83. Dandy, Inc. purchased molding machines at the beginning of 2011 for $10,000. The machines have an
estimated salvage value of $2,000 and an estimated life of 5 years or 50,000 hours of operation. Dandy is
looking at alternative depreciation methods for the equipment. Determine the following:
A)
Accumulated depreciation at December 31, 2012, using the straight-line depreciation method.
B)
Depreciation expense for 2011 using the units-of-activity depreciation method. Assume that the machines are operated for 5,000
hours in 2011 and 8,000 hours in 2012.
C)
Book value of the equipment at December 31, 2012, using the double-declining-balance depreciation method.
D)
What are the advantages of using straight-line depreciation for financial reporting purposes?
Depreciation for 2011:
15,000 (Hours of operation) ´ $0.92 = $13,800
Depreciation for 2012:
20,000 (Hours of operation) ´ $0.92 = $18,400
Accumulated depreciation:
$13,800 + 18,400 = $32,200
C)
Depreciation for 2011:
$101,000 ´ (1/8 ´ 2) = $25,250
Book value:
$101,000 – 25,250 = $75,750
84. Fill in the table shown below indicating the period of time over which each intangible asset should be
amortized, and indicate the amount of amortization expense that should be reported for 2011.
85. Alliance Corporation
ts
Cable
televisio
n and
sport
franchis
es
27,109
0
Brands
and
trademar
ks
10,684
0
Goodwil
l and
other
intangibl
es
128,338
713
Other
assets
2,804
578
Total
assets
$208,559
$10,827
Refer to the information provided for Alliance Corporation. Explain the impact on net income and cash flows of Alliance using straight-line
depreciation for financial reporting and accelerated depreciation methods for income tax purposes.
86. Alliance Corporation
Alliance
Corpor
ation
Assets
Section
of
Consoli
dated
Balance
Sheets
(in
millions
)
at December 31,
Assets
2012
2011
Current
Assets
Cash and equivalents
$ 719
$ 2,610
Short-term investments
0
886
Receivables, less allowances of $1,889 and $97
6,054
464
Inventories
1,791
0
Prepaid expenses and other current assets
1,710
711
Total Current Assets
$10,274
$ 4,671
Noncurr
ent
inventori
es &
film
costs
6,853
0
Investm
ents
6,886
3,824
Land
and
building
s
$ 2,107
$ 440
Cable
televisio
n
equipme
nt
9,966
0
Furnitur
e,
fixtures,
and
equipme
nt
4,329
1,297
Property
, plant,
and
equipme
nt
$16,402
$1,737
Less:
Accumu
lated
deprecia
tion
(3,718)
(696)
Property
, plant,
&
equipme
nt (net)
12,684
1,041
Music
catalogu
e, and
copyrigh
ts
2,927
0
Cable
televisio
n and
sport
franchis
es
27,109
0
Brands
and
trademar
ks
10,684
0
Goodwil
l and
other
intangibl
es
128,338
713
Other
assets
2,804
578
Total
assets
$208,559
$10,827
Refer to the information provided for Alliance Corporation. Alliance Corporation recorded depreciation expense of $344 million for 2011. Calculate
the following ratios for Alliance.
A)
If total revenues were $60,000 million for 2012, what would be the fixed asset turnover ratio?
B)
What would be the Average age of fixed assets in 2011?
Fixed asset turnover = Net revenues / Average fixed assets
$60,000 / [(12,684 + 1,041) / 2] = 8.74
Average age of fixed asset = Accumulated depreciation / Depreciation expense
$696 / 344 = 2.0 years
87. Alliance Corporation
Alliance
Corpor
ation
Assets
Section
of
Consoli
dated
Balance
Sheets
(in
millions
)
at December 31,
Assets
2012
2011
Current
Assets
Cash and equivalents
$ 719
$ 2,610
Short-term investments
0
886
Receivables, less allowances of $1,889 and $97
6,054
464
Inventories
1,791
0
Prepaid expenses and other current assets
1,710
711
Total Current Assets
$10,274
$ 4,671
Noncurr
ent
inventori
es &
film
costs
6,853
0
Investm
ents
6,886
3,824
Land
and
building
s
$ 2,107
$ 440
Cable
televisio
n
equipme
nt
9,966
0
Furnitur
e,
fixtures,
and
equipme
nt
4,329
1,297
Property
, plant,
and
equipme
nt
$16,402
$1,737
Less:
Accumu
lated
deprecia
tion
(3,718)
(696)
Property
, plant,
&
equipme
nt (net)
12,684
1,041
Music
catalogu
e, and
copyrigh
ts
2,927
0
Cable
televisio
n and
sport
franchis
es
27,109
0
Brands
and
trademar
ks
10,684
0
Goodwil
l and
other
intangibl
es
128,338
713
Other
assets
2,804
578
Total
assets
$208,559
$10,827
Refer to the information provided for Alliance Corporation. Which items on Alliance’s balance sheet could be considered intangible assets? Explain
the nature of each of these.
