Lecture Problem Solutions CH 8 - Intro to Financing...

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Intro to Financing Accounting Solution to Notes in Chapter 8 Solution - Laguatan Brothers Example The total cost of the land will be allocated to the invidiual parcels based on their relative fair value. Total Lot 1 Lot 2 Lot 3 Lot 4 Fair value 400,000 160,000 120,000 60,000 60,000 Relative fair value 100% 40% 30% 15% 15% Cost 320,000 128,000 96,000 48,000 48,000 The cost of each parcel is determined by multiplying the relative fair value by the total acquisition cost. Solution - Spread Them Yams (Part 1) Equipment Prepaid Cost Expense Expense Original cost 95,000 Interest cost 2,000 Insurance on equipment 15,000 Sales taxes (95,000 x 0.04) 3,800 Freight charges 1,200 Installation costs 1,700 Pollution-control device 2,300 Maintenance costs incurred after equipment was placed in service 3,300 104,000 15,000 5,300 Solution - Spread Them Yams (Part 2) Straight-line depreciation expense Year 1: (104,000 - 12,000) / 5 = \$18,400. Year 2: (104,000 - 12,000) / 5 = \$18,400. Double declining balance depreciation expense Year 1: 104,000 / 5 x 2 = \$41,600. Year 2: (104,000 - 41,600) / 5 x 2 = \$24,960.
Solution - Spread Them Yams (Part 3) Depreciation is determined by allocating the book value remaining at the beginning