8-121
ATC 8-1
All dollar amounts are in millions.
a. Straight-line. See Note 12 of the annual report.
b. Note 14 of the annual report refers to “goodwill and intangible
assets.” Other than mentioning “goodwill” and “leasehold
8-122
ATC 8-2
Computation of depreciation expense:
Straight-line:
(Cost − Salvage Value) Useful life = Depreciation per year
ATC 8-2 (cont.)
Note: It is useful to prepare a horizontal statements model before preparing the financial
8-124
ATC 8-2 (cont.)
NC = Net Change in Cash
Horizontal Statement Model
Using Double-Declining Balance Depreciation
Balance Sheet
Income Statement
Statement of
Assets
=
Stockholders’ Equity
Rev.
−
Exp.
=
Net Inc.
Cash Flows
Event
Cash
+
Equip.
−
A. Dep.
=
C. Stock
+
Ret. Ear.
−
=
1.
60,000
+
NA
−
NA
=
60,000
+
NA
NA
−
NA
=
NA
60,000 FA
2.
(46,000)
+
46,000
−
NA
=
NA
+
NA
NA
−
NA
=
NA
(46,000) IA
3.
42,000
+
NA
−
NA
=
NA
+
42,000
42,000
−
NA
=
42,000
42,000 OA
4.
(8,200)
+
NA
−
NA
=
NA
+
(8,200)
NA
−
8,200
=
(8,200)
(8,200) OA
5.
(12,000)
+
NA
−
NA
=
NA
+
(12,000)
NA
−
12,000
=
(12,000)
(12,000) OA
6.
NA
+
NA
−
23,000
=
NA
+
(23,000)
NA
−
23,000
=
(23,000)
NA
7.*
NA
+
NA
−
NA
=
NA
+
NA
NA
−
NA
=
NA
NA
Bal.
35,800
+
46,000
−
23,000
=
60,000
+
(1,200)
42,000
−
43,200
=
(1,200)
35,800 NC
8-125
ATC 8-2 (cont.)
NC = Net Change in Cash
Horizontal Statement Model
Using MACRS Depreciation
Balance Sheet
Income Statement
Statement of
Assets
=
Stockholders’ Equity
Rev.
−
Exp.
=
Net Inc.
Cash Flows
Event
Cash
+
Equip.
−
A. Dep.
=
C. Stock
+
Ret. Ear.
−
=
1.
60,000
+
NA
−
NA
=
60,000
+
NA
NA
−
NA
=
NA
60,000 FA
2.
(46,000)
+
46,000
−
NA
=
NA
+
NA
NA
−
NA
=
NA
(46,000) IA
3.
42,000
+
NA
−
NA
=
NA
+
42,000
42,000
−
NA
=
42,000
42,000 OA
4.
(8,200)
+
NA
−
NA
=
NA
+
(8,200)
NA
−
8,200
=
(8,200)
(8,200) OA
5.
(12,000)
+
NA
−
NA
=
NA
+
(12,000)
NA
−
12,000
=
(12,000)
(12,000) OA
6.
NA
+
NA
−
9,200
=
NA
+
(9,200)
NA
−
9,200
=
(9,200)
NA
7.*
(3,780)
+
NA
−
NA
=
NA
+
(3,780)
NA
−
3,780
=
(3,780)
(3,780) OA
Bal.
32,020
+
46,000
−
9,200
=
60,000
+
8,820
42,000
−
33,180
=
8,820
32,020 NC
*$42,000 − $8,200 − $12,000 −$9,200 = $12,600 net income before tax. $12,600 x .30 = $3,780
8-64
ATC 8-2 (cont.)
a.
Sweet’s Bakery
Financial Statement
Income Statements for the Year Ended December 31
SL
DDB
MACRS
Sales Revenue
$42,000
$42,000
$42,000
Expenses
Supplies Expense
(8,200)
(8,200)
(8,200)
Operating Expenses
(12,000)
(12,000)
(12,000)
Depreciation Expense
(10,000)
(23,000)
(9,200)
Income Tax Expense
(3,540)
-0-
(3,780)
Total Expenses
(33,740)
(43,200)
(33,180)
Net Income
$ 8,260
$ (1,200)
$ 8,820
Balance Sheets as of December 31
Assets
Cash
$32,260
$35,800
$32,020
Equipment
46,000
46,000
46,000
Less: Accumulated Depr.
