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Oxana [17]
3 years ago
6

Assume that TarMart purchased equipment at the beginning of fiscal year 2016 for $480,000 cash. The equipment had an estimated u

seful life of 8 years and a residual value of $30,000.
1. What would depreciation expense be for year 3 under the straight-line method?
2. What would depreciation expense be for year 3 under the double-declining balance method?
3. What is the first year in which depreciation expense under the straight-line method is higher than under the declining balance method?
4. Assume TarMart uses the straight-line depreciation method for its equipment. Also assume that at fiscal year-end 2020, TarMart sold the equipment purchased at the beginning of fiscal year 2016 for $200,000 cash. Prepare the journal entry to record the sale of the equipment at year-end 2020.
Business
1 answer:
vovikov84 [41]3 years ago
3 0

Answer:

1. What would depreciation expense be for year 3 under the straight-line method?

= ($480,000 - $30,000) / 8 = $56,250

same depreciation expense for every year

2. What would depreciation expense be for year 3 under the double-declining balance method?

depreciation year 1 = 2 x 1/8 x $480,000 = $120,000

depreciation year 2 = 2 x 1/8 x $360,000 = $90,000

depreciation year 3 = 2 x 1/8 x $270,000 = $67,500

3. What is the first year in which depreciation expense under the straight-line method is higher than under the declining balance method?

under double declining method

depreciation year 4 = 2 x 1/8 x $202,500 = $50,625

In year 4, depreciation expense wil be higher using the straight line method.

4. Assume TarMart uses the straight-line depreciation method for its equipment. Also assume that at fiscal year-end 2020, TarMart sold the equipment purchased at the beginning of fiscal year 2016 for $200,000 cash. Prepare the journal entry to record the sale of the equipment at year-end 2020.

Dr Cash 200,000

Dr Accumulated depreciation - equipment 225,000

Dr Loss on sale of equipment 55,000

    Cr Equipment 480,000

Explanation:

purchase cost $480,000

useful life 8 years

salvage value $30,000

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GrogVix [38]

Answer:

a) expected revenue = 20,000 tons x $600 = $12,000,000 per year

initial investment = $3,000,000 + $300,000 = $3,300,000

contribution margin per unit = $600 - $450 = $150

total contribution margin = $150 x 20,000 = $3,000,000

annual fixed costs = $850,000

depreciation expense per year = $750,000

tax rate = 38%

required return rate = 18%

after tax salvage value = $280,000 x (1 - 38%) = $173,600

NCF₀ = -$3,300,000

NCF₁ = [($3,000,000 - $850,000 - $750,000) x 0.62] + $750,000 = $1,618,000

NCF₂ = $1,618,000

NCF₃ = $1,618,000

NCF₄ = $1,618,000 + $300,000 + $173,600 = $2,091,600

NPV = $1,296,797.61

IRR = 36.36%

b) our best case scenario:

expected revenue = 20,000 tons x $660 = $13,200,000 per year

initial investment = $2,550,000 + $285,000 = $2,835,000

contribution margin per unit = $660 - $450 = $210

total contribution margin = $210 x 20,000 = $4,200,000

annual fixed costs = $850,000

depreciation expense per year = $637,500

tax rate = 38%

required return rate = 18%

after tax salvage value = $322,000 x (1 - 38%) = $199,640

NCF₀ = -$2,835,000

NCF₁ = [($4,200,000 - $850,000 - $637,500) x 0.62] + $637,500 = $2,319,250

NCF₂ = $2,319,250

NCF₃ = $2,319,250

NCF₄ = $2,319,250 + $285,000 + $199,640 = $2,803,890

NPV = $3,655,445.13

IRR = 74.34%

our worst case scenario:

expected revenue = 20,000 tons x $540 = $10,800,000 per year

initial investment = $3,450,000 + $315,000 = $3,765,000

contribution margin per unit = $540 - $450 = $90

total contribution margin = $90 x 20,000 = $1,800,000

annual fixed costs = $850,000

depreciation expense per year = $862,500

tax rate = 38%

required return rate = 18%

after tax salvage value = $238,000 x (1 - 38%) = $147,560

NCF₀ = -$3,765,000

NCF₁ = [($1,800,000 - $850,000 - $862,500) x 0.62] + $862,500 = $916,750

NCF₂ = $916,750

NCF₃ = $916,750

NCF₄ = $916,750 + $315,000 + $147,560 = $1,379,310

NPV = -$1,060,302.54

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3 0
3 years ago
In Mexico each unit of resource can produce either one professional computer or 3 computer games. Mexico has 30 units of this re
Anvisha [2.4K]

Answer:

Explanation:

From the information given:

(a)

The total production available for the professional computers at the time Mexico uses all resources for production = 30

The total production of computer games at this time = 3 × 30 = 90

Thus, from above, the production possibility curve can be seen in the image attached below.

(b)

The opportunity cost of one professional computer is three computer games. This because, for them to produce one more computer, it is required that they give up three computer games.

(c)

Yes, it is subject to Increasing.

This because the opportunity cost of 1 computer = 3 games

For two computers = 2 ×  3 games = 6 games

For three computers = 3 ×  3 games = 9 games  ... and so on.

(d)

Professional computer production is considered a Capital good.

(e)

Mexico should increase the production of professional computers because they help in more rapid economic growth.

4 0
3 years ago
After retiring from Jones Corp., a partnership founded by Megan Jones and other partners, Megan grew tired of staying at home an
lana [24]

Answer:

The Correct option is <u>"B"</u>

Explanation:

Any person who by arguments verbal or written or by behavior characterize himself, or wittingly documents himself to be drawn, to be a companion in a very secure, is responsible as a companion in this organization to any person who has on the religion of one such illustration specified credit to the organization, whether or not the individual signifying himself or drawn to be a companion will or doesn't understand that the illustration has extended the individual therefore providing credit.

8 0
3 years ago
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Marko, Inc., is considering the purchase of ABC Co. Marko believes that ABC Co. can generate cash flows of $6,100, $11,100, and
Tomtit [17]

Answer:

Total PV= $25,072.57

Explanation:

Giving the following information:

Cash flows:

Cf1= $6,100

Cf2= $11,100

Cf3= $17,300

Discount rate= 15%

<u>To calculate the present value, we need to use the following formula on each cash flow:</u>

PV= Cf / (1+i)^n

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PV3= 17,300 / 1.15^3= 11,375.03

Total PV= $25,072.57

4 0
2 years ago
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k0ka [10]

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Learn more about monopolistic  here

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5 0
1 year ago
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