(10-15 min.) E 7-30A
Cost of old truck ……………………………………………………
$400,000
Less: Accumulated depreciation:
85 + 165 + 175 + 41
Book value of old truck …………………………………………
_____
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
=
466,000 miles × $.31
=
$144,460
Calculation of gain or loss:
Journal
DATE
ACCOUNT TITLES
DEBIT
CREDIT
2019
Truck – Freightliner …………………………………
230,000
Accumulated Depreciation – Mack Truck ….
144,460
Loss on Disposal of Mack Truck ………………
54,540
Truck – Mack ……………………………………….
400,000
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 …………………………..…………….
2,000
Mineral Asset …………………………………
Cash …………………………..…………….
(c)
Depletion for the first year
Mineral Asset Inventory…………………..
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 ……………………………………………
800,000
(b)
Amortization for each year:
($800,000 ÷ 8) ………………………………
Patents ……………………………………..
Req.
2
Impairment of patent in year 10:
Impairment Loss on Patents …………….
400,000**
Patents ………………………………………
400,000
Yes, the asset is impaired because its net book value ($400,000*) is
greater than the estimated future cash flows ($310,000).
(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 …………………………………………..
29
Cash ………………………………………………….
19
Req. 3
(5-10 min.) E 7-34A
Req. 1
Net profit margin ratio
for the years ended:
January 31, 2015
January 31, 2014
Net earnings
$ 3,600
=
4.80%
$ 3,300
=
4.48%
Net sales
$75,000
$73,600
The net profit margin ratio improved slightly from 2014 to 2015.
Req. 2
Asset turnover for
the years ended:
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
$ 3,600
=
6.00%
$ 3,300
=
5.56%
Average total
4.80% x 1.25
=
4.48% x 1.24
=
$60,000
$59,400
(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
75,000 / 150,000
=
.500
148,000 × .500
=
74,000
3
45,000
45,000 / 150,000
=
.300
148,000 × .300
=
44,400
Totals
$150,000
1.000
$148,000
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
(e) Lubrication before machine is placed in
service
Capital Expenditure
(15 min.) E 7-39B
Req. 1
Journal
ACCOUNT TITLES
DEBIT
CREDIT
a.
Land …………………………………………………………..
484,000
Cash ……………………………………………………..
484,000
Building
($1,300 + $15,300 + $685,000 + $28,220) ………..
729,820
Note Payable ………………………………………….
685,000
Cash ($1,300 + $15,300 + $28,220) ……………
Req. 2
BALANCE SHEET
Plant assets:
Land ……………………………………………………..
$484,000
Building ………………………………………………..
$729,820
Less: Accumulated depreciation …………….
(5,626)
Building, net ………………………………………….
724,194
Req. 3
INCOME STATEMENT
Expense:
(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*
*Or, ($17,100 − $6,150 − $4,800 − $4,620 = $1,530). Total depreciation cannot
exceed $17,100, therefore the last year may be limited, if there are rounding
differences.
Double-declining-balance — Twice the straight-line rate: 1/4 × 2 = 50%
(continued) E 7-40B
Req. 2
The units-of production method tracks the wear and tear on the van
most closely.
Req. 3
(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) ………………………………………………………..
23,200
Supplies expense
($9,800 − $1,800) …………………………………………………….
8,000
BALANCE SHEET
Current assets:
Supplies …………………………………………………………………….
$ 1,800
Plant assets:
Building ($157,000 + $63,000) …………………..
Less: Accumulated depreciation ………………
(6,800)
Furniture and fixtures ………………………………
Less: Accumulated depreciation ………………
(23,200)
34,800
STATEMENT OF CASH FLOWS
Cash flows from investing activities:
Purchase of furniture and fixtures…………………………….
(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
2. The journal entry on January 1, 2020 to record the sale:
Cash ………………………………………………………………………………
325,000
Accumulated Depreciation – Machine …………………………..
506,250
Loss on the Sale of Machine …………………………..
18,750
Machine ……………………………………………………….
850,000
(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 ……………………………………..
1,440
Sale of fixtures:
30
Cash …………………………..……………………..
Accumulated Depreciation —
Fixtures ($3,200 + $1,440) …………………
Loss on Sale of Fixtures …………………….
Fixtures ………………………………………..
_____
*2016 depreciation: $8,000 × 2/5 = $3,200
2017 depreciation: ($8,000 − $3,200) × 2/5 × 9/12 = $1,440
**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 …………………………..……………
$241,840
_____
*Alternate solution setup for accumulated depreciation:
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)
Trade-in value of Mack truck ………………….. 216,000
Book value of Mack truck ………………………. (241,840)
Net loss on disposal of Mack truck …………. $ (25,840)
Journal
DATE
ACCOUNT TITLES
DEBIT
CREDIT
25,840
Cash…………………………………….
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:
Mineral Asset ($150 + $2,700) ………..
Cash ……………………………………….
Mineral Asset………………………………..
Cash ……………………………………….
(c)
Depletion for the year
Mineral Asset Inventory …………………
Mineral Asset …………………………..
(d)
Sales of ore
Cost of Mineral Asset Sold …………….
79,360**
Mineral Asset Inventory ……………
79,360
_____
*$432,000 + $150 + $2,700 + $92,150 = $527,000
(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
(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) ..
$38
Less: Bailey Industries’ liabilities …………………………….
(24)
Market value of Bailey Industries’ net assets ……………
14
Cost of goodwill ………………………………………………………….
$ 4
Req. 2
Journal
DATE
ACCOUNT TITLES
DEBIT
CREDIT
Current Assets ……………………………………………….
Goodwill ………………………………………………………..
Liabilities …………………………………………………
Cash ………………………………………………………..
Req. 3
Doltron Co. will determine whether its goodwill has been impaired in
(5-10 min.) E 7-49B
Req. 1
Net profit margin ratio
Net earnings
4.80%
4.69%
Net sales
Req. 2
Asset turnover for
the years ended:
January 31, 2015
January 31, 2014
Net sales
$75,000
=
1.25
$73,600
=
1.24
Average total assets
$60,000
$59,300
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
=
4.69% x 1.24
=
5.82%
The return on assets improved from 2014 to 2015; the increase in the
net profit margin ratio was mostly responsible for this.
_____
*difference due to rounding
(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