ACC 311 - Example Test
A truck was acquired on July 1, 2015, at a cost of $189,000. The truck had a six-year useful life and an estimated salvage value of $21,000. The straight-line method of depreciation was used. On January 1, 2018, the truck was overhauled at a cost of $17,500, which extended the useful life of the truck for an additional two years beyond that originally estimated (salvage value is still estimated at $21,000). In computing depreciation for annual adjustment purposes, expense is calculated for each month the asset is owned. Prepare the appropriate entries for January 1, 2018 and December 31, 2018
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A decline in tourism suggests that Holiday Hotels Inc. should review one of its rental properties for impairment. The property's book value is $600,000 ($800,000 cost less accumulated depreciation of $200,000). Holiday Hotels determines that the property can expect to produce annual cash flows of $25,000 for the next 20 years. Record any possible impairment. (12.46221)
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Presented below is information related to equipment owned by Porto Company at December 31, 2017. Cost Accumulated depreciation to date Expected future (undiscounted) cash flows Fair value $5,600,000 640,000 4,000,000 2,720,000 Assume that Porto will continue to use this asset in the future. As of December 31, 2017, the equipment has a remaining useful life of 4 years. Instructions Determine if an impairment exists. Prepare the journal entry to record the impairment of the asset at December 31, 2017. Prepare the journal entry to record depreciation expense for 2018. The fair value of the equipment at December 31, 2018 is $4,100,000. Prepare the journal entry (if any) necessary to record this increase in fair value.
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Barkley Corp. obtained a trade name in January 2016, incurring legal costs of $72,000. The company amortizes the trade name over 8 years. Barkley successfully defended its trade name in January 2017, incurring $19,600 in legal fees. At the beginning of 2018, based on new marketing research, Barkley determines that the fair value of the trade name is $60,000. Estimated future net cash flows from the trade name are $64,000 on January 4, 2018. Prepare the necessary journal entries for the years ending December 31, 2016, 2017, and 2018.
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Dolphin Company uses specialized equipment in its packaging business. The equipment was purchased in January 2016 for $6,000,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 2017, new technology was introduced that would accelerate the obsolescence of Dolphin's equipment. Dolphin's chief accountant estimates that expected future (undiscounted) cash flows on the equipment will be $3,750,000 and that the fair value of the equipment is $3,300,000. Dolphin intends to continue using the equipment, but it is estimated that the remaining useful life is 4 years. Dolphin uses straight-line depreciation. (a) What is the carrying value of the asset? (b) Prepare the journal entry (if any) to record the impairment at December 31, 2017. (c) Prepare any journal entries for the equipment at December 31, 2018. The fair value of the equipment at December 31, 2018, is estimated to be $3,450,000. (d) Repeat the requirements for (a) and (b), assuming that Dolphin intends to dispose of the equipment and that it has not been disposed of as of December 31, 2018.
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Mareos Company purchased for $3,800,000 a mine estimated to contain 2.5 million tons of ore. When the ore is completely extracted, it was expected that the land would be worth $200,000. A building and equipment costing $1,800,000 were constructed on the mine site, and they will be completely used up and have no salvage value when the ore is exhausted. During the first year, 750,000 tons of ore were mined, and $300,000 was spent for labor and other operating costs. Compute the total cost per ton of ore mined in the first year. (Show computations by setting up a schedule giving cost per ton)
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On January 1, 2017, a machine was installed at a total cost of $8,000, assumed to have a useful life of 5 years and a salvage value of $2,000.
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Ploy Co. has a policy to replace its commercial vehicles after 100,000 miles. A truck has cost of $20,000 and salvage value of $2,000. The odometer shows that the truck was driven 4,000 miles this year.
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On January 1, 2017, a machine was installed at a total cost of $8,000, assumed to have a useful life of 5 years and a salvage value of $2,000. (sum of years)
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On January 1, 2017, a machine was installed at a total cost of $8,000, assumed to have a useful life of 5 years and a salvage value of $2,000. Use the Double-Declining Balance Method.
