INTERM.ACCT.:REPORTING...-CENGAGENOWV2
3rd Edition
ISBN: 9781337909358
Author: WAHLEN
Publisher: CENGAGE L
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Question
Chapter 10, Problem 4C
1.
To determine
Explain the interest capitalization that is suitable under the circumstances provided.
2.
To determine
Explain the way in which the decision could be influences if the company is interested in earnings management.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
A corporation is considering purchasing a new plant asset. The asset will cost $30,000. The
corporation requires a 10% return on similar investments. The corporation plans to use the asse
for 4 years and then sell it for the salvage value. The estimated salvage value of the asset in 4
years is $5,000. The corporation estimates that if purchased the new asset will provide addition
net cash flows of $9,000 each year for 4 years (assume the cash flows occur at the end of the
year):
Calculate the net present value
(you must include the calculation in order to receive credit)
Should the business purchase the asset?
Finance
Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant and the purchase of the equipment necessary to produce the diet drink will cost $25.00 million. The plant and equipment will be depreciated over 10 years to a book value of $2.00 million, and sold for that amount in year 10. Net working capital will increase by $1.36 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $8.72 million per year and cost $1.53 million per year over the 10-year life of the project. Marketing estimates 13.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 22.00%. The WACC is 13.00%. Find the NPV (net present value).
Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant and the purchase of the equipment necessary to produce the diet drink will cost $24.00 million. The plant and equipment…
The Drilling Corp. owns drilling rights on a tract of land on which crude oil has been discovered. The Drilling Corp. projects that the tract will allow drilling and recovery on crude for the next 4 years. They anticipate the following cost associated with the project including the cost of restoring the land to a park-like atmosphere. Below are projected data associated with this project:
Annual cash receipts of $50,000
Annual cash expenses of $300,000
Equipment requirements of $500,000. Some of this equipment will be sold for $20,000 at the conclusion of the lease. The remainder of the equipment will have no salvage value at the end of the project and will be abandoned, adding to the rustic park-like atmosphere of the property.
Inventory and supplies necessary to begin and maintain the project are $40,000
The cost of restoring the land to a pristine park-like setting and converting the drilling equipment into monkey bars is projected to be $100,000. ( Assume this is not a capital…
Chapter 10 Solutions
INTERM.ACCT.:REPORTING...-CENGAGENOWV2
Ch. 10 - Prob. 1GICh. 10 - Prob. 2GICh. 10 - What is the relationship between the book value...Ch. 10 - Prob. 4GICh. 10 - Prob. 5GICh. 10 - Prob. 6GICh. 10 - What are asset retirement obligations? How should...Ch. 10 - Prob. 8GICh. 10 - Prob. 9GICh. 10 - Prob. 10GI
Ch. 10 - At what amount does a company record the cost of a...Ch. 10 - Prob. 12GICh. 10 - Prob. 13GICh. 10 - Prob. 14GICh. 10 - Prob. 15GICh. 10 - Prob. 16GICh. 10 - Prob. 17GICh. 10 - What is the distinction between a capital and an...Ch. 10 - Distinguish between additions and...Ch. 10 - Distinguish between ordinary repairs and...Ch. 10 - Prob. 21GICh. 10 - Hickory Company made a lump-sum purchase of three...Ch. 10 - Prob. 2MCCh. 10 - Electro Corporation bought a new machine and...Ch. 10 - Prob. 4MCCh. 10 - Lyle Inc. purchased certain plant assets under a...Ch. 10 - Ashton Company exchanged a nonmonetary asset with...Ch. 10 - Prob. 7MCCh. 10 - Prob. 8MCCh. 10 - Prob. 9MCCh. 10 - Prob. 10MCCh. 10 - On January 1, Duane Company purchases land at a...Ch. 10 - Prob. 2RECh. 10 - Utica Corporation paid 360,000 to purchase land...Ch. 10 - Prob. 4RECh. 10 - Prob. 5RECh. 10 - Prob. 6RECh. 10 - Nabokov Company exchanges assets with Faulkner...Ch. 10 - Prob. 8RECh. 10 - Dexter Construction Corporation is building a...Ch. 10 - Prob. 10RECh. 10 - Prob. 11RECh. 10 - Ricks Towing Company owns three tow trucks. During...Ch. 10 - Inclusion in Property, Plant, and Equipment...Ch. 10 - Prob. 2ECh. 10 - Acquisition Costs Voiture Company manufactures...Ch. 10 - Determination of Acquisition Cost In January 2019,...Ch. 10 - Asset Retirement Obligation Big Cat Exploration...Ch. 10 - Prob. 6ECh. 10 - Prob. 7ECh. 10 - Prob. 8ECh. 10 - Exchange of Assets Two independent companies,...Ch. 10 - Exchange of Assets Use the same information as in...Ch. 10 - Prob. 11ECh. 10 - Exchange of Assets Goodman Company acquired a...Ch. 10 - Exchange of Assets Use the same information as in...Ch. 10 - Prob. 14ECh. 10 - Self-Construction