Financial statement data for years ending December 31 for Davenport Company follow:

Financial statement data for years ending December 31 for Davenport Company follow:

                                      Year 2 | Year 1 

Sales                     $1,668,000 | $1,125,000

Fixed assets:

 Beginning of year      670,000 | 580,000

 End of year                720,000 | 670,000

a. Determine the fixed asset turnover ratio for Year 1 and Year 2.

b. Does the change in the fixed asset turnover ratio from Year 1 to Year 2 indicate a favorable or an unfavorable change?

Answer:

a. Fixed Asset Turnover: Sales................................. Fixed assets: Beginning of year............  End of year..................... Average fixed assets............ Fixed asset turnover............ Year 2 Year 1 $1,668,000 $1,125,000 ($1,668,000 ÷ $695,000) ($1,125,000 ÷ $625,000) b. The increase in the fixed asset turnover ratio from 1.8 to 2.4 indicates a favorable change in the efficiency of using fixed assets to generate sales.

Financial statement data for years ending December 31 for DePuy Company follow:

Financial statement data for years ending December 31 for DePuy Company follow:

                                          Year 2 | Year 1

Sales                         $5,510,000 | $4,880,000

Fixed assets:

 Beginning of year       1,600,000 | 1,450,000

 End of year                 2,200,000 | 1,600,000

a. Determine the fixed asset turnover ratio for Year 1 and Year 2.

b. Does the change in the fixed asset turnover ratio from Year 1 to Year 2 indicate a favorable or an unfavorable change?

Answer:

a. Fixed Asset Turnover: Sales.................................... Fixed assets: Beginning of year............... End of year........................ Average fixed assets............... Fixed asset turnover............... Year 2 Year 1 $5,510,000 $4,880,000 ($5,510,000 ÷ $1,900,000) ($4,880,000 ÷ $1,525,000) b. The decrease in the fixed asset turnover ratio from 3.2 to 2.9 indicates an unfavorable change in the efficiency of using fixed assets to generate sales. 

On December 31, it was estimated that goodwill of $4,000,000 was impaired. In addition, a patent with an estimated useful economic life

On December 31, it was estimated that goodwill of $4,000,000 was impaired. In addition, a patent with an estimated useful economic life of 15 years was acquired for $900,000 on August 1.

a. Journalize the adjusting entry on December 31 for the impaired goodwill.

b. Journalize the adjusting entry on December 31 for the amortization of the patent rights.

Answer:

a.  Dec. 31 Loss from Impaired Goodwill 4,000,000 Goodwill 4,000,000 Impaired goodwill. b.  Dec. 31 Amortization Expense—Patents 25,000

Patents 25,000 Amortized patent rights [($900,000 ÷ 15) × (5 ÷ 12)].

Caldwell Mining Co. acquired mineral rights for $127,500,000. The mineral deposit is estimated at 425,000,000 tons

Caldwell Mining Co. acquired mineral rights for $127,500,000. The mineral deposit is estimated at 425,000,000 tons. During the current year, 42,000,000 tons were mined and sold.

a. Determine the depletion rate.

b. Determine the amount of depletion expense for the current year.

c. Journalize the adjusting entry on December 31 to recognize the depletion expense.

Answer:

a. $0.30 per ton = $127,500,000 ÷ 425,000,000 tons b. $12,600,000 = 42,000,000 tons × $0.30 per ton c. 31 Depletion Expense 12,600,000 Accumulated Depletion 12,600,000 Depletion of mineral deposit.

On December 31, it was estimated that goodwill of $6,000,000 was impaired. In addition, a patent with an estimated useful economic life

On December 31, it was estimated that goodwill of $6,000,000 was impaired. In addition, a patent with an estimated useful economic life of 12 years was acquired for $1,500,000 on April 1.

a. Journalize the adjusting entry on December 31 for the impaired goodwill.

b. Journalize the adjusting entry on December 31 for the amortization of the patent rights.

Answer:

a.  Dec. 31 Loss from Impaired Goodwill 6,000,000 Goodwill 6,000,000 Impaired goodwill. b.  Dec. 31 Amortization Expense—Patents 93,750

Patents 93,750 Amortized patent rights [($1,500,000 ÷ 12) × (9 ÷ 12)].

