Chapter 9 Practice Problems S9-2. Asset Market Value Percentage of Total Value × Total Purchase Price = Assigned Cost of Each Asset Land $ 80‚000 $80‚000 / $160‚000 = 50% × $150‚000 = $ 75‚000 Building 60‚000 $60‚000 / $160‚000 = 38% × $150‚000 = 57‚000 Equipment 20‚000 $20‚000 / $160‚000 = 12% × $150‚000 = 18‚000 Total $ 160‚000 100% $ 150‚000 Date Accounts and Explanation Debit Credit Land 75‚000 Building 57‚000 Equipment 18‚000 Notes Payable 150‚000 To record
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Use Tables 3 and 4 to forecast free cash flow for Reeby Sports from 2004 to 2010. What is the present value of these cash flows in 2003‚ including PV(terminal value) in 2010? Free Cash Flow 2004 2005 2006 2007 2008 2009 2010 2011 Terminal = After-tax profits 5‚25 5‚70 3‚00 3‚40 4‚35 6‚00 7‚61 7‚60 + Depreciation 2‚40 3‚10 3‚12 3‚17 3‚26 3‚44 3‚68 3‚94 - CapEx 4‚26 10‚50 3‚34 3‚65 4‚18 5‚37 6‚28 8‚50 - Inc. In NWC 1‚39 0‚60 0‚28 0‚42 0‚93 1‚57 2‚00 FCF 2‚00 -2‚30 2‚50 2‚50 2‚50 2‚50 3‚01
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when the building’s book value exceeds the higher of the asset’s value-in-use and fair value less costs to sell. Carrying value 1‚100 > 900 Higher of Value in use (900) Fair market value less costs to sell (800) Impairment Loss is the difference between book value and the recoverable cost (the higher of the asset’s value-in-use and fair value less costs to sell). Carrying value 1‚100 – 900 Higher
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have concluded that your cruise ship is impaired‚ and an impairment loss of $1.6 million should be recorded on December 31‚ 2010. In the second scenario‚ the asset is recoverable because the expected future cash flows are greater than the carrying value; therefore‚ the cruise ship is not impaired. The rest of this memo will describe how we calculated the impairment on your cruise ship. In order to test for impairment of an asset‚ we must first determine if there is an indicator that may indicate
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Chapter 01 The Equity Method of Accounting for Investments Multiple Choice Questions 1. Gaw Company owns 15% of the common stock of Trace Corporation and used the fair-value method to account for this investment. Trace reported net income of $110‚000 for 2011 and paid dividends of $60‚000 on October 1‚ 2011. How much income should Gaw recognize on this investment in 2011? A. $16‚500. B. $9‚000. C. $25‚500. D. $7‚500. E. $50‚000. 2. Yaro Company owns 30% of the common stock
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decrease in value‚ but this variation is not reflected on the accounts of the business. The historical cost of assets can be reduced due to depreciation over time. According to Edmonds (2010)‚ “The historical cost concept requires that most assets be reported at the amount paid for them (their historical cost) regardless of increases in market value” (pg. 13). Why is the book value of an asset likely to be different from the current market value of the asset? In order to understand why the book value
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inventories‚ the inventories will decline in value. Although the primary basis of accounting for inventories is cost‚ when inventories usefulness become lower than cost‚ then the use of adjusting lower cost of market is accepted. There are many advocates that think that inventories should be valued at market price. The belief is assets should reflect current values. Generally Accepted Accounting Principles (GAAP) instructs that when inventories decline in value‚ the future selling price should move in
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residual value. As of January 1‚ 2013‚ Bateman has converted the building into an Internet Learning Center where classes on Internet usage will be conducted six days a week. Because of the change in the use of the building‚ Bateman is evaluating the building for possible impairment. Bateman estimates that the building has a remaining useful life of 10 years‚ that its residual value will be zero‚ that net cash inflow from the building will be $400‚000 per year‚ and that the current fair value of the
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cost of demolishing would be with following the book value. When the old building is being demolished‚ the net book value of the building would be written off. Keep in mind that the construction costs and demolition costs are accounted for in the same way by either company. On one hand‚ the cost of building the new building would be less costly to the single company‚ in comparison with Archer Company‚ because the costs are related to net book value‚ which is less than the price paid by Archer Company
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assessment of RAMG’s economic value. Big Sur Capital Management is located in San Francisco‚ California and has been organized as a hedge fund since 1968. Over the years it proved more successful in variety of "private equity" investments and had gradually shifted its activities to this area. The firm has $2 billion under management with 64 investments evenly split between venture capital investments and participations in leveraged buyouts. Importance of Terminal Value:Terminal value is the lump-sum of cash
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