M9–13
9– 12 Solutions Manual
© 2016 by McGraw– Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
ANSWERS TO EXERCISES
E9–1
Req. 1
HASBRO, INC.
Excerpts from Balance Sheet
December 29, 2013
(in millions)
ASSETS
Current Assets
Cash and Cash Equivalents
$ 680
Accounts Receivable
1,110
Allowance for Doubtful Accounts
(20)
Inventories
350
Prepaids
355
Total Current Assets
2,475
Property, Plant, and Equipment
Land
10
Buildings
240
Equipment
490
Property, Plant, and Equipment (at cost)
740
Accumulated Depreciation
(500)
Total Property, Plant, and Equipment (net)
240
Goodwill
595
Licensing Rights
1,835
Accumulated Amortization
(745)
Total Assets
$4,400
Req. 2
Net Sales
=
$4,080
=
17.36
(Beginning Net Fixed Asset Balance +
Ending Net Fixed Asset Balance) ÷ 2
($230 + $240)/2
E9–2
Req.1
The renovation costs should be capitalized because they are necessary costs of
preparing the building for use.
Req. 2
Land ………………………………………………….
127,4001
Buildings …………………………………………….
76,6002
Cash ……………………………………………
204,000
1 Land = $182,000 x 70% = $127,400
2 Building = ($182,000 x 30%) + $22,000 = $76,600
Req. 3
The depreciation expense on the building for the first year is $6,000 based on the
following calculation:
Cost of building:
Straight-line Depreciation:
Initial Payment
$54,600
($76,600 cost – $4,600 residual value) x
Renovation prior to use
22,000
1/12 years = $6,000
Acquisition cost:
$76,600
(a) Land
127,400
(b) Building
$ 76,600
Accumulated Depreciation ($6,000 x 2 years)
(12,000)
$ 64,600
E9–3
Req. 1
Date
Assets
Liabilities
Stockholders’ Equity
Jan. 1
No effect
No effect
No effect
Jan. 2
Cash
Equipment
–10,000
+40,000
Note Payable
(long–term)
+30,000
Jan. 3
Cash
Equipment
–350
+350
Jan. 5
Cash
Equipment
–2,400
+2,400
Req. 2
Acquisition cost of the machine:
Cash paid $10,000
Note payable with supplier 30,000
Freight costs 350
Installation costs 2,400
Acquisition cost $42,750
Req. 3
Depreciation Expense:
($42,750 cost – $4,750 residual value) x
1/10 years = $3,800
Req. 4
Equipment (cost)
$42,750
Accumulated Depreciation ($3,800 x 2 years)
7,600
Book value at end of year 2
$35,150
E9–4
Item
Assets
Liabilities
Stockholders’ Equity
1. 2014
Accumulated
Depreciation (+xA)
–10,000
Depreciation
Expense (+E)
–10,000
2. 2015
Cash
–1,850
Repairs & Maint.
Expense (+E)
–1,850
Cash
Equipment
–24,000
+24,000
E9–5
Req. 1
Adjusting journal entry for 2014:
Depreciation Expense ………………………………………….
10,000
Accumulated Depreciation–Equipment …………….
10,000
Req. 2
($160,000 – $10,000) x 1/15 = $10,000 annual depreciation
24,000
24,000
E9–6
Req. 1
a. Straight-line: Income Statement Balance Sheet
Year
Computation
Depreciation
Expense
Cost
Accumulated
Depreciation
Book
Value
At acquisition
$22,000
1
($22,000 – $2,000) x 1/5
$4,000
$22,000
$4,000
18,000
2
($22,000 – $2,000) x 1/5
4,000
22,000
8,000
14,000
3
($22,000 – $2,000) x 1/5
4,000
22,000
12,000
10,000
4
($22,000 – $2,000) x 1/5
4,000
22,000
16,000
6,000
5
($22,000 – $2,000) x 1/5
4,000
22,000
20,000
2,000
At acquisition
$22,000
1
$4,000
$22,000
$4,000
2
6,000
22,000
10,000
12,000
3
4,000
22,000
14,000
8,000
5
2,000
22,000
20,000
2,000
Depreciation
Expense
Cost
Accumulated
Depreciation
Book
Value
At acquisition
$22,000
$8,800
$22,000
$8,800
13,200
5,280
22,000
14,080
7,920
($22,000 – $17,248) x 2/5
1,901
22,000
2,851
($22,000 – $19,149) x 2/5
22,000
2,000
E9–6 (continued)
Req. 2
The method that will result in the highest net income is the one that reports the lowest
E9–7
a. Straight-line: Income Statement Balance Sheet
Year
Computation
Depreciation
Expense
Cost
Accumulated
Depreciation
Book
Value
At acquisition
$27,000
1
($27,000 – $1,500) x 1/3
$8,500
$27,000
$ 8,500
18,500
2
($27,000 – $1,500) x 1/3
8,500
27,000
17,000
10,000
3
($27,000 – $1,500) x 1/3
8,500
27,000
25,500
1,500
b. Units-of-production:
Year
Computation*
Depreciation
Expense
Cost
Accumulated
Depreciation
Book
Value
At acquisition
$27,000
1
($27,000 – $1,500) x 61,200/255,000
$ 6,120
$27,000
$ 6,120
20,880
2
($27,000 – $1,500) x 140,250/255,000
14,025
27,000
20,145
6,855
3
($27,000 – $1,500) x 53,550/255,000
5,355
27,000
25,500
1,500
Year
Computation
Depreciation
Expense
Cost
Accumulated
Depreciation
Book
Value
At acquisition
$27,000
1
($27,000 – $0) x 2/3
$18,000
$27,000
$18,000
9,000
2
($27,000 – $18,000) x 2/3
6,000
27,000
24,000
3,000
3
($27,000 – $24,000) x 2/3
1,500*
27,000
25,500
1,500
*Although ($27,000 – $24,000) x 2/3 = $2,000, because the ending book value must
equal residual value ($1,500), only enough depreciation expense is recorded in year
three to make the book value equal $1,500.
E9–8 Depreciation Expense per year: = $2,000
E9–9
Req. 1
Cash received for asset – Book value of asset = Gain or Loss
a. $16,000 – $16,000 = $0 [BV = $28,000 cost – $12,000 accumulated depreciation]
b. $16,000 – $18,000 = ($2,000) Loss [BV = $28,000 – $10,000]
c. $16,000 – $13,000 = $3,000 Gain [BV = $28,000 – $15,000]
E9–9 (continued)
Req. 3
As can be seen by comparing cases a through c above, the gain or loss reported on
disposal is directly affected by the book value of the asset, which itself is affected by the
amount of depreciation recorded before the disposal. All else equal, the larger the
amount of depreciation recorded before a disposal, the more likely the asset will
E9–12
Req. 1
Acquisition cost:
Patent $ 9,300
Trademark 10,000
Licensing rights 60,000
Req. 2