
Taxation Of Individuals And Business Entities, 2010 Edition
1st Edition
ISBN: 9780073526966
Author: Brian Spilker, Benjamin Ayers, John Robinson, Edmund Outslay, Ronald Worsham, John Barrick, Connie Weaver
Publisher: McGraw-Hill/Irwin
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The Great Eastern TableGreat Eastern Table Company produces dining tables in a three-stage process: Sawing, Assembly, and Staining. Costs incurred in the Sawing Department during September are summarized as follows:
Working in process inventory sawing.
September 1 balance = 0Direct materials = 1,860,000Direct labor = 143,000Manufacturing overhead = 161,500Direct materials (lumber) are added at the beginning of the sawing process, while conversion costs are incurred evenly throughout the process. September activity in the Sawing Department included sawing of 13,000 meters of lumber, which were transferred to the Assembly Department. Also, work began on 2,000 meters of lumber, which on September 30 were 75% of the way through the sawing process.
Black Oil Company is trying to decide whether to lease or buy a new computer-assisted drilling system for its extraction business. Management has already determined that acquisition of the system has a positive NPV. The system costs $9.4 million and qualifies for a 25% CCA rate. The equipment will have a $975,000 salvage value in five years. Black Oil’s tax rate is 36%, and the firm can borrow at 9%. Cape Town Company has offered to lease the drilling equipment to Black Oil for payments of $2.15 million per year. Cape Town’s policy is to require its lessees to make payments at the start of the year.
Suppose it is estimated that the equipment will have no savage value at the end of the lease. What is the maximum lease payment acceptable to Black Oil now?
I need help with this general accounting question using the proper accounting approach.
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