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Question 10-2
The cost of an operational asset includes the purchase price (less any discounts received from
the seller), transportation costs paid by the buyer to transport the asset to the location in which it will
be used, expenditures for installation, testing, legal fees to establish title, and any other costs of
bringing the asset to its condition and location for use.
Question 10-3
The cost of a developed natural resource includes the acquisition costs for the use of land, the
exploration and development costs incurred before production begins, and the restoration costs
incurred during or at the end of extraction.
Question 10-4
Purchased intangibles are valued at their original cost to include the purchase price and all
other necessary costs to bring the asset to condition and location for use. Research and development
costs incurred to internally develop an intangible asset are expensed in the period incurred. Filing
and legal costs for both purchased and developed intangibles are capitalized.
Question 10-5
Goodwill represents the unique value of the company as a whole over and above all
identifiable tangible and intangible assets. This value results from a companys clientele and
reputation, its trained employees and management team, its unique business location, and any other
unique features of the company that cant be associated with a specific asset.
Because goodwill cant be separated from a company, it is not possible for a buyer to acquire it
without also acquiring the whole company or a substantial portion of it. Goodwill will appear as an
asset in a balance sheet only when it was paid for in connection with the acquisition of another
company. The capitalized cost of goodwill equals the purchase price of the acquired company less
the market value of the net assets acquired. The market value of the net assets equals the market
value of all identifiable tangible and intangible assets less the market value of any liabilities of the
selling company assumed by the buyer.
Question 10-7
Assets acquired in exchange for deferred payment contracts are valued at their fair value or the
present value of payments using a realistic interest rate. Theoretically, both alternatives should lead
to the same valuation.
Question 10-8
Assets acquired through the issuance of equity securities are valued at the fair value of the
securities if known; if not known, the fair value of the assets received is used.
Question 10-9
Donated assets are valued at their fair values.
Question 10-10
When an operational asset is sold, a gain or loss is recognized for the difference between the
consideration received and the assets book value. Retirements and abandonments are handled in a
similar fashion. The only difference is that there will be no monetary consideration received. A loss
is recorded for the remaining book value of the asset.
Question 10-11
The basic principle used to value assets acquired in a nonmonetary exchange is to use the fair
value of asset(s) given up plus (minus) monetary consideration - cash - paid (received).
Question 10-12
The two exceptions are (1) when fair value is not determinable, and (2) when the exchange
lacks commercial substance.
Question 10-13
GAAP require the capitalization of interest incurred during the construction of assets for a
companys own use as well as for assets constructed for sale or lease. Assets qualifying for
capitalization exclude inventories that are routinely manufactured in large quantities on a repetitive
basis and assets that are in use or ready for their intended purpose. Only assets that are constructed
as discrete projects qualify for interest capitalization.
Question 10-15
Applying the specific interest method, the interest rate on any construction related debt is used
up to the amount of the construction debt and any excess average accumulated expenditures is
multiplied by a weighted-average interest rate of all other debt. The weighted-average method
multiplies average accumulated expenditures by the weighted-average interest rate of all debt,
including any construction-related debt.
Question 10-16
SFAS 2 defines research and development as follows:
Research is planned search or critical investigation aimed at discovery of new knowledge with
the hope that such knowledge will be useful in developing a new product or service or a new process
or technique or in bringing about a significant improvement to an existing product or process.
Development is the translation of research findings or other knowledge into a plan or design for
a new product or process or for a significant improvement to an existing product or process whether
intended for sale or use.
Question 10-17
SFAS 2 specifically excludes from current R&D expense the cost of operational assets that
have alternative future uses beyond the current R&D project. However, the depreciation or
amortization of these assets will be included as R&D expenses in the future periods the assets are
used for R&D activities. If the equipment has no alternative future use, its cost is expensed as R&D
immediately.
Question 10-18
GAAP require the capitalization of software development costs incurred after technological
feasibility is established. Technological feasibility is established when the enterprise has completed
all planning, designing, coding, and testing activities that are necessary to establish that the product
can be produced to meet its design specifications including functions, features, and technical
performance requirements. Costs incurred after technological feasibility but before the product is
available for general release to customers are capitalized as an intangible asset. These costs include
coding and testing costs and the production of product masters. Similar to SFAS 2, costs incurred
after commercial production begins usually are not R&D expenditures.
