Question

Company A’s non-current assets have a residual value of zero, a beginning book value of €5,000,...

Company A’s non-current assets have a residual value of zero, a beginning book value of €5,000, and an initial cost of €10,000. Company A uses an annual depreciation percentage of 10%. Its statutory (and effective) tax rate is 30 percent. What adjustments would an analyst make to company A’s beginning equity and non-current assets if she assumes that company A’s depreciation percentage should be 12%?

A. Decrease non-current assets by €1,000; decrease equity by €1,000

B. Decrease non-current assets by €2,000; decrease equity by €2,000

C. Decrease non-current assets by €1,000; decrease equity by €700

D. Decrease non-current assets by €2,000; decrease equity by €1,400

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

c. Decrease non current qassets by $1000; decrease equity by $700

explanation: Depreciation would have been charged at 12%=1200

Depreciation charged at 10%    =1000

Decrease in non current asset    =(1200-1000)*5years=1000

Expense Amount would have transferred to equity if depreciation charged @12% =1200-30%=840

Expense Amount transferred to equity , depreciation charged @10% =1000-30%=700

Decrease in equity    =(840-700)*5years=700

No of years elapsed from dte of purchase=(10000-5000)/1000=5years

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Fristy Corporation has a book value of equity of $5,000 at the beginning of 2005, and...
Fristy Corporation has a book value of equity of $5,000 at the beginning of 2005, and net income of $1,000 for year ended 2005. It pays no dividends and its cost of equity capital is 10%. It expects return on beginning of year equity to remain constant for 2006 and 2007 and decrease to 10% thereafter. What should its price to book value be at the end of 2005 (pick closest number)? A: 1.01 B:1.05 C:1.09 D: 1.19
A firm has non-current assets with a book value of $600 and an appraised market value...
A firm has non-current assets with a book value of $600 and an appraised market value of about $900. Net working capital is $500 on the books, but approximately $800 would be realized if all the current accounts were liquidated. The firm has $550 in long-term debt, both book value and market value. What is the book value of the equity? What is the market value?
1. Stuart Company purchased a computer that cost $5,000. It had an estimated useful life of...
1. Stuart Company purchased a computer that cost $5,000. It had an estimated useful life of five years and no residual value. The computer was depreciated by the straight-line method and was sold at the end of the third year of use for $3,000 cash. Which of the following statements correctly describes the computer sale? A. Assets and stockholders' equity both increase by $3,000. B. Assets increase $3,000 and stockholders' equity is not affected. C. Assets and stockholders' equity both...
Market Value Capital Structure Suppose the Schoof Company has this book value balance sheet: Current assets...
Market Value Capital Structure Suppose the Schoof Company has this book value balance sheet: Current assets $30,000,000 Current liabilities $20,000,000 Fixed assets 70,000,000 Notes payable $10,000,000 Long-term debt 30,000,000   Common stock (1 million shares) 1,000,000 Retained earnings 39,000,000 Total assets $100,000,000 Total liabilities and equity $100,000,000 The notes payable are to banks, and the interest rate on this debt is 11%, the same as the rate on new bank loans. These bank loans are not used for seasonal financing but...
Suppose the Schoof Company has this book value balance sheet: Current assets $30,000,000 Current liabilities $20,000,000...
Suppose the Schoof Company has this book value balance sheet: Current assets $30,000,000 Current liabilities $20,000,000 Fixed assets 70,000,000 Notes payable $10,000,000 Long-term debt 30,000,000   Common stock (1 million shares) 1,000,000 Retained earnings 39,000,000 Total assets $100,000,000 Total liabilities and equity $100,000,000 The notes payable are to banks, and the interest rate on this debt is 10%, the same as the rate on new bank loans. These bank loans are not used for seasonal financing but instead are part of...
Suppose the Schoof Company has this book value balance sheet: Current assets $30,000,000 Current liabilities $20,000,000...
Suppose the Schoof Company has this book value balance sheet: Current assets $30,000,000 Current liabilities $20,000,000 Notes payable 10,000,000 Fixed assets 70,000,000 Long-term debt 30,000,000 Common stock (1 million shares) 1,000,000 Retained earnings 39,000,000 Total assets $100,000,000 Total liabilities and equity $100,000,000 The notes payable are to banks, and the interest rate on this debt is 7%, the same as the rate on new bank loans. These bank loans are not used for seasonal financing but instead are part of...
Suppose the Schoof Company has this book value balance sheet: Current Assets: $30,000,000                          Current Liabili
Suppose the Schoof Company has this book value balance sheet: Current Assets: $30,000,000                          Current Liabilities: $20,000,000 Fixed Assets: $70,000,000                              Notes Payable: $10,000,000 Total Assets: $100,000,000                             Long Term Debt: $30,000,000                                                                         Common stock (1 million shares): 1,000,000                                                                            Retained Earnings: $39,000,000                                                                         Total liabilities and equity: $100,000,000 The notes payable are to banks, and the interest rate on this debt is 10%, the same as the rate on new bank loans. These bank loans are not used for seasonal financing...
Market Value Capital Structure Suppose the Schoof Company has this book value balance sheet: Current assets...
Market Value Capital Structure Suppose the Schoof Company has this book value balance sheet: Current assets $30,000,000 Current liabilities $10,000,000 Fixed assets 50,000,000 Long-term debt 30,000,000   Common stock   (1 million shares) 1,000,000 Retained earnings 39,000,000 Total assets $80,000,000 Total claims $80,000,000 The current liabilities consist entirely of notes payable to banks, and the interest rate on this debt is 11%, the same as the rate on new bank loans. These bank loans are not used for seasonal financing but instead...
A Company has the following book value balance sheet. Current assets=$10,000,000 Net fixed assets= 60,000000 Total...
A Company has the following book value balance sheet. Current assets=$10,000,000 Net fixed assets= 60,000000 Total assets $70,000,000 Long-Term Debt = $40,000,000 Common stock (1.5 million shares) =1,500,000 Retained earnings= 28,500,000 Total claims $70,000,000 The long-term debt (bonds) have a $1,000 face value, and a coupon interest rate of 5 percent and mature in 15 years, interest is paid semi-annually. The going rate of interest (YTM) on equivalent debt is 10 percent. The common stock has a current market price...
Market Value Capital Structure Suppose the Schoof Company has this book value balance sheet: Current assets...
Market Value Capital Structure Suppose the Schoof Company has this book value balance sheet: Current assets $30,000,000 Current liabilities $20,000,000 Fixed assets 70,000,000 Notes payable $10,000,000 Long-term debt 30,000,000   Common stock (1 million shares) 1,000,000 Retained earnings 39,000,000 Total assets $100,000,000 Total liabilities and equity $100,000,000 The notes payable are to banks, and the interest rate on this debt is 7%, the same as the rate on new bank loans. These bank loans are not used for seasonal financing but...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT