E11.

a. Depreciation rate (straight line) = 20% (100%/5 years)

 Double declining rate = 40%
 Cost = 20,000 : 40% = 50,000
b. Salvage value = cost – dep = 50,000 – 45,000 = 5,000
c. Double declining = 20,000 (highest of 3 methods) -> produce the highest charge to income in
year 1
d. Depreciation according to straight line method in year 4 = 9,000 (highest of 3 methods in year 4)
 produce the highest charge to income in year 4
e. Accumulated depreciation in year 3:
- Straight line = 9,000 * 3 = 27,000
- Sum of the years digit = 15,000 + 12,000 + 9,000 = 36,000
- Double declining = 20,000 + 12,000 + 7,200 = 39,200
 Highest book value is straight line method
f. If the asset is sold, to yield the highest gain (or lowest loss) needs the lowest book value
 Double declining method yield the highest gain (or lowest loss)

E11.6
 a. Dep = (212,000 – 12,000)/8*3/12 = 6,250
b. Activity method (units)
Dep = (212,000 – 12,000)/40,000 = 5$/output unit
 Total dep = 5*1,000 = 5,000
c. Activity method (hours)

Dep = (212,000 – 12,000)*525/20,000 = 5250

d. Sum of the years’ digit method

Year Dep Base Remaining Dep fraction Dep expense Book value
life
2020 (1) 200,000 8 8/36 44,444.44 155,555.56
2021 (2) 200,000 7.75 7.75/36 43,055.56 112,500
2022 (3) 200,000 6.75 6.75/36 37,500 75,000

e. Double – declining method

Year Book value Rate per Annual Partial Current Accum.

year expense year year Dep
expense
2020 (1) 212,000 25% = 53,000 3/12 13,250 13,250
2*100%/8
2021 (2) 198,750 25% 49,687.5 49,687.5 62,937.5

E11.16
 a. Dec 31, 2020
Dr Loss on impairment 3,200,000 (=9-1-4.8)
Cr Accumulated depreciation 3,200,000
b. Dec 31, 2021
Dr Depreciation expense 1,200,000 (=4.8/4 useful life)
Cr Accum Dep 1,200,000
c. No entry because carrying amount < fair value (4.8-1.2<5.1)

E11.17

E11.24

a. Asset Turnover = Net sales / Average total assets

515.7
 Asset Turnover = =0.56
(930.9+ 920.1)/2
 b. ROA = Net income / Average total asset
80.7
 ROA = =0.087=¿ 8.7 %
(930.9+ 920.1)/2
c. Profit margin on sales = Net income / Net sales
80.7
 Profit margin on sales = =0.156 => 15.6%
515.7
d. ROA = Asset turnover * Profit margin on sales

E11.20

Initial payment = 500,000/250,000 = 2

Rental = 31,500/18,000 = 1.75

Premium = 5%*55 = 2.75

Clean up and reconditioning = 30,000/250,000 = 0.12

 Total cost per barrel = 6.62