Student Name:
Class:
Requirement 1:
Machine
B Units-of-production 2,400 Correct!
C Double-declining-balance 5,000 Correct!
Debit Credit
Problem 08-03
McGraw-Hill/Irwin
Instructor
Machine Purchases
PLUMMER’S MARTIAL ARTS CENTER
General Journal
PLUMMER’S MARTIAL ARTS CENTER
Account
Requirement 2:
Machine A Machine B Machine C
Amount paid for asset 11,000 30,000 8,000
Installation costs 500 1,000 500
Renovation costs prior to use 2,500 1,000 1,500
Given P08-03:
Machine Purchases
PLUMMER’S MARTIAL ARTS CENTER
Student Name:
Class:
Requirement 1:
Depreciation expense recorded in current year 464$ Correct!
Requirement 2:
Effect of failure to record depreciation:
Ratio
Earnings Correct!
per share
Instructor
BEST BUY CO., INC.
outstanding
Problem 08-04
McGraw-Hill/Irwin
Computation
Overstated
Effect on Ratio
# of shares of stock
Net income
Net income
Overstated
February 28 March 1
2009 2008
Assets
Property and Equipment
Land and buildings 755 732
Excerpt from Annual Report
BEST BUY CO., INC.
(in thousands)
Given P08-04
Consolidated Balance Sheets
Student Name:
Class:
Requirement 1:
a. Straight-line:
Depreciation Accumulated Net Book
Year Computation Expense
Depreciation
Value
At acquisition 106,000$ Correct!
1
($106,000-$2,000) X 1/13 8,000$ 8,000$ 98,000 Correct!
2
($106,000-$2,000) X 1/13 8,000 16,000 90,000 Correct!
c. Double-declining-balance:
Depreciation Accumulated Net Book
Year Computation Expense
Depreciation
Value
($106,000-$0) X 2/13 16,308$ 16,308$ 89,692 Correct!
($106,000-$16,308) X 2/13 13,799 30,106 75,894 Correct!
At acquisition 106,000$ Correct!
Requirement 2:
Cash Flow:
Depreciation Schedules
Problem 08-05
McGraw-Hill/Irwin
Instructor
FORD MOTOR COMPANY
For tax purposes, the declining-balance (DB) method usually is viewed as preferable because an
b. Units of Production:
Depreciation Accumulated Net Book
Year Computation Expense
Depreciation
Value
$0.52 X 20,000 units 10,400$ 10,400$ 95,600 Correct!
$.052 X 16,000 units 8,320 18,720 87,280 Correct!
Fixed asset turnover:
EPS:
Recommendation to Ford Motor Company’s management:
Companies may choose a different method for tax purposes than for financial reporting purposes.
The goal of reducing taxes in year 1 is best accomplished by using the double-declining-balance
In terms of EPS, straight-line (SL) depreciation would be favorable. This depreciation method yields
the lowest amount of depreciation expense, the highest net income, and therefore the highest EPS
during the early years when compared with the accelerated methods. In later years, this comparative
effect would reverse.
The DB method would be most favorable for fixed asset turnover. Because this depreciation method
Cost $106,000
Useful life in years 13
Machine Information
FORD MOTOR COMPANY
Given P08-05
Student Name:
Class:
Requirement 1:
Account Debit Credit
Machine A – Jan. 1, 2012
(1) Depreciation expense in 2012:
(2) To record disposal:
Cash 7,200
(1) Depreciation expense in 2012:
Depreciation expense 3,700 Correct!
Accumulated depreciation 3,700
(2) To record disposal:
Cash 2,500
(1) Depreciation expense in 2012:
None recorded
because disposal date was Jan. 1, 2012
Requirement 2:
Accounting rationale for journal entries recording
machine disposal:
Disposal of a long-lived asset due to damage results in a loss equal
Disposal of a long-lived asset with the price above net book value
Machine A:
McGraw-Hill/Irwin
Instructor
Disposal of a long-lived asset with the price below net book value
General Journal
JENSEN COMPANY
Problem 08-06
Accumulated
Original Residual Estimated Depreciation
Asset Cost Value Life (years) (straight line)
January 1, 2012
Machine A 21,000 3,000 8 13,500 (6 years)
Cash received 7,200$
b. Machine B:
Date sold
Sale price 8,500$
Cash received 2,500
Amount of note 6,000
received
Interest rate 12%
Term of note 12 months
Given P08-06
December 31, 2012
JENSEN COMPANY
January 1, 2012
Required:
1.
This workbook is organized as follows:
Sheet Name Contents
CP8-3 (this worksheet) CP8-3 Problem Requirements and Workbook Layout
Industry Ratio Report Industry Ratio Report
AEO Balance Sheets American Eagle Outfitters, Inc. Consolidated Balance Sheets
AEO Income Statements American Eagle Outfitters, Inc. Consolidated Statements of Operations
CP8-3 Comparing Companies within an Industry
Compute the percentage of net fixed assets to total assets for both companies for the most recent year. Why do the
companies differ?
3.
Compute the fixed asset turnover ratio for the most recent year presented for both companies. Which has a higher
asset efficiency? Why?
Liquidity
Current Ratio 2.55
Company
Ticker
Quick Ratio 1.38 ANF
ARO
Activity AEO
Inventory
5.92 ANN
GES
Profitability JCG
Gross Profit
38.99% LTD
Operating
6.24% JWN
Net Profit
Return on
Return on
Quality of
0.07 MW
The Men’s Warehouse Inc
The Buckle Inc
Ross Stores Inc
Pacific Sunwear of California Inc
0.72 URBN
Leverage WTSLA
Times Interest
16.33
Interest
16.39
Total
1.08
Total
1.92
Dividends
Dividend
Dividend Yield 2.22%
Other
Sales Growth 2.39%
Capital
1.93
Nordstrom, Inc.
Limited Brands Inc
Wet Seal Inc.
Urban Outfitters Inc
J. Crew Group Inc
Ann Taylor Stores
Guess? Inc
INDUSTRY RATIO REPORT
Retail Family Clothing Stores
COMPANIES USED IN INDUSTRY ANALYSIS
American Eagle Outfitters
Aeropostale Inc
Abercrombie & Fitch
Days to Sell
70.897 days BEBE
Receivables
54.24 CHS
Average
15.07 days PSS
Fixed Asset
5.76 DBRN
Total Asset
1.90 FL
Accounts
6.43 GPS
bebe stores Inc
Gap Inc
Foot Locker, Inc
Dress Barn Inc.
Collective Brands Inc
Chico’s FAS Inc