Chapter Nine

Challenge Exercise 1 Expands on: E9-2 LO: 1 Fluffer Company incurred the following costs 1 !ales tax on factory machinery purchased" #$"%%% 2 &ainting of and lettering on truc' immediately upon purchase" #(%% ) *nstallation and testing of factory machinery" #2"+%% , -eal estate .ro'er/s commission on land purchased #,"+%% + *nsurance premium paid for first year/s insurance on new truc' #9)% 0 Cost of landscaping on property purchased" #9"2%% $ Cost of pa1ing par'ing lot for new .uilding" #1("$%% ( Cost of clearing" draining" and filling land" #1,",%% 9 2rchitect/s fees on self-constructed .uilding" #11"%%% *nstructions: a3 *ndicate to which account 4rudy would de.it each of the costs .3 Explain why item 1 is not de.ited to an expense account c3 Explain why items $ and ( are de.ited to different accounts

Challenge Exercise 2 Expands on: 9-0 LO: )" 0

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5et6 Company purchased a new machine on !eptem.er 1" 2%1," at a cost of #12%"%%% 4he company estimated that the machine will ha1e a sal1age 1alue of #12"%%% 4he machine is expected to .e used for 1%"%%% wor'ing hours during its +-year life *nstructions: Compute the depreciation expense under the following methods for the year indicated 7a3 !traight-line for 2%1," 2%1+" and 2%10 7.3 8nits-of-acti1ity for 2%1," assuming machine usage was $%% hours 7c3 9eclining-.alance using dou.le the straight-line rate for 2%1," 2%1+" and 2%10 7d3 2ssume the straight-line method is used :hat amount of gain or loss would 5et6 recogni6e if they sell the asset for #,+"%%% on 1;1;1,< 7e3 2ssume the dou.le-declining .alance method is used :hat amount of gain or loss would 5et6 recogni6e if they sell the asset for #,+"%%% on 1;1;1,<

Challenge Exercise 3 Expands on: E9-$ LO: 2" ,

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Weygandt, Financial and Managerial Acco nting, Challenge !"ercises

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=ea'man Company purchased a deli1ery truc' for #+%"%%% on >anuary 1" 2%1, 4he truc' has an expected sal1age 1alue of #+"%%%" and is expected to .e dri1en 1%%"%%% miles o1er its estimated useful life of ( years 2ctual miles dri1en were 1,"%%% in 2%1, and 12"%%% in 2%1+ *nstructions: 7a3 Compute depreciation expense for 2%1, and 2%1+ using 713 the straight-line method" 723 the units-of-acti1ity method" and 7)3 the dou.le-declining .alance method 7.3 2ssume that =ea'man uses the straight-line method 713 &repare the ?ournal entry to record 2%1, depreciation 723 !how how the truc' would .e reported in the 9ecem.er )1" 2%1+" .alance sheet 7)3 2ssume the truc' is sold for #)%"%%% on 1;1;1) &repare the ?ournal entry

Challenge Exercise 4 Expands on: E9-( LO: 2 &aul @cCartney" the new controller of =lac'.ird Company" has re1iewed the expected useful li1es and sal1age 1alues of selected deprecia.le assets at the .eginning of 2%1, Ais findings are as follows
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Weygandt, Financial and Managerial Acco nting, Challenge !"ercises

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Type of Date Accumulated Useful life yrs!" #al$age %alue Asset Ac&uired Cost Depr! 1'1'14 (ld )roposed (ld )roposed =uilding 1;1;%( #1"2%%"%%% #1$1"%%% ,% +% #0%"%%% #1%+"%%% :arehouse 1;1;%9 1+%"%%% 2("+%% 2+ 2% $"%%% 1)"+%% 2ll assets are depreciated .y the straight-line method =lac'.ird Company uses a calendar year in preparing annual financial statements 2fter discussion" management has agreed to accept &aul/s proposed changes *nstructions: 7a3 Compute the re1ised annual depreciation on each asset in 2%1, 7!how computations 3 7.3 &repare the entry 7or entries3 to record depreciation on the .uilding in 2%1, 7c3 !how how the .uilding is reported in the 12;)1;1 .alance sheet

Challenge Exercise * Expands on: E9-1% LO: , 5race Company owns eBuipment that cost #$%"%%% when purchased on >anuary 1" 2%11 *t has .een depreciated using the straight-line method .ased on estimated sal1age 1alue of #$"%%% and an estimated useful life of + years
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Weygandt, Financial and Managerial Acco nting, Challenge !"ercises

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*nstructions: &repare 5race Company/s ?ournal entries to record the sale of the eBuipment in these four independent situations 8pdate depreciation on assets disposed of at time of sale 7a3 !old for #,%"%%% on >anuary 1" 2%1, 7.3 !old for #,%"%%% on 2pril 1" 2%1, 7c3 !old for #1+"%%% on >anuary 1" 2%1, 7d3 !old for #1+"%%% on !eptem.er 1" 2%1, 7e3 -epeat 7a3" assuming 5race uses dou.le-declining .alance depreciation 7e3 -epeat 7c3" assuming 5race uses dou.le-declining .alance depreciation

Challenge Exercise + Expands on: E9-11 LO: + On >uly 1" 2%1," *6aa' *nc in1ested #91%"%%% in a mine estimated to ha1e $%%"%%% tons of ore of uniform grade 9uring the last 0 months of 2%1," 1%%"%%% tons of ore were mined and sold *nstructions:
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Weygandt, Financial and Managerial Acco nting, Challenge !"ercises

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7a3 &repare the ?ournal entry to record depletion expense 7.3 :hat effect 7increase" decrease" no effect3 does the transaction a.o1e ha1e on assets" lia.ilities" and stoc'holders/ eBuity< 7c3 2ssume that the 1%%"%%% tons of ore were mined" .ut only (%"%%% units were sold Aow are the costs applica.le to the 2%"%%% unsold units reported< 7d3 :hat effect would the situation descri.ed in 7c3 ha1e on assets" lia.ilities" and stoc'holders/ eBuity<

Challenge Exercise , Expands on: E9-12 LO: 0 4he following are selected 2%1, transactions of &agnucci Corporation >an 1 &urchased a small company and recorded goodwill of #2%%"%%% *ts useful life is indefinite 2pril 1 &urchased for #12%"%%% a patent with an estimated useful life of + years and a legal life of 2% years
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Weygandt, Financial and Managerial Acco nting, Challenge !"ercises

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*nstructions: a3 &repare necessary ad?usting entries at 9ecem.er )1 to record amorti6ation reBuired .y the e1ents a.o1e .3 *ndicate how the intangi.le assets will appear on &agnucci/s 12;)1;11 .alance sheet c3 !tefan Franco" an intern at &agnucii Company feels the company can sol1e its cash shortage .y selling some of the goodwill it reports on its .alance sheet E1aluate !tefan/s plan

Challenge Exercise Expands on: E9-1, LO: $ 9uring 2%1, 2slan Corporation reported sales re1enue of #+"%%%"%%%" sales returns of #2%%"%%% and net income of #1"0%%"%%% 2slan/s capital structure at the .eginning and end of the year was: 1;1;1, 12;)1;1, Lia.ilities #1"+%%"%%% #1"0+%"%%% !toc'holders/ eBuity 2")+%"%%% 2"+%%"%%%
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Weygandt, Financial and Managerial Acco nting, Challenge !"ercises

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*nstructions: a3 Calculate the asset turno1er ratio .3 Calculate return on assets c3 Explain what each ratio should tell you a.out the company

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Weygandt, Financial and Managerial Acco nting, Challenge !"ercises

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