Problem 10-4B (40 minutes)
2012
Jan. 1
Machinery ……………………………………………………….
114,270
114,270
To record costs of machinery ($107,800 +$6,470).
Dec. 31
Depreciation Expense—Machinery …………………..…..
17,425
Accumulated Depreciation—Machinery …………..
17,425
To record depreciation [($114,270-$9,720)/6].
2013
Dec. 31
Depreciation Expense—Machinery …………………..…..
27,500*
Accum. Depreciation—Machinery …………………..
27,500
To record depreciation.
*2013 depreciation:
$114,270
17,425
96,845
14,345
$ 82,500
2014
Dec. 31
Depreciation Expense—Machinery …………………..…..
27,500
Accumulated Depreciation—Machinery …………..
27,500
To record depreciation.
Dec. 31
Cash ……………………………………………………………….…..
25,240
Accumulated Depreciation—Machinery ………………..
To record sale of machine.
**Accumulated depreciation on machine at 12/31/2014:
$ 17,425
27,500
27,500
$ 72,425
$114,270
$ 41,845
Problem 10-5B (25 minutes)
Cost of machine …………………………..
$324,000
Less estimated salvage value ……….………………….
Total depreciable cost ………………….……….
$294,000
Year
Straight-Linea
Units-of-Productionb
Double-Declining-
Balancec
1 ……………….
$ 58,800
$ 71,120
$129,600
2 ……………….
58,800
64,080
77,760
3 ……………….
58,800
63,400
46,656
4 ……………….
58,800
68,720
27,994
5 ……………….
11,990
aStraight- line:
Cost per year = $294,000/5 years = $58,800 per year
bUnits-of-production:
Cost per unit = $294,000/1,470,000 units = $0.20 per unit
Year
Units
Unit Cost
Depreciation
1 …………..
355,600
$0.20
$ 71,120
2 …………..
320,400
0.20
64,080
4 …………..
343,600
5 …………..
138,500
0.20
* Take only enough depreciation in Year 5 to reduce book
value to the asset’s $30,000 salvage value.
cDouble-declining-balance (amounts rounded to the nearest dollar):
(100%/5) x 2 = 40% depreciation rate
Year
Beginning
Book Value
Annual
Depreciation
(40% of
Book Value)
Accumulated
Depreciation
at the End of
the Year
Ending Book Value
($324,000 Cost less
Accumulated
Depreciation)
1 …………
$324,000
$129,600
$129,600
$194,400
2 …………
194,400
77,760
207,360
116,640
3 …………
4 …………
27,994*
282,010
5 …………
* rounded
** Take only enough depreciation in Year 5 to reduce book value to the
asset’s $30,000 salvage value.
Problem 10-6B (20 minutes)
1.
Jan. 1
Machinery ………………………………………………………...
Cash …………………………..……………………………….
150,000
To record machinery costs.
Jan. 2
Machinery ………………………………………………………...
3,510
Cash …………………………..……………………………….
3,510
To record machinery costs.
Jan. 4
Machinery ………………………………………………………...
4,600
Cash …………………………..……………………………….
4,600
To record machinery costs.
2. a. First year
Dec. 31
Depreciation Expense—Machinery ……………………….
20,000
To record depreciation [($158,110-$18,110)/7 = $20,000].
b. Sixth year
Dec. 31
Depreciation Expense—Machinery ……………………….
20,000
20,000
To record the sixth year’s depreciation.
3. Accumulated depreciation at the date of disposal
First six years’ depreciation (6 x $20,000) ………………...
$120,000
Book value at the date of disposal
Original total cost …………………………………………………...
$158,110
Accumulated depreciation ……………………………………....
(120,000)
Total ……………………………………………………………………....
$ 38,110
a. Sold for $28,000 cash
Dec. 31
Cash ……………………………………………………………….…..
28,000
10,110
158,110
b. Sold for $52,000 cash
Dec. 31
Cash ……………………………………………………………….…..
52,000
158,110
13,890
c. Destroyed in fire and collected $25,000 cash from insurance
Dec. 31
Cash ……………………………………………………………….…..
