15. Cutter Enterprises purchased equipment for $72,000 on January 1, 2018. The e

Question

15. Cutter Enterprises purchased equipment for $72,000 on January 1, 2018. The equipment is expected to have a five-year life and a residual value of $6,000. Using the double-declining balance method, the book value at December 31, 2019, would be A) $14,400. B) $24,960. C) $27,360. D) $25,920. 16. When should a seller recognize revenue from a sales transaction? A. When a contract has been identified. B. When cash has been collected. C. When the allocation price can be allocated across performance obligations D. When or as each performance obligation is satisfied. E. None of the above. 17. If a sales price includes more than one performance obligation, how does the seller allocate the transaction price to each one? A. In proportion to the amount of time required to satisfy each performance obligation. B. In proportion to the stand-alone selling prices of the goods or services underlying all the performance obligations in the contract. C. In proportion to the cost necessarily to satisfy each performance obligation. D. The entire transaction price should be allocated to the entire package of goods and services not to the individual performance obligations E. None of the above. 18. A reduction in the amount to be paid by a credit customer if the customer makes payment within a specified period of time is called a: A. Cash discount B. Trade discount C. Credit discount D. Early payment discount E. None of the above 19. Waiting until a particular account is deemed uncollectible to record bad debt expense is: The allowance method of bad debts. A. B. The preferred method for recording bad debt expense under U.S. GAAP C. Helpful in ensuring bad debt expense is matched to the period in which the associated revenues were earned. D. Not allowed under U.S. GAAP. E. None of the above.

Explanation / Answer

15) Option (D)

72000 - 6000 / 5 = 13200 Depreciation under straight line method

Depreciation percentage = 13200 / 72000 -6000

= 20%

Double declining balance rate = 20% X 2 = 40%

Depreciation for the year 2018 = 72000 X 40% = 28800

Book value at the end of 2018 = 72000 - 28800 = 43200

Depreciation for 2019 = 43200 X 40% = 17280

Book value at the end of 2019 = 43200 - 17280 = 25920

16) Option (D) When or as each performance obligation is satisfied

17) option (B)

18) option (A) cash discount

19) Option (E) None of the above

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