Accounting Answer

1 a. To calculate the annual amount of depreciation using the straight-line

method, we need to determine the depreciable cost and divide it by the
useful life.

Depreciable cost = Cost - Residual value Depreciable cost = $96,000 -

$6,000 = $90,000

Annual depreciation = Depreciable cost / Useful life Annual depreciation =

$90,000 / 6 = $15,000

Therefore, the annual amount of depreciation for the years 2003, 2004, and
2005 would be $15,000 each.

b. To determine the book value of the equipment on January 1, 2006, we

need to subtract the accumulated depreciation from the original cost.

Accumulated depreciation = Annual depreciation * Number of years

Accumulated depreciation = $15,000 * 3 = $45,000

Book value = Cost - Accumulated depreciation Book value = $96,000 -

$45,000 = $51,000

The book value of the equipment on January 1, 2006, is $51,000.

c. To journalize the entry to record the sale of the equipment on January 2,

2006, for $38,000, we need to record the cash received, remove the
equipment from the books, and recognize the loss on the sale.

Date: January 2, 2006 Account Debit Credit Cash $38,000 Accumulated

Depreciation $45,000 Loss on Sale of Equipment $13,000 Equipment
$96,000

d. To journalize the entry to record the sale of the equipment on January 2,

2006, for $53,000 instead of $38,000, we need to record the cash received,
remove the equipment from the books, and recognize the gain on the sale.

Date: January 2, 2006 Account Debit Credit Cash $53,000 Accumulated

Depreciation $45,000 Gain on Sale of Equipment $8,000 Equipment $96,000
2
a. To calculate the book value of the equipment at December 31, 2006, we need to
determine the accumulated depreciation and subtract it from the original cost.
 Depreciable cost = Cost - Residual value Depreciable cost = $240,000 - $15,000 =
$225,000

Annual depreciation = Depreciable cost / Useful life Annual depreciation = $225,000 /

10 = $22,500

Accumulated depreciation at December 31, 2006 = Annual depreciation * Number of

years Accumulated depreciation at December 31, 2006 = $22,500 * 4 = $90,000

Book value at December 31, 2006 = Cost - Accumulated depreciation Book value at
December 31, 2006 = $240,000 - $90,000 = $150,000

The book value of the equipment at December 31, 2006, is $150,000.

b. To journalize the entries to record the depreciation for the six months until the sale
date and the sale of the equipment on July 1, 2007:

1. Depreciation for the six months until the sale date:

Date: June 30, 2007 Account Debit Credit Depreciation Expense $11,250 Accumulated
Depreciation $11,250

2. Sale of the equipment:

Date: July 1, 2007 Account Debit Credit Cash $135,000 Accumulated Depreciation
$90,000 Loss on Sale of Equipment $5,000 Equipment $240,000

In this scenario, we assume that the equipment was sold at a loss of $5,000. The
difference between the equipment's book value ($150,000) and the sale price
($135,000) results in a loss on the sale.

Let's classify each of the costs as either a capital expenditure or a

revenue expenditure, and for capital expenditures, determine
whether they are additional or replacement components:

1. Removed a two-way radio from one of the trucks and installed a new
radio with a greater range of communication.
 Capital Expenditure (Replacement Component): The new radio is an
upgrade to an existing component.
2. Overhauled the engine on one of the trucks that had been
purchased three years ago.
 Revenue Expenditure: Engine overhaul is a maintenance expense to
ensure proper functioning of the truck.
3. Changed the oil and greased the joints of all the trucks and vans.
 Revenue Expenditure: Routine maintenance to keep the vehicles in
good operating condition.
4. Installed security systems on four of the newer trucks.
 Capital Expenditure (Additional Component): The security systems
are new additions to enhance the trucks' security.
5. Changed the radiator fluid on a truck that had been in service for
the past 4 years.
 Revenue Expenditure: Routine maintenance to ensure proper
functioning.
6. Installed a hydraulic lift to a van.
 Capital Expenditure (Additional Component): The hydraulic lift is a
new addition to enhance the van's functionality.
7. Tinted the back and side windows of one of the vans to discourage
theft of contents.
 Revenue Expenditure: Window tinting is a maintenance expense for
security purposes.
8. Repaired a flat tire on one of the vans.
 Revenue Expenditure: Repairing a flat tire is a regular maintenance
expense.
9. Rebuilt the transmission on one of the vans that had been driven
40,000 miles. The van was no longer under warranty.
 Capital Expenditure (Replacement Component): Rebuilding the
transmission is replacing a major component of the van.
10. Replaced the trucks' suspension system with a new suspension
system that allows for the delivery of heavier loads.
 Capital Expenditure (Replacement Component): The replacement of
the suspension system is necessary to accommodate heavier loads.

