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Chapter 9: 9 RQ (page 488)
How does a business decide which depreciation method is best to use?
The method of depreciation is chosen on the basis of various factors such as type of company, type of assets, the useful life of assets, etc
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Core Telecom provides communication services in Iowa, Nebraska, the Dakotas, and Montana. Core purchased goodwill as part of the acquisition of Surety Wireless Company,which had the following figures:
Book value of assets \( 700,000
Market value of assets 1,000,000
Market value of liabilities 510,000
Requirements
1. Journalize the entry to record Core鈥檚 purchase of Surety Wireless for \)280,000 cashplus a $420,000 note payable.
2. What special asset does Core鈥檚 acquisition of Surety Wireless identify? How shouldCore Telecom account for this asset after acquiring Surety Wireless? Explain in detail
Making a lump-sum purchase of assets Maplewood Properties bought three lots in a subdivision for a lump-sum price. An independent appraiser valued the lots as follows:
Lot | Appraised Value |
1 | \(144,000 |
2 | 96,000 |
3 | 240,000 |
Maplewood paid \)355,000 in cash. Record the purchase in the journal, identifying each lot鈥檚 cost in a separate Land account. Round decimals to two places, and use the computed percentages throughout.
What is an intangible asset? Provide some examples
Exchanging plant assets White Corporation purchased equipment for \(22,000. White recorded total depreciation of \)19,000 on the equipment. On January 1, 2018, White traded in the equipment for new equipment, paying \(23,200 cash. The fair market value of the new equipment is \)25,100. Journalize White Corporation鈥檚 exchange of equipment. Assume the exchange had commercial substance.
Western Bank & Trust purchased land and a building for the lump sum of $3,000,000. To get the maximum tax deduction, Western allocated 90% of the purchase price to the building and only 10% to the land. A more realistic allocation would have been 70% to the building and 30% to the land.
Requirements
1. Explain the tax advantage of allocating too much to the building and too little to the land.
2. Was Western鈥檚 allocation ethical? If so, state why. If not, why not? Identify who was harmed.
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