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COMPREHENSIVE PROBLEM (Continued)
10. Amortization Expense ......................................... 900
Patents ............................................................ 900
COMPREHENSIVE PROBLEM (Continued)
(b) HASSELLHOUF COMPANY
Trial Balance
December 31, 2017
Debits
Credits
Cash ....................................................................
Accounts Receivable .........................................
Notes Receivable ...............................................
Interest Receivable ............................................
Inventory .............................................................
Prepaid Insurance ..............................................
Land ....................................................................
Buildings ............................................................
Equipment ..........................................................
Owner’s Capital ..................................................
Owner’s Drawings ..............................................
Sales Revenue ....................................................
Interest Revenue ................................................
Rent Revenue .....................................................
Gain on Disposal of Plant Assets .....................
$ 8,700
45,800
10,000
600
29,900
1,200
20,000
150,000
77,800
12,000
113,600
914,000
600
2,000
750
COMPREHENSIVE PROBLEM (Continued)
(c) HASSELLHOUF COMPANY
Income Statement
For the Year Ended December 31, 2017
Sales Revenue ...................................................
Cost of Goods Sold ...........................................
Gross Profit .......................................................
Operating Expenses
Income From Operations ..................................
Other Revenues and Gains
Rent Revenue ...............................................
Gain on Disposal of Plant Assets ...............
2,000
750
$914,000
636,300
277,700
76,750
HASSELLHOUF COMPANY
Owner’s Equity Statement
For the Year Ended December 31, 2017
Owner’s Capital, 1/1/17 ........................................................
Add: Net Income ...................................................................
$113,600
76,410
COMPREHENSIVE PROBLEM (Continued)
(d) HASSELLHOUF COMPANY
Balance Sheet
December 31, 2017
Assets
Current Assets
Cash ..........................................................
Accounts Receivable ...............................
Allowance for Doubtful Accounts ...........
Notes Receivable .....................................
Equipment ................................................
Less Accum. Depr.—Equipment .............
Total Plant Assets ..............................
Intangible Assets
$ 45,800
4,000
77,800
34,900
$ 8,700
41,800
10,000
42,900
158,900
Liabilities and Owner’s Equity
Current Liabilities
Notes Payable ..........................................
Accounts Payable ....................................
Interest Payable ........................................
Unearned Rent Revenue ..........................
$11,000
27,300
3,690
4,000
BYP 10-1 FINANCIAL REPORTING PROBLEM
(a) Property, plant, and equipment is reported net, book value, on the
September 28, 2013, balance sheet at $16,597,000,000. The cost of the
property, plant, and equipment is $28,519,000,000 as shown in Note 3.
(b) Depreciation and amortization expense was:
(c) Apple’s capital spending was:
BYP 10-2 COMPARATIVE ANALYSIS PROBLEM
(a)
PepsiCo
Coca-Cola
(b) The asset turnover measures how efficiently a company uses its assets
to generate sales. It shows the dollars of sales generated by each dollar
BYP 10-3 COMPARATIVE ANALYSIS PROBLEM
(a)
Amazon
Wal-Mart
Asset
(b)The asset turnover measures how efficiently a company uses its assets
to generate sales. It shows the dollars of sales generated by each dollar
BYP 10-4 REAL-WORLD FOCUS
Answers will vary depending on the company selected.
BYP 10-5 DECISION MAKING ACROSS THE ORGANIZATION
(a) Pinson Company—Straight-line method
Annual Depreciation
Buildings [($360,000 – $20,000) ÷ 40] .............................. $ 8,500
Equipment [($130,000 – $10,000) ÷ 10] ............................ 12,000
Year
Asset
Computation
Annual
Depreciation
Accumulated
Depreciation
2015
2016
Buildings
Equipment
Buildings
$360,000 X 5%
$130,000 X 20%
$342,000 X 5%
$18,000
26,000
17,100
$44,000
(b)
Year
Pinson
Company
Net Income
Estes
Company
Net Income
As Adjusted
Computations for Estes Company
2015
2016
$ 84,000
88,400
$ 91,500
93,400
$68,000 + $44,000 – $20,500 = $91,500
$76,000 + $37,900 – $20,500 = $93,400
(c) As shown above, when the two companies use the same depreciation
method, Estes Company is more profitable than Pinson Company. When
BYP 10-5 (Continued)
(1) its earnings are generating more cash than the earnings of Pinson
Company, and (2) depreciation expense has no effect on cash. Cash
generated by operations can be arrived at by adding depreciation expense
BYP 10-6 COMMUNICATION ACTIVITY
To: Instructor
From: Student
Re: American Exploration Company footnote
American Exploration Company accounts for its oil and gas activities using
the successful efforts approach. Under this method, only the costs of
successful exploration are included in the cost of the natural resource, and
BYP 10-7 ETHICS CASE
(a) The stakeholders in this situation are:
• Robert Griffin, president of Turner Container Company.
• Potential investors in Turner Container Company.
(b) The intentional misstatement of the life of an asset or the amount of the
salvage value is unethical for whatever the reason. There is nothing per se
unethical about changing the estimate either of the life of an asset or of
an asset’s salvage value if the change is an attempt to better match cost
(c) Income before income taxes in the year of change is increased $160,000
by implementing the president’s proposed changes.
Old Estimates
Asset cost
Estimated salvage
Depreciable cost
$3,500,000
300,000
3,200,000
BYP 10-8 ALL ABOUT YOU
(a) 1 c 2 b 3 a 4 d
(b) For the most part, the value of a brand is not reported on a company’s
balance sheet. Most companies are required to expense all costs related
to the maintenance of a brand name. Also any research and development
BYP 10-9 FASB CODIFICATION ACTIVITY
(a) Capitalize is used to indicate that the cost would be recorded as the
cost of an asset. That procedure is often referred to as deferring a cost,
and the resulting asset is sometimes described as a deferred cost.
IFRS EXERCISES
IFRS10-1
Component depreciation is a method of allocating the cost of a plant asset
into separate parts based on the estimated useful lives of each component.
IFRS requires an entity to use component depreciation whenever significant
parts of a plant asset have significantly different useful lives.
IFRS10-2
IFRS10-4 INTERNATIONAL FINANCIAL STATEMENT ANALYSIS
(a) Property, plant and equipment is depreciated on a straight-line basis
over its estimated useful life. The depreciation rates range from 2%
(50 yrs.) to 33% (3 yrs.) (Note 1.12).
