Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Early In January 2019, Tellco Inc. acquired a new machine and incurred $11,000 of Interest, Installation, and overhead costs that should have been capitalized
Early In January 2019, Tellco Inc. acquired a new machine and incurred $11,000 of Interest, Installation, and overhead costs that should have been capitalized but were expensed. The company earned net operating Income of $89,000 on average total assets of $782,000 for 2019. Assume that the total cost of the new machine will be depreciated over 10 years using the straight-line method. Required: a. Calculate the ROI for Tellco for 2019. b. Calculate the ROI for Tellco for 2019, assuming that the $11,000 had been capitalized and depreciated over 10 years using the straight-line method. (Hint: There is an effect on net operating Income and average assets.) c. Given your answers to parts a and b, why would the company want to account for this expenditure as an expense? d. Assuming that the $11,000 is capitalized, what will be the effect on ROI for 2020 and subsequent years, compared to expensing the Interest, Installation, and overhead costs in 2019? Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D Calculate the ROI for Tellco for 2019. (Round your answer to 1 decimal place.) ROI % < Required A Required B >
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started