CMA Study Group

Dear Members,
Please advise on the answer for below questions


Albright Company uses the sum-of-the-years' digits method of depreciation. On January
1, the company purchased a machine for $50,000, with an estimated life of 5 years and no
residual value. Depreciation for the first year would be
a. $10,000.
b. $15,000.
c. $16,667.
d. $20,000.

Lakeside Electric purchased a truck for $38,600 to transport equipment to various job
sites. For this purpose, storage bins were welded to the truck bed at a cost of $1,700.
Doug Lombardi, controller of Lakeside, estimates the useful life of the truck to be 5 years
and the residual value to be $1,000. Using the double-declining-balance method, the
depreciation expense on the truck for its second year of use is
a. $9,024.
b. $9,264.
c. $9,432.
d. $9,672.


Alton Corporation purchased 100% of the shares of Jones Corporation for $600,000.
Financial information for Jones Corporation is provided below.
Jones Corporation ($000)
Book Value Fair Market Value
Cash $ 50 $ 50
Accounts receivable 100 100
Inventory 150 100
Total current assets 300 250
Property, plant & equipment (net) 500 600
Total assets $800 $850
Current liabilities $150 $150
Long-term debt 200 200
Total liabilities 350 350
Common stock 150 150
Paid-in-capital 80 80
Retained earnings 220
Total shareholders' equity 450
Total liabilities & shareholders' equity $800
The amount of goodwill resulting from this purchase, if any, would be
a. $200,000.
b. $150,000.
c. $100,000.
d. Zero.


At the beginning of the year, Lewis Corporation had 100,000 shares of common stock
outstanding. During the year, the following transactions occurred.
Date Transaction
April 1 Issued 10,000 shares in exchange for land
July 1 Declared and distributed a 10% stock dividend
October 1 Purchased 5,000 shares of treasury stock
The number of shares that Lewis should use when computing earnings per share at the
end of the year is
a. 117,000.
b. 116,000.
c. 111,750.
d. 106,250.

-------------------------------------------
Harsh Mehta
SAP FI Analyst
Kuwait

-------------------------------------------

For Albright Company
These accelerated depreciation methods are more conservative and, in most cases, accurate. They assume that an asset loses a majority of its value in the first several years of use.
To calculate depreciation charges using the sum of the year's digits method, take the expected life of an asset (in years) count back to one and add the figures together
5+4+3+2+1 = 15
In the first year, the asset would be depreciated 5/15 in value (5 years still to operate) 
50,000 x 5/15 = 16,667
Answer c.


For Lakeside Electric

for double-declining-balance method multiply the Dep. % by 2
5 years = 20% Dep.   20% x 2 = 40 %
for the first year
38,600 x 40% = 15,440
Second year
23,160 (36,600-15,440) x 40% = 9,264
Answer b.


For Alton Corporation
I believe (not sure)  150
Alton paid 600 to buy total share holder equity of 450
Answer b.

For Lewis Corporation
opening balance               100,000
add 10,000 x 9/12              7,500
Dividend (full period)
100,000 x 0.1                   10,000
7,500 x 0.1                           750
less treasury 5000x3/12       (1,250)

Total                       117,000
Answer a.

please check and inform me if my answers is correct



-------------------------------------------
Rafik Isaac
Corporate Officer
Emirated NBD
Dubai
United Arab Emirates
-------------------------------------------






Original Message:
Sent: 10-14-2012 04:54 AM
From: Harsh Mehta
Subject: Fianncial statement Analysis

Dear Members,
Please advise on the answer for below questions


Albright Company uses the sum-of-the-years' digits method of depreciation. On January
1, the company purchased a machine for $50,000, with an estimated life of 5 years and no
residual value. Depreciation for the first year would be
a. $10,000.
b. $15,000.
c. $16,667.
d. $20,000.

Lakeside Electric purchased a truck for $38,600 to transport equipment to various job
sites. For this purpose, storage bins were welded to the truck bed at a cost of $1,700.
Doug Lombardi, controller of Lakeside, estimates the useful life of the truck to be 5 years
and the residual value to be $1,000. Using the double-declining-balance method, the
depreciation expense on the truck for its second year of use is
a. $9,024.
b. $9,264.
c. $9,432.
d. $9,672.


Alton Corporation purchased 100% of the shares of Jones Corporation for $600,000.
Financial information for Jones Corporation is provided below.
Jones Corporation ($000)
Book Value Fair Market Value
Cash $ 50 $ 50
Accounts receivable 100 100
Inventory 150 100
Total current assets 300 250
Property, plant & equipment (net) 500 600
Total assets $800 $850
Current liabilities $150 $150
Long-term debt 200 200
Total liabilities 350 350
Common stock 150 150
Paid-in-capital 80 80
Retained earnings 220
Total shareholders' equity 450
Total liabilities & shareholders' equity $800
The amount of goodwill resulting from this purchase, if any, would be
a. $200,000.
b. $150,000.
c. $100,000.
d. Zero.


