An asset used in a four-year project falls in the five-year MACRS class (MACRS Table) fortax purposes. The asset has an acquisition cost of $7,800,000 and will be sold for$1,860,000 at the end of the project.What is the book value of the equipment at the end of Year 4? (Do not roundintermediate calculations and round your answer to the nearest whole number, e.g.,32.)Book valueIf the tax rate is 25 percent, what is the aftertax salvage value of the asset? (Do notround intermediate calculations and round your answer to 2 decimal places, e.g.,32.16.)Aftertax salvage value

Here, Time Period of Project is 4

Answered: An asset used in a four-year project…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section9.A: Depreciation

Problem 1P

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Expenditures After Acquisition Roanoke Manufacturing placed a robotic arm on a large assembly machine on January 1, 2019. At that time, the assembly machine was expected to last another 3 years. The following information is available concerning the assembly machine. The robotic arm cost $225,000 and was expected to extend the useful life of the machine by 3 years. Therefore, the useful life of the assembly machine, after the arm replacement, is 6 years. The assembly machine is expected to have a residual value of $120,000 at the end of its useful life. Required: 1. Prepare the journal entry necessary to record the addition of the robotic arm. 2. Compute 2019 depreciation expense for the machine using the straight-line method, and prepare the necessary journal entry. 3. What is the book value of the machine at the end of 2019? 4. CONCEPTUAL CONNECTION What would have been the effect on the financial statements if Roanoke had expensed the addition of the robotic arm?
For each of the following unrelated situations, calculate the annual amortization expense and prepare a journal entry to record the expense: A. A patent with a seventeen-year remaining legal life was purchased for $850,000. The patent will be usable for another six years. B. A patent was acquired on a new tablet. The cost of the patent itself was only $12,000, but the market value of the patent is $150,000. The company expects to be able to use this patent for all twenty years of its life.
Depreciation Jensen Inc., a graphic arts studio, is considering the purchase of computer equipment and software for a total cost of $18,000. Jensen can pay for the equipment and software over three years at the rate of $6,000 per year. The equipment is expected to last 10 to 20 years, but because of changing technology, Jensen believes it may need to replace the system in as soon as three to five years. A three-year lease of similar equipment and software is available for $6,000 per year. Jensens accountant has asked you to recommend whether the company should purchase or lease the equipment and software and to suggest the length of time over which to depreciate the software and equipment if the company makes the purchase. Required Ignoring the effect of taxes, would you recommend the purchase or the lease? Why or why not? Referring to the definition of depreciation, what appropriate useful life should be used for the equipment and software?
Comprehensive: Acquisition, Subsequent Expenditures, and Depreciation On January 2, 2019, Lapar Corporation purchased a machine for 50,000. Lapar paid shipping expenses of 500, as well as installation costs of 1,200. The company estimated that the machine would have a useful life of 10 years and a residual value of 3,000. On January 1, 2020, Lapar made additions costing 3,600 to the machine in order to comply with pollution-control ordinances. These additions neither prolonged the life of the machine nor increased the residual value. Required: 1. If Lapar records depreciation expense under the straight-line method, how much is the depreciation expense for 2020? 2. Assume Lapar determines the machine has three significant components as shown below. If Lapar uses IFRS, what is the amount of depreciation expense that would be recorded?
Urquhart Global purchases a building to house its administrative offices for $500,000. The best estimate of the salvage value at the time of purchase was $45,000, and it is expected to be used for forty years. Urquhart uses the straight-line depreciation method for all buildings. After ten years of recording depreciation, Urquhart determines that the building will be useful for a total of fifty years instead of forty. Calculate annual depreciation expense for the first ten years. Determine the depreciation expense for the final forty years of the assets life, and create the journal entry for year eleven.
For each of the following unrelated situations, calculate the annual amortization expense and prepare a journal entry to record the expense: A. A patent with a ten-year remaining legal life was purchased for $300,000. The patent will be usable for another eight years. B. A patent was acquired on a new smartphone. The cost of the patent itself was only $24,000, but the market value of the patent is $600,000. The company expects to be able to use this patent for all twenty years of its life.

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