25,000
13,110
Problem 10-7B (20 minutes)
a.
Mineral Deposit …………………………..……………..………..
Cash …………………………………………………….…
5,400,000
To record purchase of mineral deposit.
b.
Mar. 21
Machinery ………………………………………………….……
400,000
Cash …………………………………………………….…
400,000
To record costs of machinery.
c.
Dec. 31
Depletion Expense—Mineral Deposit ………….………..
342,900
342,900
254,000 tons x $1.35 = $342,900].
d.
Dec. 31
Depreciation Expense—Machinery ……………..………..
25,400
4,000,000 tons = $0.10 per ton.
254,000 tons x $0.10 = $25,400].
Analysis Component
Similarities—Amortization, depletion, and depreciation are similar in that
that benefit from their use.
Differences—They are different in that they apply to different types of long–
Problem 10-8B (20 minutes)
1.
2013
(a)
Jan. 1
Leasehold ……………………………………………………….
40,000
Cash ………………………………………………………….…..
40,000
To record payment for sublease.
(b)
Jan. 1
36,000
Cash ………………………………………………………….…..
36,000
To record prepaid annual lease rental.
(c)
Jan. 3
Leasehold Improvements ………………………………..…..
20,000
Cash ………………………………………………………….…..
20,000
To record costs of leasehold improvements.
2.
2013
(a)
Dec. 31
Rent Expense ………………………………………………….…..
8,000
8,000
To record leasehold amortization ($40,000/5).
(b)
Dec. 31
Amortization Expense—Leasehold Improvements ….…..
4,000
Accumulated Amortization—Leasehold
Improvements …………………………………………………..
4,000
To record leasehold improvement amortization
($20,000/5 years remaining on lease).
(c)
Dec. 31
Rent Expense ………………………………………………….…..
36,000
Prepaid Rent ……………………………………………..…..
36,000
To record annual lease rental.
Serial Problem — SP 10
Serial Problem — SP 10, Success Systems (45 minutes)
1. For the three months ended March 31, 2014, depreciation expense was
$400 for office equipment and $1,250 for the computer equipment.
Depreciation Expense—Computer Equipment ($1,250 x 4)………… $5,000
2.
December 31,
2013
December 31,
2014
Office Equipment …………………………….……
$ 8,000
$ 8,000
Office Equipment (book value) ………..……
$ 7,600
$ 6,000
December 31,
2013
December 31,
2014
Computer Equipment …………………………..
$20,000
$20,000
Accumulated Depreciation–
Computer Equipment (book value) …..……
$13,750
3.
Total asset turnover = Net sales / Average total assets
The 3-month total asset turnover at March 31, 2014:
An estimate of its annual total asset turnover is 1.572 (0.393 x 4
quarters). This value for the total asset turnover is lower than usual for
Reporting in Action — BTN 10-1
1. The percent of original cost remaining to be depreciated is computed
by taking the ratio of the book value of property and equipment to their
original cost ($ thousands):
2. In Polaris’s “Organization and Significant Accounting Policies” (Note 1:
Property and equipment) it discloses estimated useful lives by major
asset category as follows:
Asset Life (in years)
3. The change in total property and equipment before accumulated
depreciation for the year ended December 31, 2011, is an increase of
$40,760 thousand ($648,153 – $607,393). In comparison, according to
4. Total asset turnover for year ended ($ millions):
12/31/11: = 2.32 times
5. Solution depends on the financial statement data obtained.
$2,656,949
($1,228,024 + $1,061,647)/2
Comparative Analysis — BTN 10-2
Note: Total asset turnover = Net sales / Average total assets
1. Total asset turnover for Polaris ($ thousands)
Current Year: = 2.32 times
Total asset turnover for Arctic Cat ($ thousands)
Current Year: = 1.79 times
2. Each dollar of Polaris’s assets produces $2.32 and $2.18 in net sales
for the current and prior year, respectively. Each dollar of Arctic Cat’s
assets produces $1.79 and $1.81 in net sales for the current year and
$1,991,139
($1,061,647+ $763,653)/2
$2,656,949
($1,228,024 + $1,061,647)/2
$464,651
($272,906 + $246,084)/2
Ethics Challenge — BTN 10-3
1. When managers acquire new assets a number of decisions relative to
2. When assets are placed in use on a day other than the first day of the
month an assumption is often made that the assets are placed in use on
By selecting the first day of the following month, Choi is getting a one–
time deferral of some partial months of depreciation. She is still
depreciation decision rule.
