1. A $800,000 bond was retired at 107 when the carrying value of the bond was $8

Question

1. A $800,000 bond was retired at 107 when the carrying value of the bond was $862,000. The entry to record the retirement would include a

a. loss on bond redemption of $56,000

b. gain on bond redemption of $56,000

c. loss on bond redemption of $6,000.

d. gain on bond redemption of $6,000.

2. On January 1, a machine with a useful life of five years and a residual value of $8,000 was purchased for $60,000. What is the depreciation expense for year 2 under the double-declining-balance method of depreciation?
(Round answer to the nearest whole number).

a. $12,000

b. $10,400

c. $24,000

d. $14,400

Explanation / Answer

Question 1:

Solution :

Gain on Bond $862000-$856000=$6,000

(800000*1.07)=$856000

Answer = D

Question 2

Solution:

If useful life is 5 yrs, then the straight-line rate would be 100/5 or 20%. That makes the double-declining rate 40% (double 20%). An important general rule for DDB -- salvage value is initially ignored, but once accumulated depreciation reaches the amount of the depreciable base, then depreciation ceases. Using DDB method, depreciation is calculated based on the opening net book value, not based on original cost.

equipment cost $60,000
First Year depreciation $24,000 ($60,000 x 40%)
Nbv at end of first year $36,000
Second Year depreciation ($36,000 x 40%) = $14,400 Answer
Nbv at end of second year $21,600

Answer is d. $14400

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