Reference no: EM132847571

Questions -

Q1) X purchased inventory. On September 1, 2020, X had purchased $85,000 of inventory. X paid $5,000 down and signed an 8%, 180 day note for the remaining balance.

a) Record the purchase of inventory and issuance of the short term note payable.

b) Record the accrual of interest on December 31, 2020.

c) Record payment of the note on February 28, 2021.

Q2) On January 1, 2018, X had purchased a $85,000 truck. Initially, we planned on driving the truck for six years or 360,000 kms. Expected residual value for the truck is $11,000. Following double-declining-balance method of amortization.

a) On June 30, 2020, the truck had an accident on the highway. It was taken to the disposal yard. Could you please tell us whether there was a gain or a loss on this truck and for how much? The payout from the claim made with our insurance provider was $30,000 cash. And please assist us with the entry related to the disposal?

b) On September 1, 2020, we paid cash for a new truck for $100,000 plus freight in charge of $2,000 and GST of $5,000. Record any transactions related to the truck.

c) We expect to get 240,000 kms in total from truck usage over the next 10 years. In the last 4 months of 2020, we drove the truck 12,000 kms. We expect residual value to be $5,500. Calculate the gain or the loss from the disposal of the truck in 2020, clearly showing NBV.

d) Record the disposal of the truck on June 30, 2020.

e) Record the purchase of the new truck on September 1, 2020.

f) For our assets, we have been using the double declining balance method, but we are considering using the unit of production method. For the new truck, could you calculate the amortization for both methods? The amount would need to be pro-rated based on months of usage.

g) What difference would it make to our income if we were to switch to the unit of production method?