
Concept explainers
1.
Ascertain the appropriate amounts to complete the following schedule by showing computations.
1.

Explanation of Solution
Depreciation refers to allocation, of the cost of asset to expense over the useful life of the asset. Depreciation expense relating to the current accounting period should be accounted for, by an
Following are the appropriate amounts determined to complete the following schedule.
Method of depreciation | Depreciation expense | Book value at the end of | ||
Year 1 |
Year 2 | Year 1 |
Year 2 | |
Straight-line | (2)$22,500 | (3)$22,500 | $73,500 (10) | $51,000 (11) |
Units-of-production | (5)$32,250 | (6)$33,750 | $63,750 (12) | $30,000 (13) |
Double-declining-balance | (8)$48,000 | (9)$24,000 | $48,000 (14) | $24,000 (15) |
Table (1)
Working notes:
Calculate the cost of asset:
Depreciation expense under straight-line method:
Calculate the amount to be depreciated under straight-line method for year 1:
Calculate the amount to be depreciated under straight-line method for year 2:
Depreciation expense under Units-of-production method:
Calculate the units-of-production:
Calculate the amount of depreciation for year 1 (Units-of-production method):
Calculate the amount of depreciation for year 2 (Units-of-production method):
Depreciation expense under Double-declining-balance method:
Calculate the rate of Double-declining-balance:
Note: Straight line depreciation rate =
Calculate the amount of depreciation for year 1 (Double-declining-balance method):
Calculate the amount of depreciation for year 2 (Double-declining-balance method):
Calculate the book value of asset under straight-line method for year 1:
Calculate the book value of asset under straight-line method for year 2:
Calculate the book value of asset under units-of-production method for year 1:
Calculate the book value of asset under units-of-production method for year 2:
Calculate the book value of asset under double-declining-balance method for year 1:
Calculate the book value of asset under double-declining-balance method for year 2:
2.
Ascertain the method that would result in the lowest earnings per share for year 1 and year 2
2.

Explanation of Solution
Earnings per Share:
Earnings per share help to measure the profitability of a company. Earnings per share are the amount of profit that is allocated to each share of outstanding stock.
- The method that would result in the lowest earnings per share during the year 1 is the double-declining-balance method. Thus, the highest depreciation expense was produced in this method which resulted in the lowest income (from requirement 1).
- During the year 2 the units-of-production method results in the lowest earnings per share. Thus, the highest depreciation expense was produced in this method which resulted in the lowest income.
3.
Ascertain the method that would result in the highest amount of
3.

Explanation of Solution
Statement of
This statement reports all the cash transactions which are responsible for inflow and outflow of cash, and result of these transactions is reported as ending balance of cash at the end of reported period.
- While recognising the depreciation there is no payment of cash involved therefore, it is a noncash expense. All methods have the same impact on cash flows during the year 1 since it ignored implications of income tax. The straight-line method results in the highest net income, lowest expense and highest tax liability, when a method is assumed to be applied for tax determination.
- Thus the highest amount of cash outflows is resulted from the straight-line depreciation method. The Methods are selected by the companies for tax purposes in order to reduce the tax obligations.
4.
Indicate the effects of (a) acquiring the machine and (b) recording annual depreciation on the operating and investing activities sections of the statement of cash flows (indirect method) for Year 1(Assume the straight-line method).
4.

