(b) Double-declining-balance (Do not round intermediate calculations.) Depreciation Expense 2016 2017 2018 2019 2020 (c) Units-of-production Depreciation Expense 2016 2017 2018 2019 2020 3. Using your answers to requirements 1 and 2, determine net income and the two loan covenant ratios in each year, assuming the company chooses the following depreciation methods: (a) Straight-line (Enter your answers for Net Income in thousands (i.e., 50,500 should be entered as 50.5). Round "Net Income" to 1 decimal place and "Ratio Values" to 2 decimal places.) Worksheet 2016 2017 2018 2019 2020 Net Income Times Interest Earned Ratio Fixed Asset Turnover Ratio
(b) Double-declining-balance (Enter your answers for Net Income in thousands (i.e., 50,500 should be entered as 50.5). Round "Net Income" to 1 decimal place and "Ratio Values" to 2 decimal places.) 2016 2018 2019 2017 2020 Net Income Times Interest Earned Ratio Fixed Asset Turnover Ratio (c) Units-of-production (Enter your answers for Net Income in thousands (i.e., 50,500 should be entered as 50.5). Round "Net Income" to 1 decimal place and "Ratio Values" to 2 decimal places.) 2016 2017 2018 2019 2020 Net Income Times Interest Earned Ratio Fixed Asset Turnover Ratio 4. Using your answers to requirement 3, indicate whether the loan covenants would be violated under the following depreciation methods: Depreciation Methods Violated Loan Covenants Straight-line Double-declining-balance Units-of-production a C
Homework Answers
Value of assets = $2.3 million + 10% of $2.3 million = $2.53
million or $2530000
Salvage Value = $460000
Useful Life = 5 years
1. Interest Expense = $2070000 x 6% = $124200
2.
a. Straight Line Depreciation = (Original Value - Salvage Value) /
Useful Life
= ($2530000 - $460000) / 5 = $414000 per year
| Year | Beginning Book Value | Depreciation | Accumulated Depreciation | Ending Book Value |
| 1 | $ 2,530,000.00 | $ 414,000.00 | $ 414,000.00 | $ 2,116,000.00 |
| 2 | $ 2,116,000.00 | $ 414,000.00 | $ 414,000.00 | $ 1,702,000.00 |
| 3 | $ 1,702,000.00 | $ 414,000.00 | $ 414,000.00 | $ 1,288,000.00 |
| 4 | $ 1,288,000.00 | $ 414,000.00 | $ 414,000.00 | $ 874,000.00 |
| 5 | $ 874,000.00 | $ 414,000.00 | $ 414,000.00 | $ 460,000.00 |
b. Double Declining Balance Depreciation = Beginning Book Value
/ Cost of asset x 2 times straight line rate
Straight line rate = 1/5 x 100 = 20%
Maximum Depreciation for the year is such that Ending book value is
not below salvage value
| Year | Beginning Book Value | Depreciation | Accumulated Depreciation | Ending Book Value |
| 1 | $ 2,530,000.00 | $ 1,012,000.00 | $ 1,012,000.00 | $ 1,518,000.00 |
| 2 | $ 1,518,000.00 | $ 607,200.00 | $ 607,200.00 | $ 910,800.00 |
| 3 | $ 910,800.00 | $ 364,320.00 | $ 364,320.00 | $ 546,480.00 |
| 4 | $ 546,480.00 | $ 86,480.00 | $ 86,480.00 | $ 460,000.00 |
| 5 | $ 460,000.00 | $ - | $ - | $ 460,000.00 |
In 4th 40% of $546480 is $218592, but this will bring ending value lower than $460000, therefore depreciation of only $86480 ($546480 - $460000).
c. Units of Production Depreciation = (Original Value - Book Value) / Total Miles x Miles for the year
| Year | Beginning Book Value | Miles per year | Depreciation | Accumulated Depreciation | Ending Book Value |
| 1 | $ 2,530,000.00 | 15000 | $ 450,000.00 | $ 450,000.00 | $ 2,080,000.00 |
| 2 | $ 2,080,000.00 | 20000 | $ 600,000.00 | $ 600,000.00 | $ 1,480,000.00 |
| 3 | $ 1,480,000.00 | 14500 | $ 435,000.00 | $ 435,000.00 | $ 1,045,000.00 |
| 4 | $ 1,045,000.00 | 14500 | $ 435,000.00 | $ 435,000.00 | $ 610,000.00 |
| 5 | $ 610,000.00 | 5000 | $ 150,000.00 | $ 150,000.00 | $ 460,000.00 |
| 69000 |
3. Times Interest Earned Ratio = EBIT / Interest Expense
Fixed Asset Turnover Ratio = Sales / Average Net Fixed assets
a.
