Problem 1:
On January 1, 2011, Morrow Inc. purchased a spooler at a cost of $40,000. The equipment is expected to last eight years and have a residual value of $4,000. During its eight-year life, the equipment is expected to produce 250,000 units of product. In 2011 and 2012, 42,000 and 76,000 units respectively were produced. Compute the depreciation for 2011 and 2012 using each of the following methods:
1) Straight-Line
2) Double-Declining Balance
3) Sum-of-the-years'-digits
4) Units of Production
Problem 2:
Smurfette, Inc. issued 10% bonds, dated March 1, 2011, with a face amount of $10 million on March 1, 2011. The bonds mature in 2020 (10 years). For bonds of similar risk and maturity the market yield is 12%. Interest is paid semiannually on August 30 and February 28.
Answer each of the following:
1. Determine the price of the bonds at March 1, 2011.
2. Prepare an amortization table for from March 1, 2011 through February 28, 2012 using the Effective Interest Method.
3. Prepare the journal entry to record their issuance by Smurfette on March 1, 2011.
4. Prepare the journal entry to record interest on August 30, 2011.
5. Prepare the journal entry to record any needed adjusting entries December 31, 2011.
6. Prepare the journal entry to record the interest payment on February 28, 2012.