SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 9-1

All of the expenditures, except the fence, should be included in the cost of the land.
Therefore, the cost of the land is $490,000 (cash price of $450,000 + legal fees of $8,500
+ removal of old building $25,000 + clearing and grading costs of $6,500). The fence
would be included in the cost of land improvements.

LO 1 BT: AP Difficulty: S Time: 3 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 9-2

The cost of the truck is $43,750 (invoice price $42,000 + installation of trailer hitch $1,000
+ painting and lettering $750). The expenditures for insurance and motor vehicle licence
are annual costs that do not benefit future periods and should be expensed and not added
to the cost of the truck.

LO 1 BT: AP Difficulty: S Time: 3 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 9-3

(a) O
(b) C
(c) C
(d) C
(e) C
(f) O
(g) O
(h) C
(i) C
(j) O

LO 1 BT: K Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
BRIEF EXERCISE 9-4

(a) The depreciable amount is $72,000 ($80,000 – $8,000). With a 4-year useful life,
annual depreciation is $18,000 ($72,000 ÷ 4). Under the straight-line method,
depreciation expense is the same each year.

(b) Total depreciation over the truck’s life will be $18,000 per year × 4 years = $72,000

LO 2 BT: AP Difficulty: S Time: 5 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 9-5

Depreciation expense for 2018 = $18,000 × 8/12 = $12,000
Depreciation expense for 2019 = $18,000

LO 2 BT: AP Difficulty: S Time: 5 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
BRIEF EXERCISE 9-6

(a) Depreciation rate = 1 ÷ 4 = 25% x 2 = 50%

January 1 Depreciation December 31

Carrying amount Rate expense Carrying amount

2018 $80,000 50% $40,000 $40,000

2019 40,000 50% 20,000 20,000
2020 20,000 50% 10,000 10,000
2021 10,000 to residual value 2,000 8,000
$72,000
Calculations:

2018 Depreciation expense = $80,000 × 50% = $40,000

2019 Depreciation expense = ($80,000 – $40,000) × 50% = $20,000
2020 Depreciation expense = ($80,000 – $40,000 – $20,000) × 50% = $10,000
2021 Depreciation expense = ($80,000 – $40,000 – $20,000 – $10,000) × 50% =
$5,000 (amount calculated of $5,000 is adjusted to $2,000 so that the carrying amount
will equal the residual value)

As explained in the chapter, the double-diminishing-balance method can require an

adjustment in the final year of depreciating an asset in order for the carrying amount to
equal the residual value. In the scenario illustrated in the question, the company stopped
depreciating the asset at the end of Year 4. This relatively short life was chosen for the
purposes of this comparative problem and resulted in a very small amount of depreciation
expense in Year 4. This can occur when the double-diminishing-balance method is used
to depreciate an asset with a short life. Because of this effect, the double-diminishing-
balance method is often used on assets with longer lives. In situations like this in real life,
a company would revise the useful life of the asset if it anticipated continuing to use the
asset beyond Year 4.

(b) Total depreciation expense = $40,000 + $20,000 + $10,000 + $2,000 = $72,000

LO 2 BT: AP Difficulty: M Time: 10 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
BRIEF EXERCISE 9-7

(A) (B) (C) [(A) × (B) × (C)] ÷12

(1 ÷ 4) # of Depreciation
Carrying amount Rate months expense

2018 $80,000 25% 8 $13,333

2019 ($80,000 – $13,333) 25% 12 16,667
= $66,667

LO 2 BT: AP Difficulty: M Time: 5 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 9-8

The depreciable amount per unit is $0.10 per km. calculated as follows:

(Cost – Residual value) ÷ total km = ($33,000 – $500) ÷ 325,000 = $0.10

2017 125,000 km × $0.10 = $12,500 depreciation expense

2018 105,000 km × $0.10 = $10,500 depreciation expense

LO 2 BT: AP Difficulty: S Time: 5 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 9-9

(a)
Carrying amount ($200,000 – $20,000) ÷ 5 = $36,000 × 2 = $72,000;
$200,000 – $72,000 = $128,000

