Reference no: EM131110892

ANALYZING DISCLOSURES REGARDING FIXED ASSETS. Exhibit 7.29 presents selected financial statement data for three chemical companies: Monsanto Company, Olin Corporation, and NewMarket Corporation. (NewMarket was formed from a merger of Ethyl Corporation and Afton Chemical Corporation.)

Required

a. Compute the average total depreciable life of assets in use for each firm.

b. Compute the average age to date of depreciable assets in use for each firm at the end of the year.

NewMarket	Monsanto	Olin
Corporation	Company	Corporation

Depreciable Assets at Cost:

Beginning of year	$752	$4,611	$1,796
End of year	777	4,604	1,826
Accumulated Depreciation:
Beginning of year	584	2,331	1,301
End of year	611	2,517	1,348
Net Income	33	267	55
Depreciation expense	27	328	72
Deferred tax liability relating
to depreciable assets:
Beginning of year	13	267	83
End of year	9	256	96
Income tax rate	35%	35%	35%
Depreciation method for
financial reporting	Straight-Line	Straight-Line	Straight-Line
Depreciation method for
tax reporting	Accelerated	Accelerated	Accelerated

c. Compute the amount of depreciation expense recognized for tax purposes for each firm for the year using the amount of the deferred taxes liability related to depre- ciation timing differences.

d. Compute the amount of net income for the year for each firm assuming that depre- ciation expense for financial reporting equals the amount computed in Part c for tax reporting.

e. Compute the amount each company would report for property, plant, and equipment (net) at the end of the year if it had used accelerated (tax reporting) depreciation instead of straight-line depreciation.

f. What factors might explain the difference in average total life of the assets of NewMarket Corporation and Olin Corporation relative to the assets of Monsanto Company?

g. What factors might explain the older average age for depreciable assets of NewMarket Corporation and Olin Corporation relative to Monsanto Company?