10One of the employees of Davenport Corporation recently was involved in an accident with oneof the corporation's delivery vans. The corporation is either going to repair the damaged vanor sell it as is and buy a comparable used van. Information related to this decision is providedbelow:$30,000Initial cost of the damaged vanAccumulated depreciation to date on van $18,000Salvage value of van immediately before crash $9,000Salvage value of van immediately after crashCost to repair damaged vanCost of a comparable used vanBased on the information above, identify whether Davenport would be financially repairing thedamaged van, or buying the comparable used van? Explain why?$1,000$5,000$10,000

Sunk Cost: Sunk costs are those which have already been incurred and which are unrecoverable. In…

Answered: 10 One of the employees of Davenport…

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter12: Nonrecognition Transactions

Section: Chapter Questions

Problem 33P

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Montello Inc. purchases a delivery truck for $25,000. The truck has a salvage value of $6,000 and is expected to be driven for 125,000 miles. Montello uses the units-of-production depreciation method, and in year one the company expects the truck to be driven for 26,000 miles; in year two, 30,000 miles; and in year three, 40,000 miles. Consider how the purchase of the truck will impact Montellos depreciation expense each year and what the trucks book value will be each year after depreciation expense is recorded.
Tuttle Construction Co. specializes in building replicas of historic houses. Tim Newman, president of Tuttle Construction, is considering the purchase of various items of equipment on July 1, 2014, for 400,000. The equipment would have a useful life of five years and no residual value. In the past, all equipment has been leased. For tax purposes, Tim is considering depreciating the equipment by the straight-line method. He discussed the matter with his CPA and learned that, although the straight-line method could be elected, it was to his advantage to use the Modified Accelerated Cost Recovery System (MACRS) for tax purposes. He asked for your advice as to which method to use for tax purposes. 1. Compute depreciation for each of the years (2014, 2015, 2016, 2017, 2018, and 2019) of useful life by (a) the straight-line method and (b) MACRS. In using the straight-line method, one-half years depreciation should be computed for 2014 and 2019. Use the MACRS rates presented in Exhibit 9. 2. Assuming that income before depreciation and income tax is estimated to be 750,000 uniformly per year and that the income tax rate is 40%, compute the net income for each of the years 2014, 2015, 2016, 2017, 2018, and 2019 if (a) the straight-line method is used and (b) MACRS is used. 3. What factors would you present for Tims consideration in the selection of a depreciation method?
11. Gingerbread Corp had been depreciating a delivery truck for 3 years when it decided to sell the truck. The historical cost of the delivery truck was $40,000 with an estimated salvage value of $5,000 and a useful life of 7 years. The company had recorded $7,000 of depreciation expense every year for three years. The company sold the truck for $21,000. What is the gain or loss recorded on the sale of the truck. a.Loss of $4,000 b.Gain of $2,000 c.Gain of $4,000 d.Loss of $2,000
4. Five years ago, a company in New Jersey installeda diesel-electric unit costing $50,000 at a remote sitebecause no dependable electric power was availablefrom a public utility. The company has computed depreciation by the straight-line method with a useful life of10 years and a zero salvage value. Annual operation andmaintenance expenses are $16,000, and property taxesand insurance cost another $3,000 per year.Dependable electric service is now available at anestimated annual cost of $30,000. The company inNew Jersey wishes to know whether it would be moreeconomical to dispose of the diesel-electric unit now,when it can be sold for $35,000, or to wait five yearswhen the unit would have to be replaced anyway (withno MV). The company has an effective income tax rateof 50% and tries to limit its capital expenditures toopportunities that will earn at least 15% per year afterincome taxes. What would you recommend?
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(4) Delaney Company is considering replacing equipment that originally cost $519,000 and that has $363,300 accumulated depreciation to date. A new machine will cost $724,000. What is the sunk cost in this situation? a.$568,300 b.$519,000 c.$124,560 d.$155,700
Fifteen years ago the Acme Manufacturing Company bought a propane-powered forklift truck for $4800. The 48 company depreciated the forklift using straight-line depreciation, a 12-year life, and zero salvage value. A Estimated end-of-year maintenance costs for the next 10 years are as follows: Year Maintenance Cost 1 $ 400 2 600 3 800 4 1000 5–10 1400/year The old forklift has no present or future net salvage value (scrap value equals disposal costs). A modern unit can be purchased for $6500. It has an economic life equal to its 10-year depreciable life. Straight-line depreciation will be employed, with zero salvage value at the end of the 10-year depreciable life. Maintenance on the new forklift is estimated to be a constant $50 per year for the next 10 years, after which maintenance is expected to increase sharply. Should Acme Manufacturing keep its old forklift truck for the present or replace it now with a new one? The firm expects an 8% after-tax rate of return on its…
A company purchased computers for $200,000. The installation charge of the computer was $10,000. Initially, the declared salvage value was $40,000. However, the company decided to sell the computer in the middle of 3rd year because of changing production plan. Fortunately, another company agreed to buy that computer for $50,000. Determine the gain or loss, if MACRS depreciation is used. Dont use excel
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7 A dump truck was bought for P 30 000 six years ago. It will have a salvage value of P 3 000 four years from now. It is sold now for P 8 000. What is its sunk cost (a cost that can’t be recovered due to certain reason) if the depreciation method used is the sinking fund method at 6%?
Dell is considering replacing one of its material handling systems. The old system was purchased 7 years agofor $130,000 and was depreciated as MACRS-GDS 5-year property since the system is used in the manufactureof electronic components. It has an annual O&M cost of $48,000, a remaining operational life of 8 years, and anestimated salvage value of $6,000 at that time. A new system can be purchased for $175,000. It will be worth$50,000 in 8 years, and it will have annual O&M costs of only $17,000 per year due to new technology. If thenew system is purchased, the old system will be traded in for $55,000, even though the old system can be sold536 CHAPTER 11 / REPLACEMENT ANALYSISfor only $45,000 on the open market. Leasing a new system will cost $31,000 per year, payable at the beginningof the year, plus operating costs of $15,000 per year payable at year-end. If the new system is leased, theexisting material handling system will be sold for its market value of $45,000.Use an…
On July 1, 2015 , Smile Corporation purchased a machine at a cost of P300,000. This machine was estimated to have a useful life of 5-years with no salvage value and was depreciated using the straight-line method. On January 2, 2018. Youth determined that this machine could no longer work efficiently, that its value had been permanently impaired, and that P90,000 could be recovered over the remaining useful life of the machine. In its December 31, 2016 statement of financial position, how much should Smile report as carrying value of the machine?

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