(b)
Carrying amount $128,000
Recoverable amount 100,000
Impairment loss $ 28,000

LO 2 BT: AP Difficulty: M Time: 5 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
BRIEF EXERCISE 9-10

(a) Depreciation Expense [(($144,000 – $4,000) ÷ 5) × 9/12] ........ 21,000

Accumulated Depreciation—Equipment ............................ 21,000

(b) Cash ......................................................................................... 42,000

Accumulated Depreciation—Equipment ................................... 77,000
Loss on Disposal ...................................................................... 25,000
Equipment ....................................................................... 144,000

Proceeds from sale $42,000

Cost of equipment $144,000
Less: Accumulated depreciation 77,000*
Carrying amount at date of disposal 67,000
Loss on disposal $(25,000)

* Depreciation Jan. 1, 2016 – Dec. 31, 2017

($144,000 – $4,000) ÷ 5 = $28,000 × 2 years $56,000
Depreciation Jan. 1, 2018 – Sept. 30, 2018
$28,000 × 9/12 21,000
Accumulated depreciation $77,000

LO 3 BT: AP Difficulty: M Time: 10 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
BRIEF EXERCISE 9-11

(a) Accumulated Depreciation—Equipment ................................... 42,000

Equipment............................................................................ 42,000

(b) Accumulated Depreciation—Equipment ................................... 40,000

Loss on Disposal ...................................................................... 2,000
Equipment............................................................................ 42,000

Proceeds from sale $ 0

Cost of equipment $42,000
Less: Accumulated depreciation 40,000
Carrying amount at date of disposal 2,000
Loss on disposal $(2,000)

LO 3 BT: AP Difficulty: S Time: 10 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 9-12

(a) (1) Apr. 2 Patents ........................................................... 180,000
Cash ....................................................... 180,000

(2) Dec. 31 Amortization Expense

($180,000 ÷ 5 = $36,000 × 9/12) .................... 27,000
Accumulated Amortization—Patents ...... 27,000

(b) SURKIS CORPORATION

Statement of Financial Position (Partial)
December 31, 2018
Assets
Intangible assets
Patents $180,000
Less: Accumulated amortization 27,000
Carrying amount 153,000

LO 4,5 BT: AP Difficulty: M Time: 10 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
BRIEF EXERCISE 9-13

(a) (1) June 1 Trademarks ......................................................... 1,000

Cash ............................................................ 1,000

(2) Dec. 1 Trademarks ......................................................... 10,000

Cash ............................................................ 10,000

(b) The trademarks do not need to be amortized as these normally have an indefinite
life.

LO 4 BT: AP Difficulty: M Time: 5 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 9-14

(a) I (contra asset)
(b) PPE
(c) PPE
(d) PPE
(e) I
(f) NA (current asset)
(g) NA (shareholders’ equity)
(h) NA (expense)
(i) PPE
(j) PPE
(k) PPE
(l) I
(m) NA (expense)
(n) I
(o) NA (expense)
(p) PPE
(q) I

LO 5 BT: K Difficulty: S Time: 5 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
BRIEF EXERCISE 9-15

SAPUTO INC.
Statement of Financial Position (Partial)
March 31, 2015
(in millions)

Property, plant, and equipment

Land ........................................................................................ $ 66
Buildings .............................................................. $ 759
Less: Accumulated depreciation .......................... 218 541
Furniture, machinery, and equipment ................... 2,339
Less: Accumulated depreciation .......................... 887 1,452
Total property, plant, and equipment ................. $2,059
Intangible assets
Finite-life intangible assets ................................... 246
Less: Accumulated amortization .......................... 57 189
Indefinite-life intangible assets ................................................ 318
Total intangible assets ......................................................... 507
Goodwill ...................................................................................... 2,125
Total long-lived assets ................................................... $4,691

LO 5 BT: AP Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting
BRIEF EXERCISE 9-16

(a) (1) Pepsi has a better return on assets ratio.

(2) Pepsi has a better asset turnover ratio.