| 2016 | 2017 | 2018 | 2019 | 2020 | ||
| a | Sales | $ 2,300,000.00 | $ 2,800,000.00 | $ 3,100,000.00 | $ 3,200,000.00 | $ 3,300,000.00 |
| b | EBITDA | $ 1,150,000.00 | $ 1,350,000.00 | $ 1,550,000.00 | $ 1,650,000.00 | $ 1,750,000.00 |
| c | Depreciation | $ 414,000.00 | $ 414,000.00 | $ 414,000.00 | $ 414,000.00 | $ 414,000.00 |
| d | EBIT (b-c) | $ 7,36,000.00 | $ 9,36,000.00 | $ 11,36,000.00 | $ 12,36,000.00 | $ 13,36,000.00 |
| e | Interest Expense | $ 1,24,200.00 | $ 1,24,200.00 | $ 1,24,200.00 | $ 1,24,200.00 | $ 1,24,200.00 |
| Net Income (d-e) | $ 6,11,800.00 | $ 8,11,800.00 | $ 10,11,800.00 | $ 11,11,800.00 | $ 12,11,800.00 | |
| f | Net Fixed Assets | $ 2,116,000.00 | $ 1,702,000.00 | $ 1,288,000.00 | $ 874,000.00 | $ 460,000.00 |
| g | Average Net Fixed Assets | $ 1,058,000.00 | $ 1,909,000.00 | $ 1,495,000.00 | $ 1,081,000.00 | $ 667,000.00 |
| h | Times Interest Earned Ratio (d/e) | 5.93 | 7.54 | 9.15 | 9.95 | 10.76 |
| i | Fixed Asset Turnover Ratio (a/g) | 2.17 | 1.47 | 2.07 | 2.96 | 4.95 |
Net Fixed assets is Ending Book Value as provided above in part
2 (a)
Average Fixed Assets = (Opening + Ending Value) / 2
for 2016 = (0+2116000)/2 = 1058000
for 2017 = (2116000+1702000)/2 = 1909000 and so on
b.
| 2016 | 2017 | 2018 | 2019 | 2020 | ||
| a | Sales | $ 2,300,000.00 | $ 2,800,000.00 | $ 3,100,000.00 | $ 3,200,000.00 | $ 3,300,000.00 |
| b | EBITDA | $ 1,150,000.00 | $ 1,350,000.00 | $ 1,550,000.00 | $ 1,650,000.00 | $ 1,750,000.00 |
| c | Depreciation | $ 1,012,000.00 | $ 607,200.00 | $ 364,320.00 | $ 86,480.00 | $ - |
| d | EBIT (b-c) | $ 1,38,000.00 | $ 7,42,800.00 | $ 11,85,680.00 | $ 15,63,520.00 | $ 17,50,000.00 |
| e | Interest Expense | $ 1,24,200.00 | $ 1,24,200.00 | $ 1,24,200.00 | $ 1,24,200.00 | $ 1,24,200.00 |
| Net Income (d-e) | $ 13,800.00 | $ 6,18,600.00 | $ 10,61,480.00 | $ 14,39,320.00 | $16,25,800.00 | |
| f | Net Fixed Assets | $ 1,518,000.00 | $ 910,800.00 | $ 546,480.00 | $ 460,000.00 | $ 460,000.00 |
| g | Average Net Fixed Assets | $ 759,000.00 | $ 1,214,400.00 | $ 728,640.00 | $ 503,240.00 | $ 460,000.00 |
| h | Times Interest Earned Ratio (d/e) | 1.11 | 5.98 | 9.55 | 12.59 | 14.09 |
| i | Fixed Asset Turnover Ratio (a/g) | 3.03 | 2.31 | 4.25 | 6.36 | 7.17 |
Net Fixed assets is Ending Book Value as provided above in part 2
(b)
Average Fixed Assets = (Opening + Ending Value) / 2
for 2016 = (0+1518000)/2 = 759000
for 2017 = (1518000+910800)/2 = 1214400 and so on
c.
