1. Equipment purchased at the beginning of the fiscal year for $360,000 is expec

Question

1.

Equipment purchased at the beginning of the fiscal year for $360,000 is expected to have a useful life of 5 years, or 14,000 operating hours, and a residual value of $10,000. Compute the depreciation for the first and second years of use by each of the following methods:

(a)

straight-line

(b)

units-of-production (1,200 hours first year; 2,250 hours second year)

(c)

declining-balance at twice the straight-line rate

(Round the answer to the nearest dollar.)

2. Dixon Sales has seven sales employees which receive weekly paychecks. Each earns $10.25 per hour and each has worked 40 hours in the pay period. Each employee pays 12% of gross in Federal Income Tax, 3% in State Income Tax, 6% of gross in Social Security Tax, 1.5% of gross in Medicare Tax, and 1/2% in State Disability Insurance. Journalize the recognition of the pay period ending January 19th which will be paid to the employees January 26th. (Keep in mind that none of the employees is subject to a ceiling amount for social security.)

   3.   Ecco Company sold $150,000 of kitchen appliances during September under a 6 month warranty. The cost to repair defects under the warranty is estimated at 6% of the sales price. On October 15 a customer required a $200 part replacement, plus $85 labor under the warranty.

Provide the journal entry for (a.) the estimated expense on September 30 and (b.) the October 15 warranty work.

(a)

straight-line

(b)

units-of-production (1,200 hours first year; 2,250 hours second year)

(c)

declining-balance at twice the straight-line rate

Explanation / Answer

Cost of the asset = $ 360000

Useful life = 5 years or 14000 operating hours

Residual Value = $ 10000

Straight line method:

First year depreciation expense = $ 70000

Second year depreciation expense = $ 70000

Units of production method :

First year depreciation expense (1200 hours) = $ 30000

Second year depreciation expense (2250 hours) = $ 56250

Declining Balance Method :

First year depreciation expense = $ 140000

Second year depreciation expense = $ 84000

2. Dixon Sales Journals

Salary Expense Account Dr (10.25 x40x7) $ 2870

To Cash Account $ 2870

3. a. No journal entry is required, because no transaction is taking place with respect to warranty on September 30

b. Warranty Expense Account (200 +85) Dr $285

To cash Account $285

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