Jing Company was started on January 1, 2016 when it issued common stock for $45,

Question

Jing Company was started on January 1, 2016 when it issued common stock for $45,000 cash. Also, on January 1, 2016 the company purchased office equipment that cost $18,500 cash. The equipment was delivered under terms FOB shipping point, and transportation cost was $3,000. The equipment had a five-year useful life and a $7,000 expected salvage value.

1. Using double - declining balance depreciation, determine the amount of depcreciation and the amount of accumulated depreciation that would appear on the December 31, 2018 Financial statements.

A. $0/$20,000

B. $7,200/$19,200

C. $740/$14,500

D. $4,320/$24,320

2. Assume that Jing company earned $31,000 cash revenue and incurred $19,500 in cash expenses in 2018. Using straight - line depreciation and assuming that the office equipment was sold on December 31, 2018 for $10,600, the amount of net income or (loss) appearing on the December 31, 2018 income statement would be:

A. ($3,500)

B. $6,400

C. $2,500

D. $7,500

Explanation / Answer

Answer 1

Cost of equipmemt = Purchase price + FOB and transportation cost = $18,500 + $3,000 = $21,500

Double - declining balance depreciation = 2 * SLM rate * Book value at the beginning of the year

SLM rate = 1 / Estimated Useful life = 1 / 5 = 20 %

Depreciation in 2016 = 2 *20 % *  $21,500 = $8,600

Depreciation in 2017 = 2 *20 % * ($21,500 - $8,600) = $5,160

Depreciation in 2018 = Book value at the beginning of the year = $21,500 - $8,600 - $5,160 = $7,740

Note :Depreciation as per Double - declining balance ceases when Net Book value = salvage value .

Therefore, Depreciation in 2018 =  $7,740 - $7,000 = $740

Accumulated depreciation on the December 31, 2018 = $8,600 + $5,160 + $740 = $14,500

Answer :  C. $740/$14,500

Answer 2

Accumulated depreciation for equipment using SLM = ($21,500 - $7,000 ) * 3 /5 = $8,700

WDV of the equipment as on December 31, 2018 = Cost - Accumulated depreciation = $21,500 - $8,700 = $12,800

(Loss) on sale of equipment = $12,800 - $10,600 = ($2,200)

Net income appearing on the December 31, 2018 income statement = $31,000 - $19,500 - $2,200 = $9,300

Note : It seems there is some clearical error either in the question or in the options given . The answer must be

$9,300 as the requirements given in the question

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