E7-66A: Determining depreciation amounts by three methods

On January 1, 202X, J.T. Orlando Co. paid $240,000 for a computer system. In addition to
the basic purchase price, the company paid a setup fee of $2,000, $8,000 sales tax, and
$30,000 for a special platform on which to place the computer. J.T. Orlando
management estimates that the computer will remain in service for five years and have
a residual value of $20,000. The computer will process 30,000 documents the first year,
with annual processing decreasing by 2,500 documents during each of the next four
years. In trying to decide which depreciation method to use, the company president has
requested a depreciation schedule for each of the three depreciation methods (straight-
line, units-of-production, and double-declining-balance).
Required:
For each of the depreciation methods, prepare a depreciation schedule showing asset
cost, depreciation expense, accumulated depreciation, and asset book value.
E 8-6: Recording Depreciation and Repairs (

Straight-Line Depreciation)
Manrow Growers, Incorporated, owns equipment for sowing and harvesting its organic
fruit, vegetables, and tree nuts that are sold to local restaurants and grocery stores. At
the beginning of this year, an asset account for the company showed the following
balances:
Equipment $350,000
Accumulated depreciation through the end of last year 165,000
During the current year, the following expenditures were incurred for the equipment:

Major overhaul of the equipment on January 1 of the current year that improved efficiency $42,000

Routine maintenance and repairs on the equipment. $500

The equipment is being depreciated on a straight-line basis over an estimated life of 8

years with a $20,000 estimated residual value. The annual accounting period ends on
December 31.
Required:
1. Give the adjusting entry that was made at the end of last year for depreciation
on the equipment.
 2. Starting at the beginning of the current year, what is the remaining estimated
life?

3. Give the journal entries to record the two expenditures during the current year.

E 8-16: Recording the Disposal of an Asset at Three Different Sales Price

Delta Air Lines owns hundreds of aircraft, with about 60 percent of its fleet consisting of
Boeing aircraft, while Airbus aircraft make up about 40 percent. It sold seven used
Boeing 767-300 jets to Amazon.com as Amazon plans to expand its growing Amazon Air
cargo service. The average age of the jets is about 20 years old:
Assume the records of the company reflected the following for the jets that were sold:

Required:
1. Prepare the Journal entry for the disposal of the airplanes, assuming that the
airplanes sold for
a. $15,700,000 cash
b. $16,300,000 cash
c. $14,600,000 cash
 2. Based on the three preceding situations, explain the effects of the disposal of an
asset
a. $15,700,000 cash
b. $16,300,000 cash
c. $14,600,000 cash

E 8-21: Computing and Reporting the Acquisition and Amortization of Three

Different Intangible Assets
Springer Company had three intangible assets at the end of 2023 (end of the
accounting year):
a. A copyright purchased on January 1, 2023, for a cash cost of $14,500. The
copyright is expected to have a 10-year useful life to Springer.
b. Goodwill of $65,000 from the purchase of the Hartford Company on July 1, 2022.
c. A patent purchased on January 1, 2022, for $48,000. The inventor had registered
the patent with the U.S. Patent and Trademark Office on January 1, 2018.
Springer intends to use the patent for its remaining life. A legal life of a patent is
20 years.
Required:
 1. Compute the amortization of each intangible at December 31, 2023. The
company does not use contra-accounts.

2. Show how these assets and any related expenses should be reported on the
statement of financial position and income statement for 2023 (Assume that
there has been no impairment of goodwill).

E 8-25: Computing the Effect of a Change in Useful Life and Residual Value on FS
and CF (S-T Depre.)
Yukelson Company owns the building occupied by its administrative office. The office
building was reflected in the accounts at the end of last year as follows:

During January of this year, on the basis of a careful study, management decided that
the total estimated useful life should be changed to 30 years (instead of 50 years) and
the residual value reduced to $22,500 (from $30,000). The depreciation method will not
change.
Required:
 1. Compute the annual depreciation prior to the change in estimates.

2. Compute the annual depreciation expense after the change in estimates.

3. What will be the net effect of the change in estimates on the statement of
financial position, net income, and cash flows for this year?

