question archive Question 7 On January 1, 2003, Mira Ltd
Subject:AccountingPrice:2.86 Bought8
Question 7
On January 1, 2003, Mira Ltd. acquired equipment for $800,000 in cash to manufacture coffee makers.
The equipment was expected to have a life of 5 years and produce 600,000 units over the 5 years. The
equipment was expected to have a salvage value of $50,000. In 2003, Mira produced 100,000 units and
sold 90,000 units.
Required
1
a.
Prepare the journal entry to record the acquisition of the equipment on January 1, 2003.
3
b.
Prepare the journal entry to record the amortization expense for the year 2003 using the
units-of-production method.
2
c.
Show, in good form, how the equipment will be presented on the balance sheet at December 31, 2003.
3
d.
Assume that Mira used the straight-line method of amortization instead of the units-of-production
method of amortization. What will be the effect of this change on net income?
2
e.
Mira provides a warranty on the coffee makers. Based on its experience, Mira expects to incur a
warranty cost of 2% of the selling price. The coffee makers were sold at a price of $20 per unit.
Prepare the year-end adjusting journal entry to record the estimated warranty liability.
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