Problem 7-3B (LO 7-2)
1.
Purchase price
$5,600,000
Less:
Goodwill
2.
Credit
Accounts Receivable (at fair value)
Buildings (at fair value)
Accounts Payable (at fair value)
Cash (at purchase price)
Problem 7-4B (LO 7-3)
1. Expense
2. Capitalize
3. Capitalize
4. Expense
5. Expense
6. Capitalize
current year.
Problem 7-5B (LO 7-4)
Requirement 1 Straight-line
Cheetah Copy
Calculation
End of Year Amounts
Year
Depreciable
Cost*
X
Depreciation
Rate
=
Depreciation
Expense
Accumulated
Depreciation
Book
Value**
1
$105,000
0.25
$26,250
$ 26,250
$113,750
2
52,500
3
78,750
26,250
Requirement 2 Double-declining-balance
Cheetah Copy
Calculation
End of Year Amounts
Year
Beginning
Book Value
X
Depreciation
Rate*
=
Depreciation
Expense
Accumulated
Depreciation
Book
Value**
1
$140,000
0.50
$70,000
$ 70,000
$70,000
2
70,000
35,000
3
35,000
0***
35,000
7-44 Financial Accounting, 5e
Requirement 3 Activity-based
Cheetah Copy
Calculation
End of Year Amounts
Year
Hours
Used
X
Depreciation
Rate*
=
Depreciation
Expense
Accumulated
Depreciation
Book
Value**
1
3,000
$13.125
$39,375
$ 39,375
$100,625
2
2,000
3
2,000
4
2,000
*** Amount needed to reduce book value to residual value.
Problem 7-6B (LO 7-5)
Requirement 1
a. Goodwill is not amortized.
Debit
Credit
b. Amortization Expense
5,500*
Patents
Franchises
Requirement 2
Lettuce Express
Balance Sheet
December 31, 2021
(Intangible Assets section)
Intangible Assets
Problem 7-7B (LO 7-4, 7-5)
Requirement 1
Debit
Credit
Depreciation Expense
71,680*
Accumulated Depreciation
71,680
Depreciation Expense
15,000*
Accumulated Depreciation
15,000
Requirement 2
Debit
Credit
Amortization Expense
25,000*
Patent
Requirement 3
Togo’s Sandwich Shop
December 31, 2021
Cost
Accumulated
Depreciation
Book
Value
Land
$ 85,000
–
$ 85,000
Building
Patent
Problem 7-8B (LO 7-6)
Requirement 1
Requirement 2
Cost of the oven
$455,000
Less: Accumulated depreciation
(127,500)
$327,500
Requirement 3
Sale amount
$341,000
Less:
Cost of the oven
$455,000
Less: Accumulated depreciation
(127,500)
Gain
Requirement 4
Debit
Credit
Cash
341,000
Accumulated Depreciation
127,500
Equipment
7-48 Financial Accounting, 5e
Problem 7-9B (LO 7-7)
Requirement 1
Papa’s Pizza
Net
Income
÷
Average
Total Assets
=
Return
on Assets
$2,223
÷
($14,998 + $15,465)/2
=
14.6%
÷
Average
Total Assets
=
Asset
÷
($14,998 + $15,465)/2
=
Requirement 2
Pizza Prince
Net
Income
÷
Average
Total Assets
=
Return
on Assets
$129
÷
($919 + $1,157)/2
=
12.4%
Net
Income
÷
=
$129
÷
=
Average
$1,835
÷
($919 + $1,157)/2
=
Requirement 3
Papa’s Pizza has a higher profit margin than Pizza Prince (9.2% vs. 7.0%), while
Problem 7-10B (LO 7-7)
Requirement 1
Cars Only
Net
Income
÷
Average
Total Assets
=
Return
on Assets
$500,000
÷
$1,700,000
=
29.4%
÷
Average
Total Assets
=
÷
$1,700,000
=
Requirement 2
Cars and Boats
Net
Income
÷
Average
Total Assets
=
Return
on Assets
$700,000
÷
$1,900,000
=
36.8%
÷
Average
Total Assets
=
÷
$1,900,000
=
Requirement 3
Go forward with the expansion plans to include the sale of recreational boats. The
7-50 Financial Accounting, 5e
ADDITIONAL PERSPECTIVES
Continuing Problem: Great Adventures
AP7-1
Requirement 1
Jul. 1, 2022
Debit
Credit
Equipment
17,000
Requirement 2
Oct. 22, 2022
Requirement 3
Great Adventures
Calculation
End of Year Amounts
Year
Allocation
Base*
×
Depreciation
Rate
=
Depreciation
Expense
Accumulated
Depreciation
Book
Value**
2022
$12,500
0.20 × 1/2
$1,250
$ 1,250
$15,750
2023
12,500
0.20
2,500
3,750
13,250
2024
12,500
0.20
2,500
6,250
10,750
2025
12,500
0.20
2,500
2027
12,500
1,250
Total
** $17,000 cost minus accumulated depreciation
Requirement 4
Dec. 31, 2022
Depreciation Expense
1,250
Accumulated Depreciation
1,250
Insurance Expense
Prepaid Insurance
Requirement 5
July 1, 2024
Debit
Credit
Cash
10,000
Accumulated Depreciation
5,000
Loss
2,000