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    Swanson & Hiller purchased a new machine on September 1, 2006 at a cost
    of $108,000. The machine's estimated useful life at the time of the purchase
    was five years, and its residual value was $8,000. Complete schedules assume
    that the half-year convention is used. Data provided on next worksheet.
    SWANSON & HILLER, INC.
    Depreciation Schedules

    a.(1) Straight-Line Schedule

    Depreciation Accumulated Book
    Year Expense Depreciation Value
    2006
    2007
    2008
    2009
    2010
    2011

    a.(2) 200% Declining-Balance Schedule

    Depreciation Accumulated Book
    Year Expense Depreciation Value
    2006
    2007
    2008
    2009
    2010
    2011

    a.(3) 150% Declining-Balance Schedule

    Depreciation Accumulated Book
    Year Expense Depreciation Value
    2006
    2007
    2008
    2009
    *2010
    *2011

    *Switch to straight-line

    b. Which of the three methods is most common for financial
    reporting purposes? Explain.

    SWANSON & HILLER, INC.
    Computation of Gain or Loss upon Disposal

    c.(1) Straight-Line

    Cash proceeds
    Book value on 12/31/09
    Loss on disposal

    c.(2) 200% Declining-Balance

    Cash proceeds
    Book value on 12/31/09
    Gain on disposal

    c.(3) 150% Declining-Balance

    Cash proceeds
    Book value on 12/31/04
    Loss on disposal

    c. Does the gain or loss reported in the company's income
    statement have any direct cash effects? Explain.

    a. Explain how the interest expense shown in the income statement could be $84,000
    when the interest payment appearing in the statement of cash flows is only $79,000.
    rentsc
    RENTSCH, INC.
    Ratios
    b. (1) Current ratio:
    Current assets:
    Cash
    Accounts receivable
    Inventory
    Total current assets
    Current liabilities
    Current ratio to 1

    (2) Quick ratio:
    Quick assets:
    Cash
    Accounts receivable
    Total quick assets
    Current liabilities
    Quick ratio to 1

    (3) Working capital:
    Current assets
    Less: Current liabilities
    Working capital

    (4) Debt ratio:
    Total liabilities:
    Total assets
    Less: Total stockholders' equity
    Total liabilities
    Total assets
    Debt ratio

    c. Comment on these measurements and evaluate Rentsch, Inc.'s short-term
    debt-paying ability.

    RENTSCH, INC.
    Ratios
    d.(1) Return on assets:
    Operating income:
    Net sales
    Less: Cost of goods sold
    Operating expenses
    Operating income
    Total assets (at year-end)
    Return on assets

    (2) Return on equity:
    Net income
    Total stockholders' equity (at year-end)
    Return on equity

    e. Comment on the company's performance under the measurements computed in d.
    Explain why the return on assets and return on equity are so different.

    f. Discuss (1) the apparent safety of long-term creditors' claims and (2) the prospects
    for Rentsch, Inc., continuing its dividend payments at the present level.

    © BrainMass Inc. brainmass.com June 3, 2020, 8:29 pm ad1c9bdddf
    https://brainmass.com/business/straight-line-depreciation/accounting-questions-139848

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    Solution Preview

    Swanson & Hiller purchased a new machine on September 1, 2006 at a cost
    of $108,000. The machine's estimated useful life at the time of the purchase
    was five years, and its residual value was $8,000. Complete schedules assume
    that the half-year convention is used. Data provided on next worksheet.
    SWANSON & HILLER, INC.
    Depreciation Schedules

    a.(1) Straight-Line Schedule

    Depreciation Accumulated Book
    Year Expense Depreciation Value
    2006 $10,000 $10,000 $98,000 «- Correct!
    2007 20,000 30,000 78,000 «- Correct!
    2008 20,000 50,000 58,000 «- Correct!
    2009 20,000 70,000 38,000 «- Correct!
    2010 20,000 90,000 18,000 «- Correct!
    2011 10,000 100,000 8,000 «- Correct!

    a.(2) 200% Declining-Balance Schedule

    Depreciation Accumulated Book
    Year Expense Depreciation Value
    2006 $21,600 $21,600 $86,400 «- Correct!
    2007 34,560 56,160 51,840 «- Correct!
    2008 20,736 76,896 31,104 «- Correct!
    2009 12,442 89,338 18,662 «- Correct!
    2010 7,465 96,803 11,197 «- Correct!
    2011 3,197 100,000 8,000 «- Correct!

    a.(3) 150% Declining-Balance Schedule

    Depreciation Accumulated Book
    Year Expense Depreciation Value
    2006 $16,200 $16,200 $91,800 «- Correct!
    2007 27,540 43,740 64,260 «- Correct!
    2008 19,278 63,018 44,982 «- Correct!
    2009 13,495 76,513 31,487 «- Correct!
    *2010 11,744 88,256 19,744 «- Correct!
    *2011 11,744 100,000 8,000 «- Correct!

    *Switch to straight-line

    b. Which of the three methods is most common for financial
    reporting purposes? Explain.

    For financial reporting, the most common method is straight
    line method. This is becase, this method results in a lower
    amout of ...

    Solution Summary

    The solution has two questions - 1. Depreciation and disposal calculations for Swanson & Hiller inc and 2. Ratio analysis for Rentsch Inc

    $2.19

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