Course Hero - We put you ahead of the curve!
You have requested the below document.
- Title: B_Series_SolutionsChap9
- Type: Notes
- School: Virginia Tech
- Course: ACIS 2115
- Term: Spring
TO SOLUTIONS EXERCISES - SERIES B - CHAPTER 9 EXERCISE 9-1B Note: There are many possibilities for answers to this question. The answers given are only a few examples of long-term operational assets that these companies may own. Also note that even though the companies have very different business activities, they may have some of the same kinds of long-term operational assets. Lansing Farms: Farm Equipment, Buildings, Office Equipment, Computer Equipment, Land, etc. American Airlines: Airplanes, Machinery & Equipment, Office Equipment, Buildings, Land, Communications Equipment, etc. IBM: Manufacturing Equipment, Computer Equipment, Buildings, Land, Office Equipment, etc. Northwest Mutual Insurance Co.: Office Equipment, Buildings, Land, etc. 9-56 EXERCISE 9-2B Long-Term Operational Assets: a. b. c. d. e. f. g. h. i. j. k. l. No Yes Yes No No Yes Yes No No No Yes Yes EXERCISE 9-3B a. b. c. d. e. f. g. h. i. j. k. l. Pizza Oven Land Franchise Filing Cabinet Copyright Silver Mine Office Building Drill Press Patent Oil Well Desk Goodwill T I T I T T T I T T I T 9-57 EXERCISE 9-4B Costs that are to be capitalized: List Price $100,000 Less: Discount (4,000)* Freight Cost 500 Training Fee 1,000 Total Costs $97,500 *$100,000 x 4% = $4,000 The operator salary and increase in insurance are operating expenses. EXERCISE 9-5B a. Total Appraised Value Land $270,000 Building 630,000 Total $900,000 % of* App. Val. .30 x .70 x Purchase Allocated Price Cost $800,000 = $240,000 800,000 = 560,000 $800,000 *Land: $270,000 $900,000 = .30; Building: $630,000 $900,000 = .70 b. No, the historical cost concept requires that assets be recorded at the amount paid for them. c. Balance Sheet Assets + Land + Cash Bldg. (800,000) + 240,000 + 560,000 Income Statement = Liab. + S. Equity + = = NA + NA Rev. Exp. = Net Inc. NA NA = NA Statemt. of Cash Flows (800,000) IA 9-58 EXERCISE 9-6B a. Asset Land Building Furniture Total Asset Land Building Furniture Total b. Cash (50,000) Assets + Land + Building + s + 90,000 + 180,000 + Furn. = = Liab. N. Pay. Rev. Exp. = Net. Inc. NA NA Cash Flow Appraised Value $105,000 210,000 35,000 $350,000 % of App. Value 30% 60% 10% Percent of Appraised Value 30% 60% 10% 100% Purchase Price $300,000 300,000 300,000 Allocated Cost = $ 90,000 = 180,000 = 30,000 $300,000 x x x 30,000 = 250,000 = NA (50,000) IA c. Account Titles Land Buildings Furniture Cash Notes Payable Debit 90,000 180,000 30,000 50,000 250,000 Credit 9-59 EXERCISE 9-7B Depreciation Calculation: (Cost Accumulated Depr.) x (2 x SL Rate) SL Rate = 1 6 = .1667 Year 1 ($120,000 $ -0-) x (2 x .1667) = $40,000 Year 2 ($120,000 $40,000) x (2 x .1667) = $26,667 Ram Manufacturing Company T Accounts Assets Cash 2006 = 2006 Stockholders' Equity Common Stock Retained Earnings 2006 Bal . cl 120,000 76,000 Bal. 120,000 120,000 120,000 40,000 cl Bal. 76,000 36,000 85,200 94,533 76,000 85,200 161,200 2007 cl 2007 Bal. 26,667 cl Bal. Sales Revenue 2006 Equipment 2006 Bal. cl 76,000 Bal. 120,000 120,000 2007 cl 76,000 -085,2 00 -0- 85,200 Bal. Accumulated Depr. 2006 Bal Depreciation Expense 2006 . 2007 Bal 40,000 40,000 26,667 66,667 . Bal. 40,000 -026,667 -0- cl 40,000 2007 cl 26,667 . Bal. 9-60 EXERCISE 9-7B (cont.) Ram Manufacturing Company Financial Statements 2006 Income Statements Sales Revenue Depreciation Expense Net Income Balance Sheets Assets Cash Equipment Accumulated Depreciation Total Assets Stockholders' Equity Common Stock Retained Earnings Total Stockholders' Equity Statements of Cash Flows Cash Flows From Operating Activities: Inflow from Customers Cash Flows From Investing Activities: Outflow to Purchase Equipment Cash Flows From Financing Activities: Inflow from Stock Issue Net Change in Cash Plus: Beginning Cash Balance Ending Cash Balance $ 76,000 120,000 (40,000) $156,000 $120,000 36,000 $156,000 $161,200 120,000 (66,667) $214,533 $120,000 94,533 $214,533 $76,000 (40,000) $36,000 $85,200 (26,667) $58,533 2007 $76,000 (120,000) $85,200 -0- 120,000 76,000 -0$76,000 -085,200 76,000 $161,200 9-61 EXERCISE 9-8B a. Calculation of Depreciation: Taxi Cost $27,000 Sales Tax & Title Fees 500 Total Cost $27,500 Depreciable Cost: $27,500 $2,500 = $25,000 Depreciation: $25,000 5 years = $5,000 per year 2002 Depreciation: $5,000 2003 Depreciation: $5,000 b. 2002 Debit Depreciation Expense .................... 5,000 Accumulated Depreciation ..... Credit 5,000 c. Cost Less: Accumulated Depreciation Book Value, 1/1/2004 $27,500 (10,000) ($5,000 x 2) $17,500 Loss on Sale = $15,000 $17,500 = $2,500 2004 Cash ....................................... Accumulated Depreciation ........... Loss on Sale................................ Taxi ................................ Debit 15,000 10,000 2,500 Credit 27,500 9-62 EXERCISE 9-9B a. 1. Straight-Line Calculation: Cost Less: Salvage Cost to Be Depreciated $48,000 ( 3,000) $45,000 5 = $9,000 depr. per year 2. Double-Declining Balance Calculation: (Cost Accumulated Depreciation) x (2 x Straight-Line Rate) Straight-Line Rate = 1 5 = .20 Year 1 Year 2 Year 3 Year 4 Year 5 Total ($48,000 $0 ) x (2 x .20) = ($48,000 $19,200) x (2 x .20) = ($48,000 $30,720) x (2 x .20) = ($48,000 $37,632) x (2 x .20) = ($48,000) $41,779) x (2 x .20) = $19,200 11,520 6,912 4,147 2,488 3,221* $45,000 *Since the total depreciable cost is $45,000 ($48,000 $3,000), the balance of depreciable cost is expensed in year 5. ($45,000 $41,779) b. Macon Drugstore Statements Model Balance Sheet Assets Cash (48,000) + Comp. + 48,000 Acc. Depr NA S. Equity = Ret. Ear. = NA = Income Statement Rev Exp. = Net Inc. Stmt. of Cash Flows NA NA = NA (48,000) IA Straight-Line NA + NA DDB NA + 9,000 = (9,000) NA 9,000 = (9,000) NA NA 19,200 = (19,200) NA 19,200 = (19,200) NA 9-63 EXERCISE 9-9B (cont.) c. 1. Macon Drugstore General Journal Date Yr. 1 Account Title Depreciation Expense Accumulated Depreciation Entries for years 2-5 will be the same. c. 2. Macon Drugstore General Journal Date Yr. 1 Yr. 2 Yr. 3 Yr. 4 Yr. 5 Account Title Depreciation Expense Accumulated Depreciation Depreciation Expense Accumulated Depreciation Depreciation Expense Accumulated Depreciation Depreciation Expense Accumulated Depreciation Depreciation Expense Accumulated Depreciation Debit 19,200 19,200 11,520 11,520 6,912 6,912 4,147 4,147 3,221 3,221 Credit Debit 9,000 9,000 Credit 9-64 EXERCISE 9-10B a. Historical Cost Less: Accumulated Depreciation Book Value Sales Price Less: Book Value Gain on Sale Net income would not be affected. Total assets would not be affected. However, cash would increase by $14,000; plant assets would decrease by $27,000; and accumulated depreciation would decrease by $13,000. Cash would increase by $14,000 (Inflow from Investing Activities). $27,000 (13,000) $14,000 $14,000 (14,000) $ -0- b. c. d. e. 9-65 EXERCISE 9-11B a. Double-Declining Balance (Cost Accum. Depr.) x (2 x SL Rate) = Depr. Exp. Per Year SL Rate = 1 4 = .25 2006: ($28,000 $0) x (2 x .25) = 2007: ($28,000 $ 14,000) x (2 x .25) = 2008: ($28,000 $21,000) x (2 x .25) = 2009: ($28,000 $24,500) x (2 x .25) = Total Accumulated Depreciation $14,000 7,000 3,500 1,750 1,500* $26,000 *Since the total depreciable cost is $26,000 ($28,000 $2,000), the total depreciation taken in 2009 is $1,500 ($26,000 $24,500). b. Units-of-Production (Cost Salvage) Estimated Production = Depr. Cost per Unit $28,000 $2,000 = $26,000 $26,000 1,300,000 = $.02 cost per page Annual Depreciation = Depr. Cost per Page x Actual Annual Units 2006: $.02 x 350,000 = 2007: $.02 x 370,000 = 2008: $.02 x 280,000 = 2009: $.02 x 320,000 = Total Accumulated Depr. $ 7,000 7,400 5,600 6,400 6,000* $26,000 *The total depreciable cost is $26,000 ($28,000 $2,000). The depreciation taken in 2009 is $6,000 [$26,000 ($7,000 + $7,400 + $5,600)]. 9-66 EXERCISE 9-11B (cont.) c. Calculation of Book Value Double-Declining Balance Cost Less: Accumulated Depr. Book Value $28,000 (26,000) $ 2,000 Units-of-Production Cost Less: Accumulated Depr. Book Value $28,000 (26,000) $ 2,000 Calculation of Gain (Loss) DDB $1,500 (2,000) $ (500) Units-ofProduction $1,500 (2,000) $ (500) Sales Price Book Value Gain (Loss) 9-67 EXERCISE 9-12B a. MACRS depreciation = Cost x Table % 7-year property 2001:$40,000 x .1429 = $ 5,716 2002:$40,000 x .2449 = $ 9,796 b. 5-year property 2001:$40,000 x .20 = $8,000 2002:$40,000 x .32 = $12,800 EXERCISE 9-13B 2001: $36,000 $6,000 = $30,000; $30,000 3 = 2002: (Same as year 2001.) Depreciation Expense $10,000 $10,000 2003: Cost Less: Acc.Depr. Book Value New Book Value: $36,000 (20,000) $16,000 (4,000)* $12,000 2** = $6,000 *revised salvage **revised remaining life 2004: (Same as year 2003.) $6,000 9-68 EXERCISE 9-14B Tow Truck: Book value would still be $5,600; the $620 repair cost will be expensed. Building: $67,500 will be the new book value. Old book value was $63,500 ($90,000 $26,500), plus the $4,000 cost of the new roof that will reduce accumulated depreciation. Or, the cost of $90,000 less new accumulated depreciation of $22,500 ($26,500 $4,000) yields a book value of $67,500. 9-69 EXERCISE 9-15B a. Assets = Stockholders' Equity Rev. - Exp. = Net Inc. Cash Flow Cash + Comp. A. Dep. = C. Stock + Ret. Ear. 37,000 + 42,000 19,000 = 40,000 + 20,000 (3,000) + NA NA = NA + (3,000) NA NA = NA NA (3,000) OA NA 3,000 = (3,000) b. Assets = Stockholders' Equity Rev. Exp. = Net Inc. Cash Flow Cash + Comp. - A. Depr. = C. Stock + Ret. Ear. 37,000 + 42,000 19,000 = 40,000 + 20,000 (3,000) + NA (3,000) = NA + NA NA NA NA NA = = NA NA NA (3,000) IA c. Assets = Stockholders' Equity Rev. Exp. = Net Inc. Cash Flow Cash + Comp. A. Dep. = C. Stock + Ret. Ear. 37,000 + 42,000 19,000 = 40,000 + 20,000 (3,000) + 3,000 NA = NA + NA NA NA NA NA = = NA NA NA (3,000) IA 9-70 EXERCISE 9-16B a. $26,000 2 = $13,000 additional depreciation expense for 2001 and 2002. $26,000 of expense would be recognized in 2001 and $-0- in 2002. $-0- cash outflow from operating activities in 2001, $-0- cash outflow from operating activities in 2002 (cash outflow in 2001 is from investing activities). $26,000 cash outflow from operating activities in 2001 and $-0- in 2002. b. c. d. 9-71 EXERCISE 9-17B a. Depletion charge per unit: $450,000 22,500 tons = $20 per ton b. Depletion Calculation: Year 1 $20 x 10,000 = $200,000 Year 2 $20 x 8,000 = $160,000 Mountain Coal Statements Model Assets Cash + Coal Res. 600,000 + NA (450,000) + 450,000 = Stockholders' Equity = C. Stock + Ret. Ear. = 600,000 + NA = NA + NA Rev. NA NA Exp. NA NA = Net Inc. = = NA NA Cash Flow NA (450,000) IA Depletion for Year 1 NA + 200,000) = NA + 200,000) NA 200,000 = 200,000) NA 160,000 = (160,000) NA Depletion for Year 2 NA + (160,000) = NA + 160,000) NA c. Year 1 Depletion Expense Coal Reserves Debit 200,000 Credit 200,000 Year 2 Depletion Expense Coal Reserves 160,000 160,000 9-72 EXERCISE 9-18B a. Patent $24,000 2 = $12,000 per year The goodwill is not amortized under FASB Statement No. 142. b. Hi-Tech Manufacturing Statements Model Assets = S. Equity Rev. Exp. NA NA NA NA = Net Inc. = = NA NA Cash Flow NA (44,000) IA NA Cash + Patent + G. Will = 90,000 + NA + NA = 90,000 Pur. (44,000) + 24,000 + 20,000 = NA Pat. NA + (12,000) + NA = (12,000) NA 12,000 = (12,000) c. Patents Goodwill Cash Amortization Expense - Patents Patents Debit 24,000 20,000 Credit 44,000 12,000 12,000 9-73 EXERCISE 9-19B a. Purchase Price: Cash Paid Liabilities Assumed Total FMV of Assets Goodwill $200,000 40,000 240,000 (185,000) $ 55,000 b. Sea Corp. Statements Model Pur. Assets Cash + Assets + G. Will 300,000 + NA + NA (200,000) + 185,000 + 55,000 = = = = + S. Equity + NA + 300,000 40,000 + NA Liab. Rev. NA NA Exp. = Net Inc. NA NA Cash Flow NA (200,000) IA NA = NA = c. Goodwill will not be written off under the impairment rules unless it is determined that the amount of purchased goodwill has been impaired. Impairment is tested by comparing the purchase cost of the goodwill with its current fair market value. If fair market value is determined to be less than historical cost, the decline is recorded as an impairment loss. 9-74 SOLUTIONS TO PROBLEMS - SERIES B - CHAPTER 9 PROBLEM 9-20B Office Equipment List Price Discount ($60,000 x 2%) Transportation-In Installation $60,000 (1,200) 1,600 2,200 $62,600 Note: The $1,000 damage from unloading is not a part of the cost of the equipment. The $300 is routine maintenance. Basket Purchase Allocation is based on relative market values: Asset Copier Computer