Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 17, Problem 5MC
To determine
Calculate the amount of transaction price.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Consider the case of Shoe Building Inc. (SBI):
Shoe Building Inc. (SBI) is considering the purchase of new manufacturing equipment that will cost $35,000 (including shipping and installation). SBI can take out a four-year, $35,000 loan to pay for the equipment at an interest rate of 8.40%. The loan and purchase agreements will also contain the following provisions:
•The annual maintenance expense for the equipment is expected to be $350.•The equipment has a four-year depreciable life. The Modified Accelerated Cost Recovery System's (MACRS) depreciation rates for a three-year asset are 33.33%, 44.45%, 14.81%, and 7.41%, respectively.•The corporate tax rate for SBI is 40%.Note: Shoe Building Inc. (SBI) is allowed to take a full-year depreciation tax-saving deduction in the first year.
Based on the preceding information, complete the following tables:
ValueAnnual tax savings from maintenance will be:$140
Tax savings from depreciation
Year 1 Year 2 Year 3 Year 4
$4,666…
Consider the case of Shoe Building Inc. (SBI):
Shoe Building Inc. (SBI) is considering the purchase of new manufacturing equipment that will cost $35,000 (including shipping and installation). SBI can take out a four-year, $35,000 loan to pay for the equipment at an interest rate of 8.40%. The loan and purchase agreements will also contain the following provisions:
•
The annual maintenance expense for the equipment is expected to be $350.
•
The equipment has a four-year depreciable life. The Modified Accelerated Cost Recovery System’s (MACRS) depreciation rates for a three-year asset are 33.33%, 44.45%, 14.81%, and 7.41%, respectively.
•
The corporate tax rate for SBI is 40%.
Note: Shoe Building Inc. (SBI) is allowed to take a full-year depreciation tax-saving deduction in the first year.
Based on the preceding information, complete the following tables:
Value
Annual tax savings from maintenance will be:
$140
Year 1
Year 2
Year 3…
Consider the case of Shoe Building Inc. (SBI):
Shoe Building Inc. (SBI) is considering the purchase of new manufacturing equipment that will cost $35,000
(including shipping and installation). SBI can take out a four-year, $35,000 loan to pay for the equipment at an
interest rate of 8.40%. The loan and purchase agreements will also contain the following provisions:
• The annual maintenance expense for the equipment is expected to be $350.
The equipment has a four-year depreciable life. The Modified Accelerated Cost Recovery System's (MACRS)
depreciation rates for a three-year asset are 33.33%, 44.45%, 14.81%, and 7.41%, respectively.
• The corporate tax rate for SBI is 40%.
Note: Shoe Building Inc. (SBI) is allowed to take a full-year depreciation tax-saving deduction in the first year.
Based on the preceding information, complete the following tables:
Value
Annual tax savings from maintenance will be: $140
Year 1
Year 2 Year 3 Year 4
Tax savings from depreciation $4,666 $6,223 $2,073…
Chapter 17 Solutions
Intermediate Accounting: Reporting And Analysis
Ch. 17 - Prob. 1GICh. 17 - Prob. 2GICh. 17 - When a company recognizes revenue during a period,...Ch. 17 - Prob. 4GICh. 17 - Prob. 5GICh. 17 - What is the proper accounting for a wholly...Ch. 17 - If a seller enters into more than one contract...Ch. 17 - Prob. 8GICh. 17 - Prob. 9GICh. 17 - Prob. 10GI
Ch. 17 - Prob. 11GICh. 17 - Prob. 12GICh. 17 - Prob. 13GICh. 17 - Prob. 14GICh. 17 - Prob. 15GICh. 17 - Prob. 16GICh. 17 - If the standalone selling price of a good or...Ch. 17 - Prob. 18GICh. 17 - Prob. 19GICh. 17 - If the sellers performance creates on asset (e.g.,...Ch. 17 - Describe input and output methods used to measure...Ch. 17 - Prob. 22GICh. 17 - Prob. 23GICh. 17 - Prob. 24GICh. 17 - Prob. 25GICh. 17 - A company should recognize revenue when a. the...Ch. 17 - A contract between one or more parties creates: a....Ch. 17 - Morgan Company and its customer agree to modify...Ch. 17 - Chlorine Corp. has a contract to deliver pool...Ch. 17 - Prob. 5MCCh. 17 - Prob. 6MCCh. 17 - In accounting for a long-term construction...Ch. 17 - Prob. 9MCCh. 17 - Prob. 10MCCh. 17 - CustomTee Inc. contracts with various customers to...Ch. 17 - Yankee Corp. agrees to provide Albany Company 24...Ch. 17 - Prob. 3RECh. 17 - Prob. 4RECh. 17 - LongDrive sells a specialized golf club that has...Ch. 17 - Prob. 6RECh. 17 - VolleyElite runs a volleyball program consisting...Ch. 17 - Enterprise Solutions Inc. licenses its...Ch. 17 - Prob. 9RECh. 17 - Magical Memories sells Florida theme park vacation...Ch. 17 - Prob. 11RECh. 17 - Robotics Inc. contracts with a customer to build a...Ch. 17 - CoolShoes sells its elite tennis shoes to sports...Ch. 17 - Using the information in RE17-13, what journal...Ch. 17 - GameDay sells recreational vehicles along with...Ch. 17 - Prob. 16RECh. 17 - Using the information provided in RE17-16, prepare...Ch. 17 - Prob. 18RECh. 17 - Prob. 19RECh. 17 - Company enters into a contract with Dearborn Inc....Ch. 17 - Consider each of the following scenarios: a. A...Ch. 17 - On August 1, 2019, Aiken Corp. enters into a...Ch. 17 - On January 1, 2019, Spring Fashions Inc. enters...Ch. 17 - On January 1, 2019, Loud Company enters into a...Ch. 17 - Assume the same facts as in El7-5. On July 1,...Ch. 17 - Assume the same facts as in E17-5 and ignore...Ch. 17 - Prob. 8ECh. 17 - GrillMaster Inc. sells an industry-leading line of...Ch. 17 - WaterWorld Inc. operates an aquarium and water...Ch. 17 - Prob. 11ECh. 17 - Jonas Consulting enters into a contract to provide...Ch. 17 - On March 1, 2019, Elkhart enters into a new...Ch. 17 - On January 5, 2019, ShoeKing Corp. sells for cash...Ch. 17 - On January 1, 2019, Piper Company entered into an...Ch. 17 - On January 1, 2019, Fulton Inc. enters into a...Ch. 17 - Prob. 17ECh. 17 - On December 1, 2019, AwakcAllNight Inc. sells...Ch. 17 - Rix Company sells home appliances and provides...Ch. 17 - Assume the same facts as in E17-19, except that...Ch. 17 - Crazy Computer Store sells a back-to-school bundle...Ch. 17 - Each of the following is an independent situation...Ch. 17 - Prob. 23ECh. 17 - Prob. 24ECh. 17 - Koolman Construction Company began work on a...Ch. 17 - Prob. 26ECh. 17 - Each of the following independent situations...Ch. 17 - JustKitchens Inc. provides services to restaurants...Ch. 17 - On January 1, 2019, ForeRunner Inc. enters into a...Ch. 17 - January 2, 2019, TI enters into a contract with...Ch. 17 - Prob. 5PCh. 17 - Prob. 6PCh. 17 - Fender Construction Company receives a contract to...Ch. 17 - SoccerHawk Merchandise Inc. enters into a 6-month...Ch. 17 - Prob. 9PCh. 17 - Prob. 10PCh. 17 - Blackmon Company provides locator services to the...Ch. 17 - Prior to ASU 2014-09 changing the principles...Ch. 17 - The first step in the revenue recognition process...Ch. 17 - Prob. 3CCh. 17 - One of the more difficult issues that companies...Ch. 17 - Prob. 5CCh. 17 - On October 1, 2019, Grahams WeedFeed Inc. signs a...Ch. 17 - On January 1, 2019, Mopps Corp. agrees to provide...Ch. 17 - Prob. 8CCh. 17 - Revenue for a company is recognized for accounting...Ch. 17 - Prob. 10C
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Company H is planning to purchase a machine for $100,000 and will incur an additional $10,000 in installation expenses. It is replacing a similar machine that can be sold for $30,000. Because of this transaction, the company’s current assets will increase by $6,000 and current liabilities will increase by $3,000. Calculate the initial investment in this equipment. Options: A)83000 B)100000 , C)110000 D), 80000arrow_forwardOn March 1, 2019, Elkhart enters into a new contract to build a specialized warehouse for 7 million. The promise to transfer the warehouse is determined to be a performance obligation. The contract states that if the warehouse is usable by November 30, 2019, Elkhart will receive a bonus of 600,000. For every week after November 30 that the warehouse is not usable, the bonus will decrease by 150,000. Elkhart provides the following completion schedule: Required: 1. Assume that Elkhart uses the expected value approach. What amount should Elkhart use for the transaction price? 2. Assume that Elkhart uses the most likely amount approach. What amount should Elkhart use for the transaction price? 3. Next Level What is the purpose of assessing whether a constraint on the variable consideration exists?arrow_forwardOne of your company's clients has proposed a contract offering an estimated $150,000 in net profits for the next six years; however, your company would be required to invest $585,000 today to acquire the needed resources for the project. Determine whether the project should be accepted if the cost of capital is a. 10% b. 13% c. 16%arrow_forward
- 2. A new electric power generation plant is expected to cost $42,000,000 to complete. The revenues generated by the new plant are expected to be $3,875,000 per year, while operational expenses are estimated to be $2,000,000 per year. The plant will last 40 years, and the electric authority uses a 3% interest rate. Determine if the plant will be able to recover its investment using the following methods: a. IRR (show your solution for interpolation; use 5 decimal places for the interpolation procedure) b. Payback periodarrow_forwardXYZ is evaluating a project that would require the purchase of a piece of equipment for $580,000 today. During year 1, the project is expected to have relevant revenue of $756,000, relevant costs of $199,000, and relevant depreciation of $136,000. XYZ would need to borrow $580,000 today to pay for the equipment and would need to make an interest payment of $30,000 to the bank in 1 year. Relevant net income for the project in year 1 is expected to be $322,000. What is the tax rate expected to be in year 1? A rate equal to or greater than 19.95% but less than 24.42% A rate equal to or greater than 28.03% but less than 37.53% A rate equal to or greater than 37.53% but less than 