Sagar Normandy Instruments invests heavily in research and development (R&D), although it must currently treat its R&D expenditures asexpenses for financial accounting purposes. To encourage Investment in R&D, Normandy evaluates its division managers using EVA.The company adjusts accounting income for R&D expenditures by assuming these expenditures create assets with a two-year life.That is, the R&D expenditures are capitalized and then amortized over two years.Aerospace Division of Normandy shows after-tax income of $18.006 million for year 2. R&D expenditures in year 1 amounted to $7.206million and in year 2, R&D expenditures were $12.006 million. For purposes of computing EVA, Normandy assumes all R&Dexpenditures are made uniformly over the year. Before adjusting for R&D, Aerospace Division shows assets of $72.006 million at thebeginning of year 2 and current liabilities of $1,506,000. Normandy computes EVA using divisional investment at the beginning of theyear and a 12 percent cost of capital.Required:Compute EVA for Aerospace Division for year 2.Note: Enter your answers in dollars, not in millions.Adjusted divisional incomeCost of adjusted divisional investmentEconomic value added (EVA)D

Adjusted divisional income for year 2:Adjusted divisional income = After tax income + Amortized…

Answered: Normandy Instruments invests heavily in…

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter7: Operating Assets

Section: Chapter Questions

Problem 12MCQ: Which of the following statements is true? a. The fixed asset turnover ratio assists managers in...

