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CHAPTER 9 Fixed Assets and Intangible Assets
Prob. 9–4A
1.
Depreciation Book Value,
Year Expense End of Year
a. 1…………………………………………… $142,000 $658,000
2…………………………………………… 142,000 516,000
b. 1 [$800,000 × (1 ÷ 5) × 2]…………
…
$320,000 $480,000
2 [$480,000 × (1 ÷ 5) × 2]…………
…
192,000 288,000
2. Cash
*
$135,000 – $103,680
3. Cash
Accumulated Depreciation—Equipment
$320,000
512,000
$142,000
284,000
Accumulated
135,000
Depreciation,
End of Year
88,750
696,320
*
CHAPTER 9 Fixed Assets and Intangible Assets
Prob. 9–5A
2014
Jan. 4 Delivery Truck 28,000
Cash 28,000
Nov. 2 Truck Repair Expense 675
Cash 675
2015
Jan. 6 Delivery Truck 48,000
Cash 48,000
Apr. 1 Depreciation Expense—Delivery Truck 1,750
Accum. Depreciation—Delivery Truck 1,750
Delivery truck depreciation
CHAPTER 9 Fixed Assets and Intangible Assets
Prob. 9–5A (Concluded)
2016
July 1 Delivery Truck 54,000
Cash 54,000
Oct. 2 Depreciation Expense—Delivery Truck 8,640
Accum. Depreciation—Delivery Truck 8,640
Dec. 31 Depreciation Expense—Delivery Truck 6,750
CHAPTER 9 Fixed Assets and Intangible Assets
Prob. 9–6A
1. a. $1,600,000 ÷ 5,000,000 board feet = $0.32 per board foot;
1,100,000 board feet × $0.32 per board foot = $352,000
2. a. Depletion Expense 352,000
Accumulated Depletion 352,000
Depletion of timber rights.
CHAPTER 9 Fixed Assets and Intangible Assets
Prob. 9–1B
1. Land Other
Item Land Improvements Building Accounts
a. $ 3,600
b. 780,000
c. 23,400
l. 3,000
m. 2,000
n. $14,000
o. 21,600
3. Because land used as a plant site does not lose its ability to provide services,
4. Because Land Improvements are depreciated, depreciation expense of $4,320
($21,600 × 1 ÷ 10 × 2) would be understated, and net income would be overstated
CHAPTER 9 Fixed Assets and Intangible Assets
Prob. 9–2B
1.
a. Straight- b. Units-of- c. Double-
Line Output Declining-Balance
Year Method Method Method
2015 $ 71,250 $102,600 $160,000
2016 71,250 91,200 80,000
Calculations:
Straight-line method:
($320,000 – $35,000) ÷ 4 = $71,250 each year
Units-of-output method:
($320,000 – $35,000) ÷ 20,000 hours = $14.25 per hour
Double-declining-balance method:
2015: $320,000 × [(1 ÷ 4) × 2] = $160,000
2018: ($320,000 – $160,000 – $80,000 – $40,000 – $35,000*) = $5,000
*Book value should not be reduced below the residual value of $35,000.
3. Over the four-year life of the equipment, all three depreciation methods yield
Depreciation Expense
CHAPTER 9 Fixed Assets and Intangible Assets
Prob. 9–3B
a. Straight-line method:
2014: [($108,000 – $7,200) ÷ 3] × 3 ÷ 12………………………………
…
$ 8,400
2015: [($108,000 – $7,200) ÷ 3]…………………………………………
…
33,600
2016: [($108,000 – $7,200) ÷ 3]…………………………………………
…
33,600
2017: [($108,000 – $7,200) ÷ 3] × 9 ÷ 12………………………………
…
25,200
CHAPTER 9 Fixed Assets and Intangible Assets
Prob. 9–4B
1.
Depreciation Book Value,
Year Expense End of Year
a. 1……………………………………………
…
$25,625 $84,375
2……………………………………………
…
25,625 58,750
3……………………………………………
…
25,625 33,125
*
Book value should not be reduced below $7,500, the residual value.
