ACCT 209 Lecture Notes - Lecture 5: Drill

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4 Sep 2016

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Long-term assets: more than one year (non-current) (1) property, plant, and equipment (land, buildings, stuff) Long term assets used in the operations of the business. Ex: use this stuff to make stuff, attorneys have copy machines and a building, barbers have chairs and scissors, (2) investments . Ex: stock in other companies, land, air work, buildings, mineral rights. Key is we are hoping it will go up in value later on. If used, we reclassify it (3) natural resources . Ex: oil and gas deposits, timber, coal, minerals, etc. (4) intangible assets . No physical substance, generally consist of legal right. Ex: copy right for production of something, patent for product, franchise. Cost principle: acquisition cost includes all normal and reasonable costs (buy fast computer for business-that is fine; a colored case wouldn"t be one) incurred to acquire asset and prepare it for intended use. *want to get it in the location and condition desired*

Related Questions

Part A - Inventory and Depreciation

Consider this Balance Sheet situation:

Three years ago Mr. Jones bought a new machine that insertspimentos into

green olives. He paid $10,000 for the machine, and it wenthappily to work

and has been filling 5,000 green olives per day with bright redpimentos.

At the time of purchase, Mr. Jonesï¿½ accountant told him that thestandard

useful life for this type of equipment was 10 years. Mr. Jonesdecided to use

the straight-line method to calculate depreciation.

Please answer the following questions:

1. What amount would go on the Balance Sheet at the time of

purchase?

2. Where would this amount have been posted on the Balance

Sheet?

3. What is the current book value of the equipment?

4. How much accumulated depreciation is posted?

Consider this Income Statement situation:

Mr. Jones started the year with no olives in inventory. Hebought 5,000

green olives at 25 cents each in March, 10,000 at 50 cents eachin July, and

10,000 at 75 cents each in November. At year end he had 2,000olives left

in inventory.

Calculate his ending inventory value using:

5. Average cost method

6. FIFO

7. LIFO

8. Which method should he use when he prepares his Income

Statement to show the bank?

Part B - Financial Statement Analysis

Please solve the following Financial Statement Ratios using

the Balance Sheet and Income Statement found below.

Also tell me, in a sentence or two, what we have learned

from each one.

1. CURRENT RATIO

2. QUICK, OR ACID TEST RATIO

3. WORKING CAPITAL

4. DEBT TO WORTH (or Owners Equity) RATIO

5. ROI (Return on Investment).

6. EARNINGS PER SHARE

7. INVENTORY TURNOVER

FIGURE A

Jim Jones, dba Jimï¿½s Cool Stuff

BALANCE SHEET

As of December 31, 2009

ASSETS LIABILITIES

Current Assets Current Liabilities

Cash 250 Accounts Payable 500

Accts. Receivable 550 Notes Payable 600

Inventory 750 Contracts Payable 300

Prepaid Expenses 1,000 Total Curr. Liabilities 1,100

Total Curr. Assets 2,550

Long-Term Liabilities

Fixed Assets Mortgage 15,000

Land 40,000 Long Term Contract 1,500

Truck 2,000 Total LT Liabilities 16,500

Accum. Dep. (250) 1,750 TOTAL LIABILITIES 17,600

Total Fixed Assets 41,750

TOTAL ASSETS: 44,300 EQUITY

Common Stock

(1,000 shares)

26,700

TOTAL EQUITY 26,700

LIABILITIES & EQUITY 44,300

FIGURE B

Jim Jones, dba Jimï¿½s Cool Stuff

INCOME STATEMENT

For the 12 months ending December 31, 2009

REVENUE $1,000,000

EXPENSES

Cost of Goods Sold:

Beginning Inventory 125,000

Plus Purchases 550,000

Less Ending Inventory (100,000)

= Cost of Goods Sold $575,000

Gross Profit $425,000

Operating Expenses

Rent 175,000

Payroll 217,700

Utilities 11,000

Office Expenses 500

Depreciation 50

Local Taxes 250

Legal Fees 500

Total Operating Expenses 405,000

NET INCOME BEFORE TAX 20,000

Federal Income Taxes (25%) 5,000

NET INCOME 15,000

pearwhale985

Consider this Balance Sheet situation:

Three years ago Mr. Jones bought a new machine that insertspimentos into

green olives. He paid $10,000 for the machine, and it wenthappily to work

and has been filling 5,000 green olives per day with bright redpimentos.

At the time of purchase, Mr. Jonesï¿½ accountant told him that thestandard

useful life for this type of equipment was 10 years. Mr. Jonesdecided to use

the straight-line method to calculate depreciation.