Question 10-20
The successful efforts method allows companies to capitalize only exploration costs resulting
in successful wells. The full-cost method allows companies to capitalize all exploration costs
incurred within a geographical area.
BRIEF EXERCISES
Brief Exercise 10-1
Capitalized cost of the machine:
Note: Personal property taxes on the machine for the period after acquisition are
not part of acquisition cost. They are expensed in the period incurred.
All of the expenditures, including the costs to demolish the old building, are
included in the initial cost of the land.
The total must be allocated to the land and building based on their relative market
values:
Initial
Percent of Total Valuation
Market Value (Percent x
Asset Market Value $639,000)
Land $420,000 60% $383,400
Building 280,000 40 255,600
$700,000 100% $639,000
Interest capitalized:
$1,250,000
- 700,000 x 7% = $49,000
$ 550,000 x 6.75%* = 37,125
$ 86,125 = interest capitalized
$3,000,000 x 8% = $240,000
5,000,000 x 6% = 300,000
$8,000,000 $540,000
$540,000
= 6.75% weighted average
$8,000,000
Interest capitalized:
$ 700,000 x 7% = $ 49,000
3,000,000 x 8% = 240,000
5,000,000 x 6% = 300,000
$8,700,000 $589,000
$589,000
= 6.77% weighted average
$8,700,000
Note: The patent filing and related legal costs and the costs of adapting the
product to a particular customers needs are not included as research and development
expense.
EXERCISES
Exercise 10-1
Capitalized cost of land:
Note: Property taxes on the land for the period after acquisition are not part of
acquisition cost. They are expensed in the period incurred.
Exercise 10-2
To record the purchase of a machine.
Exercise 10-3
Requirement 1
Cost of copper mine:
Mining site $1,000,000
Development costs 600,000
Restoration costs 303,939
$1,903,939
Requirement 2
Exercise 10-4
Organization cost expense ($12,000 + 3,000) .................... 15,000
Patent ($20,000 + 2,000) ................................................... 22,000
Pre-opening expenses ................................................... 40,000
Furniture ....................................................................... 30,000
Cash .......................................................................... 107,000
Exercise 10-5
Calculation of goodwill:
Exercise 10-6
Calculation of goodwill:
Exercise 10-7
1. a
2. d
3. c
Exercise 10-8
Initial
Percent of Total Valuation
Market Value (Percent x
Asset Market Value $900,000)
Land ................ $ 300,000 30% $270,000
Building A ....... 450,000 45 405,000
Building B ....... 250,000 25 225,000
$1,000,000 100% $900,000
Exercise 10-9
Requirement 1
Present value of note payment:
Requirement 2
Requirement 3
2006: $25,000 ($6,217 1,878) = $20,661
2007: $25,000 ($6,217 1,878 2,066) = 22,727
Exercise 10-10
To record the acquisition of land in exchange for common stock.
February 1, 2006
Land ............................................................................. 90,000
Common stock (5,000 shares x $18) .............................. 90,000
November 2, 2006
Building ........................................................................ 600,000
Cash ......................................................................... 400,000
Revenue - donation of asset (difference) ...................... 200,000
Exercise 10-11
Requirement 1
($ in millions)
Average PP&E for 2004 = ($15,768 + 16,661) 2 = $16,214.5
Requirement 2
The fixed-asset turnover ratio indicates the level of sales generated by the
companys investment in fixed assets. Intel is able to generate $2.11 in sales for every
$1 invested in property, plant, and equipment.