88. Alliance Corporation
Alliance
Corpor
ation
Assets
Section
of
Consoli
dated
Balance
Sheets
(in
millions
)
at December 31,
Assets
2012
2011
Current
Assets
Cash and equivalents
$ 719
$ 2,610
Short-term investments
0
886
Receivables, less allowances of $1,889 and $97
6,054
464
Inventories
1,791
0
Prepaid expenses and other current assets
1,710
711
Total Current Assets
$10,274
$ 4,671
Noncurr
ent
inventori
es &
film
costs
6,853
0
Investm
ents
6,886
3,824
Land
and
building
s
$ 2,107
$ 440
Cable
televisio
n
equipme
nt
9,966
0
Furnitur
e,
fixtures,
and
equipme
nt
4,329
1,297
Property
, plant,
and
equipme
nt
$16,402
$1,737
Less:
Accumu
lated
deprecia
tion
(3,718)
(696)
Property
, plant,
&
equipme
nt (net)
12,684
1,041
Music
catalogu
e, and
copyrigh
ts
2,927
0
Cable
televisio
n and
sport
franchis
es
27,109
0
Brands
and
trademar
ks
10,684
0
Goodwil
l and
other
intangibl
es
128,338
713
Other
assets
2,804
578
Total
assets
$208,559
$10,827
Refer to the information provided for Alliance Corporation. In the notes to the financial statements, Alliance indicates that it uses different
depreciation methods for different types of plant and equipment assets. Explain why Alliance might follow this policy.
89. Marshall Company purchased a truck for deliveries for $25,000 at the beginning of 2011. The truck had an
estimated life of 5 years, and an estimated salvage value of $5,000. Marshall used the straight-line depreciation
method. At the beginning of 2012, Marshall incurred $4,000 to replace the truck’s transmission. This resulted in
a 2-year extension of the truck’s useful life, but no change in the residual value.
A)
What type of cost is the $4,000? Explain.
B)
Calculate the book value of the truck at the end of 2011.
C)
Find the depreciation expense on the truck for 2012.
90. Charger, Inc. purchased a truck at the beginning of 2011 for $41,500. Charger decided to depreciate the
truck over a 6-year period using the straight-line method, and estimated its salvage value to be $5,500. At the
beginning of 2012, Charger determined that a 4-year life should have been used to depreciate the truck. The
estimated salvage value was not affected by the revision in the asset’s life.
A)
Determine the amounts to be recorded as depreciation expense for 2011 and 2012.
B)
What factors may have influenced Charger to change the useful life?
Depreciation:
($25,000 – 5,000) / 5 years = $4,000 per year
Book value:
$25,000 – 4,000 = $21,000
91. Kudlow Inc. purchased a machine on January 1, 2011, for $80,000. The truck had an estimated life of six
years and an estimated salvage value of $8,000. Kudlow uses the straight-line method to depreciate the asset.
On July 1, 2013, the truck was sold for $37,500 cash.
A)
Prepare the journal entry to record the depreciation on the truck for 2012.
B)
Show how the gain or loss on the sale of the asset would be reported on Kudlow Inc.’s income statement.
Depreciation
= $50,000
92. Baxter Tile, Inc. purchased new trucks at the beginning of 2011 for $400,000. The trucks had an estimated
life of 5 years and an estimated salvage value of $50,000. Baxter Tile uses straight-line depreciation. At the
beginning of 2012, Baxter sold the trucks for $350,000 and purchased new trucks for $500,000. Determine the
following amounts:
A)
Book value of the trucks at the end of 2011.
B)
Gain (loss) on the sale of the trucks at the beginning of 2012 (Indicate the amount and whether a gain or loss).
93. ____________________ refers to the market value of the asset at the end of its useful life.
94. Complete the following statements regarding depreciation:
____________________ is the depreciation method used most frequently.
____________________ is the depreciation method considered “accelerated”.
95. Exhibit 8-1
For each of the following sentences, select the word or group of words that best completes the statement.
Patent
Copyright
Goodwill
Revenue expenditure
Trademark
Capital expenditure
Refer to Exhibit 8-1. ____________________ is a cost that improves an operating asset and is added to the asset account.
Depreciation expense:
($400,000 – 50,000) / 5 years = $70,000
Book value:
$400,000 – 70,000 = $330,000
96. Exhibit 8-1
For each of the following sentences, select the word or group of words that best completes the statement.
Patent
Copyright
Goodwill
Revenue expenditure
Trademark
Capital expenditure
Refer to Exhibit 8-1. ____________________ is the right to produce or sell a published work.
97. Exhibit 8-1
For each of the following sentences, select the word or group of words that best completes the statement.
Patent
Copyright
Goodwill
Revenue expenditure
Trademark
Capital expenditure
Refer to Exhibit 8-1. ____________________ is an account that can only exist if one company purchases another business and the cost exceeds the
fair market values of the identifiable net assets at the time acquired.