Chapter 10, Problem 10SP

To determine

Concept Introduction:

Straight line method of depreciation:

This is one of the methods to calculate the depreciation on assets. Under this method the depreciable value of asset it divided equally for each year f its estimated life. The formula to calculate the deprecation under straight line method is as follows:

  $AnnualStraightlinedepreciation=\frac{\left(Cost-SalvageValue\right)}{Estimatedlifeinyears}$

Requirement-1:

To Calculate:

The amount of depreciation expenses for the year 2020

Answer to Problem 10SP

The amount of depreciation expenses for the year 2020 are as follows:

Depreciation Expense- Office Equipment for the year 2020	$ 400
Depreciation Expense- Computer Equipment for the year 2020	$ 1,250

Explanation of Solution

The amount of depreciation expenses for the year 2020 are calculated as follows:

Accumulated Depreciation- Office Equipment as on Dec. 31, 2019 (A)	$ 400
Accumulated Depreciation- Office Equipment as on Dec. 31, 2020 (B)	$ 800
Depreciation Expense- Office Equipment for the year 2020 (B-A)	$ 400
Accumulated Depreciation- Computer Equipment as on Dec. 31, 2019 (A)	$ 1,250
Accumulated Depreciation- Computer Equipment as on Dec. 31, 2020 (B)	$ 2,500
Depreciation Expense- Computer Equipment for the year 2020 (B-A)	$ 1,250

To determine

Concept Introduction:

Straight line method of depreciation:

This is one of the methods to calculate the depreciation on assets. Under this method the depreciable value of asset it divided equally for each year f its estimated life. The formula to calculate the deprecation under straight line method is as follows:

  $AnnualStraightlinedepreciation=\frac{\left(Cost-SalvageValue\right)}{Estimatedlifeinyears}$

Requirement-2:

To Calculate:

The book value of the assets as on Dec. 31, 2020

Answer to Problem 10SP

The book value of the assets as on Dec. 31, 2020 is as follows:

Book value of Office Equipment as on Dec. 31, 2020	$ 7,200
Book value of Computer Equipment as on Dec. 31, 2020	$ 17,500

Explanation of Solution

The book value of the assets as on Dec. 31, 2020 is calculated as follows:

Office Equipment (A)	$ 8,000
Accumulated Depreciation- Office Equipment as on Dec. 31, 2020 (B)	$ 800
Book value of Office Equipment as on Dec. 31, 2020 (B-A)	$ 7,200
Computer Equipment (A)	$ 20,000
Accumulated Depreciation- Computer Equipment as on Dec. 31, 2020 (B)	$ 2,500
Book value of Computer Equipment as on Dec. 31, 2020 (B-A)	$ 17,500

To determine

Concept Introduction:

Straight line method of depreciation:

This is one of the methods to calculate the depreciation on assets. Under this method the depreciable value of asset it divided equally for each year f its estimated life. The formula to calculate the deprecation under straight line method is as follows:

  $AnnualStraightlinedepreciation=\frac{\left(Cost-SalvageValue\right)}{Estimatedlifeinyears}$

Asset Turnover Ratio:

Asset Turnover Ratio is an efficiency ratio that represents the sales earned on the average assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Asset Turnover Ratio is as follows:

  $AssetTurnoverRatio =\frac{Sales}{Averagetotalassets}$

Requirement-3:

To Calculate:

The Asset turnover ratio for the period of three months

Answer to Problem 10SP

The Asset turnover ratio for the period of three months shall be 0.43 which below the industry average.

Explanation of Solution

The Asset turnover ratio for the period of three months is calculated as follows:

Net Sales (A)	$ 44,000
Beginning Total Assets (B)	$ 83,460
Ending Total Assets (C)	$ 120,265
Average Total Assets (D) = (A+B)/2 =	$ 101,863
Total Asset Turnover (A/B)	0.43

Total Asset Turnover for three months period is 0.43, hence one year Total Asset Turnover shall be 0.43*12/3 = 1.72