Exercise 10-12
Requirement 1
Requirement 2
Exercise 10-13
Exercise 10-14
Exercise 10-15
Requirement 1
Fair value of land + Cash given = Fair value of patent
$150,000 + 10,000 = $160,000
Requirement 2
Exercise 10-16
Requirement 1
Fair value of land - Cash received = Fair value of patent
$150,000 - 10,000 = $140,000
Requirement 2
Exercise 10-17
Requirement 1
Fair value of old land + Cash given = Fair value of new land
$72,000 + 14,000 = $86,000
Requirement 2
Requirement 3
Exercise 10-18
1. To record the purchase of equipment on account.
Equipment..................................................................... 24,000
Common stock .......................................................... 24,000
Exercise 10-19
Average accumulated expenditures:
$6,000,000
= $3,000,000
2
Interest capitalized:
$3,000,000
- 1,500,000 x 10% = $150,000
1,500,000 x 7%* = 105,000
$255,000 = interest capitalized
$2,000,000 x 9% = $180,000
4,000,000 x 6% = 240,000
$6,000,000 $420,000
$420,000
= 7%
$6,000,000
Exercise 10-20
Average accumulated expenditures for 2006:
Interest capitalized:
$1,350,000 x 8% = $108,000
The McGraw-Hill Companies, Inc., 2007
Solutions Manual, Vol.1, Chapter 10 10-25
Find more slides, ebooks, solution manual and testbank on www.downloadslide.com
Exercise 10-21
Average accumulated expenditures for 2006:
Interest capitalized:
$2,050,000
- 1,500,000 x 8.0% = $120,000
550,000 x 10.5%* = 57,750
$177,750 = interest capitalized
$840,000
= 10.5%
$8,000,000
Exercise 10-22
To expense R&D costs incorrectly capitalized.
Equipment..................................................................... 60,000
Patent ........................................................................ 60,000
Exercise 10-23
Research and development expense:
The patent filing and legal costs are capitalized as the cost of the patent. The
salaries, wages, and supplies for R&D performed for another company are included as
inventory and expensed as cost of goods sold using either the completed contract or
percentage-of-completion method.
Exercise 10-24
1. a
2. d
3. d
4. b
Exercise 10-25
List A List B
f 1. Depreciation a. Exclusive right to display a word, a symbol, or an
emblem.
d 2. Depletion b. Exclusive right to benefit from a creative work.
i 3. Amortization c. Operational assets that represent rights.
g 4. Average accumulated d. The allocation of cost for natural resources.
expenditures
h 5. Revenue - donation of asset e. Purchase price less fair market value of net
identifiable assets.
j 6. Nonmonetary exchange f. The allocation of cost for plant and equipment.
k 7. Natural resources g. Approximation of average amount of debt if all
construction funds were borrowed.
c 8. Intangible assets h. Account credited when assets are donated to a
corporation.
b 9. Copyright i. The allocation of cost for intangible assets.
a 10. Trademark j. Basic principle is to value assets acquired using fair
value of assets given.
e 11. Goodwill k. Wasting assets.
Exercise 10-26
Requirement 1
($ in millions)
Research and development expense .............................. 4
Software development costs .......................................... 2
Cash .......................................................................... 6
Requirement 2
(1) Percentage-of-revenue method:
$4,000,000
= 40% x $2,000,000 = $800,000
$10,000,000
Exercise 10-27
1. a. The costs of fixed assets (plant and equipment) are all costs necessary to acquire
these assets and to bring them to the condition and location required for their
intended use. These costs include shipping, installation, pre-use testing, sales
taxes, interest, capitalization, etc. The original cost of the machinery to be
recorded in the books is the sum of the purchase price, installation, and delivery
charges.
Exercise 10-28
Requirement 1
Requirement 2
PROBLEMS
Problem 10-1
1. To record the acquisition of land and building.
Initial
Percent of Total Valuation
Market Value (Percent x
Asset Market Value $100,000)
Land $ 75,000 62.5% $ 62,500
Building 45,000 37.5 37,500
$120,000 100.0% $100,000
Truck............................................................................. 2,500
Revenue - donation of asset....................................... 2,500
Problem 10-2
Requirement 1
Blackstone Corporation
LAND ACCOUNT (Site Number 11)
As of September 30, 2007
Requirement 2
Blackstone Corporation
CAPITALIZED COST OF OFFICE BUILDING
As of September 30, 2007
Problem 10-3
Requirement 1
Pell Corporation
ANALYSIS OF CHANGES IN PLANT ASSETS
For the Year Ended December 31, 2006
Balance Balance
12/31/05 Increase Decrease 12/31/06
Land $ 350,000 $438,000 [1] $ 788,000
Land improvements 180,000 180,000
Building 1,500,000 1,500,000
Machinery and
equipment 1,158,000 287,000 [2] $58,000 1,387,000
Automobiles 150,000 19,000 [3] 18,000 151,000
Totals $3,338,000 $744,000 $76,000 $4,006,000
Explanation of Amounts:
[1] Cost of land acquired 11/1/06:
Pell stock exchanged (10,000 shares x $38) $380,000
Legal fees and title insurance 23,000
Razing existing building 35,000
$438,000
[2] Cost of machinery and equipment purchased 1/2/06:
Invoice cost $260,000
Installation cost 27,000
$287,000
[3] Cost recorded for new automobile 12/31/06:
Market value of trade-in $ 3,750
Cash paid 15,250
$ 19,000
Requirement 2
Pell Corporation
GAIN OR LOSS FROM PLANT ASSET DISPOSALS
For the Year Ended December 31, 2006
Problem 10-4
To reclassify various expenditures incorrectly charged to the intangible asset
account.
