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Chapter 9: Q9-6TI (page 517)
Maxim Company reported beginning and ending total assets of \(140,000 and \)160,000, respectively. Its net sales revenue for the year was $240,000. What was Maxim’s asset turnover ratio?
Answer
Maxim’s asset turnover ratio is 1.6 times.
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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.
This problem continues the Canyon Canoe Company situation from Chapter 8. Amber and Zack Wilson are continuing to review business practices. Currently, theyare reviewing the company’s property, plant, and equipment and have gathered thefollowing information:
Asset | Acquisition Date | Cost | Estimated Life | Estimated Residual value | Depreciation Method | Monthly Depreciation Expense |
Canoes | Nov. 3, 2018 | \(4,800 | 4 Years | \) 0 | SL | $100 |
Land | Dec 1, 2018 | 85,000 | n/a | |||
Building | Dec 1, 2018 | 35,000 | 5 Years | 5,000 | SL | 500 |
Canoes | Dec 2, 2018 | 7,200 | 4 Years | 0 | SL | 150 |
Computer | Mar. 2, 2019 | 3,600 | 3 Years | 300 | DDB | |
Office Furniture | MAR. 3, 2019 | 3,000 | 5 Years | 600 | SL |
*SL = Straight@line; DDB = Double@declining@balance
Requirements
1. Calculate the amount of monthly depreciation expense for the computer andoffice furniture for 2019.
2. For each asset, determine the book value as of December 31, 2018. Then, calculatethe depreciation expense for the first six months of 2019 and the book valueas of June 30, 2019.
3. Prepare a partial balance sheet showing Property, Plant, and Equipment as ofJune 30, 2019.
How do land improvements differ from land?
Western Bank & Trust purchased land and a building for the lump sum of $3,000,000. To get the maximum tax deduction, Western allocated 90% of the purchase price to the building and only 10% to the land. A more realistic allocation would have been 70% to the building and 30% to the land.
Requirements
1. Explain the tax advantage of allocating too much to the building and too little to the land.
2. Was Western’s allocation ethical? If so, state why. If not, why not? Identify who was harmed.
Computing the asset turnover ratio Biagas, Inc. had net sales of \(55,600,000 for the year ended May 31, 2018. Its beginning and ending total assets were \)52,800,000 and $98,500,000, respectively. Determine Biagas’s asset turnover ratio for year ended May 31, 2018.
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