b. Mar. 15 Depreciation Expense .................................. Accumulated Depreciation .....................
6,000
18,000
45,000
2,250*
6,000 18,000 45,000
15 Accumulated Depreciation ........................... Carpet ....................................................... 30 Carpet ............................................................ Cash..........................................................
c. Dec. 31 Depreciation Expense .................................. Accumulated Depreciation .....................
*($45,000 ÷ 15 years) × 9/12
Ex. 10–10
a. Cost of equipment ..................................................................... Accumulated depreciation at December 31, 2006 (4 years at $22,500* per year) .........................................
Book value at December 31, 2006 ............................................
*($240,000 – $15,000) ÷ 10 = $22,500 b. 1. Depreciation Expense—Equipment .......................... 11,250
Accumulated Depreciation—Equipment ...........
2. Cash ............................................................................ 135,000 Accumulated Depreciation—Equipment ............. 101,250 Loss on Disposal of Fixed Assets ....................... 3,750
Equipment ............................................................
Ex. 10–11
a. 2003 depreciation expense: $15,000 [($96,000 – $6,000) ÷ 6] 2004 depreciation expense: $15,000
2005 depreciation expense: $15,000
b. $51,000 ($96,000 – $45,000)
c. Cash ..................................................................... 38,000 Accumulated Depreciation—Equipment ....................... 45,000
Loss on Disposal of Fixed Assets ................................. 13,000
Equipment .............................................................
d. Cash ..................................................................... 53,000 Accumulated Depreciation—Equipment ....................... 45,000
Equipment .............................................................
Gain on Disposal of Fixed Assets .......................
2,250
$240,000 90,000 $150,000 11,250
240,000
96,000
96,000 2,000
Ex. 10–12
a. $205,000 ($315,000 – $110,000)
b. $303,750 [$315,000 – ($110,000 – $98,750)], or
$303,750 ($205,000 + $98,750)
Ex. 10–13
a. $205,000 ($315,000 – $110,000)
b. $315,000. The new printing press’s cost cannot exceed $315,000 on a
similar exchange. The $18,500 loss on disposal ($128,500 book value – $110,000 trade-in allowance) must be recognized.
Ex. 10–14
a. Depreciation Expense—Equipment ............................... Accumulated Depreciation—Equipment .............
8,000
152,000 385,000 28,000
8,000
b.
Accumulated Depreciation—Equipment ....................... Equipment ........................................................................ Loss on Disposal of Fixed Assets ................................. Equipment ............................................................. Cash ....................................................................... Notes Payable ....................................................... *$385,000 – $100,000 – $35,000
280,000
35,000 250,000*
Ex. 10–15
a. $55,000. The new truck’s cost cannot exceed $55,000 in a similar
exchange.
b. $54,000 ($55,000 – $1,000) or
$54,000 ($30,000 + $24,000)
Ex. 10–16
a. $80,000,000 ÷ 100,000,000 tons = $0.80 depletion per ton
15,500,000 × $0.80 = $12,400,000 depletion expense
b. Depletion Expense .......................................................... 12,400,000 Accumulated Depletion ........................................ 12,400,000
Ex. 10–17
a. ($472,500 ÷ 15) + ($75,000 ÷ 12) = $37,750 total patent expense
b. Amortization Expense—Patents .................................... Patents ...................................................................
37,750
37,750
Ex. 10–18
a. Current year:
Ratio of fixed assets to long-term liabilities (debt) = $181,758,000/$14,610,000 = 12.4
Preceding year: Ratio of fixed assets to long-term liabilities (debt) =
$174,659,000/$12,150,000 = 14.4
b. The ratio of fixed assets to long-term liabilities has declined from
14.4 in the preceding year to 12.4 in the current year. This indicates a decrease in the margin of safety for long-term creditors. However, the ratio of fixed assets to long-term liabilities is large enough that Intuit will be able to borrow with relative ease.
