PROBLEM 6-30
a.
Computations:
Coal Mine – Depletion
Cost
$900,000
=
$3.00 per ton
Estimated Tons
300,000
2014
Tons extracted
68,000
Depletion per ton
$3
Timber – Depletion
Cost
$2,000,000 – 200,000
=
$.60 per board foot
Estimated Board Feet
3,000,000
2014
Board feet extracted 1,200,000
Cost per board foot $.60
2014 Depletion Expense $720,000
Silver Mine – Depletion
Cost
$850,000
=
$28.33 per ton
Estimated Tons
30,000
Oil Reserves – Depletion
Cost
$875,000
=
$3.50 per barrel
Estimated Barrels
270,000 – 20,000
2014
Barrels extracted 80,000
Cost per barrel $3.50
2014 Depletion Expense $280,000
PROBLEM 6-30 (cont.)
b. Natural Resources
Coal Mine (less depletion) $ 696,0001
Timber (less depletion) 1,080,0002
6-2
PROBLEM 6-31
Bird Manufacturing
Statements Model
Assets
=
Stockholders’ Equity
Rev.
−
Exp.
=
Net Inc.
Cash Flow
Date
Cash
+
Mach.
−
Acc Dep.
=
C. Stock
+
Ret. Ear.
Bal.
15,000
+
62,000
−
22,500
=
10,500
+
44,000
NA
−
NA
=
NA
NA
1/2
(8,000)
+
8,000
−
NA
=
NA
+
NA
NA
−
NA
=
NA
(8,000) IA
8/1
(1,250)
+
NA
−
NA
=
NA
+
(1,250)
NA
−
1,250
=
(1,250)
(1,250) OA
10/2
(800)
+
NA
−
NA
=
NA
+
(800)
NA
−
800
=
(800)
(800) OA
12/31
NA
+
NA
−
9,000
=
NA
+
(9,000)
NA
−
9,000
=
(9,000)
NA
Bal.
4,950
+
70,000
−
31,500
=
10,500
+
32,950
-0-
−
11,050
=
(11,050)
(10,050) NC
*Depreciation Calculation: ($62,000 + $8,000) − $22,500 = $47,500; ($47,500 − $2,500) 5 = $9,000
6-3
PROBLEM 6-32
Acquisition Price $1,500,000
Franchise 120,000 (1,380,000)
Goodwill Acquired $ 120,000
PROBLEM 6-33
The permanent impairment of $100,000 ($200,000 x ½) will be written off in the year the impairment is determined. Total
assets will be decreased and, net income will decrease, but the Statement of Cash Flows will not be affected.PROBLEM 6-34
a. Depreciation expense as a percentage of sales:
b. Property plant, and equipment (depreciable assets) as a percentage of total assets:
c. Net income was not provided in this problem (intentionally), so the return on assets ratio cannot be used to assess which
6-4
d. These companies are not in the same industry, so there are limitations when trying to compare how efficiently they used their
uses it only for some.
6-5
ATC 6-2 (cont.)
Note: It is useful to prepare a horizontal statements model before preparing the financial statements.
Horizontal Statement Model
Using Straight-line Depreciation
Balance Sheet
Income Statement
Statement of
Assets
=
Stockholders’ Equity
Rev.
−
Exp.
=
Net Inc.
Cash Flows
Event
Cash
+
Equip.
−
A. Dep.
=
C. Stock
+
Ret. Ear.
−
=
1.
60,000
+
NA
−
NA
=
60,000
+
NA
NA
−
NA
=
NA
60,000 FA
2.
(46,000)
+
46,000
−
NA
=
NA
+
NA
NA
−
NA
=
NA
(46,000) IA
3.
42,000
+
NA
−
NA
=
NA
+
42,000
42,000
−
NA
=
42,000
42,000 OA
4.
(8,200)
+
NA
−
NA
=
NA
+
(8,200)
NA
−
8,200
=
(8,200)
(8,200) OA
5.
