Fundamental Financial Accounting Concepts
10th Edition
ISBN: 9781260159028
Author: Edmonds
Publisher: MCG
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Question
Chapter E, Problem 1E
To determine
Indicate the method for valuing each of the following assets.
Expert Solution & Answer
Answer to Problem 1E
The method for valuing each of the following assets is given below:
| Asset | Method of valuation |
| Buildings | HC/AC |
| Available-for-Sale Securities | FMV |
| Office Equipment | HC/AC |
| Inventory | LCM |
| Supplies | HC/AC |
| Land | HC/AC |
| Trading Securities | FMV |
| Intangible Assets | HC/AC |
| Held-to-Maturity Securities | HC/AC |
Table (1)
Note: FMV represents fair market value, LCM represents lower of cost or market and HC/AC represents historical cost or amortized cost
Explanation of Solution
Historical Cost:
The historical cost is a measure of value which states that, each and every item should be recorded at its original cost (purchased value), on the
Lower of cost or market:
Lower of cost or market is an accounting method for valuing inventory. In this type of method the inventory is recorded at the historical cost or the market value. Historical cost represents the cost at which the time of inventory is purchased. If the price of the inventory falls below the net realizable value, the Company uses the lower of cost or market method to record the loss incurred.
Fair market value:
Fair market value is the current market value of securities and it is the negotiable price agreed between the seller and the buyer that is, the price at which investor (buyer) has to pay to buy the security in an active market. Fair value is generally decided by the market for most of the investments or assets.
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Students have asked these similar questions
Assume that TDW Corporation (calendar-year-end) has 2024 taxable income of $952,000 for purposes of computing the
§179 expense. The company acquired the following assets during 2024: (Use MACRS Table 1, Table 2, Table 3, Table 4,
and Table 5.)
Asset
Machinery
Computer equipment
Furniture
Total
Placed in
Service
September 12
February 10
April 2
Basis
$ 2,270,250
263,325
880,425
$ 3,414,000
b. What is the maximum total depreciation, including §179 expense, that TDW may deduct in 2024 on the assets it placed in service in
2024, assuming no bonus depreciation?
Note: Round your intermediate calculations and final answer to the nearest whole dollar amount.
Maximum total depreciation deduction (including §179 expense)
Evergreen Corporation (calendar-year-end) acquired the following assets during the current year: (Use MACRS Table 1 and
Table 2.)
Date Placed in
Asset
Machinery
Service
October 25
Original
Basis
$ 120,000
Computer equipment
February 3
47,500
Used delivery truck*
August 17
Furniture
April 22
60,500
212,500
The delivery truck is not a luxury automobile.
Note: Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.
b. What is the allowable depreciation on Evergreen's property in the current year if Evergreen does not elect out of bonus depreciation
and elects out of §179 expense?
Lina purchased a new car for use in her business during 2024. The auto was the only business asset she purchased
during the year, and her business was extremely profitable. Calculate her maximum depreciation deductions (including
§179 expense unless stated otherwise) for the automobile in 2024 and 2025 (Lina doesn't want to take bonus
depreciation for 2024) in the following alternative scenarios (assuming half-year convention for all): (Use MACRS Table 1,
Table 2, and Exhibit 10-10.)
a. The vehicle cost $40,000, and business use is 100 percent (ignore §179 expense).
Year
Depreciation
deduction
2024
2025
Chapter E Solutions
Fundamental Financial Accounting Concepts
Knowledge Booster
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