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ID: 2544670 • Letter: #
Question
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Solution 1:
Ending balance of salary payable = Opening balance + Salary expense - Salary payment
$2,500 = Opening balance + $360,000 - $415,000
Opening balance of salary payable = $57,500
Solution 2:
As insurance expense paid for 6 years though we have utilized it for 6 months only in 2012, it means excess expense was booked in income statment in 2012. It means retained earnings is understated.
Insurance expense related to 2012 = $96,000*6/12/6 = $8,000
Prepaid Insurance = $96,000 - $8,000 = $88,000
Hence retained earnings are understated by $88,000
Solution 3:
Net income for the year = Dividend declared - decrease in net asset - increase in common stock
= $130,000 - ($180,000 - $70000) - $10,000 = $10,000
Solution 4:
Original cost = $210,000
Book value on 31.12.1997 = $156,000
Depreciation provided in 3 years = $210,000 - $156,000 = $54,000
Annual depreciation using SLM = $54,000 / 3 = $18,000
Estimated life of assets = 10 years
Total depreciation in 10 years = $18,000*10 = $180,000
Estimated salvage value = $210,000 - $180,000 = $30,000
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