Early in January 2022, Tyler Incorporated acquired a new machine and incurred $8,000 of interest, installation, and overhead costs that should have been capitalized but were expensed. The company earned net operating income of $88,000 on average total assets of $722,000 for 2022. Assume that the total cost of the new machine will be depreciated over 8 years using the straight-line method. Required: a. Calculate the ROI for Tyler for 2022. b. Calculate the ROI for Tyler for 2022, assuming that the $8,000 had been capitalized and depreciated over 8 years using the straight-line method. (Hint: There is an effect on net operating income and average assets.) c. Given your answers to parts a and b, why would the company want to account for this expenditure as an expense? d. Assuming that the $8,000 is capitalized, what will be the effect on ROI for 2023 and subsequent years, compared to expensing the interest, installation, and overhead costs in 2022?

Early in January 2022, Tyler Incorporated acquired a new machine and incurred $8,000 of interest, installation, and overhead costs that should have been capitalized but were expensed. The company earned net operating income of $88,000 on average total assets of $722,000 for 2022. Assume that the total cost of the new machine will be depreciated over 8 years using the straight-line method. Required: a. Calculate the ROI for Tyler for 2022. b. Calculate the ROI for Tyler for 2022, assuming that the $8,000 had been capitalized and depreciated over 8 years using the straight-line method. (Hint: There is an effect on net operating income and average assets.) c. Given your answers to parts a and b, why would the company want to account for this expenditure as an expense? d. Assuming that the $8,000 is capitalized, what will be the effect on ROI for 2023 and subsequent years, compared to expensing the interest, installation, and overhead costs in 2022?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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