Last Updated 16 Jun 2020

Corporation and Partnership

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Essay type Process
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Salta Company installs a manufacturing machine in its factory at the beginning of the year at a cost of $87,000. The machine’s useful life is estimated to be 5 years, or 400,000 units of product, with a $7,000 salvage value.

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. Determine the machines’ second year depreciation under the units of production method: Answer: $16,900 Cost-Salvage Value/Total units of production (87,000 – 7,000)/400,000 = . 2 .2 * 84,500 = 16,900 Amortization: Answer: Is the systematic allocation of the cost of an intangible asset to expense over its estimated useful life.

Big River Rafting pays $310,000 plus $15,000 in closing costs to buy out a competitor. The real estate consists of land appraised at $105,000, a building appraised at $210,000 and equipment appraised at $35,000. Compute the cost that should be allocated to the land. Answer: $97,500 105,000 + 210,000 + 35,000 = 350,000 105,000/350,000 = . 3 .3 * 325,000 = 97,500 Leasehold: Answer: are the rights granted to the lessee by the lessor of a lease. Copyright: Answer: Gives its owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 70 years.

A patent: Answer: Gives its owner exclusive right to manufacture and sell a patented item or to use a process for 20 years. Carmel Company acquires a mineral deposit at a cost of $5,900,000. It incurs additional costs of $600,000 to access the deposit, which is estimated to contain 2,000,000 tons and is expected to take 5 years to extract. Compute the depletion expense for the first year assuming 418,000 tons were mined. Answer: $1,358,500 5,900,000 + 600,000 = 6, 500,000 Cost – Salvage Value/ Total Units of Capacity 6,500,000-0/2000000 = 3. 25 3.

25 * 418,000 = 1,358,500 Cambria Company reports net sales of $4,315 million; cost of goods sold of $2,808 million; net income of 283 million; and average total assets of $2,136. Compute its total asset turnover. Answer: 2. 02 Net Sales/Average Total Asset 4,315/2,136 = 2. 02 Salta Company installs a manufacturing machine in its factory at the beginning of the year at a cost of $87,000. The machine’s useful life is estimated to be 5 years, or 400,000 units of product, with $7,000 salvage value. During its second year, the machine produces 84,500 units of product.

Determine the machine’s second year depreciation under the straight-line method. Answer: $16,000 Cost – salvage value/useful life in periods 87,000 – 7,000/5 =16,000 A depreciation asset costing $75,000 is purchased on September 1, year 1. The asset is estimated to have a salvage value of $10,000 and an estimated useful life of 4 years. Double-declining-balance depreciation is used. If the asset is sold on December 31, Year 3 for $13,000, the journal entry to record the sale will include: Answer: A debit to loss on sale for $2,625. Chapter 11 Quizzes

The current FUTA tax rate is 0. 8% and SUTA tax rate is 5. 4%. Both taxes are applied to the first $7,000 of an employee’s pay. Assume that an employee earned $8,900. What is the amount of total unemployment taxes the employer must pay on the employee’s wages? Answer: 434. 00 7,000*5. 4% = 378 7000*0. 8% = 56 378 + 56 = 434 FICA taxes include: Answer: Social Security taxes Liability: Answer: Must sometimes be estimated If the times interest ratio: Answer: Increase then the risk decreases. Gross pay is? Answer: Total compensation earned by an employee before any deductions.

A company’s income before interest expense and taxes is $250,000 and its interest expense is $100,000. It’s times interest earned ratio is: Answer: 2. 50 Income before Interest expense and income taxes/Interest Expense 250,000/100,000 = 2. 50 Employee vacation benefits: Answer: are estimated liabilities The amount of federal income taxes withheld from an employee’s paycheck is determined by: Answer: the amount of the employee’s current earnings for the pay period and number of withholding allowances the employee claims.

Amount received in advanced from customers for future products or services: Answer: are liabilities A company estimates that a warranty expense will be 4% of sales. The company’s sales for the current period are $185,000. The current period’s entry to record warranty expense is: Answer: Debit warranty expense $7,400; credit estimated warranty liability $7,400 185,000*4% = 7,400 An employee earned 62,500 during the year working for an employer. The FICA tax rate for social security is 6. 2% and FICA tax rate for Medicare is 1. 45%. The current FUTA tax rate is 0. 8% and SUTA is 5. 4%.

Both unemployment taxes are applied to the first $7,000 of an employee’s pay. What is the total unemployment taxes does the employee have to pay? Answer: $0. 00 Employees do not pay unemployment taxes. FUTA taxes are: Answer: unemployment taxes Arena Company’s salaried employee’s earned two weeks’ vacation per year. It pays $858,000 in total employee salaries for 52 weeks but its employees work only 50. Record Arena Company’s weekly journal entry to record the vacation expense; Answer: Debit vacation benefits expense $17,160; Credit vacation benefits payable $17,160 858,000/50 = 17,160

A company sells computers at a selling price of $1,800 each. Each computer has a 2 year warranty that covers replacement of defective parts. It is estimated that 2% of all computers sold will be under the warranty at an average cost of $150 each. During November the company sold 30,000 computers and 400 computers were serviced under the warranty at total cost of 55,000. The balance is the estimated warranty liability account at November 1 was $29,000. What is the company’s warranty expense for the month of November? Answer: 90,000 (30,000*2%*150) = 90,000

A company had fixed interest expense of $6,000, its income before interest expense and any income taxes is $18,000, and its net income is $8,400. The company’s Times interest earned ratio equals: Answer: 3. 0 Advanced ticket sales totaling $6,000,000 cash would be recognized as follows: Answer: Debit Cash; Credit Unearned Revenue During August, Arena Company sells $356,000 in product that has a one year warranty. Experience shows that warranty expenses average about 5% of the selling price. The warranty liability account has a balance of $12,800 before adjustment.

Customers returned product for warranty repairs during the month that used $9,400 in parts and repairs. The entry to record customer warranty repairs is: Answer: Debit Estimated Warranty Liability $9,400; credit Parts Inventory $9,400 Obligations not expected to be paid within the longer of one year or the company’s operating cycle is reported as: Answer: Long-term liability Times Interest earned computation is: Answer: (Net Income + Interest expense + Income taxes)/Interest expense The difference between the amount received from issuing a note payable and the amount repaid is referred to as: Answer: Interest

A contingent Liability: Answer: is a potential obligation that depends on a future event arising from a past transaction or event. In the accounting records of a defendant, lawsuits: Answer: should be recorded if payment for damages is probable and the amount can be reasonably estimated. A company’s fixed interest expense is $8,000 its income before interest expense and income taxes is $32,000. Its net income is $9,600. The company’s time’s interest earned ratio equals: Answer: 4

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