unit_06_key - Solutions to Suggested Exercises &...

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E8–1. Hasbro, Inc. Excerpts from Balance Sheet (in millions) ASSETS Current Assets Cash and cash equivalents $ 521 Accounts receivable (net of allowance for doubtful accounts, $39) 607 Inventories 169 Prepaid expenses and other current assets 212 Total current assets 1,509 Property, Plant, and Equipment Tools, dies and molds 30 Machinery and equipment 304 Buildings and improvements 206 Land and improvements 18 Property, plant, and equipment (at cost) 558 Less: Accumulated depreciation 358 Total property, plant, and equipment (net) 200 Other Assets Goodwill 464 Other intangibles (net of accumulated amortization, $435) 711 Other noncurrent assets 280 Total other assets 1,455 Total Assets $3,164 E8–2. Req. 1 Fixed asset turnover ratio: (in millions) Sales ÷ [(beginning net fixed assets + ending net fixed assets) ÷ 2] 1997 1999 2001 2003 $7,081 ÷ $542.0 $6,134 ÷ $333.0 $5,363 ÷ $438.5 $6,207 ÷ $645.0 13.06 18.42 12.23 9.62 Computation of denominator: 1997 ($486 + 598) ÷ 2 = $542.0 1999 ($318 + 348) ÷ 2 = $333.0 2001 ($564 + 313) ÷ 2 = $438.5 2003 ($669 + 621) ÷ 2 = $645.0
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Req. 2 Apple’s fixed asset turnover ratio rose to 18.42 in 1999, then fell to a low of 9.62 in 2003. This suggests that Apple’s management became less efficient at utilizing its long-lived assets over time. The 18.42 turnover ratio in 1999 was due primarily to a large decline in fixed assets from 1997. By 2003, Apple’s average net fixed assets had nearly doubled from 1999 while yielding approximately the same amount of sales. Although the turnover has declined, it is possible that the build-up of fixed assets may lead to increased sales in the future, thus increasing the fixed asset turnover ratio to prior levels. An analyst can use this longitudinal analysis to observe possible trends over time. In addition, the analyst may compare Apple’s ratios to those of competitors in the industry. E8–3 Req. 1 Building (+A). .......................................................................... 93,200 Land (+A) . .............................................................................. 108,000 Cash ( - A). ...................................................................... 201,200 Building Land Cash paid $71,200 $106,800 + renovations to prepare for use 21,200 + share of transfer costs 800 1,200 $93,200 $108,000 Req. 2 Straight-line depreciation computation: ($93,200 cost - $14,000 residual value) x 1/12 years = $6,600 depreciation expense per year Note: Land is not depreciated. Req. 3 Computation of the book value of the property at the end of year 2: Building $ 93,200 Less: Accumulated depreciation ($6,600 x 2 years) (13,200) $ 80,000 Land 108,000 $188,000
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E8–7. Req. 1
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unit_06_key - Solutions to Suggested Exercises &...

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