Scanner Total Asset Copier Computer Scanner Total Land and Building c. Purchase Price Demolition of Old Building Proceeds from Old Building Site Preparation Total Cost of Land Construction Costs Land $200,000 10,000 (7,000) 14,000 $217,000 Building $500,000 Fair Market Value $10,000 6,000 4,000 20,000 % of Fair Market Value 50% 30% 20% x x x x Percent FMV Value 50% 30% 20% 100% Purchase Price $15,000 15,000 15,000 Allocated = Costs = = = $ 7,500 4,500 3,000 $15,000 9-75 PROBLEM 9-21B Altoids Company Financial Statements Income Statements 2001 Revenue Depr. Expense* Operating Income Gain/(Loss) Net Income $15,200 (12,000) 3,200 -0$3,200 2002 $14,400 (12,000) 2,400 -0$2,400 2003 $13,000 (12,000) 1,000 -0$1,000 $ 2004 $12,000 (12,000) -0-0-02005 $ -0-0-0(5,200)** $(5,200) Statements of Changes in Stockholders' Equity Beg. Com. Stock Plus: Stock Issued End. Com. Stock Beg. Ret. Earn. Plus: Net Income End. Ret. Earn. Total Stk. Equity $ -060,000 60,000 -03,200 3,200 $63,200 $60,000 -060,000 3,200 2,400 5,600 $65,600 $60,000 -060,000 5,600 1,000 6,600 $66,600 $60,000 $60,000 -0-060,000 6,600 -06,600 $66,600 60,000 6,600 (5,200) 1,400 $61,400 *Depreciation: $60,000 $12,000 (salvage value) = $48,000; $48,000 4 = $12,000 per year **Sale of Equipment: Sales Price $6,800 less book value $12,000 = $5,200 loss 9-76 PROBLEM 9-21B (cont.) Altoids Company Financial Statements Balance Sheets 2001 Assets Cash Equipment Less: Acc. Dep. Total Assets Stockholders' Equity Common Stock Retained Earn. 2002 2003 2004 2005 $15,200 $29,600 $42,600 $54,600 $61,400 60,000 60,000 60,000 60,000 -0(12,000) (24,000) (36,000) (48,000) -0$63,200 $60,000 3,200 $65,600 $60,000 5,600 $65,600 $66,600 $60,000 6,600 $66,600 $66,600 $60,000 6,600 $66,600 $61,400 $60,000 1,400 $61,400 Total Stkhldrs' Equity $63,200 Statements of Cash Flows Operating Act.: Inflow from Cust. Net Cash Op. Act. Investing Act.: Inflow from Equip. Outflow for Equip. Net Cash Inv. Act. Financing Act.: Inflow from Stock Net Cash Fin. Act. Net Change in Cash Plus: Beg. Cash Bal. Ending Cash Bal. $15,200 15,200 -0(60,000) (60,000) 60,000 $14,400 60,000 14,400 -0-0-0-0-0- $13,000 13,000 -0-0-0-0-013,000 29,600 $42,600 $12,000 12,000 -0-0-0-0-012,000 42,600 $54,600 $ -0-06,800 -06,800 -0-0- 15,200 14,400 -0- 15,200 $15,200 $29,600 6,800 54,600 $61,400 9-77 PROBLEM 9-22B a. Jim's Towing Service Horizontal Statements Model Event 2007 1. 2. 3. 4. 5. 6. 7. 2008 1. 2. 3. 4. 5. 6. 2009 1. 2. 3. 4. 5. Assets = Liab. + S. Equity + NA NA + + + + NA + + Net Income Cash Flow + + + + NA + NA + + NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA + NA + NA NA + NA + + NA NA + NA NA FA IA IA OA OA OA OA OA OA IA OA + OA NA NA 9-78 PROBLEM 9-22B (cont.) b. Note: Journal entries are not required, but are provided for the use of the instructor. Jim's Towing Service, General Journal Event 2007 1. 2. 3. 4. 5. 6. 7. cl Account Titles Cash Common Stock Wrecker Cash Wrecker Cash Cash Service Revenue Gas & Oil Expense Cash Depreciation Expense* Accumulated Depreciation Service Revenue Gas & Oil Expense Depreciation Expense Retained Earnings Maintenance Expense Cash Maintenance Expense Cash Cash Service Revenue Debit 40,000 40,000 26,000 26,000 1,800 1,800 17,600 17,600 3,000 3,000 8,600 8,600 17,600 3,000 8,600 6,000 400 400 600 600 18,000 18,000 Credit 2008 1. 2. 3. *$26,000 + $1,800 = $27,800; $27,800 $2,000 = $25,800; $25,800 3 = $8,600 depreciation per year 9-79 PROBLEM 9-22B b. (cont.) Note: Journal entries are provided for the use of the instructor. Jim's Towing Service General Journal Event 2008 4. 5. 6. cl Account Titles Gas & Oil Expense Cash Depreciation Expense Accumulated Depreciation Service Revenue Maintenance Expense Gas & Oil Expense Depreciation Expense Retained Earnings Accumulated Depreciation Cash Gas & Oil Expense Cash Cash Service Revenue Depreciation Expense* Accumulated Depreciation Service Revenue Gas & Oil Expense Depreciation Expense Retained Earnings Debit 4,200 4,200 8,600 8,600 18,000 1,000 4,200 8,600 4,200 1,400 1,400 3,600 3,600 30,000 30,000 5,000 5,000 30,000 3,600 5,000 21,400 Credit 2009 1. 2. 3. 4. 