Calculation of goodwill:
Problem 10-5
1. To expense R&D costs.
*Fair value of old machine (Fair value of new machine - Cash given):
$10,000 - 8,000 = $2,000
Problem 10-6
Southern Company:
Eastern Company:
Problem 10-7
Robers:
Phifer:
Problem 10-8
Requirement 1
2006:
Expenditures for 2006:
January 3, 2006 $1,000,000 x 12/12 = $1,000,000
March 1, 2006 600,000 x 10/12 = 500,000
June 30, 2006 800,000 x 6/12 = 400,000
October 1, 2006 600,000 x 3/12 = 150,000
Accumulated expenditures
(before interest) - $3,000,000
Average accumulated expenditures - $2,050,000
Interest capitalized:
$2,050,000 x 10% = $205,000 = Interest capitalized in 2006
2007:
January 1, 2007
($3,000,000 + 205,000) $3,205,000 x 9/9 = $3,205,000
January 31, 2007 270,000 x 8/9 = 240,000
April 30, 2007 585,000 x 5/9 = 325,000
August 31, 2007 900,000 x 1/9 = 100,000
Accumulated expenditures
(before interest) - $4,960,000
Average accumulated expenditures - $3,870,000
Interest capitalized:
$3,870,000
- 3,000,000 x 10.0% x 9/12 = $225,000
870,000 x 7.2%* x 9/12 = 46,980
$271,980 = Interest capitalized in 2007
Requirement 2
Accumulated expenditures 9/30/07
before interest capitalization (above) $4,960,000
2007 interest capitalized (above) 271,980
Total cost of building $5,231,980
Requirement 3
2006
$3,000,000 x 10% = $ 300,000
4,000,000 x 6% = 240,000
6,000,000 x 8% = 480,000
Total interest incurred 1,020,000
Less: Interest capitalized (205,000)
2006 interest expense $ 815,000
2007
Total interest incurred $1,020,000
Less: Interest capitalized (271,980)
2007 interest expense $ 748,020
Problem 10-9
Requirement 1
2006
Expenditures for 2006
January 3, 2006 1,000,000 x 12/12 = $1,000,000
March 1, 2006 600,000 x 10/12 = 500,000
June 30, 2006 800,000 x 6/12 = 400,000
October 1, 2006 600,000 x 3/12 = 150,000
Accumulated expenditures
(before interest) $3,000,000
Average accumulated expenditures - $2,050,000
Interest capitalized:
$2,050,000 x 7.85%* = $160,925 = Interest capitalized in 2006
2007:
January 1, 2007
($3,000,000 + 160,925) $3,160,925 x 9/9 = $3,160,925
January 31, 2007 270,000 x 8/9 = 240,000
April 30, 2007 585,000 x 5/9 = 325,000
August 31, 2007 900,000 x 1/9 = 100,000
Accumulated expenditures
(before interest) $4,915,925
Average accumulated expenditures - $3,825,925
Interest capitalized:
$3,825,925 x 7.85% x 9/12 =$225,251 = Interest capitalized in 2007
Requirement 2
Accumulated expenditures 9/30/07,
before interest capitalization (above) $4,915,925
2007 interest capitalized (above) 225,251
Total cost of building $5,141,176
Requirement 3
2006:
$3,000,000 x 10% = $ 300,000
4,000,000 x 6% = 240,000
6,000,000 x 8% = 480,000
Total interest incurred 1,020,000
Less: Interest capitalized (160,925)
2006 interest expense $ 859,075
2007:
Total interest incurred $1,020,000
Less: Interest capitalized (225,251)
2007 interest expense $ 794,749
Problem 10-10
To capitalize the cost of equipment to be used on future projects incorrectly
charged to R&D expense.
Equipment..................................................................... 400,000
Research and development expense........................... 400,000
To capitalize filing and legal fees for patent incorrectly charged to R&D expense.
Inventory*..................................................................... 20,000
Research and development expense........................... 20,000
CASES
Judgment Case 10-1
Requirement 1
All costs necessary to bring the land to its condition for use should be capitalized
as the cost of the land. This should include the following costs :
Purchase price.
