Exercises 1-8 Company ABZ invested $200,000 cash in new equipment at the beginning of 2005. The equipment was depreciated evenly over 10 years with an expected salvage value of $10,000. 108, inflation hit the economy hard, raising the CPI from 200 to 245. It is estimated that would cost $400,000 to replace the machine. 1 According to the Gll theory, how should the company represent the equipment on its balance sheet at the end of 2008? How much depreciation expense will ABZ recognize in 2009 for the equipment? What are the corresponding journal entries for the change in value? 2. According to current cost accounting, how should the company represent the equipment on its balance sheet at the end of 2008? How much depreciation expense will ABZ recognize in 2009 for the equipment? What are the correspon- ding journal entries for the change in value? 3. According to current exit price accounting, how should the company represent the equipment on its balance sheet at the end of 2008? How much depreciation expense will ABZ recognize in 2009 for the equipment? 4. According to the real value accounting system, how should the company repre- sent the equipment on its balance sheet at the end of 2008? How much depreci- ation expense will ABZ recognize in 2009 for the equipment? 5. How is the company's financial position different if the equipment is purchased with debt instead of cash? 6. Now assume that ABZ is a subsidiary of ZBA, which is based in Brazil. If Brazil has inflation of 15 percent in 2005 and 25 percent in 2006-2008, how much would the book value of the equipment be in reals? What if Brazil had inflation of 35 percent in 2006-2008? 7. If the company sells the equipment at the beginning of 2009 for $325,000, how much gain or loss is recognized under each of the three accounting treatments? 8. IF ABZ does sell the equipment for $325,000, what are the potential benefits and dangers in the current high-inflation economy