5. cl *$27,800 $2,000 $17,200 + $1,400 = $10,000; $10,000 2 = $5,000 depreciation per year 9-80 PROBLEM 9-22B b. (cont.) Note: The T-accounts are provided for the use of the instructor. Jim's Towing Service T-Accounts Assets Cash 2007 1. 40,000 2. 4. 17,600 3. 5. Bal. 26,800 2008 3. 18,000 1. 2. 4. Bal. 39,600 2009 3. 30,000 1. 2. Bal. 64,600 2007 26,000 1,800 3,000 1. 40,000 Bal. 40,000 = Stockholders' Equity Common Stock Retained Earnings 2007 7. 6,000 Bal. 6,000 2008 6. 4,200 Bal. 10,200 2009 5. 21,400 Bal. 31,600 Service Revenue 2007 7. 17,600 4. 17,600 Bal. -02008 6. 18,000 3. 18,000 Bal. -02009 5. 30,000 3. 30,000 Bal. -0Maintenance Expense 2008 1. 400 2. 600 Bal. 1,000 6. 1,000 Bal. -0- 400 600 4,200 1,400 3,600 Wrecker 2007 2. 26,000 3. 1,800 Bal. 27,800 Accumulated Depr. 2007 6. 8,600 Bal. 8,600 2008 5. 8,600 Bal. 17,200 2009 1. 1,400 4. 5,000 Bal. 20,800 9-81 PROBLEM 9-22B b. (cont.) Jim's Towing Service T-Accounts Assets = Stockholders' Equity Gas & Oil Expense 2007 5. 3,000 7. 3,000 Bal. -02008 4. 4,200 6. 4,200 Bal. -02009 2. 3,600 5. 3,600 Bal. -0Depreciation Expense 2007 6. 8,600 7. 8,600 Bal. -02008 5. 8,600 6. 8,600 Bal. -02009 4. 5,000 5. 5,000 Bal. -0- 9-82 PROBLEM 9-22B b. (cont.) Jim's Towing Service Financial Statements Income Statements 2007 Service Revenue Expenses Maintenance Expense Gas & Oil Expense Depreciation Expense Total Expenses Net Income $17,600 -0(3,000) (8,600) (11,600) $6,000 2008 $18,000 (1,000) (4,200) (8,600) (13,800) $4,200 2009 $30,000 -0(3,600) (5,000) (8,600) $21,400 Statements of Changes in Stockholders' Equity Beginning Common Stock Plus: Stock Issued Ending Common Stock Beginning Retained Earnings Plus: Net Income Ending Retained Earnings Total Stockholders' Equity $ -040,000 40,000 -06,000 6,000 $46,000 $40,000 -040,000 6,000 4,200 10,200 $50,200 $40,000 -040,000 10,200 21,400 31,600 $71,600 9-83 PROBLEM 9-22B b. (cont.) Jim's Towing Service Financial Statements Balance Sheets 2007 Assets Cash Wrecker Less: Accumulated Depr. Total Assets Liabilities Stockholders' Equity Common Stock Retained Earnings Total Stockholders' Equity Total Liabilities and Stkhld. Equity Statements of Cash Flows Cash Flows From Oper. Act.: Inflow from Revenue Outflow for Expenses Net Cash Flow from Oper. Act. Cash Flows From Inv. Act.: Cash Outflow for Wrecker Net Cash Flow from Inv. Act. Cash Flows From Fin. Act.: Cash Inflow from Stock Issue Net Cash Flow from Fin. Act. Net Change in Cash Plus: Beginning Cash Balance Ending Cash Balance $17,600 (3,000) 14,600 (27,800) (27,800) 40,000 40,000 26,800 -0$26,800 $18,000 (5,200) 12,800 -0-0-0-012,800 26,800 $39,600 $30,000 (3,600) 26,400 (1,400) (1,400) -0-025,000 39,600 $64,600 $26,800 27,800 (8,600) $46,000 $ -040,000 6,000 46,000 $46,000 2008 $39,600 27,800 (17,200) $50,200 $ -040,000 10,200 50,200 $50,200 2009 $64,600 27,800 (20,800) $71,600 $ -040,000 31,600 71,600 $71,600 9-84 PROBLEM 9-23B a. Cost Delivery Cost Installation Charge Total Cost Less: Salvage Value 2001: $14,000 2002: $14,000 b. Double-Declining Balance (Cost Accum. Depreciation Annual at Beginning of Period) x (2 x SL Rate) = Depreciation Straight-Line $70,000 2,000 1,000 73,000 ( 3,000) $70,000 5 = $14,000 per year 2001 ($73,000 $0) x (2 x .2) = $29,200 2002 ($73,000 $29,200) x (2 x .2) = $17,520 c. Units-of-Production 1. Total Estimated (Cost Salvage Value) Units of Production = Cost per Unit $73,000 $3,000 140,000 = $.50 per unit 2. Cost per Unit x Current Units of = Annual Production Depreciation 2001: 2002: $.50 x 26,000 = $13,000 $.50 x 21,000 = $10,500 9-85 PROBLEM 9-23B (cont.) d. MACRS Cost x MACRS % = Annual Depreciation 2001: 2002: $73,000 x .1429 = $10,432 $73,000 x .2449 = $17,878 9-86 PROBLEM 9-24B a. Straight-Line (Cost Salvage Value) Useful Life = Annual Depreciation Year 1 2 3 4 5 b. ($60,000 $5,000) 5 = $11,000 per year 11,000 11,000 11,000 11,000 Double-Declining Balance Accum. Depreciation Annual (Cost at Beginning of Period) x (2 x SL Rate) = Depreciation Year 1 2 3 4 5 ($60,000 $-0-) x (2 x .20) = $24,000 ($60,000 $24,000) x .40 = 14,400 ($60,000 $38,400) x .40 = 8,640 ($60,000 $47,040) x .40 = 5,184 ($60,000 $52,224) x .40 = 3,110 2,776* *Balance of depreciable cost ($55,000 $52,224= $2,776) c. Depreciation expense is a non-cash item and