Please answer the following questions:

1. What amount would go on the Balance Sheet at the time of

purchase?

2. Where would this amount have been posted on the Balance

Sheet?

3. What is the current book value of the equipment?

4. How much accumulated depreciation is posted?

Consider this Income Statement situation:

Mr. Jones started the year with no olives in inventory. Hebought 5,000

green olives at 25 cents each in March, 10,000 at 50 cents eachin July, and

10,000 at 75 cents each in November. At year end he had 2,000olives left

in inventory.

Calculate his ending inventory value using:

5. Average cost method

6. FIFO

7. LIFO

8. Which method should he use when he prepares his Income

Statement to show the bank?

Part B - Financial Statement Analysis

Please solve the following Financial Statement Ratios using

the Balance Sheet and Income Statement found below.

Also tell me, in a sentence or two, what we have learned

from each one.

1. CURRENT RATIO

2. QUICK, OR ACID TEST RATIO

3. WORKING CAPITAL

4. DEBT TO WORTH (or Owners Equity) RATIO

5. ROI (Return on Investment).

6. EARNINGS PER SHARE

7. INVENTORY TURNOVER

FIGURE A

Jim Jones, dba Jimï¿½s Cool Stuff

BALANCE SHEET

As of December 31, 2009

ASSETS LIABILITIES

Current Assets Current Liabilities

Cash 250 Accounts Payable 500

Accts. Receivable 550 Notes Payable 600

Inventory 750 Contracts Payable 300

Prepaid Expenses 1,000 Total Curr. Liabilities 1,100

Total Curr. Assets 2,550

Long-Term Liabilities

Fixed Assets Mortgage 15,000

Land 40,000 Long Term Contract 1,500

Truck 2,000 Total LT Liabilities 16,500

Accum. Dep. (250) 1,750 TOTAL LIABILITIES 17,600

Total Fixed Assets 41,750

TOTAL ASSETS: 44,300 EQUITY

Common Stock

(1,000 shares)

26,700

TOTAL EQUITY 26,700

LIABILITIES & EQUITY 44,300

FIGURE B

Jim Jones, dba Jimï¿½s Cool Stuff

INCOME STATEMENT

For the 12 months ending December 31, 2009

REVENUE $1,000,000

EXPENSES

Cost of Goods Sold:

Beginning Inventory 125,000

Plus Purchases 550,000

Less Ending Inventory (100,000)

= Cost of Goods Sold $575,000

Gross Profit $425,000

Operating Expenses

Rent 175,000

Payroll 217,700

Utilities 11,000

Office Expenses 500

Depreciation 50

Local Taxes 250

Legal Fees 500

Total Operating Expenses 405,000

NET INCOME BEFORE TAX 20,000

Federal Income Taxes (25%) 5,000

NET INCOME 15,000

pinkgoose788

China Express purchased land for $140,000. Prior to construction on the new building, the land had to be cleared of trees and brush. Construction costs incurred during the first year are listed below:

Land clearing costs	$ 5,000
Architect fees (for new building)	30,000
Legal fees for title investigation of land	1,000
Property taxes on land (for the first year)	2,500
Building construction costs	440,000

Required:
Determine the amounts that should be recorded in the land and the new building accounts.

2. Diamond Autobody purchased some new equipment. The new equipment cost $90,000. The company estimates the equipment will have a residual value of $10,000. Cheetah Copy also estimates it will use the equipment for four years or about 5,000 total hours.

Required:

Prepare a depreciation schedule for three years using the following methods:

1. Straight-line.
2. Double-declining-balance.
3. Activity-based. Actual use per year was as follows:

Year	Hours Used
1	1,200
2	1,400
3	1,500
4	1,100

3. The Snack Stop had the following long-term asset balances as of January 1, 2015:

	Cost	Accumulated Depreciation	Book Value
Land	$90,000	â	$90,000
Building	600,000	($60,000)	540,000
Equipment	200,000	(72,000)	128,000

All of the assets were purchased at the beginning of 2013. The building is depreciated over a 20-year service life using the straight-line method and estimating no residual value. The equipment is depreciated over a 10-year useful life using the double-declining-balance method with an estimated residual value of $10,000. Depreciation has already been calculated for the first two years.

Required:

1. For the year ended December 31, 2015, record depreciation expense for buildings and equipment. Land is not depreciated.

2. Calculate the book value for each of the four long-term assets at December 31, 2015.

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ACCT 209 Lecture Notes - Lecture 5: Drill

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