175.
Allied Construction and Axis Construction reported the following information in their
annual financial statements ($ in millions):
Allied Construction
2018
2017
Sales
$48,283
$46,927
Net income
2,809
3,105
Total assets
30,869
27,767
Axis Construction
2018
2017
Sales
$77,349
$90,837
Net income
4,395
5,761
Total assets
44,324
52,263
Required:
1. Calculate Allied Construction’s return on assets, profit margin, and asset turnover ratio
for 2018.
2. Calculate Axis Construction’s return on assets, profit margin, and asset turnover ratio
for 2018.
3. Which company has the better profit margin and which company has the better asset
turnover?
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176.
ACME Drilling is evaluating an offshore oil-drilling platform for possible impairment. They
estimate the following: book value, $18.5 million; fair value, $12 million; sum of estimated
future cash flows generated from the oil drilling platform, $16 million. What amount of
impairment loss, if any, should they record?
177.
Northwest Catering owns and operates several restaurant services in Oregon, Washington,
and Idaho. One restaurant chain has experienced sharply declining profits. The company’s
management has decided to test the operational assets for possible impairment. The
relevant information for these assets is presented below:
Book value
$4.5 million
Estimated total future cash flows
5.0 million
Fair value
3.5 million
Determine the amount of the impairment loss, if any.
178.
China Express purchased land for $140,000. Prior to construction on the new building, the
land had to be cleared of trees and brush. Costs incurred during the first year are listed
below:
Land clearing costs
$5,000
Architect fees (for new building)
30,000
Legal fees for title investigation of land
1,000
Property taxes on land (for the first year)
2,500
Building construction costs
440,000
Purchase price of land
140,000
Land clearing costs
Required:
Determine the amounts that should be recorded in the land and the new building
accounts.
179.
El Tapitio purchased equipment from Old World Deli. Old World Deli was closing its
business and sold its restaurant equipment for $80,000. In addition to the purchase price,
El Tapitio paid shipping costs of $2,000. Employees of El Tapitio installed the ovens; labor
costs were $10,000. An outside contractor performed some of the electrical work for
$2,200. El Tapitio incurred costs of $800 in testing the equipment.
Required:
1. Prepare a schedule showing the amount at which the equipment should be recorded in
El Tapitio’s equipment account.
2. Indicate where any amounts not included in the equipment account should be recorded.
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180.
Nordic Outfitters purchased all the outstanding common stock of European Retail for
$3,000,000 in cash. The book values and fair values of European Retail’s assets and
liabilities were:
Book Value
Fair Value
Receivables
$250,000
$250,000
Property, plant, and equipment
2,000,000
2,400,000
Intangible assets
200,000
500,000
Liabilities
(650,000)
(650,000)
Net Assets
$1,800,000
$2,500,000
Required:
1. Calculate the amount paid for goodwill.
2. Record Nordic Outfitters’ acquisition of European Retail.
1. The amount Nordic Outfitters paid for goodwill is $500,000 calculated as follows:
Purchase price
$3,000,000
Receivables (at fair value)
250,000
Property, Plant, and Equipment (at fair value)
Intangible Assets (at fair value)
500,000
Goodwill (remaining purchase price)
Liabilities (at fair value)
650,000
181.
Lincoln Driving Academy purchased a used car to use in its driver’s education program.
Lincoln incurred the following expenses related to the car:
1. Painted the car and fixed a dent on the side of the car at a cost of $2,700. The repairs
are considered extensive and increase future benefits.
2. Installed a driver’s side brake to be used by the instructor if necessary.
3. Paid the annual registration fees of $120.
4. Performed annual maintenance and repairs at $400.
5. Overhauled the engine at a cost $2,600, increasing the service life of the car by an
estimated four years.
Required:
Indicate whether Lincoln should capitalize or expense each of these expenditures. How
could Lincoln use expenditures like these to increase reported earnings?
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182.
Diamond Autobody purchased new equipment for $90,000. Residual value at the end of an
estimated four-year service life is expected to be $10,000. During the four-year period, the
company expects to use the equipment a total of 5,000 hours.
Required:
Prepare a depreciation schedule for the four-year life of the equipment using the
following methods:
1. Straight-line.
2. Double-declining-balance.
3. Activity-based. Actual use per year was as follows:
Year
Hours Used
1
1,200
2
1,400
3
1,500
4
1,100
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183.
The Snack Stop had the following long-term asset balances as of January 1, 2018:
Cost
Accumulated
Depreciation
Book
Value
Land
$90,000
–
$90,000
Building
600,000
($60,000)
540,000
Equipment
200,000
(72,000)
128,000
Patent
80,000
(20,000)
60,000
All of the assets were purchased at the beginning of 2016. The building is depreciated
over a 20-year service life using the straight-line method and estimating no residual value.
The equipment is depreciated over a 10-year useful life using the double–declining–
balance method with an estimated residual value of $10,000. The patent is estimated to
have an 8-year service life with no residual value and is amortized using the straight-line
method. Depreciation and amortization has already been calculated for the first two years.
Required:
1. For the year ended December 31, 2018, record depreciation expense for buildings and
equipment. Land is not depreciated.
2. For the year ended December 31, 2018, record amortization expense for the patent.
3. Calculate the book value for each of the four long-term assets at December 31, 2018.