Chapter 7 Long-veu ASSENS, IL EXHIBIT 2 Lewis Driscoll and Delta Cargo Depreciation-Method Comparisons Depreciable cost - Double Declining (DDB) Straight Line (SL) Depr. Expense Difference Net Book Net Book Value Expense Expense Value 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Totals Lewis Driscoll and Delta Cargo EXHIBIT 3 Bonus-Plan Calculations' 2015 (DDB) 2015 (SL) Budgeted Income Statement $2,238,500 $ 552,250 $2,238,500 $ 552,250 Revenues . $1,686,250 Selling, general, and administrative expenses. $1,686,250 Earnings before interest, taxes, depreciation, and other income. Depreciation. Earnings before interest, taxes, and other Loss on sale of assets Interest expense. $38,000 $38,000 Earnings before taxes.. Taxes (35%) Net income. DDB SL 4. Earnings before interest and taxes. 20% allocated to bonus pool. . 1 Assumes efficiencies from crane acquisition. Bonus is calculated as 20% of earnings before taxes. cial purp pany's bonus plan. Delta Cargo manage ings before interest and taxes. Driscoll thought that, although bonus would be lower because of the larger expense associated with that me conisiu Driscoll reviewed his budgeted operating profit to see how this would affect the 2015 bonus calculations (xhbit3 1. Driscoll is faced with determining the current and future profit impacts of a number of costs. In general terms, wh should guide the determination of whether an acquisition cost is capitalized or expensed? In the case of the erate 2. Once it is determined how much should be capitalized, what other factors should guide Driscoll's final detemin 4. Driscoll is considering two options for disposing of the old forklifts. Which of the two alternatives would you Required which costs should be capitalized and which should be expensed? Complete Exhibit 1. tion of depreciation expense? 3. Complete Exhibit 2 recommend? Lewis Driscoll and Delta Cargo EXHIBIT 1 Crane Costs to Be Capitalized or Expensed Capitalize Cost Expense Category $2,100,000 50,000 20,000 Crane. Shipping, handling, and assembling Additional in-house assembly cost 15,000 5,000 25,000 40,000 Operator training Consultant operator. Severance for forklift operators Support beams for dock Special paint work Delta Cargo stencil. 30,000 3,000 Cumulative maximum costs. $2,288,000 Salvage value. $100,000 Depreciable cost