| 2016 | 2017 | 2018 | 2019 | 2020 | ||
| a | Sales | $ 2,300,000.00 | $ 2,800,000.00 | $ 3,100,000.00 | $ 3,200,000.00 | $ 3,300,000.00 |
| b | EBITDA | $ 1,150,000.00 | $ 1,350,000.00 | $ 1,550,000.00 | $ 1,650,000.00 | $ 1,750,000.00 |
| c | Depreciation | $ 450,000.00 | $ 600,000.00 | $ 435,000.00 | $ 435,000.00 | $ 150,000.00 |
| d | EBIT (b-c) | $ 7,00,000.00 | $ 7,50,000.00 | $ 11,15,000.00 | $ 12,15,000.00 | $ 16,00,000.00 |
| c | Interest Expense | $ 1,24,200.00 | $ 1,24,200.00 | $ 1,24,200.00 | $ 1,24,200.00 | $ 1,24,200.00 |
| Net Income (d-e) | $ 5,75,800.00 | $ 6,25,800.00 | $ 9,90,800.00 | $ 10,90,800.00 | $14,75,800.00 | |
| e | Net Fixed Assets | $ 2,080,000.00 | $ 1,480,000.00 | $ 1,045,000.00 | $ 610,000.00 | $ 460,000.00 |
| f | Average Net Fixed Assets | $ 1,040,000.00 | $ 1,780,000.00 | $ 1,262,500.00 | $ 827,500.00 | $ 535,000.00 |
| g | Times Interest Earned Ratio (d/e) | 5.64 | 6.04 | 8.98 | 9.78 | 12.88 |
| h | Fixed Asset Turnover Ratio (a/g) | 2.21 | 1.57 | 2.46 | 3.87 | 6.17 |
Net Fixed assets is Ending Book Value as provided above in part
2 (c)
Average Fixed Assets = (Opening + Ending Value) / 2
for 2016 = (0+2080000)/2 = 1040000
for 2017 = (2080000+1480000)/2 = 1780000 and so on
4. Since the ratios calculated is higher than the threshold limit
as per covenants under Straight line methods and units of
production method of depreciation, therefore loan covenants is not
violated under these two methods. But Times Interest Earned ratio
is 1.11 for 2016 under Double declining balance method, which is
lower than covenant, therefore loan covenant for double declining
balance method for 2016
Add Answer to:
C10-1 Calculating Interest and Depreciation Expenses and Effects on Loan Covenant Ratios Zoom Car Corporation (ZCC)...
QUESTION 1 (C10-1) Cocao Excavating Inc. has decided to purchase 20 electric vehicles on April 30, 2019, spending 1.75 m...
QUESTION 1 (C10-1) Cocao Excavating Inc. has decided to purchase 20 electric vehicles on April 30, 2019, spending 1.75 million plus 13 percent sales tax with a rebate of 2% sales instant on the spot tax break. The company expects to use the vehicles for five years and then sell them for $320,000. Cocao expects the following vehicle use over each year ended April 30: 2019 2020 2021 2022 2023 Km per/yr. 25,000 30,000 20,000 22,000 7,000 To finance the...
Burrell Company purchased a machine for $25000 on January 2, 2016. The machine has an estimated...
Burrell Company purchased a machine for $25000 on January 2, 2016. The machine has an estimated service life of 5 years and a zero estimated residual value. The asset earns income before depreciation and income taxes of $12500 each year. The tax rate is 25%. Required: Compute the rate of return earned (on the average net asset value) by the company each year of the asset's life under the straight-line and the double-declining-balance depreciation methods. Assume that the machine is...
1. Straight-Line Depreciation Year Expense 2015 $ 2016 2017 2018 2019 2. Double-declining balance (Round answers...
1. Straight-Line Depreciation Year Expense 2015 $ 2016 2017 2018 2019 2. Double-declining balance (Round answers to the nearest whole number, when appropriate.) Depreciation Year Expense 2015 $ 2016 2017 2018 2019 Depreciation Methods On January 2, 2015, Roth, Inc. purchased a laser cutting machine to be used in the fabrication of a part for one of its key products. The machine cost $125,000, and its estimated useful life was four years or 1,200,000 cuttings, after which it could be...
Depreciation Methods On January 2, 2015, Roth, Inc. purchased a laser cutting machine to be used...
