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Chapter 11: Q10BE. (page 584)

In its 2014 annual report, Campbell Soup Company reports beginning-of-the-year total assets of \(8,113 million, end-of-the-year total assets of \)8,323 million, total sales of \(8,268 million, and net income of \)807 million. (a) Compute Campbell鈥檚 asset turnover. (b) Compute Campbell鈥檚 profit margin on sales. (c) Compute Campbell鈥檚 return on assets using (1) asset turnover and profit margin and (2) net income. (Round to two decimal places.)

Short Answer

Expert verified
  1. Asset turnover ratio = $1.006 times
  2. Profit margin = $9.76%
  3. Return on asset
  1. Return on asset = 9.76%
  2. Return on asset = 9.82%

Step by step solution

01

Meaning of Depreciation

Depreciation is a branch of accounting thatdeals with systematically spreading or dividing the cost or other principal value of a fixed assetover its expected useful life by charging regular expenses or revenues.

02

Computing Campbell’s asset turnover ratio

Calculating asset turnover ratio

03

(b) Computing Campbell’s profit margin on sales

Calculating profit margin on sale

04

(c 1) Computing Campbell’s return on assets using asset turnover and profit margin

05

(c 2) Computing Campbell’s return on assets net income

Calculating return on asset

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Most popular questions from this chapter

(Depreciation Computation鈥擱eplacement, Nonmonetary Exchange) George Zidek Corporation bought a machine on June 1, 2015, for \(31,000, f.o.b. the place of manufacture. Freight to the point where it was set up was \)200, and \(500 was expended to install it. The machine鈥檚 useful life was estimated at 10 years, with a salvage value of \)2,500. On June 1, 2016, an essential part of the machine is replaced, at a cost of \(1,980, with one designed to reduce the cost of operating the machine. The cost of the old part and related depreciation cannot be determined with any accuracy.

On June 1, 2019, the company buys a new machine of greater capacity for \)35,000, delivered, trading in the old machine which has a fair value and trade-in allowance of \(20,000. To prepare the old machine for removal from the plant cost \)75, and expenditures to install the new one were \(1,500. It is estimated that the new machine has a useful life of 10 years, with a salvage value of \)4,000 at the end of that time. (The exchange has commercial substance.)

Instructions

Assuming that depreciation is to be computed on the straight-line basis, compute the annual depreciation on the new equipment that should be provided for the fiscal year beginning June 1, 2019. (Round to the nearest dollar.)

Explain how estimation of service lives can result in unrealistically high carrying values for fixed assets.

(Impairment) Roland Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2016 for \(10,000,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 2017, new technology was introduced that would accelerate the obsolescence of Roland鈥檚 equipment. Roland鈥檚 controller estimates that expected future net cash flows on the equipment will be \)6,300,000 and that the fair value of the equipment is \(5,600,000. Roland intends to continue using the equipment, but it is estimated that the remaining useful life is 4 years. Roland uses straight-line depreciation.

Instructions

  1. Prepare the journal entry (if any) to record the impairment at December 31, 2017.
  2. Prepare any journal entries for the equipment at December 31, 2018. The fair value of the equipment at December 31, 2018, is estimated to be \)5,900,000.
  3. Repeat the requirements for (a) and (b), assuming that Roland intends to dispose of the equipment and that it has not been disposed of as of December 31, 2018.

(Depreciation鈥擲YD, Act., SL, and DDB) The following data relate to the Machinery account of Eshkol, Inc. at December 31, 2017.


Machinery

A

B

C

D

Original cost

\(46,000

\)51,000

\(80,000

\)80,000

Year purchased

2012

2013

2014

2016

Useful life

10 years

15,000 hours

15 years

10 years

Salvage value

\( 3,100

\) 3,000

\( 5,000

\) 5,000

Depreciation method

Sum-of-the year digits

Activity

Straight-line

Double-declining balance

Accum. depr. through 2017

\(31,200

\)35,200

\(15,000

\)16,000

*In the year an asset is purchased, Eshkol, Inc. does not record any depreciation expense on the asset. In the year an asset is retired or traded in, Eshkol, Inc. takes a full year鈥檚 depreciation on the asset.

The following transactions occurred during 2018.

  1. On May 5, Machine A was sold for \(13,000 cash. The company鈥檚 bookkeeper recorded this retirement in the following manner in the cash receipts journal.

Cash 13,000

Machinery (Machine A) 13,000

b. On December 31, it was determined that Machine B had been used 2,100 hours during 2018.

c. On December 31, before computing depreciation expense on Machine C, the management of Eshkol, Inc. decided the useful life remaining from January 1, 2018, was 10 years.

d. On December 31, it was discovered that a machine purchased in 2017 had been expensed completely in that year. This machine cost \)28,000 and has a useful life of 10 years and no salvage value. Management has decided to use the double-declining-balance method for this machine, which can be referred to as 鈥淢achine E.鈥�

Instructions

Prepare the necessary correcting entries for the year 2018. Record the appropriate depreciation expense on the above-mentioned machines. No entry is necessary for Machine D.

Fernandez Corporation purchased a truck at the beginning of 2017 for \(50,000. The truck is estimated to have a salvage value of \)2,000 and a useful life of 160,000 miles. It was driven 23,000 miles in 2017 and 31,000 miles in 2018. Compute depreciation expense for 2017 and 2018.
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