(b) Profit margin × Asset turnover = Return on assets

Coke: Profit margin × 0.5 = 7.8%; Solving for profit margin = 15.6%
Pepsi: Profit margin × 0.9 = 8.8%; Solving for profit margin = 9.8%

Coke has the better profit margin.

LO 6 BT: AN Difficulty: M Time: 10 min. AACSB: Analytic CPA: cpa-t001, cpa-t005

CM: Reporting and Finance

BRIEF EXERCISE 9-17

(a)
($ in U.S. millions) 2015 2014

$2,415 $2,360
$2,911 + $2,593 $2,593 + $2,044
(1) Asset turnover � � � �
2 2
= 0.9 times = 1.0 times

$237 $360
(2) Profit margin = 9.8 % = 15.3 %
$2,415 $2,360

$237 $360
$2,911 + $2,593 $2,593 + $2,044
(3) Return on assets � � � �
2 2
= 8.6% = 15.5%

(b) The return on assets changed primarily due to a change in profit margin.

LO 6 BT: AN Difficulty: M Time: 10 min. AACSB: Analytic CPA: cpa-t001, cpa-t005

CM: Reporting and Finance
EXERCISE 9-3

(a)

(1) Straight-line method

($172,000 – $16,000)
Depreciation = = $39,000
4

2014 expense = $39,000 × 9/12 = $29,250

2015, 2016, 2017 expense = $39,000 each year

2018 expense = $39,000 × 3/12 = $9,750

(2) Double-diminishing-balance rate = 1 ÷ 4 = 25% × 2 = 50%

January 1 Depreciation December 31

Carrying amount Rate expense Carrying amount

2014 $172,000 50% $86,000 × 9/12 = $64,500 $107,500

2015 107,500 50% 53,750 53,750
2016 53,750 50% 26,875 26,875
2017 26,875 to residual value 10,875 16,000
2018 16,000 0 16,000

Depreciation ceases in 2018 as the carrying amount cannot fall below residual value.
EXERCISE 9-3 (CONTINUED)

(3) Units of production: Depreciation expense per unit =

($172,000 – $16,000)
= $15.60
10,000 hours

Units Expense Depreciation

Used Per Unit Expense
2014 1,500 $15.60 $ 23,400
2015 2,200 15.60 34,320
2016 2,300 15.60 35,880
2017 2,100 15.60 32,760
2018 1,900 15.60 29,640
10,000 $156,000

(b) All three methods result in the same amount depreciation expense over the life of
the asset and so the same income will be experienced as well.
The choice of depreciation method will have no impact on cash flow.

LO 2 BT: AP Difficulty: M Time: 20 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting

EXERCISE 9-5
(a) The amount paid for the equipment is $1,100.

Jan. 1 Equipment ..................................................................... 1,100

Cash...................................................................... 1,100

(b) The amount of depreciation expense is $100.

Dec. 31 Depreciation Expense ................................................... 100

Accumulated Depreciation—Equipment................ 100

(c) The amount of the gain on disposal is $50 and is derived from the disposal entry
that follows.

Dec. 31 Cash .............................................................................. 450

Accumulated Depreciation—Equipment ........................ 40
Gain on Disposal ................................................... 50
Equipment ............................................................. 440

(d) The amount of the impairment loss on the remaining equipment is $55.
Dec. 31 Impairment Loss............................................................ 55
Accumulated Depreciation—Equipment................ 55
LO 2,3 BT: AN Difficulty: M Time: 15 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
EXERCISE 9-7

(a)
Jan. 1 Cash .............................................................................. 18,000
Accumulated Depreciation—Vehicles
([$62,000 – $6,000] ÷ 4 × 3) .......................................... 42,000
Loss on Disposal [$18,000 – ($62,000 – $42,000)] ....... 2,000
Vehicles ............................................................... 62,000

Sept 1 Depreciation Expense ($10,980 ÷ 3 × 8/12) .................. 2,440

Accumulated Depreciation—Equipment................ 2,440

1 Cash .............................................................................. 500

Accumulated Depreciation—Equipment
($10,980 ÷ 3 × 2 = $7,320; $7,320 + $2,440) ................ 9,760
Loss on Disposal [$500 – ($10,980 – $9,760)] .............. 720
Equipment ............................................................. 10,980

