Solution Pages: 2
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Questions Covered in the Solution:
Problem #1 “Depreciation is the loss in value of a fixed asset over a given span of time.” Do you agree or disagree, explain.
Problem #2 If you were a director of an information service department, how would you decide on which costs to expense or capitalize for (a) an SAP supply chain management (SCM) application project, (b) a network system, and (c) internally developed web applications? Provide detailed discussion
Problem #3 ABC Company made the following transactions during the year of 2011. You are asked to assign each transaction to appropriate balance sheet accounts, indicate its impact on the balance sheet equation (A = L + AE), and assign each cash transaction to one of the three types of activities
|1. Paid $100,000 to suppliers for amounts already owed.
2. Issued $110,000 common stock for cash.
3. Purchased $290,000 inventory on credit
4. Made $400,000 sales on credit.
5. Paid $4,000 cash for interest on debt.
6. Paid $15,000 for wages and salaries owed to employees.
7. At end of period, found cost of goods sold during period was $150,000.
8. Incurred $22,000 of depreciation expense on fixed assets during period.
9. Issued a $120,000 long-term debt for cash.
10. Paid $19,000 cash for income tax.
11. Purchased $309,000 of fixed assets with cash.
12. Received $20,000 cash from selling fixed assets with net book value of $20,000 (= $46,000 – $26,000).
13. Paid $21,000 dividends in cash to stockholders.
14. Owed employees $40,000 for salaries and wages earned.
15. Collected $250,000 from customers for amount owed.
Sample of Solution
Effectively, depreciation is the allocation of cost, of a tangible asset over its useful life. While, it can also be considered as a loss in value of a fixed asset, over time or as the asset is consumed. Essentially, the depreciation expense shows the used up value of an asset, for a specific time period. For instance, a delivery truck (fixed tangible asset), losses its value as it gets used. Since, with every extra mile the truck covers, its value diminishes.