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hhtfa8e_ch07_sm - Chapter 7 Plant Assets Intangibles Short...

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Chapter 7 Plant Assets & Intangibles Short Exercises (5 min.) S 7-1 1. Property and Equipment, at Cost Millions Aircraft………………………………………………… $ 2,394 Package handling and ground support equipment…………………………………………. 12,225 Computer and electronic equipment……………. 28,165 Vehicles………………………………………………. 586 Facilities and other…………………………………. 1,435 Total cost………………………………………….. 44,805 Less: Accumulated depreciation……………….. (14,903 ) Net property and equipment…………………… $ 29,902 2. Cost = $44,805 million Book value = $29,902 million Book value is less than cost because accumulated depreciation is subtracted from cost to compute book value. Chapter 7 Plant Assets & Intangibles 3
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(5 min) S 7-2 The related costs (real estate commission, back property tax, removal of a building, and survey fee) are included as part of the cost of the land because the buyer of the land must incur these costs to get the land ready for its intended use. After the land is ready for use, the related costs (listed above) would be expensed. (10 min.) S 7-3 Land ($140,000 × .50)………………………. 70,000 Building ($140,000 × .30)…………………... 42,000 Equipment ($140,000 × .20)……………….. 28,000 Note Payable……………………………… 140,000 Current Market Value Percent of Total Land…………………. $ 75,000 $75,000 / $150,000 = 50.0% Building……………... 45,000 $45,000 / $150,000 = 30.0% Equipment………….. 30,000 $30,000 / $150,000 = 20.0% Total……………….… $150,000 100.0 % Financial Accounting 8/e Solutions Manual 4
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(5 min.) S 7-4 Income Statement Revenues CORRECT Expenses UNDERSTATED Net income OVERSTATED (10 min.) S 7-5 1. First-year depreciation: Straight-line ($53,000,000 $5,000,000) / 5 years……. $9,600,000 Units-of-production [($53,000,000 $5,000,000) / 6,000,000 miles] × 775,000 miles…………………….. $6,200,000 Double-declining-balance ($53,000,000 / 5 years × 2). $21,200,000 2. Book value: Straight- Line Units-of- Production Double- Declining- Balance Cost……………………. $53,000,000 $53,000,000 $53,000,000 Less Accumulated Depreciation……….. (9,600,000 ) (6,200,000 ) (21,200,000 ) Book value……………. $43,400,000 $46,800,000 $31,800,000 Chapter 7 Plant Assets & Intangibles 5
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(10 min.) S 7-6 Third-year depreciation: a. Straight-line ($53,000,000 $5,000,000) / 5 years….. $9,600,000 b. Units-of-production [($53,000,000 $5,000,000) / 6,000,000 miles] × 1,275,000 miles………………… $10,200,000 c. Double-declining-balance: Year 1 ($53,000,000 × 2/5) = $21,200,000 Year 2 ($53,000,000 $21,200,000) × 2/5 = $12,720,000 Year 3 ($53,000,000 $21,200,000 $12,720,000)= $19,080,000; $19,080,000 × 2/5……………………………… $7,632,000 Financial Accounting 8/e Solutions Manual 6
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(10 min.) S 7-7 1. Double-declining-balance (DDB) depreciation offers the tax advantage for the first year of an asset’s use. DDB’s advantage results from the greater amount of DDB depreciation (versus the other methods’ depreciation) during the first year. DDB saves cash that the taxpayer can invest to earn a return. 2. DDB depreciation………………………………….. $21,200,000 Straight-line depreciation………………………... (9,600,000 ) Excess depreciation tax deduction……………. $ 11,600,000 Income tax rate…………………………………….. × .32 Income tax savings for first year……………….. $ 3,712,000 Chapter 7 Plant Assets & Intangibles 7
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(5-10 min.) S 7-8
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