Dec. 30 Depreciation Expense ($150,000 ÷ 10) ......................... 15,000

Accumulated Depreciation—Equipment................ 15,000

30 Accumulated Depreciation—Equipment
[($150,000 ÷ 10) × 10] ................................................... 150,000
Equipment ............................................................. 150,000

(b) The accounts that are affected by the error include:

Miscellaneous Revenue Overstated
Accumulated Depreciation—Vehicles Overstated
Vehicles Overstated
Depreciation Expense Overstated
Loss on Disposal Understated

LO 3 BT: AN Difficulty: C Time: 20 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
EXERCISE 9-9

(a)
Jan. 1 Copyrights ...................................................................... 120,000
Cash ....................................................................... 120,000

Mar. 1 Franchises ...................................................................... 540,000

Cash ....................................................................... 40,000
Bank Loan Payable ................................................ 500,000

Sept. 1 Trademarks .................................................................... 75,000

Cash ....................................................................... 75,000

1 Trademarks .................................................................... 35,000

Cash ....................................................................... 35,000

(b)
Dec. 31 Amortization Expense..................................................... 20,000
Accumulated Amortization—Copyrights ................. 20,000
($120,000 ÷ 6 = $20,000)

31 Amortization Expense..................................................... 50,000

Accumulated Amortization—Franchises ................. 50,000
[($540,000 ÷ 9) × 10/12 = $50,000]

No amortization recorded on the trademark purchased Sept. 1

LO 4 BT: AP Difficulty: M Time: 15 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
EXERCISE 9-11

(a)
Account Financial Statement
Section

Accumulated amortization— Statement of Financial Intangible assets

software Position

Accumulated depreciation— Statement of Financial Property, plant, and

buildings Position
equipment

Accumulated depreciation— Statement of Financial Property, plant, and

fixtures and equipment Position
equipment

Accumulated depreciation— Statement of Financial Property, plant, and

leasehold improvements Position equipment

Amortization expense Income Statement Operating expenses

Buildings Statement of Financial Property, plant, and

Position equipment

Depreciation expense Income Statement Operating expenses

Fixtures and equipment Statement of Financial Property, plant, and

Position equipment

Goodwill Statement of Financial Goodwill

Position

Impairment loss Income Statement Operating expenses

Land Statement of Financial Property, plant, and

Position equipment
Leasehold improvements Statement of Financial Property, plant, and
Position equipment
Operating leases Income Statement Operating expenses
EXERCISE 9-11 (CONTINUED)

(a)
Account Financial Statement
Section
Reversal of impairment loss Income Statement Operating expenses

Software Statement of Financial Intangible assets

Position
Trademarks Statement of Financial Intangible assets
Position

(b)
REITMANS (CANADA) LIMITED
Statement of Financial Position (Partial)
January 31, 2015
(in thousands)

Property, plant, and equipment

Land ..................................................................... $ 5,860
Buildings ................................................................ $ 45,633
Less: Accumulated depreciation............................ 19,096 26,537
Fixtures and equipment ......................................... 131,073
Less: Accumulated depreciation............................ 68,010 63,063
Leasehold improvements ..................................... 140,188
Less: Accumulated depreciation............................ 83,299 56,889
Total property, plant, and equipment 152,34

Intangible assets
Software ................................................................ 28,261
Less: Accumulated amortization............................ 8,184 20,077
Trademarks ........................................................... 499
Total intangible assets .................................. 20,576

Goodwill ......................................................................... 42,426

LO 5 BT: AP Difficulty: M Time: 25 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
EXERCISE 9-12
Company A: Costco (retail)
Company B: Suncor (oil and gas)

The company most likely operating in the retail industry is Company A (Costco) because
it has the higher asset turnover and lower profit margin. It is reasonable to expect retail
companies like Costco to sell goods at a higher rate (volume) at a lower profit margin than
a company in the oil and gas industry.

The oil and gas industry requires a higher investment in long-lived assets and can be
expected to have a lower asset turnover ratio and a higher profit margin.

