Financial Accounting
4th Edition
ISBN: 9781259307959
Author: J. David Spiceland, Wayne M Thomas, Don Herrmann
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Question
Chapter 7, Problem 7.4AP
To determine
To indicate: Whether Company H should capitalize or expense each of the expenditure, also explain the manner in which Company H use expenditure to increase reported earnings.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
A current asset (defender) is being evaluated for potential replacement. It was purchased four years ago at a cost of $62,000. It has been depreciated as a MACRS (GDS) five-year property-class asset. The present MV of the defender is $12,000. Its remaining useful life is estimated to be four years, but it will require additional repair work now (a one-time $4,000 expense) to provide continuing service equivalent to the challenger. The current effective income tax rate is 39%, and the after-tax MARR = 15% per year. Based on an outsider viewpoint, what is the after-tax initial investment in the defender if it is kept (not replaced now)?
Safety Hospital purchased a new MRI equipment. The cost is $450,000.00. Charges to install the equipment totaled $50,000.00. The equipment is expected to have a 5 year useful life. Calculate the SL depreciation
The Flint Clinic purchased a new surgical laser for $81,000. The estimated salvage value is $5,100. The laser has a useful life of five
years and the clinic expects to use it 11,500 hours. It was used 1,900 hours in year 1; 2,500 hours in year 2; 2,700 hours in year 3;
2,100 hours in year 4; 2,300 hours in year 5.
(a)
Compute the annual depreciation for each of the five years under straight-line and units-of-activity methods.
Straight-line
Units-of-Activity
Year 1
Year 2
Year 3
Year 4
Year 5
Total
$4
%24
Chapter 7 Solutions
Financial Accounting
Ch. 7 - Prob. 1RQCh. 7 - What are the two major categories of long-term...Ch. 7 - Prob. 3RQCh. 7 - Prob. 4RQCh. 7 - Prob. 5RQCh. 7 - Prob. 6RQCh. 7 - Equipment includes machinery used in manufacturing...Ch. 7 - Prob. 8RQCh. 7 - Prob. 9RQCh. 7 - Prob. 10RQ
Ch. 7 - Prob. 11RQCh. 7 - How do we decide whether to capitalize (record as...Ch. 7 - Explain the usual accounting treatment for repairs...Ch. 7 - Prob. 14RQCh. 7 - How is the dictionary definition different from...Ch. 7 - What factors must we estimate in allocating the...Ch. 7 - Prob. 17RQCh. 7 - Prob. 18RQCh. 7 - Prob. 19RQCh. 7 - Assume that Little King Sandwiches uses...Ch. 7 - Assume Little King Sandwiches depreciates a...Ch. 7 - Prob. 22RQCh. 7 - Prob. 23RQCh. 7 - What is book value? How do we compute the gain or...Ch. 7 - Prob. 25RQCh. 7 - Prob. 26RQCh. 7 - Prob. 27RQCh. 7 - Prob. 28RQCh. 7 - Determine the initial cost of land (LO71) Fresh...Ch. 7 - Prob. 7.2BECh. 7 - Prob. 7.3BECh. 7 - Compute research and development expense (LO72)...Ch. 7 - Prob. 7.5BECh. 7 - Explain the accounting definition of depreciation...Ch. 7 - Prob. 7.7BECh. 7 - Prob. 7.8BECh. 7 - Prob. 7.9BECh. 7 - Account for the sale of long-term assets (LO76)...Ch. 7 - Account for the exchange of long-term assets...Ch. 7 - Account for the exchange of long-term assets...Ch. 7 - Prob. 7.13BECh. 7 - Determine the impairment loss (LO78) Vegetarian...Ch. 7 - Prob. 7.15BECh. 7 - McCoys Fish House purchases a tract of land and an...Ch. 7 - Orion Flour Mills purchased a new machine and made...Ch. 7 - Prob. 7.3ECh. 7 - Prob. 7.4ECh. 7 - Prob. 7.5ECh. 7 - Prob. 7.6ECh. 7 - Prob. 7.7ECh. 7 - Prob. 7.8ECh. 7 - Prob. 7.9ECh. 7 - Determine depreciation for the first year under...Ch. 7 - Deformine depreciation under three methods (LO74)...Ch. 7 - Determine straight-line depreciation for partial...Ch. 7 - Determine straight-line depreciation for partial...Ch. 7 - Prob. 7.14ECh. 7 - Prob. 7.15ECh. 7 - Prob. 7.16ECh. 7 - Record the sole of equipment (L076) Abbott...Ch. 7 - Prob. 7.18ECh. 7 - Prob. 7.19ECh. 7 - Prob. 7.20ECh. 7 - Complete the accounting cycle using long-term...Ch. 7 - The Italian Bread Company purchased land as a...Ch. 7 - Prob. 7.2APCh. 7 - Prob. 7.3APCh. 7 - Prob. 7.4APCh. 7 - Determine depreciation under three methods (LO74)...Ch. 7 - Prob. 7.6APCh. 7 - Compute depreciation, amortization, and book value...Ch. 7 - Prob. 7.8APCh. 7 - Calculate and interpret ratios (LO77) Sub Station...Ch. 7 - Calculate and interpret ratios (LO77) University...Ch. 7 - Prob. 7.1BPCh. 7 - Determine the acquisition cost of equipment (LO71)...Ch. 7 - Prob. 7.3BPCh. 7 - Prob. 7.4BPCh. 7 - Determine depreciation under three methods (LO74)...Ch. 7 - Prob. 7.6BPCh. 7 - Prob. 7.7BPCh. 7 - Record the disposal of equipment (LO76) Flip Side...Ch. 7 - Calculate and Interpret ratios (LO77) Papas Pizza...Ch. 7 - Calculate and interpret ratios (LO77) Barry...Ch. 7 - Prob. 7.1APCPCh. 7 - Prob. 7.2APFACh. 7 - Prob. 7.3APFACh. 7 - Prob. 7.4APCACh. 7 - Prob. 7.5APECh. 7 - Written Communication At a recent luncheon, you...Ch. 7 - Earnings Management Edward L. Vincent is CFO of...