Harshman Company constructed a...Ch. 10 - Prob. 16ECh. 10 - Prob. 17ECh. 10 - Prob. 18ECh. 10 - Prob. 19ECh. 10 - Expenditures after Acquisition McClain Company...Ch. 10 - Prob. 21ECh. 10 - Prob. 1PCh. 10 - Classification of Costs Associated with Assets The...Ch. 10 - Prob. 3PCh. 10 - Comprehensive At December 31, 2018, certain...Ch. 10 - Assets Acquired by Exchange Bremer Company made...Ch. 10 - Assets Acquired by Exchange Bussell Company...Ch. 10 - Self-Construction Olson Machine Company...Ch. 10 - Prob. 8PCh. 10 - Prob. 9PCh. 10 - Events Subsequent to Acquisition The following...Ch. 10 - Prob. 11PCh. 10 - Prob. 1CCh. 10 - Prob. 2CCh. 10 - Cost Issues Deskin Company purchased a new machine...Ch. 10 - Prob. 4CCh. 10 - Prob. 5CCh. 10 - Prob. 6CCh. 10 - Prob. 7CCh. 10 - Prob. 9CCh. 10 - Prob. 10CCh. 10 - Prob. 11C
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- The Cliney Co. is considering investing $40,000 in a piece of new equipment. If the project is accepted, it would generate cash revenues of $15,000 per year and cash costs of $5,000 per year for the next 10 years. The equipment is expected to be sold for $8,000 at the end of year 10. Assume Cliney uses straight-line depreciation to compute depreciation expense for all purposes. What is the net cash inflow in year 10? Assume Cliney has a 35% tax rate. a. $6,800 b. $8,000 c. $10,000 d. $15,000 e. None of the abovearrow_forwardWashington-Pacific (W-P) invested $4 million to buy a tract of land and plant some young pine trees. The trees can be harvested in 10 years, at which time W-P plans to sell the forest at an expected price of $8 million. What is W-P’s expected rate of return?arrow_forwardThe Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500, and it is expected to generate net after-tax operating cash flows, including depreciation, of $6,250 per year. The truck has a 5-year expected life. The expected salvage values after tax adjustments for the truck are given here. The company’s cost of capital is 10%. Should the firm operate the truck until the end of its 5-year physical life? If not, then what is its optimal economic life? Would the introduction of salvage values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project?arrow_forward
- Depreciation Jensen Inc., a graphic arts studio, is considering the purchase of computer equipment and software for a total cost of $18,000. Jensen can pay for the equipment and software over three years at the rate of $6,000 per year. The equipment is expected to last 10 to 20 years, but because of changing technology, Jensen believes it may need to replace the system in as soon as three to five years. A three-year lease of similar equipment and software is available for $6,000 per year. Jensens accountant has asked you to recommend whether the company should purchase or lease the equipment and software and to suggest the length of time over which to depreciate the software and equipment if the company makes the purchase. Required Ignoring the effect of taxes, would you recommend the purchase or the lease? Why or why not? Referring to the definition of depreciation, what appropriate useful life should be used for the equipment and software?arrow_forwardSubject: acountingarrow_forwardA piece of property is to be purchased at $305,000 for mining a precious metal. The annual net income of the mining operation will be $100,000 for 10 years. At the ten of the 10 years, the property will be restored into a park at a cost of $750,000 more than the resale value of the property after it is restored .a. Draw a cash flow diagram for this investment, using a 10% Interest rate.b. Determine whether the project is desirablearrow_forward
- The Drilling Corp. owns drilling rights on a tract of land on which crude oil has been discovered. The BBTD projects that the tract will allow drilling and recovery on crude for the next 4 years. They anticipate the following cost associated with the project including the cost of restoring the land to a park-like atmosphere. Below are projected data associated with this project: Annual cash receipts of $50,000 Annual cash expenses of $300,000 Equipment requirements of $500,000. Some of this equipment will be sold for $20,000 at the conclusion of the lease. The remainder of the equipment will have no salvage value at the end of the project and will be abandoned, adding to the rustic park-like atmosphere of the property. Inventory and supplies necessary to begin and maintain the project are $40,000 The cost of restoring the land to a pristine park-like setting and converting the drilling equipment into monkey bars is projected to be $100,000. ( Assume this is not a capital expenditure)…arrow_forwardThe Fizzy Beverage Co. is considering two alternative capital projects. Project 1: expansion of its existing traditional line of Fizzy beverages. Project 2: introduction of a new “healthy” line of beverages. The company