Depreciation Methods On January 2, 2015, Roth, Inc. purchased a laser cutting machine to be used in the fabrication of a part for one of its key products. The machine cost $125,000, and its estimated useful life was four years or 1,200,000 cuttings, after which it could be sold for $5,000. Required a. Calculate each year's depreciation expense for the machine's useful life under each of the following depreciation methods (round all answers to the nearest dollar): 1. Straight-line. 2....
Simple Solutions purchased a new machine on January 1, 2016 for $62,000. It is expected to...
Simple Solutions purchased a new machine on January 1, 2016 for $62,000. It is expected to have a useful life of 5-years or 24,000 machine hours and a $2,000 salvage value. The company feels the equipment will be used extensively in the early years. a. Calculate the depreciation expense for each of the 5 years, assuming the use of the straight-line method. b. Calculate the depreciation expense for each of the 5 years, assuming the use of an accelerated method...
Depreciation and Rate of Return Burrell Company purchased a machine for $58,000 on January 2, 2019....
Depreciation and Rate of Return Burrell Company purchased a machine for $58,000 on January 2, 2019. The machine has an estimated service life of 5 years and a zero estimated residual value. The asset earns income before depreciation and income taxes of $29,000 each year. The tax rate is 20%. Required: Compute the rate of return earned (on the average net asset value) by the company each year of the asset's life under the straight-line and the double-declining-balance depreciation methods....
I just need help on the last two I got wrong Depreciation and Rate of Return...
I just need help on the last two I got wrong
Depreciation and Rate of Return Burrell Company purchased a machine for $58,000 on January 2, 2019. The machine has an estimated service life of 5 years and a zero estimated residual value. The asset earns income before depreciation and income taxes of $29,000 each year. The tax rate is 20%. Required: Compute the rate of return earned (on the average net asset value) by the company each year of...
Problem 9-9A Ayayai Corporation purchased machinery on January 1, 2017, at a cost of $250,000. The...
Problem 9-9A Ayayai Corporation purchased machinery on January 1, 2017, at a cost of $250,000. The estimated useful life of the machinery is 4 years, with an estimated salvage value at the end of that period of $24,000. The company is considering different depreciatian methods that could be used for financial reporting purposes Prepare separate depreciation schedules for the machinery using the straight-line method, and the declining-balance method using double the straight-line rate. STRAIGHT-LINE DEPRECIATION Computation End of Year Years...
On January 1, 2015, a machine was purchased for $96,300. The machine has an estimated salvage...
On January 1, 2015, a machine was purchased for $96,300. The
machine has an estimated salvage value of $6,420 and an estimated
useful life of 5 years. The machine can operate for 107,000 hours
before it needs to be replaced. The company closed its books on
December 31 and operates the machine as follows: 2015, 21,400 hrs;
2016, 26,750 hrs; 2017, 16,050 hrs; 2018, 32,100 hrs; and 2019,
10,700 hrs.
Compute the annual depreciation charges over the machine’s life
assuming...
DEPRECIATION METHODS Ten O'Clock, Inc. purchased a vanon Lamar 2018 for SA0000. Estimated life of the...
DEPRECIATION METHODS Ten O'Clock, Inc. purchased a vanon Lamar 2018 for SA0000. Estimated life of the van was live years, and its estimated residual value was $90.000. Ten O'Clock uses the straight-line method of depreciation. Prepare the depreciation schedule. Depreciation Expense Book Value at End of Year 2018 2019 2018 2019 Method Straight-line On January 1, 2019, Sapphire Manufacturing Corporation purchased a machine for $10,000,000. The corporation expects to use the machine for 24,000 hours over the next six years....
1. Straight-Line Depreciation Year Expense 2015 $ 2016 2017 2018 2019 2. Double-declining balance (Round answers to the nearest whole number, when appropriate.) Depreciation Year Expense 2015 $ 2016 2017 2018 2019 Depreciation Methods On January 2, 2015, Roth, Inc. purchased a laser cutting machine to be used in the fabrication of a part for one of its key products. The machine cost $125,000, and its estimated useful life was four years or 1,200,000 cuttings, after which it could be...
