Determine straight-line amortization

Reference no: EM1348291

Question 1:
Breaker Company purchased a new piece of equipment on July 1, 2010 at a cost of $300,000.
The equipment has an estimated useful life of 5 years and an estimated residual value of $25,000. The current year end is 12/31/10. Breaker records depreciation to the nearest month.
The equipment is a Class 8 asset with a maximum CCA rate of 20%. Answer the following, being
sure to show all calculations.

Instructions:
a. What is straight-line amortization for 2011?

b. What is CCA depreciation for 2011?

c. What is double declining-balance depreciation for 2011?

d. If Breaker expensed the total cost of the equipment at 7/1/10, what was the effect on 2010 and
2011 income before taxes, assuming Breaker uses straight-line amortization? (i.e the amount
overstated or understated each year)

e. If, at the end of 2012, before depreciation for the year is recorded Breaker Company decides the equipment still has five more years of life beyond 12/31/12, with a residual value of $25,000, what is straight-line depreciation for 2012?
(Assume straight-line used in all years.)

Question 2:

Jeremiah Inc. is being targeted for acquisition by Argo Corporation. As an analyst for Argo, you are asked to determine the goodwill that, pending various assumptions, may be inherent in this potential transaction. The available information relating to Jeremiah includes the following:

Current net assets: $5.1 million.
Expected return on net asset for industry: 10%
Reported net income for the previous six consecutive years:

Year Amount Year Amount
2005 $710,000 2008 $745,000
2006 $680,000 2009 $815,000
2007 $980,000 2010 $835,000

The earnings for 2007 included a $200,000 gain from the sale of a discontinued part of its business.

Instructions:
Answer the following questions, but show all your calculations (If your answer is correct, but you have not correctly shown how you arrived at the answer, the credits will not be valid)

a. Estimated goodwill by capitalizing average excess earnings at 14% is
a. $1,791,667
b. $760,833
c. $2,029,762
d. $1,654,331

b. Assuming that excess earnings are expected to continue for 8 years, and ignoring the
time value of money, estimated goodwill is
a. $2,273,000
b. $2,006,667
c. $1,854,333
d. $1,531,733

c. Assuming that excess earnings are expected to continue for 8 years, and average excess
earnings are discounted at 11%, estimated goodwill is (use interest table)
a. $1,784,331
b. $1,661,432
c. $1,462,356
d. $1,290,818

Reference no: EM1348291

Questions Cloud

Explain ratio analysis : Explain Ratio analysis, This Computation is based on a 365-day year. Kaiser has no preferred stock- only common equity, current liabilities and long-term debt.

Unauthorized signatures : Steven claimed that the only requirement was that he inform the bank of any unauthorized signatures within a year. How must the court rule?

Calculate npv : Summer Tyme, Corporation is planning a new three year expansion project that needs an initial fixed asset investment of 2.754 million dollar. The fixed asset will be depreciated through straight-line method.

Back-to-the-landers reclaiming former industrial farmland : While there is a dribble of Back-to-the-Landers reclaiming former industrial farmland it may take something drastic to reverse the urbanization trend in any meaningful way.

Determine straight-line amortization : Breaker Company buy a new piece of machine on July 1, 2010 at a cost of $300,000. The machine is a Class 8 asset with a maximum CCA rate of 20 percent. Determine the straight-line amortization.

Determine the annual premium : The manager of a life insurance firm is trying to decide yearly premium to charge a group of policyholders, each of whom has just received his birthday. Assume the firm has operating expenses on sales is $500,000.

Determine the rate of inflation : Suppose the real interest rate is 3% and nominal interest rate is 8%, determine rate of inflation is the financial marketplace expecting? Explain your answer.

Explain what cultural environment will staff of that company : Explain what cultural environment will staff of that company encounter in the workplace in each of the countries?

Integrative negotiation techniques to generate ideas : Suppose you are a manager over operations and it is budget period. You have been trying for 2 years to receive approval for two full-time workers. Give some examples to use integrative negotiation techniques to generate ideas.

User Account

All Pages