LO 6 BT: AN Difficulty: M Time: 10 min. AACSB: Analytic CPA: cpa-t001, cpa-t005

CM: Reporting and Finance
 PROBLEM 9-6A

(a) 2016
Mar. 1 Equipment............................................................ 130,000
Cash ............................................................ 130,000

(b) DIMINISHING–BALANCE DEPRECIATION

Calculation End of Year

Opening
Carrying Depreciation Depreciation Accumulated Carrying
Year Amount × Rate 1 Expense Depreciation Amount

2016 $130,000 20% × 6/12 $13,000 $13,000 $117,000

2017 117,000 20% 23,400 36,400 93,600
2018 93,600 20% 18,720 55,120 74,880
Nov./18 74,880 20% × 3/12 3,744 58,864 71,136
1 1 ÷ 5 years = 20%

2016
Aug. 31 Depreciation Expense .......................................... 13,000
Accumulated Depreciation—Equipment ...... 13,000

2017
Aug. 31 Depreciation Expense .......................................... 23,400
Accumulated Depreciation—Equipment ...... 23,400

2018
Aug. 31 Depreciation Expense .......................................... 18,720
Accumulated Depreciation—Equipment ...... 18,720
PROBLEM 9-6A (CONTINUED)

(c)

2018
(1, 2, 3)
Nov. 30 Depreciation Expense .......................................... 3,744
Accumulated Depreciation—Equipment ..... 3,744

(1) Nov. 30 Cash ................................................................... 60,000

Accumulated Depreciation—Equipment .............. 58,864
Loss on Disposal ................................................. 11,136
Equipment .................................................. 130,000

Cash proceeds .............................................. $ 60,000

Carrying amount ............................................ 71,136
Loss on disposal ........................................... $(11,136)

(2) Nov. 30 Cash ................................................................... 80,000

Accumulated Depreciation—Equipment .............. 58,864
Gain on Disposal ........................................ 8,864
Equipment .................................................. 130,000

Cash proceeds .............................................. $80,000

Carrying amount ........................................... 71,136
Gain on disposal ........................................... $ 8,864

(3) Nov. 30 Accumulated Depreciation—Equipment .............. 58,864

Loss on Disposal ................................................. 71,136
Equipment .................................................. 130,000

Cash proceeds .............................................. $ 0

Carrying amount ............................................ 71,136
Loss on disposal ........................................... $(71,136)

LO 2,3 BT: AP Difficulty: M Time: 30 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
 PROBLEM 9-7A

(a) (1) Straight-line

Depreciation Expense =

($70,000 – $10,000)
= $20,000
3

2018
Mar. 1 Equipment ........................................................................... 70,000
Cash ......................................................................... 70,000

Dec. 31 Depreciation Expense ......................................................... 16,667

Accumulated Depreciation—Equipment ................... 16,667
($20,000 × 10/12 = $16,667)
2019
Nov. 30 Depreciation Expense ......................................................... 18,333
Accumulated Depreciation—Equipment ................... 18,333
($20,000 × 11/12 = $18,333)

30 Cash .................................................................................... 18,000

Accumulated Depreciation—Equipment ($16,667 + $18,333) 35,000
Loss on Disposal ................................................................. 17,000
Equipment................................................................. 70,000
PROBLEM 9-7A (CONTINUED)
(a) (2) Double-diminishing-balance

Depreciation Rate = 1 ÷ 3 years = 33% X 2 = 67% (note textbook convention to

round rates to two decimal points)

2018
Mar. 1 Equipment ........................................................................... 70,000
Cash ......................................................................... 70,000
2018
Dec. 31 Depreciation Expense ......................................................... 39,083
Accumulated Depreciation—Equipment ................... 39,083
($70,000 × 67% × 10/12 = $39,083)

2019
Nov. 30 Depreciation Expense ......................................................... 18,988
Accumulated Depreciation—Equipment ................... 18,988
[($70,000 – $39,083) × 67% × 11/12 = $18,988]

Nov. 30 Cash .................................................................................... 18,000