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A machine which cost $500,000 is acquired on January 1, 2017. Its estimated salvage value is $50,000 and its expected life is eight years. (1) Calculate depreciation expense for 2017 and 2018 by each of the following methods, showing the figures used. (a) Double-declining balance (b) Sum-of-the-years'-digits (2) Record the associated journal entries in each year for each method.
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A company purchased a new machine on October 1st, 2017, at a cost of $96,000. The company estimated that the machine has a salvage value of $12,000. The machine is expected to be used for 84,000 working hours during its 6-year life. Compute depreciation expense for 2017 and 2018 using both straight-line and double-declining methods.
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A machine cost $900,000 on April 1, 2017. Its estimated salvage value is $90,000 and its expected life is eight years. (1) Calculate the depreciation expense (to the nearest dollar) by each of the following methods, showing the figures used. (a) Straight-line for 2017 (b) Double-declining balance for 2018 (c) Sum-of-the-years'-digits for 2018 (2) Record the associated journal entry for each method in the given year.
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On September 1, 2018, Vernon Corporation acquired Barlow Enterprises for a cash payment of $820,000. At the time of the purchase, Barlow's balance sheet showed assets of $620,000, liabilities of $240,000, and owner's equity of $420,000. The fair value of Barlow's assets is estimated to be $970,000. Compute the amount of goodwill acquired by Vernon.
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Weaver Corporation purchased Merando Company 3 years ago and at that time recorded goodwill of $720,000. The Division's net assets, including the goodwill, have a carrying amount of $1,200,000. The fair value of the division is estimated to be $1,100,000. Prepare Weaver's journal entry, if necessary, to record impairment of the goodwill.
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On July 1, 2017, Vinson Corporation acquired Carley Company for $900,000 cash. At the time of purchase, Carley's balance sheet showed assets of $775,000 and liabilities of $250,000. The fair value of Carley's assets is estimated to be $950,000. (a) Compute the amount of goodwill acquired by Vinson. (b) OnDecember31, the fair value of Carley is estimated to be $720,000. The carrying value of Carley's net assets, including the goodwill, at year-end is $750,000. Prepare Vinson's journal entry, if necessary, to record impairment of goodwill.
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LOOK AT CH 12 PAGE 16
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Remington Corporation purchases a patent from Durler Company on January 1, 2017, for $84,000. The patent has a remaining legal life of 16 years. Remington feels the patent will be useful for 10 years. Assume that at January 1, 2019, the carrying amount of the patent on Remington's books is $67,200. On January 1, 2019, Remington spends $20,000 successfully defending a patent suit. Remington still feels the patent will be useful until the end of 2026. Prepare Remington's journal entries to record the amortization for 2017 and 2019.
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Snyder Industries had one patent recorded on its books as of January 1, 2018. This patent had a book value of $252,000 and a remaining useful life of 7 years. During 2018, Snyder brought a patent infringement suit against a competitor. On October 1, 2018, Snyder received the goods news that its patent was valid and that its competitor could not use the process Snyder had patented. The company incurred $90,000 to defined this carrying value of the patent. Compute the patent that would be reported on the December 31, 2018, balance sheet, assuming monthly amortization of carrying value of the patents.
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Merlin Corporation owns a patent that has a carrying amount of $600,000. Merlin expects future net cash flows from this patent to total $505,000. The fair value of the patent is $465,000. Prepare journal entry, if necessary, to record the loss on impairment.
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In early January 2016, Lerner Corporation applied for a patent, incurring legal costs of $100,000. In January 2017, Lerner incurred $18,000 of legal fees in a successful defense of its patent. (a) Compute 2016 amortization, 12/31/16 carrying value, 2017 amortization, and 12/31/17 carrying value if the company amortizes the patent over 10 years. (b) Compute the 2018 amortization and the 12/31/18 carrying value, assuming that at the beginning of 2018, based on new market research, Lerner determines that the fair value of the patent is $76,000. Estimated future cash flows from the patent are $84,000 on January 3, 2018.
