(10-15 min.) E 7-30A
Cost of old truck ……………………………………………………
$400,000
Less: Accumulated depreciation:
($400,000 − $90,000) ×
85 + 165 + 175 + 41
(144,460)*
1,000
_______
Book value of old truck …………………………………………
$255,540
_____
aAlternate solution setup for accumulated depreciation:
($400,000 − $90,000)
=
$.31 per mile
1,000,000 miles
85,000 + 165,000 + 175,000 + 41,000 = 466,000 miles driven
Accumulated depreciation
=
=
$144,460
Calculation of gain or loss:
Purchase price of Freightliner truck $230,000
Cash paid for Freightliner truck (29,000)
Journal
DATE
ACCOUNT TITLES
DEBIT
CREDIT
2019
Truck – Freightliner …………………………………
230,000
Accumulated Depreciation – Mack Truck ….
144,460
Loss on Disposal of Mack Truck ………………
Cash ……………………………………………………
29,000
(10-15 min.) E 7-31A
Journal
DATE
ACCOUNT TITLES
DEBIT
CREDIT
(a)
Purchase of mineral assets:
Mineral Asset …………………………………
424,000
Cash …………………………..…………….
424,000
(b)
Payment of fees and other costs:
Mineral Asset ($100 + $1,900) ………….
2,000
Cash …………………………..…………….
Mineral Asset …………………………………
Cash …………………………..…………….
(c)
Depletion for the first year
Mineral Asset Inventory…………………..
71,400*
Mineral Asset …………………………….
(d)
Sale of ore
Cost of Mineral Asset Sold ………………
Mineral Asset Inventory ……………..
_____
*$424,000 + $100 + $1,900 + $50,000 = $476,000
$476,000 ÷ 200,000 tons = $2.38 per ton
(10-15 min.) E 7-32A
Journal
DATE
ACCOUNT TITLES
DEBIT
CREDIT
Req.
1
(a)
Purchase of patent:
Patents ……………………………………………
800,000
Cash ……………………………………………
(b)
Amortization for each year:
Amortization Expense — Patents
($800,000 ÷ 8) ………………………………
100,000
Patents ……………………………………..
Req.
2
Impairment of patent in year 10:
Impairment Loss on Patents …………….
400,000**
Patents ………………………………………
(5-10 min.) E 7-33A
Req. 1
Cost of goodwill purchased:
Millions
Purchase price paid for Burton Industries …………….
$19
Market value of Burton Industries’ net assets:
Market value of Burton Inds’ assets ($15 + $17). ….
Market value of Burton Industries’ net assets ……
Cost of goodwill ………………………………………………….
Req. 2
Journal
DATE
ACCOUNT TITLES
DEBIT
CREDIT
Current Assets …………………………………………
15
Long-Term Assets ……………………………………
17
Goodwill ………………………………………………….
16
Liabilities …………………………………………..
Req. 3
Caltron Co. will determine whether its goodwill has been impaired in
value. If the goodwill’s value has not been impaired, there is nothing to
(5-10 min.) E 7-34A
Req. 1
Net earnings
Net sales
Net profit margin ratio
for the years ended:
January 31, 2015
January 31, 2014
Req. 2
Asset turnover for
the years ended:
January 31, 2015
January 31, 2014
Net sales
$75,000
Average total assets
The asset turnover improved slightly from 2014 to 2015.
Req. 3
Return on assets
for the years
ended:
January 31, 2015
January 31, 2014
Net earnings
4.80% x 1.25
=
4.48% x 1.24
=
(10 min.) E 7-35A
a.
Proceeds from sale of building (or disposal of building) ..
$650,000
b.
Insurance proceeds from fire (or disposal of building) …..
180,000
Renovation of store (or capital expenditures) ………………..
d.
Purchase of store fixtures (or capital expenditures) ………
(5-10 min.) E 7-36B
Land: $145,000 + $175,000 + $1,000 + $2,500 + $4,000 = $327,500
(10-15 min.) E 7-37B
Allocation of cost to individual machines:
Machine
Appraised
Value
Percentage of Total
Appraised (Market) Value
Total
Cost
Cost of
Each
Machine
1
$ 30,000
$30,000 / $150,000
=
.200
$148,000 × .200
=
$ 29,600
2
75,000 / 150,000
=
.500
=
3
45,000
45,000 / 150,000
=
=
44,400
Sale price of machine no. 3 ……………………..