Accumulated Depreciation—Equipment ($39,083 + $18,988) 58,071
Gain on Disposal ...................................................... 6,071
Equipment................................................................. 70,000
PROBLEM 9-7A (CONTINUED)
(a) (3) Units-of-Production

Depreciable cost per unit =

($70,000 – $10,000)
= $5.00
12,000

2018
Mar. 1 Equipment ........................................................................... 70,000
Cash ......................................................................... 70,000

Dec. 31 Depreciation Expense ......................................................... 24,500

Accumulated Depreciation—Equipment ................... 24,500
(4,900 × $5 = $24,500)

2019
Nov. 30 Depreciation Expense ......................................................... 28,000
Accumulated Depreciation—Equipment ................... 28,000
(5,600 × $5 = $28,000)

Nov. 30 Cash .................................................................................... 18,000

Accumulated Depreciation—Equipment ($24,500 + $28,000) 52,500
Gain on Disposal ...................................................... 500
Equipment................................................................. 70,000
PROBLEM 9-7A (CONTINUED)

(b)
Double-
Straight Diminishing Units-of -
-Line -Balance Production
Depreciation expense

2018 $16,667 $39,083 $24,500

2019 18,333 18,988 28,000
Total depreciation
for two years 35,000 58,071 52,500

+ Loss (or – gain) on disposal 17,000 (6,071) (500)

= Net expense for two years $52,000 $52,000 $52,000

LO 2,3 BT: AN Difficulty: M Time: 50 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
 PROBLEM 9-8A

(a) April 1 Land ............................................................ 4,400,000

Cash ................................................... 1,100,000
Mortgage Payable................................... 3,300,000

May 1 Depreciation Expense ................................. 93,333

Accumulated Depreciation—Equipment 93,333
($2,800,000 ÷ 10 × 4/12 = $93,333)

1 Cash ........................................................... 300,000

Accumulated Depreciation—Equipment ..... 2,333,333
Loss on Disposal ........................................ 166,667
Equipment........................................... 2,800,000

Cost $2,800,000
Accumulated depreciation—equipment
[($2,800,000 ÷ 10) × 8 + $93,333)] 2,333,333
Carrying amount 466,667
Cash proceeds 300,000
Loss on disposal $ (166,667)

June 1 Cash ........................................................... 900,000

Notes Receivable........................................ 2,700,000
Land .................................................... 1,400,000
Gain on Disposal ................................ 2,200,000

July 1 Equipment................................................... 2,200,000

Cash ................................................... 2,200,000

Dec. 31 Depreciation Expense ................................. 100,000

Accumulated Depreciation—Equipment 100,000
($1,000,000 ÷ 10 = $100,000)

Dec. 31 Accumulated Depreciation—Equipment ..... 1,000,000

Equipment........................................... 1,000,000
PROBLEM 9-8A (CONTINUED)

(a) (Continued)

31 Impairment Loss ($23,000,000* – $20,000,000) 3,000,000

Land .................................................... 3,000,000

*Carrying amount = $20,000,000 + $4,400,000 – $1,400,000 = $23,000,000

(b) Dec. 31 Depreciation Expense ................................. 2,435,000

Accumulated Depreciation—Buildings 2,435,000
($97,400,000 ÷ 40 = $2,435,000)

31 Depreciation Expense ................................. 14,730,000

Accumulated Depreciation—Equipment 14,730,000

$146,200,000* ÷ 10 $14,620,000
$2,200,000 ÷ 10 × 6/12 110,000
$14,730,000

* $150,000,000 – $2,800,000 – $1,000,000 = $146,200,000

31 Interest Expense ......................................... 148,500

Interest Payable .................................. 148,500
($3,300,000 × 6% × 9/12 = $148,500)

31 Interest Receivable ..................................... 78,750

Interest Revenue ................................ 78,750
($2,700,000 × 5% × 7/12 = $78,750)
PROBLEM 9-8A (CONTINUED)

(c)

