Chapter 7 This is an unfavorable change and implies that JetBlue

subject Type Homework Help
subject Pages 8
subject Words 1903
subject Authors Carl S. Warren

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MBA 77
1. Year 2 Year 1
Fixed asset turnover:
($5,817 ÷ $5,431) ................................ 1.07
($5,441 ÷ $5,043) ................................ 1.08
2. JetBlues asset turnover decreased slightly by 0.01 from 1.08 in Year 1 to 1.07
MBA 78
1. The asset turnovers are summarized below from highest to lowest.
Fixed Asset
Turnover
2. As shown above, United has the highest fixed asset turnover followed by
Southwest, Delta, and JetBlue. These differences are significant and a review
of company filings with the Securities and Exchange Commission could pro-
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MBA 79
1. Marriott Hilton
Net sales .................................................... $13,796 $10,502
Average net property, plant, and equipment
2. Marriott’s asset turnover of 3.80 is significantly higher than Hilton’s asset
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CASES
Case 71
It is considered unprofessional for employees to use company assets for
personal reasons because such use reduces the useful life of the assets for nor-
mal business purposes. Thus, it is unethical for Rowel Baylon to use Arches
Co.
Case 72
You should explain to Don and Rita that maintaining two sets of records for
tax and financial reporting purposes is acceptable. This can happen when a
company uses one method for financial statement purposes, such as straight-line
depreciation, and another method for tax purposes, such as MACRS depreciation.
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Case 73
1. a. Straight-line method:
20Y2: ($300,000 ÷ 5) × 1/2 ................................................................... $30,000
b. MACRS:
20Y2: $300,000 × 20% ......................................................................... $60,000
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Case 73, Continued
2.
a. Straight-line method Year
20Y2 20Y3 20Y4 20Y5 20Y6 20Y7
Income before depreciation .......... $800,000 $800,000 $800,000 $800,000 $800,000 $800,000
b. MACRS Year
20Y2 20Y3 20Y4 20Y5 20Y6 20Y7
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Case 73, Concluded
3. For financial reporting purposes, Bree should select the method that provides
the net income figure that best represents the results of operations. (Note to
Instructors: The concept of matching revenues and expenses was discussed
in Chapter 3.) However, for income tax purposes, Bree should consider se-
lecting the method that will minimize current taxes. Based on the analyses in
(2), both methods of depreciation will yield the same total amount of taxes over
Case 74
Note to Instructors: The purpose of this activity is to familiarize students with the
considerations in leasing and buying a business asset. A couple of Internet sites
your students might find useful in deciding whether to purchase or lease an asset
are the following:
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Case 74, Concluded
Are there any limitations on use of the leased asset? For example, leased
automobiles often have a mileage limit per year. Miles driven beyond the
limit incur additional charges.
Case 75
Note to Instructors: The purpose of this activity is to familiarize students with the
procedures involved in acquiring a patent, a copyright, and a trademark. You may
want to divide the class into three groups to report back on patents, copyrights,
and trademarks separately.
The following is some information on patents, copyrights, and trademarks that
you may find helpful in your discussions.
Patent
A patent is requested by filing a written application at the relevant patent office.
The person or company filing the application is referred to as the applicant. The
applicant may be the inventor or its assignee. The application contains a descrip-
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Case 75, Concluded
Copyright
While copyright in the United States automatically attaches upon the creation of
an original work of authorship, registration with the Copyright Office puts a copy-
right holder in a better position if litigation arises over the copyright. A copyright
holder desiring to register his or her copyright should complete the following
three steps:
1. Obtain and complete appropriate form.
2. Prepare clear rendition of material being submitted for copyright.
3. Send both documents to U.S. Copyright Office in Washington, D.C.
Source:
Trademark
The law considers a trademark to be a form of property. Proprietary rights in rela-
tion to a trademark may be established through actual use in the marketplace or
Case 76
Both Kim Jenkins (CEO) and Steve Mueller (CFO) have a responsibility for fair
and accurate reporting of financial results. Steve should remind Kim of this fact.

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