The following is a list of account titles and amounts (dollars in millions) reported by Hasbro, Inc., a leading manufacturer of games, toys, and interactive entertainment software for children and families:
Prepare the asset section of the balance sheet for Hasbro, Inc., classifying the assets into Current Assets, Property, Plant, and Equipment (net), and Other Assets.
KD Company bought a building for $71,000 cash and the land on which it is located for $107,000 cash. The company paid transfer costs of $3,000 ($1,000 for the building and $2,000 for the land). Renovation costs on the building were $23,000.
Required:
Give the journal entry to record the purchase of the property, including all expenditures. Assume that all transactions were for cash and that all purchases occurred at the start of the year.
Compute straight-line depreciation at the end of one year, assuming an estimated 10-year useful life and a $15,000 estimated residual value.
What would be the net book value of the property (land and building) at the end of year 2?
E8-3 Computing and Recording Cost and Depreciation of Assets (Straight-Line Depreciation) LO2, 3
Kalriess Company ordered a machine on January 1, 2011, at an invoice price of $21,000. On date of delivery, January 2, 2011, the company paid $8,000 on the machine, and the balance was on credit at 10 percent interest. On January 3, 2011, it paid $1,000 for freight on the machine. On January 5, Kalreiss paid installation costs relating to the machine amounting to $1,500. On July 1, 2011, the company paid the balance due on the machine plus the interest. On December 31, 2011 (the end of the accounting period), Kalriess recorded depreciation on the machine using the straight-line method with an estimated useful life of 10 years and an estimated residual value of $3,500.
Required (round all amounts to the nearest dollar):
Indicate the effects (accounts, amounts, and + or –) of each transaction (on January 1, 2, 3, 5, and July 1) on the accounting equation. Use the following schedule:
Compute the depreciation expense to be reported for 2011.
What is the impact on the cost of the machine of the interest paid on the 10 percent note? Under what circumstances can interest expense be included in acquisition cost?
What would be the net book value of the machine at the end of 2012?
E8-4 Determining Financial Statement Effects of an Asset Acquisition and Depreciation (Straight-Line Depreciation) LO2, 3
Stacey Company operates a small manufacturing facility as a supplement to its regular service activities. At the beginning of 2010, an asset account for the company showed the following balances:
The equipment is being depreciated on a straight-line basis over an estimated life of 15 years with a $10,000 estimated residual value. The annual accounting period ends on December 31.
Required:
Give the adjusting entry that was made at the end of 2009 for depreciation on the manufacturing equipment.
Starting at the beginning of 2010, what is the remaining estimated life?
Give the journal entries to record the two expenditures during 2010.
E8-5 Recording Depreciation and Repairs (Straight-Line Depreciation) LO2, 3
Refer to the information in E8–5.
Required:
Indicate the effects (accounts, amounts, and + or –) of the following on the accounting equation.
The adjustment for depreciation at the end of 2009.
The two expenditures during 2010.
E8-6 Determining Financial Statement Effects of Depreciation and Repairs (Straight-Line Depreciation) LO2, 3
Rita’s Pita Company bought a new dough machine at the beginning of the year at a cost of $6,000. The estimated useful life was four years, and the residual value was $1,000. Assume that the estimated productive life of the machine was 9,000 hours. Actual annual usage was 3,600 hours in year 1; 2,700 hours in year 2; 1,800 hours in year 3; and 900 hours in year 4.
Required:
Complete a separate depreciation schedule for each of the alternative methods. Round your answers to the nearest dollar.
Straight-line.
Units-of-production (use four decimal places for the per unit output factor).
Assuming that the machine was used directly in the production of one of the products that the company manufactures and sells, what factors might management consider in selecting a preferable depreciation method in conformity with the matching principle?
E8-7 Computing Depreciation under Alternative Methods LO3
Alexa Plastics Company purchased a new stamping machine at the beginning of the year at a cost of $280,000. The estimated residual value was $30,000. Assume that the estimated useful life was five years, and the estimated productive life of the machine was 250,000 units. Actual annual production was as follows:
Assuming that the machine was used directly in the production of one of the products that the company manufactures and sells, what factors might management consider in selecting a preferable depreciation method in conformity with the matching principle?
