REX Stores Corporation, headquartered in Dayton, Ohio, is one of the nations leading consumer electronics retailers operating
Question:
Required:
1. Assuming that REX Stores did not sell any property, plant, and equipment in the current year, what was the amount of depreciation expense recorded during the current year?
2. Assume that REX Stores failed to record depreciation during the current year. Indicate the effect of the error (i.e., overstated or understated) on the following ratios:
a. Earnings per share.
b. Fixed asset turnover.
c. Financial leverage.
d. Return onequity.
(1) SUMMARY OF SIGNIFICANTACCOUNTING POLICIES- Property and Equipment-Property and equipment is recorded at cost. Depreciation is computed using the straight-line method. Estimated useful lives are 15 to 40 years for buildings and improvements, and 3 to 12 years for fixtures and euipment. Leasehold improvements are depreciated over 10 to 12 years. The components of cost at January 31 (current year) and (prior year) are as follows (amounts in dollars in thousands): Current Year Prior Year (dollars in thousands) Land Buildings and improve Fixtures and equipment Leasehold improvements Construction in progress S 38,519 101.448 18.567 9,797 S 38,567 99,448 18.471 9,882 1,251 167,619 (33,056) $134,563 ments 168,331 (36,922) S131,409 Less: Accumulated depreciation
Step by Step Answer:
Req 1 Depreciation expense of 3866 recorded in the current year is inferred from the activities affe...View the full answer
Related Video
In accounting terms, depreciation is defined as the reduction of the recorded cost of a fixed asset in a systematic manner until the value of the asset becomes zero or negligible. An example of fixed assets are buildings, furniture, office equipment, machinery, etc. The land is the only exception that cannot be depreciated as the value of land appreciates with time. Depreciation allows a portion of the cost of a fixed asset to be the revenue generated by the fixed asset. This is mandatory under the matching principle as revenues are recorded with their associated expenses in the accounting period when the asset is in use. This helps in getting a complete picture of the revenue
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