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POA11e11

# POA11e11 - CHAPTER 11Solutions LONG-TERM ASSETS Chapter 11...

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Ch11 SE1 to SE4 CHAPTER 11—Solutions LONG-TERM ASSETS Chapter 11, SE 1. 1. b 4. b 2. a 5. c 3. c 6. b Chapter 11, SE 2. = Dividends ( ) \$11,500 = \$97,000 \$12,500 ( \$79,000 \$6,000 ) This amount of free cash is the amount of cash that Rak Corporation has available for other purposes, such as expansion or investment, after it deducts the funds it has committed to continue operations at the planned level. Chapter 11, SE 3. 1. b 5. c 2. c 6. b 3. a 7. c 4. a 8. c Chapter 11, SE 4. Asset Appraisal Percentage Apportionment* Land \$ 400,000 25.0% \$ 375,000 Land improvements 200,000 12.5% 187,500 Building 1,000,000 62.5% 937,500 Total \$1,600,000 100.0% \$1,500,000 *Land \$1,500,000 × 25.0% = \$ 375,000 Land improvements \$1,500,000 × 12.5% = 187,500 Building \$1,500,000 × 62.5% = 937,500 \$1,500,000 Free Cash Flow Net Cash Flows from Operating Activities Purchases of Plant Assets Sales of Plant Assets

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Ch11 SE5 to SE6 Chapter 11, SE 5. Depreciation for each year: ( \$16,500 \$1,500 4 years = \$3,750 Chapter 11, SE 6. Depreciation for Year 1: ( \$16,500 \$1,500 2,400 = \$3,600 10,000 Year 2: ( \$16,500 \$1,500 2,000 = \$3,000 10,000 Year 3: ( \$16,500 \$1,500 2,200 = \$3,300 10,000 Year 4: ( \$16,500 \$1,500 1,400 = \$2,100 10,000 ) ÷ ) × ) × ) × ) ×
Ch11 SE7 to SE8 Chapter 11, SE 7. Depreciation for Year 1: \$16,500.00 × 50% = \$8,250.00 Year 2: ( \$16,500.00 – 8,250.00 50% = 4,125.00 Year 3: ( 8,250.00 4,125.00 50% = 2,062.50 Year 4: 15,000.00 14,437.50 = 562.50 * \$8,250.00 + \$4,125.00 + \$2,062.50 = \$14,437.50 **Remaining amount to reduce to residual value: \$2,062.50 \$1,500.00 (residual value) = \$562.50 Chapter 11, SE 8. 1. Carrying Value = = \$16,200 \$9,000 = 7,200 2. a. Asset discarded as having no value Gain (Loss) on Disposal of Equipment = Cash Received Carrying Value = \$0 \$7,200 = (\$7,200) b. Asset sold for \$3,000 cash Gain (Loss) on Sale of Equipment = Cash Received Carrying Value = \$3,000 \$7,200 = (\$4,200) c. Asset sold for \$8,000 cash Gain (Loss) on Sale of Equipment = Cash Received Carrying Value = \$8,000 \$7,200 = \$800 ) × ) × Equipment Accumulated Depreciation Equipment ** + * +

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Ch11 SE9 to SE10 Chapter 11, SE 9. Depletion charge per ton: ( \$16,000,000 \$2,400,000 4,000,000 tons = \$3.40 per ton Depletion expense for the first year: 600,000 \$3.40 = \$2,040,000 Depreciation expense for the first year: \$19,200,000 600,000 4,000,000 tons ) = \$2,880,000 Chapter 11, SE 10. The research and development costs are expensed as incurred. The costs after the working program was developed should be capitalized and amortized over the software's useful life. After one year, the software would appear on the balance sheet as follows: Intangible assets Software* \$140,000 * \$175,000 – ( \$175,000 ÷ 5 years ) = \$140,000 ) ÷ tons × × ( tons ÷
Ch11 E1 to E2 Chapter 11, E 1. 1. On the date of acquisition, the carrying value equals the current market value. After that, it would be a coincidence if the carrying value equaled the market value. 2. The major advantage for a company that has positive free cash flow is that it has extra funds to invest and expand. 3. A higher land valuation has the effect of increasing income because a smaller building valuation results in a lower amount to depreciate over the building's useful life. 4. An accelerated depreciation method is best for companies facing rapid techno- logical change. Companies use it to minimize the risk of obsolescence. Chapter 11, E 2. 1. If cash received for the asset equals its carrying value, then no gain or loss occurs.

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POA11e11 - CHAPTER 11Solutions LONG-TERM ASSETS Chapter 11...

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