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EXERCISE 9-13
Alliance Atlantis Communications Inc.’s change of accounting policy to
amortize broadcast rights will probably increase its reported income. Prior
EXERCISE 9-14
(a) A company should depreciate its buildings because depreciation is
necessary in order to allocate the cost of the buildings to the periods
in which they are in use. This allows the cost of the buildings to be
matched against the revenues generated each year in accordance with
the expense recognition principle.
(b) A building can have a zero book value if it has no salvage value and it
is fully depreciated—that is, if it has been used for a period at least as
long as its expected life. Because depreciation is used to allocate cost
EXERCISE 9-14 (Continued)
Trade names and trademarks are reported on a balance sheet if there is
a cost attached to them. If the trade name or trademark is purchased,
EXERCISE 9-15
(a) Asset turnover
$35,497
= = 1.42
($25,633 + $24,244) ÷ 2
times
EXERCISE 9-16
(a)
Without new products
With new products
Return on assets
$500,000
= 10%
$960,000
= 8%
$5,000,000
$12,000,000
(b) The return on assets declined from 10% to 8%. This means that the
company is not generating as much income from each dollar invested
in assets. It is common for companies to try to maximize their return on
assets, thus top management might not find this proposal very desirable.
EXERCISE 9-17
(a)
($ in millions)
1. Return on assets
$264.8
= 6.2%
($4,312.6 + $4,254.3) ÷ 2
(b) Profit Margin X Asset Turnover = Return on Assets
(c) Asset turnover and profit margin vary considerably across industries.
Therefore, when you have a diverse group of businesses from several
industry types combined into one company, such as in Linley Com-
EXERCISE 9-18
Net Income
10-year life
15-year life
$58,000
$102,000*
EXERCISE 9-18 (Continued)
The CEO is correct regarding the impact on net income. By increasing the
expected useful life depreciation, expense would be lowered and net income
would increase. However, this move would be appropriate only if, in fact, a
*EXERCISE 9-19
(a) Depreciation cost per unit is $.575 per mile [($100,000 – $8,000) ÷
(b) Computation End of Year
Annual
Units of Depreciation Depreciation Accumulated Book
Years Activity X Cost/Unit = Expense Depreciation Value
2017 40,000 $.575 $23,000 $23,000 $77,000
*EXERCISE 9-20
(a) Declining-balance method:
EXERCISE 9-20 (Continued)
(b) Units-of-activity method:
$90,000– $8,000 = $1.17 per hour
70,000
SOLUTIONS TO PROBLEMS
Item Land Building Other Accounts
2. 33,000
4. $280,000
6. 3,170
8. 31,000
10. (12,000)
PROBLEM 9-1A
(a) April 1 Land ....................................................... 2,200,000
Cash ................................................ 2,200,000
May 1 Depreciation Expense ........................... 20,000
Accumulated Depreciation—
[($600,000 X 1/10) X 7 + $20,000)]
Book value ................................ 160,000
Cash proceeds ......................... 170,000
Gain on disposal ...................... $ 10,000
June 1 Cash ....................................................... 1,600,000
PROBLEM 9-2A
PROBLEM 9-2A (Continued)
Cost ......................................... $700,000
(b) Dec. 31 Depreciation Expense ............................ 662,500
Accumulated Depreciation—
Buildings ($26,500,000 X 1/40)..... 662,500
(c) ARNOLD CORPORATION
Partial Balance Sheet
December 31, 2018
Plant Assets*
Land ......................................................... $ 4,200,000
Buildings .................................................. $26,500,000
Less: Accumulated depreciation—
PROBLEM 9-2A (Continued)
Land
12/31/17 3,000,000 6/1/17 1,000,000
04/01/18 2,200,000
12/31/18 Bal. 4,200,000
Jan. 1 Accumulated Depreciation—Equipment ...... 71,000
Equipment ................................................ 71,000
Cost .................................................................. $30,000
Accumulated Depreciation—Equipment
[($30,000 X 1/5) X 3 + $3,000] ...................... (21,000)
Book Value ...................................................... 9,000
Cash Proceeds ................................................ 12,000
Gain on Disposal ............................................ $ 3,000
PROBLEM 9-3A
(a) April 1 Land ............................................................... 4,400,000
Cash ...................................................... 1,100,000
Mortgage Payable ................................. 3,300,000
1 Cash ............................................................... 300,000
