11-8 Can\'t seem to get the right answer on wiley any help and explanation will
ID: 2494342 • Letter: 1
Question
11-8 Can't seem to get the right answer on wiley any help and explanation will be greatly appreciated. thank you !
Problem 11-8 Darby Sporting Goods Inc. has been experiencing growth in the demand for its products over the last several years. The last two Olympic Games greatly increased the popularity of basketball around the world. As a result, a European sports retailing consortium entered into an agreement with Darby's Roundball Division to purchase basketballs and other accessories on an increasing basis over the next 5 years To be able to meet the quantity commitments of this agreement, Darby had to obtain additional manufacturing capacity. A real estate firm located an available factory in close proximity to Darby's Roundball manufacturing facility, and Darby agreed to purchase the factory and used machinery from Encino Athletic Equipment Company on October 1, 2013. Renovations were necessary to convert the factory for Darby's manufacturing use The terms of the agreement required Darby to pay Encino $103,500 when renovations started on January 1, 2014, with the balance to be paid as renovations were completed. The overall purchase price for the factory and machinery was $828,000. The building renovations were contracted to Malone Construction at $207,000. The payments made, as renovations progressed during 2014, are shown below. The factory was placed in service on January 1, 2015 10/1 12/31 Encino $103,500 $186,300 $227,700 $310,500 Malone 62,100 62,100 82,800 On January 1, 2014, Darby secured a $1,035,000 line-of-credit with a 12% interest rate to finance the purchase cost of the factory and machinery, and the renovation costs. Darby drew down on the line-of-credit to meet the payment schedule shown above; this was Darby's only outstanding loan during 2014 Bob Sprague, Darby's controller, will capitalize the maximum allowable interest costs for this project. Darby's policy regarding purchases of this nature is to use the appraisal value of the land for book purposes and prorate the balance of the purchase price over the remaining items. The building had originally cost Encino $621,000 and had a net book value of $103,500, while the machinery originally cost $258,750 and had a net book value of $82,800 on the date of sale. The land was recorded on Encino's books at $82,800. An appraisal, conducted by independent appraisers at the time of acquisition, valued the land at $600,300, the building at $217,350, and the machinery at $93,150 Angie Justice, chief engineer, estimated that the renovated plant would be used for 15 years, with an estimated salvage value of $62,100. Justice estimated that the productive machinery would have a remaining useful life of 5 years and a salvage value of $6,210. Darby's depreciation policy specifies the 200% declining-balance method for machinery and the 150% declining-balance method for the plant. One-half year's depreciation is taken in the year the plant is placed in service and one-half year is allowed when the property is disposed of or retired. Darby uses a 360-day year for calculating interest costs.Explanation / Answer
Working Notes:
Purchase price => $ 828000
Less : land appraisal value => $600300
Balnce to be allocated => $227700
Ratios of building => 217350/310500 =>0.7 and machinery => 93150/310500 => 0.3
values allocated building => 227700*.7 => $159390
machinery => 227700 *0.3 => $68310
VALUE OF LAND BUILDING & MACHINERY
Capitalizable interest
INTEREST => 362250*12% => $43470, ALLOCATE WHOLE AMOUNT TO BULDING, IF NEED TO ALLOCATE BETWEEN TWO THEN DIVIDE IN RATIO 0.7:0.3
ANSWER 2
Deprecaition
LAND => NO DEPRCIATION
BUILDING => Depreciation rate => 1.15 * 1/15 => 0.10
Deprecaition on Bulilding => 409860 *0.10 *1/2 => $20493
MACHINERY=> Depreciation rate => 2.00 * 1/5 => 0.40
Deprecaition on Machinery =>68310 *0.40 *1/2 => $13662
ASSETS APPRAISAL VALUE PRICE ALLOCATION RENOVATIONS INTEREST TOTAL LAND 600300 - - - $600300 BUILDING - 159390 207000 43470 $409860 MACHINERY 68310 - - $68310 TOTAL 600300 227700 207000 43470Related Questions
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