Knowledge Booster
Similar questions
- During the current year, Arkells Inc. made the following expenditures relating to plant machinery. • Renovated seven machines for $250,000 to improve efficiency in production of their remaining useful life of eight years • Low-cost repairs throughout the year totaled $79,000 • Replaced a broken gear on a machine for $6,000 A. What amount should be expensed during the period? B. What amount should be capitalized during the period?arrow_forwardRequired information [The following information applies to the questions displayed below.] University Car Wash purchased new soap dispensing equipment that cost $222,000 including installation. The company estimates that the equipment will have a residual value of $21,000. University Car Wash also estimates it will use the machine for six years or about 12,000 total hours. Actual use per year was as follows: Year 123456 Hours Used 2,700 1,500 1,600 2,400 2,200 1,600 2. Prepare a depreciation schedule for six years using the double-declining-balance method. (Do not round your intermediate calculations.) UNIVERSITY CAR WASH Depreciation Schedule-Double-Declining-Balancearrow_forwardDuring the current year, Arkells Inc. made the following expenditures relating to plant machinery. Renovated five machines for $100,000 to improve efficiency in production of their remaining useful life of five years Low-cost repairs throughout the year totaled $70,000 Replaced a broken gear on a machine for $10,000 A. What amount should be expensed during the period? B. What amount should be capitalized during the period?arrow_forward
- A Cost of a Fixed Asset Mist City Car Wash purchased a new brushless car-washing machine for one of its bays. The machine cost $41,700. Mist City borrowed the purchase price from its bank on a 1-year, 8% note payable. Mist City paid $975 to have the machine transported to its place of business and an additional $200 in shipping insurance. Mist City incurred the following costs as a part of the installation: During the testing process, one of the motors became defective when soap and water entered the motor because its cover had not been installed properly by Mist Citys employees. The motor was replaced at a cost of $640. Required: 1. Compute the cost of the car-washing machine. 2. CONCEPTUAL CONNECTION Explain why any costs were excluded from the cost of the machine.arrow_forwardCost Issues Deskin Company purchased a new machine to be used in its operations. The new machine was delivered by the supplier, installed by Deskin, and placed into operation. It was purchased under a long-term payment plan for which the interest charges approximated the prevailing market rates. The estimated useful life of the new machine is 10 years, and its estimated residual (salvage) value is significant. Normal maintenance was performed to keep the new machine in usable condition. Deskin also added a wing to the manufacturing building that it owns. The addition is an integral part of the building. Furthermore, Deskin made significant leasehold improvements to office space used as corporate headquarters. Required: 1. What costs should Deskin capitalize for the new machine? 2. Explain how Deskin should account for the normal maintenance performed on the new machine. 3. Explain how Deskin should account for the wing added to the manufacturing building. Where should the added wing be reported on Deskins financial statements? 4. Explain how Deskin should account for the leasehold improvements made to its office space. Where should the leasehold improvements be reported on Deskins financial statements?arrow_forwardGrandorf Company replaced the engine in a truck for 8,000 and expects the new engine will extend the life of the truck two years beyond the original estimated life. Related information is provided below. Cost of truck 65,000 Salvage value 5,000 Original estimated life 6 years The truck was purchased on January 1, 20-1. The engine was replaced on January 1, 20-6. Using straight-line depreciation, compute depreciation expense for 20-6.arrow_forward
