EXERCISES CHAPTER 6
1. On January 2, 20X1, Ahmadi Distributing Co. purchased a computer at a
cost of $224,000. Before placing the computer in service, the company
spent $6,200 for special chips, $3,100 for keyboards, and $6,700 for four
colour monitors.
Ahmadi management estimates that the computer will remain in service for
five years and have a residual value of $20,000
Required:
•Prepare a depreciation schedule for the straight-line depreciation
method, showing asset cost, depreciation expense, accumulated
depreciation, and asset book value
2. At the end of 20X0, Sprint Corporation had total assets of $15.2 billion and
total liabilities of $10.5 billion. Included among the assets were property,
plant, and equipment with a cost of $6.6 billion and accumulated
depreciation of $2.4 billion
Assume that Sprint completed the following selected transactions during
20X1:
•The company earned total revenues of $20.5 billion and incurred total
expenses of $18.3 billion, which included depreciation of $0.7 billion
•During the year Sprint paid $0.7 billion for new property, plant, and
equipment and sold old plant assets for $0.5 billion
•The cost of the assets sold was $0.8 billion, and their accumulated
depreciation was $0.4 billion
Required:
a. Explain how to determine whether Sprint had a gain or a loss on the sale
of old plant assets. What was the amount of the gain or loss, if any?
b. Show how Sprint Corporation would report property, plant, and equipment
on the balance sheet at December 31, 20X1
3. Norwest Bank has an annual salary expense of $800,000. In addition, the
bank incurs payroll tax expense equal to 9% of the total payroll
•At December 31, Norwest owes salaries of $7,000 and payroll taxes of
$2,000. The bank will pay these amounts early next year
•Show what Norwest Bank will report for the foregoing on its income
statement and year-end balance sheet
4. Suppose you work for KPMG, the accounting firm, all year and earn a
montly salary of $6,000. Your withheld income taxes consume 15% of gross
pay. In addition to payroll taxes, you elect to contribute 5% montly to your
retirement plan. KPMG also reducts $200 montly for your co-pay of the
health insurance Premium
Required:
•Compute your net pay for November. Use a 8% FICA tax rate.
5. Eric Associates reported short-term notes payable and salary payable as
follows:
