Problem:
Following are selected footnote disclosures from Parson's (an outdoor adventure superstore) financial statements:
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5. PROPERTY AND EQUIPMENT
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Depreciable Life
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in Years
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2011
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2010
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Land and improvements
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Up to 20
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$169,839
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$169,398
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Buildings and improvements
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7 to 40
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549,793
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500,193
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Furniture, fixtures and equipment
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3 to 15
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516,323
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444,948
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Assets held under capital lease
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Up to 30
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14,363
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14,363
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Property and equipment
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1,250,318
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1,128,902
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Less accumulated depreciation and amortization
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(413,993)
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(363,608)
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836,325
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765,294
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Construction in progress
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30,574
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52,653
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$866,899
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$817,947
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Required:
a. Compute the PPE turnover for 2011 (Total revenue in 2011 is $2,811,166 thousand). Does the level of its PPE turnover suggest that Parson's is capital intensive? (Hint: The median PPE turnover for all publicly traded companies is approximately 1.3.)
b. Do you believe that Parson's balance sheet reflects all of the company's operating assets?
c. Parson's reported depreciation expense of $71,343 thousand in 2011. How much of this related to Land and improvements? How much of this expense related to Construction in progress? Explain.
d. Assuming that Parson's uses straight-line depreciation, estimate the useful life of its depreciable PPE assets.
Summary of problem:
The question belongs to Finance as well as it deals with questions about a company whose PPE turnover needs to be computed. The operating assets being reflected in balance sheet and estimating the depreciation of the PPE assets.