Title insurance.
Escrow fees.
Delinquent property taxes.
Cost of removing old building.
Cost of grading and other land preparation costs.
Requirement 2
Assets acquired in exchange for deferred payment contracts are valued at their
fair market value or the present value of payments using a realistic interest rate.
Requirement 3
In general, operational assets received in exchange for other nonmonetary assets
should be valued at the fair value of the nonmonetary assets given up plus (minus)
monetary consideration given (received). There are certain exceptions when the assets
received are valued at the book value of the nonmonetary assets given up plus (minus)
monetary consideration given (received).
The new machine acquired by exchanging an older, similar machine generally
would be valued at the fair value of the old machine plus (minus) any cash given
(received). However, if fair value cannot be determined or if the exchange lacks
commercial substance, then the new machine would be valued at the book value of the
old machine plus (minus) any cash given (received).
Requirement 2
The cost of the coal mine is $24,513,419 determined as follows:
Requirement 3
Requirement 4
$3,513,419 x 9% = $316,208 x 6/12 = $158,104
Requirement 5
If the actual restoration costs are more (less) than the recorded liability at the
retirement date, a loss (gain) on retirement of the obligation is recognized for the
difference.
Requirement 6
An entity shall disclose the following information about its asset retirement
obligations:
Requirement 2
The treatment of manufacturing overhead cost and its allocation between
construction projects and normal production is a difficult issue. One alternative is to
include only the incremental overhead costs in the total cost of construction. That is,
only those additional costs that are incurred because of the decision to construct the
asset should be added to the cost of the asset. This would exclude such indirect costs
as depreciation and the salaries of supervisors that would be incurred whether or not
the construction project is undertaken. If, however, a new construction supervisor
were hired specifically to work on the project, then that salary would be included in
asset cost.
A second alternative is to assign overhead on the same basis that is used for the
regular manufacturing process. For example, all overhead costs might be allocated
both to production and to self-constructed assets based on the relative amount of labor
hours incurred. This is known as the full-cost approach and is the generally accepted
method used to determine the cost of a self-constructed asset.
Requirement 3
Generally accepted accounting principles provide specific guidelines for the
treatment of interest costs incurred during construction. These guidelines pertain to
the construction of assets for a companys own use as well as for assets constructed
for sale or lease. Assets qualifying for capitalization exclude inventories that are
routinely manufactured in large quantities on a repetitive basis and assets that are in
use or ready for their intended purpose. Only assets that are constructed as discrete
projects qualify for interest capitalization.
The construction of equipment by the Chilton Company appears to qualify for
interest capitalization. The cost of the equipment would include interest if, during the
construction period, interest costs were actually being incurred.
Requirement 2
The capitalization period for a self-constructed asset starts when (1) expenditures
(materials, labor and overhead) have been made and (2) interest cost is being incurred.
The interest cost incurred does not have to pertain to specific borrowings related to the
construction project. The capitalization period ends either when the asset is
substantially complete and ready for use or when interest costs are no longer incurred.
Requirement 3
Average accumulated expenditures is an approximation of the average amount of
debt that the company would have had outstanding during the period if every dollar
spent on the project was borrowed. If construction expenditures are incurred equally
throughout the period, the average accumulated expenditures for the period can be
estimated by adding the accumulated expenditures at the beginning of the period to
the accumulated expenditures at the end of the period and dividing by two. If
expenditures on the project are unequal throughout the period, individual
expenditures, perhaps expenditures grouped by month, should be weighted by the
amount of time outstanding until the end of the construction period or the end of the
companys fiscal year, whichever comes first.
Requirement 4
One method that could be used to determine the appropriate interest rate(s) to be
used in capitalizing interest is the specific interest method. If debt financing has
been obtained specifically for the construction project, its interest rate is applied to the
average accumulated expenditures up to the amount of the specific borrowing. Any
remaining average accumulated expenditures in excess of specific borrowings is
multiplied by the weighted-average rate on all other outstanding interest-bearing debt.
Sometimes it is difficult to associate specific borrowings with projects. In these
situations, it is easier to just use the weighted-average rate on all interest-bearing debt,
including all construction loans. This is the weighted-average method.
