Immediate Accounting Solution Essay

491 WordsNov 11, 20142 Pages
Week 7 Practice Question Solutions EXERCISE 11-8 (20–25 minutes) Old Machine June 1, 2012 | Purchase | $31,000 | | Freight | 200 | | Installation | 500 | | Total cost | $31,700 | Annual depreciation charge: ($31,700 – $2,500) ÷ 10 = $2,920 On June 1, 2013, debit the old machine for $1,980; the revised total cost is $33,680 ($31,700 + $1,980); thus the revised annual depreciation charge is: ($33,680 – $2,500 – $2,920) ÷ 9 = $3,140. Book value, old machine, June 1, 2016: | | [$33,680 – $2,920 – ($3,140 X 3)] = | $21,340 | Less: Fair value | 20,000 | Loss on exchange | 1,340 | Cost of removal | 75 | Total loss | $ 1,415 | (Note to instructor: The above computation is done to determine whether there is a gain or loss from the exchange of the old machine with the new machine and to show how the cost of removal might be reported. Also, if a gain occurs, the gain is not deferred (1) because the exchange has commercial substance, and (2) the cost paid exceeds 25% of the total value of the property received.) New Machine Basis of new machine | Cash paid ($35,000 – $20,000) | $15,000 | | Fair value of old machine | 20,000 | | Installation cost | 1,500 | | Total cost of new machine | $36,500 | Depreciation for the year beginning June 1, 2016 = ($36,500 – $4,000) ÷ 10 = $3,250. EXERCISE 11-24 (15–25 minutes) (a) Asset turnover: $528.4 | = .6159 times | $858 + $857.9 | | 2 | | (a) Return on assets: $43.9 | = 5.12% | $858 + $857.9 | | 2 | | (b) Profit margin on sales: $43.9 | = 8.31% | $528.4 | | (c) The asset turnover times the profit margin on sales provides the rate of return on assets computed for Tootsie Roll as follows: Profit margin on sales | X | Asset Turnover | | Return on

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