Accounting Questions

See attached file for full problem description.

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.
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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.