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184.
Old World Deli is in the process of closing its operations. It sold its three-year-old
restaurant equipment to El Tapitio for $80,000. The equipment originally cost $220,000
and had an estimated service life of 5 years and an estimated residual value of $20,000.
Old World Deli uses straight-line depreciation for all equipment.
Required:
1. Calculate the balance in the accumulated depreciation account at the end of the third
year.
2. Calculate the book value of the equipment at the end of the third year.
3. What is the gain or loss on the sale of the equipment at the end of the third year?
4. Record the sale of the equipment at the end of the third year.
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185.
The following information relates to the intangible assets of University Hero:
a. On January 1, 2018, University Hero completed the purchase of Whole Grain Foods for
$800,000 in cash. The fair value of the identifiable net assets of Whole Grain Foods was
$625,000.
b. Included in the assets purchased from Whole grain Foods was a patent valued at
$75,000. The original legal life of the patent was 20 years. There are still 8 years left on
the patent, but University Hero estimates the patent will be useful for only 3 more years.
c. University Hero acquired a franchise on July 1, 2018, by paying an initial franchise fee
of $100,000. The contractual life of the franchise is 5 years.
Required:
1. Record amortization expense for the intangible assets at December 31, 2018.
2. Prepare the intangible asset section of the December 31, 2018 balance sheet.
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186.
Reported below is selected financial information from two competing retail companies ($
in millions):
Company A
2018
2017
Sales
$405,607
$378,799
Net income
$13,400
$12,731
Total assets
$163,429
$163,514
Company B
2018
2017
Sales
$64,948
$63,367
Net income
$2,214
$2,849
Total assets
$44,106
$44,560
Required:
1. Calculate the return on assets, profit margin, and asset turnover ratio for Company A
for 2018.
2. Calculate the return on assets, profit margin, and asset turnover ratio for Company B
for 2018.
3. Which company has the higher profit margin and which company has the higher asset
turnover?
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187.
Kelli Davis is in the flower business. While business has been steady, she wonders if she
should expand her business to include candy as well. Both flowers and candy fit well into
her business model. Kelli provides the following projections of annual sales, net income,
and average total assets for the flower business alone and for the business if both flowers
and candy were sold.
Flowers Only
Flowers and
Candy
Sales
$380,000
$500,000
Net income
40,000
60,000
Average total
assets
200,000
250,000
Required:
1. Calculate Kelli’s return on assets, profit margin, and asset turnover for flowers only.
2. Calculate Kelli’s return on assets, profit margin, and asset turnover for flowers and
candy.
3. Based on these ratios, what recommendation would you make?
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188.
If a company initially records an expense incorrectly as an asset, explain how this mistake
affects the income statement and the balance sheet.
189.
Why don’t we depreciate land? What are land improvements? Why do we record land and
land improvements separately?
190.
Explain how the accounting treatment differs between purchased and internally developed
intangible assets.
191.
Contrast the effects of the straight-line, declining-balance, and activity-based
depreciation methods on annual depreciation expense.
192.
Which depreciation method is most common for financial reporting? Which depreciation
method is most common for tax reporting? Why do companies choose these methods?