- A company purchased a special purpose machine on August 1st of the previous year. It was installed and ready to run on January 1st of the current year. The following costs were incurred in the purchase and installation of the machine: Invoice price $1,200,000 Freight costs 6,000 Installation costs 64,000 Electrical and power connections 32,000 Repairs to correct damage during uncrating 12,000 Costs to adjust machine to appropriate specifications 56,000 Costs of spare parts for future use 108,000 Sales tax 70,500 Cost of…arrow_forwardNonearrow_forward(Analysis of Subsequent Expenditures) King Donovan Resources Group has been in its plant facility for 15 years. Although the plant is quite functional, numerous repair costs are incurred to maintain it in sound working order. The company’s plant asset book value is currently $800,000, as indicated below. Original cost $1,200,000 Accumulated depreciation 400,000 Book value $ 800,000 During the current year, the following expenditures were made to the plant facility.(a) Because of increased demands for its product, the company increased its plant capacity by building a new addition at a cost of $270,000.(b) The entire plant was repainted at a cost of $23,000.(c) The roof was an asbestos cement slate. For safety purposes, it was removed and replaced with a wood shingle roof at a cost of $61,000. Book value of the old roof was $41,000.(d) The electrical system was completely updated at a cost of $22,000. The cost of the old electrical system was not known. It is estimated that…arrow_forward
- Required information [The following information applies to the questions displayed below.] University Car Wash purchased new soap dispensing equipment that cost $249,000 including installation. The company estimates that the equipment will have a residual value of $25,500. University Car Wash also estimates it will use the machine for six years or about 12,500 total hours. Actual use per year was as follows: Year 1 2 Year 1 2 3 4 5 6 Total 23456 3 4 5 6 Hours Used 2,900 1,800 1,900 2,100 1,900 1,900 2. Prepare a depreciation schedule for six years using the double-declining- balance method. (Do not round your intermediate calculations.) UNIVERSITY CAR WASH Depreciation Schedule-Double-Declining-Balance End of Year Amounts Depreciation Accumulated Expense Depreciation Book Valuearrow_forwardRequired information [The following information applies to the questions displayed below.] At the beginning of the year, Tangerine Incorporated bought a shed, a machine, and a trailer. The shed initially cost $21,500 but had to be renovated at a cost of $780. The shed was expected to last 7 years, with a residual value of $2,050. Repairs costing $600 were incurred at the end of the first year of use. The machine cost $11,850, and is estimated to have a total life of 40,000 hours and residual value of $900. The machine was actually used 2,000 hours in year 1 and 4,000 hours in year 2. The trailer cost $12,500 and was expected to last 4 years, with a residual value of $2,000. Required: 1. Compute the amount to be capitalized for the shed. Total costarrow_forwardA state owns a machine that produces license plates. Due to the required technological changes to the types of license plates. A new machine as much time to produce each license plate. The machine was purchased 30 ears ago for 300,000 and is depreciated on a straight line based for its 40 year useful life. A modern replacement for the machine costs 600,000. What is the amount of the impairment loss on the machine А 75,000 B 225,000 С 300,000 D 600,000arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage Learning
Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningPrinciples of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College
College Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,
Financial Accounting: The Impact on Decision Make...
Accounting
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Cengage Learning
Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Principles of Accounting Volume 1
Accounting
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax College
College Accounting, Chapters 1-27
Accounting
ISBN:9781337794756
Author:HEINTZ, James A.
Publisher:Cengage Learning,