CHAPTER 10 Fixed Assets and Intangible Assets
Prob. 10–4A
1.
Depreciation Book Value,
Year Expense End of Year
a.
1……………………………………………
$142,000 $658,000
2……………………………………………
142,000 516,000
3……………………………………………
4……………………………………………
5……………………………………………
426,000
568,000
710,000
b. 1
[$800,000 × (1 ÷ 5) × 2]……………
$320,000 $480,000
2
[$480,000 × (1 ÷ 5) × 2]……………
192,000 288,000
[$288,000 × (1 ÷ 5) × 2]……………
[$172,800 × (1 ÷ 5) × 2]……………
($800,000 – $696,320 – $90,000)…
627,200
696,320
710,000
2. Cash
Accumulated Depreciation—Equipment
31,320
800,000
3. Cash
Accumulated Depreciation—Equipment
800,000
14,930
$320,000
512,000
$142,000
284,000
Accumulated
696,320
135,000
Depreciation,
End of Year
88,750
696,320
*
CHAPTER 10 Fixed Assets and Intangible Assets
Prob. 10–5A
2014
Jan. 4 Delivery Truck 28,000
Cash 28,000
Nov. 2 Truck Repair Expense 675
2015
Jan. 6 Delivery Truck 48,000
Cash 48,000
Apr. 1 Depreciation Expense—Delivery Truck 1,750
Accum. Depreciation—Delivery Truck 1,750
CHAPTER 10 Fixed Assets and Intangible Assets
Prob. 10–5A (Concluded)
2016
July 1 Delivery Truck 54,000
Cash 54,000
Oct. 2 Depreciation Expense—Delivery Truck 8,640
Accum. Depreciation—Delivery Truck 8,640
CHAPTER 10 Fixed Assets and Intangible Assets
Prob. 10–6A
1. a. $1,600,000 ÷ 5,000,000 board feet = $0.32 per board foot;
1,100,000 board feet × $0.32 per board foot = $352,000
2. a. Depletion Expense 352,000
Accumulated Depletion
352,000
Depletion of timber rights.
b. Loss from Impaired Goodwill 3,750,000
Goodwill 3,750,000
Impaired goodwill.
Patent amortization.
CHAPTER 10 Fixed Assets and Intangible Assets
Prob. 10–1B
1. Land Other
Item Land Improvements Building Accounts
a. $3,600
b. 780,000
c. 23,400
i. 8,400
j.* $(800,000)
k. 13,400
l. 3,000
m. 2,000
3. Because land used as a plant site does not lose its ability to provide services,
4. Because Land Improvements are depreciated, depreciation expense of $4,320
($21,600 × 1 ÷ 10 × 2) would be understated, and net income would be overstated
CHAPTER 10 Fixed Assets and Intangible Assets
Prob. 10–2B
1.
a. Straight- b. Units-of- c. Double-
Line Output Declining-Balance
Year Method Method Method
2015 $71,250 $102,600 $160,000
2016 71,250 91,200 80,000
Calculations:
Straight-line method:
Units-of-output method:
($320,000 – $35,000) ÷ 20,000 hours = $14.25 per hour
2015: 7,200 hours × $14.25 = $102,600
Double-declining-balance method:
2015: $320,000 × [(1 ÷ 4) × 2] = $160,000
2016: ($320,000 – $160,000) × [(1 ÷ 4) × 2] = $80,000
*Book value should not be reduced below the residual value of $35,000.
Depreciation Expense
CHAPTER 10 Fixed Assets and Intangible Assets
Prob. 10–3B
a. Straight-line method:
2014:
[($108,000 – $7,200) ÷ 3] × 3 ÷ 12…………………………………
$8,400
[($108,000 – $7,200) ÷ 3]……………………………………………
[($108,000 – $7,200) ÷ 3]……………………………………………
[($108,000 – $7,200) ÷ 3] × 9 ÷ 12…………………………………
b. Units-of-output method:
2014:
1,350 hours × $8.40*…………………………………………………
$11,340
4,200 hours × $8.40…………………………………………………
3,650 hours × $8.40…………………………………………………
2,800 hours × $8.40…………………………………………………
c. Double-declining-balance method:
$108,000 × 2 ÷ 3 × 3 ÷ 12……………………………………………
($108,000 – $18,000) × 2 ÷ 3………………………………………
$18,000
CHAPTER 10 Fixed Assets and Intangible Assets
Prob. 10–4B
1.
Depreciation Book Value,
Year Expense End of Year
a.
1……………………………………………
$25,625 $84,375
2……………………………………………
25,625 58,750
3……………………………………………
25,625 33,125
4……………………………………………
96,250
82,500
2.
Cash
Accumulated Depreciation—Equipment
Equipment
3.
