1. You had a machine shed built and bought a tractor. The machine shed cost $100,000 and the tractor cost $80,000. For your internal farm accounting purposes, you will depreciate the machine shed over 15 years and the tractor over 7 years. The machine shed will have zero salvage value, but the tractor will have a salvage value of $20,000.

For this problem, you will make 4 tables that report the annual amount of depreciation during each year and the value of the asset at the beginning and at the end of each year. There will be 2 tables for the machine shed and 2 for the tractor. The 2 tables for each asset will each use a different depreciation method. The first table will use Straight Line depreciation, the second will use 150% Declining Balance. You will do the full life cycle for each asset (i.e., 10 years for the shed and 5 years for the tractor). For the 150% Declining Balance, do not let the asset value fall below the salvage value (set depreciation to zero if needed) and if the implied value does not reach the salvage value by the end of the useful life, take the remaining value as depreciation in the last year.

p. 15). Focus on determining whether i) whether the machine shed (a multiple purpose asset) qualifies for this deduction (see Eligible Property p. 16 and following) and ii) how much you can claim (see How Much Can you Deduct (p. 19 and following). For additional help, see http://www.farmcpatoday.com/2010/12/05/does-a-machine-shop-qualify-for-section-179/ . Also, see the 2013 IRS Pub 225 Farmer’s Tax Guide, Section 179 Expense Deduction starting on p. 39 (http://www.irs.gov/pub/irs-pdf/p225.pdf).

Specific questions to answer for this problem:

• Does the machine shed qualify for Section 179 depreciation deduction?
• What if it were a tractor ("tangible personal property") instead of a machine shed?
• If it were a tractor bought for $80,000, what is the maximum amount of Section 179 depreciation you could take as a deduction in the first year?

3) Use the example Balance Sheet from the Farm Financial Standards Council’s Publication Financial Guidelines for Agricultural Producers. The Text and Appendix are posted on the class home page (Sample Balance Sheet #1) and copies were handed out in

class http://www.aae.wisc.edu/aae320/FarmFinance/BalanceSheetExample.pdf (or the

Appendix http://www.aae.wisc.edu/aae320/FarmFinance/FFSCAppendix.pdf, pages A2-A6). Use these pages to answer the following questions:

a) What was this farm’s current ratio on 12/31/X2? What was it on 12/31/X1? Give a brief intuitive description of the current ratio—What does it mean? What is it used for? Interpret this farm’s current ratio—Are they doing okay or is there a problem?

b) What was this farm’s debt to asset ratio on 12/31/X2? What is this farm’s equity to asset ratio on 12/31/X2? What is this farm’s debt to equity ratio on 12/31/X2? Give a brief intuitive description of each of these ratios—What does it mean? What is it used for? Interpret this farm’s ratios—are they doing okay or is there a problem?

c) On 12/31/X2, how many feeder cattle/steers did the farm have, at what price were they valued, and how much total value were they? What is the total value of these steers if a price of $100.00/cwt were used? How much does this change the current ratio on 12/31/X2?

d) Concerning the farm’s machinery (not vehicles): What was the original cost of all the farm’s machinery purchased over the years? How much depreciation has already been claimed for all of this machinery? What was their total book value (remaining tax basis) on 12/31/X2? What was their total market value on 12/31/X2? Which value (market or cost) does the balance sheet use?

e) How many acres did the farm have on 12/31/X2? When did they buy the land and how much total did they pay for all of it? What was the land worth on 12/31/X2?

Price: $28.2

Solution: The downloadable solution consists of 9 pages, 1920 words.
Deliverable: Word Document