Reference no: EM131382427

ENGINEERING ECONOMICS PROBLEM SET - FINANCIAL STATEMENTS

ABSTRACT

Financial statements are often the basis for measuring an organization's financial successes and failures. Investment decisions have an effect on financial statements and these effects must be understood and accounted for when making financial decisions.

BACKGROUND INFORMATION

Chapter 3 of the Bowman text covers the effect of investments on the financial performance of the organization including non-cash expenses such as depreciation. Topics include:

• Timing, matching and capitalizing the recording of financial events.
• Depreciation and amortization of assets.
• Expensing inventory.

ASSIGNMENT - Answer the following problems of the Bowman textbook:

Q1. A computer network system is purchased for a total cost of $200,000. It is estimated to have a five-year life and salvage value of $10,000 at that time. After five years, the system is disposed of for a price of $5,000. Straight-line depreciation is used. Show the entries in the Accounting Equation when the purchase is made, annual entries during its life, and the final entries when the equipment is sold.

Q2. In Question 1, what if the system is sold after three years for $50,000? Show the initial, annual, and final entries in the Accounting Equation.

Q3. A delivery truck is purchased for $35,000. Using spreadsheet software or calculator method, determine the following:

a. The annual depreciation expense using the MACRS method.

b. The book value at the end of the second year.

c. The depreciation using the straight-line method.

Plot the results of your calculations from parts a and c.

Q4. A press has a die-set that has an estimated life of 500,000 units. It has a first cost of $50,000 and a salvage amount of $3,000. If 60,000 units are produced in a year, determine the annual depreciation expense for the die.

Q5. Earthmoving equipment is purchased by a construction company for $750,000. Using a five-year life and salvage value of 5% of the equipment first cost, determine the following:

a. Straight-line depreciation expense per year.

b. Book value of the equipment using straight-line at the end of five years.

c. Annual depreciation expense for each year using MACRS methods.

d. Book value of the equipment for the five years using MACRS.

e. Plot the values obtained in parts b and d using spreadsheet software.

f. Show the entries in the Accounting Equation for straight-line and MACRS if the equipment is sold at the end of the fourth year for $300,000. What are the tax consequences?

Attachment:- Assignment.rar