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Chapter 9: Q19RQ (page 526)
What does the asset turnover ratio measure, and how is it calculated?
The ratio that determines how efficiently the company can generate sales using its assets is the assets turnover ratio. It is determined using the net assets and average of the total assets.
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What is a natural resource? What is the process by which businesses spread the allocation of a natural resource’s cost over its usage?
Accounting for goodwill
Decca Publishing paid \(230,000 to acquire Thrifty Nickel, a weekly advertising paper. At the time of the acquisition, Thrifty Nickel’s balance sheet reported total assets of \)130,000 and liabilities of \(70,000. The fair market value of Thrifty Nickel’s assets was \)100,000. The fair market value of Thrifty Nickel’s liabilities was $70,000.
Requirements
Determining the cost of assets Lawson Furniture purchased land, paying \(65,000 cash and signing a \)250,000 note payable. In addition, Lawson paid delinquent property tax of \(5,000, title insurance costing \)4,000, and \(9,000 to level the land and remove an unwanted building. The company then constructed an office building at a cost of \)400,000. It also paid \(54,000 for a fence around the property, \)12,000 for a sign near the entrance, and $8,000 for special lighting of the grounds. Requirements
Journalizing natural resource depletion
Cannon Mountain Mining paid \(462,300 for the right to extract mineral assets from a 400,000-ton deposit. In addition to the purchase price, Cannon also paid a \)900 filing fee, a \(1,800 license fee to the state of Nevada, and \)55,000 for a geological survey of the property. Because Cannon purchased the rights to the minerals only and did not purchase the land, it expects the asset to have zero residual value. During the first year, Cannon removed and sold 50,000 tons of the minerals. Make journal entries to record (a) purchase of the minerals (debit Minerals), (b) payment of fees and other costs, and (c) depletion for the first year.
Recording partial-year depreciation and sale of an asset On January 2, 2017, Comfy Clothing Consignments purchased showroom fixtures for \(17,000 cash, expecting the fixtures to remain in service for five years. Comfy has depreciated the fixtures on a double-declining-balance basis, with zero residual value. On October 31, 2018, Comfy sold the fixtures for \)7,600 cash. Record both depreciation expense for 2018 and sale of the fixtures on October 31, 2018.
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