Problem 9: Solution

1. (Cost - Salvage Value) ÷ Life = Straight-Line Depreciation

Expense per Year

($2,000,000 - 0) ÷ 5 = $400,000

1 ÷ Life = Annual Depreciation Rate

1 ÷ 5 = .2

Problem 9: Solution (continued)

2. Net Book Value × 2 (Straight-Line Rate) = Double Declining

Depreciation Expense

$2,000,000 × 2(.2) = $800,000

3. Income Tax Expense $120,000 (1)

Deferred Income Taxes $120,000

(1) $800,000 - $400,000 = $400,000

$400,000 × 30% = $120,000

Problem 10: Solution

1. Current assets on Dec. 31, 20X1

All assets except for equipment and the contra asset account accumulated depreciation.

Current assets = $334,000 – $420,000 + $180,000 = $94,000

2. Current liabilities on Dec. 31, 20X1

CL = accounts payable + accrued expenses + dividends

payable + mortgage payable (current)

= $68,000

3. Net working capital on Dec. 31, 20X1

NWC = CA – CL = $94,000 – $68,000 = $26,000

4. Net working capital on Dec. 31, 20X2

NWC = $129,000 – $79,000 = $50,000

5. Dollar and percentage change in net working capital

Dollar change = $24,000

Percentage change = 92.30%

Problem 11: Solution

Spartan Inn

Balance Sheet

December 31, 20X4

Assets

Current Assets

Cash $ 5,000

Marketable securities 25,000

Accounts receivable 80,000

Inventories 15,000

Prepaid expenses 8,000

Total Current Assets $133,000

Property and Equipment

Land 80,000

Building 500,000

Furnishings and equipment 200,000

Less: Accumulated depreciation 150,000

Net property and equipment 630,000

Other Assets

Other—franchise fees 15,000

Total Assets $778,000

Liabilities and Owner's Equity

Current Liabilities

Accounts payable $ 20,000

Income taxes payable 10,000

Accrued expenses 10,000

Total Current Liabilities 40,000

Long-Term Debt

Bonds payable 300,000

Deferred Income Taxes 20,000

Owner's Equity

Jerry Spartan, Capital (12/31/X4) $418,000

Total Liabilities and Owner's Equity $778,000

Problem 12: Solution

Singh Park Hotel

Statement of Retained Earnings

For the year ended December 31 20X2

Retained Earnings, Jan. 1, 20X2 $300,000

Net Income for 20X2 280,000

Dividends declared during 20X2 (230,000)

Retained Earnings, Dec. 31, 20X2 $350,000

Problem 13: Solution

KRS, Inc.

Comparative Balance Sheets

December 31, 20X2 and 20X1

Change from 20X1 to 20X2

20X2 20X1 Amount Percentage

Assets

Current Assets

Cash $ 20,768 $ 16,634 $ 4,134 24.85%

Marketable Securities 10,496 10,396 100 0.96

Accounts Receivable 11,618 16,105 (4,487) -27.86

Inventories 18,554 14,554 4,000 27.48

Prepaid Expenses 3,874 4,158 (284) -6.83

Total 65,310 61,847 3,463 5.60

Property and Equipment

Land 116,435 116,435 -0- 0.00

Building 1,007,090 1,007,090 -0- 0.00

Operating Equipment 284,934 269,255 15,679 5.82

Less: Accumulated

Depreciation (537,849) (453,263) (84,586) 18.66

Total 870,610 939,517 (68,907) -7.33

Total Assets $ 935,920 $1,001,364 $(65,444) -6.54%

Liabilities

Current Liabilities

Accounts Payable $ 12,945 $ 13,265 $ (320) -2.41%

Accrued Expenses 1,039 2,047 (1,008) -49.24

Current Portion of

Long-Term Debt 20,060 20,407 (347) -1.70

Total 34,044 35,719 (1,675) -4.69

Long-Term Debt 533,369 553,429 (20,060) -3.62

Deferred Income Taxes 7,927 8,163 (236) -2.89

Total Liabilities 575,340 597,311 (21,971) -3.68

Owners' Equity

Common Stock 211,200 211,200 -0- 0.00

Retained Earnings 149,380 192,853 (43,473) -22.54

Total Owners' Equity 360,580 404,053 (43,473) -10.76

Total Liabilities and

Owners' Equity $ 935,920 $1,001,364 $(65,444) -6.54%

Problem 14: Solution

1. $51,000

2. $30,500

3. $30,500 - $51,000 = ($20,500)

4. $8,000 decrease in cash

5. $8,000 amount of dividends payable

6. $325,000 - $64,000 = $261,000

7. $8,000 + $80,500 = $88,500