Answered: Cinema Hall, on ascertaining that a…

Business

Accounting

Cinema Hall, on ascertaining that a portion of the ceiling of the hall was in need of repairs, decided to replace

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter2: Income Tax Concepts

Section: Chapter Questions

Problem 79DC

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The City of Waltham wants to obtain the value of its 99 year old City Hall property. Your firm has been engaged to provide an estimate of value. You will use the Cost Approach to determine value. You will be required to estimate reproduction or replacement cost new (specify which is appropriate and why) and proceed through the steps of the Cost Approach to complete the task. Cost Estimates (000 omitted): Cost of new construction: $153,000; Since the last renovation 30 years ago, physical deterioration: $22,000; functional obsolescence: $6,000; external obsolescence: $2,000; four (4) comparable land values have been identified for the valuation estimate: $49,000; $35,000; $40,000; $52,000. Show your answer and the steps of your analysis below:
Warrick Water Company, a privately owned business, supplies water to several communities. Warrick has just performed an extensive overhaul on one of its water pumps. The overhaul is expected to extend the life of the pump by 10 years. The residual value of the pump is unchanged. You have been asked to determine which of the following costs should be capitalized as a part of this overhaul. Those costs not capitalized should be expensed. Required: Conceptual Connection: Classify each cost as part of the overhaul or as an expense. New pump motor Repacking of bearings (performed monthly) New impeller (rotating component of a pump) Painting of pump housing (performed annually) Replacement of pump foundation New wiring (needed every 5 years) Installation labor, motor Installation labor, impeller Installation labor, wiring Paint labor (performed annually) Placement of fence around pump* ČA requirement of the Occupational Safety and Health Administration that will add to maintenance costs over…
Discuss the three questions for the following scenario, in very short answers: Recording and Reporting of Damaged Capital Assets. A tornado damaged a part of the City of Westbrook's Police Station. Some of the costs related to the damage included the following: The building wiring had to be replaced. Since the wiring was over 20 years old, replacing the wiring allowed the city to bring the wiring up to current code and accommodate the increasing technology needs of the police station. A large section of the interior walls (dry-wall) had to be replaced and painted. The same type of material was used in replacing the interior walls. All hardwood floors were replaced with the same materials. Office furniture that had been gathered for transfer to the city's surplus storage facility was damaged beyond repair. Replacement furniture was on order but had not been received by the date of the tornado. The police station's radio dispatch equipment suffered water damage. 1. Discuss how to…
A Veterans Administration (VA) hospital needs to decide which type of boiler fuel system will most efficiently provide the required steam energy output for heating, laundry, and sterilization purposes. The present boilers were installed in the early 1970s and are now obsolete. Much of the auxiliary equipment is also old and requires repair. Because of these general conditions, an engineering recommendation was made to replace the entire plant with a new boiler-plant building that would house modern equipment. The cost of demolishing the old boiler plant would be almost a complete loss, as the salvage value of the scrap steel and used brick is estimated to be only about $1,000. The VA hospital's engineer finally selected two alternative proposals as being worthy of more intensive analysis. The hospital's annual energy requirement, measured in termsof steam output, is approximately 145,000,000 pounds of steam. As a general rule for analysis, 1 pound of steam is approximately 1,000 BTUs,…
Sharkey's Fun Center contains a number of electronic games as well as a miniature golf course and various rides located outside the building. Paul Sharkey, the owner, would like to construct following information about the slide: water slide on one portion of his property. Mr. Sharkey gathered the a. Water slide equipment could be purchased and installed at a cost of $345,000. According to the manufacturer, the slide would be usable for 12 years after which it would have no salvage value. b. Mr. Sharkey would use straight-line depreciation on the slide equipment. c. To make room for the water slide, several rides would be dismantled and sold. These rides are fully depreciated, but they could be sold for $117,500 to an amusement park in a nearby city. d. Mr. Sharkey concluded that about 50,000 more people would use the water slide each year than have been using the rides. The admission price would be $3.80 per person (the same price the Fun Center has been charging for the old rides).…