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LOOK AT CH 13 PAGE 10
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Sterling Co. includes one coupon in each bag of dog food it sells. In return for 4 coupons, customers receive a dog toy that the company purchases for $1.50 each. Sterling's experience indicates that 60 percent of the coupons will be redeemed. During 2017, 150,000 bags of dog food were sold, 18,000 toys were purchased, and 60,000 coupons were redeemed. During 2018, 180,000 bags of dog food were sold, 24,000 toys were purchased, and 90,000 coupons were redeemed. Determine the premium expense to be reported in the income statement and the premium liability on the balance sheet for 2017 and 2018.
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Merritt Equipment Company sells computers for $1,500 each and also gives each customer a 2-year warranty that requires the company to perform periodic services and to replace defective parts. During 2017, the company sold 1,200 computers. Based on past experience, the company has estimated the total 2-year warranty costs as $40 for parts and $60 for labor per unit. Assume sales all occur at December 31, 2017. In 2018, Merritt incurred actual warranty costs relative to 2017 computer sales of $16,000 for parts and $24,000 for labor. Instructions (a) Record give the entries to reflect the above transactions (accrual method) for 2017 and 2018. (b) The transactions of part (a) create what balance under current liabilities in the 2017 balance sheet?
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Burke Co. borrowed $138,000 from a bank by giving the bank a one-year, zero-interest-bearing note that has a face amount of $150,000. Prepare the journal entry to record this transaction on Burke's books
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Assume Mill Company has a weekly payroll of $25,000 that is entirely subject to FICA and Medicare (7.65%), federal unemployment tax (.8%), and state unemployment tax (3%). Income tax withholding amounts to $3,300, and employee credit union deductions for the week total $975. No employee's wages exceed the $7,000 compensation ceiling got unemployment taxes. Two entries are necessary to record the payroll: (1) salaries and wages paid to employees, and (2) employer's payroll taxes. Prepare both journal entries.
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Snow Co. began operations on January 2, 2017. It employs 15 people who work 8-hour days. Each employee earns 10 paid vacation days annually. Vacation days may be taken after January 10 of the year following the year in which they are earned. The average hourly wage rate was $24.00 in 2017 and $25.50 in 2018. The average vacation days used by each employee in 2018 was 9. Snow Co. accrues the cost of compensated absences at rates of pay in effect when earned. Prepare journal entries to record the transactions related to paid vacation days during 2017 and 2018.
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Peters Corp. issued a $100,000 long-term note payable to Bankly Bank in exchange for $95,000 cash on January 1, 2016. (USE FAIR VALUE OPTION) On December 31, 2016, due to changing interest rates, the fair value of the note payable changed to $105,000.
CH 14 PAGE 1 - EXTRA PAGES
On June 1, 2016, Everly Bottle Company sold $3,000,000 in long-term bonds for $2,631,300. The bonds will mature in 10 years and have a stated interest rate of 8% and a yield rate of 10%. The bonds pay interest annually on May 31 of each year. The bonds are to be accounted for under the effective-interest method. Construct a bond amortization table for this problem to indicate the amount of interest expense and discount amortization at each May 31. Include only the first four years. Make sure all columns and rows are properly labeled. (Round to the nearest dollar.)
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Harper Company commonly issues long-term notes payable to its various lenders. Harper has had a pretty good credit rating such that its effective borrowing rate is quite low (less than 8% on an annual basis). Harper has elected to use the fair value option for the long-term notes issued to Barclay's Bank and has the following data related to the carrying and fair value for these notes. income? December 31, 2017 December 31, 2018 December 31, 2019 Carrying Value $135,000, 112,000 90,000 Fair Value $135,000 107,000 97,000 (a) Prepare the adjusting journal entry at December 31 (Harper's year-end) for 2018, and 2019 to record the fair value option for these notes. (b) At what amount will the note be reported on Harper's 2018 balance sheet? (c) What is the effect of recording the fair value option on these notes on Harper's 2019
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On March 31, 2016, Moody's downgraded the credit rating of Miller Company from Aaa to Ba1 to reflect a sudden increase in the default risk of the company's outstanding bonds. Almost overnight, the market value of the bonds decreased $150,000.
