Chapter 11: Q11-25Q (page 583)
In the extractive industries, businesses may pay dividends in excess of net income. What is the maximum permissible? How can this practice be justified?
Answer
Maximum dividend permissible is the amount of accumulated net income (after depletion) plus the amount of depletion charged.
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Dickinson Inc. owns the following assets.
Asset | Cost | Salvage | Estimated useful life |
A | \(70,000 | \)7,000 | 10 years |
B | 50,000 | 5,000 | 5 years |
C | 82,000 | 4,000 | 12 years |
Compute the composite depreciation rate and the composite life of Dickinson’s assets.
Jurassic Company owns equipment that cost \(900,000 and has accumulated depreciation of \)380,000. The expected future net cash flows from the use of the asset are expected to be \(500,000. The fair value of the equipment is \)400,000. Prepare the journal entry, if any, to record the impairment loss.
Cominsky Company purchased a machine on July 1, 2018, for \(28,000. Cominsky paid \)200 in title fees and county property tax of \(125 on the machine. In addition, Cominsky paid \)500 shipping charges for delivery, and \(475 was paid to a local contractor to build and wire a platform for the machine on the plant floor. The machine has an estimated useful life of 6 years with a salvage value of \)3,000. Determine the depreciation base of Cominsky’s new machine. Cominsky uses straightline depreciation.
If Remmers, Inc. uses the composite method and its composite rate is 7.5% per year, what entry should it make when plant assets that originally cost \(50,000 and have been used for 10 years are sold for \)14,000?
In its 2014 annual report, Campbell Soup Company reports beginning-of-the-year total assets of \(8,113 million, end-of-the-year total assets of \)8,323 million, total sales of \(8,268 million, and net income of \)807 million. (a) Compute Campbell’s asset turnover. (b) Compute Campbell’s profit margin on sales. (c) Compute Campbell’s return on assets using (1) asset turnover and profit margin and (2) net income. (Round to two decimal places.)
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