Unit 4 4-3 & 4-4

For this assessment, complete the Problems 4-3 and 4-4. You may use Word or Excel to complete the assessments throughout this course, but you will find Excel to be most helpful for creating spreadsheets. Tutorials for using Excel are provided in the Supplemental Resources in the left navigation menu. If you use Excel, submit the assessment in one Excel document, using separate tabs for each spreadsheet.

Problem 4-3: Financial Statement and Income Tax Effects of Differing Depreciation Methods

Total Workout, Inc. purchased three fitness machines from Ace Used Equipment at the beginning of the year. All three were used machines. The machines had to be overhauled and installed before they were put into use. The costs of the machines and their renovation and installation are shown in Table 1 below:
Problem 4-3, Table 1: Equipment Costs

Account

Machine A

Machine B

Machine C

Amount paid for asset
\$21,000\$30,750\$8,000

Installation cost
\$500\$1,000\$200

Renovation costs prior to use
\$2,000\$1,000\$1,500

By the end of the first year, each machine had been operating 4,800 hours. Depreciation estimates are shown in Table 2 below:

Estimates
Problem 4-3, Table 2: Equipment Depreciation

Machine

Life

Residual Value

Depreciation Method

A
5 years\$1,000Straight-line

B
60,000 hours\$2,000Units-of-production

C
4 years\$1,500Double-declining-balance

Using the data provided above, complete the following:
Compute the cost of each machine.
Give the entry to record depreciation expense at the end of the first year, using all three depreciation methods listed in Table 2.

Problem 4-4: Using Publically Available Financial Statements

Refer to the Lowe’s 2011 10-K. You should have located these statements for previous assessment problems. Use these statements and your prior knowledge of accounting, supplemented by textbooks or other references of your choosing, including the NOTES to the financial statements found in the Lowe’s 2011 10-K, to answer the following questions, which all refer to the fiscal year ending 2012. Indicate the source of each of your answers, including the page number from the Lowe’s 2011 10-K.:
What method of depreciation does the company use? Does the company use the same method for all fixed assets, or are different classes of assets depreciated differently?
What is the amount of accumulated depreciation and amortization at the end of the most recent reporting year?
For depreciation purposes, what is the estimated useful life of furniture and fixtures?
What was the original cost of leasehold improvements owned by the company at the end of the most recent reporting year?
What amount of depreciation and amortization was reported as expense for the most recent reporting year?
What is the company’s fixed asset turnover ratio for the most recent year (2012)? What was it for the previous years of 2010 and 2011? What conclusion can you make from this?

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