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B_Series_SolutionsChap9

B_Series_SolutionsChap9 - SOLUTIONS TO EXERCISES SERIES B...

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SOLUTIONS TO 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
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9-57
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EXERCISE 9-2B Long-Term Operational Assets: a. No b. Yes c. Yes d. No e. No f. Yes g. Yes h. No i. No   j. No k. Yes l. Yes EXERCISE 9-3B a. Pizza Oven T b. Land T c. Franchise I d. Filing Cabinet T e. Copyright I f. Silver Mine T g. Office Building T h. Drill Press T 9-58
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i. Patent I j. Oil Well T k. Desk T l. Goodwill I 9-59
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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. % of* Purchase Allocated Total Appraised Value App. Val.     Price         Cost      Land $270,000 .30 x $800,000  = $240,000 Building   630,000 .70 x   800,000  =   560,000 Total $900,000 $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 Income Statement Statemt. of Assets = Liab. + S. Equity Rev. - Exp. = Net Inc. Cash Flows Cash + Land + Bldg. = + 9-60
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(800,000) + 240,000 + 560,000 = NA + NA NA - NA = NA (800,000) IA 9-61
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EXERCISE 9-6B a. Asset Appraised Value Percent of Appraised Value Land $105,000 30% Building 210,000 60% Furniture 35,000 10% Total $350,000 100% Asset % of App. Value Purchase Price Allocated Cost Land 30% x $300,000 = $  90,000 Building 60% x 300,000 = 180,000 Furniture 10% x 300,000 = 30,000 Total $300,000 b. Assets = Liab. Rev. - Exp. = Net. Inc. Cash Flow Cash + Land + Building s + Furn. = N. Pay. (50,000) + 90,000 + 180,000 + 30,000 = 250,000 NA - NA = NA (50,000) IA c. Account Titles Debit Credit Land 90,000 Buildings 180,000 Furniture 30,000 Cash 50,000 Notes Payable 250,000 9-62
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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 = Stockholders’ Equity Cash Common Stock Retained Earnings 2006 2006    2006 120,000 120,000 120,000 cl 40,000   cl 76,000  76,000 Bal .
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