BE 11-2 (LO1) Lockard Company purchased machinery on January 1, 2017, for $80,000. The machinery is estimated to have a salvage value of $8,000 after a useful life of 8 years. Compute 2017 depreciation expense using the straight-line method.
($80,000 - $8,000) / 8 = $9,000
BE 11-2 (LO1) Lockard Company purchased machinery on September 1, 2017, for $80,000. The machinery is estimated to have a salvage value of $8,000 after a useful life of 8 years. Compute 2017 depreciation expense using the straight-line method.
[($80,000 - $8,000) / 8] X 4/12 = $3,000
BE 11-3 (LO1) Lockard Company purchased machinery on January 1, 2017, for $80,000. The machinery is estimated to have a salvage value of $8,000 after a useful life of 8 years. Compute 2017 depreciation expense using the sum-of-the-years'-digits method.
($80,000 - $8,000) X 8/36* = $16,000
*[8(8 + 1)] � 2 = 36
BE 11-3 (LO1) Lockard Company purchased machinery on April 1, 2017, for $80,000. The machinery is estimated to have a salvage value of $8,000 after a useful life of 8 years. Compute 2017 depreciation expense using the sum-of-the-years'-digits method.
[($80,000 - $8,000) X 8/36*] X 9/12 = $12,000
*[8(8 + 1)] � 2 = 36
BE 11-4 (LO1) Lockard Company purchased machinery on January 1, 2017, for $80,000. The machinery is estimated to have a salvage value of $8,000 after a useful life of 8 years. Compute 2017 depreciation expense using the double-declining-balance method.
$80,000 X 25%* = $20,000
*[(80,000 - 8,000) / 8] = 9,000 / (80,000 - 8,000) = 12.5% x 2 = 25%
BE 11-4 (LO1) Lockard Company purchased machinery on October 1, 2017, for $80,000. The machinery is estimated to have a salvage value of $8,000 after a useful life of 8 years. Compute 2017 depreciation expense using the double-declining-balance method.
($80,000 X 25%*) X 3/12 = $5,000
**[(80,000 - 8,000) / 8] = 9,000 / (80,000 - 8,000) = 12.5% x 2 = 25%
BE 11-5 (LO1) Cominsky Company purchased a machine on July 1, 2018, for $28,000. Cominsky paid $200 in title fees and county property tax of $125 on the machine. In addition, Cominsky paid $500 shipping charges for delivery, and $475 was paid to a local c
Depreciable Base = ($28,000 + $200 + $125 + $500 + $475) - $3,000 = $26,300
BE 11-6 (LO2) Dickinson Inc. owns the following assets:
Asset A->Costs $70,000->Salvage of $7,000->Est. Life is 10 years
Asset B->Costs $50,000->Salvage of $5,000->Est. Life is 5 years
Asset C->Costs $82,000->Salvage of $4,000->Est. Life is 12 years
Compu
A->($70,000 - $7,000)/10 = $6,300
B->($50,000 - $5,000)/5 = 9,000
C->($82,000 - $4,000)/12 = 6,500
Total->$21,800
Composite rate =$21,800/$202,000 = 10.8%
Composite life =$186,000*/$21,800 = 8.5 years
*[(70,000 - 7,000) + (50,000 - 5,000) + (82,000 - 4000)] = 186,000
BE 11-7 (LO2) Holt Company purchased a computer for $8,000 on January 1, 2016. Straight-line depreciation is used, based on a 5-year life and a $1,000 salvage value. In 2018, estimates are revised. Holt now feels the computer will be used until December 3
Annual depreciation expense: ($8,000 - $1,000)/5 = $1,400
Book value, 1/1/18: $8,000 - (2 x $1,400) = $5,200
Depreciation expense, 2018: ($5,200 - $500)/2 = $2,350
BE 11-8 (LO3) Jurassic Company owns equipment that cost $900,000 and has accumulated depreciation of $380,000. The expected future net cash flows from the use of the asset are expected to be $500,000. The fair value of the equipment is $400,000. Prepare t
Recoverability test:
Future net cash flows ($500,000) < Carrying amount ($520,000); therefore, the asset has been impaired.
