Barcamone only 2
Problem 1
The following is a list of account titles and amounts (in millions) from a recent company annual report:
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Buildings and improvements
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$ 182
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Goodwill
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$ 324
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Prepaid expenses
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135
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Machinery and equipment
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521
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Allowance for Doubtful Accounts
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41
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Accumulated Depreciation
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382
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Other noncurrent assets
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248
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Inventory
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421
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Accumulated amortization
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800
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Other intangibles
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1,452
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Cash and cash equivalents
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710
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Accounts receivable
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685
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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.
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Machine A
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Machine B
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Machine C
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Amount paid for the machine
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14,000
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28,500
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11,200
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Installation cost
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600
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1,000
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400
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Delivery cost
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600
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800
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600
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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:
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Machine
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Life
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Residual Value
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Depreciation Method
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A
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6 years
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1,000
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Straight-line
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B
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50,000 hours
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2,000
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Units-of-production
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C
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5 years
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1,000
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Double-declining-balance
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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
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Year
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Computation
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Depreciation Expense
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Accumulated Depreciation
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Net Book Value
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Straight-line:
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Acquisition
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Year 1
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Year 2
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Units-of-production:
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Acquisition
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Year 1
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Year 2
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Double-declining-balance:
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Acquisition
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Year 1
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Year 2
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- 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?