Accumulated Depreciation—Equipment .... 2,333,333
Loss on Disposal .......................................... 166,667
Equipment ............................................. 2,800,000
PROBLEM 9-4A
PROBLEM 9-4A (Continued)
(b) Dec. 31 Depreciation Expense .................................... 2,435,000
Accumulated Depreciation—Buildings . 2,435,000
($97,400,000 ÷ 40 = $2,435,000)
31 Depreciation Expense .................................... 14,730,000
Accumulated Depreciation—Equipment 14,730,000
(c)
YOUNGSTOWN Company
Statement of Financial Position (Partial)
December 31, 2017
Property, plant, and equipment1
Land .................................................................. $ 23,000,000
Buildings .......................................................... $97,400,000
Less: Accumulated depreciation ................... 64,635,000 32,765,000
PROBLEM 9-4A (Continued)
(c) (Continued)
Land
Jan. 1, 2017 20,000,000 June 1, 2017 1,400,000
Buildings
Jan. 1, 2017 97,400,000
Dec. 31, 2017 Bal. 97,400,000
Equipment
Jan. 1, 2017 150,000,000 May 1, 2017 2,800,000
Accumulated Depreciation—Buildings
Jan. 1, 2017 62,200,000
Dec. 31, 2017 2,435,000
Dec. 31, 2017 Bal. 64,635,000
Accumulated Depreciation—Equipment
(a) Jan. 2 Patents .......................................................... 46,800
Cash ........................................................ 46,800
Jan.– Research and Development Expense ........ 230,000
June Cash ........................................................ 230,000
(b) Dec. 31 Amortization Expense ................................. 11,700
Patents .................................................... 11,700
[($60,000 X 1/10) + ($46,800 X 1/9) +
($20,000 X 1/20 X 6/12)]
(c) Intangible Assets
Patents ($126,800 cost less $17,700 amortization) (1) ......... $109,100
Copyrights ($236,000 cost less $29,800 amortization) (2) .... 206,200
(d) The intangible assets of Amato Corporation consist of two patents
and two copyrights. One patent with a cost of $60,000 is being amor-
PROBLEM 9-5A
1. Research and Development Expense ........................ 160,000
Patents ................................................................. 160,000
2. Goodwill ....................................................................... 2,000
(a) Blythe Jacke
1.
$240,000 $300,000
Return on assets = 7.5% = 10.0%
2.
Profit margin = 20.9% = 25.0%
3.
Asset turnover = .36 times = .40 times
$3,200,000 $3,000,000
(b) Based on the asset turnover, Jacke Corp. is more effective in using
assets to generate sales. Its asset turnover is 11% higher than
Blythe’s ratio.
A factor that inhibits comparing the two companies is the differing
PROBLEM 9-7A
(a) Accumulated
Depreciation
Year Computation 12/31
MACHINE 1
2015 $84,000* X 1/8 = $10,500 $10,500
MACHINE 2
2016 $85,000 X 40%* X 6/12 = $17,000 $17,000
MACHINE 3
2016 800 X $2.00a = $ 1,600 $ 1,600
(b) Year Depreciation Expense
MACHINE 2
2016 $85,000 X 40% X 9/12 = $25,500
PROBLEM 9-8A
(a) STRAIGHT-LINE DEPRECIATION
Computation End of Year
Annual
Depreciable Depreciation Depreciation Accumulated Book
Years Cost X Rate = Expense Depreciation Value
2017 $220,000* 25%** $ 55,000 $ 55,000 $195,000
DOUBLE-DECLINING-BALANCE DEPRECIATION
Computation End of Year
Book Value Annual
Beginning Depreciation Depreciation Accumulated Book
Years of Year X Rate = Expense Depreciation Value
2017 $250,000 50%* $125,000 $125,000 $125,000
(b) Straight-line depreciation provides the lower amount for 2017 deprecia-
tion expense ($55,000) and, therefore, the higher 2017 income. Over the
(c) Double-declining-balance depreciation provides the higher amount
*PROBLEM 9-9A
ACR9-1 ACCOUNTING CYCLE REVIEW
(a) Dec. 2 Equipment .................................................... 16,800
Cash ......................................................... 16,800
2 Depreciation Expense ................................. 825
Accumulated Depreciation—
15 Accounts Receivable ................................... 5,000
Sales Revenue ........................................ 5,000
Cost of Goods Sold ..................................... 3,500
Inventory ................................................. 3,500
23 Salaries and Wages Expense ..................... 6,600
Cash ......................................................... 6,600
31 Bad Debt Expense ($4,000 – $500) ............. 3,500
Allowance for Doubtful Accounts ......... 3,500
Interest Receivable
ACR 9-1 (Continued)
Depreciation Expense .................................... 250
Accumulated Depreciation—Equipment
[($16,800 – $1,800) ÷ 5] X 1/12 ............... 250