Journal entry:
Loss on Impairment ............................................... 120,000
Cr. Accumulated Depreciation� Equipment ($520,000 - $400,000) ........... 120,000
BE 11-9 (LO4) Everly Corporation acquires a coal mine at a cost of $400,000. Intangible development costs total $100,000. After extraction has occurred, Everly must restore the property (estimated fair value of the obligation is $80,000), after which it c
Inventory.................................................................. 73,500
Cr. Coal Mine........................................................ 73,500
($400,000 + $100,000 + $80,000 - $160,000) / 4,000 = $105 per ton
700 X $105 = $73,500
BE 11-10 (LO5) In its 2014 annual report, Campbell Soup Company reports beginning-of-the-year total assets of $8,113 million, end-of-the-year total assets of $8,323 million, total sales of $8,268 million, and net income of $807 million. Compute Campbell's
Asset turnover: $8,268 / [($8,113 + $8,323) / 2] = 1.01 times
BE 11-10 (LO5) In its 2014 annual report, Campbell Soup Company reports beginning-of-the-year total assets of $8,113 million, end-of-the-year total assets of $8,323 million, total sales of $8,268 million, and net income of $807 million. Compute Campbell's
Profit margin on sales:
$807 / $8,268 = 9.76%
BE 11-10 (LO5) In its 2014 annual report, Campbell Soup Company reports beginning-of-the-year total assets of $8,113 million, end-of-the-year total assets of $8,323 million, total sales of $8,268 million, and net income of $807 million. Compute Campbell's
Return on assets:
1.01
X 9.76%
* = 9.86%
*Asset Turnover:
8,268 / [(8,113 + 8,323) / 2] = 1.01
**Profit margin on sales:
$807 / $8,268 = 9.76%
BE 10-1 (LO1) Previn Brothers Inc. purchased land at a price of $27,000. Closing costs were $1,400. An old building was removed at a cost of $10,200. What amount should be recorded as the cost of the land?
$27,000 + $1,400 + $10,200 = $38,600
BE 10-2 (LO3) Hanson Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were $1,800,000 on March 1, $1,200,000 on June 1, and $3,000,000 on December 31. Compute Hanson's weighted-average acc
Expenditures
3/1 $1,800,000 10/12 $1,500,000
6/1 $1,200,000 7/12 $700,000
12/31 $3,000,000 0 $0
Total amount $6,000,000
Total Acc. Expenditures $2,200,000
BE 10-3 (LO3) Hanson Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were $1,800,000 on March 1, $1,200,000 on June 1, and $3,000,000 on December 31. Hanson borrowed $1,000,000 on March 1
10%, 5-year note Principal->$2,000,000 Interest->$200,000
11%, 4-year note Principal->3,500,000 Interest->385,000
Principal total->$5,500,000
Interest total->$585,000
Weighted-average interest rate = $585,000 / $5,500,000 = 10.64%
BE 10-4 (LO3) Hanson Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were $1,800,000 on March 1, $1,200,000 on June 1, and $3,000,000 on December 31. Hanson borrowed $1,000,000 on March 1
$1,000,000 x 12% = $120,000
1,200,000 x 10.64% = $127,680
Total Acc. Expenditures->$2,200,000
Total Avoidable Interest->$247,680
BE 10-5 (LO4) Garcia Corporation purchased a truck by issuing an $80,000, 4-year, zero-interest-bearing note to Equinox Inc. The marketing rate of interest for obligations of this nature is 10%. Prepare the journal entry to record the purchase of this tru
Trucks ($80,000 X .68301*)...................................... 54,641
Discount on Notes Payable ................................... 25,359
Cr. Notes Payable................................................ 80,000
*from Present Value of Single Sum sheet
BE 10-6 (LO4) Mohave Inc. purchased land, building, and equipment from Laguna Corporation for a cash payment of $315,000. The estimated fair values of the assets are land $60,000, building $220,000, and equipment $80,000. At what amounts should each of th
Land FV-$60,000 %-60/360 X Cost-$315,000 Recorded-$52,500
Building FV-220,000 %-220/360 X Cost-$315,000 Recorded-192,500
