For each of the following expenditures, indicate the type of account (asset or expense) in which the expenditure should be recorded. a. $68,000 annual cost of routine repair and maintenance expenditures for a fleet of delivery vehicles. b. $2,150,000 cost to develop a coal mine, from which an estimated 1 million tons of coal can be extracted c. $438,000 cost to replace the roof on a building. d. $235,000 cost of a radio and television advertising campaign to introduce a new product line. e. $27,000 cost of grading and leveling and so that a building can be constructed Asset Expense For each of the following expenditures, indicate the type of account (asset or expense) in which the expenditure should be recorded. a. 54,000 for repairing damage that resulted from the careless unloading of a new machine. b. $25,900 cost of designing and registering a trademark. c. $15,200 in legal fees incurred to perform a title search for the acquisition of land. d. $5,400 cost of patching a leak in the roof of a building e. $328,000 cost of salaries paid to the research and development staff Asset Expense Assume that fast-food restaurants generally provide an ROI of 12%, but that such a restaurant near a college campus has an ROI of 15% because its relatively large volume of business generates an above-average turnover (sales/assets). The replacement value of the restaurant's plant and equipment is $600,000. If you were to invest that amount in a restaurant elsewhere in town, you could expect a 12% ROI Required: a-1. Would you be willing to pay more than $600,000 for the restaurant near the campus? Yes No a-2. What is the maximum price you would be willing to pay for the business? Maximum Prico Ch Yes O No a-2. What is the maximum price you would be willing to pay for the business? Macmum Price b. If you purchased the restaurant near the campus for $750,000 and the fair value of the assets you acquired was $600,000, identify the account along with its balance, that is used to record the additional amount paid over the fair value of the assets. Chec Goodwill arises when one firm acquires the net assets of another firm and pays more for those net assets than their current fair value. Suppose that Target Co. had operating income of $64,500 and net assets with a fair value of $171,000. Takeover Co. pays $337,000 for Target Co.'s net assets and business activities. Required: a. How much goodwill will result from this transaction? Goodwill b. Calculate the ROI for Target Co. based on its present operating income and the fair value of its net assets. (Round your percentage answer to 2 decimal places.) ROL % c. Calculate the ROI that Takeover Co. will earn if the operating income of the acquired net assets continues to be $64,500. (Round your percentage answer to 2 decimal places.) RO d. Takeover Co. is willing to pay $166,000 more than fair value for the net assets acquired from Target Co. as it represents goodwill and the expected superior earnings in future years. True False
