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Task 5

Accounting

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Task 5.1- Fixed asset transactions.

Instructions

After you have read and understood the learning resources in this module, work through the following exercises using Chapter 10, “Long-Term Assets: Fixed and Intangible,” from the textbook. Do in excel.

 

Perform the following fixed asset transaction exercises.

 

Part 1

 

Read the following case and record the transactions and the corresponding adjustment entries:

 

At Caribe Music, a company dedicated to the sale of music equipment, there have been the following transactions and adjustments in the past two years. The transactions are related to the use of the shipping equipment. The depreciation method was the double declining balance.

 

First Year	Transaction
February 6	A used delivery truck was purchased for cash for $ 45,000.
July 7	$ 700 was paid in truck repairs.
December 31	Record the depreciation of the truck for the calendar year. The truck had a useful life of 3 years. The truck had a residual of $ 5,500.
Second Year
January 8	A new truck was purchased for cash for $ 55,000.
June 10	Maintenance and repairs were performed on the truck for $ 725.
July 9	Paid $ 250 for repairs to the used truck purchased in the first year.
September 19	The truck that was purchased in the first year for $ 20,000 was sold. Record the depreciation as of the date the truck is sold.
December 31	Records the depreciation of the truck purchased in the second year. The truck has a useful life of 5 years. The truck has a residual of $ 7,200.

 

 

 

Part 2. Fixed asset turnover rate

 

Read the following case and compute the turnover ratio for fixed assets.

Explain in your own words how the result of the turnover ratio of both companies is interpreted.

La Flor de Mayo and La Rosa del Monte compete in the moving service sector. The greatest assets of these companies are moving trucks, warehouses and technological equipment. The sales and the average book value of fixed assets (book value) that were reported in the last financial statements of each company is as follows:

 

	La Flor de mayo	La Rosa del monte
Sales (in millions)	$12,320	$15,500
Average book value of fixed assets (in millions)	$7,000	$8,300

 

 

Part 3. Book value

 

Read the following case and calculate the book value of Home Depot's current and prior year fixed assets.

Explain the difference in the book value between the two years.

Home Depot is a distributor of building materials, gardening and kitchen equipment, among others. The following information is from the company's books.

 

Fixed assets	Current year	Previous year
Buildings	$28,300	$21,500
Machinery, equipment and computer systems	32,250	22,600
Other fixed assets	6,800	8,200
Accumulated depreciation and amortization	(31,500)	(23,100)

 

 

 

 

 

Task 5.2-Depreciation, amortization and depletion.

Instructions

After you have read and understood the learning resources in this module, work through the following exercises using Chapter 10, “Long-Term Assets: Fixed and Intangible,” from the textbook. Do this in excel.

 

Part 1. Calculate depreciation in the following cases.

 

La Rosa del Monte has a moving truck that does the big moves in the Miami area and at the end of the year has a balance of $ 88,250 with accumulated depreciation of $ 12,230. He also has a small truck that he uses in the Orlando area for $ 43,760 with accumulated depreciation of $ 7,120.

Determine what the depreciation is for each truck using the (depreciation by units of activity method).

 

Truck	Cost	Estimated residual value	Estimated shelf life	Time Accumulated depreciation at the beginning of the year.	Miles used in the year
Big truck	$88,250	$17,000	230,000 miles	$12,230	32,000
Small truck	43,760	6,500	280,000 miles	7,120	27,300

 

 

2- A gamer computer costs $ 3,850 with a residual of 800 and an estimated 5-year lifespan.

1. Calculate annual depreciation using the straight-line depreciation method. (straight-line depreciation)
2. Make the wage entries.

 

3- A refrigerator in a cafeteria with a shelf life of 8 years cost $ 5,250 and has no residual.

1. Calculate depreciation using the (straight-line depreciation) method and the (declining method).
2. Make the wage entries for each depreciation method.

 

4- A sewing machine in a textile factory was purchased for $ 223,000, has an estimated residual of           $ 22,000 and a useful life of 38,000 hours. It was used in the year for 4,200 hours.

 

1. Calculate depreciation for the year using the unit-produced depreciation method, depreciable cost, and depreciation rate.

 

 

 

 

 

Part 2. Calculate amortization and depletion for each transaction.

 

1. A gold garment production company acquired the rights to a mine for $ 520,000,000. At the mine, there are an estimated 150,000,000 tons of gold. The amount of 50,000 tons was sold in the year.

1. Calculate the (depletion rate) and depletion expense for the year.
2. You must deliver the steps of how you got to the result.

 

2. A fast food business acquired the copyright to a recipe book for $ 80,000 with a useful life of 15 years.

1. Calculate amortization. You must present the calculation made.

 

3. A company pays a patent for $ 98,000 with a useful life of 12 years.

1. Calculate amortization. You must present the calculation made.