To summarize:

 Capital Expenditures (Additional Components): 2, 4, 6, 10

 Capital Expenditures (Replacement Components): 1, 9
 Revenue Expenditures: 3, 5, 7, 8

Note that the categorization of expenditures may vary based on

specific accounting policies and regulations, and further details
about the company's specific circumstances would be needed for an
accurate clasification
4i. Let's calculate the annual depreciation, accumulated depreciation, and book value of
the equipment at the end of each year using both the straight-line method and the
declining-balance method (at twice the straight-line rate).
a) Straight-line Method: Cost of equipment: $150,000 Estimated residual value: $12,000
Estimated useful life: 5 years

Annual depreciation = (Cost - Residual value) / Useful life Annual depreciation =

($150,000 - $12,000) / 5 = $27,600

Year 1: Depreciation expense (straight-line) = $27,600 Accumulated depreciation =

$27,600 Book value = $150,000 - $27,600 = $122,400

Year 2: Depreciation expense (straight-line) = $27,600 Accumulated depreciation =

$27,600 + $27,600 = $55,200 Book value = $150,000 - $55,200 = $94,800

Year 3: Depreciation expense (straight-line) = $27,600 Accumulated depreciation =

$55,200 + $27,600 = $82,800 Book value = $150,000 - $82,800 = $67,200

Year 4: Depreciation expense (straight-line) = $27,600 Accumulated depreciation =

$82,800 + $27,600 = $110,400 Book value = $150,000 - $110,400 = $39,600

Year 5: Depreciation expense (straight-line) = $27,600 Accumulated depreciation =

$110,400 + $27,600 = $138,000 Book value = $150,000 - $138,000 = $12,000
(residual value)

b) Declining-balance Method (at twice the straight-line rate): Straight-line depreciation

rate = 1 / Useful life = 1 / 5 = 0.2 (20%)

Declining-balance rate = 2 * Straight-line rate = 2 * 0.2 = 0.4 (40%)

Year 1: Depreciation expense (declining-balance) = Book value at the beginning of the

year * Declining-balance rate = $150,000 * 0.4 = $60,000 Accumulated depreciation =
$60,000 Book value = $150,000 - $60,000 = $90,000

Year 2: Depreciation expense (declining-balance) = Book value at the beginning of the

year * Declining-balance rate = $90,000 * 0.4 = $36,000 Accumulated depreciation =
$60,000 + $36,000 = $96,000 Book value = $150,000 - $96,000 = $54,000

Year 3: Depreciation expense (declining-balance) = Book value at the beginning of the

year * Declining-balance rate = $54,000 * 0.4 = $21,600 Accumulated depreciation =
$96,000 + $21,600 = $117,600 Book value = $150,000 - $117,600 = $32,400

Year 4: Depreciation expense (declining-balance) = Book value at the beginning of the

year * Declining-balance rate = $32,400 * 0.4 = $12,960 Accumulated depreciation =
$117,600 + $12,960 = $130,560 Book value = $150,000 - $130
5To calculate the depreciation expense for each year using different methods, we need
to determine the depreciation rate and apply it to the relevant base.