YOUNGSTOWN LIMITED
Statement of Financial Position (Partial)
December 31, 2018

Property, plant, and equipment1

Land .................................................................. $ 20,000,000
Buildings............................................................ $97,400,000
Less: Accumulated depreciation ....................... 64,635,000 32,765,000
Equipment ......................................................... 148,400,000
Less: Accumulated depreciation ....................... 65,590,000 82,810,000
Total property, plant, and equipment .......... $135,575,000
1 See T accounts on the following page.
PROBLEM 9-8A (CONTINUED)
(c) (continued)
Land

Jan. 1, 2018 20,000,000 June 1, 2018 1,400,000

April 1, 2018 4,400,000 Dec. 31, 2018 3,000,000

Dec. 31, 2018 Bal. 20,000,000

Buildings

Jan. 1, 2018 97,400,000

Dec. 31, 2018 Bal. 97,400,000

Equipment

Jan. 1, 2018 150,000,000 May 1, 2018 2,800,000

July 1, 2018 2,200,000 Dec. 31, 2018 1,000,000

Dec. 31, 2018 Bal. 148,400,000

Accumulated Depreciation—Buildings

Jan. 1, 2018 62,200,000

Dec. 31, 2018 2,435,000

Dec. 31, 2018 Bal. 64,635,000

Accumulated Depreciation—Equipment

May 1, 2018 2,333,333 Jan. 1, 2018 54,000,000

Dec. 31, 2018 1,000,000 May 1, 2018 93,333
Dec. 31, 2018 100,000
Dec. 31, 2018 14,730,000

Dec. 31, 2018 Bal. 65,590,000

LO 2,3,5 BT: AP Difficulty: M Time: 50 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
 PROBLEM 9-9A

(a) (b) (c) (d)

not
1. yes Goodwill amortized N/A

2. no N/A N/A Not reported on the Statement of

Financial Position. Rent (Lease)
Expense, Income Statement,
Operating expenses.

3. yes Copyright amortized N/A

not
4. yes Trademarks amortized N/A

5. no N/A N/A Not reported on the Statement of

Financial Position
Research Expenses, Income
Statement, Operating expenses

6. no N/A N/A Not recorded or reported

7. no N/A N/A Assets under Finance Leases,

Statement of Financial Position,
Property, plant, and equipment

8. yes Patents amortized N/A

9. no N/A N/A Professional Fees Expense, Income

Statement, Operating expenses

10. yes Development Costs amortized N/A

LO 4 BT: C Difficulty: M Time: 20 min. AACSB: None CPA: cpa-t001 CM: Reporting
 PROBLEM 9-12A

(a) (in thousands) Delicious ................................... Scrumptious

$350 $180
(1) Profit margin 2018 = 11.3% = 9.5%
$3,100 $1,900

$150 $200
Profit margin 2017 = 10.0% = 11.8%
$1,500 $1,700

$3,100 $1,900
$2,000 + $1,100 $800 + $900
(2) Asset turnover 2018 � � � �
2 2
= 2.0 times = 2.2 times

$1,500 $1,700
$1,100 + $1,000 $900 + $1,000
Asset turnover 2017 � � � �
2 2
= 1.4 times = 1.8 times

$350 $180
$2,000 + $1,100 $800 + $900
(3) Return on assets 2018 � � � �
2 2
= 22.6% = 21.2%

$150 $200
$1,100 + $1,000 $900 + $1,000
Return on assets 2017 � � � �
2 2
= 14.3% = 21.1%
PROBLEM 9-12A (CONTINUED)
(b) Delicious Limited increased its profit margin from 10.0% to 11.3% and its asset
turnover from 1.4 times to 2.0 times. The increases in these two ratios multiplied
to generate a substantial increase in Delicious’ return on assets (return on assets
= profit margin × asset turnover).

Conversely, Scrumptious Limited suffered a decrease in its profit margin from

11.8% to 9.5%. This decrease was offset by an increase in its asset turnover from
1.8 times to 2.2 times. The decrease in the profit margin was offset by the increase
in the asset turnover and resulted in no substantial change in the return on assets.
LO 6 BT: AN Difficulty: M Time: 30 min. AACSB: Analytic CPA: cpa-t001, cpa-t005
CM: Reporting and Finance