Lesson%209%20Solutions

Lesson%209%20Solutions - Suggested Solutions for ACCT 351...

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Suggested Solutions for ACCT 351 Adapted from Beechy, T. H., & Conrod, J. E. D. (2005). Solutions manual to accompany intermediate accounting, volume 1 (3 rd Can. ed.). Toronto: McGraw-Hill Ryerson. Reproduced with permission. Page 1 of 15 Lesson 9, Chapter 10 Assignment 10-4 (text, p. 588) Requirement 1 Year (a) DB 30% (b) Productive (c) SL (d) SYD Output 1 $5,400 $1,920 $2,800 $4,800 2 3,780 2,880 2,800 4,000 a. $18,000 × .3; ($18,000 – $5,400) × .3 b. ($18,000 - $1,200) ÷ 105,000 = $0.16; $0.16 × 12,000; $0.16 × 18,000 c. ($18,000 – $1,200) × 1/6 = $2,800 d. ($18,000 – $1,200) × 6/(6 + 5 + 4 + 3 + 2 + 1); × 5/21 Requirement 2 Year (a) DB 20% (b) Productive (c) SL (d) SYD Output 1 $3,600 $1,920 $1,680 $3,055 2 2,880 2,880 1,680 2,749 a. ($18,000 × .2); (($18,000- $3,600) × .2) b. ($18,000 – $1,200) × 1/10 c. ($18,000– $1,200) × 10/(10 + 9 + 8 + 7 + 6 + 5 + 4 + 3 + 2 + 1); 9/55 Conclusions based on comparisons of 1 and 2: When years of life enter directly into the amortization calculation, changing the years of life has a material impact on amortization levels ($2,800 vs. $1,680, etc). For other methods, the years of life indirectly affect the calculation (amortization per unit of product) and may not affect initial amortization.
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Suggested Solutions for ACCT 351 Page 2 of 15 Assignment 10-4 continued Requirement 3 The following factors influence choice of amortization policy. ± Nature and use of the asset ± Corporate reporting objectives ± Industry norms ± Parent company preferences ± Wish to minimize future (deferred) taxes ± Accounting information costs
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Suggested Solutions for ACCT 351 Page 3 of 15 Assignment 10-6 (text, p. 589) a. DB: 50% Balance in Accumulated Year Amortization Expense Amortization 20X5 ($2,000,000 × .50) = $1,000,000 $1,000,000 20X6 ($1,000,000 × .50) = 500,000 1,500,000 20X7 ($500,000 × .50) = 250,000 1,750,000 $1,750,000 b. Straight-line: Balance in Accumulated Year Amortization Expense Amortization 20X5 $ 450,000 1 $ 450,000 20X6 450,000 900,000 20X7 450,000 1,350,000 $1,350,000 1 ($2,000,000 – $200,000) × 1/4 = $450,000 c. SYD: Balance in Accumulated Year Amortization Expense Amortization 20X5 ($2,000,000 – $200,000) × 4/10 = $ 720,000 $ 720,000 20X6 ($2,000,000 – $200,000) × 3/10 = 540,000 1,260,000 20X7 ($2,000,000 – $200,000) × 2/10 = 360,000 1,620,000 $1,620,000 d. Units of output ($2,000,000 – $200,000) = $36 per unit: (14,000 + 13,000 + 12,000 + 11,000) Balance in Accumulated Year Amortization Expense Amortization 20X5 (14,000 × $36) = $ 504,000 $ 504,000 20X6 (13,000 × $36) = 468,000 972,000 20X7 (12,000 × $36) = 432,000 1,404,000 $1,404,000 The straight-line method results in maximum income for financial statement reporting for the three-year period ending December 31, 20X7, because cumulative amortization expense is smallest for the straight-line method. (See schedules above.)
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Suggested Solutions for ACCT 351 Page 4 of 15 Assignment 10-9 (text, pp. 590–591) Requirement 1
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Lesson%209%20Solutions - Suggested Solutions for ACCT 351...

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