does not affect cash flow. However, when different methods are used for tax purposes, this can cause differences in taxable income and the amount of tax paid. 9-87 PROBLEM 9-24B (cont.) d. Straight-Line Book Value: $60,000 44,000* = $16,000 Sales Price Book Value Loss $15,000 (16,000) $ (1,000) *$11,000 x 4 = $44,000 Double-Declining Balance Book Value: Sales Price Book Value Gain $60,000 52,224** = $7,776 $15,000 ( 7,776) $ 7,224 **$24,000 + $14,400 + $8,640 + $5,184 = $52,224 e. The $8,224 difference in gain ($1,000 + $7,224) is caused by the additional depreciation expense recorded in years 1-4 under the double-declining balance method ($52,224 $44,000 = $8,224). 9-88 PROBLEM 9-25B Units-of-Production Total Estimated (Cost Salvage Value) Units of Production = Cost per Unit Cost per Unit x Current Units of Production = Annual Depreciation a. $700,000 $20,000 100,000 2001: 2002: 2003: 2004: 2005: $6.80 $6.80 $6.80 $6.80 $6.80 x x x x x = $6.80 per machine hour 32,000 33,000 35,000 28,000 12,000 = = = = = $ 217,600 224,400 238,000 190,400* -081,600 -0- *Limited to remaining cost to be depreciated [$700,000 ($680,000 + $20,000)] 9-89 PROBLEM 9-25B (cont.) b. Marvel Horizontal Statements Model Balance Sheet = Stockholders' Equity A. Dep. = C. Stock + Ret. Ear. NA = 800,000 + NA NA = NA + NA NA = NA + 320,000 = NA + (217,600) 217,600 = 800,000 + 102,400 217,600 Income Statement Exp. = = NA = NA = NA = 217,600 = 217,600 = Statement of Cash Flows NA (700,000) IA 320,000 OA NA (380,000) NC Event Bal. Equ. Rev. Depr. Bal. Cash 800,000 (700,000) 320,000 NA 420,000 + + + + + + Assets Equip. NA 700,000 NA NA 700,000 Rev. NA NA 320,000 NA 320,000 Net Inc. NA NA 320,000 (217,600) 102,400 c. Sales Price Book Value Loss on Sale $18,000 (20,000) $ (2,000) Debit 18,000 680,000 2,000 Credit Cash Accumulated Depreciation Loss on Sale Equipment 700,000 9-90 PROBLEM 9-26B Depreciation Computations: Straight-Line Company A: $40,000 $5,000 4 = $8,750 per year Double-Declining Balance Company B: $20,000 2002 2003 2004 2001 ($40,000 $ 0) x (2 x .25) = = 10,000 = 5,000 = 2,500 -0-** ( 40,000 20,000) x .5 ( 40,000 30,000)x .5 ( 40,000 30,000) x .5 **No remaining cost to be depreciated Units-of-Production Per Unit Cost: Company C: 2001 2002 2003 2004 ($40,000 $5,000) 200,000 = $ .175 per mile $.175 x $.175 x $.175 x $.175 x 66,000 = $11,550 42,000 = 7,350 40,000 = 7,000 60,000 = 10,500 9,100* *Limited to remaining cost to be depreciated [$35,000 ($11,550 + $7,350 + $7,000) 9-91 PROBLEM 9-26B (cont.) a. Company A - 2001 Revenue Depreciation Expense Net Income Company B - 2001 Revenue Depreciation Expense Net Income Company C - 2001 Revenue Depreciation Expense Net Income $30,000 (8,750) $21,250 $30,000 (20,000) $ 10,000 $30,000 (11,550) $18,450 A has the highest net income in 2001. b. Company A - 2004 Revenue Depreciation Expense Net Income Company B - 2004 Revenue Depreciation Expense Net Income Company C - 2004 Revenue Depreciation Expense Net Income $30,000 (8,750) $21,250 $30,000 ( -0-) $30,000 30,000 (9,100) $20,900 Company C has the lowest net income for 2004. 9-92 PROBLEM 9-26B (cont.) c. Company A Accumulated Depreciation 2001 $ 8,750 2002 8,750 2003 8,750 $26,250 $40,000 (26,250) $13,750 Cost Accumulated Depreciation Book Value Company B Accumulated Depreciation 2001 $20,000 2002 10,000 2003 5,000 $35,000 $40,000 (35,000) $ 5,000 Cost Accumulated Depreciation Book Value Company C Accumulated Depreciation 2001 $11,550 2002 7,350 2003 7,000 $25,900 $40,000 (25,900) $14,100 Cost Accumulated Depreciation Book Value Highest book value for 2003: Company C, $14,100 9-93 PROBLEM 9-26B (cont.) d. Sales (four years) Depreciation (four years) Retained Earnings $120,000 (35,000) $ 85,000 All companies have the same retained earnings because over the fouryear period, the total depreciation is the same. e. The cash flow from operating activities will be the same for each company if income tax is not considered. Depreciation expense is not a cash flow item. 9-94 PROBLEM 9-27B a. General Journal Date 2001 1/1 7/1 Silver Mine Cash Timber Land Cash Depletion Expense1 (12,000 x $16) Silver Mine Depletion Expense2 (500,000 x $1.40) Timber Gold Mine Cash Oil Reserves