Week 3 Assignments - NEEL This is for you

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ACC201

lO3.4

c. Would tbe choice of one depreciation method over aoother produce a different amount of cash Ilow for any year'! Why or why not?

d. Assume that Same Day Laundry Services sold the steam press at the end of the third year for S20,000. Compute the amount of gain or Joss using each depreciation method.

Problem &·21 Computing ami ree~mli"l: units-of-prodtlction depreciation McNabb Corporation purchased a delivery van for 525,500 in 2012. The firm's financial condi- tion inunL"diatcly prior to the purchase is sbown in the following horizontal statements model:

fqully

NA

Net Inc. CashRow

+ +

+ Book Value !II Yan

CHECKAGUBES a. Depreciation Expense. 2012:

81,500 c. Gain on Sale:$l,llOO

lO3 E·

a. COOIIaJ1y A. ~el (nc""",,,: SZO.oro

c. ConpanV A. Hrghest Boot Value: S17,750

lO7 CItE RGURES a. Coal Mine Depletion, Z012:

S280,000 b. Total Natural Resources:

52.971,000

Com. SUe. + HeL Earn.

NA 50,000 NA NA

The van was expected to have a useful life of lSO,OOOmiles and a salvage value of S3,000. Actual mileage was as follows:

Z012 50,000 2013 70,000 2014 58,000

Req.ired a. Compute the depttciation Cor each of the three years, ass wninS the use of units-of-production

depreciation. b. Assume thaI McNabb earns S21,000 of cash revenue during 2012. Record the purchase of

the van and the recognition of the •••.•""ue and the depreciation expense for the lint year in a financial statements model like the p",-""ding one.

eo Assume that McNabb sold the van at the end of the third year for $4,000. Calculate the amount of gain or lose from the sate.

Pr.w.. s.2B Determilling tire effect of tleprt!cUmon expeMt! onjilJlUlCillJ statement1 TItn>odiJf eeetllcompanieseach putcbased. machine on January I, 2012, forS54,OOO. Each machine was expected 10 last Ii>., years or 200,000 ~ Salvage value was estimated to be $4,000. All three machines "'..., operated rot"50,000 hours in 2012, 55.000 hours in 2013, 40,000 hours in 2014, 44,000 bours in 2015. and ll.OOObours in 2016. Each of the three companies earned S30,OOOof cash revenue during each of the fM ~ Company A uses straight·line depreciation. company B uses double- dedining-balanc:e depr!Ciation. and company C uses wUts·oj'·production depreciation.

Rtq.ired

Ansv.-er eacb of the fobing que..tians. Ignore the effects of income taxes.

a. Wbich compall)' will report the bighest amount of net income for 2012? b. Wbich compilll)' will report the 1~1 amount of net income for 2014? c. 'IV'hich compan>' will report the highest book value on the December 31, 2014, balance sheet? d. Which rompany ",ill repert tbe highesr amoum of retained earnings on the December 31,

201 S. balance ~ c. W"hicb company will report the lowesl amount of cash 110w from operating activities on the

2014 statement of cash fIoo,o,~1

Ptobl •• S,ZS A canurtiIIg for depletio" Fa" re Explor.uion Corporation engages in the exploration and development of many types of natural resources, In thelatt two years, the company bas engaged in the following activities:

Jan. 1,2012 Purchased a coal mine estimated 10 contain 200,000 tons of coal for S8OO,000. July 1.2012 Purchased for SI,9$O,ooo a tract of timber estimated to yicld l,OOO,OOOboard

feet of lumber and to have a residual land value of Sl $0,000.

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Survey of Accounting, Third EditiOn

Require" a. Determine the amount of depleticn expense that would be recognized on the 2012 income

statement for each of the four reserves, assuming 70,000 tons of coal, 1,000,000 board feet of lumber, 9,000 tons of silver, and SO,OOObarrels of oil are extracted.

b. Prepare the portion of the December 31, lOU, balance sbeet that reports natural resources.

Ac"""",,,i1gfod.Ol'll"Te,'m OperatiOflljlAs""ts 235

July 5, 2012 Purchased a sih'er mine estimated to contain :10,000 tons of silver for 5750,000. Aug. 1,2012 Purchased for S7:16,OOO oil reserves estimated to contain 250,000 barrels of oil,

of which 20,000 would be unprofitable to pump.

