11. On December 31, 2017, Kohl\'s sold store equipme nt for $50,000 cash. The st
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Question
11. On December 31, 2017, Kohl's sold store equipme nt for $50,000 cash. The store equipment originally cost $600,000 and had Accumulated Depreciation of $540,000. The journal entry to record this sale includes a: a. Debit to 'Loss on Sale of Equipment' for $10,000. b. Credit to ‘Gain on Sale of Equipment, for $50,000. c. Credit to ‘Gain on Sale of Equipment, for S60,000. d. Credit to 'Loss on Sale of Equipment' for $10,000. sold, 12. Which costing method assumes that the cost of the oldest items acquired should be assigned to the first items leaving the most recent purchase costs in ending inventory? a. Average-cost. b. FIFO. c. LIFO. d. Specific identification. 13. Flow Construction purchases a new piece of equipment for $400,000 on January 1, 2018 and originally estimates that the equipment has a $40,000 residual value and a useful life of 8 years. Flow uses the straight-line method to record depreciation. However, on January 1, 2020 (i.e., after 2 years), Flow realizes that the equipment actually has a total useful life of 6 years and a $30,000 residual value. A depreciation schedule would show expense for 2020 a. $92,500 b. $70,000 c. $46,667 d. $45,000 depreciation 14. Subway uses a periodic inventory system. When Subway's managers count its in accidently count one shelf of ingredients twice, resulting in 2017 ending inventory being overstated by $20,000. Subway's managers count its December 31, 2018 inventory correctly. Which of the following statements is true related to Subway's 2017 and 2018 financial statements? a. 2018 Cost of Goods Sold will be properly stated. b. 2017 Cost of Goods Sold will be properly stated. 2018 Cost of Goods Sold will be overstated by $20,000. c. d. 2017 Cost of Goods Sold will be overstated by $20,000.Explanation / Answer
11. Answer-a.Debit to Loss on Sale of Equipment for $10,000
Explanation:
Journal Entry
Cash....Dr 50,000
Accumulated Depreciation..Dr 240,000
Loss on Sale of Equipment...Dr 10,000
To Equipment 300,000
12.Answer-b. FIFO
Explanation:
FIFO –First In First Out Method assumes that the goods acquired first are dispatched first and cost of closing inventory reflect the most recent purchases.
13. Answer-b.$70,000
Explanation:
Depreciation for each year in 2018 & 2019=(Original cost-Salvage value)/useful life
(400000-40000)/8=45000
Book value in Jan 1,2020 =400000-(45000)*2 =400000-90000=310000
Remaining useful life= 6-2=4 years
Residual value=30000
Depreciation for 2020=(310000-30000)/4=280000/4=70,000
14.Answer c-2018 Cost of goods sold will be overstated by $20,000
Explanation:
2017 closing Inventory would be 2018 Opening Inventory which is overstated by $20000.Ending Inventory of 2018 is correct.
Cost of goods sold= Opening stock + Purchases during the year- closing stock.
Hence, when the opening stock balance is overstated, the cost of goods sold balance gets overstated by $20,000
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