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Ch.+8+Problem+Solutions

Ch.+8+Problem+Solutions - Problem 8-1B(50 minutes Part 1...

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Problem 8-1B (50 minutes) Part 1 Estimated Market Value Percent of Total Apportioned Cost Building .......................... $ 469,200 51% $ 474,300 Land ................................ 303,600 33 306,900 Land improvements ...... 36,800 4 37,200 Trucks ............................. 110,400 12 111,600 Total ................................ $ 920,000 100 % $ 930,000 2009 Jan. 1 Buildings ..................................................... 474,300 Land ............................................................. 306,900 Land Improvements ................................... 37,200 Trucks .......................................................... 111,600 Cash ....................................................... 930,000 To record asset purchases. Part 2 Year 2009 straight-line depreciation on building [($474,300 - $30,000) / 15 years] = $29,620 Part 3 Year 2009 double-declining-balance depreciation on land improvements (100% / 5 years) x 2 = 40% rate $37,200 x 40% = $14,880 Part 4 Accelerated depreciation does not increase the total amount of taxes paid over the asset’s life. Instead, it defers or postpones taxes to the later years of an asset’s useful life. This is because accelerated methods charge a higher portion of asset costs against revenue in earlier years and a lower portion in later years. The result is to reduce taxable income more in earlier years and less in later years. [Note: From a present value perspective, there is a tax savings from use of accelerated depreciation. The company gets to use the deferred tax amounts for investment purposes until they are due.]
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