chapter08probsetc

# chapter08probsetc - PROBLEM SET C PROBLEM 8-1C Gabby and...

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PROBLEM 8-1C Gabby and the Kickers made a lump-sum purchase of the musical equipment from country music has-beens Down and Dirty. Gabby paid a total of \$50,000 cash for microphones, amplifiers, quitars, and a drum set. The estimated market values of the assets are: microphones, \$4,400: amplifiers, \$54,560; guitars, \$15,840; and drum set, \$13,200 on January 1, 2005 . The band’s fiscal year ends on December 31. Required Preparation Component 1. Prepare a table to allocate the lump-sum purchase price to the separate assets purchased. Prepare the journal entry to record the purchase. 2. Compute the depreciation expense for year 2005 on the amplifiers using the straight-line method, assuming a 10-year life and a \$5,000 salvage value. 3. Compute the depreciation expense for year 2005 on the microphones assuming a four-year life and double-declining-balance depreciation. Analysis Component 4. Defend or refute this statement: Accelerated depreciation results in payment of less taxes over the asset’s life. PROBLEM 8-2C In January, 2005, Rachel’s Rafts Rental Company paid \$750,000 cash for a parcel of waterfront property complete with a pier and two boats; the “Windwinder” and the “Splasher”. The plan is to rent the boats from the pier, which has an appraised value of \$188,000, an estimated useful life of 20 years and a \$15,000 salvage value. The “Windwinder” is unsafe and will be demolished with some of its electronic equipment moved to the “Splasher” which has an appraised value of \$282,000, an estimated useful life of 7 years, and a \$35,000 salvage value. The land is valued at \$376,000 and has a series of paved paths (Land Improvements) leading from the parking area to the pier. The paths are valued at \$94,000, should last 10 years with no salvage value. Rachel’s Rafts Rental Company incurred the following additional costs: Cost to demolish the “Windwinder” and move equipment \$ 55,000 Cost to install lighting on paths (10-year life, \$25,000 salvage value) 50,000 Cost to pave parking area (10-year life, no salvage value) 80,000 Cost to replace boards on pier (20-year life, no salvage value) 25,000 Required 1. Prepare a table with the following column headings: Land, Land Improvements, Pier, and Boat. Allocate the costs incurred by Trey’s to the appropriate columns and total each column. 2.

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## This note was uploaded on 09/23/2010 for the course FIN 310 taught by Professor Smith during the Fall '10 term at Arizona Western College.

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chapter08probsetc - PROBLEM SET C PROBLEM 8-1C Gabby and...

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