Want an On December 1, 2024, Microsoft Corporation purchased a newcloud computing server farm for $15 million. The company paid$3 million in cash and financed the remaining $12 million with a5-year loan at an annual interest rate of 4%, with interest payableannually on December 1. The server farm is expected to have auseful life of 7 years with no salvage value. Microsoft uses thestraight-line method for depreciation. Additionally, the companyincurred $500,000 in installation and testing costs, which werepaid in cash. Record the journal entries for: The purchase andfinancing of the server farm The payment of installation andtesting costs The adjusting entry for depreciation on December31, 2024 The adjusting entry for accrued interest on December31, 2024

1. Purchase and Financing of Server Farm:Date: January 1, 2024Description: Purchase of a server farm…

Answered: On December 1, 2024, Microsoft…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 14P

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On December 1, 2024, Microsoft Corporation purchased a new cloud computing server farm for $15 million. The company paid $3 million in cash and financed the remaining $12 million with a 5-year loan at an annual interest rate of 4%, with interest payable annually on December 1. The server farm is expected to have a useful life of 7 years with no salvage value. Microsoft uses the straight-line method for depreciation. Additionally, the company incurred $500,000 in installation and testing costs, which were paid in cash. Record the journal entries for: The purchase and financing of the server farm The payment of installation and testing costs The adjusting entry for depreciation on December 31, 2024 The adjusting entry for accrued interest on December 31, 2024
Lob Corporation purchased a new delivery truck on March 1, 2024, for $60,000. The company paid $15,000 in cash as a down payment and financed the remaining $45,000 with a 5-year loan at an annual interest rate of 6%. The truck has an estimated useful life of 8 years and a salvage value of $4,000. XYZ Corporation uses the straight-line method for deprecation. The company makes monthly loan payments, with the first payment due on April 1, 2024. Each monthly payment includes both principal and interest. XYZ Corporation's accounting period ends on December 31. Prepare the journal entries for the initial purchase of the truck on March 1, 2024, the first loan payment on April 1, 2024, and the adjusting entries for depreciation and interest accrual on December 31, 2024. On July 1, 2024, ABC Company purchased a new piece of manufacturing equipment for $80,000. The company paid $20,000 in cash as a down payment and financed the remaining $60,000 with a 4-year loan at an annual interest rate of…
Sandia Inc. wants to acquire a $360,000 computer-controlled printing press. If owned, the press would be depreciated on a straight-line basis over 10 years to a book salvage value of $0. The actual cash salvage value is expected to be $25,000 at the end of 10 years. If purchased, Sandia will incur annual maintenance expenses of $3,000. These expenses would not be incurred if the press is leased. If the press is purchased, Sandia could borrow the needed funds at an annual pre-tax interest rate of 10%. The lease rate would be $48,000 per year, payable at the beginning of each year. If Sandia has an after-tax cost of capital of 12% and a marginal tax rate of 40%, what is the net advantage to leasing? a. $37,737 b. $57,173 c. $65,543 d. $60,713
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Benson Enterprises is deciding when to replace its old machine. The machine’s current salvagevalue is $1.2 million. Its current book value is $1 million. If not sold, the old machine will requiremaintenance costs of $420,000 at the end of the year for the next five years. Depreciation on theold machine is $200,000 per year. At the end of five years, it will have a salvage value of $220,000.A replacement machine costs $3.5 million now and requires maintenance costs of $160,000 at theend of each year during its economic life of five years. At the end of five years, the new machinewill have a salvage value of $540,000. It will be fully depreciated using the three-year MACRSschedule. In five years a replacement machine will cost $4,000,000. Pilot will need to purchasethis machine regardless of what choice it makes today. The corporate tax is 35 percent and theappropriate discount rate is 10 percent. The company is assumed to earn sufficient revenues togenerate tax shields from…