A single-family home was developed five years ago in Neighborhood X and the owner would like to estimate the value of the property. Due to the lack of comparables in the local market, the owner relies on the cost approach for valuation. Based on the information below, what is the estimated value of the property based on the cost approach? (choose the closest answer) • The living area costs $300,000 to replace as new (material cost and labor cost) . Cost of garage and patio adds up to $50,000 • Physical depreciation is 10 percent of the replacement cost • There is no functional or external obsolescence . The land value is $200,000 and site improvement is worth 50,000 350,000 540,000 565,000 600,000 k
A company needed a new building. It found a suitable location with an existing old building on the land. The company reached an agreement to buy the land and the old building for $935,000 cash. The old building was demolished to make way for the needed new building. Following is information regarding the demolition of the old building and construction of the new one. Construction cost of new building Cost for parking lot Demolition of old building Prepare a single journal entry to record the above costs assuming all transactions are paid in cash. View transaction list Journal entry worksheet
Reproduction cost has been estimated at $55 per square ft. with a 1500 sq ft. for a property at 155 Potter Drive. The current curable depreciation, incurable depreciation, and functional obsolescence are estimated at $4,000, $9,750 and 2000, respectively. There was no external depreciation. The value of the land is estimated to be $37,000. Additional amount of $8,000 will be required for improvements including driveway, walks, and landscaping. What is the estimated market value of the property using the cost approach?
One of the four ovens at a bakery is being considered for replacement. Its salvage value and maintenance costs are given in the table below for several years. A new oven costs $80,000 and this price includes a complete guarantee of the maintenance costs for the first two years, and it covers a good proportion of the maintenance costs for years 3 and 4. The salvage value and maintenance costs are also summarized in the table. Both the old and new ovens have similar productivities and energy costs. If the MARR equals 10%, which one of the following statements is true? Old Oven Salvage value at the end of Year Operating and Maintenance the year cost $20000 1 $17000 $6487 $14000 $11000 $7,000 $6587 $6687 4 $6687 New Oven Salvage value at the end of the year Year Operating and Maintenance cost $80000 1 $76000 $70000 3 $66000 $1000 4 $62000 $3000 Do not replace at all; economic service life of the challenger is 1 year. O Replace now; economic service life of challenger is 3 years. O Replace…
Martini Company incurred the following costs in purchasing a land as a factory site:Purchase price 2,400,000Cost of tearing down old building 240,000Legal fee for title investigation 15,000Title insurance 10,000 Architect fee 125,000Liability insurance during construction 25,000Excavation cost 40,000Payment to building contractor 8,800,000Special assessment by city for public improvement 30,000Interest cost during construction 300,000 What is the cost of the building?
Sub Sandwiches of America made the following expenditures related to its restaurant: 1. Replaced the heating equipment at a cost of $250,000. 2. Covered the patio area with a clear plastic dome and enclosed it with glass for use during the winter months. The total cost of the project was $750,000. 3. Performed annual building maintenance at a cost of $24,000. 4. Paid for annual insurance for the facility at $8,800. 5. Built a new sign above the restaurant, putting the company name in bright neon lights, for $9,900. 6. Paved a gravel parking lot at a cost of $65,000. Required: Sub Sandwiches of America credits Cash for each of these expenditures. Indicate the account itdebits for each.
9. A contractor has a contract to remove and replace the existing landscape and sidewalks around an office building. The work includes demolition of the existing landscaping and sidewallks, importing fill and grading around the office building, constructing new concrete sidewalks, and new landscaping. The contractor uses the cost codes in Figure 2-6. The contractor will perform all of the work except placing the site concrete and the landscaping. The original estimate for the demolition was $30,000, and a $5,000 change order has been approved to remove some unexpected debris found during the demolition. The demolition work has been completed at a cost of $33,562. The original estimate for the fill and grading was $17,500 and a $2,000 change order for importing additional fill to replace the debris has been approved. The fill and grading costs to date are $17,264, and the estimated cost to complete has been estimated at $2,236. The original budget for the labor to pour the concrete was…