Chapter 8, Problem 1BTN

1.

To determine

Ascertain the percent of the original cost of Company A’s property and equipment that remains to be depreciated as of September 26, 2015, and September 27, 2014.

Explanation of Solution

The percent of the original cost of property and equipment that remains to be depreciated is calculated by taking the ratio between the book value of the property and equipment and their original costs.

Compute the percent of original cost of property and equipment that remains to be depreciated as on September 26, 2015.

$\begin{array}{c}\left(\begin{array}{l}\text{Percent of cost of assets }\\ \text{remains to be depreciated}\end{array}\right)=\frac{\text{Book value of Property and Equipment}}{\text{Original cost of Property and Equipment}}\\ =\frac{\$22,471}{\$49,257}\\ =45.6\%\end{array}$

Compute the percent of original cost of property and equipment that remains to be depreciated as on September 27, 2014.

$\begin{array}{c}\left(\begin{array}{l}\text{Percent of cost of assets }\\ \text{remains to be depreciated}\end{array}\right)=\frac{\text{Book value of Property and Equipment}}{\text{Original cost of Property and Equipment}}\\ =\frac{\$20,624}{\$39,015}\\ =52.9\%\end{array}$

Hence, the percent of the original cost of Company A’s property and equipment that remains to be depreciated as of September 26, 2015, and September 27, 2014 are 45.6% and 52.9%, respectively.

2.

To determine

Identify the length of time over which Company A is depreciating its major categories of buildings and equipment.

Explanation of Solution

Identify the length of time over which Company A is depreciating its major categories of buildings and equipment as follows:

According to Note 1: “Property, Plant and Equipment” of the annual report, the estimated lives of major asset category are as follows:

• Building and improvements – 30 years or the remaining life of the building
• Machinery and equipment – 1 to 5 years

3.

To determine

Ascertain the change in total property, plant, and equipment for the year ended September 26, 2015, and the amount of cash provided by investing activities for property and equipment for the year ended September 26, 2015 and also discuss the one possible explanation for the difference between these two amounts.

Explanation of Solution

Ascertain the change in total property, plant, and equipment for the year ended September 26, 2015 as follows:

$\begin{array}{c}\left(\begin{array}{l}\text{Change in total property, }\\ \text{plant and equipment}\end{array}\right)\text{=}\left(\begin{array}{l}\text{Gross property, plant and equipment on 2015}-\\ \text{Gross property, plant and equipment on 2014}\end{array}\right)\\ =\$49,257\text{million}-\$39,015\text{million}\\ =\$10,242\text{million}\end{array}$

Hence, the change in total property, plant, and equipment for the year ended September 26, 2015 is $10,242 million.

The amount of cash provided by investing activities for property and equipment for the year ended September 26, 2015 is $11,247 million.

One possible explanation for the difference between these two amounts is that Company A has disposed property and equipment during the year. The property and equipment could have been scrapped for no proceeds as the investing section of the cash flow statement has not listed any proceeds from the sale of property and equipment.

The other possible explanation is that Company A has written off the fully depreciated assets, and it has acquired property and equipment for something, that is, other than cash.

4.

To determine

Compute Company A’s total asset turnover for the year ended September 26, 2015 and the year ended September 27, 2014.

Explanation of Solution

Compute Company A’s total asset turnover for the year ended September 26, 2015.

$\begin{array}{c}\text{Total asset turnover ratio}=\frac{\text{Net Sales}}{\text{Average total assets}}\\ =\frac{\text{Net Sales}}{\frac{\left(\begin{array}{l}\text{Total assets on September 26, 2015+}\\ \text{Total assets on September 27, 2014}\end{array}\right)}{2}}\\ \text{=}\frac{\text{\$233,715}}{\frac{\left(\$290,479+\$231,839\right)}{2}}\\ \text{=0}\text{.89 times}\end{array}$

Compute Company A’s total asset turnover for the year ended September 27, 2014.

$\begin{array}{c}\text{Total asset turnover ratio}=\frac{\text{Net Sales}}{\text{Average total assets}}\\ =\frac{\text{Net Sales}}{\frac{\left(\begin{array}{l}\text{Total assets on September 27, 2014+}\\ \text{Total assets on September 28, 2013}\end{array}\right)}{2}}\\ \text{=}\frac{\text{\$182,795}}{\frac{\left(\$231,839+\$207,000\right)}{2}}\\ \text{=0}\text{.83 times}\end{array}$

Hence, Company A’s total asset turnover for the year ended September 26, 2015 and the year ended September 27, 2014are 0.89 times and 0.83 times, respectively.

5.

To determine

Recompute Company A’s total asset turnover for the additional year and comment on any differences relative to the turnover computed in part 4.

Explanation of Solution

Compute Company A’s total asset turnover for the year ended September 24, 2016.

$\begin{array}{c}\text{Total asset turnover ratio}=\frac{\text{Net Sales}}{\text{Average total assets}}\\ =\frac{\text{Net Sales}}{\frac{\left(\begin{array}{l}\text{Total assets on September 24, 2016+}\\ \text{Total assets on September 26, 2015}\end{array}\right)}{2}}\\ \text{=}\frac{\text{\$215,639}}{\frac{\left(\$321,686+\$290,479\right)}{2}}\\ \text{=0}\text{.70 times}\end{array}$

Company A’s total asset turnover for the year ended September 26, 2015, September 27, 2014, and September 24, 2016 are 0.89 times,  0.83 times, and 0.70 times, respectively. Hence, it can be concluded that the total asset turnover computed for the year ended September 24, 2016 has decreased when compared to the years 2014 and 2015.