Problem 8-4B (50 minutes)
2014
Jan. 1
Equipment …………………………………………………………..
27,670
Cash ……………………………………………………………...
27,670
To record costs of van ($25,860 + $1,810).
Jan. 3
Equipment …………………………………………………………..
1,850
Cash ……………………………………………………………...
1,850
To record betterment of van.
5,124
To record depreciation.
Jan. 1
Equipment …………………………………………………………..
2,064
Cash ……………………………………………………………...
2,064
To record extraordinary repair on van.
Cash ……………………………………………………………...
To record ordinary repair on van.
3,760
Problem 8-5B (40 minutes)
2014
Jan. 1
Machinery ……………………………………………………….
114,270
Cash ………………………………………………………….…..
114,270
To record costs of machinery ($107,800 +$6,470).
Problem 8-6B (20 minutes)
1.
Jan. 1
Machinery ………………………………………………………...
150,000
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
Accumulated Depreciation—Machinery ……….….
20,000
To record depreciation [($158,110-$18,110)/7 = $20,000].
b. Sixth year
Dec. 31
Depreciation Expense—Machinery ……………………….
20,000
Accumulated Depreciation—Machinery ……….….
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
Loss on Sale of Machinery …………………………………..
10,110
Accumulated Depreciation—Machinery ………………..
120,000
Machinery ………………………………………………….…..
158,110
Dec. 31
Cash ……………………………………………………………….…..
52,000
Accumulated Depreciation—Machinery ………………..
120,000
Machinery ………………………………………………….…..
158,110
Gain on Sale of Machinery …………………………..
13,890
Dec. 31
Cash ……………………………………………………………….…..
25,000
Loss from Fire ……………………………………………………..
13,110
Accumulated Depreciation—Machinery ………………..
120,000
Problem 8-7B (20 minutes)
a.
Feb. 19
Mineral Deposit ………………………………………….………..
5,400,000
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
Accum. Depletion—Mineral Deposit ………………..
342,900
To record depletion [$5,400,000/
4,000,000 tons = $1.35 per ton.
254,000 tons x $1.35 = $342,900].
d.
Dec. 31
Depreciation Expense—Machinery ……………..………..
25,400
Accum. Depreciation—Machinery …………………..
25,400
To record depreciation [$400,000/
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
Problem 8-8B (20 minutes)
1.
2015
(a)
Jan. 1
Leasehold ……………………………………………………….
40,000
Cash ………………………………………………………….…..
40,000
To record payment for sublease.
(b)
Jan. 1
Prepaid Rent……………………………………………………….
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.
2015
(a)
Dec. 31
Rent Expense ………………………………………………….…..
8,000
Accumulated Amortization—Leasehold …………..
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 8
Serial Problem — SP 8, Business Solutions (45 minutes)
1. For the three months ended March 31, 2016, depreciation expense was
$400 for office equipment and $1,250 for the computer equipment.
2.
December 31,
2015
December 31,
2016
Office Equipment …………………………….……
$ 8,000
$ 8,000
Accumulated Depreciation–Office
Equipment ………………………………….……
400
2,000
Office Equipment (book value) ………..……
$ 7,600
$ 6,000
$20,000
$20,000
Accumulated Depreciation–
$13,750
Reporting in Action — BTN 8-1
1. The percent of original cost remaining to be depreciated is computed
by taking the ratio of the book value of property and equipment to the
original cost ($ millions):
2. In Apple’s “Summary of Significant Accounting Policies” (Note 1:
Property, Plant 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 September 28, 2013, is an increase of
4. Total asset turnover for year ended ($ millions):
5. Solution depends on the financial statement data obtained.
Comparative Analysis — BTN 8-2
Note: Total asset turnover = Net sales / Average total assets
1. Total asset turnover for Apple ($ millions)
2. Each dollar of Apple’s assets produces $0.89 and $1.07 in net sales for
the current and prior year, respectively. Each dollar of Google’s assets
Ethics Challenge — BTN 8-3
1. When managers acquire new assets a number of decisions relative to
2. When assets are placed in use on a day other than the first day of the
month an assumption is often made that the assets are placed in use on
the first day of the month nearest to the date of the purchase. For
example, for assets purchased on the 1st through 15th days of the month,
3. By always assuming the first day of the following month as the date of
purchase, less depreciation is (initially) accrued for the assets
Communicating in Practice — BTN 8-4
The solution to this activity will vary based on the industry and the
companies chosen for analysis. Many instructors find it useful to report
the results from the teams to the class for purposes of classroom
discussion and analysis.
Taking It to the Net — BTN 8-5
1. Yahoo! has Goodwill in the amount of ($ thousands) $4,679,648 at
2.
Goodwill (in $ thousands)
Total
Amount
$ Change
from Prior
Year
%
Change
Balance, December 31, 2012 ……………..…
$3,826,749
Balance, December 31, 2013 ……………..…
$4,679,648
$852,899
22.3%
Goodwill has increased over this period. The increase is due mainly to
new goodwill recorded due to acquisitions in 2013 and, secondly, to
Foreign Currency Translation Adjustments that Yahoo! has experienced
over this period. There was also a goodwill impairment.
3. Yahoo!’s intangible assets are categorized into the three categories
below at December 31, 2013. These intangibles represent 2.5%
4. Note 6 indicates that Trade names, trademarks, and domain names
have original estimated useful lives of “one year to an indefinite life.” If
Teamwork in Action — BTN 8-6
1. Annual depreciation for each year of the asset’s useful life:
Year
Straight-line
Double-Declining-Balance
Units-of-Production
2013
($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
2014
$10,500
$22,000 x 50%= $11,000
18,000 miles x $.70 = $12,600
2015
$10,500
$11,000 x 50% = $5,500
21,000 miles x $.70 = $14,700
2016
$10,500
$5,500 (depreciate to
salvage) = $3,500
9,000* miles x $.70 = $ 6,300
* Depreciation is based on the estimated capacity of 60,000 miles. Even though the van is
driven 10,000 miles in the last year, depreciation can only be taken for the remaining 9,000
miles of estimated capacity. This will record depreciation to the estimated salvage value.
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
Teamwork in Action — BTN 8-6 – continued
4. Book value at the end of each year
= Cost – Accumulated depreciation
= $44,000 – (amount varies by method—see part 1 for annual amounts)
Year
Straight–line
Double-Declining-
Balance
Units of Production
2013 ……..
$33,500
$22,000
$35,600
2014 ……..
23,000
11,000
23,000
2015 ……..
12,500
5,500
8,300
2016 ……..
2,000
2,000
2,000
For reporting purposes, each expert will have different results. But
each should show:
Plant Assets:
Entrepreneurial Decision — BTN 8-7
Part 1
(a) Under current conditions, the total asset turnover is 3.2. This is
(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 +
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.
Average total assets
Hitting the Road — BTN 8-8
No formal solution exists for this activity. It is usually interesting for the
class to exchange their discoveries via class discussion. This is
particularly the case with respect to patents, copyrights, and trademarks.
Global Decision — BTN 8-9
Note: Total asset turnover = Net sales / Average total assets
1. Total asset turnover for Samsung (KRW in millions):
2. Samsung was more efficient in using its assets to generate net sales
than Google and Apple. Specifically, in the current year, each KRW