Reference no: EM132958886

Exercise 1 - Dillon's Camping Equipment was burglarized on 3/10/15. It is unclear how many items were stolen. Dillon and its insurance company are currently working to estimate the dollar value of the stolen goods in order to reach a financial settlement under the existing property insurance policy.

Dillon's tax return prepared at the end of 2014 revealed that the ended 2014 with a total inventory of $750,000. Dillon uses the same inventory account methods for tax and accounting purposes.

The insurance company has contacted Dillon's suppliers and confirmed Dillon's claim that purchases for 2015, prior to the date of the burglary, were $1,250,000. All inventory was purchased, FOB destination.

2015 sales taxes collected by Dillon and remitted to the state, prior to the date of the theft, were $155,000. The sales tax rate is 6% of sales.

An inventory was taken immediately after the burglary and the cost of equipment in stock was $165,000.

Dillon consistently sells equipment at a gross profit margin of 30%.

Required - Use the gross profit method to estimate the dollar value of stolen property.

Exercise 2 - Seven Star Corporation purchased a piece of equipment at the beginning of 2012. The equipment cost $140,000. Its estimated service life is 8 years and has an expected salvage value of $8,000. The sum-of-the-years-digits method is used. The depreciation schedule has a $22,000 annual depreciation expense for a certain year.

Required - Determine what year the depreciation expense of $22,000 is on the depreciation schedule. Round all answers to the nearest whole dollar.

Exercise 3 - Sunshine Company purchased equipment for $100,000 in 2012. The machinery originally had an estimated life of 8 years and a salvage value of $10,000. Sunshine used the straight-line depreciation method. In 2016, the estimated life was changed to 11 years.

Required - What is the annual depreciation expense for 2016?