Requirement 5
The three steps used to determine the amount of interest capitalized during a
period are:
1. Determine the average accumulated expenditures for the period.
2. Multiply average accumulated expenditures by the appropriate interest rate(s).
3. Compare interest capitalized with total interest cost incurred. Interest capitalized
cant exceed interest cost incurred.
Requirement 2
The FASB has tentatively decided that purchased goodwill does meet the criteria
in Concepts Statement 5 for initial recognition as an asset. Goodwill does represent
future economic benefits that are in the control of the enterprise and that have
arisen from a past transaction or event.
Requirement 3
Some believe that goodwill is not an asset because of concerns about 1) equating
costs and assets, 2) exchangeability of goodwill, and 3) controllability.
*OR,
Book value of property, plant and equipment and
intangibles, beginning of the year $7,078
Add: additions 755
Less: depreciation and amortization (893)
Less: book value of property, plant and equipment and
intangibles, end of the year (6,793)
Book value of equipment sold $ 147
Requirement 2
The controller would be correct in her valuation of goodwill only if the total fair
value of all of the identifiable net assets (assets less liabilities) of Georgia, Inc. equals
the total book value of Georgias net assets ($2,800,000). Goodwill, by definition, is
the excess of purchase price over the fair value of net assets, not the book value of net
assets.
Requirement 2
Possible reasons include:
1. The larger a firm is, the more likely it is to prefer income-reducing accounting
methods (e.g., expense R&D). This is particularly true in politically sensitive
industries where excessive profits could trigger intervention into a firm's activities
by government, unions, and other special interest groups.
2. Large firms may tend to have more R&D activities occurring simultaneously,
creating a portfolio effect. That is, the number of successful R&D projects relative
to total projects may be fairly stable from year to year in large firms. There may
be much more variability in smaller firms creating larger variability in income if
R&D is expensed.
3. Earnings-based management compensation schemes may be more prevalent in
smaller R&D companies, thus creating a preference for accounting methods that
can be more easily manipulated (e.g., capitalize R&D).
4. Smaller companies may be more dependent on debt financing. Debt covenants
(contractual limitations on debt) could create a preference for accounting methods
that can be more easily manipulated (e.g., capitalize R&D).
Requirement 2
a. Matching refers to the process of expense recognition by associating costs
with revenues on a cause and effect basis.
b. Research and development costs usually are expensed in the period incurred
and may not be matched with revenues. This accounting treatment is justified by the
high degree of uncertainty regarding the amount and timing of future benefits. A
direct relationship between research and development costs and future revenues
generally cannot be demonstrated.
Requirement 3
Corporate headquarters costs allocated to research and development would be
classified as general and administrative expenses in the period incurred, because they
are not clearly related to research and development activities.
Requirement 4
The legal expenses incurred in defending the patent should be capitalized as part
of the cost of the intangible asset, patent.
Writing (30%)
______ 6 Terminology and tone appropriate to the audience of a
company president.
______ 12 English
____ Sentences grammatically clear and well organized,
concise.
____ Word selection.
____ Spelling.
____ Grammar and punctuation.
_____
______ 30 points
Requirement 2
Discussion should include these elements.
Ethical Dilemma:
Is Alice's responsibility to follow GAAP by expensing the equipment purchase
greater than her responsibility to assist the company in seeking new financing?
Who is affected?
Alice
President and other managers
Other employees
Shareholders
Potential shareholders
Creditors
Company auditors
Requirement 2
($ in millions)
Book value of PP&E, beginning of 2004 $681
Add: purchases during 2004 215
Deduct: depreciation for 2004 (196)
Book value of PP&E, end of 2004 $700
Requirement 2
The amortization of capitalized computer software development costs begins
with the start of commercial production. The periodic amortization percentage is the
greater of (1) the ratio of current revenues to current and anticipated revenues
(percentage of revenue method), or (2) the straight-line percentage over the useful life
of the asset.
($ in millions)
= $73,094 = 3.42
$21,394.5*
Requirement 2
Note 1 indicates that the company capitalized interest of $11 million in 2004.
Requirement 3
The statement of cash flows reports that $1,271 million cash was used for capital
expenditures in 2004. This compares with capital expenditures of $1,511 million in
2003 and $1,615 million in 2002.
Requirement 4
The fixed-asset turnover ratio is computed by dividing net sales (revenues) by
average fixed assets. Using 2004 data, the ratio for FedEx is 2.79, which is 15%
higher than that of United Parcel Service.
($ in millions)
$24,710 = 2.79
$8,868.5*