- •108. On July 1, 2006, Jekel & Hyde Inc. Purchased land and incurred other costs relative to the construction of a new warehouse. A summary of economic activities is listed below:
- •Required:
- •Indicate the accounts that would be affected by the above transactions and the resulting balance in each account. Apply the interest on the construction loan to the cost of the building only.
- •Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •In its 2004 annual report to shareholders, Boston Beer Co. Disclosed the following footnote:
- •E. Property, Plant and Equipment
- •128. Use a t- account to show the balances and changes during 2004 in Boston Beer's: Property, Plant and Equipment account and its Accumulated depreciation—Property, Plant & equipment account.
- •Required:
- •130. Use a t- account to show the balances and changes during 2004 in Plank Breweries:
- •Note 4 Property, Plant and Equipment
- •100. A summary of Klugman Company's December 31, 2006, accounts receivable aging schedule is presented below along with the estimated percent uncollectible for each age group:
- •101. A summary of London Fashion's December 31, 2006, accounts receivable aging schedule is presented below along with the estimated percent uncollectible for each age group:
- •114. Is there any evidence in Winchester's disclosures above that are consistent with earnings management?
- •Required:
- •121. Is there any evidence in hp's disclosures above that are consistent with earnings management?
- •100. Required:
- •101. Required:
- •104. Required:
- •105. Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •127. In its 2004 annual report to shareholders, Martin Marietta Materials, Inc. Included the following in its financial statement footnotes:
- •Note e: property, plant and equipment, net
- •In another footnote, the company reported:
Required:
-
Compute the composite depreciation rate.
-
Compute the average service life.
-
Compute 2006 depreciation expense.
Answer:
|
|
|
Residual |
Depreciable |
|
Straight- |
|
Equipment |
Cost |
Value |
Base |
Life (yrs) |
Line Depr. |
|
Turbines |
$4,500,000 |
$500,000 |
$4,000,000 |
25 |
$160,000 |
|
Steam pipes |
3,000,000 |
300,000 |
2,700,000 |
15 |
180,000 |
|
Furnace |
6,000,000 |
0 |
6,000,000 |
20 |
300,000 |
|
|
$13,500,000 |
|
$12,700,000 |
|
$640,000 |
-
Composite depreciation rate = $640,000 / $13,500,000 = 4.74%
-
Average service life = $12,700,000 / $640,000 = 19.8 years
-
Depreciation expense = .0474 x $13,500,000 = $639,900 or $640,000 (rounded)
Learning Objective: 2 Level of Learning: 3
Use the following to answer questions 109-110:
On April 1, 2006, Parks Co. purchased machinery at a cost of $42,000. The machinery is expected to last ten years and to have a residual value of $6,000.
Required:
109. Compute depreciation expense for 2006 and 2007 and the book value of the machinery at December 31, 2006 and 2007, assuming the sum-of-the-years'-digits method is used.
Answer:
Denominator = n(n+1)/2 = (10 x 11)/2 = 55
Depreciable base = $42,000 - 6,000 = $36,000
2006 depreciation expense: 10/55 x $36,000 x 9/12= $4,909
2007 depreciation expense: (9/55 x $36,000 x 9/12) + (10/55 x $36,000 x 3/12) = $6,054
|
|
|
Depr. |
Accum. |
Dec. 31 |
|
Year |
Cost |
Expense |
Depr. |
Book Value |
|
2006 |
$42,000 |
$4,909 |
$4,909 |
$37,091 |
|
2007 |
42,000 |
6,054 |
10,963 |
31,037 |
Learning Objective: 2 Level of Learning: 3
110. Compute depreciation expense for 2006 and 2007 and the book value of the machinery at December 31, 2006 and 2007, assuming double-declining balance method is used.
Answer:
Straight-line rate = 1/10 years = 10%. DDB = 2 x 10% = 20%
|
Cost, April 1, 2006 |
$42,000 |
|
2006 depreciation expense (20% x 9/12) |
6,300 |
|
Book value, December 31, 2006 |
35,700 |
|
2007 depreciation expense (20%) |
7,140 |
|
Book value, December 31, 2007 |
$28,560 |
Learning Objective: 2 Level of Learning: 3
111. Meca Concrete purchased a mixer on January 1, 2004, at a cost of $45,000. Straight-line depreciation for 2004 and 2005 was based on an estimated 8-year life and $3,000 estimated residual value. In 2006, Meca revised its estimate and now believes the mixer will have a total service life of only six years, and that the residual value will be only $2,000.