Equipment FV-80,000 %-80/360 X Cost-$315,000 Recorded-70,000
Total FV -> $360,000
Total Recorded -> $315,000
BE 10-7 (LO4) Fielder Company obtained land by issuing 2,000 shares of its $10 par value common stock. The land was recently appraised at $85,000. The common stock is actively traded at $40 per share. Prepare the journal entry to record the acquisition of
Land (2,000 X $40) .................................................. 80,000
Cr. Common Stock (2,000 X $10) ....................... 20,000
Cr. Paid-in Capital in Excess of Par� Common Stock......................................... 60,000
BE 10-8 (LO4) Navajo Corporation traded a used truck (cost $20,000, accumulated depreciation $18,000) for a small computer with a fair value of $3,300. Navajo also paid $500 in the transaction. Prepare the journal entry to record the exchange. (The exchan
Equipment............................................................... 3,300
Accumulated Depreciation�Trucks..................... 18,000
Cr. Trucks ............................................................ 20,000
Cr. Cash ............................................................... 500
Cr. Gain on Disposal of Trucks.......................... 800
BE 10-9 (LO4) Navajo Corporation traded a used truck (cost $20,000, accumulated depreciation $18,000) for a small computer with a fair value of $3,300. Navajo also paid $500 in the transaction. Prepare the journal entry to record the exchange. (The exchan
Equipment ($3,300 - $800)..................................... 2,500
Accumulated Depreciation�Trucks ..................... 18,000
Cr. Trucks............................................................. 20,000
Cr. Cash................................................................ 500
BE 10-10 (LO4) Mehta Company traded a used welding machine (cost $9,000, accumulated depreciation $3,000) for office equipment with an estimated fair value of $5,000. Mehta also paid $3,000 cash in the transaction. Prepare the journal entry to record the
Equipment ............................................................... 5,000
Accumulated Depreciation�Machinery ............... 3,000
Loss on Disposal of Machinery ............................. 4,000
Cr. Machinery....................................................... 9,000
Cr. Cash................................................................ 3,000
BE 10-11 (LO4) Cheng Company traded a used truck for a new truck. The used truck cost $30,000 and has accumulated depreciation of $27,000. The new truck is worth $37,000. Cheng also made a cash payment of $36,000. Prepare Cheng's entry to record the excha
Trucks (new)............................................................ 37,000
Accumulated Depreciation�Trucks ..................... 27,000
Loss on Disposal of Trucks ................................... 2,000
Cr. Trucks (used) ................................................. 30,000
Cr. Cash................................................................ 36,000
BE 10-12 (LO4) Slaton Corporation traded a used truck for a new truck. The used truck costs $20,000 and has accumulated depreciation of $17,000. The new truck is worth $35,000. Slaton also made a cash payment of $33,000. Prepare Slaton's entry to record t
Trucks (new)............................................................ 35,000
Accumulated Depreciation�Trucks ..................... 17,000
Loss on Disposal of Trucks ................................... 1,000
Cr. Trucks (used) ................................................. 20,000
Cr. Cash................................................................ 33,000
BE 10-13 (LO5) Indicate which of the following costs should be expended when incurred.
(a) $13,000 paid to rearrange and reinstall machinery.
(b) $200,000 paid for addition to building.
(c) $200 paid for a tune-up and oil change on delivery truck.
(d) $7,
Only cost (c) is expensed when incurred.
