financeOn January 4, 2012, G.L. Brown Co. paid $235,000 for a computer system. In addition to the basic purchase price, the company paid a setup fee of$1,100, $6,200 sales tax, and$37,200 for a special platform on which to place the computer. G.L. Brown management estimates that the computer will remain in service for five years and have a residual value of $24,500. The computer will process 35,000 documents the first year, with annual processing decreasing by 2,500 documents during each of the next four years (that is, 32,500 documents in 2013; 30,000 documents in 2014; and so on). In trying to decide which depreciation method to use, the company president has requested a depreciation schedule for each of the three depreciation methods (straight-line, units-of-production, and double-declining-balance). For each of the generally accepted depreciation methods, prepare a depreciation schedule showing asset cost, depreciation expense, accumulated depreciation, and asset book value. G.L. Brown reports to stockholders and creditors in the financial statements using the depreciation method that maximizes reported income in the early years of asset use. For income tax purposes, the company uses the depreciation method that minimizes income tax payments in those early years. Consider the first year G.L. Brown Co. uses the computer. Identify the depreciation methods that meet Brown’s objectives, assuming the income tax authorities permit the use of any of the methods. Cash provided by operations before income tax is$154,000 for the computer’s first year. The income tax rate is 40%. For the two depreciation methods identified, compare the net income and cash provided by operations (cash flow). Show which method gives the net-income advantage and which method gives the cash-flow advantage. financeRita and Rick Redding own and operate a tomato grove. After preparing the following income statement, Rita and Rick are concerned about the loss on the No. 3 tomatoes.
$$
\begin{matrix}
\text{RITA AND RICK REDDING Income Statement For Year Ended December 31, 2017}\\
& \text{No. 1} & \text{No. 2} & \text{No. 3} & \text{Combined}\\
\text{Sales (by grade)}\\
\text{No. 1: 500,000 Ibs. @ \$1.80/lb }\ldots\ldots\ldots & \text{\$900,000}\\
\text{No. 2: 400,000 Ibs. @ \$1.25/lb} \ldots\ldots\ldots & \quad & \text{\$500,000}\\
\text{No. 3: 100,000 Ibs. @ \$0.40/lb}\ldots\ldots\ldots & \quad & \quad & \text{\$ 40,000}\\
\text{Total sales}\ldots\ldots\ldots & \quad & \quad & \quad & \text{\$1,440,000}\\
\text{Costs}\\
\text{Land preparation, seeding, and cultivating @ \$0.70/Ib} \ldots\ldots\ldots & \text{350,000} & \text{280,000} & \text{70,000} & \text{700,000}\\
\text{Harvesting, sorting, and grading @ \$0.04/Ib}\ldots\ldots\ldots & \text{20,000} & \text{16,000} & \text{4,000} & \text{40,000}\\
\text{Delivery costs .}\ldots\ldots\ldots & \text{10,000} & \text{7,000} & \text{3,000} & \text{20,000}\\
\text{Total costs . .} \ldots\ldots\ldots & \text{380,000} & \text{303,000} & \text{77,000} & \text{760,000}\\
\text{Net income (loss)} \ldots\ldots\ldots & \text{\$520,000} & \text{\$197,000} & \text{\$(37,000)} & \text{\$ 680,000}\\
\end{matrix}
$$
In preparing this statement, Rita and Rick allocated joint costs among the grades on a physical basis as an equal amount per pound. Also, their delivery cost records show that $17,000 of the$20,000 relates to crating the No. 1 and No. 2 tomatoes and hauling them to the buyer. The remaining $3,000 of delivery costs is for crating the No. 3 tomatoes and hauling them to the cannery. 1. Prepare reports showing cost allocations on a sales value basis to the three grades of tomatoes. Separate the delivery costs into the amounts directly identifiable with each grade. Then allocate any shared delivery costs on the basis of the relative sales value of each grade. (Round percents to the nearest one-tenth and dollar amounts to the nearest whole dollar.) 2. Using your answers to part 1, prepare an income statement using the joint costs allocated on a sales value basis. 3. Do you think delivery costs fit the definition of a joint cost? Explain. 11th EditionClaudia Bienias Gilbertson, Debra Gentene, Mark W Lehman1,012 solutions
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