Early in January 2019, Tellco Inc. acquired a new machine and incurred $100,000 of interest, installation...
Early in January 2019, Tellco Inc. acquired a new machine and incurred $100,000 of interest, installation and overhead costs that should have been capitalized but were expensed. The company earned net operating income of $750,000 on average total assets of $5,000,000 for 2019. Assume total cost of the new machine will be depreciated over 8 years using the straight-line method.
a) Calculate ROI for 2019
b) Calculate ROI for 2019, assuming that the $100,000 had been capitalized and depreciated over 8 years using the straight-line method.
c) Given your answers to a and b why would the company want to account for this expenditure as an expense?
d) Assuming that the $100,000 is capitalized what will be the effect on ROI for 2020 and subsequent years, compared to expensing the interest, installation and overhead costs in 2019?
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Early in January 2019, Tellco Inc. acquired a new machine and
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Question 30
In January 2017, installation costs of $6,500 on new machinery
were charged to Maintenance and Repairs Expense. Other costs of
this machinery of $32,500 were correctly recorded and have been
depreciated using the straight-line method with an estimated life
of 10 years and no salvage value. At December 31, 2018, it is
decided that the machinery has a remaining useful life of 20 years,
starting with January 1, 2018. What entries should be made in 2018
to correctly...
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In January 2017, installation costs of $5,800 on new machinery
were charged to Maintenance and Repairs Expense. Other costs of
this machinery of $29,000 were correctly recorded and have been
depreciated using the straight-line method with an estimated life
of 10 years and no salvage value. At December 31, 2018, it is
decided that the machinery has a remaining useful life of 20 years,
starting with January 1, 2018. What entries should be made in 2018
to correctly record transactions...
Question 30
In January 2017, installation costs of $6,500 on new machinery
were charged to Maintenance and Repairs Expense. Other costs of
this machinery of $32,500 were correctly recorded and have been
depreciated using the straight-line method with an estimated life
of 10 years and no salvage value. At December 31, 2018, it is
decided that the machinery has a remaining useful life of 20 years,
starting with January 1, 2018. What entries should be made in 2018
to correctly...
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2. A project requires an initial investment of $100,000 and installation cost of $20,000. The financial manager of the company expects this project will cut the direct production costs by $30,000 per year. For tax purposes the project can be depreciated straight-line over 5 years.. The company will pay insurance expense of $5,000 per year beginning with the installation of the machine. The salvage value of the machine is expected to be $15,000. If the company pays tax at a...
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