has already spent $1,400,000 on research into the feasibility of these projects and has arrived at the following financial projections. · Both projects are estimated to have a life of 5 years. The required fixed asset investment or capital spending for project 1 is $30,000,000 and for project 2 is $35,000,000. Fixed assets will be depreciated straight line to zero. Fixed asset salvage value estimate for project 1 is $6,200,000 and for project 2 is $8,500,000 · In order to support anticipated sales, either project will require an increase in inventory of $8,600,000, an increase in accounts receivable of $2,800,000, and an increase in accounts payable of $6,300,000 · Cost of goods sold is projected at 35% of sales for either project. Selling,…arrow_forwardArmor Investment Company is considering the acquisition of a heavily depreciated building on 10 acres of land. It expects to rent the building as a storage facility and expects to collect cash flows equal to $100,000 next year. However, because depreciation is expected to increase, Armor expects cash flows to decline at a rate of 4 percent per year indefinitely. Armor expects to earn an IRR on investment return () at 13 percent. Required: a. What is the value of this property? b. Assume that after five years the building could be demolished and the land could be redeveloped with a strip retail improvement. The latter would produce NOI of $200,000 per year, grow at 3 percent per year, and cost $1 million to build. Investors currently earn a 10 percent IRR on such investments. What is the profit to be earned? Complete this question by entering your answers in the tabs below. Required A Required B What is the value of this property? Note: Round your final answer to the nearest dollar…arrow_forward
- Initial cash flow: Basic calculation Cushing Corporation is considering the purchase of a new grading machine to replace the existing one. The existing machine was purchased 2 years ago at an installed cost of $20,700; it was being depreciated under MACRS using a 5-year recovery period. (See table for the applicable depreciation percentages.) The existing machine is expected to have a usable life of at least 5 more years. The new machine costs $35,000 and requires $5,300 in installation costs; it will be depreciated using a 5-year recovery period under MACRS. The existing machine can currently be sold for $24,800 without incurring any removal or cleanup costs. The firm is subject to a 21% tax rate. Calculate the initial cash flow associated with the proposed purchase of a new grading machine. The initial cash flow will be $ (Round to the nearest dollar.)arrow_forwardInitial cash flow: Basic calculation Cushing Corporation is considering the purchase of a new grading machine to replace the existing one. The existing machine was purchased 4 years ago at an installed cost of $20,700; it was being depreciated under MACRS using a 5-year recovery period. (See table for the applicable depreciation percentages.) The existing machine is expected to have a usable life of at least 5 more years. The new machine costs $35,900 and requires $5,500 in installation costs; it will be depreciated using a 5-year recovery period under MACRS. The existing machine can currently be sold for $25,700 without incurring any removal or cleanup costs. The firm is subject to a 21% tax rate. Calculate the initial cash flow associated with the proposed purchase of a new grading machine. The initial cash flow will be $ (Round to the nearest dollar.) Data table covery year 1 HY68L24557 10 11 Totals ... 3 years 33% 45% 15% 7% 100% Percentage by recovery year* 5 years 20% 32% 19% 12%…arrow_forwardFCF and NPV for a project: Archer Daniels Midland Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $12 million. This investment will consist of $2 million for land and $10 million for trucks and other equipment. The land, all trucks, and all other equipment are expected to be sold at the end of 10 years for a price of $5 million, which is $2 million above book value. The farm is expected to produce revenue of $2 million each year, and annual cash flow from operations equals $1.8 million. The marginal tax rate is 25 percent, and the appropriate discount rate is 10 percent. Calculate the NPV of this investment.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
Financial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,
Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
Financial And Managerial Accounting
Accounting
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:Cengage Learning,
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College
Accounting for Derivatives_1.mp4; Author: DVRamanaXIMB;https://www.youtube.com/watch?v=kZky1jIiCN0;License: Standard Youtube License
Depreciation|(Concept and Methods); Author: easyCBSE commerce lectures;https://www.youtube.com/watch?v=w4lScJke6CA;License: Standard YouTube License, CC-BY