Cash Depletion Expense (20,000 x $16) Silver Mine Depletion Expense (300,000 x $1.40) Timber Depletion Expense3 (4,000 x $60) Gold Mine Depletion Expense4 (50,000 x $5) Oil Reserves Account Titles Debit 1,600,000 1,600,000 1,400,000 100,000 1,500,000 192,000 192,000 700,000 700,000 1,800,000 1,800,000 1,360,000 1,360,000 320,000 320,000 420,000 420,000 240,000 240,000 250,000 250,000 Credit 12/31 12/31 2002 2/1 9/1 12/31 12/31 12/31 12/31 Computations: 1 Silver Mine depletion: $1,600,000 100,000 = $16 per ton 2 Timber depletion: ($1,500,000 $100,000) 1,000,000 = $1.40 per board foot. 3 Gold Mine depletion: $1,800,000 30,000 = $60 per ton 4 Oil Reserves depletion: $1,360,000 272,000 (profitable) = $5 per barrel 9-95 PROBLEM 9-27B (cont.) b. Natural Resources Silver Mine (less depletion) Timber (less depletion) Gold Mine (less depletion) Oil Reserves (less depletion) Total Natural Resources Land Total $1,088,0001 280,0002 1,560,0003 1,110,0004 4,038,000 100,000 $4,138,000 $1,600,000 $192,000 $320,000 = $1,088,000 $1,400,000 $700,000 $420,000 = $280,000 3 $1,800,000 $240,000 = $1,560,000 4 $1,360,000 $250,000 = $1,110,000 1 2 c. Gold Mine Undepleted Cost at 1/2003 (Cost $1,800,000 $240,000) $1,560,000 20,000 = $78 per ton $1,560,000 Depletion Expense (6,000 x $78) Gold Mine Debit 468,000 Credit 468,000 9-96 PROBLEM 9-28B a. Horizontal Statements Model Date 1/1/01 12/31/01 9/30/02 12/31/02 1/1/03 12/31/03 6/1/04 12/31/04 1/1/05 12/31/05 10/1/06* 10/1/06** Assets = Liab. + S. Equity NA NA + NA + + + NA NA NA NA NA NA NA NA NA NA NA NA + Net Income NA NA NA + Cash Flows IA NA OA NA IA NA OA NA IA NA NA + IA *To record depreciation for 2006. **To record sale of asset. The plus in the assets column represents the net increase in assets resulting from the sale of the equipment. Cash increases by a greater amount than the decrease in the book value of the equipment. b. Year 2001 2002 2003 2004 2005 Computation ($80,000 $5,000) 5 Same as 2001 ($80,000 + $3,000 $30,000 $5,000) 3 Same as 2003 ($83,000 $5,000 $54,000 acc. depr) 3 Depr. Exp. $15,000 15,000 16,000 16,000 8,000 9-97 PROBLEM 9-28B (cont.) c. Computation of Book Value Year 2001 2002 2003 2004 2005 Cost $80,000 80,000 83,000 83,000 83,000 Acc. Depr. $15,000 30,000 46,000 62,000 62,000 = = = = = = Book Value $65,000 50,000 37,000 21,000 21,000 d. Computation of Depreciation Expense for 2006: $8,000 x 9/12 = $6,000 Book Value at Date of Sale: 12/31/05 2006 Depreciation Book Value Selling Price Less: Book Value Gain on Sale $21,000 (see above) (6,000) $15,000 $18,000 (15,000) $ 3,000 9-98 PROBLEM 9-29B a. Venus Company Statements Model Assets No. Bal. 1/4 7/6 8/7 12/31 12/31 = Tot. Cash 14,000 (4,000) (160) (360) (5,000) NA 4,480 + Truck A. Depr. = + 20,000 12,000 = + NA (4,000) = + NA NA = + NA NA = + NA NA = + NA 4,500* = + 20,000 12,500 = Stockholders' Equity C. Stock + Ret. Ear. 4,000 + 18,000 NA + NA NA + (160) NA + (360) NA + (5,000) NA + (4,500) 4,000 + 7,980 Rev. Exp. = Net Inc. Cash Flow NA NA NA NA NA NA NA = NA = NA NA = (160) 160 = (360) 360 = (5,000) 5,000 = (4,500) 4,500 10,020 = (10,020) NA NA (4,000) (160) (360) (5,000) NA (9,520) IA OA OA OA NC *Computation of Depreciation Expense: Cost $20,000 2007 Depr. $6,000 2008 Depr. 6,000 2009 Overhaul (4,000) (8,000) Book Value $12,000 $3,000 salvage = $9,000 new depreciable cost New Depreciable Cost: 9,000 2 = $4,500 9-99 PROBLEM 9-29B (cont.) b. Venus Company General Journal Date 1/4/09 7/6/09 8/7/09 12/31/09 12/31/09 Account Titles Accumulated Depreciation Cash Maintenance Expense Cash Maintenance Expense Cash Gasoline Expense Cash Depreciation Expense Accumulated Depreciation Debit 4,000 4,000 160 160 360 360 5,000 5,000 4,500 4,500 Credit 9-100 PROBLEM 9-30B a. Purchase Price Less: FMV of Assets Purchased: Equipment $400,000 Land 100,000 Building 400,000 Franchise 20,000 Goodwill Purchased $1,200,000 (920,000) $ 280,000 b. Amortization Expense Franchise Debit 2,000* Credit 2,000 Computation: *$20,00010 = $2,000 per year 9-101 PROBLEM 9-31B Date Account Titles Impairment Loss Goodwill Debit 50,000 Credit 50,000 9-102
Find millions of documents here - Study Guides, Homework Solutions, Papers, Exam Answer Keys and more.