Depreciation Methods On January 2, 2015, Roth, Inc. purchased a laser cutting machine to be used in the fabrication of a part for one of its key products. The machine cost $125,000, and its estimated useful life was four years or 1,200,000 cuttings, after which it could be sold for $5,000. Required a. Calculate each year's depreciation expense for the machine's useful life under each of the following depreciation methods (round all answers to the nearest dollar): 1. Straight-line. 2....
Simple Solutions purchased a new machine on January 1, 2016 for $62,000. It is expected to have a useful life of 5-years or 24,000 machine hours and a $2,000 salvage value. The company feels the equipment will be used extensively in the early years. a. Calculate the depreciation expense for each of the 5 years, assuming the use of the straight-line method. b. Calculate the depreciation expense for each of the 5 years, assuming the use of an accelerated method...
Depreciation and Rate of Return Burrell Company purchased a machine for $58,000 on January 2, 2019. The machine has an estimated service life of 5 years and a zero estimated residual value. The asset earns income before depreciation and income taxes of $29,000 each year. The tax rate is 20%. Required: Compute the rate of return earned (on the average net asset value) by the company each year of the asset's life under the straight-line and the double-declining-balance depreciation methods....
I just need help on the last two I got wrong
Depreciation and Rate of Return Burrell Company purchased a machine for $58,000 on January 2, 2019. The machine has an estimated service life of 5 years and a zero estimated residual value. The asset earns income before depreciation and income taxes of $29,000 each year. The tax rate is 20%. Required: Compute the rate of return earned (on the average net asset value) by the company each year of...
Problem 9-9A Ayayai Corporation purchased machinery on January 1, 2017, at a cost of $250,000. The estimated useful life of the machinery is 4 years, with an estimated salvage value at the end of that period of $24,000. The company is considering different depreciatian methods that could be used for financial reporting purposes Prepare separate depreciation schedules for the machinery using the straight-line method, and the declining-balance method using double the straight-line rate. STRAIGHT-LINE DEPRECIATION Computation End of Year Years...
On January 1, 2015, a machine was purchased for $96,300. The
machine has an estimated salvage value of $6,420 and an estimated
useful life of 5 years. The machine can operate for 107,000 hours
before it needs to be replaced. The company closed its books on
December 31 and operates the machine as follows: 2015, 21,400 hrs;
2016, 26,750 hrs; 2017, 16,050 hrs; 2018, 32,100 hrs; and 2019,
10,700 hrs.
Compute the annual depreciation charges over the machine’s life
assuming...
DEPRECIATION METHODS Ten O'Clock, Inc. purchased a vanon Lamar 2018 for SA0000. Estimated life of the van was live years, and its estimated residual value was $90.000. Ten O'Clock uses the straight-line method of depreciation. Prepare the depreciation schedule. Depreciation Expense Book Value at End of Year 2018 2019 2018 2019 Method Straight-line On January 1, 2019, Sapphire Manufacturing Corporation purchased a machine for $10,000,000. The corporation expects to use the machine for 24,000 hours over the next six years....
Most questions answered within 3 hours.
-
The hammer throw is a track-and-field event in which a 7.2-kg
ball (the ''hammer''), starting from...
asked 4 minutes ago -
Evaluate a specific listening situation using the Sapir-Whorf
and Bernstein hypothesis. What was thecontext? What was...
asked 11 minutes ago -
Recall that if X is a Student’s t random variable with n df,
then by definition...
asked 29 minutes ago -
A charge of -2.95 µC is fixed in place. From a horizontal
distance of 0.0470 m,...
asked 26 minutes ago -
Consider the following information:
Your company makes widgets. You are trying to figure out what
volume...
asked 28 minutes ago -
Math 333 Plz help ASAP
The yield of a chemical process is being studied. From previous...
asked 44 minutes ago -
Cobb-Douglas Preferences: Cobb-Douglas preferences on the
consump-
tion set R2+ can be represented by a utility...
asked 40 minutes ago -
In your experience, what are some of the barriers to the
successful implementation of a project?...
asked 43 minutes ago -
1. A normal distribution has a mean of
μ = 60 and a standard deviation
of...
asked 45 minutes ago -
The size of your Social Security benefits is determined by:
(select all that apply) Question 1...
asked 58 minutes ago -
Starch polymers are broken down by enzymes into monomers
called:
a.)maltose
b.) dextrins
c.) glucose
d.)...
asked 1 hour ago -
How does HA (High Availability) work and name two ways it can
help an organization?
asked 1 hour ago