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ProblemSet6 - Chapter 7 Plant Assets and Intangibles(5-10...

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Chapter 7 Plant Assets and Intangibles (5-10 min.) E 7-15 Land: $150,000 + $150,000 + $2,000 + $2,500 + $6,000 = $310,500 Land improvements: $65,000 + $10,400 + $6,000 = $81,400 Building: $50,000 + $1,000,000 = $1,050,000 (15-20 min.) E 7-19 Year Straight-Line Units-of- Production Double-Declining- Balance 20X1 $ 3,000 $ 4,080 $ 7,500 20X2 3,000 3,360 3,750 20X3 3,000 2,160 750 20X4 3,000 2,400 -0- $12,000 $12,000 $12,000 _____ Computations: Straight-line: ($15,000 $3,000) ÷ 4 = $3,000 per year. Units-of-production: ($15,000 $3,000) ÷ 100,000 miles = $.12 per mile; 20X1 34,000 × $.12 = $4,080 20X2 28,000 × .12 = 3,360
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20X3 18,000 × .12 = 2,160 20X4 20,000 × .12 = 2,400 Double-declining-balance — Twice the straight-line rate: 1/4 × 2 = 2/4 = 50% 20X1 $15,000 × .50 = $7,500 20X2 ($15,000 $7,500) × .50 = $3,750 20X3 $7,500 $3,750 = $3,750 residual value of $3,000 = $750 The units-of production method tracks the wear and tear on the van most closely. For income tax purposes, the double-declining-balance method is best because it provides the most depreciation and, thus, the largest tax deductions in the early life of the asset. The company can invest the tax savings to earn a return on the investment. (5-10 min.) E 7-27 Req. 1 Cost of goodwill purchased: Millions Purchase price paid for MySpace.com…………….. $18
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