ACG 2021 Chapter 9

The following information is provided for a certain company (in $ millions): Net income for the current year is $390 Net income for the prior year was $350 Net sales for the current year is $4,100 Net sales for the prior year were $3,800 Total assets as of the end of the current year was $4,000 Total assets as of the end of the prior year was $3,000 What is the company's return on assets for the current year?

11.1% Return on assets = $390/[($3,000 + 4,000)/2] = 0.111 or 11.1%

At the start of the current year, a company paid for the following in cash: Equipment, $25,000,000 Goodwill, $4,500,000 Inventory, $1,500,000 Land, $15,000,000 Patents, $2,500,000 Research and development, $2,000,000 Supplies, $3,000,000 Trademarks, $1,000,000 It amortizes its intangibles over 10 years. Determine its current year amortization expense.

250,000

A company purchased equipment that has an invoice price of $18,000. It also paid freight charges of $500 and installation costs of $2,500. The estimated salvage value and useful life are $3,000 and five years, respectively. Under the straight-line method, how much is annual depreciation expense?

3600 18000+500+2500 =21000 21000-3000/5

On September 1 of the current year, a company purchased an asset for $9,000. It has a $1,500 salvage value and a 4-year useful life. How much is the current year depreciation expense using the straight-line method?

625 (9000-1500)/4*4/12 =625

A company purchased land for $80,000. The company also assumes $12,000 of accrued taxes on the property, incurred $5,000 to remove an old building, and received $2,000 from the salvage of the old building. At what amount will the land be recorded in the accounting records?

95,000

A company purchased a machine for $80,000 on January 1 of the current year and depreciates it on a straight-line basis over a 10-year life assuming no salvage value. If the company sells the machine for $26,000 on June 30 of the fifth year, what would be the company's gain or loss from the sale?

18,000 loss The Book value of the machine when sold: $80,000 - [($80,000/10 years) x 4.5 years] = $44,000. The gain (loss) on the sale = sales price minus book vale = $26,000 - $44,000 = ($18,000).

A company purchased equipment for $72,000 on January 1. Freight charges paid to acquire the equipment amounted to $2,000. There was also a cost of $3,000 for building a foundation for the equipment and installing the equipment. It is estimated that the equipment will have a $10,000 salvage value at the end of its 6-year useful life. The straight-line method of depreciation is used. What is the amount of accumulated depreciation at the end of the second year of using the asset and after adjusting entries have been recorded?

22,333 Cost of the equipment = $72,000 + 2,000 + 3,000 = $77,000 Depreciation per year = (Cost - salvage value)/Life in year Depreciation per year = ($77,000 - 10,000)/6 years = $11,167 per year Accumulated depreciation after two years = 2 x $11,667 = $22,333

In computing depreciation, salvage value is

an estimate of a plant asset's value at the end of its useful life.

A company's average total assets are $200,000, depreciation expense is $10,000, and accumulated depreciation is $60,000. Net income is $1,000,000. Net sales total $250,000. What is the asset turnover?

1.25 The asset turnover is net sales divided by the average total assets: $250,000/$200,000 = 1.25 times.

A company purchased equipment for $300,000 on January 1. The equipment's original estimated useful life is 10 years and its estimated salvage value is $60,000. The company uses the straight-line method of depreciation. Before recording adjusting entries in the asset's sixth year, the company revises the estimated salvage value to $48,000. It does not change the estimated useful life. How much depreciation expense should be recorded for the sixth year?

26,400 Original depreciation per year: ($300,000 - 60,000)/10 years = $24,000 per year. Revised depreciation per year: ($300,000 - 5 x 24,000 - 48,000)/(10-5) = $26,400 per year

Recording depreciation each period is necessary in accordance with the

expense recognition principle

A permanent decline in the market value of an asset is called

impairment

A company has the following asset account balances: Buildings and equipment, $5,800,000; Accumulated depreciation, $1,600,000; Patents, $1,050,000; Inventory, $1,000,000; and Goodwill, $4,000,000. How much will be reported on the balance sheet under property, plant & equipment?

4,200,000 Buildings and equipment less accumulated depreciation are the only amounts included under Plant & Equipment: $5,800,000 - $1,600,000 = $4,200,000.

A company purchased equipment and incurred these costs: Cash price, $24,000 Sales taxes, $1,200 Insurance during transit, $200 Annual maintenance costs, $400 What amount should be recorded as the cost of the equipment?

25,400 price+sales taxes+ins during transit = equipment

When a plant asset is retired, the difference between the plant asset's cost and the accumulated depreciation of the same plant asset is

recognized on the income statement as a loss on disposal of plant asset.

On March 1 of the current year, a company purchases and places into service new equipment. The cost of the equipment is $200,000. The equipment has an estimated 5-year life and $30,000 salvage value at the end of its useful life. What is the depreciation expense for the current year ending December 31 if the company uses the straight-line method of depreciation?

28,333 Depreciation expense per year = (Cost - salvage value)/Life Depreciation expense per year = ($200,000 - 30,000)/5 years = $34,000 per year Depreciation expense for March 1 through December 31 = $34,000 x 10/12 = $28,333

A company purchased a plant asset for $45,000. It has a salvage value of $5,000 and a useful life of 8 years. It calculates depreciation using the straight-line method. The balance of the company's Accumulated Depreciation account at the end of the current year after-adjusting entries is $25,000. What is the asset's remaining useful life?

3 years useful life= (45000-5000)/8 years =5000 per year years expired= AD/depr per year 25000/5000 =5 years remaining life = useful life - years expired = 8-5 = 3

In the current year, a company incurred $150,000 of research and development costs in its laboratory to develop a new product. It also spent $20,000 in legal fees for a patent on that new product. Later in the current year, the company paid $15,000 for legal fees in a successful defense of its patent. What is the total amount that should be debited to the company's Patents account in the current year?

35,000

Which ratio is computed by dividing net income by net sales?

The profit margin ratio