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Costs of Acquisition the invoice price of a machine is $50,000. Various other costs relating to the acquisition and installation of the machine including transportation, electrical wiring, and special base, and soon amount to $7,500 The machine has an estimated life of 10 years, with no residual value at the end of that period. The owner of the business suggests that the incidental costs of $7,500 be charged to expense immediately for the following reasons.
1. If the machine should be sold, these costs cannot be recovered in the sales price.
2. The inclusion of the $7,500 in the machinery account on the books will not necessarily result in a closer approximation of the market price of this asset over the years, because of the possibility of changing demand and supply levels.
3. Charging the $7,500 to expense immediately will reduce federal income taxes. Discuss each of the points raised by the owner of the business.(AICPA adapted)
A proposed new investment has projected sales of $720,000. Variable costs are 60 percent of sales, and fixed costs are $161,000; depreciation is $62,000. Prepare a pro forma income statement assuming a tax rate of 30 percent. What is the projected ne..
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