(10,000)
(23,000)
(9,200)
Total Assets
$68,260
$58,800
$68,820
Liabilities
$ –0–
$ -0-
$ -0-
Stockholders’ Equity
Common Stock
60,000
60,000
60,000
Ending Retained Earnings
8,260
(1,200)
8,820
Total Stockholders’ Equity
68,260
58,800
68,820
Total Liab. and Stkholders’ Equity
$68,260
$58,800
$68,820
8-65
However over the life of the asset, the total amount of depreciation
8-66
ATC 8-3
The companies and the set of ratios to which each relates are as follows:
Molson Coors Brewing (MC) Company 2
Darden Restaurants Company 1
Deere & Company Company 4
Weight Watchers International (W-W) Company 3
Having identified Companies 1 and 3, this means that Molson must
be either Company 2 or 4. There are several significant differences
between the data for Companies 2 and 4, most notable are:
Current assets ÷ total assets
Average days to sell inventory
8-67
ATC 8-4
a. Depreciation expense as a percentage of sales:
Company 1: $44,326 ÷ $ 1,868,739 = 2.4%
Company 2: $ 1,104 ÷ $ 12,026 = 9.2%
b. Property, plant and equipment as a percentage of total assets:
8-68
ATC 8-5
a. Depreciation expense as a percentage of sales:
Chesapeake Energy: $2,903 ÷ $17,506 = 16.6%
Anadarko Petroleum: $3,927 ÷ $14,581 = 26.9%
b. Buildings, machinery, and equipment (depreciable assets) as a
percentage of total assets:
same.
8-69
ATC 8-6
This problem is used to test thinking and writing skills. Students should
realize that the equipment of the two companies had originally cost
methods.
8-70
ATC 8-7
a. As stated in the problem, operating expenses reduce the amount of
net income the company presents on the balance sheet. Mr.
Blowhard’s scheme takes the line costs, which should be operating
expenses, and classifies them as capital assets. This significantly
increases the amount of net income that the company will show.
8-71
ATC 8-8
The data for Microsoft is from its June 30, 2013 Form 10-K and the
data for Intel are from its December 25, 2013 Form 10-K. Dollars
amounts are in millions.
a.
Current
Assets
Property,
Plant and
Equipment
Total
Assets
Microsoft:
Dollar Amount:
$101,466
$9,991
$143,421
% of Total Assets:
70.7%
7.0%
100%
Intel:
Dollar Amount:
$32,084
$31,428
$92,358
% of Total Assets:
34.7%
34.0%
100%
b. Intel manufactures computer hardware. This requires the use of lots
of expensive equipment. Microsoft produces software. Writing
software uses more people than equipment. Thus, Intel has more of
its assets invested in plant and equipment than does Microsoft.
8-72
EXERCISE 8-1B
Note: There are many possibilities for answers to this question. The
answers given are only a few examples of long-term operational assets
that these companies may own. Also note that even though the
8-73
EXERCISE 8-2B
Event
Long-Term Operational Asset
a.
No
b.
Yes
c.
Yes
d.
No
e.
No
f.
Yes
g.
No
h.
Yes
i.
Yes (If the company is in a business that uses or sells timber)
j.
Yes (As long as it is not held for investment purposes)
k.
Yes
l.
Yes
8-74
EXERCISE 8-3B
No.
Tangible (T), Intangible (I)
a.
Retail Store Building
T
b.
Shelving for Inventory
T
c.
Trademark
I
d.
Gas Well
T
e.
Drilling Rig
T
f.
FCC License for TV Station
I
g.
18-Wheel Truck
T
h.
Timber
T
i.
Log Loader
T
j.
Dental Chair
T
k.
Goodwill
I
l.
Computer Software
I
EXERCISE 8-4B
a.
Costs that are to be capitalized:
List Price $160,000
Less: Discount (8,000)*
EXERCISE 8-5B
a. Basket Purchase
b. % of* Purchase Allocated
Total Appraised Value App. Val. Price Cost
EXERCISE 8–6B
a.
Asset
Appraised Value
Percent of Appraised Value
Land
$200,000
25%
Building
480,000
60%
Equipment
120,000
15%
Total
$800,000
100%
Asset
% of App. Value
Purchase Price
Allocated Cost
Land
25%
x
$600,000
=
$150,000
Building
60%
x
600,000
=
360,000
Equipment
15%
x
600,000
=
90,000
Total
$600,000
Land
150,000
Building
360,000
Equipment
90,000
Cash
600,000
8-64
EXERCISE 8-7B
a.
Event
Account Titles
Debit
Credit
1.
Cash
20,000
Common Stock
20,000
2.
Equipment – Ice Cream Machine
20,000
Cash
20,000
3.
Cash
36,000
Sales Revenue
36,000
4.
Salaries Expense
21,000
Cash
21,000
5.
Operating Expenses
6,000
Cash
6,000
6.
Depreciation Expense*
3,000
Accumulated Depreciation
3,000