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A delivery van costing $37,000 is expected to have a $2,900 salvage value at the end of its useful life of
five years. Assume that the truck was purchased on January 1. Compute the depreciation expense of the
first two calendar years under the straight-line depreciation method.
A company with a calendar year-end purchases a machine costing $129,000 on July 1, 2020. The
machine is expected to be obsolete after five years (60 months) and, thereafter, no longer useful to the
company. The estimated salvage value is $6,000. The company’s depreciation policy is to record
depreciation for the portion of the year that the asset is in service. Compute depreciation expense for
both 2020 and 2021 under the straight-line depreciation method.
M6-18
a) Compute the 2018 PPE turnover for both companies. Comment on any difference observed.
$ 70,848
Intel =1.57
( $ 48,976+ $ 41 ,109)/2
$ 15,784
Texas Instruments =5.39
(3,183+ $ 2,664)/2
Texas Instruments use a lower capital investment for its level of sales.
M6-21
Asset impairment
a) The corporate plane´s fair value was less than its net book value
b) Net book value of the corporate plane less fair value of the corporate plane
c) $2,350,000 – $1,598,000 = $752,000 (original cost – depreciation = Net book value)
$752,000 – 462,000 = $290,000 (Net book value - impairment = Fair value)
E6-22
E6-23
a) Assume that Chen uses FIFO method. Compute both cost of goods sold for the current period
and the ending inventory balance.
COGS: 1000 x $32 + 1800 x $34 = $93,200
b) LIFO
COGS: 1200 x $41 + 800 x $38 + 800 x $34 = $106,800
c) Average Cost
COGS: ($172,800/4800 = 36)
36 x 2800 = $100,800
E6-27
E6-28
E6-29
Amazon and Target show similarity in the sequence of their Gross Profit Margin, while that of Walmart is
uneven due to the change in their costs of sales. Walmart and Target share that their Gross Profit
Margin touches the peaks of their Revenues, while Amazon's Gross Profit Margin is higher.
E6-30
E6-34
a) 4.30
b) 17.14
c) -0.458
E6-35