Kansas Enterprises purchased equipment for $60,000 on January 1, 2015. The equip
ID: 2331636 • Letter: K
Question
Kansas Enterprises purchased equipment for $60,000 on January 1, 2015. The equipment is expected to have a five-year life, with a residual value of $5,000 at the end of five years.
(1) Using the straight-line method, depreciation expense for 2015 would be: $
(2) Using the double-declining balance method, depreciation expense for 2016 would be: $
7 / 10
4. Crestview Estates purchased a tractor on January 1, 2015, for $65,000. The tractor’s useful life is estimated to be 30,000 miles and has a residual value of $5,000. If Crestview used the tractor 5,000 miles in 2015 and 3,000 miles in 2016, what is the balance for accumulated depreciation at the end of 2016 using the activity-based method?
$
5. The Surf’s Up issues 2,000 shares of 5%, $100 par value preferred stock at the beginning of 2014. All remaining shares are common stock. The company was not able to pay dividends in 2014, but plans to pay dividends of $28,000 in 2015. Assuming the preferred stock is cumulative.
(1) The annual cash dividend normally paid to preferred stock is:
$
(2) The cash dividend paid to common stockholders in 2015 is:
$
Explanation / Answer
Question 3
Calculations
Straight line Method
A
Cost
$ 60,000.00
B
Residual Value
$ 5,000.00
C=A - B
Depreciable base
$ 55,000.00
D
Life [in years]
5
E=C/D
Annual SLM depreciation
$ 11,000.00
Year
Book Value
Depreciation expense
Ending Book Value
Accumulated Depreciation
2015
$ 60,000.00
$ 11,000.00
$ 49,000.00
$ 11,000.00
Double-declining balance method
A
Cost
$ 60,000.00
B
Residual Value
$ 5,000.00
C=A - B
Depreciable base
$ 55,000.00
D
Life [in years]
5
E=C/D
Annual SLM depreciation
$ 11,000.00
F=E/C
SLM Rate
20.00%
G=F x 2
DDB Rate
40.00%
Year
Beginning Book Value
Depreciation rate
Depreciation expense
Ending Book Value
Accumulated Depreciation
2015
$ 60,000.00
40.00%
$ 24,000.00
$ 36,000.00
$ 24,000.00
Answers
Question 4
Calculations
Activity-based method of depreciation
A
Cost
$ 65,000.00
B
Residual Value
$ 5,000.00
C=A - B
Depreciable base
$ 60,000.00
D
Usage in Miles
30000
E
Depreciation per Mile
$ 2.00
Year
Book Value
Usage
Depreciation expense
Ending Book Value
Accumulated Depreciation
2015
$ 65,000.00
5000
$ 10,000.00
$ 55,000.00
$ 10,000.00
2016
$ 55,000.00
3000
$ 6,000.00
$ 49,000.00
$ 16,000.00
Answer
Balance for accumulated depreciation at the end of 2016 using the activity-based method will be $ 16000.
Question 5
Calculations
Number of preference shares (A)
Par value(B)
Issue value of Shares (C=AxB)
Interest on Cumulative preference shares shares (Cx5%)
2000
$ 100.00
$ 200,000.00
$ 10,000.00
Dividends on Cumulative Preference shares
Year 2014
$ 10,000.00
Year 2015
$ 10,000.00
Total Dividends Payable
$ 20,000.00
Dividends available for Common stockholders
Total Dividends to be paid
$ 28,000.00
Less : Dividends on Cumulative preference shares
$ 20,000.00
Dividend paid to Common Stock
$ 8,000.00
Answers
Straight line Method
A
Cost
$ 60,000.00
B
Residual Value
$ 5,000.00
C=A - B
Depreciable base
$ 55,000.00
D
Life [in years]
5
E=C/D
Annual SLM depreciation
$ 11,000.00
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