Given: Cost of equipment: $214,000 Useful life: 4 years or 31,250 operating hours
Residual value: $14,000 Operating hours in each year:
 2005: 10,750 hours
 2006: 9,500 hours
 2007: 6,000 hours
 2008: 5,000 hours

a) Straight-line Method: Depreciation expense per year = (Cost - Residual value) /

Useful life

Depreciation expense for 2005: Depreciation expense = ($214,000 - $14,000) / 4 =

$50,000

Depreciation expense for 2006: Depreciation expense = ($214,000 - $14,000) / 4 =

$50,000

Depreciation expense for 2007: Depreciation expense = ($214,000 - $14,000) / 4 =

$50,000

Depreciation expense for 2008: Depreciation expense = ($214,000 - $14,000) / 4 =

$50,000

b) Units-of-Production Method: Depreciation expense per hour = (Cost - Residual

value) / Total estimated operating hours

Depreciation expense for 2005: Depreciation expense = ($214,000 - $14,000) / 31,250 *

10,750 = $38,080

Depreciation expense for 2006: Depreciation expense = ($214,000 - $14,000) / 31,250 *

9,500 = $33,440

Depreciation expense for 2007: Depreciation expense = ($214,000 - $14,000) / 31,250 *

6,000 = $21,760

Depreciation expense for 2008: Depreciation expense = ($214,000 - $14,000) / 31,250 *

5,000 = $18,400

c) Declining-Balance Method: Depreciation expense = Book value at the beginning of

the year * Declining-balance rate

Straight-line depreciation rate = 1 / Useful life = 1 / 4 = 0.25 (25%) Declining-balance

rate = 2 * Straight-line rate = 2 * 0.25 = 0.50 (50%)

Depreciation expense for 2005: Depreciation expense = $214,000 * 0.50 = $107,000

Depreciation expense for 2006: Depreciation expense = ($214,000 - $107,000) * 0.50 =

$53,500

Depreciation expense for 2007: Depreciation expense = ($214,000 - $107,000 -

$53,500) * 0.50 = $26,750
 Depreciation expense for 2008: Depreciation expense = ($214,000 - $107,000 -
$53,500 - $26,750) * 0.50 = $13,375

d) Sum of the Year's Digit Method: Sum of the digits for a 4-year useful life = 4 + 3 + 2
+ 1 = 10

Depreciation expense for 2005: Depreciation expense = ($214,000 - $14,000) * (4/10)

= $80,000

Depreciation expense for 2006

1. 6Let's determine the amount of amortization or depletion expense for each item:

a. Goodwill: Goodwill does not have a definite useful life, but it is tested for impairment
annually. Therefore, there is no amortization expense for goodwill.

b. Patent: The patent has an estimated economic life of 8 years, and amortization is for
one-half year.

Amortization expense for the current year = Cost / Useful life Amortization expense =
$225,600 / 8 = $28,200

c. Timber rights: The cost of timber rights is $820,000, and the stand of timber is
estimated at 4,000,000 board feet.

Depletion per board foot = Cost / Total estimated board feet Depletion expense for the
current year = Depletion per board foot * Board feet cut

Depletion per board foot = $820,000 / 4,000,000 = $0.205 per board foot Depletion
expense for the current year = $0.205 * 550,000 = $112,750

2. Now, let's journalize the adjusting entries to record the amortization or depletion
expense for each item:

b. Patent: Debit Amortization Expense - Patent: $28,200 Credit Accumulated

Amortization - Patent: $28,200

c. Timber rights: Debit Depletion Expense: $112,750 Credit Accumulated Depletion -

Timber Rights: $112,750

Note: Since there is no amortization for goodwill, there is no adjusting entry required for
it.
7To calculate the employee's employment income tax, total deductions, and
net pay for the current month, we need to consider the regular hourly pay,
hours worked, monthly salary, transportation allowance, and the taxation
policy.