Glacier Mining Co. acquired mineral rights for $494,000,000. The mineral deposit is estimated at 475,000,000 tons

Glacier Mining Co. acquired mineral rights for $494,000,000. The mineral deposit is estimated at 475,000,000 tons. During the current year, 31,500,000 tons were mined and sold.

a. Determine the depletion rate.

b. Determine the amount of depletion expense for the current year.

c. Journalize the adjusting entry on December 31 to recognize the depletion expense.

Answer:

a. $1.04 per ton = $494,000,000 ÷ 475,000,000 tons b. $32,760,000 = 31,500,000 tons × $1.04 per ton c. 31 Depletion Expense 32,760,000 Accumulated Depletion 32,760,000 Depletion of mineral deposit.

Equipment was acquired at the beginning of the year at a cost of $600,000. The equipment was depreciated using the double-declining-balance

Equipment was acquired at the beginning of the year at a cost of $600,000. The equipment was depreciated using the double-declining-balance method based on an estimated useful life of 16 years and an estimated residual value of $60,000.

a. What was the depreciation for the first year?

b. Assuming that the equipment was sold at the end of the second year for $480,000, determine the gain or loss on the sale of the equipment.

c. Journalize the entry to record the sale.

Answer:

a. $75,000 = $600,000 × [(100% ÷ 16) × 2)] = $600,000 × 12.5% b. $20,625 gain, computed as follows:  Cost................................................... $600,000 First-year depreciation..................... (75,000) Second-year depreciation.................. (65,625) [($600,000 – $75,000) × 12.5%] Book value at end of second year............ $459,375 Gain on sale ($480,000 – $459,375) = $20,625 c. Cash 480,000 Accumulated Depreciation—Equipment 140,625 Equipment 600,000 Gain on Sale of Equipment 20,625

Equipment was acquired at the beginning of the year at a cost of $465,000. The equipment was depreciated using the straight-line method based

Equipment was acquired at the beginning of the year at a cost of $465,000. The equipment was depreciated using the straight-line method based on an estimated useful life of 15 years and an estimated residual value of $45,000.

a. What was the depreciation for the first year?

b. Assuming the equipment was sold at the end of the eighth year for $235,000, determine the gain or loss on the sale of the equipment.

c. Journalize the entry to record the sale.

Answer:

a. $28,000  [($465,000 – $45,000) ÷ 15] b. $6,000 loss  {$235,000 – [$46 5,000 – ($28,000 × 8)]}

c. Cash 235,000 Accumulated Depreciation—Equipment 224,000 Loss on Sale of Equipment6,000 Equipment 465,000

On August 7, Green River Inflatables Co. paid $1,675 to install a hydraulic lift and $40 for an air filter for one of its delivery trucks

On August 7, Green River Inflatables Co. paid $1,675 to install a hydraulic lift and $40 for an air filter for one of its delivery trucks. Journalize the entries for the new lift and air filter expenditures.

Answer:

Aug. 7 Delivery Truck 1,675 Cash 1,675 7 Repairs and Maintenance Expense 40 Cash 40

Equipment with a cost of $180,000 has an estimated residual value of $14,400, has an estimated useful life of 16 years

Equipment with a cost of $180,000 has an estimated residual value of $14,400, has an estimated useful life of 16 years, and is depreciated by the straight-line method. 

(a) Determine the amount of the annual depreciation. (b) Determine the book value at the end of the tenth year of use. (c) Assuming that at the start of the eleventh year the remaining life is estimated to be eight years and the residual value is estimated to be $10,500, determine the depreciation expense for each of the remaining eight years.

Answer:

a. $10,350  [($180,000 – $14,400) ÷ 16]

b. $76,500  [$180,000 –  ($10,350 × 10)]

c. $8,250  [($76,500 – $10,500) ÷ 8]

A truck with a cost of $82,000 has an estimated residual value of $16,000, has an estimated useful life of 12 years

A truck with a cost of $82,000 has an estimated residual value of $16,000, has an estimated useful life of 12 years, and is depreciated by the straight-line method. (a) Determine the amount of the annual depreciation. (b) Determine the book value at the end of the seventh year of use. (c) Assuming that at the start of the eighth year the remaining life is estimated to be six years and the residual value is estimated to be $12,000, determine the depreciation expense for each of the remaining six years.

