Accounting 2 Problems
BE11-4 Using the information for Lockard Company given in BE11-2 (a)Compute 2014 depreciation expense using the double-declining balance method. (b)Compute 2014 depreciation expense using the double-declining balance method, assuming the machinery was purchased on October 1, 2014.
Information for BE11-2
Lockard Company purchased machinery on January 1, 2014, for $80,000. The machinery is estimated to have a salvage value of $8,000 after a useful life of 8 years.
BE11-9 Everly Corporation acquires a coal mine at a cost of $400,000. Intangible development costs total $100,000. After extraction has occured. Everly must restore the property (estimated fair value of the obligation is $80,000), after which it can be sold for $160,000. Everly estimates that 4,000 tons of coal can be extracted. If 700 tons are extracted the first year, prepare the journal entry to record depletion.
BE11-10 In its 2011 annual report, Campbell Soup Company reports beginning-of-the-year total assets of $6,276 million, end-of-the-year total assets of $6,862 million, total sales of $7,719 million, and net income of $805 million. (a)Compute Campbell’s asset turnover. (b)Compute Campbell’s profit margin on sales. (c)Compute Campbell’s return on assets using (1)asset turnover and profit margin and (2)net income.
E11-2(Depreciation–Conceptual Understanding) Rembrandt Company acquired a plant asset at the beginning of Year 1. The asset has an estimated service life of 5 years. An employee has prepared depreciation schedules for this asset using three different methods to compare the results of using one method with the results of using other methods. You are to assume that he following schedules have been correctly prepared for this asset using the (1)the straight-line method, (2)the sum-of-the-years’ method and (3)the double-declining method.
Year Straight-Line Sum-of-the-Years’-Digits Double-Declining Balance
1 9,000 15,000 20,000
2 9,000 12,000 12,000
3 9,000 9,000 7,200
4 9,000 6,000 4,320
5 9,000 3,000 1,480
Total 45,000 45,000 45,000
Instructions
(a)What is the cost of the asset being depreciated?
(b)What amount, if any, was used in the depreciation calculations for the salvage value for this asset?
(c)Which method will produce the highest charge to income Year 1?
(d)Which method will produce the highest charge to income Year 4?
(e)Which method will produce the highest book value for the asset at the end of Year 3?
(f)If the asset is sold at the end of Year 3, which method would yield the highest gain (or the lowest loss) on disposal of the asset?
E11-6 (Depreciation Computations–Five, Methods, Partial Periods) Muggsy Bogues Company purchased equipment for $212,000 on October 1, 2014. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $12,000. Estimated production is $40,000 units and estimated working hours are 20,000. During 2014, Bogues uses the equipment for 525 hours and the equipment produces 1,000units.
Instructions
Compute depreciation expense under each of the following methods, Bogues is on a calendar-year base ending December 31.
(a)Straight-line method for 2014.
(b)Activity method (units of output) for 2014.
(c)Activity method (working hours) for 2014
(d)Sum-of-the-years-digits for 2016.
(e)Double-declining-balance method for 2015.
E11-17 (Impairment) Assume the same information for as e11-16, except that Suarez intends to dispose of the equipment in the coming year. It is expected that the cost of disposal will be $20,000.
Information for E11-16
Cost 9,000,000
Accumulated depreciation to date 1,000,000
Expected future net cash flows 7,000,000
Fair value 4,800,000
P11-3 (Depreciation—SYD, Act, SI, and DDB) The following data relate to the Machinery account of Eshkol, Inc. at December 31, 2014.
Machinery
A B C D
Original cost 46,000 51,000 80,000 80,000
Year purchased 2009 2010 2011 2013
Useful life 10 years 15,000 hours 15 years 10 years
Salvage value 3,100 3,000 5,000 5,000
Depreciation method Sum-of-the- Activity Straight-line Double-
years-digits Declining- balance
Accum depre. through 2014 31,200 35,200 15,000 16,000
The following transactions occurred during 2015
(a)On May 5, Machine A was sold for 13,000 cash. The company’s bookkeeper recorded this retirement in the following manner in the cash receipts journal
Cash 13,000
Machinery A 13,000
(b)On Dember 31, it was determined that Machine B had been used 2,100 hours during 2015.
(c)On December 31, before computing depreciation expense on Machine C, the management of Eshkol, decided the useful life remaining from January 1, 2015, was 10 years.
(d)On December 31, it was discovered that a machine purchased in 2014 had been expensed completely that year. This machine cost 28,000 and has a useful life of 10 years and no salvage value. Management had decided to use the double-declining balance method for this machine, which can be referred to as “Machine E.”
Instructions
Prepare the necessary correcting entries for the year 2015. Record the appropriate depreciation expense on the above-mentioned machines.
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