Land Building
Purchase price of land $140,00
0
Land clearing costs 5,000
Architect fees (for new building) $ 30,000
Requirement 1
The ovens should be recorded in the equipment account at $99,000 as
detailed in the following schedule:
Purchase price $80,000
Shipping costs 2,000
Labor costs 10,000
Requirement 2
All amounts were included in the equipment account.
1. The amount Nordic Outfitters paid for goodwill is $500,000 calculated as
follows:
Purchase price $3,000,000
Less:
Fair value of assets acquired 3,150,000
Problem 7-1C
Problem 7-2C
Problem 7-3C
Goodwill $ 500,000
2. The journal entry to record Nordic Outfitters’ acquisition of European Retail
is:
Debit Credit
Receivables (at fair value) 250,000
Property, Plant, and Equipment (at fair value) 2,400,000
Intangible Assets (at fair value) 500,000
Problem 7-5C
Requirement 1
Calculation End of Year Amounts
Year
Allocation
Base* XDepreciation
Rate =Depreciation
Expense
Accumulated
Depreciation
Book
Value**
Problem 7-4C
1. Capitalize
2. Capitalize
3. Expense
4. Expense
5. Capitalize
Lincoln could increase reported earnings by improperly recording expenses as
assets. For example, Lincoln could record maintenance and repair expense to the
1 80,000 0.25 20,000 20,000 70,000
2 80,000 0.25 20,000 40,000 50,000
3 80,000 0.25 20,000 60,000 30,000
Requirement 2
Calculation End of Year Amounts
Year
Beginning
Book Value XDepreciation
Rate* =Depreciation
Expense
Accumulated
Depreciation
Book
Value**
1 90,000 0.50 45,000 45,000 45,000
2 45,000 0.50 22,500 67,500 22,500
3 22,500 0.50 11,250 78,750 11,250
* 2 / 4 years = 0.50 per year
** $90,000 cost minus accumulated depreciation.
*** Amount needed to reduce book value to residual value.
Requirement 3
Calculation End of Year Amounts
Year
Hours
Used XDepreciation
Rate* =Depreciation
Expense
Accumulated
Depreciation
Book
Value**
1 1,200 $16 19,200 19,200 70,800
2 1,400 $16 22,400 41,600 48,400
3 1,500 $16 24,000 65,600 24,400
*** Amount needed to reduce book value to residual value.
a. Goodwill is not amortized.
Debit Credit
b. Amortization Expense 25,000
Patent 25,000
c. Amortization Expense 10,000
Franchise 10,000
University Hero
Balance Sheet
December 31, 2015
(Intangible Assets Section)
Intangible Assets
Goodwill $175,000
Patent ($75,000-$25,000) 50,000
Debit Credit
Depreciation Expense ($600,000 / 20) 30,000
Depreciation Expense ($128,000 x 2/10) 25,600
Problem 7-6C
Requirement 1
Requirement 2
Problem 7-7C
Requirement 1
Requirement 2
Debit Credit
Amortization Expense ($80,000/8) 10,000
Requirement 3
The Snack Stop
December 31, 2015
Cost
Accumulated
Depreciation
Book
Value
Land $ 90,000 – $ 90,000
Building 600,000 ($90,000) 510,000
Cost of the equipment $ 220,000
Less: Accumulated Depreciation (120,000)
Requirement 3
The loss on sale is calculated as:
Sale amount $80,000
Less:
Problem 7-8C
Requirement 1
Requirement 2
The entry to record the loss on sale is as follows:
Debit Credit
Cash 80,000
Accumulated Depreciation 120,000
Loss on Sale 20,000
Requirement 1
Company A
Net
Income ÷
Average
Total Assets =
Return
on Assets
Net
Income ÷ Sales =
Profit
Margin
Sales ÷
Average
Total Assets =
Asset
Turnover
Requirement 2
Company B
Net
Income ÷
Average
Total Assets =
Return
on Assets
Net
Income ÷ Sales =
Profit
Margin
Average Asset
Requirement 4
Problem 7-9C
Sales ÷ Total Assets = Turnover
Flowers Only
Net
Income ÷
Average
Total Assets =
Return
on Assets
Net
Income ÷ Sales =
Profit
Margin
Sales ÷
Average
Total Assets =
Asset
Turnover
Requirement 2
Flowers and Candy
Net
Income ÷
Average
Total Assets =
Return
on Assets
Net
Income ÷ Sales =
Profit
Margin
Sales ÷
Average
Total Assets =
Asset
Turnover
Requirement 3
Company B has a slightly higher profit margin, while Company A has a much higher
Problem 7-10B
Requirement 1
Requirement 3
Go forward with the expansion plans to include the sale of candy. The return on assets,