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Chapter 11: Q17-4Q (page 552)
Question: Identify and explain the three types of classifications for investments in debt securities.
Answer:
Three types of debt security are hold-to-maturity, trading securities, and available-for-sale.
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(Depreciation鈥擟hange in Estimate) Machinery purchased for \(60,000 by Tom Brady Co. in 2013 was originally estimated to have a life of 8 years with a salvage value of \)4,000 at the end of that time. Depreciation has been entered for 5 years on this basis. In 2018, it is determined that the total estimated life should be 10 years with a salvage value of $4,500 at the end of that time. Assume straight-line depreciation.
Instructions
(Impairment) Presented below is information related to equipment owned by Suarez Company at December 31, 2017.
Cost | \(9,000,000 |
Accumulated depreciation to date | 1,000,000 |
Expected future net cash flows | 7,000,000 |
Fair value | 4,800,000 |
Assume that Suarez will continue to use this asset in the future. As of December 31, 2017, the equipment has a remaining useful life of 4 years.
Instructions
(Depreciation and Error Analysis) A depreciation schedule for semi-trucks of Ichiro Manufacturing Company was requested by your auditor soon after December 31, 2018, showing the additions, retirements, depreciation, and other data affecting the income of the company in the 4-year period 2015 to 2018, inclusive. The following data were ascertained.
Balance of Trucks account, Jan. 1, 2015 | |
Truck No. 1 purchased Jan. 1, 2012, cost | \(18,000 |
Truck No. 2 purchased July 1, 2012, cost | 22,000 |
Truck No. 3 purchased Jan. 1, 2014, cost | 30,000 |
Truck No. 4 purchased July 1, 2014, cost | 24,000 |
Balance, Jan. 1, 2015 | \)94,000 |
The Accumulated Depreciation鈥擳rucks account previously adjusted to January 1, 2015, and entered in the ledger, had a balance on that date of \(30,200 (depreciation on the four trucks from the respective dates of purchase, based on a 5-year life, no salvage value). No charges had been made against the account before January 1, 2015.
Transactions between January 1, 2015, and December 31, 2018, which were recorded in the ledger, are as follows.
July 1, 2015 Truck No. 3 was traded for a larger one (No. 5), the agreed purchase price of which was \)40,000. Ichiro. paid the automobile dealer \(22,000 cash on the transaction. The entry was a debit to Trucks and a credit to Cash, \)22,000. The transaction has commercial substance.
Jan. 1, 2016 Truck No. 1 was sold for \(3,500 cash; entry debited Cash and credited Trucks, \)3,500.
July 1, 2017 A new truck (No. 6) was acquired for \(42,000 cash and was charged at that amount to the Trucks account. (Assume truck No. 2 was not retired.)
July 1, 2017 Truck No. 4 was damaged in a wreck to such an extent that it was sold as junk for \)700 cash. Ichiro received \(2,500 from the insurance company. The entry made by the bookkeeper was a debit to Cash, \)3,200, and credits to Miscellaneous Income, \(700, and Trucks, \)2,500.
Entries for straight-line depreciation had been made at the close of each year as follows: 2015, \(21,000; 2016, \)22,500; 2017, \(25,050; and 2018, \)30,400.
Instructions
(Different Methods of Depreciation) Jackel Industries presents you with the following information.
Description | Date Purchased | Cost | Salvage Value | Life in years | Depreciation Method | Accumulated depreciation to 12/31/18 | Depreciation for 2019 |
Machine A | 2/12/17 | \(142,500 | \)16,000 | 10 | (a) | $33,350 | (b) |
Machine B | 8/15/16 | (c) | 21,000 | 5 | SL | 29,000 | (d) |
Machine C | 7/21/15 | 75,400 | 23,500 | 8 | DDB | (e) | (f) |
Machine D | 10/12/(g) | 219,000 | 69,000 | 5 | SYD | 70,000 | (h) |
Instructions
Complete the table for the year ended December 31, 2019. The company depreciates all assets using the half-year convention.
(Ratio Analysis) The 2014 annual report of Tootsie Roll Industries contains the following information.
(in millions) | December 31, 2014 | December 31, 2013 |
Total assets | \(910.4 | \)888.4 |
Total liabilities | 219.3 | 208.1 |
Net sales | 539.9 | 539.6 |
Net income | 63.2 | 60.8 |
Instructions
Compute the following ratios for Tootsie Roll for 2014.
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