$ 45,000
Cost ……………………………………………………….
Gain on sale of machine ………………………….
(5-10 min.) E 7-38B
(a) Major overhaul
(b) Periodic lubrication
(c) Purchase price
(d) Installation
Capital Expenditure
Immediate Expense
Capital Expenditure
Capital Expenditure
(15 min.) E 7-39B
Req. 1
Journal
ACCOUNT TITLES
DEBIT
CREDIT
a.
Land …………………………………………………………..
484,000
Cash ……………………………………………………..
b.
Building
($1,300 + $15,300 + $685,000 + $28,220) ………..
729,820
Note Payable ………………………………………….
Cash ($1,300 + $15,300 + $28,220) ……………
c.
Depreciation Expense – Building …………………
5,626
Accumulated Depreciation – Building
5,626
Req. 2
BALANCE SHEET
Plant assets:
Land ……………………………………………………..
$484,000
Req. 3
INCOME STATEMENT
Expense:
Depreciation expense – Building …………….
$ 5,626
(15-20 min.) E 7-40B
Req. 1
Year
Straight-Line
Units–of–
Production
Double-Declining-
Balance
2016
$ 4,275
$ 6,150
$ 9,300
2017
4,275
4,800
4,650
2019
_____
Computations:
Straight-line: ($18,600 − $1,500) ÷ 4 = $4,275 per year.
Units–of-production: ($18,600 − $1,500) ÷ 57,000 miles = $.30 per mile:
2016
20,500
×
$.30
=
$6,150
2017
16,000
×
.30
=
4,800
2018
15,400
×
.30
=
4,620
2019
5,100 × .30
=
1,530*
Double-declining-balance — Twice the straight-line rate: 1/4 × 2 = 50%
2016
$18,600 × .50
=
$9,300
2017
=
2018
=
2019
=
(continued) E 7-40B
Req. 2
The units-of production method tracks the wear and tear on the van
most closely.
Req. 3
For income tax purposes, the double-declining-balance method is best
because it provides the most depreciation and, thus, the largest tax
(15 min.) E 7-41B
INCOME STATEMENT
Expenses:
Depreciation expense — Building
[($157,000 + $63,000) − $50,000] / 25 ………………………..
$ 6,800
Depreciation expense — Furniture and Fixtures
($58,000 × 2/5) ………………………………………………………..
Supplies expense
($9,800 − $1,800) …………………………………………………….
BALANCE SHEET
Current assets:
Supplies …………………………………………………………………….
$ 1,800
Plant assets:
Building ($157,000 + $63,000) …………………..
$220,000
Less: Accumulated depreciation ………………
(6,800)
Furniture and fixtures ………………………………
Less: Accumulated depreciation ………………
(23,200)
STATEMENT OF CASH FLOWS
Cash flows from investing activities:
Purchase of buildings ($56,000* + $63,000) ……………….
$(119,000)
Purchase of furniture and fixtures…………………………….
(58,000)
_____
(10-15 min.) E 7-42B
Journal
DATE
ACCOUNT TITLES
DEBIT
CREDIT
Year
20
Depreciation Expense – Building ($360,000 ÷ 40)
9,000
Accumulated Depreciation — Building ……..
9,000
Year
21
Depreciation Expense – Building …………………
16,930*
Accumulated Depreciation — Building ……..
16,930
_____
*Computations:
(10 min.) E 7-43B
1. ($850,000 – $40,000) / 8 years = $101,250 per year
$101,250 × 5 = $506,250
Book value = $850,000 – $506,250 = $343,750
(15-20 min.) E 7-44B
Journal
DATE
ACCOUNT TITLES
DEBIT
CREDIT
2017
Depreciation for 9 months:
Sept.
30
Depreciation Expense – Fixtures …………
1,440*
Accumulated Depreciation —
Fixtures ……………………………………..
Sale of fixtures:
30
Cash …………………………..……………………..
2,200
Accumulated Depreciation —
Fixtures ($3,200 + $1,440) …………………
Loss on Sale of Fixtures …………………….
Fixtures ………………………………………..
