ACC 502 Long-Term Assert Capitalization

The purpose of this assignment is to analyze long-term assets in the financial statements, and to consider financial implications associated with long-term assets.

Complete Problem 10.5 from the textbook.

Use Microsoft Excel to show the calculations of depreciation prior to and after the recommended changes.

n addition, in a Microsoft Word document, write a memo from Patty Chu to Patty’s boss comparing the results of the old and new depreciation expense amounts. Within the memo, discuss the impact to the income statement and balance sheet if these changes are approved. To access a memo template, refer to “Effective Business Writing,” located in the Class Resources. In the “Effective Business Writing” section on the Student Success Center, you will find a “Templates” section with a “Memo Template” you may download and utilize for this assignment.

Finally, provide a recommendation on whether the changes should be made; use your calculations to support your position.

• Name the Excel file “LastnameFirstinitial.ACC502.T4,” where the T4 refers to Topic 4 assignment.
• Name the Word document “LastnameFirstinitial.ACC502.T4memo.”

Prepare this assignment using effective business writing style. Refer to the resource, “Effective Business Writing,” located in the Class Resources, for specific guidelines and formatting requirements.

will
1,197
281
180
Total assets acquired
1,614
389
247
Current liabilities
(148) (12) (32)
Long‐term liabilities
(1) (13)
Total liabilities assumed
Net assets acquired
(149) (12) (45)
$1,465 $377 $202
The note provides supplemental information on the intangible assets acquired by
Microsoft:
The components of intangible assets acquired in the acquisitions above are as follows
(no significant residual value is estimated for these assets):
Navision Weighted
a/s
average
life
Rare Weighted
Ltd. average
life
Placeware, Weighted
Inc.
average
life
Contract‐
based
$115
6 years
$16
5 years
$1
6 years
Technology‐
based
48
4 years
36
5 years
4
4 years
Marketing‐
related
4
3 years
10
5 years
2
1 year
23
10 years
$30
8 years
Customer‐
related
Research and
development
Total
2a
$169
13a
5 years
$75
5 years
aAmounts assigned to research and development assets were written off in accordance
with FIN 4. Those write‐offs were included in research and development expenses.
Required
a. How much amortization expense would you expect Microsoft to record in 2004
for the intangible assets purchased in 2003?
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b. What impact would the amortization expense have on each of the company’s
three principal financial statements?
10.4 Calculating Depreciation Expense
On January 1, 2013, Double Happiness Delivery Company acquired a new truck for
$90,000. The truck is estimated to have a useful life of five years and no residual
value.
Required
Indicate the amount of the depreciation charge for each year of the asset’s life under
the following methods:
a. The straight‐line method.
b. The declining balance method at twice the straight‐line rate, with a switch to
straight‐line in 2016. Why would the company switch to straight‐line after using
the declining balance method for the same asset?
10.5 Effects of Changes in Estimates on Depreciation Expense
At the end of each year, Patty Chu, the chief accountant at Rex Lin Enterprises, a
Singapore‐based trading company, reviews long‐term assets at the end of each year
to determine whether changes are called for in how these assets are depreciated. In
December 2017, her attention focused on two assets in particular:
Date
acquired
Cost
Accumulated
depreciation end of
2017
Useful
life
Residual
value
Warehouse
1/1/13
$200,000
$50,000
25 years
$10,000
Building
1/1/12
1,600,000
228,000
40 years
100,000
Patty is proposing the following changes:
For the warehouse: a decrease in the useful life to 20 years and a decrease in
residual value to $6,000.
For the building: an increase in the useful life to 50 years and a decrease in the
residual value to $55,000.
Before agreeing to the changes, Patty’s bosses would like to know what the
depreciation charges will be for each asset if the changes are adopted. All assets are
depreciated using the straight‐line method.
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Required
Calculate the revised annual depreciation expenses for each asset in 2018 and
compare them to what the expenses would be if the changes were not made.
10.6 Interpreting Disclosures for Property, Plant, and Equipment
Petrobras, which operates in the energy sector, is Brazil’s largest company. Its shares
trade on several of the world’s leading stock exchanges. A portion of Petrobras’
balance sheet, its income statement, and extracts from a note on PP&E are
presented in Exhibit 10.1.
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Exhibit 10-1 Petrobras Disclosures
Statements of Income
December 31, 2008 and 2007
(In thousands of reais, except net income per share)
Consolidated
Statements of Income
Note
2008
2007
266,217,208
218,050,202
276,872
203,972
Gross operating revenues
Selling expenses
Products
Services, mainly freight
266,494,080 218,254,174
Sales charges
(51,375,544)
Net operating revenues
(47,676,449)
215,118,536 170,577,725
Cost of products and services sold
(141,623,359) (104,398,043)
Gross profit
73,495,177
66,179,682
(7,162,264)
(6,059,734)
Operating income (expenses)
Selling expenses
Financial
Expenses
18
(4,193,135)
(3,292,002)
Revenues
18
3,494,430
2,417,659
Exchange and monetary variations, net
18
3,827,489
(3,146,547)
(35,792)
(29,259)
(7,211,566)
(6,398,633)
(862,766)
(1,255,511)
Administrative and general expenses
Management and board of directors
remuneration
Administrative
Taxes
Cost of research and technological
development
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(1,705,
1733911 – Wiley US ©