Chapter 9 - q2
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EXERCISE 9–2
Argyris Mining Inc. completed construction of a new silver mine in 2020. The cost of direct materials for the construction was $2,200,000 and direct labour was $1,600,000.
In addition, the company allocated $250,000 of general overhead costs to the project. To finance the project, the company obtained a loan of $3,000,000 from its bank. The loan funds were drawn on February 1, 2020, and the mine was completed on November 1, 2020. The interest rate on the loan was 8% p.a. During construction, excess funds from the loan were invested and earned interest income of $30,000. The remainder of the funds needed for construction was drawn from internal cash reserves in the company. The company has also publicly made a commitment to clean up the site of the mine when the extraction operation is complete. It is estimated that the mining of this particular seam will be completed in ten years, at which time restoration costs of $100,000 will be incurred. The appropriate discount rate for this type of expenditure is 10%.
Required:
Determine the cost of the silver mine to be capitalized in 2020.
EXERCISE 9–2
The following costs would be capitalized with respect to the mine:
Direct material
$2,200,000
Direct labour
1,600,000
Interest (
3,000,000×8%×9÷12
)
180,000
Less interest on excess funds
(30,000)
Present value of restoration costs (FV=100,000, I=10, N=10)
38,554
Total cost capitalized
3,988,554
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Exercise One
On July 1, 2022, Phillips Inc. Invested $480,000 in a mine estimated to have 800,000 tonnes of ore.
At the end of production at the mine, the company estimates it will have to spend $150,000 to restore the
site to an environmentally acceptable condition. The property will then be sold for $90,000.
During the last six months of 2022, 100,000 tonnes of ore were mined and sold.
Amortizable Cost per Unit:
Amount of Amortization Allocated:
Amount to be allocated to the restoration liability:
a) Prepare the journal entry to record the depletion expense.
Date
Particulars
Debit
Credit
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PROBLEM 24-4(IFRS)
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MC algo 9-6 Calculating Salvage Value A company is evaluating a new 4-year project. The equipment necessary for the project will cost $3,100,000 and can be sold for $675,000 at the end of the project. The asset is in the 5-year MACRS class. The depreciation percentage each year is 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, and 11.52 percent, respectively. The company's tax rate is 23 percent. What is the aftertax salvage value of the equipment? Multiple Choice $519,750 $560,819 $707,044 $675,000 $642,956
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5
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21
Beck Construction Company began work on a new building project on January 1, 2023. The project is to be completed by December 31, 2025, for a fixed price of $131 million. The following are the actual costs incurred and estimates of remaining costs to complete the project that were made by Beck's accounting staff:
Years
Actual costs incurred in each year
Estimated remaining costs to complete the project (measured atDecember 31 of each year)
2023
$ 36 million
$ 72 million
2024
$ 57 million
$ 57 million
2025
$ 41 million
$ 0 million
Required:
What amount of gross profit (or loss) would Beck record on this project in each year, assuming that Beck recognizes revenue for this project upon completion of the project?
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Exercise 24-4 (Algo) Payback period, unequal cash flows, and depreciation adjustment LO P1
A machine can be purchased for $130,000 and used for five years, yielding the following income. This income computation includes
annual depreciation expense of $26,000.
Income
Year 1
$8,800
Year 2
$21,800
Year 3
$57,000
Year 4
$32,900
Year 5
$87,200
Compute the machine's payback period. (Round payback period answer to 2 decimal places.)
× Answer is complete but not entirely correct.
Year
Net
Income
Depreciation
Net Cash
Flow
Cumulative Net
Cash Flow
Initial invest
$
(130,000)
$
(130,000)
Year 1
$
8,800
$
26,000
34,800
34,800 x
Year 2
21,800
26,000
47,800
82,600 ×
Year 3
57,000
26,000
83,000
130,000 ☑
Year 4
32,900
26,000
Year 5
87,200
26,000
Payback period =
2.57 years
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domestic
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14
ants
eBook
Print
References
Triad Corporation has established a joint venture with Tobacco Road Construction, Inc.,
to build a toll road in North Carolina. The initial investment in paving equipment is $145
million. The equipment will be fully depreciated using the straight-line method over its
economic life of five years. Earnings before interest, taxes, and depreciation collected
from the toll road are projected to be $21.7 million per annum for 20 years starting from
the end of the first year. The corporate tax rate is 25 percent. The required rate of return
for the project under all-equity financing is 14 percent. The pretax cost of debt for the
joint partnership is 8.3 percent. To encourage investment in the country's Infrastructure,
the U.S. government will subsidize the project with a $65 million, 15-year loan at an
interest rate of 4.8 percent per year. All principal will be repaid in one balloon payment at
the end of Year 15.
What is the adjusted present value of this…
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PROBLEM 19-7
On January 1, 2015, Micah Joy Mining Corp. acquired property containing mineral resources for
P150,000,000. Total cost of exploration and intangible development cost was P8,000,000. Micah Joy is
mandated by the Mining Act to restore the site after 4 years. Based on most reliable measurements, the
amount of restoration cost is P12,000,000 and current market-based discount rate is 10%. On the same
date, Micah Joy acquired movable tangible equipment amounted P6,000,000 while the immovable
tangible equipment amounted to P9,000,000. Geologist estimate that the total units estimated to be
extracted each year during the useful life of the wasting assets.
The movable equipment has a useful life of 20 years while the immovable equipment has an estimated
useful life of 10 years.
Actual units extracted in 2015 and 2016 were 1,600,000 and 1,700,000 respectively.
Question: (Please carry over all decimal places in the computation)
Based on the above data, answer the following:
2. How…
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Exercise 24-4 (Algo) Payback period, unequal cash flows, and depreciation adjustment LO P1
A machine can be purchased for $200,000 and used for five years, yielding the following income. This income computation includes
annual depreciation expense of $40.000.
Income
Year 1
$13,500
Year 2
$33,500
Year 3
$83,000
Year 4
$50,500
Year 5
$134,000
Compute the machine's payback period. (Round payback period answer to 2 decimal places.)
Year
Net Income Depreciation Net Cash Flow
Cumulative Net Cash
Flow
Initial invest
$
(200,000) $
(200,000)
Year 1
$
13,500
Year 2
33,500
Year 3
83,000
Year 4
50,500
Year 5
134,000
0
0
Payback period=
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Problem 25-1 (IFRS)... Compute the cost of the building.
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Exercise 12-16 b-c
Blossom Company from time to time embarks on a research program when a special project seems to offer possibilities. In 2019, the company expends $325,500 on a research project, but by the end of 2019 it is impossible to determine whether any benefit will be derived from it.
The project is completed in 2020, and a successful patent is obtained. The R&D costs to complete the project are $115,500. The administrative and legal expenses incurred in obtaining patent number 472-1001-84 in 2020 total $17,500. The patent has an expected useful life of 5 years. Record these costs in journal entry form. Also, record patent amortization (full year) in 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Account Titles and Explanation
Debit
Credit…
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Exercise 10-07
Pearl Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $8,000,000 on January 1, 2020. Pearl expected to complete the building by December 31, 2020. Pearl has the following debt obligations outstanding during the construction period.
Construction loan-12% interest, payable semiannually, issued December 31, 2019
$3,200,000
Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 2021
2,240,000
Long-term loan-11% interest, payable on January 1 of each year. Principal payable on January 1, 2024
1,600,000
Your answer is incorrect. Try again.
Assume that Pearl completed the office and warehouse building on December 31, 2020, as planned at a total cost of $8,320,000, and the weighted-average amount of accumulated expenditures was $5,760,000. Compute the avoidable interest on this…
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L 13
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Exercise 24-2 (Algo) Payback period, equal cash flows, and depreciation adjustment LO P1
Quary Company is considering an investment in machinery with the following information.
Initial investment
Useful life
Salvage value
Expected sales per year
Required A Required B
(a) Compute the investment's annual income and annual net cash flow.
(b) Compute the investment's payback period.
$ 380,000
Complete this question by entering your answers in the tabs below.
Annual Amounts
9 years
$ 20,000
19,000 units
Expenses
Materials, labor, and overhead (except depreciation)
Depreciation-Machinery
Selling, general, and administrative expenses
Selling price per unit
Compute the investment's annual income and annual net cash flow.
Income
Net cash flow
Required A
$
Income
0
$
Cash Flow
Required B
>
0
$ 85,500
40,000
9,500
$ 10
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Problem 11-02
The cost of equipment purchased by Skysong, Inc., on June 1, 2020, is $107,100. It is estimated that the machine will have a $6,300 salvage value at the end of its service life. Its service life is estimated at 7 years, its total working hours are estimated at 50,400, and its total production is estimated at 630,000 units. During 2020, the machine was operated 6,420o hours and
produced 58,850 units. During 2021, the machine was operated 5,885 hours and produced 51,300 units.
Compute depreciation expense on the machine for the year ending December 31, 2020, and the year ending December 31, 2021, using the following methods. (Round depreciation per unit to 2 decimal places, e.g. 15.25 and final answers to 0 decimal places, e.g. 45,892.)
2020
2021
(a) Straight-line
(b) Units-of-output
(c) Working hours
$1
(d) Sum-of-the-years'-digits
(e) Double-declining-balance (twice the straight-line rate)
Click if you would like to Show Work for this question: Open Show Work
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Exercise 10-24
On December 31, 2020, Vaughn Inc. has a machine with a book value of $1,353,600. The original cost and related accumulated depreciation at this date are as follows.
Machine
$1,872,000
Less: Accumulated depreciation
518,400
Book value
$1,353,600
Depreciation is computed at $86,400 per year on a straight-line basis.Presented below is a set of independent situations. For each independent situation, indicate the journal entry to be made to record the transaction. Make sure that depreciation entries are made to update the book value of the machine prior to its disposal.
Your answer is partially correct. Try again.
A fire completely destroys the machine on August 31, 2021. An insurance settlement of $619,200 was received for this casualty. Assume the settlement was received immediately. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If…
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Related Questions
- Exercise One On July 1, 2022, Phillips Inc. Invested $480,000 in a mine estimated to have 800,000 tonnes of ore. At the end of production at the mine, the company estimates it will have to spend $150,000 to restore the site to an environmentally acceptable condition. The property will then be sold for $90,000. During the last six months of 2022, 100,000 tonnes of ore were mined and sold. Amortizable Cost per Unit: Amount of Amortization Allocated: Amount to be allocated to the restoration liability: a) Prepare the journal entry to record the depletion expense. Date Particulars Debit Creditarrow_forwardPROBLEM 24-4(IFRS)arrow_forwardMC algo 9-6 Calculating Salvage Value A company is evaluating a new 4-year project. The equipment necessary for the project will cost $3,100,000 and can be sold for $675,000 at the end of the project. The asset is in the 5-year MACRS class. The depreciation percentage each year is 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, and 11.52 percent, respectively. The company's tax rate is 23 percent. What is the aftertax salvage value of the equipment? Multiple Choice $519,750 $560,819 $707,044 $675,000 $642,956arrow_forward
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