Solutions Chapter 8 – Set B Exercises – Libby 7e
E8–1B.
Req. 1 Fixed asset turnover ratio: (in millions)
Sales [(beginning net fixed assets + ending net fixed assets) 2]
2011
2012
2013
$26,806 $1,806.5
$35,499 $2,503
$38,637 $2,814.5
Req. 2
Jackson’s fixed asset turnover ratio fell each year from 2011 to 2013. This suggests
that Jackson’s management became less efficient at utilizing its long-lived assets over
time. The decrease in 2012 was due primarily to a large increase in fixed assets that
E8–2B
Req. 1
Building (+A) ………………………………………………………………..
116,000
Land (+A) …………………………………………………………………..
125,000
Cash (−A)……………………………………………………………
241,000
Cash paid
+ renovations to prepare for use
+ share of transfer costs
Req. 2
Straight-line depreciation computation:
($116,000 cost – $12,000 residual value) x 1/10 = $10,400 depreciation expense per
year
E8–3B.
Req. 1
Date
Assets
Liabilities
Stockholders’ Equity
January
1
No effect
No effect
No effect
January
2
Cash
Equipment
–8,000
+29,000
Short term
note payable
+21,000
January
3
Cash
Equipment
–2,000
January
5
Cash
Equipment
–2,900
Cash
Short term
Interest
* $21,000 principal x .10 interest rate x 6/12 of a year = $1,050 interest
Req. 2
Acquisition cost of the machine:
Cash paid $ 8,000
Note payable with supplier 21,000
Freight costs 2,000
Installation costs 2,900
Acquisition cost $33,900
Req. 5
Equipment (cost) …………………………………………………………………………..
$33,900
Less: Accumulated depreciation ($3,090 x 2 years) …………………………
6,180
Net book value at end of 2013 ………………………………………………………..
$27,720
E8–4B.
Req. 1
Adjusting entry for 2010:
Depreciation expense (+E, −SE) …………………………………
11,500
Remaining life 5.5 years
Req. 3 (during 2011):
Depreciation for 2012: ($33,900 cost – $3,000 residual value) x 1/10
E8–5B.
Date
Assets
Liabilities
Stockholders’ Equity
1. 2010*
Accumulated
depreciation
–11,500
Depreciation
expense
–11,500
expense
E8–6B.
Req. 1
a. Straight-line:
Year
Computation
Depreciation
Expense
Accumulated
Depreciation
Net
Book Value
At acquisition
$18,000
1
($18,000 – $3,000) x 1/4
$3,750
$3,750
14,250
3
($18,000 – $3,000) x 1/4
4
($18,000 – $3,000) x 1/4
b. Units-of-production: ($18,000 – $3,000) 6,000 = $2.50 per hour of output
Year
Computation
Depreciation
Expense
Accumulated
Depreciation
Net
Book Value
At acquisition
$18,000
1
$2.50 x 2,400 hours
$6,000
$6,000
12,000
c. Double-declining-balance:
Year
Computation
Depreciation
Expense
Accumulated
Depreciation
Net
Book Value
At acquisition
$18,000
1
($18,000 – $0) x 2/4
$9,000
$9,000
9,000
If the machine is used evenly throughout its life and its efficiency (economic value in
use) is expected to be consistent throughout each period over its life, then straight-line
depreciation would be preferable. If the machine is used at a consistent rate but the
efficiency is expected to decline over the years of its useful life, then an accelerated
14,250
E8–7B.
Req. 1
a. Straight-line:
Year
Computation
Depreciation
Expense
Accumulated
Depreciation
Net
Book Value
At acquisition
$640,000
1
($640,000 – $20,000) x 1/5
$124,000
$124,000
516,000
b. Units-of-production: ($640,000 – $20,000) 200,000 = $3.10 per unit of output
Year
Computation
Depreciation
Expense
Accumulated
Depreciation
Net
Book Value
At acquisition
$640,000
1
$3.10 x 85,000 units
$263,500
$263,500
376,500
2
3
128,500
4
$3.10 x 20,000 units
5
c. Double-declining-balance:
Year
Computation
Depreciation
Expense
Accumulated
Depreciation
Net
Book Value
At acquisition
$640,000
1
($640,000 – 0) x 2/5
$256,000
$256,000
384,000
2
3
4
5
2
392,000
3
($640,000 – $20,000) x 1/5
268,000
4
($640,000 – $20,000) x 1/5
5
E8–7B. (continued)
Req. 2
If the machine is used evenly throughout its life and its efficiency (economic value in
use) is expected to be consistent throughout each period over its life, then straight-line
E8–8B.
Req. 1a
Cash (+A) …………………………..……………………………………….
16,000
Accumulated depreciation (−XA, +A) ………………………………
24,000
Delivery truck (−A) …………………………………………………….
40,000
Sale of an asset at book value; the result is no loss or gain.
Cash (+A) …………………………..……………………………………..
16,600
Accumulated depreciation (−XA, +A) …………………………….
24,000
Gain on sale of long-lived asset (+Gain, +SE) ……………..
Delivery truck (−A) …………………………………………………..
40,000
Sale of an asset above book value; the result is a gain.
Req. 1c
Cash (+A) …………………………..……………………………………….
15,600
Accumulated depreciation (−XA, +A) ………………………………
24,000
Loss on sale of long-lived asset (+Loss, −SE) ………………….
400
Delivery truck (−A) …………………………………………………….
40,000
Sale of an asset below book value; the result is a loss.
Req. 2 Summarization of the effects of the disposal:
1. The loss or gain on disposal of a long-lived asset is the difference between the
2. When the disposal price is the same as the book value there is no loss or gain;
3. The book value does not purport to be market value, so a loss or gain on disposal
of a long-lived asset normally would occur.
E8–9B.
Req. 1
Acquisition cost:
Technology $80,000
Req. 2
Amortization on December 31, 2012 (straight-line method with no residual value):
Req. 3
Income statement for 2012:
Operating expenses:
Amortization expense ($20,000 + $500)
$20,500
Intangibles:
E8–10B.
Req. 1
Computation of acquisition cost of the deposit in 2012:
February 2012: Purchase of mineral deposit $ 800,000
March 2012: Preparation costs 84,000
Total acquisition cost in 2012 $ 884,000