P 8-7: Computing Goodwill from the Purchase of a Business and Related

Depreciation and Amortization
The notes to a recent annual report from Suzie’s Shoe Corporation indicated that the
company acquired another company, Steve’s Shoes, Inc.
Assume that Suzie’s acquired Steve’s Shoes on January 5 of the current year.
Suzie’s acquired the name of the company and all of its assets for $750,000 cash.
Suzie’s did not assume the liabilities. The transaction was closed on January 5 of the
current year, at which time the statement of financial position of Steve’s Shoes reflected
the following book values. An independent appraiser estimated the following market
values for the assets:
Required:
1. Compute the amount of goodwill resulting from the purchase. (Hint: Assets are
purchased at market value in conformity with the cost principle.)
2. Compute the adjustments that Suzie’s Shoes Corporation would make at the end
of the current year (ending December 31) for the following items acquired from
Steve's Shoes:
a. Depreciation of the fixed assets (straight line), assuming an estimated
remaining useful life of 10 years and no residual value.
b. Goodwill (an intangible asset with an indefinite life)
E 9-4: Recording a Note Payable through Its Time to Maturity with Discussion of
Management Strategy
Many businesses borrow money during periods of increased business activity to finance
inventory and accounts receivable. Nordstrom, Incorporated, is one of America’s most
prestigious retailers. Each Christmas season, Nordstrom builds up its inventory to meet
the needs of Christmas shoppers. A large portion of these Christmas sales are on
credit. As a result, Nordstrom often collects cash from the sales several months after
Christmas. Assume that on November 1 of this year, Nordstrom borrowed $4.8 million
cash from Bank of America to meet short-term obligations. Nordstrom signed an
interest-bearing note and promised to repay the $4.8 million in six months. The annual
interest rate was 8 percent. All interest will accrue and be paid when the note is due in
six months. Nordstrom’s accounting period ends December 31.
Required:
1. Provide the journal entry to record the note on November 1.
2. Provide any adjusting entry required at the end of the accounting period on
December 31.
3. Provide the journal entry to record payment of the note and interest on the
maturity date, April 30.
E 9-5: Determining Financial Statement Effects of Transactions Involving Notes
Payable
Assume that on November 1 of this year, Nordstrom borrowed $4.8 million cash from
Bank of America to meet short-term obligations. Nordstrom signed an interest-bearing
note and promised to repay the $4.8 million in six months. The annual interest rate was
8%. All interest will accrue and be paid when the note is due in six months. Nordstrom’s
accounting period ends December 31.
Required:
Determine the financial statement effects for each of the following:
(a) the issuance of the note on November 1,
(b) the impact of the adjusting entry at the end of the accounting period, and
(c) payment of the note and interest on April 30. Indicate the effects (e.g., cash + or
−) using the schedule below
You do not need to include amounts, just accounts and the direction in which they are
affected

Jose Company sells a wide range of goods through two retail stores operated in
adjoining cities. Jose purchases most of the goods it sells in its stores on credit,
promising to pay suppliers later. Occasionally, a short-term note payable is used to
obtain cash for current use. The following transactions were selected from those
occurring during the fiscal year, which ends on December 31:
a. Purchase merchandise on credit for $18,000 on January 10.
b. Borrowed $45,000 cash on March 1 from City Bank by signing an
interest-bearing note payable. The note is due at the end of six
months (August 31) and has an annual interest rate of 10% payable
at maturity.
Required:
1. Describe the impact of each transaction on the B/S equation. Indicate the effect
using the format below. You do not need to include amounts, just accounts and
the direction.
 2. What amount of cash is paid on the maturity date of the note (August 31)?
3. Discuss the impact of each transaction on cash flows.

E11-3: Determining the Effects of the Issuance of Ordinary and Preference Share
Lucas Company was issued a charter by the state of Indiana on January 15 of this year.
The charter authorized the following:
Ordinary share, $10 par value, 103,000 shares
Preference share, 9 percent, par value $8 per share, 4,000 shares authorized
During Year 1, the following selected transactions were completed in the order given:
a. Sold and issued 20,000 shares of ordinary share at $16 cash per share.
b. Sold and issued 3,000 shares of preference share at $20 cash per share.
c. At the end of Year 1, the accounts showed net income of $60,000. No dividends
were declared.
Required:
1. Prepare the shareholders’ equity section of the statement of financial position at
the end of the year.
2. Assume that you are an ordinary shareholder. If Lucas needed additional capital,
would you prefer to have it issue additional ordinary share or additional
preference share? Explain.

Req. 2
There is no right answer to this question. The answer depends on how you value the
various tradeoffs between ordinary share and preference share. For example, issuing
additional ordinary share would dilute your ownership of the company, but issuing
additional preference share would commit the company to pay a 9% dividend to
preference shareholders if dividends are declared.
E 11-6: Finding Amounts Missing from the Shareholders’ Equity Section
Assume that the shareholders' equity section on the statement of financial position of
Dillard's, a popular department store, is shown below. During the year, the company
reported net income of $463,909,000 and declared and paid dividends of $10,002,000.

Required:
1. What is the par value of Dillard's Class A ordinary share?

2.How many shares of Class A Ordinary Share were outstanding at the end of
last year and the end of the current year?
Req. 2
Number of shares outstanding last year: 117,706,523 shares issued minus 61,740,439
shares held as treasury share = 55,966,084.
Number of shares outstanding current year: 118,529,925 shares issued minus
73,099,319 shares held as treasury share = 45,430,606.

