Libby Solutions Ch 8 - E81 Hasbro Inc Excerpts from Balance...

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E8–1. Hasbro, Inc. Excerpts from Balance Sheet (in millions) ASSETS Current Assets Cash and cash equivalents $ 630 Accounts receivable (net of allowance for doubtful accounts, $32) 612 Inventories 300 Prepaid expenses and other current assets 171 Total current assets 1,713 Property, Plant, and Equipment Machinery and equipment 413 Buildings and improvements 196 Land and improvements 7 Property, plant, and equipment (at cost) 616 Less: Accumulated depreciation 403 Total property, plant, and equipment (net) 213 Other Assets Goodwill 474 Other intangibles (net of accumulated amortization, $800) 568 Other noncurrent assets 200 Total other assets 1,242 Total Assets $3,168 E8–6. Date Assets Liabilities Stockholders’ Equity 1. 2010* Accumulated depreciation –6,000 Depreciation expense –6,000 2a. 2011 Cash –1,000 Repair and maintenance expense –1,000 2b. 2011 Cash Equipment –12,000 +12,000 * Adjusting entry for 2010: ($100,000 cost – $10,000 residual value) x 1/15 = $6,000.
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E8–7. Req. 1 a. Straight-line: Year Computation Depreciation Expense Accumulated Depreciation Net Book Value At acquisition $10,000 1 ($10,000 - $1,000) x 1/4 $2,250 $2,250 7,750 2 ($10,000 - $1,000) x 1/4 2,250 4,500 5,500 3 ($10,000 - $1,000) x 1/4 2,250 6,750 3,250 4 ($10,000 - $1,000) x 1/4 2,250 9,000 1,000 b. Units-of-production: ($10,000 – $1,000) ÷ 9,000 = $1.00 per hour of output Year Computation Depreciation Expense Accumulated Depreciation Net Book Value At acquisition $10,000 1 $1.00 x 3,600 hours $3,600 $3,600 6,400 2 $1.00 x 2,700 hours 2,700 6,300 3,700 3 $1.00 x 1,800 hours 1,800 8,100 1,900 4 $1.00 x 900 hours 900 9,000 1,000 E8–11. Req. 1 Depreciation Expense Book Value at End of Method of Depreciation Year 1 Year 2 Year 1 Year 2 Straight-line ........................... $22,500 $22,500 $73,500 $51,000 Units-of-production ................ 32,250 33,750 63,750 30,000 Double-declining-balance ...... 48,000 24,000 48,000 24,000 Computations: Amount to be depreciated: $96,000 – $6,000 = $90,000: Straight-line: $90,000 ÷ 4 years = $22,500 per year Units-of-production: $90,000 ÷ 120,000 units = $.75 per unit Year 1: 43,000 x $.75 = $32,250 Year 2: 45,000 x $.75 = $33,750 Double-declining-balance (Rate: 2 x the straight line rate of 25% (2/4) = 50%): Year 1: $96,000 x 50% = $48,000 Year 2: ($96,000 – $48,000) x 50% = $24,000
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Req. 2 The double-declining-balance method would result in the lowest EPS for Year 1 because it produced the highest depreciation expense and therefore the lowest income (from Requirement 1). In Year 2, the units-of-production method would result in the lowest EPS because it produced the highest depreciation expense and therefore the lowest income in that year.
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