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Problem 1

The following is a list of account titles and amounts (in millions) from a recent company annual report:

 

Buildings and improvements

$  182

Goodwill

$  324

Prepaid expenses

135

Machine

ry and equipment

521

Allowance for Doubtful Accounts

41

Accumulated Depreciation

382

Other noncurrent assets

248

Inventory

421

Accumulated amortization

800

Other intangibles

1,452

Cash and cash equivalents

710

Accounts receivable

685

 

Required:

Prepare the asset section of the balance sheet for this company, classifying assets into Current Assets, Property, Plant and Equipment (net), and Other Assets.

   

Problem 2

Assume that a company sold a delivery van that had been used in the business for three years. Records of the company related to the van reflect the following:

 

                                Delivery van cost                                              $42,500

                                Accumulated Depreciation                            25,200

  Required:

Prepare the required journal entry to record disposal of the van, assuming the following sales amounts for cash:

$17,300

$20,500

$15,800

Based on the situation above, explain the effects of the disposal of an asset on the company’s financial statements. 

           

Problem 3

At the beginning of the year, a company bought three new machines for its production facilities. The machines were all different so each had to be recorded separately. Below are the costs related to each purchase.

 

 

A

600 800 600

	Machine	Machine	B	Machine	C
Amount paid for the machine	14,000	28,500	11,200
Installation cost			600			1,000	400
Delivery cost

 

At the end of the first year, each machine had been operated 5,200 hours

  Required:

Compute the cost of each machine.

Prepare the journal entry to record depreciation expense at the end of year 1, assuming the following:

 

Machine

1,000

B

C

1,000

Life	Residual Value	Depreciation Method
A	6 years	Straight-line
50,000 hours	2,000	Units-of-production
5 years	Double-declining-balance

   

Problem 4

You are a financial analyst for your company and have been asked to determine the impact of various depreciation methods on the company’s financial statements. Your analysis is based on a machine costing $110,000 with an estimated useful life of 12 years and an estimated residual value of $8,000. The machine also has an estimated useful life in output of 220,000 units. Actual output was 21,000 units in year 1 and 15,000 units in year 2.

  Required:

For years 1 and 2, prepare depreciation schedules (round all results to the nearest dollar) for the asset assuming:

Straight-line method

Units-of-production method

Double-declining-balance method

 

Accumulated Depreciation

       

       

       

Acquisition         Year 1         Year 2        

Acquisition         Year 1         Year 2        

Year	Computation	Depreciation Expense	Net Book Value
Straight-line:
		Acquisition
		Year 1
		Year 2
Units-of-production:
Double-declining-balance:

   

Evaluate each method in terms of its effect on cash flows, fixed asset turnover, and earnings per share. Assuming that the company is most interested in maintaining a high EPS during year 1 and 2, which method would you recommend? Assuming that the company is most interested in reducing taxes during year 1 and 2, which method would you recommend?