BE 10-14 (LO6) Ottawa Corporation owns machinery that cost $20,000 when purchased July 1, 2014. Depreciation has been recorded at a rate of $2,400 per year, resulting in a balance in accumulated depreciation of $8,400 at December 31, 2017. The machinery i
Depreciation Expense ($2,400 X 8/12)...................... 1,600
Cr. Accumulated Depreciation�Machinery ......... 1,600
BE 10-14 (LO6) Ottawa Corporation owns machinery that cost $20,000 when purchased July 1, 2014. Depreciation has been recorded at a rate of $2,400 per year, resulting in a balance in accumulated depreciation of $8,400 at December 31, 2017. The machinery i
Cash ............................................................................ 10,500
Accumulated Depreciation�Machinery ($8,400 + $1,600).................................................... 10,000
Cr. Machinery.......................................................... 20,000
Cr. Gain on Disposal of Machinery ....................... 500
BE 10-15 (LO6) Ottawa Corporation owns machinery that cost $20,000 when purchased July 1, 2014. Depreciation has been recorded at a rate of $2,400 per year, resulting in a balance in accumulated depreciation of $8,400 at December 31, 2017. The machinery i
Depreciation Expense ($2,400 X 8/12)...................... 1,600
Cr. Accumulated Depreciation�Machinery ......... 1,600
BE 10-15 (LO6) Ottawa Corporation owns machinery that cost $20,000 when purchased July 1, 2014. Depreciation has been recorded at a rate of $2,400 per year, resulting in a balance in accumulated depreciation of $8,400 at December 31, 2017. The machinery i
Cash ............................................................................ 5,200
Loss on Disposal of Machinery ................................ 4,800
Accumulated Depreciation�Machinery ($8,400 + $1,600).................................................... 10,000
Cr. Machinery.......................................................... 20,000
BE 11-1 (LO1) Fernandez Corporation purchased a truck at the beginning of 2017 for $50,000. The truck is estimated to have a salvage value of $2,000 and a useful life of 160,000 miles. It was driver 23,000 miles in 2017 and 31,000 miles in 2018. Compute d
2017: ([$50,000 - $2,000) X 23,000] / 160,000 = $6,900
2018: [($50,000 - $2,000) X 31,000] / 160,000 = $9,300
BE 11-10 (LO5) In its 2014 annual report, Campbell Soup Company reports beginning-of-the-year total assets of $8,113 million, end-of-the-year total assets of $8,323 million, total sales of $8,268 million, and net income of $807 million. Compute Campbell's
$807 / [($8,113 + $8,323) / 2] = 9.82%
BE 12-1 (LO1,2) Taylor Swift Corporation purchases a patent from Salmon Company on January 1, 2017, for $54,000. The patent has a remaining legal life of 16 years. Taylor Swift feels the patent will be useful for 10 years. Prepare Taylor Swift's journal e
Patents............................................................................ 54,000
Cr. Cash....................................................................... 54,000
Amortization Expense ................................................... 5,400
Cr. Patents ($54,000 X 1/10 = $5,400)........................ 5,400
BE 12-2 (LO1,2) Taylor Swift Corporation purchases a patent from Salmon Company on January 1, 2017, for $54,000. The patent has a remaining legal life of 16 years. Taylor Swift feels the patent will be useful for 10 years. On January 1, 2019, the carrying
Patents............................................................................ 24,000
Cr. Cash....................................................................... 24,000
Amortization Expense ................................................... 8,400
Cr. Patents [($43,200 + $24,000) X 1/8 = $8,400]......... 8,400
BE 12-3 (LO1,2) Stephan Curry, Inc., spent $68,000 in attorney fees while developing the trade name of its new product, the Mean Bean Machine. Prepare the journal entries to record the $68,000 expenditure and the first year's amortization, using an 8-year
Trade Names .................................................................. 68,000
Cr. Cash....................................................................... 68,000
Amortization Expense ................................................... 8,500
Cr. Trade Names ($68,000 X 1/8 = $8,500) ................ 8,500
BE 12-4 (LO1,2) Gershwin Corporation obtained a franchise from Sonic Hedgehog Inc. for a cash payment of $120,000 on April 1, 2017. The franchise grants Gershwin the right to sell certain products and services for a period of 8 years. Prepare Gershwin's A
Franchises...................................................................... 120,000
Cr. Cash....................................................................... 120,000
Amortization Expense ................................................... 11,250
Cr. Franchises ($120,000 X 1/8 X 9/12 = $11,250)..... 11,250
BE 12-5 (LO3) On September 1, 2017, Winans Corporation acquired Aumont Enterprises for a cash payment of $700,000. At the time of purchase, Aumont's balance sheet showed assets of $620,000, liabilities of $200,000, and owners' equity of $420,000. The fair
Purchase price $700,000
Fair value of assets->$800,000
Fair value of liabilities->200,000
Fair value of net assets $600,000
Value assigned to goodwill $100,000
BE 12-6 (LO4) Kenoly Corporation owns a patent that has a carrying amount of $300,000, Kenoly expects future net cash flows from this patent to total $210,000. The fair value of the patent is $110,000. Prepare Kenoly's journal entry, if necessary, to reco
Loss on Impairment ...................................................... 190,000
Cr. Patents ($300,000 - $110,000)............................. 190,000
Note: An impairment has occurred because expected net future cash flows ($210,000) are less than the carrying amount ($300,000). The loss is measured as the difference between the carrying amount and fair value ($110,000).
