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QUESTION 22 Link completed the following transactions: On January 2, year 1 Link Co. purchased a...

QUESTION 22

  1. Link completed the following transactions:

    On January 2, year 1 Link Co. purchased a manufacturing machine for $864,000. The machine has an eight year estimated life and a $144,000 estimated salvage value. Link expects to manufacture 1,800,000 units over the life of the machine. During year 2, Link manufactured 300,000 units.

    During year 2, Link purchased an office building and the land on which it is located by paying $800,000 cash and assuming an existing mortgage of $200,000. The property is assessed at $960,000 for realty tax purposes, of which 60% is allocated to the building.

    During year 2, Link leased construction equipment under a 7-year capital lease requiring annual year-end payments of $100,000. Link's incremental borrowing rate is 9%, while the lessor's implicit rate, which is not known to Link, is 8%. Present value factors for an ordinary annuity for seven periods are 5.21 at 8% and 5.03 at 9%. Fair value of the equipment is $515,000.

    During year 2, Link paid $50,000 and gave a plot of undeveloped land with a carrying amount of $320,000 and a fair value of $450,000 to Club Co. in exchange for a plot of undeveloped land with a fair value of $500,000. The land was carried on Club's books at $350,000. This transaction has commercial substance.

    For each depreciation method listed in the table below, calculate depreciation expense for year 2 (the second year of ownership) for the machine purchased on January 2, year 1. Click in the associated cell and enter the appropriate value. Round all amounts to the nearest whole number.

    Method Amount
    Straight-line
    Double-declining-balance
    Sum-of-the-years'-digits
    Units of production



    Calculate the amount to be recorded for each item in the table below and enter the value in the associated cell. Round all numbers to the nearest whole number.

    Item Amount
    Building
    Leased equipment
    Land received from Club on Link's books
    Land received from Link on Club's books

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