4. (2 pts) Accrual Based Accounting: Prepaid expenses Depreciation of Fixed Asse

Question

4. (2 pts) Accrual Based Accounting: Prepaid expenses Depreciation of Fixed Assets. Moving On, Inc. purchases a new moving truck (e.g. 'equipment') for $56,000 on October 15t, 2017. At the time of its purchase, the truck is expected to be used in operations for 4 years and will have no resale or scrap value at the end of its life. Assume Moving On, Inc. uses straight-line depreciation (i.e. the asset depreciates evenly) over the expected life of the truck. a. Record the journal entry for the original purchase of the truck that occurs on October 1t 2017 Record the adjusting entry to recognize Depreciation Expense on December 31, 2017 What will the ending balance of the Accumulated Depreciation account be on December 31, 2018 (Assume the beginning balance of Accumulated Depreciation on January 15t, 2017 is $O and Moving On, Inc. has no other assets that depreciate)? What will the net book value of the truck be on December 31, 2018? b. C. d. 5. (2 pts) Accrual Based Accounting: Deferred (unearned) revenues. Suppose that on November 29th 2017 a customer pays Ood Sphere, Ltd. $2,000 cash in advance for merchandise which will be delivered to the customer on December 5 th Record the journal entry for the original purchase of the merchandise that occurs on November 29th, 2017 Record the adjusting entry Ood Sphere, Ltd. should record on December 5th to recognize sales revenue. a. b. C. Suppose the cost of the merchandise sold (i.e. COGS) is $1,600. When should Ood Sphere, Ltd. record this expense? Why? Briefly explain your answer.

Explanation / Answer

4.

Depreciation expense = $56000 x 3/48 = $3500

c.

Depreciation for 2018 = $56000/4 = $14000

d. Net book value on Dec. 31, 2018 = Cost - Accumulated depreciation = $56000 - $17500 = $38500

5.

c. The expense of $1600 for the cost of goods sold should also be recorded by Ood Sphere on December 5, 2017 when it records the sales revenue of $2000. This is in line with the matching principle of accounting which requires revenues and corresponding expenses incurred in earning those revenues to be recorded in the same period.

Date Account Titles and Explanation Debit Credit a. Oct. 31, 2017 Equipment 56000 Cash/Accounts payable 56000 (To record purchase of truck) b. Dec. 31, 2017 Depreciation expense 3500 Accumulated depreciation-equipment 3500 (To record depreciation expense)

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