### How could each decision affect the companys cash flows

Assignment Help Financial Accounting
##### Reference no: EM134008

Question :

Raintree Company has brought land and a warehouse for \$18,000,000. The warehouse is expected to last 20 years and to have a residual value equal to 10 % of its cost. The chief financial officer (CFO) and the controller are showing the allocation of the purchase price. The CFO indicates that the largest amount possible should be assigned to the land because this action will enhance reported net income in the future. Depreciation expense may be lower because land is not depreciated. He suggests allocating one-third, or \$6,000,000 of the cost to the land. This results in depreciation expense every year of \$540,000 [(\$12,000,000 - \$1,200,000) / 20 years].

The controller disagrees. She argues that the smallest amount possible, say one-fifth of the purchase price, could be allocated to the land, thereby saving income taxes, since the depreciation, which is tax-deductible, will be greater. Under this preparation, annual depreciation would be \$648,000 [(\$14,400,000 - \$1,440,000) / 20 years]. The annual tax savings at a 30% tax rate is \$32,400 [\$648,000 - \$540,000) x 0.30].

How could each decision affect the company's cash flows? Ethically, how could the purchase cost be allocated? Who will be affected by the decision?

#### Questions Cloud

 Evaluate total income on an accrual basis for the year : Purpose a schedule that converts Dr. Accord's excess of cash collected over cash disbursed for the year 2007 to total income on an accrual basis for the year 2007. What is an average velocity of the rock : What is an average velocity of the rock Evaluate the cost of the property : Evaluate the cost of the property to be recorded in the accounts. Prepare journal entries to reflect the revaluation for both building and land of the property. Find out the electric field at radius : Find out the electric field at radius How could each decision affect the companys cash flows : How could each decision affect the company's cash flows? Ethically, how could the purchase cost be allocated? Who will be affected by the decision? Evaluate production costs per unit for both approaches : Purpose absorption and contribution margin income statements for the succeeding quarter for the division. Evaluate production costs per unit for both approaches and for both quarters. Determine magnitude of the force : Determine magnitude of the force Evaluate the manufacturing cost per unit : Evaluate the manufacturing cost per unit for each product produced in July 2011. What should be coefficient of static friction : What should be coefficient of static friction

### Write a Review

#### Evaluate service revenue and salaries expense

Judi uses the subsequent chart of accounts: No. 101 Cash, No. 112 Accounts Receivable, No. 126 Supplies, No. 201 Accounts Payable, No. 205 Unearned Revenue, No. 311 Common Stock, No. 400 Service Revenue, No. 726 Salaries Expense, and No. 729 Rent ..

#### The role of internal audit in the organization

Do you agree with the CFO? If so describe how SOX 404 and CEO/CFO certification removes the need for an internal audit function. If you don't agree, describe what an internal audit function adds beyond SOX 404 and CEO/CFO certification.

#### Determine the net benefit of outsourcing the electric motors

Determine the net benefit of outsourcing the electric motors from Mini Motor Company.

#### Evaluate the annual break-even point

Evaluate the annual break-even point, in number of haircuts.

#### What is phoenix''s merge retained earnings balance

What is Phoenix's merge retained earnings balance at 31 st December, 2013?

#### Partial income statement account balances

Prepare an amortization schedule for the Note Receivable using the subsequent columns

#### Purpose the analysis of give case study

Purpose the analysis of give case study

#### What is the amortization amount for every intangible asset

What is the amortization amount for every intangible asset in the existing year?

#### Show how such a payment will be treated

Show the likelihood of these payments being treated as constructive dividends. If a payment is deemed to be a constructive dividend, show how such a payment will be treated.

#### Prepare the lower portion of the 2013 income statement

Prepare the lower portion of the 2013 income statement beginning with pretax income from continuing operations. Ignore EPS disclosures.

#### Evaluate the amount of gross profit recognized by urs

Evaluate the amount of gross profit recognized by URS throughout each year from 2013 through 2016.

#### Evaluate net investment

What is the net investment in the truck project?