See similar textbooks

Similar questions

Lenexa State Bank has adopted the practice of capitalizing and amortizing some marketing expenditures throughout the estimated life of the costs. The bank judged that the future advantages from these expenses were questionable in the present year. As a result, the bank decided to expense these expenditures as they were incurred. In the comparative financial accounts, how should the bank record this accounting change?
ABC Corporation is a company that specializes in (1) research and development of new medications and (2) acquisition of patents for new medications. ABC follows IFRS accounting standards. In ABC's situation, which of the following statements about the treatment of intangible assets is correct? Intangible assets with indefinite lives must be amortized annually. Intangible assets must be measured using the cost model Research and development costs are expensed as incurred, except for software development. O Intangible assets may be revalued to fair value if there is an active market for the asset
Which of the following accounting policies is an example of costs versus benefits constraint being exercised in the disclosure of financial information? Inventory is valued at lower of cost or market. Property, plant and equipment are appraised and revalued every three years. Biological assets are stated at fair value unless the fair value cannot be measured reliably. Research and development costs are expensed as incurred.
ARISE Co. has suffered operating losses for some time, but is now operating profitably and expects to continue to do so. Current and projected income, however will not be sufficient to eliminate the deficit in the near term. It also appears that plant assets are overstated considering current prices and economic conditions. After receiving permission from the government authorities and approval from shareholders, the board of directors decides to restate the company assets and paid-in capital balances in order to remove the deficit and make possible the declaration of dividends from profitable operations. A balance sheet for the company just prior to this action is presented: 250,000 1,500,000 Current Assets P.P.E (600,000) 1,150,000 Accumulated Depreciation Total Liabilities 300,000 Ordinary shares, P10 par, 100,000 shares 1,000,000 100,000 (250,000) Share Premium Retained Earnings (deficit) Total 1,150,000 Assuming that the quasi reorganization shall be accomplished as follows: a.…
ARISE CO. has suffered operating losses for some time, but is now operating profitably and expects to continue to do so. Current and projected income, however will not be sufficient to eliminate the deficit in the near term. It also appears that plant assets are overstated considering current prices and economic conditions. After receiving permission from the government authorities and approval from shareholders, the board of directors decides to restate the company assets and paid-in capital balances in order to remove the deficit and make possible the declaration of dividends from profitable operations. A balance sheet for the company just prior to this action is presented: 250,000 1,500,000 (600,000) 1,150,000 Current Assets P.P.E Accumulated Depreciation Total 3. Liabilities 300,000 Ordinary shares, P10 par, 100,000 shares Share Premium 1,000,000 100,000 (250,000) 1,150,000 Retained Earnings (deficit) Total Assuming that the cuasi reorgarization shall be accomplished as follows: a.…
Bradley Co. is expanding its operations and is in the process of selecting the method of financing this program.After some investigation, the company determines that it may (1) issue bonds and with the proceeds purchase the needed assets or (2) lease the assets on a long-term basis. Without knowing the comparative costs involved, answer these questions: (a) What might be the advantages of leasing the assetsinstead of owning them?(b) What might be the disadvantages of leasing the assets instead of owning them?(c) In what way will the balance sheet be differently affected by leasing the assets as opposed to issuing bonds and purchasing the assets?
Bradley Co. is expanding its operations and is in the process of selecting the method of financing this program. After some investigation, the company determines that it may (1) issue bonds and with the proceeds purchase the needed assets, or (2) lease the assets on a long-term basis. Without knowing the comparative costs involved, answer these questions: a. What are the possible advantages of leasing the assets instead of owning them? b. What are the possible disadvantages of leasing the assets instead of owning them? c. How will the balance sheet be different if Bradley Co. leases the assets rather than purchasing them?
Presented below are a number of operational guidelines and practices that have developed over time. Instructions Select the assumption, principle, or constraint that most appropriately justifies these procedures and practices. (Do not use qualitative characteristics.) a. Fair value changes are not recognized in the accounting records. b. Financial information is presented so that investors will not be misled. c. Intangible assets are amortized over periods benefited. d. Agricultural companies use fair value for purposes of valuing crops. e. Each enterprise is kept as a unit distinct from its owner or owners. f. All significant post-balance-sheet events are disclosed. g. Revenue is recorded when the product is delivered. h. All important aspects of bond indentures are presented in financial statements. i. Rationale for accrual accounting. j. The use of consolidated statements is justified. k. Reporting must be done at defined time intervals. l. An…
Sometimes the value spent by a corporation is recorded as an asset and sometimes as an expense. Find appropriate professional research to answer the following: Define the two terms. How and why are these expenditures different from each other? How are they different from Liabilities? Describe the effects of assets and expenses on the company’s financial statements. In ACC1001 you studied about Current Assets. How do they affect the financial statements differently from fixed assets? Comment on the statement that “all assets are eventually expenses” Please do not copy and paste from other websites!
The IRS rule for capitalizing a purchase is if it is over $2,500. But this is not necessarily the guideline a company wants to establish. Capital assets are recorded in a “capital asset ledger” with the date of purchase, cost, depreciation method, useful life, salvage value and accumulated depreciation. Think of how a staff accountant, would write policy for a company in what type of expenditures should be capitalized and depreciated versus expensed. . Does it matter what type of company it is? How would this policy affect the balance sheet and the fixed asset ratio?
Assume REH AG, a hypothetical company, incurs expenditures of €1,000 per monthduring the fiscal year ended 31 December 2009 to develop software for internal use.Under IFRS, the company must treat the expenditures as an expense until the softwaremeets the criteria for recognition as an intangible asset, after which time the expenditurescan be capitalized as an intangible asset.1. What is the accounting impact of the company being able to demonstrate that thesoftware met the criteria for recognition as an intangible asset on 1 February versus1 December?2. How would the treatment of expenditures diff er if the company reported under U.S.GAAP and it had established in 2008 that the project was likely to be completed?
For each of the following issues determine whether the item should be Capitalised as an intangible Expensed to the Statement of Profit or Loss (Income Statement) £200,000 spent on developing a new process that will not bring in new revenue, but will deliver cost savings £800,000 spent on developing a new product. A competitor has already brought a similar product to the market. The directors are uncertain if they will commit any further funds. £500,000 spent on marketing a new product. This has led to increased sales of £1 million £750,000 has been spent on developing a new product. The future benefits have been estimated at £500,000.

SEE MORE QUESTIONS

Recommended textbooks for you

Cornerstones of Financial Accounting

Accounting

ISBN:

9781337690881

Author:

Jay Rich, Jeff Jones

Publisher:

Cengage Learning

Auditing: A Risk Based-Approach (MindTap Course L…

Accounting

ISBN:

9781337619455

Author:

Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:

Cengage Learning

Principles of Accounting Volume 2

Accounting

ISBN:

9781947172609

Author:

OpenStax

Publisher:

OpenStax College

Cornerstones of Financial Accounting

Accounting

ISBN:

9781337690881

Author:

Jay Rich, Jeff Jones

Publisher:

Cengage Learning

Auditing: A Risk Based-Approach (MindTap Course L…

Accounting

ISBN:

9781337619455

Author:

Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:

Cengage Learning

Principles of Accounting Volume 2

Accounting

ISBN:

9781947172609

Author:

OpenStax

Publisher:

OpenStax College

SEE MORE TEXTBOOKS