E8-8 Computing Depreciation under Alternative Methods LO3
A recent annual report for Ford Motor Company contained the following note:
A recent annual report for Federal Express Corporation includes the following information:
For financial reporting purposes, depreciation and amortization of property and equipment is provided on a straight-line basis over the asset’s service life. For income tax purposes, depreciation is generally computed using accelerated methods.
Required:
Explain why Federal Express uses different methods of depreciation for financial reporting and tax purposes.
E8-10 Interpreting Management’s Choice of Different Depreciation Methods for Tax and Financial Reporting LO3
Daisey Company bought a machine for $66,000 cash. The estimated useful life was four years, and the estimated residual value was $6,000. Assume that the estimated useful life in productive units is 120,000. Units actually produced were 43,000 in year 1 and 45,000 in year 2.
Required:
Determine the appropriate amounts to complete the following schedule. Show computations, and round to the nearest dollar.
Which method would result in the lowest EPS for year 1? For year 2?
Which method would result in the highest amount of cash outflows in year 1? Why?
Indicate the effects of (a) acquiring the machine and (b) recording annual depreciation on the operating and investing activities sections of the statement of cash flows (indirect method) for year 1 (assume the straight-line method).
E8-11 Computing Depreciation and Book Value for Two Years Using Alternative Depreciation Methods and Interpreting the Impact on Cash Flows LO3, 7 <a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0073324833/cash.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (K)</a>
United Parcel Service states in a recent 10-K report, “We are the world’s largest package delivery company and a leading global provider of specialized transportation and logistics services.” The following note and data were reported:
Federal Express is the world’s leading express-distribution company. In addition to the world’s largest fleet of all-cargo aircraft, the company has more than 669 aircraft and 53,000 vehicles and trailers that pick up and deliver packages. Assume that Federal Express sold a small delivery truck that had been used in the business for three years. The records of the company reflected the following:
Trump Entertainment Resorts owns and manages three casino hotel properties, Trump Plaza Hotel and Casino, Trump Taj Mahal Casino Resort, and Trump Marina Hotel Casino, totaling over $1.5 billion in property and equipment. Assume that Trump replaced furniture in one of the hotels that had been used in the business for five years. The records of the company reflected the following regarding the sale of the existing furniture:
Give the journal entry for the disposal of the furniture, assuming that it was sold for
$1,500,000 cash.
$2,600,000 cash.
$900,000 cash.
Based on the three preceding situations, explain the effects of the disposal of an asset.
E8-14 Recording the Disposal of an Asset at Three Different Sale Prices LO5 <a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0073324833/613711/ter_gold_bevel_props_w1.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (12.0K)</a>
On January 1, 2010, the records of Pastuf Corporation showed the following regarding a truck:
On December 31, 2010, the delivery truck was a total loss as the result of an accident.
Required:
Based on the data given, compute the estimated useful life of the truck.
Give all journal entries with respect to the truck on December 31, 2010. Show computations.
E8-15 Inferring Asset Age and Recording Accidental Loss on a Long-Lived Asset (Straight-Line Depreciation) LO5
Freeport-McMoRan Copper & Gold Inc. is one of the world’s largest copper and gold mining and production companies with the majority of its natural resources in Indonesia. Annual revenues exceed $16 billion. Assume that in February 2011, Freeport-McMoRan paid $700,000 for a mineral deposit in Bali. During March, it spent $65,000 in preparing the deposit for exploitation. It was estimated that 900,000 total cubic yards could be extracted economically. During 2011, 60,000 cubic yards were extracted. During January 2012, the company spent another $6,000 for additional developmental work that increased the estimated productive capacity of the mineral deposit.
Required:
Compute the acquisition cost of the deposit in 2011.
Compute depletion for 2011.
Compute the net book value of the deposit after payment of the January 2012 developmental costs.
E8-16 Computing the Acquisition and Depletion of a Natural Resource LO6
Katie Company had three intangible assets at the end of 2010 (end of the accounting year):
A patent purchased from J. Miller on January 1, 2010, for a cash cost of $6,000. Miller had registered the patent with the U.S. Patent Office five years ago.
An internally developed trademark registered with the federal government for $12,000 on November 1, 2010. Management decided the trademark has an indefinite life.