BE 12-7 (LO4) Waters Corporation purchased Johnson Company 3 years ago and at that time recorded goodwill of $400,000. The Johnson Division's net assets, including the goodwill, have a carrying amount of $800,000. The fair value of the division is estimat
Because the fair value of the division exceeds the carrying amount of the assets, goodwill is not considered to be impaired. No entry is necessary.
BE 12-8 (LO4) Waters Corporation purchased Johnson Company 3 years ago and at that time recorded goodwill of $400,000. The Johnson Division's net assets, including the goodwill, have a carrying amount of $800,000. The fair value of the division is estimat
Loss on Impairment ($400,000 - $350,000).................50,000
Cr. Goodwill................................................................ 50,000
The fair value of the reporting unit ($750,000) is less than the carrying value ($800,000)�an impairment has occurred. The loss is the difference between the recorded goodwill of $400,000 and the implied goodwill of $350,000.
BE 12-9 (LO1,2,5) Nieland Industries had one patent recorded on its books as of January 1, 2017. This patent had a book value of $288,000 and a remaining useful life of 8 years. During 2017, Nieland incurred research and development costs of $96,000 and b
Carrying Amount->Life in Months->Amortization Per Month->Months Amortization
Patent (1/1/17) $288,000->96->$3,000->12
Legal costs (12/1/17) 85,000->85->$1,000->1
Carrying amount ........................................................ $373,000
Less: Amortization of patent (12 X $3,000)............. (36,000)
Less: Legal costs amortization (1 X $1,000) .......... (1,000)
Carrying amount 12/31/17 ......................................... ) $336,000
BE 12-10 (LO1,2,5) Sinise Industries acquired two copyrights during 2017. One copyright related to a textbook that was developed internally at a cost of $9,900. This textbook is estimated to have a useful life of 3 years from September 1, 2017, the date i
Copyright No. 1 for $9,900 should be expensed and therefore not reported on the balance sheet.
Copyright No. 2 for $24,000 should be capitalized. Because the useful life is indefinite, copyright No. 2 should be tested at least annually for impairment using a fair value test. It would be reflected on the December 31, 2017 balance sheet at its cost of $24,000.
BE 12-11 (LO5) R. Wilson Corporation commenced operations in early 2017. The corporation incurred$60,000 of costs such as fees to underwriters, legal fees, state fees, and promotional expenditures during its formation. Prepare journal entries to record th
Organization Expense ................................................... 60,000
Cr. Cash............................................................. 60,000
BE 12-12 (LO5) Treasure Land Corporation incurred the following costs in 2017.
~Cost of laboratory research aimed at discovery of new knowledge -> $120,000
~Cost of testing in search for product alternatives -> $100,000
~Cost of engineering activity requi
Research and Development Expense....................... 430,000
Cr. Cash ................................................................... 430,000
BE 12-13 (LO5) Indicate whether the following items are capitalized or expensed in the current year.
-Purchase cost of a patent from a competitor.
Capitalize
BE 12-13 (LO5) Indicate whether the following items are capitalized or expensed in the current year.
-Research and development costs.
Expense
BE 12-13 (LO5) Indicate whether the following items are capitalized or expensed in the current year.
-Organized costs.
Expense
BE 12-13 (LO5) Indicate whether the following items are capitalized or expensed in the current year.
-Costs incurred internally to create goodwill.
Expense