3.What amount was reported in the Retained Earnings account at the end of
last year?
Req. 3
Retained earnings last year: $3,107,344,000 minus net income for the current year
$463,909,000 plus dividends for the current year $10,002,000 = $2,653,437,000

4.How is the dollar amount in the treasury share account at the end of the
current year reflected on the asset side of the statement of financial
position?

Req. 4
Treasury share is purchased with cash. The journal entry is a debit to treasury share and
a credit to cash. As a result, the negative dollar amount in the treasury share account at
the end of the current year is mirrored by a reduction to cash on the asset side of the
statement of financial position.
5.During the current year, by what amount did treasury share transactions increase or
decrease shareholders' equity?
Req. 5
Treasury share transactions decreased shareholders’ equity by $490,786,000
($1,846,312,000 - $1,355,526,000).

6.At the end of the current year, what was the average price paid per share for shares
held in treasury share?
Req. 6
At the end of the current year, treasury share cost per share: $1,846,312,000 ÷
73,099,319 shares = $25.26.

E 11-16: Recording and Analyzing Treasury Share Transactions

During the year, the following selected transactions affecting shareholders' equity
occurred for Navajo Corporation:
a. Feb. 1 Repurchased 160 shares of the company’s own ordinary share at $20
cash per share
b. July 15 Sold 80 of the shares purchased on Feb. 1 for $21 cash per share
c. Sept. 1 Sold 50 of the shares purchased on Feb. 1 for $19 cash per share
Required:
1. Prepare the journal entry required for each of the above transactions.

2. What impact does the purchase of treasury share have on dividend paid?

Req. 2
Dividends are not paid on treasury share. Dividends are computed on shares
outstanding. Therefore, the amount of total cash dividends paid is reduced when a
company repurchases outstanding shares.

3. What impact does the sale of treasury share for an amount higher than the
purchase price have on net income and the statement of cash flow?

Req. 3
The sale of treasury shares for more or less than its original purchase price does not
have an impact on net income. The transaction affects only statement of financial
position accounts. The cash received from the sale of treasury share is a financing
cash inflow on the statement of cash flows.

E 11-18: Computing Dividends on Preference Share and Analyzing Differences

The records of Hollywood Company reflected the following balances in the
shareholders’ equity accounts at the end of the current year:
Ordinary share, $12 par value, 50,000 shares outstanding
Preference share, 10 percent, $10 par value, 5,000 shares outstanding
Retained earnings, $216,000
On September 1 of the current year, the board of directors was considering the
distribution of a $85,000 cash dividend. No dividends were paid during the previous two
years. You have been asked to determine dividend amounts under two independent
assumptions (show computations):
a. The preference share is noncumulative.
b. The preference share is cumulative.
Required:
1. Determine the total and per share amounts that would be paid to the ordinary
shareholders and the preference shareholders under the two independent
assumptions.

2. Will the statement of cash flows be affected differently under the two
independent assumptions?

Since the total dividend ($85,000) does not change under

statement of cash flows is impacted in the same manner across the two
independent assumptions. Under both assumptions, the company would report
an $85,000 financing activities cash outflow.
E 11-24: Comparing Cash Dividends and Share Dividends

Weili Corporation has 80,000 shares of ordinary share outstanding with a par value of $8.

Required:

1. Complete the table below for each of the two following independent cases:

Case 1: The board of directors declared and issued a 40 percent share dividend when the

share was selling at $25 per share.

Case 2: The board of directors declared and paid a cash dividend of $2 per share.

Comments: The share dividend does not change total shareholders’ equity because
it does not involve the disbursement of assets. The share dividend reduced retained
earnings and increased the ordinary share account by the same amount ($256,000 =
$640,000 x 40%); it increased shares outstanding but did not change par value per
share. The cash dividend required the disbursement of assets (cash) and a similar
reduction of the retained earnings account in the shareholders’ equity section of the
statement of financial position.

2. Explain how Case 1 and Case 2 will be reported on the statement of cash flows.

Req. 2 The share dividend will not affect the statement of cash flows. The amount
of the cash dividend ($160,000) will be reported as a financing activity cash
outflow on the statement of cash flows.

P11-4: Recording Transactions and Comparing Par and No-Par Share

The following was in the financial press pertaining to GoDaddy Corporation.

GoDaddy’s (GDDY) share was sold for $26 per share during its opening day of trading.
GoDaddy sold 23 million shares at its IPO.

Required:

1. Record the issuance of share, assuming the share was no-par value ordinary
share.
2. Record the issuance of share, assuming the ordinary share had a par value of
$2 per share.
 3. Should a shareholder care whether a company issues par or no-par value
share? Why?

Req. 3
Par value no longer has any economic significance. It is mainly a legal obligation
required by certain states. An investor should not care whether the ordinary share
purchased has a par value or is no-par value share.