Acct. In Class Problems/Written Out

Question 1

St. Charles using the straight-line depreciation method, had $190,000 of
depreciation expense this year for a MRI put into service 2 years ago.
The cost of the MRI, including setup costs, was $890,000. We plan to sell
the MRI in 2 years. Based on the information above, what was our
estimate of salvage value for the MRI?

Answer 1

What is the useful life? 4

What is the cost? $ 890,000

What is my formula? Dep Exp = (Cost - Salvage) / Useful Life
$190,000 = ($890,000 - X) / 4

Solve: (4*$190,000)-$890,000 = -X
What is the answer? $ 130,000

Question 2

On June 1, 2022, St. Charles had the following transaction:
- Sold a forklift that had a cost of $57,000:
- Purchased on January 1, 2014
- Useful life is 10 years
- Salvage value is $3,000
- Straight-line depreciation method is used
- Sales price was $9,000
What was the gain or loss, if any, on the sale of forklift?
Identify if gain or loss
State amount

Answer 2

Forklift Cost $ 57,000
Life 10 SV $3,000
Sale date: June 1st
Depreciation:
Year 2014-2021 $5,400 per year

Year 2022 - 5 months $2,250

Accumulated Depreciation $45,450
Book Value $11,550
Sales Price $ 9,000
Gain (Loss) (2,550)

Question 3

Shaq Co. invests in Magic Co. by purchasing 3,000 shares, which represents a 30% investment. If
Magic reports net income of $100,000 in the first year of the investment, Shaq would record:

a. Decrease Investment account of $30,000
b. Increase Investment account of $30,000
c. Decrease Investee Earnings account of $30,000
d. Increase Dividend Revenue account of $30,000

Answer 3

The equity method is used when significant influence exists, which is typically defined as
greater than 20% ownership. Under the equity method, the balance of the Investments
account will increase for the investor’s share of net income and will decrease for the investor’s share of the investee’s cash dividends. In this case, the investor’s share of the investee’s net income is $30,000 (= $100,000 × 30%). (The Investment account would increase by $30,000 and the Investee Earnings (Income) account would increase $30,000.)

Question 4

Mabel Co. has the following assets and liabilities:
 Equipment with a book value of $50,000 and market value of $500,000
 Building with market value of $1,800,000 and a book value of $300,000
 Liabilities with a fair value of $150,000
Walter Co. purchases Mabel Co. for $2,500,000. How much goodwill, if any, will Walter Co. record at the time of the acquisition?
a. $2,150,000
b. $200,000
c. $350,000
d. $2,350,000

Answer 4

Fair Value of Assets and Liabilities aquired (Market Value):
Equipment: 500,000 $
Building: 1,800,000 $
Liabilities: (150,000) $
Total: 2,150,000 $
Acquisition Price: 2,500,000 $
Difference: 350,000 $ referred to as Goodwill