Requirement 2 Double-declining-balance
University Car Wash
Calculation End of Year Amounts
Year
Beginning
Book Value XDepreciation
Rate* =Depreciation
Expense
Accumulated
Depreciation
Book
Value**
1 270,000 1/3 90,000 90,000 180,000
2 180,000 1/3 60,000 150,000 120,000
3 120,000 1/3 40,000 190,000 80,000
4 80,000 1/3 26,667 216,667 53,333
5 53,333 1/3 17,778 234,445 35,555
* 2 / 6 years = 1/3 per year
Requirement 3 Activity-based
University Car Wash
Calculation End of Year Amounts
Year
Hours
Used XDepreciation
Rate* =Depreciation
Expense
Accumulated
Depreciation
Book
Value**
1 3,100 $20.50 63,550 63,550 206,450
2 1,100 $20.50 22,550 86,100 183,900
3 1,200 $20.50 24,600 110,700 159,300
4 2,800 $20.50 57,400 168,100 101,900
* $246,000 / 12,000 hours = $20.50/hour
Problem 7-6A (LO 7-5)
Requirement 1
a. Goodwill is not amortized.
Debit Credit
b. Amortization Expense. . . . . .. .. . . . 11,750*
Patents . . . . . . . . .. . . . . . . . .
c. Amortization Expense. .. . . . . . . . . 18,500*
Requirement 2
University Testing Services
Balance Sheet
December 31, 2015
(Intangible Assets section)
Intangible Assets
Goodwill $310,000
Patents ($82,250 – $11,750) 70,500
Problem 7-7A (LO 7-4, 7-5)
Requirement 1
Debit Credit
Depreciation Expense 58,880*
Depreciation Expense 25,000*
Requirement 2
Debit Credit
Amortization Expense 50,000*
Requirement 3
Solich Sandwich Shop
December 31, 2015
Cost
Accumulated
Depreciation
Book
Value
Land $ 95,000 – $ 95,000
Building 460,000 ($224,480) 235,520
Problem 7-8A (LO 7-6)
Requirement 1
Requirement 2
Cost of the oven $910,000
Less: Accumulated depreciation (170,000)
Requirement 3
Sale amount $700,000
Less:
Cost of the oven 910,000
Less: Accumulated depreciation (170,000)
Requirement 4
Debit Credit
Cash 700,000
Accumulated Depreciation 170,000
Problem 7-9A (LO 7-7)
Requirement 1
Apple
Net
Income ÷
Average
Total Assets =
Return
on Assets
Net
Income ÷ Sales =
Profit
Margin
Average Asset
Sales ÷ Total Assets = Turnover
Requirement 2
Dell
Net
Income ÷
Average
Total Assets =
Return
on Assets
Net
Income ÷ Sales =
Profit
Margin
Sales ÷
Average
Total Assets =
Asset
Turnover
Requirement 3
Apple has the higher profit margin, while Dell has the higher asset turnover. This is
consistent with their primary business strategies. Apple produces innova(ve
Problem 7-10A (LO 7-7)
Requirement 1
Sandwiches Only
Net
Income ÷
Average
Total Assets =
Return
on Assets
Net
Income ÷ Sales =
Profit
Margin
Average Asset
Sales ÷ Total Assets = Turnover
Requirement 2
Sandwiches and Smoothies
Net
Income ÷
Average
Total Assets =
Return
on Assets
Net
Income ÷ Sales =
Profit
Margin
Sales ÷
Average
Total Assets =
Asset
Turnover
Requirement 3
Do not go forward with the expansion plans. The return on assets, profit margin,
and asset turnover are all lower with the addition of smoothies. Even though net
Problems: Set B
Problem 7-1B (LO 7-1)
Land Building
Purchase price of land $90,000
Land clearing costs 5,000
Sale of firewood to a worker (400)
The property taxes on the land of $3,000 will be recorded as property tax
Problem 7-2B (LO 7-1)
Requirement 1
Purchase price $341,000
Shipping costs 16,000
Labor costs 17,000
Requirement 2
All amounts were included in the Equipment account.
Problem 7-3B (LO 7-2)
1.
Purchase price $5,600,000
Less:
Fair value of assets acquired 6,150,000
Less: Fair value of liabilities assumed (750,000)
2.
Debit Credit
Receivables (at fair value) 650,000
Property, Plant, and Equipment (at fair value) 4,800,000
Intangible Assets (at fair value) 700,000
Goodwill (remaining purchase price) 200,000
Problem 7-4B (LO 7-3)
1. Expense
2. Capitalize
3. Capitalize
4. Expense
5. Expense
6. Capitalize
SYP could increase reported earnings by improperly recording expenses as assets. For
example, SYP could record maintenance and repair expense to the Equipment asset
account. This would lower expenses and increase earnings reported in the current year.
Problem 7-5B (LO 7-4)
Requirement 1 Straight-line
Cheetah Copy
Calculation End of Year Amounts
Year
Depreciable
Cost* XDepreciation
Rate =Depreciation
Expense
Accumulated
Depreciation
Book
Value**
1 105,000 0.25 26,250 26,250 113,750
2 105,000 0.25 26,250 52,500 87,500
3 105,000 0.25 26,250 78,750 61,250
Requirement 2 Double-declining-balance
Cheetah Copy
Calculation End of Year Amounts
Year
Beginning
Book Value XDepreciation
Rate* =Depreciation
Expense
Accumulated
Depreciation
Book
Value**
1 140,000 0.50 70,000 70,000 70,000
2 70,000 0.50 35,000 105,000 35,000
3 35,000 0.50 0*** 105,000 35,000
* 2 / 4 years = 0.50 per year
** $140,000 cost minus accumulated depreciation
*** Asset is fully depreciated after two years.
Requirement 3 Activity-based
Cheetah Copy
Calculation End of Year Amounts
Year
Hours
Used XDepreciation
Rate* =Depreciation
Expense
Accumulated
Depreciation
Book
Value**
1 3,000 $13.125 39,375 39,375 100,625
2 2,000 $13.125 26,250 65,625 74,375
3 2,000 $13.125 26,250 91,875 48,125
* $105,000 / 8,000 hours = $13.125/hour
** $140,000 cost minus accumulated depreciation
*** Amount needed to reduce book value to residual value.
Problem 7-6B (LO 7-5)
Requirement 1
a. Goodwill is not amortized.
Debit Credit
b. Amortization Expense 5,500*
Patents 5,500
c. Amortization Expense
13,500
*
Requirement 2
Lettuce Express
Balance Sheet
December 31, 2015
(Intangible Assets section)
Intangible Assets
Goodwill $160,000
Patents ($49,500 – $5,500) 44,000
Problem 7-7B (LO 7-4, 7-5)
Requirement 1
Debit Credit
Depreciation Expense
71,680
*
Depreciation Expense
15,000
*