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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’s asset turnover. (b) Compute Campbell’s profit margin on sales. (c) Compute Campbell’s 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

Shumway Oil uses successful-efforts accounting and also provides full-cost results as well. Under fullcost, Shumway Oil would have reported retained earnings of \(42 million and net income of \)4 million. Under successful effort, retained earnings were \(29 million, and net income was \)3 million. Explain the difference between full-costing and successful-efforts accounting.

(Depreciation Computation—Addition, Change in Estimate) In 1990, Herman Moore Company completed the construction of a building at a cost of \(2,000,000 and first occupied it in January 1991. It was estimated that the building will have a useful life of 40 years and a salvage value of \)60,000 at the end of that time.

Early in 2001, an addition to the building was constructed at a cost of \(500,000. At that time, it was estimated that the remaining life of the building would be, as originally estimated, an additional 30 years and that the addition would have a life of 30 years and a salvage value of \)20,000.

In 2019, it is determined that the probable life of the building and addition will extend to the end of 2050, or 20 years beyond the original estimate.

Instructions

  1. Using the straight-line method, compute the annual depreciation that would have been charged from 1991 through 2000.
  2. Compute the annual depreciation that would have been charged from 2001 through 2018.
  3. Prepare the entry, if necessary, to adjust the account balances because of the revision of the estimated life in 2019.
  4. Compute the annual depreciation to be charged, beginning with 2019.

(Depreciation Computations, SYD) Five Satins Company purchased a piece of equipment at the beginning of 2014. The equipment cost \(430,000. It has an estimated service life of 8 years and an expected salvage value of \)70,000. The sum of-the-years’-digits method of depreciation is being used. Someone has already correctly prepared a depreciation schedule for this asset. This schedule shows that \(60,000 will be depreciated for a particular calendar year.

Instructions

Show calculations to determine for what particular year the depreciation amount for this asset will be \)60,000.

Walkin Inc. is considering the write-down of its long-term plant because of a lack of profitability. Explain to the management of Walkin how to determine whether a write-down is permitted.

(Depletion and Depreciation—Mining) Khamsah Mining Company has purchased a tract of mineral land for \(900,000. It is estimated that this tract will yield 120,000 tons of ore with sufficient mineral content to make mining and processing profitable. It is further estimated that 6,000 tons of ore will be mined the first and last year and 12,000 tons every year in between. (Assume 11 years of mining operations.) The land will have a salvage value of \)30,000.

The company builds necessary structures and sheds on the site at a cost of \(36,000. It is estimated that these structures can serve 15 years but, because they must be dismantled if they are to be moved, they have no salvage value. The company does not intend to use the buildings elsewhere. Mining machinery installed at the mine was purchased secondhand at a cost of \)60,000. This machinery cost the former owner $150,000 and was 50% depreciated when purchased. Khamsah Mining estimates that about half of this machinery will still be useful when the present mineral resources have been exhausted, but that dismantling and removal costs will just about offset its value at that time. The company does not intend to use the machinery elsewhere. The remaining machinery will last until about one-half the present estimated mineral ore has been removed and will then be worthless. Cost is to be allocated equally between these two classes of machinery.

Instructions

  1. As chief accountant for the company, you are to prepare a schedule showing estimated depletion and depreciation costs for each year of the expected life of the mine.
  2. Also compute the depreciation and depletion for the first year assuming actual production of 5,000 tons. Nothing occurred during the year to cause the company engineers to change their estimates of either the mineral resources or the life of the structures and equipment.
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