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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
Copyright © 2012 John Wiley & Sons, Inc.    #For Instr ctor $se %nly&
Weygandt, Financial and Managerial Acco nting, Challenge !"ercises

'age ()1

le-declining .alance method is used :hat amount of gain or loss would 5et6 recogni6e if they sell the asset for #.+"%%% on 1. Challenge !"ercises 'age ()2 ." 2%1+" and 2%10 7.1.1." 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 #.le the straight-line rate for 2%1.1. Copyright © 2012 John Wiley & Sons.alance using dou.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. Financial and Managerial Acco nting.< Challenge Exercise 3 Expands on: E9-$ LO: 2" ." at a cost of #12%"%%% 4he company estimated that the machine will ha1e a sal1age 1alue of #12"%%% 4he machine is expected to .1.< 7e3 2ssume the dou.5et6 Company purchased a new machine on !eptem.er 1" 2%1." assuming machine usage was $%% hours 7c3 9eclining-.+"%%% on 1. Inc.3 8nits-of-acti1ity for 2%1.    #For Instr ctor $se %nly& Weygandt.

"%%% in 2%1. Inc. and 2%1+ using 713 the straight-line method" 723 the units-of-acti1ity method" and 7)3 the dou. and 12"%%% in 2%1+ *nstructions: 7a3 Compute depreciation expense for 2%1.1) &repare the ?ournal entry Challenge Exercise 4 Expands on: E9-( LO: 2 &aul @cCartney" the new controller of =lac'.=ea'man Company purchased a deli1ery truc' for #+%"%%% on >anuary 1" 2%1. Challenge !"ercises 'age ()* . 4he truc' has an expected sal1age 1alue of #+"%%%" and is expected to .3 2ssume that =ea'man uses the straight-line method 713 &repare the ?ournal entry to record 2%1. Ais findings are as follows Copyright © 2012 John Wiley & Sons.le-declining .eginning of 2%1. depreciation 723 !how how the truc' would .e dri1en 1%%"%%% miles o1er its estimated useful life of ( years 2ctual miles dri1en were 1.alance method 7.le assets at the .alance sheet 7)3 2ssume the truc' is sold for #)%"%%% on 1.e reported in the 9ecem.    #For Instr ctor $se %nly& Weygandt.ird Company" has re1iewed the expected useful li1es and sal1age 1alues of selected deprecia.1. Financial and Managerial Acco nting.er )1" 2%1+" .

een depreciated using the straight-line method .)1.%9 1+%"%%% 2("+%% 2+ 2% $"%%% 1)"+%% 2ll assets are depreciated .uilding in 2%1.alance sheet Challenge Exercise * Expands on: E9-1% LO: .    #For Instr ctor $se %nly& Weygandt.ased on estimated sal1age 1alue of #$"%%% and an estimated useful life of + years Copyright © 2012 John Wiley & Sons. Financial and Managerial Acco nting.1 .3 &repare the entry 7or entries3 to record depreciation on the .Type of Date Accumulated Useful life yrs!" #al$age %alue Asset Ac&uired Cost Depr! 1'1'14 (ld )roposed (ld )roposed =uilding 1.% +% #0%"%%% #1%+"%%% :arehouse 1. Challenge !"ercises 'age ()+ .%( #1"2%%"%%% #1$1"%%% . Inc. 7c3 !how how the .1. 7!how computations 3 7.y the straight-line method =lac'. 5race Company owns eBuipment that cost #$%"%%% when purchased on >anuary 1" 2%11 *t has .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.uilding is reported in the 12.1.

%"%%% on >anuary 1" 2%1.    #For Instr ctor $se %nly& Weygandt.le-declining . Financial and Managerial Acco nting.%"%%% on 2pril 1" 2%1.3 !old for #." *6aa' *nc in1ested #91%"%%% in a mine estimated to ha1e $%%"%%% tons of ore of uniform grade 9uring the last 0 months of 2%1. . 7d3 !old for #1+"%%% on !eptem.er 1" 2%1.le-declining . Challenge !"ercises 'age ().alance depreciation Challenge Exercise + Expands on: E9-11 LO: + On >uly 1" 2%1. 7e3 -epeat 7a3" assuming 5race uses dou." 1%%"%%% tons of ore were mined and sold *nstructions: Copyright © 2012 John Wiley & Sons.alance depreciation 7e3 -epeat 7c3" assuming 5race uses dou.*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 #. 7. 7c3 !old for #1+"%%% on >anuary 1" 2%1. Inc.

ilities" and stoc'holders/ eBuity< 7c3 2ssume that the 1%%"%%% tons of ore were mined" .le to the 2%"%%% unsold units reported< 7d3 :hat effect would the situation descri. Challenge !"ercises 'age ()- .ed in 7c3 ha1e on assets" lia.ut only (%"%%% units were sold Aow are the costs applica.3 :hat effect 7increase" decrease" no effect3 does the transaction a.ilities" and stoc'holders/ eBuity< Challenge Exercise .o1e ha1e on assets" lia. Financial and Managerial Acco nting.7a3 &repare the ?ournal entry to record depletion expense 7.    #For Instr ctor $se %nly& Weygandt. 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 Copyright © 2012 John Wiley & Sons. Inc. Expands on: E9-12 LO: 0 4he following are selected 2%1.

o1e .11 .*nstructions: a3 &repare necessary ad?usting entries at 9ecem.alance sheet E1aluate !tefan/s plan Challenge Exercise Expands on: E9-1.1.)1. LO: $ 9uring 2%1.le assets will appear on &agnucci/s 12.er )1 to record amorti6ation reBuired . .    #For Instr ctor $se %nly& Weygandt.alance sheet c3 !tefan Franco" an intern at &agnucii Company feels the company can sol1e its cash shortage . 2slan Corporation reported sales re1enue of #+"%%%"%%%" sales returns of #2%%"%%% and net income of #1"0%%"%%% 2slan/s capital structure at the .3 *ndicate how the intangi.1. 12. Challenge !"ercises 'age ().y selling some of the goodwill it reports on its .y the e1ents a.eginning and end of the year was: 1.ilities #1"+%%"%%% #1"0+%"%%% !toc'holders/ eBuity 2")+%"%%% 2"+%%"%%% Copyright © 2012 John Wiley & Sons.1. Lia. Financial and Managerial Acco nting.)1. Inc.

out the company Copyright © 2012 John Wiley & Sons. Financial and Managerial Acco nting. Challenge !"ercises 'age ()/ .    #For Instr ctor $se %nly& Weygandt. Inc.*nstructions: a3 Calculate the asset turno1er ratio .3 Calculate return on assets c3 Explain what each ratio should tell you a.