2. Cash
Accumulated Depreciation—Equipment
3. Cash
Accumulated Depreciation—Equipment
$ 25,625
51,250
76,875
Accumulated
18,000
Depreciation,
End of Year
10,500
96,250
96,250
*
CHAPTER 9 Fixed Assets and Intangible Assets
Prob. 9–5B
2014
Jan. 8 Delivery Truck 24,000
Cash 24,000
2015
Jan. 9 Delivery Truck 50,000
Cash 50,000
Feb. 28 Truck Repair Expense 250
Cash 250
Apr. 30 Depreciation Expense—Delivery Truck 2,000
Accum. Depreciation—Delivery Truck 2,000
Delivery truck depreciation
CHAPTER 9 Fixed Assets and Intangible Assets
Prob. 9–5B (Concluded)
2016
Sept. 1 Delivery Truck 58,500
Cash 58,500
4 Depreciation Expense—Delivery Truck 6,250
Accum. Depreciation—Delivery Truck 6,250
CHAPTER 9 Fixed Assets and Intangible Assets
Prob. 9–6B
1. a. Loss from impaired goodwill, $3,400,000
b. $4,800,000 ÷ 8 years = $600,000;
2. a. Loss from Impaired Goodwill 3,400,000
Goodwill 3,400,000
Impaired goodwill.
CHAPTER 9 Fixed Assets and Intangible Assets
CP 9–1
It is considered unprofessional for employees to use company assets for personal
CP 9–2
You should explain to Nolan and Stacy that it is acceptable to maintain two sets
of records for tax and financial reporting purposes. This can happen when a
company uses one method for financial statement purposes, such as straight-line
depreciation, and another method for tax purposes, such as MACRS depreciation.
This should not be surprising because the methods for taxes and financial statements
are established by two different groups with different objectives. That is, tax laws
and related accounting methods are established by Congress. The Internal
CASES & PROJECTS
CHAPTER 9 Fixed Assets and Intangible Assets
CP 9–3
1. a. Straight-line method:
2014: ($400,000 ÷ 5) × 1 ÷ 2…………………………………………
…
$40,000
2015: ($400,000 ÷ 5)……………………………………………………
…
80,000
b. MACRS:
2014: ($400,000 × 20%)………………………………………………
…
$ 80,000
2015: ($400,000 × 32%)………………………………………………
…
128,000
CHAPTER 9 Fixed Assets and Intangible Assets
CP 9–3 (Continued)
2. a. Straight-line method:
2014 2015 2016 2017 2018 2019
Income before depreciation……………
…
$750,000 $750,000 $750,000 $750,000 $750,000 $750,000
Depreciation expense…………………… 40,000 80,000 80,000 80,000 80,000 40,000
b. MACRS:
2014 2015 2016 2017 2018 2019
Year
Year
CHAPTER 9 Fixed Assets and Intangible Assets
CP 9–3 (Concluded)
3. For financial reporting purposes, Tim should select the method that provides
the net income figure that best represents the results of operations.
Note to Instructors: The concept of matching revenues and expenses is discussed
in Chapter 3. However, for income tax purposes, Tim should consider selecting
the method that will minimize taxes. Based on the analyses in (2), both methods
CP 9–4
Note to Instructors: The purpose of this activity is to familiarize students with the
procedures involved in acquiring a patent, a copyright, and a trademark. You may
wish to divide the class into three groups to report back on patents, copyrights,
and trademarks separately.
CHAPTER 9 Fixed Assets and Intangible Assets
CP 9–4 (Concluded)
The application also includes one or more claims, although it is not always a
requirement to submit these when first filing the application. The claims set out
what the applicant is seeking to protect in that they define what the patent owner
has a right to exclude others from making, using, or selling, as the case may be. In
Copyright
While copyright in the United States automatically attaches upon the creation of an
original work of authorship, registration with the Copyright Office puts a copyright
holder in a better position if litigation arises over the copyright. A copyright holder
desiring to register his or her copyright should do the following:
1. Obtain and complete appropriate form.
3. Send both documents to the U.S. Copyright Office in Washington, D.C.
Source: http://en.wikipedia.org/wiki/United_States_copyright_law#Procedural_issues.
Trademark
The law considers a trademark to be a form of property. Proprietary rights in
relation to a trademark may be established through actual use in the marketplace
or through registration of the mark with the trademarks office (or “trademarks
registry”) of a particular jurisdiction. In some jurisdictions, trademark rights can
be established through either or both means. Certain jurisdictions generally do not
recognize trademarks rights arising through use. In the United States, the only
CHAPTER 9 Fixed Assets and Intangible Assets
CP 9–5
$446,950
$110,101
b. The fixed asset turnover measures the amount of revenue earned per dollar
of fixed assets. Walmart earns $4.06 of revenue for every dollar of fixed assets,
while Occidental earns $0.49, and Comcast Corporation earns $2.28 in revenue
for every dollar of fixed assets. Occidental and Comcast require more fixed
assets to operate their businesses than does Walmart, for a given level of
revenue volume.
Does this mean that Walmart is a better company? Not necessarily. Revenue is
Revenue
Average Book Value of Fixed Assets
=Fixed Asset Turnover Ratioa.
Walmart: = 4.06
