Essay upon Exam practice

IE University

Last Exam (December 2011)

Financial Accounting

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QUESTION 1 . (40 MINUTES)

On December, 31st 2004, Luxury Shoes and boots Company acquired new machines to produce a fresh model of shoes and boots. The buy cost of the machinery is definitely $ one particular, 000, 000. At this moment of the economy, Taxes Authorities allow the company to depreciate this machinery in the way that they favor (the firm is absolutely liberal to decide how to depreciate this machinery). This machinery has an expected useful life of 5 years and its residual value following 5 years will be zero. With this equipment, Extravagance Shoes Company. will be able to production the following levels of shoes annually:

2005 – 500, 000 units

2006 – two hundred fifity, 000 products

2007 – 125, 000 units

08 – seventy five, 000 models

2009 – 50, 000 units

Total units produced over five years will be 1, 000, 000 units. This company as well sells other sorts of shoes that are handmade.

Below you can view the pro-forma income statement for the company for the following 5 years:

2006

2006

2007

2008

2009

Sales Income

1, 1000, 000

you, 000, 500

1, 000, 000

1, 000, 500

1, 1000, 000

Expense of Goods Distributed

(500, 000)

(500, 000)

(500, 000)

(500, 000)

(500, 000)

Other bills

(250, 000)

(200, 000)

(150, 000)

(100, 000)

(75, 000)

Income just before depreciation and taxes

two hundred fifity, 000

three hundred, 000

three hundred and fifty, 000

4 hundred, 000

425, 000

Help to make a decision, the organization asks one to inform about the following:

1 . How would you depreciate this kind of machinery making use of the criteria in the units of production? How would you depreciate this machines using the straight-line depreciation model? Which various other alternatives could you consider intended for depreciating the machinery? 2 . In 2007, you have an urgent repairing expense of $ 100, 500 in this equipment. How do you record that? What journal entries would need to be made, in 2007 for this reason transaction? a few. What significance does selecting one or the other alternate systems have,...



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