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Accounting Questions

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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.

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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

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