Ex. 11–1
Current liabilities:
Federal income taxes payable ........................................................... Advances on magazine subscriptions .............................................. Total current liabilities ........................................................................
$ 42,0001
155,2502 $197,250 1$120,000 × 35%
26,900 × $30 × 9/12 = $155,250
The nine months of unfilled subscriptions are a current liability because Web World received payment prior to providing the magazines.
Ex. 11–2
a. 1. Merchandise Inventory .............................................. Interest Expense ................................................... Notes Payable ......................................................
196,000
4,0001
200,000
200,000
200,000 200,000
b.
2. Notes Payable ............................................................. Cash ...................................................................... 1. Notes Receivable ....................................................... Sales .....................................................................
196,000
Interest Revenue..................................................
200,000
4,000 200,000
2. Cash ............................................................................ Notes Receivable .................................................
1
$200,000 × 8% × 90/360
Ex. 11–3
a. $90,000 × 6% × 90/360 = $1,350 for each alternative. b. (1) $90,000 simple-interest note: $90,000 proceeds
(2) $90,000 discounted note: $90,000 – $1,350 interest = $88,650
proceeds
c. Alternative (1) is more favorable to the borrower. This can be verified
by comparing the effective interest rates for each loan as follows:
Situation (1): 6% effective interest rate ($1,350 × 360/90) ÷ $90,000 = 6%
Situation (2): 6.09% effective interest rate ($1,350 × 360/90) ÷ $88,650 = 6.09%
The effective interest rate is higher for the second loan because the creditor lent only $88,650 in return for $1,350 interest over 90 days. In the simple-interest loan, the creditor must lend $90,000 for 90 days to earn the same $1,350 interest.
Ex. 11–4
a. Accounts Payable ............................................................ Notes Payable .......................................................
9,000
9,000 75*
9,000
b. Notes Payable .................................................................. Interest Expense .............................................................. Cash .......................................................................
9,075
*$9,000 × 5% × 60/360 = $75
Ex. 11–5
a. b.
June 30 Building ......................................................... Land ............................................................... Note Payable ............................................ Cash.......................................................... Dec.
31 Note Payable ................................................. Interest Expense ($800,000 × 8% × 1/2) ......
730,000
250,000
40,000 32,000
800,000 180,000
c.
Cash..........................................................
40,000
30,400
72,000
June 30 Note Payable ................................................. Interest Expense ($760,000 × 8% × 1/2) ...... Cash..........................................................
70,400
Ex. 11–6
a. $4,650,000, or the amount disclosed as the current portion of long-term debt. b. By the end of 2002, the bank credit line was reduced to $299,000;
thus, the bank credit line was nearly paid off in 2002. The difference between the $34,783,000 that would be due in the coming period and the $4,650,000 disclosed as the current portion must have been funded (i.e., replaced) by long-term notes payable. Indeed, of the $50 million increase in the term loans
($95 million – $45 million), around $35 million must have been used to eliminate the bank credit line. c. The current liabilities declined by $4,351,000 ($4,650,000 – $299,000).
Ex. 11–7
a. b.
Product Warranty Expense (2% × $750,000) ................. Product Warranty Payable ................................... Product Warranty Payable .............................................. Wages Payable ...................................................... Supplies .................................................................
15,000
960
15,000
570 390
Ex. 11–8
a. The warranty liability represents estimated outstanding automobile
warranty claims. Of these claims, $14,166 million is estimated to be due during 2003, while the remainder ($9,125 million) is expected to be paid after 2003. The distinction between short-term and long-term liabilities is important to creditors in order to accurately evaluate the near-term cash demands on the business, relative to the quick assets and other longer-term demands.
b. Product Warranty Expense ............................. Product Warranty Payable ...................
14,355,000,000
14,355,000,000
$20,410 + X – $12,000 = $23,291 X = $23,291 – $20,410 + $12,000 X = $14,881 million