Question

Please answer in an hour! You will get a thumbs up.

Question 1 (a)

Assume you purchase a new tractor on Jan 1, 2022 for a cost of $200,000. You estimate you will be able to use the tractor for 10 years, and it will have a salvage value of 10% of the original by the end of its useful life. Determine the book value at the end of the first year (December 31, 2022) using straight-line depreciation.

options:

$18,000

$180,000

$185,000

$182,000

Question 1 (b)
A balance sheet (using current and noncurrent assets and liabilities- no intermediate) shows that a farmer has current assets of $80,000 and owner equity of $100,000. Her current ratio is 2 and her debt/equity ratio is 1.0. Determine the farmer's noncurrent liabilities.

Question 1 (b) options:

$40,000

$60,000

$100,000

unable to determine

Answer 1

Question 1a

To calculate the book value at the end of the first year using straight-line depreciation, we need to determine the annual depreciation expense first. The straight-line method assumes that the asset depreciates by an equal amount each year over its useful life. Therefore, we can use the following formula to calculate the annual depreciation:

Annual Depreciation = (Cost - Salvage Value) / Useful Life

Substituting the given values, we get:

Annual Depreciation = ($200,000 - $20,000) / 10 years = $18,000 per year

This means that the tractor will depreciate by $18,000 each year for the next 10 years.

To determine the book value at the end of the first year, we need to subtract the depreciation expense for the year from the original cost of the tractor. Since one year has passed, the depreciation expense for the first year will be:

Depreciation Expense for Year 1 = $18,000

Therefore, the book value of the tractor at the end of the first year will be:

Book Value = Cost - Depreciation Expense for Year 1

= $200,000 - $18,000

= $182,000

So the book value of the tractor at the end of the first year, December 31, 2022, using straight-line depreciation is $182,000. so the answer is D

Question 1(b)

To determine the farmer's noncurrent liabilities, we need to use the information provided to calculate the total liabilities and then subtract the current liabilities from it. Here's the step-by-step solution:

Calculate the total current liabilities using the current ratio:

Current Ratio = Current Assets / Current Liabilities

2 = $80,000 / Current Liabilities

Current Liabilities = $80,000 / 2

Current Liabilities = $40,000

Calculate the total liabilities using the debt/equity ratio:

Debt/Equity Ratio = Total Liabilities / Owner Equity

1.0 = Total Liabilities / $100,000

Total Liabilities = $100,000 * 1.0

Total Liabilities = $100,000

Subtract the current liabilities from the total liabilities to get the noncurrent liabilities:

Noncurrent Liabilities = Total Liabilities - Current Liabilities

Noncurrent Liabilities = $100,000 - $40,000

Noncurrent Liabilities = $60,000

Therefore, the farmer's noncurrent liabilities are $60,000. so the answer is B.