Explanation of Solution
Statement of cash flows:
It is one of the financial statement that shows the cash and cash equivalents of a company for a particular period. It determines the net changes in cash through reporting the sources and uses of cash due to the operating, investing, and financing activities of a company.
Operating activities:
Operating activities refer to the normal activities of a company to carry out the business. The examples for operating activities are purchase of inventory, payment of salary, sales, and others.
Investing activities:
Investing activities refer to the activities carried out by a company for acquisition of long term assets. The examples for investing activities are purchase of equipment, long term investment, sale of land, and others.
Following are the effects of (a) acquiring the machine and (b) recording annual depreciation on the operating and investing activities sections of the statement of cash flows (indirect method) for Year 1(Assume the straight-line method).
(a) Acquiring the machine:
The acquisition of machine decrease the cash provided by investing activities due to the purchase cost of $96,000.
(b) Recording annual depreciation on the operating and investing activities sections of the statement of cash flows (indirect method) for Year 1(Assume the straight-line method):
There is no effect on the cash provided by operating activities since depreciation is a noncash expense. The depreciation expense of $22,500 is added back to net income in the operating activities of cash flow statement because the depreciation must be originally subtracted in order to get the net income, and adjustments have to be made for reversing this cash flow effect.
Want to see more full solutions like this?
Chapter 8 Solutions
FINANCIAL ACCOUNTING (LL)-W/CONNECT
- agree or disagree with post The Stockholders' Equity section of a corporate balance sheet fundamentally differs from that of a single-owner business due to the inherent structure of a corporation versus a sole proprietorship. In a single-owner business, you'll usually see a single "Owner's Equity" account, which reflects the owner's investment, withdrawals, and accumulated profits or losses. Conversely, a corporation's Stockholders' Equity is more intricate, reflecting the contributions of multiple owners (stockholders) and the legal framework governing corporate capital. It's divided into contributed capital, which includes common and preferred stock, and retained earnings, which represents accumulated profits not yet distributed as dividends. Additionally, corporations may have accounts like "Additional Paid-in Capital" to capture amounts received above the par value of stock, and "Treasury Stock" to account for shares repurchased by the company. This detailed breakdown highlights…arrow_forwardEast Georgia Community Hospital enters into a contract to provide $15,000 of elective medical care to a patient. After a review of the patient's ability and intent to pay, the hospital does not expect to collect the full contract price of $15,000. However, the hospital occasionally performs "discounted" procedures to members of the community to enhance its standing in the local area. While the hospital invoiced the customer for the full amount of the services, it only expects to collect $10,000. What amount of revenue should the hospital recognize?arrow_forwardOn January 1, Flint Corporation had 62,900 shares of no-par common stock issued and outstanding. The stock has a stated value of $4 per share. During the year, the following transactions occurred. Apr. 1 Issued 18,000 additional shares of common stock for $13 per share. June 15 Declared a cash dividend of $1.95 per share to stockholders of record on June 30. July 10 Paid the $1.95 cash dividend. Dec. 1 Issued 8,000 additional shares of common stock for $13 per share. Dec. 15 Declared a cash dividend on outstanding shares of $2.25 per share to stockholders of record on December 31. (a) Prepare the entries on each of the three dates that involved dividends. (Record journal entries in the order presented in the problem. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amount in the relevant debit OR credit box. Entering zero in ALL boxes will result in the…arrow_forward
- Financial accounting Problemarrow_forwardBlossom Corporation issues 72000 shares of $50 par value preferred stock for cash at $60 per share. The entry to record the transaction will consist of a debit to Cash for $4320000 and a credit or credits to ○ Preferred Stock for $4320000 ○ Preferred Stock for $3600000 and Paid-in Capital in Excess of Par-Preferred Stock for $720000 ○ Preferred Stock for $3600000 and Retained Earnings for $720000 ○ Paid-in Capital from Preferred Stock for $4320000arrow_forwardThe current sections of Kingbird Inc's balance sheets at December 31, 2024 and 2025, are presented here. Kingbird's net income for 2025 was $107,100. Depreciation expense was $18,900. 2025 2024 Current assets Cash $73,500 $69,300 Accounts receivable 56,000 62,300 Inventory 117,600 120,400 Prepaid expenses 18,900 15,400 Total current assets $266,000 $267,400 Current liabilities Accrued expenses payable $10,500 $3,500 Accounts payable 59,500 64,400 Total current liabilities $70,000 $67,900 Prepare the operating activities section of the company's statement of cash flows for the year ended December 31, 2025, using the indirect method. (Show amounts that decrease cash flow with either a-sign eg.-15,000 or in parenthesis e.g. (15,000).) KINGBIRD INC. Statement of Cash Flows (Partial) - Indirect Method For the Year Ended December 31, 2025 Cash Flows from Operating Activities Net Income Adjustments to reconcile net income to Depreciation Expense 18900 6300 Decrease In Accounts Receivable…arrow_forward
- Wrong answer will get unhelpful ratearrow_forwardMetlock Lawn Service Company reported a net loss of $15300 for the year ended December 31, 2025. During the year, accounts receivable decreased $25000, inventory increased $20000, accounts payable increased by $30600, and depreciation expense of $26400 was recorded. During 2025, operating activities provided net cash of $77000 O provided net cash of $46700. O used net cash of $46700. ○ used net cash of $9200.arrow_forwardPlease help me solve this financial accounting question using the right financial principles.arrow_forward
- Don't use aiarrow_forwardGeneral accounting Problemarrow_forwardA company purchased for cash a machine with a list price of $85,000. The machine was shipped FOB shipping point at a cost of $6,500. Installation and test runs of the machine cost $4,500. The recorded acquisition cost of the machine is which amount? Need helparrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education