_____
*2016 depreciation: $8,000 × 2/5 = $3,200
**Loss on sale of fixtures:
Sale price of old fixtures ………………………………….
$ 2,200
Book value of old fixtures:
Cost ……………………………………………………………
Loss on sale ……………………………………………………
(10-15 min.) E 7-45B
Cost of old truck …………………………………………………..
$390,000
Less: Accumulated depreciation:
($390,000 − $70,000) ×
79+ 159 + 189 + 36
(148,160)*
1,000
Book value of old truck …………………………..……………
79,000 + 159,000 + 189,000 + 36,000 = 463,000 miles driven
Accumulated depreciation
$148,160
Calculation of gain or loss:
Purchase price of Freightliner truck ……….. $240,000
Cash paid for Freightliner truck ……………… (24,000)
Journal
DATE
ACCOUNT TITLES
DEBIT
CREDIT
2019
Truck – Freightliner ……………………….
240,000
Loss on Disposal of Mack Truck……
25,840
Cash…………………………………….
Accumulated Depreciation – Mack
(10-15 min.) E 7-46B
Journal
DATE
ACCOUNT TITLES AND
EXPLANATION
DEBIT
CREDIT
(a)
Purchase of mineral assets:
Mineral Asset………………………………..
432,000
Cash ……………………………………….
432,000
(b)
Payment of fees and other costs:
Cash ……………………………………….
Mineral Asset………………………………..
Cash ……………………………………….
(c)
Depletion for the year
Mineral Asset Inventory …………………
Mineral Asset …………………………..
(d)
Sales of ore
Cost of Mineral Asset Sold …………….
_____
*$432,000 + $150 + $2,700 + $92,150 = $527,000
$527,000 ÷ 425,000 tons = $1.24 per ton
(10-15 min.) E 7-47B
Journal
DATE
ACCOUNT TITLES
DEBIT
CREDIT
Req.
1
(a)
Purchase of patent:
Patents ……………………………………..
600,000
Cash……………………………………..
600,000
(b)
Amortization for each year:
($600,000 ÷ 10) …………………………..
Patents …………………………………
Req.
2
Impairment loss in year 8:
Impairment Loss on Patents ………
300,000
Patents …………………………………
300,000
The asset is impaired because the net book value ($300,000*) is greater
(5-10 min.) E 7-48B
Req. 1
Cost of goodwill purchased:
Millions
Purchase price paid for Bailey Industries ……………………..
$18
Market value of Bailey Industries’ net assets:
Market value of Bailey Industries’ assets ($17 + $21) ..
Less: Bailey Industries’ liabilities …………………………….
Market value of Bailey Industries’ net assets ……………
Req. 2
Journal
DATE
ACCOUNT TITLES
DEBIT
CREDIT
Current Assets ……………………………………………….
17
Long-Term Assets ………………………………………….
21
Goodwill ………………………………………………………..
Liabilities …………………………………………………
Cash ………………………………………………………..
Req. 3
Doltron Co. will determine whether its goodwill has been impaired in
value. If the goodwill’s value has not been impaired, there is nothing to
(5-10 min.) E 7-49B
Req. 1
Net earnings
Net sales
Net profit margin ratio
for the years ended:
January 31, 2015
January 31, 2014
Req. 2
Net sales
Average total assets
$60,000
The asset turnover improved slightly from 2014 to 2015.
Asset turnover for
the years ended:
January 31, 2015
January 31, 2014
Req. 3
for the years
ended:
Net earnings
4.80% x 1.25
=
4.69% x 1.24
=
5.82%
Return on assets
(10 min.) E 7-50B
a.
Proceeds from sale of building (or disposal of building) .
$600,000
b.
Insurance proceeds from fire (or disposal of building) ….
130,000
Renovation of store (or capital expenditures) ……………….
d.
Purchase of store fixtures (or capital expenditures) ……..
Quiz
Q7–51
c
Q7–52
c
Q7-53
d
[$575,000 / ($575,000 + $143,750) × ($3,000,000 +
$1,500,000)] ÷ 15 = $240,000
Q7–54
c
22,000 hrs.) = $17,600
Q7–57
Q7-58
a
Q7-59
a
Q7–61
a
Q7–62
a
Q7–64