Problem 6-30 Recordillg COlltimtiRJ:expelldittmtJfor plant auets Big Sky Ine, recorded the following transaetions over the life of a piece of equipment purchased in 2011:

Jan.I,201l

Doc. 31, zon May S, 2011 Doc. 31, 2012 Jan. 1,2013

Doc. 31, 2013 Mat. 1,2014 Doc. 31, 2014 Jan. 1,2015

Doc. 31,2015 July 1,2016

Purchased the equipment for 836,000 cash. The equipment is estimated to have a five-year life and $6,000 salvage value and was to be depreciated using the straight-line method. Recorded depreciation expense for 2011. Undertook routine repairs costing S750. Recorded depreciation expense Icr 20 12. Made an adjuSlOIellt costing S3,OOO to the equipment. It improved the quality of the output Out did not affect the life estimate. Recorded depreciation expense for 2013. Incurred 5320 cost to oil and clean tile equipment. Recorded depreciation expense for 2014. Had the equipment completely overhauled at a cost of S7,500. The overhaul was estimated to extend tbe total life to S<>'e!l years and revised the salvage value to S4,000. Recorded depreciation expense for 2013. Sold the equipment for <;9,000 cash.

Required 8. Use a horizontal statements model like the foUowing one 10 show the effects of these tran •..

actions 00 the elements of the financial statements. Use + for increase, - for decrease, and NA for nor affected. The first event is recorded as an example.

D~e 1~~ u_._,_~_a + ~__~__i~Ne__ t_IK_·~r_~_·_m_Ro__W-i Jan. 1. 2011 + _ NA NA NA _ lA

b. Determine the amount of depreciation expense Big Sit)· "ill repon on tbe inco= statements fot the years 2011 through 2015.

Co Determine the book value (cost - accumulated depreciation) Big SIt) ••ill repon on th< bal- ance sheets a! the end of the years 2011 through 201S.

d. Determine the amount of the gain or Iou B;~ Sky will report on the disposal of the equip- ment on July 1,2016.

Problem 6-31 AcCOIDItUwfor contiJUlUg eqetu6trtns Vemon Manufa.cturing paid Sj8,OOO to putchase a computetiud assembly machine on January I, 2012. The machine had an estimated life of eight }'taI'S and a 52,000 salvage value, Vernon's Iinancial condition as of January I. 201 S, is shown in the following financial statements model. Vernon uses the straight-line method for deptttiation.

Rev.

LO 3. 4. 5, 6

CHECK RGURES b. 2013 Depreciation Expense:

$7.000 d. Loss on Sale: 53.250

LO 5. a. 7 CHECK RGIJRE Depreciation Expense: saooo

Exp. Noline. Cash Flow

CasII + Mach.

NA15,000 + 58.000 C- SIll. + Ret Elm.

21.DOO NA NA NA

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ACC201

LOa CHECK fiGURE Goodwill Purchased: $1311,000

L08 eHE FIGURE Impairment loss:S40.000

LOS

Vernon Manufacturing made the following expenditures on the computerized assembly machine in 2015.

Jan. 2 Added an overdrive mechanism tbr 56,000 that would impro." the overall quality of 1M performance of the machine but would not extend its life. The salvage value was revised to S3,OOO. Performed routine main te nanoe, SI,I30. Replaced some eomputer dllps (considered routine), 5950. Recognized 2015 depreeiattcn expense.

Aug. I Oct. 2 Dec. 31

Required Record the 20151ramactions in a statements model like the preceding one.

Problem 6-32 A.ccounting for hrI"ngibIe /lnm Mia-Tora Company purchased a fast-food restaurant for SI.400,Ooo. The fait market values of tbe assets purchased were as follows. 'K" liabilities were assumed,

Equipment land Buidlng Franchise (5·voar 11'01

8320.000 200.000 650.000 100.000

Req.ired Calculate the amount of goodwill purchased.

Problem 6-33 A. a!Oruttiltg for goot/tlliR Springhill Co. purchased the assets of Canyon Co. for 51,000,000 in 2012. The estimated fait market value of the assets at the pure~ date was 5920.000. Goodwill of Sso,ooo was recorded at purchase. In 2013, because of oegati,.., publicity, one-half of the goodwill purchased from Canyon Co. was judged to be permanently impaired.

Reqaired Explain bow the recognition of the impairment of the goodwill will affect the 2013 balance sheet, income statemetlt, and statement of cash flows,

Problem 6-34 Poftw",u,g T/llio tIIIIIlpsis ruUrg reaJ-WOI"IdUta Coop.. Ii L c:Iaims to be tbe fOurth largest tire manufacturer in ~ottb America.<:....,..... T. _ is the lal¥CSItire manufacturer in ~orth America. The follow- ing information was t.aken from tbese companks' December 31, 2007, annual reports. All dollar amounts are in thousands.

Sales Depreciation costs Bulldin~s. mathinery. an~ e~"ip/llllnt

(net of accllJ1IIllatad depreciation; Total.ssm Depreciation mell"ie d

Cooper Tira S2.932.575

131.007

Goodyear Tire

S19.l144.000 610.000

!l49.458 2.296.8611

"Straight-line or accoletatad"

4.383.000 11.028.000

Slraigllt·line

Estimated lite of assets: BUildIngs Machinery and eqLlpmenl

10 to 40 years Ho 14 years

810 Eyears J 1030vears