Accounting Practical Questions

Billy’s acquisition of Little Drummer took place in 201X for an outlay of $575 million in cash; an external valuation specialist assessed the fair values of significant acquired assets at $865 million (PP&E), and $145 million (other assets). Billy’s used the previously determined useful lives for PP&E (determined by Little Drummer’s management) of 30 years for plant, and 20 years

Lessee Ltd., a British company that applies IFRSs, leased equipment from Lessor Inc. on January 1, 2007, for a period of three years. Lease payments of $100,000 are due to Lessor Inc. each year. Other expenses (e.g., insurance, taxes, and maintenance) are also to be paid by Lessee Ltd. and amount to $2,000 per year. The lessor did not incur any initial direct costs. The lease contains no purchase or renewal options and the equipment reverts back to Lessor Inc. on the expiration of the lease. The remaining useful life of the equipment is four years. The fair value of the equipment at lease inception is $265,000. Lessee Ltd. has guaranteed $20,000 as the

Panner, Inc., owns 20 percent of Watkins and applies the equity method. During the current year, Panner buys inventory costing $84,700 and then sells it to Watkins for $121,000. At the end of the year, Watkins still holds only $26,000 of merchandise. What amount of unrealized gross profit must Panner defer in reporting this investment using the equity method?

|5B | |Journalize a series of equipment transactions related to purchase, sale, retirement, | |Moderate | |40–50 |

* Since the fair value of investment is less than its cost, the Company should proceed to step 2 for identifying and accounting for impairment. However, there is no indication that OTT does not expect the fair value of the security to fully recover before the expected time of sale. The Company actually does not believe the decline in price to be permanent. In addition, it does not intend to sell this investment in the

Superior Manufacturing is thinking of launching a new product. The company expects to sell $950,000 of the new product in the first year and $1,500,000 each year thereafter. Direct costs including labor and materials will be 55% of sales. Indirect incremental costs are estimated at $80,000 a year. The project requires a new plant that will cost a total of $1,000,000, which will be depreciated straight line over the next five years. The new line will also require an additional net investment in inventory and receivables in the amount of $200,000. Assume there is no need for additional investment in building and land for the project. The firm's marginal tax rate is 35%, and its cost of capital is 10%. 1. Prepare a statement showing the

Capital needed for this venture has been estimated to be $400,000. The majority of the costs are associated with the machinery,

Tampa Foundry began operations during the current year, manufacturing various products for industrial use. One such product is light-gauge aluminum, which the company sells for $36 per roll. Cost information for the year just ended follows.

i. In 1985 the cash inflow caused by the tax shelter from depreciation will be calculated using the existing 46% rate. In 1986 that tax rate will be reduced to 34% and the equipment will be sold that year so cash inflows from the old equipment will terminate that same year.

We have got to first initiate by finding the Depreciation of this project, consecutively to obtain this we will make use of the formula: Depreciation = Cost of the asset – salvage value/ Life of the asset.

A) Cash 14,000 Office Equipment , 7,000 B. Tanner, Capital , , , , 21,000

be used has a 3-year tax life, would be depreciated on a straight-line basis over the project’s 3-

Explain the inputs into 1) the net initial investment outlay at year 0, the initial investment $200,000 which include taxes and delivery, and the cost to install the equipment $12,500. The total net cost $212,500. 2) The depreciation tax savings in each year of the projects economic life, this will show how much the tax savings will be depreciated each year using the MACRS method 3) the projects incremental cash flows? This shows the company profit for each of the eight years.

6. The project requires an initial investment in plant and equipment of $6 million. This investment will be depreciated straight-line over five years to a value of zero, but, when the project comes to an end in five years, the equipment can in fact be sold for $500,000. The firm believes that working capital at

The computation of Property, Plant and Equipment is very important part because it determines the entity’s financial well being to a great extent. They are the major portion of the total assets of an entity.