Accounting
27th Edition
ISBN: 9781337272094
Author: WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher: Cengage Learning,
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Textbook Question
Chapter 10, Problem 10.5CP
Communication
Godwin Co. owns three delivery trucks. Details for each truck at the end of the most recent year follow:
• At the beginning of the year, a hydraulic lift is added to Truck 1 at a cost of $4,500. The addition of the hydraulic lift will allow the company to deliver much larger objects than could previously be delivered.
• At the beginning of the year, the engine of Truck 2 is overhauled at a cost of $5,000. The engine overhaul will extend the truck’s useful life by three years.
Write a short memo to Godwin’s chief financial officer explaining the financial statement effects of the expenditures associated with Trucks 1 and 2.
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At the beginning of the year, Grillo Industries bought three used machines from Freeman Incorporated. The machines immediately were overhauled, were installed, and started operating. Because the machines were different, each was recorded separately in the accounts.
Machine A Machine B Machine C
Cost of the asset $10,600 $39,800 $23,600
Installation costs 850 3,700 2,800
Renovation costs prior to use 650 3,300 3,800
Repairs after production began 500 700 2,300
By the end of the first year, each machine had been operating 8,000 hours.
Required:
Compute the cost of each machine.
Prepare the journal entry to record depreciation expense at the end of year 1, assuming the following:
Estimates…
At the beginning of the year, Grillo Industries bought three used machines from Freeman Incorporated. The machines immediately were overhauled, were installed, and started operating. Because the machines were different, each was recorded separately in the accounts.
Machine A
Machine B
Machine C
Cost of the asset
$
10,800
$
40,000
$
23,800
Installation costs
950
3,900
3,000
Renovation costs prior to use
750
3,500
4,000
Repairs after production began
700
900
2,500
By the end of the first year, each machine had been operating 8,000 hours.
Required:
Compute the cost of each machine.
Prepare the journal entry to record depreciation expense at the end of year 1, assuming the following:
Estimates
Machine
Life
Residual Value
Depreciation Method
A
5
years
$
2,800
Straight-line
B
20,000
hours
2,400
Units-of-production
C
10
years
1,600
Double-declining-balance
A consumer electronics company was formed to sell a portable handset system. The company purchased a warehouse and converted it into a manufacturing plant for $2,000,000 (including the purchase price of the warehouse). It completed the installation of assembly equipment worth $1,500,000 on December 3l. The plant began operation on January 1. The company had a gross income of $2,500,000 for the calendar year. Manufacturing costs and all operating expenses, excluding the capital expenditures, were $1,280,000. The depreciation expenses for capital expenditures amounted to $128,000.(a) Compute the taxable income of this company.(b) How much will the company pay in federal income taxes for the year?
Chapter 10 Solutions
Accounting
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