??Exercise 7-61 (Algorithmic)

Analyze Tangible Capital Assets

Lanka Industries is a technology company that operates in a highly competitive environment. In 2015, management had significantly curtailed its capital expenditures due to cash flow problems. Lanka reported the following information for 2018:

Net tangible capital assets (beginning of year), $489,000

Net tangible capital assets (end of year), $505,000

Net sales, $1,065,000

Accumulated depreciation (end of year), $543,000

Depreciation expense, $119,000

An analyst reviewing Lanka's financial history noted that Lanka had previously reported tangible capital asset turnover ratios and average age of its assets as follows:

	2013		2014		2015		2016		2017
Tangible capital asset turnover	2.48		2.45		2.74		2.57		2.33
Average age of assets (years)	1.81		1.79		1.94		2.81		3.74

During this time frame, the industry average tangible capital asset turnover ratio is 2.46 and the industry average age of assets is 1.79 years.

Required:

Round your answers to two decimal places.

1. Compute Lanka's tangible capital asset turnover ratio for 2018. times

2. Compute the average age of Lanka's tangible capital assets for 2018. years

Exercise 7-56 Expenditures after Acquisition and Depreciation

National Bank installed a wireless encryption device in January 2014. The device cost $180,000. At the time the device was installed, National Bank estimated that it would have an estimated life of eight years and an estimated residual value of $10,000. By 2017, the bank's business had expanded and modifications to the device were necessary. At the beginning of 2018, National Bank spent $45,000 on modifications for the device. National Bank estimates that the new estimated life of the device (from January 2018) is six years and that the new residual value is $5,000. National Bank uses the straight-line method of depreciation. Had National Bank not modified the device, processing delays would have caused it to lose at least $100,000 of business per year.

Required:

1. Compute the accumulated depreciation for the device at the time the modifications were made (four years after acquisition). $???

2. What is the book value of the device before and after the modification?

	Book value
Device before modification	$???
Device after modification	$???

3. What will be the annual straight-line depreciation expense for the device after the modification? $???

4. CONCEPTUAL CONNECTION: The bank's president notes, "Since the after-modification depreciation expense exceeds the before-modification depreciation expense, this modification was a poor idea." Comment on the president's assertion.

Cost of Tangible Capital Assets

Mooney Sounds, a local stereo retailer, needed a new store because it had outgrown the leased space it had used for several years. Mooney acquired and remodelled a former grocery store. As a part of the acquisition, Mooney incurred the following costs:

Cost of grocery store	$277,400
Cost of land (on which the grocery store is located)	83,580
New roof for building	74,000
Lumber used for remodelling	23,200
Paint	515
Wire and electrical supplies	4,290
New doors	6,400
New windows	3,850
Wages paid to workers for remodelling	12,500
Additional inventory purchased for grand opening sale	45,300

Required:

1. Determine the cost of the land and the building.

Land	$????
Building	$????

2. CONCEPTUAL CONNECTION: If management misclassified a portion of the building's cost as part of the cost of the land, what would be the effect on the financial statements?

???

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