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For each of the following unrelated situations, calculate the annual amortization expense and prepare a
A. A patent with a ten-year remaining legal life was purchased for $300,000. The patent will be usable for another eight years.
B. A patent was acquired on a new smartphone. The cost of the patent itself was only $24,000, but the market value of the patent is $600,000. The company expects to be able to use this patent for all twenty years of its life.
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- For each of the following unrelated situations, calculate the annual amortization expense and prepare a journal entry to record the expense: A. A patent with a seventeen-year remaining legal life was purchased for $850,000. The patent will be usable for another six years. B. A patent was acquired on a new tablet. The cost of the patent itself was only $12,000, but the market value of the patent is $150,000. The company expects to be able to use this patent for all twenty years of its life.arrow_forwardCalico Inc. purchased a patent on a new drug. The patent cost $21,000. The patent has a life of twenty years, but Calico only expects to be able to sell the drug for fifteen years. Calculate the amortization expense and record the journal for the first-year expense.arrow_forwardCalico Inc. purchased a patent on a new drug it created. The patent cost $12,000. The patent has a life of twenty years, but Calico expects to be able to sell the drug for fifty years. Calculate the amortization expense and record the journal for the first years expense.arrow_forward
- Using the following unrelated situations. A. A patent with a 12-year remaining legal life was purchased for $360,000. The patent will be usable for another 10 years. B. A patent was acquired on a new smartphone. The cost of the patent itself was only $24,000, but the market value of the patent is $700,000. The company expects to be able to use this patent for all 16 years of its life. Calculate the annual amortization expense. A. $ B. $ Prepare a journal entry to record the expense. If an amount box does not require an entry, leave it blank. А. Previous 00 B.arrow_forwardLarson Manufacturing is considering purchasing a new injection-molding machine for $250,000to expand its production capacity. It will cost anadditional $20,000 to do the site preparation. Withthe new injection-molding machine installed, Larson Manufacturing expects to increase its revenueby $90,000. The machine will be used for five years,with an expected salvage value of $75,000. At aninterest rate of 12%, would the purchase of the injection-molding machine be justified?arrow_forwardCisco Systems is purchasing a new bar code–scanning device for its servicecenter in San Francisco. The table that follows lists the relevant cost items for this purchase. The operating expenses for the new system are $10,000 per year, and the useful life of the system is expected to be five years. The SV for depreciation purposes is equal to 25% of the hardware cost. Solve, a. What is the BV of the device at the end of year three if the SL depreciationmethod is used? b. Suppose that after depreciating the device for two years with the SL method, the firm decides to switch to the doubledeclining balance depreciation method for the remainder of the device’s life (the remaining three years). What is the device’s BV at the end of four years?arrow_forward
- Tinney & Smyth Inc. is considering the purchase of a new batch polymer-bonding machine for producing Crazy Rubber, a new children's toy. The machine will increase EBITDA by $215,000 per year for the next two years. The machine's purchase price is $260,000 and the salvage value at the end of two years is $46,800. The machine is classified as 3-year property with MACRS depreciation rates for the first two years of 33.33% and 44.45%. What is the tax on sale associated with selling the machine after two years? Use a tax rate of 35%. Round to the nearest dollar. Check Answerarrow_forwardAn injection molding machine can be purchased and installed for $90,000. It is in the seven-year GDS property class and is expected to be kept in service for eight years. It is believed that $11,000 can be obtained when the machine is disposed of at the end of year eight. The net annual value added (i.e., revenues less expenses) that can be attributed to this machine is constant over eight years and amounts to $19,000. An effective income tax rate of 45% is used by the company, and the after-tax MARR equals 18% per year. Click the icon to view the GDS Recovery Rates (r) for the 7-year property class. a. What is the approximate value of the company's before-tax MARR? The before-tax MARR is %. (Round to the nearest whole number.) b. Determine the GDS depreciation amounts in years one through eight. (Round to the nearest dollar.) IT Year Depreciation, $ 1 4 5 6 8 c. What is the taxable income at the end of year eight that is related to capital investment? The taxable income at the end of…arrow_forwardAn injection molding machine can be purchased and installed for $90,000. It is in the seven-year GDS property class and is expected to be kept in service for eight years. It is believed that $10,000 can be obtained when the machine is disposed of at the end of year eight. The net annual value added (i.e., revenues less expenses) that can be attributed to this machine is constant over eight years and amounts to $15,000. An effective income tax rate of 40% is used by the company, and the after-tax MARR equals 15% per year. Solve, a. What is the approximate value of the company’s before-tax MARR? b. Determine the GDS depreciation amounts in yearsone through eight. c. What is the taxable income at the end of year eightthat is related to capital investment? d. Set up a table and calculate the ATCF for thismachine. e. Should a recommendation be made to purchase the machine?arrow_forward
- An injection molding machine can be purchased and installed for $90,000. It is in the seven-year GDS property class and is expected to be kept in service for eight years. It is believed that $10,000 can be obtained when the machine is disposed of at the end of year eight. The net annual value added (i.e., revenues less expenses) that can be attributed to this machine is constant over eight years and amounts to $15,000. An effective income tax rate of 40% is used by the company, and the after-tax MARR equals 15% per year. Solve, a. What is the approximate value of the company’s before-tax MARR?arrow_forwardYou have an opportunity to acquire a property from First Capital Bank. The bank recently obtained the property from a borrower who defaulted on his loan. First Capital is offering the property for $218,000. If you buy the property, you believe that you will have to spend (1) $10,800 on various acquisition-related expenses and (2) an average of $2,300 per month during the next 12 months for repair costs, and so on, in order to prepare it for sale. Because First Capital Bank would like to sell the property as soon as possible, it is willing to provide $198,000 in financing at 4.25 percent interest for 12 months payable monthly (interest only). Your market research indicates that after you repair the property, it may sell for about $248,000 at the end of one year. Furthermore, you will probably have to pay about $3,300 in fees and selling expenses in order to sell the property at that time. Required: a. If you wanted to earn a 20 percent returi compounded monthly, do you believe that this…arrow_forwardAs a result of improvements in product engineering, United Automation is able to sell one of its two milling machines. Both machines perform the same function but differ in age. The newer machine could be sold today for $68,000. Its operating costs are $22,400 a year, but at the end of five years, the machine will require a $18,800 overhaul (which is tax deductible). Thereafter, operating costs will be $31,200 until the machine is finally sold in year 10 for $6,800. The older machine could be sold today for $26,200. If it is kept, it will need an immediate $26,000 (tax-deductible) overhaul. Thereafter, operating costs will be $35,000 a year until the machine is finally sold in year 5 for $6,800. Both machines are fully depreciated for tax purposes. The company pays tax at 21%. Cash flows have been forecasted in real terms. The real cost of capital is 14%. a. Calculate the equivalent annual costs for selling the new machine and for selling the old machine. (Do not round intermediate…arrow_forward
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