51.10% A rate equal to or greater than 24.42% but less than 28.03% A rate less than 19.95% or a rate greater than 51.10%arrow_forwardXYZ is evaluating a project that would require the purchase of a piece of equipment for $440,000 today. During year 1, the project is expected to have relevant revenue of $786,000, relevant costs of $201,000, and relevant depreciation of $132,000. XYZ would need to borrow $440,000 today to pay for the equipment and would need to make an interest payment of $33,000 to the bank in 1 year. Relevant net income for the project in year 1 is expected to be $337,000. What is the tax rate expected to be in year 1? A rate equal to or greater than 21.96% but less than 26.61% A rate less than 21.96% or a rate greater than 46.34% A rate equal to or greater than 31.02% but less than 38.39% A rate equal to or greater than 38.39% but less than 46.34% A rate equal to or greater than 26.61% but less than 31.02%arrow_forward
- In 2016, Google rented 1000 acres of a historic California airbase in the San Francisco Bay Area for $1.16 billion via a 60-year lease. Annual M&O is expected to be $6.3 million. In addition, Google will refurbish three hangars at a cost of $2.6 million 4 years from now. Assuming the $1.16 billion represents the present worth of only the lease, what is the equivalent AW of the transaction over the 60-year period at an interest rate of 15% per year?arrow_forwardSandstorm Corporation decides to develop a new line of paints. The project begins in 2023 in the U.S. Sandstorm incurs the following expenses in 2023 in connection with the project: Salaries $90,000 Materials 27,000 Depreciation on equipment 13,500 The benefits from the project will be realized starting in July 2024. If an amount is zero, enter "0". Sandstorm Corporation capitalizes and amortizes its research and experimental expenditures. What are its related deductions in 2023 and 2024?2023: $fill in the blank 12024: $fill in the blank 2arrow_forwardKako Ltd is considering introducing a new product unto the market. This will require the injection of capital to the tune of GH¢20,000 for the purchase of the equipment for production. The cost of the building that Kako Ltd intends to use for the project is GH¢30,000. The Production and Marketing department has presented the information in the table below: 2019 Variable cost per unit of the product GH¢2 Selling price per unit GH¢6 Quantity 4000 units per annum Again the following information should be taken not of: • Feasibility studies cost the company GH¢2000 • Test marketing expenses amounts to GH¢3000 • Variable cost will increase by 5% per annum • Selling price will increase by 10% per annum • Marketing expense will be 5% of sales revenue per year • An initial working capital investment of GH¢2000 will be made. Subsequently, net working capital at the end of each year will be equal to 10 percent of sales for that year. In the final…arrow_forward
- Striped Potato is evaluating a project that would require the purchase of a piece of equipment for $365,000 today. During year 1, the project is expected to have relevant revenue of $216,000, relevant costs of $57,000, and relevant depreciation of $84,000. Striped Potato would need to borrow $365,000 today to pay for the equipment and would need to make an interest payment of $14,000 to the bank in 1 year. Relevant net income for the project in year 1 is expected to be $44,000. What is the tax rate expected to be in year 1?arrow_forwardA utility company is considering the following plans to provide a certain service required by present demand and the prospective growth of demand for the coming 18 years. Plan Q requires an immediate investment of P500,000 in property that has an estimated life of 18 years and with 20% terminal salvage value. Annual disbursements for operation and maintenance will be P50,000. Annual property taxes will be 2% of the first cost. Plan R requires an immediate investment of P600,000 in property that has an estimated life of 18 years and with 25% terminal salvage value. Annual disbursements for operation and maintenance will be P35,000. Annual property taxes will be 1.5% of the first cost. Plan S requires an immediate investment of P300,000 in property that has an estimated life of 18 years with 20% terminal salvage value. Annual disbursements for its operation and maintenance will be P40,000. Annual property taxes will be 2% of the first cost of property in service at any time. Money is…arrow_forward(a) To upgrade its vehicles, the project Insignia is considering undertaking, the company is exploring the option of obtaining the $10,000,000 required via a loan from its bank for a term of 4 years, at an interest rate of 12% per annum. Monthly payments are expected to be made on the loan. Required: i. Calculate Insignia Corp.'s monthly payment on this loan. ii. Prepare the company's Amortization Schedule for the first three (3) months of this loan, clearly showing the interest and principal payments.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning