Solved by verified expert :P9-28A
On January 9, 2010, Swifty Delivery Service
purchased a truck at cost of $67,000. Before placing the truck in service,
Swifty spent $2,200 painting it, $500 replacing tires, and $5,000 overhauling
the engine. The truck should remain in service for 6 years and have a residual
value of $14,700. The truck’s annual mileage is expected to be 15,000 miles in
each of the first 4 years and 10,000 miles in each of the next 2 years–80,000
miles in total. In deciding, which depreciation method to use, Jerry Speers,
the general manager, requests a depreciation schedule for each of the
depreciation methods (straight line, units of production, and double declining
balance).
Requirements
1. Prepare a depreciation schedule for each
depreciation method, showing asset cost, depreciation expense, accumulated
depreciation , and asset book value.
2. Swifty prepares financial statements using the
depreciation method that reports the hightest net income in the early years of
asset use. For income tax purposes, the company uses the depreciation method
that minimizes income taxes in the early years. Consider the first year that
Swifty uses the truck. Identify the depreciation methods that meet the general
managers objectives, assuming the income tax authorities permit the use of any
of the methods.
P10A-9B
Calculating present value
Axel needs new manufacturing equipment. Two
companies can provide similar equipment but under different payment plans:
Plan A: MRE offers to let Axel pay $55,000 each
year for five years. The payments include interest at 12% per year.
Plan B: Westernhome will let Axel make a single
payment of $425,000 at the end of five years. This payment includes both
principal and interest at 12%.
Requirements:
1. Calculate the present value of Plan A.
2. Calculate the present value of Plan B.
3. Axel will purchase the equipment that costs the
least, as measured by present value. Which equipment should Axel select? Why?
P11-29A
The balance sheet of Ballcraft, Inc.,
reported the following:
Preferred stock, $6 par, 6%
5,000 shares authorized and issued
………………………………. $30,000
Common stock, $4.00 par value, 45,000 shares
authorized;
10,000 shares issued
………………………………….. $40,000
Additional paid-in-capital-common
…………………… $219,000
Total paid-in-capital …………………………………………..
$289,000
Retained earnings ……………………………………………. $90,000
Total stockholder’s equity ………………………………….. $379,000
On the
balance sheet date, the market value of the Ballcraft common stock was $31 per
share.
Requirements:
1. Is the preferred stock cumulative or
noncumulative? How can you tell?
2. What is the total paid-in-capital of the company?
3. What was the total market value of the common
stock?
4. Compute the book value per share of the common
stock.