(12,000)
+
NA
−
NA
=
NA
+
(12,000)
NA
−
12,000
=
(12,000)
(12,000) OA
6.
NA
+
NA
−
10,000
=
NA
+
(10,000)
NA
−
10,000
=
(10,000)
NA
Bal.
35,800
+
46,000
−
10,000
=
60,000
+
11,800
42,000
−
30,200
=
11,800
38,800 NC
6-6
ATC 6-2 (cont.)
Horizontal Statement Model
Using Double-Declining Balance Depreciation
Balance Sheet
Income Statement
Statement of
Assets
=
Stockholders’ Equity
Rev.
−
Exp.
=
Net Inc.
Cash Flows
Event
Cash
+
Equip.
−
A. Dep.
=
C. Stock
+
Ret. Ear.
−
=
1.
60,000
+
NA
−
NA
=
60,000
+
NA
NA
−
NA
=
NA
60,000 FA
2.
(46,000)
+
46,000
−
NA
=
NA
+
NA
NA
−
NA
=
NA
(46,000) IA
3.
42,000
+
NA
−
NA
=
NA
+
42,000
42,000
−
NA
=
42,000
42,000 OA
4.
(8,200)
+
NA
−
NA
=
NA
+
(8,200)
NA
−
8,200
=
(8,200)
(8,200) OA
5.
(12,000)
+
NA
−
NA
=
NA
+
(12,000)
NA
−
12,000
=
(12,000)
(12,000) OA
6.
NA
+
NA
−
23,000
=
NA
+
(23,000)
NA
−
23,000
=
(23,000)
NA
Bal.
35,800
+
46,000
−
23,000
=
60,000
+
(1,200)
42,000
−
43,200
=
(1,200)
35,800 NC
6-7
ATC 6-2 (cont.)
a.
Sweet’s Bakery
Financial Statements
Income Statements
SL
DDB
Sales Revenue
$42,000
$42,000
Expenses
Supplies Expense
(8,200)
(8,200)
Operating Expenses
(12,000)
(12,000)
Depreciation Expense
(10,000)
(23,000)
Total Expenses
(30,200)
(43,200)
Net Income
$11,800
$ (1,200)
Balance Sheets
Assets
Cash
$35,800
$35,800
Equipment
46,000
46,000
Less: Accumulated Depr.
(10,000)
(23,000)
Total Assets
$71,800
$58,800
Liabilities
$ -0–
$ -0–
Stockholders’ Equity
Common Stock
60,000
60,000
Ending Retained Earnings
11,800
(1,200)
Total Stockholders’ Equity
71,800
58,800
Total Liab. and Stkholders’ Equity
$71,800
$58,800
b. Net income is different for the year because of the difference in depreciation expense for the
6-8
ATC 6-3
The data for Microsoft is from its June 30, 2012 Form 10-K and the data for Intel are from its
December 29, 2012 Form 10-K. Dollars amounts are in millions.
a.
Current
Assets
Property, Plant
and Equipment
Total
Assets
Microsoft:
Dollar Amount:
$85,084
$ 8,269
$121,271
% of Total Assets:
70.2%
6.8%
100%
Intel:
Dollar Amount:
$31,358
$27,983
$84,351
% of Total Assets:
37.2%
33.2%
100%
b. Intel manufactures computer hardware (chips). This requires the use of lots of expensive
ATC 6-4
This problem is used to test thinking and writing skills. Students should realize that the equipment
impact of different depreciation methods on book value.
ATC 6-5
a. As stated in the problem, operating expenses reduce the amount of net income the
company presents on the income statement. Mr. Blowhard’s scheme takes the line costs,
b. Mr. Blowhard’s accountant violated Article I, Responsibilities. He did not exercise
sensitive professional and moral judgment by implementing the scheme. He certainly
c. The three elements of the fraud triangle are opportunity, pressure and rationalization.
Mr. Blowhard’s problem was that he wanted to sell the company and retire wealthy, and
6-9