Answer:

a. $5,500  [($82,000 – $16,000) ÷ 12]

b. $43,500  [$82,000 –  ($5,500 × 7)]

c. $5,250  [($43,500 – $12,000) ÷ 6]

On February 14, Garcia Associates Co. paid $2,300 to repair the transmission on one of its delivery vans

On February 14, Garcia Associates Co. paid $2,300 to repair the transmission on one of its delivery vans. In addition, Garcia paid $450 to install a GPS system in its van. Journalize the entries for the transmission and GPS system expenditures.

Answer:

14 Accumulated Depreciation—Delivery Van 2,300 Cash 2,300 14 Delivery Van 450 Cash 450

A truck acquired at a cost of $69,000 has an estimated residual value of $12,000, has an estimated useful life of 300,000 miles

A truck acquired at a cost of $69,000 has an estimated residual value of $12,000, has an estimated useful life of 300,000 miles, and was driven 77,000 miles during the year. 

Determine (a) the depreciable cost, (b) the depreciation rate, and (c) the units-of-activity depreciation for the year.

Answer:

a. $57,000  ($69,000 – $12,000)

b. $0.19 per mile  ($57,000 ÷ 300,000 miles)

c. $14,630  (77,000 miles × $0.19)

A tractor acquired at a cost of $420,000 has an estimated residual value of $30,000, has an estimated useful life of 25,000 hours

A tractor acquired at a cost of $420,000 has an estimated residual value of $30,000, has an estimated useful life of 25,000 hours, and was operated 1,850 hours during the year. 

Determine (a) the depreciable cost, (b) the depreciation rate, and (c) the units-of-activity depreciation for the year.

Answer:

a. $390,000  ($420,000 – $30,000)

b. $15.60 per mile  ($390,000 ÷ 25,000 miles)

c. $28,860  (1,850 miles × $15.60)

A building acquired at the beginning of the year at a cost of $1,375,000 has an estimated residual value of $250,000

A building acquired at the beginning of the year at a cost of $1,375,000 has an estimated residual value of $250,000 and an estimated useful life of 40 years. Determine (a) the double-declining-balance rate and (b) the double-declining-balance depreciation for the first year.

Answer:

a. 5%  [(100% ÷ 40) × 2]

b. $68,750  ($1,375,000 × 5%)

Equipment acquired at the beginning of the year at a cost of $175,000 has an estimated residual value of $12,000

Equipment acquired at the beginning of the year at a cost of $175,000 has an estimated residual value of $12,000 and an estimated useful life of 10 years. Determine (a) the double-declining-balance rate and (b) the double-declining-balance depreciation for the first year.

Answer:

a. 20.0%  [(100% ÷ 10) × 2]

b. $35,000  ($175,000 × 20.0%)

A building acquired at the beginning of the year at a cost of $1,450,000 has an estimated residual value of $300,000

A building acquired at the beginning of the year at a cost of $1,450,000 has an estimated residual value of $300,000 and an estimated useful life of 10 year. Determine (a) the depreciable cost, (b) the straight-line rate, and (c) the annual straight-line depreciation.

Answer:

a. $1,150,000  ($1,450,000 – $300,000)

b. 10%  (100% ÷ 10)

c. $115,000  ($1,150,000 × 10%) or ($1,150,000 ÷ 10 years)

Equipment acquired at the beginning of the year at a cost of $340,000 has an estimated residual value of $45,000

Equipment acquired at the beginning of the year at a cost of $340,000 has an estimated residual value of $45,000 and an estimated useful life of 10 years. Determine (a) the depreciable cost, (b) the straight-line rate, and (c) the annual straight-line depreciation.

Answer:

a. $295,000  ($340,000 – $45,000)

b. 10%  (100% ÷ 10)

c. $29,500  ($295,000 × 10%) or ($295,000 ÷ 10 years)