With COVID-19 restrictions finally lifting, Chris and Steve are pooling their substantial financial resources & have purchased the road Inn, a historic bed & breakfast located in Vermont near popular ski resorts and tourist attractions. The Inn is situated on 10 acres and Alex and Blake were able to also purchase the attached maple syrup operation comprised of 400 acres of mature maple trees used to produce the roas Inn popular maple syrup which is sold in high end specialty gift shops across the country.

In late 2019 Chris and Steve had the entire property appraised (see below) but given the tourist industry decline in the last 12 months they were ultimately able to negotiate a much better price paying only $2,600,000 in total for all assets listed in the appraisal. Even so, the appraisal report provided the following values for the properties purchased:

At the end of the syruping season Chris & Steve spent $125,000 on the syruping operations as shown below:

(i) $25,000 to add digital temperature controls to the sap boilers. These control units attach to the existing boilers and regulate heat thus avoiding burned sap and increasing the overall production volume for the syruping operation.

(ii) $25,000 at the end of the season to clean excess sap from within the syruping equipment filtering systems. This annual task allows the syruping equipment to start next year at normal production levels without delays caused by sap clogs having developed during the off season.

(iii) $25,000 to prune 1/3 of the maple tree grove. chris and steve keep all trees on a 3-year pruning rotation. Pruning is necessary to maintain optimum tree health as it keeps a tree at a desired size and removes unnecessary branches that cause structural stress.

(iv) $25,000 to add an additional external filtering system. The filtering system will not alter production volume but will better protect the equipment from debris resulting in the existing equipment lasting longer.

(v) $25,000 to fertilize all 400 wooded acres intended to maintain the health of the tree grove over the long cold Vermont winter.

Consider the $125,000 of expenditures described above. What value (if any) would be considered "Ordinary Repairs"?

Group of answer choices

$75,000

$50,000

$0

$100,000

$25,000

$125,000
 

Transcribed Image Text:

Bed & Breakfast Operation: 1 6 bedroom Inn $422,500.00 2 Inn Furniture & Décor 73,125.00 3 Inn Kitchen Equipment 65,000.00 4 Inn Linens & Supplies 32,500.00 Inn 10 Acres 48,750.00 B&B total $641,875.00 Syruping Operation: 400 wooded acres $2,210,000.00 Syruping Equipment 260,000.00 8 Syruping Supplies 40,625.00 9. Syruping Vehicles 97,500.00 Syruping total $2,608,125.00 Total appraisal- $3,250,000.00 67 Bed & Breakfast Operation: 1 6 bedroom Inn $422,500.00 2 Inn Furniture & Décor 73,125.00 3 Inn Kitchen Equipment 65,000.00 4 Inn Linens & Supplies 32,500.00 Inn 10 Acres 48,750.00 B&B total $641,875.00 Syruping Operation: 400 wooded acres $2,210,000.00 Syruping Equipment 260,000.00 8 Syruping Supplies 40,625.00 9. Syruping Vehicles 97,500.00 Syruping total $2,608,125.00 Total appraisal- $3,250,000.00 67

Answer rating: 100% (QA)

75000 Explanation Ordinary repairs are the repairs which maintain the asset in existing condition Or... View the full answer