1. On January 1 of Year 1, Kamili Company leased a truck for a 7-year period under a capital lease and agreed to pay an annual lease payment of $6,000 at the end of each year. The interest rate associated with this capital lease is 12% compounded annually. On December 31 of Year 1,the first $6,000 payment was made as scheduled. The entry to record the payment of the first $6,000 payment on December 31 of Year 1includes
A DEBIT to Interest Expense of $6,000.
A DEBIT to Interest Expense of $3,286.
A DEBIT to Interest Expense of $2,714.
A DEBIT to Lease Liability of $6,000.
A DEBIT to Lease Liability of $24,669.
2) The University of Northern Utah purchased a van for $40,000 on January 1 of Year 1. The van has an estimated useful life of 8 years and an estimated salvage value of $4,000. Using double-declining-balance depreciation, compute the amount of depreciation expense to be recognized in Year 2 (the second year).
3) On September 12 of Year 1, Rosie Company purchased land, a building,and some equipment for a total price of $450,000. The land, building,and equipment were appraised at $240,000, $180,000, and $80,000,respectively. At what amount should Rosie Company record the building?
4. Sholpan Company purchased a machine for $90,000. The machine had an estimated residual value of $6,000 and an estimated useful life of 8years. After two full years of experience with the machine, it was determined that its total useful life would be only 5 years instead of 8. The estimated residual value remains unchanged at $6,000. Compute depreciation expense for the third year. Sholpan Company uses straight-line depreciation.
5. Frodo Enterprises owns equipment located in Middle Earth. The cost and the accumulated depreciation of the equipment are $2,800,000 and $1,300,000, respectively. Because of a changing political environment, management is concerned that the equipment has become impaired. Management hired several independent appraisers who agreed that the current value of the equipment is $900,000. Management also estimates that the equipment will generate cash inflows of $80,000 per year for the next 20 years.
Currently, the equipment is recorded in Frodo’s accounting records at a net book value of $1,500,000 ($2,800,000 – $1,300,000). After this re-examination of the equipment,which ONE of the following is the appropriate accounting action?
Do not recognize an asset impairment loss; continue to report the asset at a net book value of $1,500,000.
Recognize an asset impairment loss; the asset should be recorded at $900,000.
Recognize an asset impairment loss; the asset should be recorded at $1,500,000.
Recognize an asset impairment loss; the asset should be recorded at $1,600,000.
Recognize an asset impairment loss; the asset should be recorded at $2,400,000.
Recognize an asset impairment loss; the asset should be recorded at $2,500,000.
Here’s the SOLUTION