Final test
We have: Cost of new machine $450,000
Salvage Value 30,000
Total expected units 600,000
⇨ Depreciation expense per unit = $450,000−$30,000
600,000= $0.7 per unit
Units produced Depreciation Rate Depreciation
Depreciation Expense for Year 1 80,000 $0.7 $56,000
Depreciation Expense for Year 2 100,000 $0.7 70,000
Depreciation Expense for Year 3 250,000 $0.7 175,000
Depreciation Expense for Year 4 70,000 $0.7 49,000
Depreciation Expense for Year 5 100,000 $0.7 70,000
Units produced in year 5 = 600,000 – 80,000 – 100,000 – 250,000 – 70,000 = 100,000 (units)
(a) Journalize
No. Accounts Titles and Explanations Debit Credit
1 Interest Payable 3,000
Cash 3,000
2 Inventory 241,100
Accounts Payable 241,100
3 Cash ($450,000 + $27,000) 477,000
Sales Revenue 450,000
Sales Taxes Payable 27,000
Cost of goods sold 250,000
Inventory 250,000
4 Accounts payable 50,000
Cash 50,000
5 Interest Expense 3,000
Cash 3,000
6 Insurance Expense 5,600
Prepaid Insurance 5,600
7 Prepaid Insurance 10,200
Cash 10,200
8 Sales Taxes Payable 17,000
Cash 17,000
9 Other Operating Expenses 91,000
Cash 91,000
10 Interest Expense 3,000
Cash 3,000
Bond Payable 50,000
Cash 48,000
Gain on Bond Redemption 2,000
11 Cash (90,000 x 104%) 93,600
Bonds Payable 90,000
Premium on Bonds Payable (90,000 x 4%) 3,600
Adjustment Entries
1 Insurance Expense (($10,200 / 12) x 5) 4,250
Prepaid Insurance 4,250
2 Depreciation Expense ((38,000 – 3,000) / 5) 7,000
Accumulated Depreciation - Equipment 7,000
3 Income Tax Expense 26,445
Income Tax Payable 26,445
Aber Corporation
Income Statement
For the year ended December 31, 2021
Sales $450,000
Cost of goods sold 250,000
Gross Profit 200,000
Operating Expenses
Insurance Expense $ 9,850
Depreciation Expense 7,000
Other operating expenses 91,000
Total operating expenses 107,850
Income from operation 92,150
Other revenues and gains
Gain on bond redemption 2,000
Other expenses and losses
Interest Expense 6,000
Income before income taxes 88,150
Income tax expense (30%) 26,445
Net income 61,705
No. Accounts Titles and Explanations Debit Credit
June 12 Cash 800,000
Common stock (100,000 x $5) 500,000
Paid in Capital in Excess of Par Value – Common stock 300,000
($800,000 - $500,000)
July 11 Cash (5,000 x $110) 550,000
Preferred stock (5,000 x $100) 500,000
Paid in Capital in Excess of Par Value – Preferred stock 50,000
($550,000 - $500,000)
Nov 28 Treasury stock 8,000
Cash 8,000
