Lahore School of Economics

Financial Accounting II

Quiz 1b

Name:_________________________

Section:___________

1. Journalize the following transactions in the accounts of Simmons Company:

Mar. 1 Received a $60,000, 60-day, 6% note dated March 1 from Bynum Company
on account.
Apr. 30 The note dated March 1 from Bynum Company is dishonored, and the customers
account is charged forthe note, including interest.
July 29 Cash is received for the amount due on the dishonored note dated March 1 plus interest
for 90 days at 8%on the total amount debited to Bynum Company on April 30.
Sol: ANSWER:
Mar. 1 Notes Receivable 60,000

Accounts ReceivableBynum Co. 60,000

Apr. 30 Accounts ReceivableBynum Co. 60,600

Notes Receivable 60,000

Interest Revenue 600*

*($60,000 6% 60/360)

July 29 Cash 61,812

Accounts ReceivableBynum Co. 60,600

Interest Revenue 1,212*

*60,600 0.08 90/360 = $1,212

2. Equipment purchased at the beginning of the fiscal year for $360,000 is expected to have a useful
life of 5 years, or14,000 operating hours, and a residual value of $10,000. Compute the
depreciation for the first and second years ofuse by each of the following methods:
(a) straight-line
(b) units-of-output (1,200 hours first year; 2,250 hours second year)
(c) double-declining-balance

ANSWER: 1st Year

(a) $70,000 [($360,000 $10,000) 5]

(b) $30,000 [($360,000 $10,000) 14,000 hours
1,200]
(c) $144,000 ($360,000 0.40)

(d) 2nd Year

(a) $70,000 [($360,000 $10,000) 5]
(b) $56,250 [($360,000 $10,000) 14,000hours
2,250]
(c) $86,400 [($360,000 $144,000) 0.40]

3. Equipment acquired at a cost of $126,000 has a book value of $42,000. Journalize the
disposal of the equipment under the following independent assumptions.
a. The equipment had no market value and was discarded.
b. The equipment is sold for $54,000.
c. The equipment is sold for $24,000.
Post.Re
Date Description f. Debit Credit

a. Loss on Disposal of Equipment 42,000

Accumulated DepreciationEquipment 84,000

Equipment 126,000

b. Cash 54,000

Accumulated DepreciationEquipment 84,000

Equipment 126,000
Gain on Sale of Equipment 12,000
 c. Cash 24,000

Accumulated DepreciationEquipment 84,000

Loss on Sale of Equipment 18,000

Equipment 126,000

4. Chasteen Company acquired mineral rights for $9,100,000. The mineral deposit is
estimated at 65,000,000tons. During the current year, 18,375,000 tons were mined and
sold.
Required:
(1) Determine the amount of depletion expense for the current year.
(2) Journalize the adjusting entry to recognize the depletion expense.

(1) $9,100,000/65,000,000 tons = $0.14 depletion per ton

18,375,000 $0.14 = $2,572,500 depletion
expense

(2) Depletion Expense 2,572,500

Accumulated Depletion
2,572,500
Depletion of mineral deposit.