Requirement 2
Debit Credit
Amortization Expense
25,000
*
Requirement 3
Togo’s Sandwich Shop
December 31, 2015
Cost
Accumulated
Depreciation
Book
Value
Land $ 85,000 – $ 85,000
Building 560,000 ($273,280) 286,720
$127,500 = $455,000 – $30,000 x 3 years
Cost of the oven $ 455,000
Less: Accumulated depreciation (127,500)
Requirement 3
Sale amount $341,000
Less:
Cost of the oven 455,000
Less: Accumulated depreciation (127,500)
Gain $ 13,500
Problem 7-8B (LO 7-6)
Requirement 1
Requirement 2
Debit Credit
Cash 341,000
Accumulated Depreciation 127,500
Requirement 1
Nike
Net
Income ÷
Average
Total Assets =
Return
on Assets
Net
Income ÷ Sales =
Profit
Margin
Sales ÷
Average
Total Assets =
Asset
Turnover
Requirement 2
Under Armour
Net
Income ÷
Average
Total Assets =
Return
on Assets
Net
Income ÷ Sales =
Profit
Margin
Sales ÷
Average
Total Assets =
Asset
Turnover
Requirement 4
Problem 7-9B (LO 7-7)
Cars
Only
Net
Income ÷
Average
Total Assets =
Return
on Assets
Net
Income ÷ Sales =
Profit
Margin
Sales ÷
Average
Total Assets =
Asset
Turnover
Requirement 2
Cars and Boats
Net
Income ÷
Average
Total Assets =
Return
on Assets
Net
Income ÷ Sales =
Profit
Margin
Sales ÷
Average
Total Assets =
Asset
Turnover
Requirement 3
Nike has a higher profit margin than Under Armour (9.2% vs. 7.0), while Under
Problem 7-10B (LO 7-7)
Requirement 1
Purchase price $12,000
Painting and new logo 3,000
Deluxe roof rack and trailer hitch 2,000
Great Adventures
Calculation End of Year Amounts
Year
Allocation
Base* XDepreciation
Rate =Depreciation
Expense
Accumulated
Depreciation
Book
Value**
1 12,500 0.20×1/2 1,250 1,250 15,750
2 12,500 0.20 2,500 3,750 13,250
3 12,500 0.20 2,500 6,250 10,750
4 12,500 0.20 2,500 8,750 8,250
5 12,500 0.20 2,500 11,250 5,750
Requirement 3
Go forward with the expansion plans to include the sale of recreational boats. The
return on assets, profit margin, and asset turnover are all higher with the additional
sale of boats.
ADDITIONAL PERSPECTIVES
Continuing Problem: Great Adventures
AP7-1
Requirement 1
Requirement 2
Annual insurance of $1,800 is expensed as incurred over the period from July 1, 2016
to June 30, 2017.
Requirement 3
July 1, 2018 Debit Credit
Cash 10,000
Accumulated Depreciation 5,000
Note that year 1 goes from July 1, 2016 to June 30, 2017. Depreciation expense in
Requirement 4
Financial Analysis: American Eagle
AP7-2
Requirement 1
The straight-line method is used. The estimated useful lives are as follows:
Buildings 25 years
Requirement 2
The cost of property and equipment is $1,431,630,000 and the book value is
$509,633,000. Book value is the same as “Property and equipment, net”. Depreciation
Requirement 3
The store leases generally have initial terms of ten years. The future minimum lease
Financial Analysis: The Buckle
AP7-3
Requirement 1
Buckle uses a combination of accelerated and straight-line depreciation methods. The
estimated useful lives are as follows:
Buildings 31.5 to 39 years
Requirement 2
The cost of property and equipment is $373,286,000. Property and equipment is
Requirement 3
The most common term for the leases is ten years. The future minimum rental
Comparative Analysis: American Eagle vs. The Buckle
AP7-4
Requirement 1
American Eagle ($ in thousands)
Net
Income ÷
Average
Total Assets =
Return
on Assets
Net
Income ÷ Sales =
Profit
Margin
Sales ÷
Average
Total Assets =
Asset
Turnover
Requirement 2
Buckle ($ in thousands)
Net
Income ÷
Average
Total Assets =
Return
on Assets
Net
Income ÷ Sales =
Profit
Margin
Sales ÷
Average
Total Assets =
Asset
Turnover
Requirement 3
Buckle has a higher return on assets, profit margin, and asset turnover compared with
American Eagle.
Ethics
AP7-5
Requirement 1
A company could increase earnings by changing from double-declining-balance to
straight-line in the early years of an asset’s life. Double-declining-balance
Requirement 2
A company could increase earnings by lengthening the estimated service lives of
depreciable assets. For example, General Motors reported an increase in income due
Requirement 3
A company could increase earnings by increasing the estimated residual value of
Internet Research
AP7-6
This case provides an opportunity for students to learn how to locate annual reports
available on company websites. It also allows students to learn more about how
Written Communication
AP7-7
The dictionary definition of depreciation is a decrease in value of an asset. The
accounting concept of depreciation is different. Depreciation in accounting is the
process of allocating to an expense the cost of an asset over its service life. An asset
Earnings Management
AP7-8
Requirement 1
Adjusting the estimated service lives of depreciable assets from 10 years to six years
Requirement 2
Reducing the estimated residual values to zero will also increase depreciation expense
Requirement 3
In addition to heading off additional government regulations, Energy Resources might
have additional incentives to report lower profits in the current “record-breaking
Another incentive relates to saving for a rainy day. By reporting lower profits in the
A final potential incentive relates to the setting of benchmarks. A record-breaking year