At the beginning of the year, Lewis Corporation had 100,000 shares of common stock
outstanding. During the year, the following transactions occurred.
Date Transaction
April 1 Issued 10,000 shares in exchange for land
July 1 Declared and distributed a 10% stock dividend
October 1 Purchased 5,000 shares of treasury stock
The number of shares that Lewis should use when computing earnings per share at the
end of the year is
a. 117,000.
b. 116,000.
c. 111,750.
d. 106,250.

-------------------------------------------
Harsh Mehta
SAP FI Analyst
Kuwait

-------------------------------------------

I agree with Rafik answers for the first and the last problems:

Problem 2: I think that the storage bins should form part of the cost of the truck and will be subject for depreciation thus answer will be letter d.

Problem 3: You need to account for the market value equity being purchased equity purchased FMV = 850 - 350 = $500K compare to the acquisition cost of $600K resulting amount is the Goodwill.

Hope this helps.

-------------------------------------------
Leo Yatco CMA, CPA
Accountant
Sta Rosa
Philippines
-------------------------------------------






Original Message:
Sent: 10-16-2012 12:59 PM
From: Rafik Isaac
Subject: Fianncial statement Analysis

For Albright Company
These accelerated depreciation methods are more conservative and, in most cases, accurate. They assume that an asset loses a majority of its value in the first several years of use.
To calculate depreciation charges using the sum of the year's digits method, take the expected life of an asset (in years) count back to one and add the figures together
5+4+3+2+1 = 15
In the first year, the asset would be depreciated 5/15 in value (5 years still to operate) 
50,000 x 5/15 = 16,667
Answer c.


For Lakeside Electric

for double-declining-balance method multiply the Dep. % by 2
5 years = 20% Dep.   20% x 2 = 40 %
for the first year
38,600 x 40% = 15,440
Second year
23,160 (36,600-15,440) x 40% = 9,264
Answer b.


For Alton Corporation
I believe (not sure)  150
Alton paid 600 to buy total share holder equity of 450
Answer b.

For Lewis Corporation
opening balance               100,000
add 10,000 x 9/12              7,500
Dividend (full period)
100,000 x 0.1                   10,000
7,500 x 0.1                           750
less treasury 5000x3/12       (1,250)

Total                       117,000
Answer a.

please check and inform me if my answers is correct



-------------------------------------------
Rafik Isaac
Corporate Officer
Emirated NBD
Dubai
United Arab Emirates
-------------------------------------------






Original Message:
Sent: 10-14-2012 04:54 AM
From: Harsh Mehta
Subject: Fianncial statement Analysis

Dear Members,
Please advise on the answer for below questions


Albright Company uses the sum-of-the-years' digits method of depreciation. On January
1, the company purchased a machine for $50,000, with an estimated life of 5 years and no
residual value. Depreciation for the first year would be
a. $10,000.
b. $15,000.
c. $16,667.
d. $20,000.

Lakeside Electric purchased a truck for $38,600 to transport equipment to various job
sites. For this purpose, storage bins were welded to the truck bed at a cost of $1,700.
Doug Lombardi, controller of Lakeside, estimates the useful life of the truck to be 5 years
and the residual value to be $1,000. Using the double-declining-balance method, the
depreciation expense on the truck for its second year of use is
a. $9,024.
b. $9,264.
c. $9,432.
d. $9,672.


Alton Corporation purchased 100% of the shares of Jones Corporation for $600,000.
Financial information for Jones Corporation is provided below.
Jones Corporation ($000)
Book Value Fair Market Value
Cash $ 50 $ 50
Accounts receivable 100 100
Inventory 150 100
Total current assets 300 250
Property, plant & equipment (net) 500 600
Total assets $800 $850
Current liabilities $150 $150
Long-term debt 200 200
Total liabilities 350 350
Common stock 150 150
Paid-in-capital 80 80
Retained earnings 220
Total shareholders' equity 450
Total liabilities & shareholders' equity $800
The amount of goodwill resulting from this purchase, if any, would be
a. $200,000.
b. $150,000.
c. $100,000.
d. Zero.


At the beginning of the year, Lewis Corporation had 100,000 shares of common stock
outstanding. During the year, the following transactions occurred.
Date Transaction
April 1 Issued 10,000 shares in exchange for land
July 1 Declared and distributed a 10% stock dividend
October 1 Purchased 5,000 shares of treasury stock
The number of shares that Lewis should use when computing earnings per share at the
end of the year is
a. 117,000.
b. 116,000.
c. 111,750.
d. 106,250.

-------------------------------------------
Harsh Mehta
SAP FI Analyst
Kuwait

-------------------------------------------