Let's calculate each component step by step:

1. Calculate the regular pay for 48 hours: Regular hourly pay: Br. 30 Regular
hours worked: 48 hours Regular pay for 48 hours: 30 * 48 = Br. 1,440
2. Calculate the overtime pay: Overtime hours worked: 204 hours - 48 hours =
156 hours Overtime pay per hour: (30 * 1.5) = Br. 45 Overtime pay: 156
hours * 45 = Br. 7,020
3. Calculate the total salary (including regular pay and overtime pay): Total
salary: Regular pay for 48 hours + Overtime pay = Br. 1,440 + Br. 7,020 =
Br. 8,460
4. Calculate the taxable transportation allowance: Transportation allowance: Br.
700 Taxable transportation allowance: Max(Transportation allowance - Br.
400, 0) = Max(700 - 400, 0) = Br. 300
5. Calculate the employment income tax on the taxable transportation
allowance: Employment income tax rate: Let's assume it's 20% for this
example. Employment income tax: Taxable transportation allowance * Tax
rate = 300 * 0.20 = Br. 60
6. Calculate the total deductions: Total deductions: Employment income tax =
Br. 60
7. Calculate the net pay for the current month: Net pay: Total salary +
Allowance - Total deductions = Br. 8,460 + Br. 700 - Br. 60 = Br. 9,100

Based on the given data, the employee's: i. Employment income tax is Br.
60. ii. Total deductions, assuming the employee is a permanent civil servant,
are Br. 60. iii. Net pay for the current month is Br. 9,100.
8To calculate the total deductions and net pay for each employee, as well as
the total withholding taxes, payroll taxes, record the payment of salary, and
pass the entry to pay the withholding taxes, we need to consider the basic
salary, overtime hours, allowances, deductions, and employment status of
each employee. Let's calculate each component step by step:

1. Compute the total deductions and net pay for each employee:

Employee A01 (Alemu Tolossa):

 Basic Salary: Birr 10,500

 Position Allowance: Birr 550 (taxable)
 Credit Association Deduction: Birr 500
 Regular Salary: Basic Salary + Position Allowance = 10,500 + 550 = Birr
11,050
 Total Deductions: Credit Association Deduction = Birr 500
 Net Pay: Regular Salary - Total Deductions = 11,050 - 500 = Birr 10,550

Employee M02 (Meron Zewde):

 Basic Salary: Birr 7,800

 Position Allowance: Birr 500 (taxable)
 Overtime Hours: 10 hours
 Overtime Pay Rate: Regular Hourly Rate * 1.5 = (Basic Salary / (4 weeks * 40
hours)) * 1.5 = (7,800 / (4 * 40)) * 1.5 = Birr 14.0625
 Overtime Pay: Overtime Hours * Overtime Pay Rate = 10 * 14.0625 = Birr
140.625
 Regular Salary: Basic Salary + Position Allowance = 7,800 + 500 = Birr
8,300
 Total Deductions: None (No specific deductions mentioned)
 Net Pay: Regular Salary + Overtime Pay - Total Deductions = 8,300 +
140.625 - 0 = Birr 8,440.625

Employee Y03 (Semira Gali):

 Basic Salary: Birr 3,790

 Overtime Hours: 5 hours
 Overtime Pay Rate: Regular Hourly Rate * 1.5 = (Basic Salary / (4 weeks * 40
hours)) * 1.5 = (3,790 / (4 * 40)) * 1.5 = Birr 5.609375
 Overtime Pay: Overtime Hours * Overtime Pay Rate = 5 * 5.609375 = Birr
28.046875
 Regular Salary: Basic Salary = 3,790
 Total Deductions: None (No specific deductions mentioned)
 Net Pay: Regular Salary + Overtime Pay - Total Deductions = 3,790 +
28.046875 - 0 = Birr 3,818.046875

Employee Z04 (Zibrikrik Ayele):

 Basic Salary: Birr 2,565

 Total Deductions: None (No specific deductions mentioned)
 Net Pay: Basic Salary - Total Deductions = 2,565 - 0 = Birr 2,565
2. Compute the total withholding taxes and payroll taxes:
 Withholding Taxes: Sum of withholding taxes for all employees
 Payroll Taxes: Sum of payroll taxes for all employees
3. Record the payment of salary as of Meskerem 30, 2001:
 Record the payment of salary to each employee by crediting their respective
salary accounts and debiting the cash/bank account.
4. Pass the entry to pay the withholding taxes to the appropriate government
unit:
 Debit the withholding taxes expense account and credit the payable account
(liability) for the withholding taxes amount.