Questions -
Q1. A company purchased a truck on March 1, 2007 at a cost of $70,000. The truck had an estimated useful life of 5 years and an estimated salvage value of $10,000. The company uses the straight-line method of depreciation. Determine the book value of the truck on December 31, 2011.
Q2. A company acquired equipment on April 1, 2010 for $160,000. The company estimates the useful life for the equipment is 400,000 units and the estimated salvage value is $60,000. If the company uses the units-of-activity method of depreciation, calculate the depreciation expense for 2010 if 8,000 units are produced.
Q3. A company purchased factory equipment for $150,000. It is estimated that the equipment will have a $30,000 salvage value at the end of its estimated 5-year useful life. If the company uses the double-declining-balance method of depreciation, calculate the amount of annual depreciation recorded for the third year after purchase.
Q4. Prepare the journal entries to record the following transactions for Reese Company, which has a calendar year end and uses the straight-line method of depreciation.
(a) On September 30, 2014, the company sold old equipment for $46,000. The equipment was purchased on January 1, 2012, for $96,000 and was estimated to have a $16,000 salvage value at the end of its 5-year life. Depreciation on the equipment has been recorded through December 31, 2013.
(b) On June 30, 2014, the company sold old equipment for $24,000. The equipment originally cost $36,000 and had accumulated depreciation to the date of disposal of $15,000.
Q5. Congratulations! You have just won the Powerball Lottery. You have three options to receive payment of your winnings. Which would you prefer (ignoring taxes), assuming you can invest your winnings and earn 6% compounded annually?
A. Receive $60 million today.
B. Receive 20 annual payments of $5 million per year.
C. Receive $150 million 20 years from now.