Reference no: EM133165965

Question 1 - Part 1 - Grumpy Inc purchased a machine on January 1, 2021, at a cost of $120,000. The machine was originally estimated to have a salvage value of $15,000 and an estimated life of 3 years. The machine is expected to produce a total of 100,000 components during its life, distributed as follows, 40,000 in 2021, 35,000 in 2022, and 25,000 in 2023.

Required -

a) Calculate the amount of depreciation to be charged in each of the three years, using each of the following methods.

i) Straight-line method

ii) Units of activity

iii) Declining balance at a rate of 200%

b) Which method results in the highest depreciation expense:

i) During the first two years?

i) Over all three years?

Part 2 - Sleepy Ltd negotiated a purchase of land, building and equipment from Bambi Corp. The purchase was completed on June 28, 2021 at a total cash cost of $800,000. The estimated market value of each asset at the time was: land, $330,000; building, $520,000; and machinery, $150,000.

Required -

1. Show journal entries to record each of the purchase of the assets on June 28, 2021.

2. How much depreciation will be recorded for the December 31, 2021 year end assuming declining balance depreciation on the building over 40 years and 5 years on the machinery? Company policy is to start depreciating assets at the beginning of the month following acquisition.

Question 2 - On July 1, 2021, Hanutes Inc. borrowed $90,000 from Scuzz Bank on a 10 month, 6% note payable. Interest is payable on April 30, 2022, the due date of the note. Their accounting year ends January 31, 2022.

Required -

1. Show the journal entry on the company's books to record the note payable on July 1, 2021.

2. Show any year end adjusting entries required on January 31, 2022.

3. Show how this information will be presented on the company's 2022 year-end Statement of Financial Position (ignore cash).

4. Prepare the entry to record the payment on April 30, 2022.