Computer software and Web development technology purchased on January 1, 2009, for $65,000. The technology is expected to have a four-year useful life to the company.
Required:
Compute the acquisition cost of each intangible asset.
Compute the amortization of each intangible at December 31, 2010. The company does not use contra-accounts.
Show how these assets and any related expenses should be reported on the balance sheet and income statement for 2010.
E8-17 Computing and Reporting the Acquisition and Amortization of Three Different Intangible Assets LO6
Cambridge Company had three intangible assets at the end of 2012 (end of the accounting year):
A copyright purchased on January 1, 2011 for a cash cost of $12,300. The copyright is expected to have a ten-year useful life to Cambridge.
Goodwill of $65,000 from the purchase of the Hartford Company on July 1, 2010.
A patent purchased on January 1, 2012 for $39,200 from the inventor who had registered the patent with the U.S. Patent Office on January 1, 2006.
Required:
Compute the acquisition cost of each intangible asset.
Compute the amortization of each intangible at December 31, 2012. The company does not use contra-accounts.
Show how these assets and any related expenses should be reported on the balance sheet and income statement for 2012. (Assume there has been no impairment of goodwill.)
E8-18 Computing and Reporting the Acquisition and Amortization of Three Different Intangible Assets LO6
Starbucks Corporation is a rapidly expanding retailer of specialty coffee with thousands of stores worldwide. Assume that Starbucks planned to open a new store on Commonwealth Avenue near Boston University and obtained a 20-year lease starting January 1, 2011. The company had to renovate the facility by installing an elevator costing $275,000. Amounts spent to enhance leased property are capitalized as intangible assets called Leasehold Improvements. The elevator will be amortized over the useful life of the lease.
Required:
Give the journal entry to record the installation of the new elevator.
Give any adjusting entries required at the end of the annual accounting period on December 31, 2011, related to the new elevator. Show computations.
E8-19 Recording Leasehold Improvements and Related Amortization LO6
You are considering investing the cash gifts you received for graduation in various stocks. You have received several annual reports of major companies.
Required:
For each of the following, indicate where you would locate the information in an annual report. (Hint: The information may be in more than one location.)
The detail on major classifications of long-lived assets.
The accounting method(s) used for financial reporting purposes.
Whether the company has had any capital expenditures for the year.
Net amount of property, plant, and equipment.
Policies on amortizing intangibles.
Depreciation expense.
Any significant gains or losses on disposals of fixed assets.
Prior year’s accumulated depreciation.
The amount of assets written off as impaired during the year.
E8-20 Finding Financial Information as a Potential Investor LO1, 2, 3, 4, 5, 6, 7
Refer to E8-5.
Required:
Give the adjusting entry that should be made at the end of 2010 for depreciation of the manufacturing equipment, assuming no change in the original estimated life or residual value. Show computations.
E8-21 (Supplement) Recording a Change in Estimate LO3
At the end of the annual accounting period, December 31, 2011, Shafer Company’s records reflected the following for Machine A:
During January 2012, the machine was renovated at a cost of $14,000. As a result, the estimated life increased from five years to eight years, and the residual value increased from $4,500 to $6,500. The company uses straight-line depreciation.
Required:
Give the journal entry to record the renovation.
How old was the machine at the end of 2011?
Give the adjusting entry at the end of 2012 to record straight-line depreciation for the year.
Explain the rationale for your entries in requirements 1 and 3.
E8-22 (Supplement) Recording and Explaining Depreciation, Extraordinary Repairs, and Changes in Estimated Useful Life and Residual Value (Straight-Line Depreciation) LO2, 3
Todd Company owns the building occupied by its administrative office. The office building was reflected in the accounts at the end of last year as follows:
During January of this year, on the basis of a careful study, management decided that the total estimated useful life should be changed to 25 years (instead of 30) and the residual value reduced to $23,000 (from $30,000). The depreciation method will not change.
Required:
Compute the annual depreciation expense prior to the change in estimates.
Compute the annual depreciation expense after the change in estimates.
What will be the net effect of changing estimates on the balance sheet, net income, and cash flows for the year?
E8-23 (Supplement) Computing the Effect of a Change in Useful Life and Residual Value on Financial Statements and Cash Flows (Straight-Line Depreciation) LO3, 7 <a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0073324833/cash.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (K)</a>