Cash
Accumulated Depreciation—Equipment
Equipment
110,000
$25,625
51,250
76,875
Accumulated
96,250
110,000
18,000
Depreciation,
End of Year
10,500
96,250
*
CHAPTER 10 Fixed Assets and Intangible Assets
Prob. 10–5B
2014
Jan. 8 Delivery Truck 24,000
Cash 24,000
Mar. 7 Truck Repair Expense 900
2015
Jan. 9 Delivery Truck 50,000
Cash 50,000
Feb. 28 Truck Repair Expense 250
Cash 250
Apr. 30 Depreciation Expense—Delivery Truck 2,000
Accum. Depreciation—Delivery Truck 2,000
Delivery truck depreciation
CHAPTER 10 Fixed Assets and Intangible Assets
Prob. 10–5B (Concluded)
2016
Sept. 1 Delivery Truck 58,500
Cash 58,500
4 Depreciation Expense—Delivery Truck 6,250
Accum. Depreciation—Delivery Truck 6,250
4Cash 36,000
Accum. Depreciation—Delivery Truck 18,750
Delivery Truck 50,000
4,750
CHAPTER 10 Fixed Assets and Intangible Assets
Prob. 10–6B
1. a. Loss from impaired goodwill, $3,400,000
b. $4,800,000 ÷ 8 years = $600,000;
2. a. Loss from Impaired Goodwill 3,400,000
Goodwill 3,400,000
Impaired goodwill.
b. Amortization Expense—Patents 150,000
Patent amortization.
Depletion of timber rights.
CHAPTER 10 Fixed Assets and Intangible Assets
CP 10–1
It is considered unprofessional for employees to use company assets for personal
reasons because such use reduces the useful life of the assets for normal business
CP 10–2
You should explain to Nolan and Stacy that it is acceptable to maintain two sets
of records for tax and financial reporting purposes. 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.
This should not be surprising because the methods for taxes and financial statements
are established by two different groups with different objectives. That is, tax laws
and related accounting methods are established by Congress. The Internal
CASES & PROJECTS
CHAPTER 10 Fixed Assets and Intangible Assets
CP 10–3
1. a. Straight-line method:
2014:
($400,000 ÷ 5) × 1 ÷ 2……………………………………………
$40,000
2015:
($400,000 ÷ 5)……………………………………………………
80,000
($400,000 ÷ 5)……………………………………………………
($400,000 ÷ 5)……………………………………………………
($400,000 ÷ 5)……………………………………………………
($400,000 ÷ 5) × 1 ÷ 2……………………………………………
b. MACRS:
2014:
($400,000 × 20%)…………………………………………………
$80,000
2015:
($400,000 × 32%)…………………………………………………
128,000
($400,000 × 19.2%)………………………………………………
($400,000 × 11.5%)………………………………………………
($400,000 × 11.5%)………………………………………………
($400,000 × 5.8%)…………………………………………………
CHAPTER 10 Fixed Assets and Intangible Assets
CP 10–3 (Continued)
2. a. Straight-line method:
2014 2015 2016 2017 2018 2019
Income before depreciation……………
$750,000 $750,000 $750,000 $750,000 $750,000 $750,000
Depreciation expense……………………
40,000 80,000 80,000 80,000 80,000 40,000
Income before income tax………………
b. MACRS:
2014 2015 2016 2017 2018 2019
Income before depreciation……………
$750,000 $750,000 $750,000 $750,000 $750,000 $750,000
Depreciation expense……………………
Income before income tax………………
80,000 128,000 76,800 46,000 46,000 23,200
Year
Year
CHAPTER 10 Fixed Assets and Intangible Assets
CP 10–3 (Concluded)
3. For financial reporting purposes, Tim 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 is discussed
in Chapter 3. However, for income tax purposes, Tim should consider selecting
the method that will minimize taxes. Based on the analyses in (2), both methods
of depreciation will yield the same total amount of taxes over the useful life of
CP 10–4
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
wish to divide the class into three groups to report back on patents, copyrights,
and trademarks separately.
Patents
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.”
CHAPTER 10 Fixed Assets and Intangible Assets
CP 10–4 (Concluded)
The application also includes one or more claims, although it is not always a
requirement to submit these when first filing the application. The claims set out
what the applicant is seeking to protect in that they define what the patent owner
has a right to exclude others from making, using, or selling, as the case may be. In
other words, the claims define what a patent covers or the “scope of protection.”
After filing, an application is often referred to as “patent pending.” While this term
does not confer legal protection, and a patent cannot be enforced until granted, it
serves to provide warning to potential infringers that if the patent is issued, they
may be liable for damages.
Source: http://en.wikipedia.org/wiki/Patent#Application_and_prosecution.
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 copyright
holder in a better position if litigation arises over the copyright. A copyright holder
desiring to register his or her copyright should do the following:
1. Obtain and complete appropriate form.
Trademark
The law considers a trademark to be a form of property. Proprietary rights in
relation to a trademark may be established through actual use in the marketplace
or through registration of the mark with the trademarks office (or “trademarks
registry”) of a particular jurisdiction. In some jurisdictions, trademark rights can
be established through either or both means. Certain jurisdictions generally do not
recognize trademarks rights arising through use. In the United States, the only
way to qualify for a federally registered trademark is to first use the trademark in
CHAPTER 10 Fixed Assets and Intangible Assets
CP 10–5
$446,950
$110,101
b. The fixed asset turnover measures the amount of revenue earned per dollar
of fixed assets. Walmart earns $4.06 of revenue for every dollar of fixed assets,
while Occidental earns $0.49, and Comcast Corporation earns $2.28 in revenue
for every dollar of fixed assets. Occidental and Comcast require more fixed
assets to operate their businesses than does Walmart, for a given level of
revenue volume.
Does this mean that Walmart is a better company? Not necessarily. Revenue is
not the same as earnings. More likely, Walmart has a smaller profit margin than
Revenue
Average Book Value of Fixed Assets
=Fixed Asset Turnover Ratioa.
Walmart: = 4.06