours. At the beginning of the year, the company's management made the following estimates:

  

	Department
	Molding	Painting
Direct labor-hours	12,000	60,000
Machine-hours	70,000	8,000
Direct materials cost	$510,000	$650,000
Direct labor cost	$130,000	$420,000
Fixed manufacturing overhead cost	$497,000	$615,000
Variable manufacturing overhead per machine-hour	$1.50	-
Variable manufacturing overhead per direct labor-hour	-	$2.00

 

Job 205 was started on August 1 and completed on August 10. The company's cost records show the following information concerning the job:

  

	Department
	Molding	Painting
Direct labor-hours	30	84
Machine-hours	110	20
Materials placed into production	$470	$332
Direct labor cost	$325	$588

 

Required:

1.

Compute the predetermined overhead rate used during the year in the Molding Department. Compute the rate used in the Painting Department. (Round your answers to 2 decimal places.) Explanation: 1. Molding Department: The estimated total manufacturing overhead cost in the Molding Department is computed as follows:                   Y = $497,000 + $1.50 per MH × 70,000 MH        Estimated fixed manufacturing overhead $ 497,000      Estimated variable manufacturing overhead:      $1.50 per MH × 70,000 MHs 105,000           Estimated total manufacturing overhead cost $ 602,000           The predetermined overhead rate is computed as follows:         Estimated total manufacturing overhead $ 602,000   ÷ Estimated total machine-hours 70,000  MHs      = Predetermined overhead rate $ 8.60  per MH    Painting Department: The estimated total manufacturing overhead cost in the Painting Department is computed as follows:               Y = $615,000 + $2.00 per DLH × 60,000 DLH          Estimated fixed manufacturing overhead $ 615,000       Estimated variable manufacturing overhead:      $2.00 per DLH × 60,000 DLHs 120,000            Estimated total manufacturing overhead cost $ 735,000            The predetermined overhead rate is computed as follows:         Estimated total manufacturing overhead $ 735,000     ÷ Estimated total DLHs 60,000    DLHs      = Predetermined overhead rate $ 12.25    per DLH    2.      Molding Department overhead applied:      110 machine-hours × $8.60 per machine-hour $946       Painting Department overhead applied:      84 direct labor-hours × $12.25 per DLH 1,029          Total overhead cost $1,975        3-b. Unit product cost for Job 205:      Total manufacturing cost $ 3,690       ÷ Number of units in the job 50    units   = Unit product cost $ 73.80    per unit    4.    Molding Painting   Manufacturing overhead cost incurred $ 570,000    $ 750,000      Manufacturing overhead cost applied:         65,000 machine-hours × $8.60 per MH 559,000         62,000 direct labor-hours × $12.25 per direct labor-hour 759,500         Underapplied (or overapplied) overhead $ 11,000    $ (9,500)

Denton Company manufactures and sells a single product. Cost data for the product are given below:

Denton Company manufactures and sells a single product. Cost data for the product are given below:

 

Variable costs per unit:
Direct materials		$5
Direct labor		11
Variable manufacturing overhead		2
Variable selling and administrative		2
Total variable costs per unit		$20
Fixed costs per month:
Fixed manufacturing overhead	$	126,000
Fixed selling and administrative		169,000
Total fixed cost per month	$	295,000

 

The product sells for $49 per unit. Production and sales data for July and August, the first two months of operations, are as follows:

 

	Units Produced	Units Sold
July	21,000	17,000
August	21,000	25,000

 

The company’s Accounting Department has prepared absorption costing income statements for July and August as presented below:

 

	July		August
Sales	$	833,000	$	1,225,000
Cost of goods sold		408,000		600,000
Gross margin		425,000		625,000
Selling and administrative expenses		203,000		219,000
Net operating income	$	222,000	$	406,000

 

Required: Explanation: 1.   Absorption costing Variable costing   Direct materials $ 5          $ 5          Direct labor   11            11          Variable manufacturing overhead   2            2          Fixed manufacturing overhead   ($126,000 ÷ 21,000 units)   6            -            Unit product cost $ 24          $ 18            2.   July August   Variable cost of goods sold @ $18 per unit $ 306,000      $ 450,000       Variable selling and administrative expenses @ $2 per unit $ 34,000      $ 50,000       3.   Year 1 Year 2   Units in beginning inventory 0   4,000     + Units produced 21,000   21,000     − Units sold 17,000   25,000       = Units in ending inventory 4,000   0     Fixed manufacturing overhead cost deferred in inventory under absorption costing (4,000 units × $6 per unit) = $24,000   Fixed manufacturing overhead cost released from inventory under absorption costing (4,000 units × $6 per unit) = $(24,000)