3. By always assuming the first day of the following month as the date of
purchase, less depreciation is (initially) accrued for the assets
Communicating in Practice — BTN 10-4
The solution to this activity will vary based on the industry and the
Taking It to the Net — BTN 10-5
1. Yahoo! has Goodwill in the amount of ($ thousands) $3,900,752 at
December 31, 2011.
2.
Goodwill (in $ thousands)
Total
Amount
$ Change
from Prior
Year
%
Change
Balance, December 31, 2010 ……………..…
$3,681,645
Balance, December 31, 2011 ……………..…
$3,900,752
Goodwill has increased over this period. The increase is due mainly to
over this period.
3. Yahoo!’s intangible assets are categorized into the three categories
below at December 31, 2011. These intangibles represent 1.7%
($254,600 / $14,782,786) of total assets.
December 31, 2011 (in thousands)
Customer, affiliate and advertiser related relationships ……..………
$ 93,683
Trade names, trademarks, and domain names …………………..………
4. Note 6 indicates that Trade names, trademarks, and domain names
have original estimated useful lives of “one year to indefinite lived.” If
Teamwork in Action — BTN 10-6
1. Annual depreciation for each year of the asset’s useful life:
Year
Straight-line
Double-Declining-Balance
Units-of-Production
2011
($44,000-$2,000)/4
= $10,500
(100%/4) x 2 = 50% is
declining-balance rate.
BV x rate = $44,000 x 50%
= $22,000
($44,000-$2,000)/60,000 miles
= $.70 per mile.
12,000 miles x $.70 = $ 8,400
2012
$22,000 x 50%= $11,000
18,000 miles x $.70 = $12,600
2013
$11,000 x 50% = $5,500
21,000 miles x $.70 = $14,700
2014
$10,500
$5,500 (depreciate to
salvage) = $3,500
9,000* miles x $.70 = $ 6,300
2. Depreciation is recorded in an adjusting entry at the end of each
period. The entry is:
3. Each expert’s presentation of the comparison of methods will be
slightly different. The experts should make the following points: The
straight-line method reduces net income by the same amount each
Teamwork in Action — BTN 10-6 – continued
4. Book value at the end of each year
= Cost – Accumulated depreciation
Year
Straight–line
Double-Declining-
Balance
Units of Production
2011 ……..
$33,500
$22,000
$35,600
2013 ……..
2014 ……..
For reporting purposes, each expert will have different results. But
each should show:
Plant Assets:
* Amounts vary by the method and the year selected for illustration. Experts should explain
the amounts shown.
Entrepreneurial Decision — BTN 10-7
Part 1
(a) Under current conditions, the total asset turnover is 3.2. This is
computed as net sales of $8,000,000 divided by its average total assets
(b) Under this proposal, its asset turnover would increase to 4. This is
computed by taking its net sales of $12,000,000 ($8,000,000 +
sales per year.
Part 2
The proposal would yield an improved total asset turnover of 4 vis-à-vis the
current total asset turnover of 3.2. However, we need to recognize that this
proposal depends on our confidence in both maintaining current sales,
*We must remember that total asset turnover is only one dimension of a complete analysis of this
proposal. For example, we would want to explore the impact of this proposal on net income and
other activities.
Hitting the Road — BTN 10-8
No formal solution exists for this activity. It is usually interesting for the
class to exchange their discoveries via class discussion. This is
Global Decision — BTN 10-9
1. Total asset turnover for Piaggio (Euro in thousands):
2. Piaggio was less efficient in using its assets to generate net sales than
both Polaris and Arctic Cat. Specifically, in the current year each EUR
Similarly, in the prior year, each EUR’s worth of Piaggio’s assets