Question 1: Capitalizing versus Expensing For each of the following expenditures, indicate the type of account (asset or expense) in which the expenditure should be recorded. Explain your answers.
a.) $15,000 annual cost of routine repair and maintenance expenditures for a fleet of delivery vehicles.
b.) $60,000 cost to develop a coal mine, from which an estimated 1 million tons of coal can be extracted.
c.) $124,000 cost to replace the roof on a building.
d.) $70,000 cost of a radio and television advertising campaign to introduce a new product line.
e.) $4,000 cost of grading and leveling land so that a building can be constructed.
Question 2: Financial Statement effects of depreciation-straight-line versus accelerated methods Assume that a company chooses an accelerated method of calculating depreciation expense for financial statement reporting purposes for an asset with a five year life.
Required: State the effect( higher, lower, no effect) of accelerated depreciation relative to straight-line depreciation on
a. Depreciation expense in the first year.
b. The asset's net book value after two years.
c. Cash flows from operation (excluding income taxes).
Question 3: Other accrued liabilities-payroll taxes At March 31, 2009, the end of the first year of operations at Jayard, Inc., the firm's accountant neglected to accrue payroll taxes of $4,800 that were applicable to payrolls for the year then ended.
Required:
a.) Use the horizontal model ( or write the journal entry) to show the effect of the accrual that should have been made as of March 31, 2009.
b.) Determine the income statement and balance sheet effects of not accruing payroll taxes at March 31, 2009.
c.) Assume that when the payroll taxes were paid in April 2009, the payroll tax expense account was charged. Assume that at March 31, 2010, the accountant again neglected to accrue the payroll tax liability, which was $5,000 at that date. Determine the income statement and balance sheet effects of not accruing payroll taxes at March 31, 2010.