Course Hero has millions of course related materials that will enable you to learn better, faster and get an A in all your courses.
Below is a small sample set of documents:
B_Series_SolutionsChap8
Path: Virginia Tech >> ACIS >> 2115 Spring, 2006
Path: Colorado >> COMM >> 1210 Spring, 2008
Path: UT Dallas >> HIST >> 1302 Spring, 2008
Path: UT Dallas >> HIST >> 1302 Spring, 2008
Path: UT Dallas >> HIST >> 1302 Spring, 2008
Path: Colorado >> COMM >> 1210 Spring, 2008
Path: UT Dallas >> HIST >> 1302 Spring, 2008
Path: Colorado >> PHIL >> 1100 Spring, 2008
Path: Colorado >> COMM >> 1210 Spring, 2008
Path: Colorado >> PHIL >> 1100 Spring, 2008
Path: Colorado >> PHIL >> 1100 Spring, 2008
Path: Colorado >> COMM >> 1210 Spring, 2008
Path: Colorado >> COMM >> 1210 Spring, 2008
Path: Colorado >> PHIL >> 1100 Spring, 2008
Path: Colorado >> COMM >> 1210 Spring, 2008
Path: UT Dallas >> HIST >> 1302 Spring, 2008
Path: UT Dallas >> BIOL >> 1300 Spring, 2008
Path: UT Dallas >> BIOL >> 1300 Spring, 2008
Path: UT Dallas >> BIOL >> 1300 Spring, 2008
Path: UT Dallas >> BIOL >> 1300 Spring, 2008
Path: UT Dallas >> HIST >> 1302 Spring, 2008
Path: UT Dallas >> HIST >> 1302 Spring, 2008
Path: UT Dallas >> HIST >> 1302 Spring, 2008
Path: UT Dallas >> HIST >> 1302 Spring, 2008
Path: UT Dallas >> HIST >> 1302 Spring, 2008
Path: UT Dallas >> ECO >> 2301 Spring, 2008
Path: UT Dallas >> ECO >> 2301 Spring, 2008
Path: UT Dallas >> ECO >> 2301 Spring, 2008
Path: UT Dallas >> ECO >> 2301 Spring, 2008
Path: UT Dallas >> ECO >> 2301 Spring, 2008
Path: UT Dallas >> ECO >> 2301 Spring, 2008
Path: UT Dallas >> BA >> 2301 Spring, 2008
Path: UT Dallas >> BA >> 2301 Spring, 2008
Path: UT Dallas >> BA >> 2301 Spring, 2008
Path: UT Dallas >> ECO >> 2301 Spring, 2008
Path: UT Dallas >> BIOL >> 1300 Spring, 2008
Path: UT Dallas >> BIOL >> 1300 Spring, 2008
Path: UT Dallas >> BIOL >> 1300 Spring, 2008
Path: UT Dallas >> BIOL >> 1300 Spring, 2008
Path: UT Dallas >> HIST >> 1302 Spring, 2008
Path: UT Dallas >> BIOL >> 1300 Spring, 2008
Path: Colorado >> EMUS >> 1832 Spring, 2008
Path: Michigan State University >> PLS >> 170H Fall, 2007
Path: Michigan State University >> PLS >> 170H Fall, 2007
Path: Texas A&M >> COMM >> 325 Spring, 2008
Path: Colorado >> EMUS >> 1832 Spring, 2008
Path: Texas A&M >> GEOG >> 203 Spring, 2008
Path: Texas A&M >> GEOG >> 203 Spring, 2008
Path: Texas A&M >> COMM >> 325 Spring, 2008
Path: Texas A&M >> COMM >> 325 Spring, 2008
Path: University of Iowa >> RELIGION >> 002 Spring, 2008
Path: Colorado >> EMUS >> 1832 Spring, 2008
Path: University of Iowa >> RELIGION >> 002 Spring, 2008
Path: Colorado >> GEOL >> 1010 Spring, 2008
Path: Colorado >> GEOL >> 1010 Spring, 2008
Path: Colorado >> GEOL >> 1010 Spring, 2008
Path: Colorado >> EMUS >> 1832 Spring, 2008
Path: Colorado >> GEOL >> 1010 Spring, 2008
Path: Colorado >> GEOL >> 1010 Spring, 2008
Path: Colorado >> PHIL >> 1100 Spring, 2008
Path: Colorado >> EMUS >> 1832 Spring, 2008
Path: Colorado >> EMUS >> 1832 Spring, 2008
Path: Colorado >> EMUS >> 1832 Spring, 2008
Path: Colorado >> EMUS >> 1832 Spring, 2008
Path: Colorado >> GEOL >> 1010 Spring, 2008
Path: Colorado >> GEOL >> 1010 Spring, 2008
Path: Colorado >> PHIL >> 1100 Spring, 2008
Path: Colorado >> PHIL >> 1100 Spring, 2008
Path: Colorado >> GEOL >> 1010 Spring, 2008
Path: Colorado >> GEOL >> 1010 Spring, 2008