Zhang Company is considering the purchase of a new machine. Its invoice price is $200,000, freightcharges are estimated to be $4,000, and installation costs are expected to be $6,000. Salvage value ofthe new machine is expected to be zero after a useful life of 4 years. Existing equipment could beretained and used for an additional 4 years if the new machine is not purchased. At that time, thesalvage value of the equipment would be zero. If the new machine is purchased now, the existingmachine would be scrapped. Zhang’s accountant, Victor Wang, has accumulated the following dataregarding annual sales and expenses with and without the new machine.Without the new machine, Zhang can sell 10,000 units of product annually at a per unit selling price of$100. If the new unit is purchased, the number of units produced and sold would increase by 25%, andthe selling price would remain the same.The new machine is faster than the old machine, and it is more efficient in its usage of materials.…
On January 1, 2016, the Key West Company acquired a pie-making machine for $50,000. The machine was expected to have a useful life of 10 years with no residual value. Key West uses the straight-line depreciation method. On January 1, 2023, due to technological changes in the bakery industry, Key West believed that the asset might be impaired. Key West estimates the machine will generate net cash flows of $12,000 and has a current fair value of $5,040. Required: 1. What is the book value of the machine on January 1, 2023?$fill in the blank 66999d0af058066_1 2. Compute the loss related to the impairment.$fill in the blank 66999d0af058066_2 3. Prepare the journal entry necessary to record the impairment of the machine. If an amount box does not require an entry, leave it blank. Jan. 1 fill in the blank 83327604a043063_2 fill in the blank 83327604a043063_3 fill in the blank 83327604a043063_5 fill in the blank 83327604a043063_6
Coronado Company purchased Machine #201 on May 1, 2025. The following information relating to Machine #201 was gathered at the end of May. Price Credit terms Freight-in Preparation and installation costs Labor costs during regular production operations (a) It is expected that the machine could be used for 10 years, after which the salvage value would be zero. Coronado intends to use the machine for only 8 years, however, after which it expects to be able to sell it for $1,860. The invoice for Machine #201 was paid May 5, 2025. Coronado uses the calendar year as the basis for the preparation of financial statements. 1. Compute the depreciation expense for the years indicated using the following methods. Straight-line method for 2025 2. Sum-of-the-years'-digits method for 2026 3. $105,400 2/10, n/30 $992 $4,712 $13,020 Double-declining-balance method for 2025 $ $ $ Depreciation Expense
Daily Enterprises is purchasing a $9.6 million machine. It will cost $46,000 to transport and install the machine. The machine has a depreciable life of five years and will have no salvage value. If Daily uses straight-line depreciation, what are the depreciation expenses associated with this machine? The yearly depreciation expenses are $___________ (Round to the nearest dollar.)
Blossom Company purchased a large piece of equipment on October 1, 2023. The following information relating to the equipment was gathered at the end of October: Price Credit terms $40,000 2/10, n/30 Engineering costs $3,000 Maintenance costs during regular production operations $6,000 It is expected that the equipment could be used for 12 years, after which the salvage value would be zero. Blossom intends to use the equipment for only 10 years, however, after which it expects to be able to sell it for $2,600. The equipment was delivered on October 1 and the invoice for the equipment was paid on October 9, 2023. Blossom uses the calendar year to prepare financial statements. Blossom follows IFRS for financial statement purposes. (a) Calculate the depreciation expense for the years indicated using the following methods. (Do not round intermediate calculations. Round final answers to 0 decimal places, e.g. 5,275.) 1. Straight-line method for 2023 $ 2. Sum-of-the-years'-digits method for…
Pears Company purchased a new machine on January 1 of this year for an amount of P90,000, with an estimated useful life of 5 years and a salvage value of P10,000. The machine will be depreciated using the straight-line method. The machine is expected to produce cash flows from operations, net of income taxes of P36,000 a year in each of the next 5 years. The new machine’s salvage value is P20,000 in years 1 and 2, and P15,000 in years 3 and 4. What will be the bail-out period (rounded) for this new machine? 1.4 years 1.9 years 2.2 years 3.4 years
KADS, Inc. has spent $360,000 on research to develop a new computer game. The firm is planning to spend $160,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $46,000. The machine has an expected life of three years, a $71,000 estimated resale value, and falls under the MACRS seven-year class life. Revenue from the new game is expected to be $560,000 per year, with costs of $210,000 per year. The firm has a tax rate of 21 percent, an opportunity cost of capital of 13 percent, and it expects net working capital to increase by $80,000 at the beginning of the project.What will the cash flows for this project be? Years 0-4

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