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If Aretha Company issued $100,000 of bonds dated January 1, 2017 at 98, then on January 1, 2017, the entry would be as follows:
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If Peters Company issued $100,000 of bonds dated January 1, 2017 at 102, then on January 1, 2017, the entry would be:
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Albert Corporation issued (at a discount) $3,000,000 of 20-year bonds on January 1, 2010. Because of increasing interest rates, Albert decided to repurchase the bonds in open market on January 1, 2018, when the market price was 87. At the time of the repurchase, the amortized value of the associated bond discount was $150,000.
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Terry Tractors, Inc., has outstanding a $1,000,000, 10-year bond issue that was sold at a premium on January 1, 2008. The bond issue contains an embedded call option that allows Terry Tractors to repurchase the bonds at a specified price of 106. Due to decreasing interest rates the market price of the bonds increased to 109. On December 31, 2018, Terry Tractors exercised its call option when the amortized carrying value of the bonds was $1,050,000.
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Assume a 10-year bond issue in the amount of $300,000, bearing 9% interest payable semiannually on June 30 and December 31, dated January 1, 2017. If the entire bond issue is sold at par on March 1, 2017, the following journal entry will be made by the seller: The entry for the semiannual interest payment on July 1, 2017 would be as follows:
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Wolfe Company issued $10,000,000 of 10-year 7% bonds on January 1, 2018, at a market price of $8,716,468, when the market (discount) rate was 9%. Coupon payments are paid annually on December 31st of each year. On December 31, 2019, due to changing interest rates, Wolfe Company decided to extinguish the debt when the market price of the bonds was quoted 85. Record the journal entry for the early extinguishment of debt.
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Mann, Inc. owes its bank $1,200,000, but is in financial difficulty and unlikely to have the cash to repay this amount. To settle the debt, the bank agrees to accept equipment with a fair value of $1,140,000. The carrying value of the equipment on Mann's balance sheet is $1,290,000 (original cost of $1,680,000 less accumulated depreciation of $390,000). Prepare the journal entry on Mann's books to record the settlement of this loss.
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On January 1, 2018, Piper Co. issued ten-year bonds with a face value of $5,000,000 and a stated interest rate of 10%, payable semiannually on June 30 and December 31. The bonds were sold to yield 12%. Table values are: Present value of 1 for 20 periods at 6% ........................... .312 Present value of annuity for 20 periods at 6% .................. 11.470 Calculate the issue price of the bonds. Prepare the amortization table for 2018, assuming that amortization is recorded on interest payment dates using the effective-interest method.
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Seers Company is in serious financial trouble, and as a result the market value of its outstanding debt has plummeted to pennies on the dollar. A vulture fund (a type of hedge fund) purchased all $5,000,000 of Seers outstanding debt for only $250,000. The vulture fund - which now controls the entire block of outstanding debt - threatens to force Seers into bankruptcy if it does not agree to settle the debt on terms favorable to the vulture fund. As a result, Seers agrees to settle the debt in exchange for enough (no par) common stock, such that it would give the vulture fund 50% of the common stock outstanding. The fair value of the stock issued is $3,000,000, while the book value of debt extinguished was $5,000,000.
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Grider Industries, Inc. issued $15,000,000 of 8% debentures on May 1, 2017 and received cash totaling $13,308,942. The bonds pay interest semiannually on May 1 and November 1. The maturity date on these bonds is November 1, 2025. The firm uses the effective-interest method of amortizing discounts and premiums. The bonds were sold to yield an effective-interest rate of 10%. Calculate the total dollar amount of discount or premium amortization during the first year (5/1/17 through 4/30/18) these bonds were outstanding. (Show computations and round to the nearest dollar.)
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Nu Construction Corp., is approaching bankruptcy, and on December 31, 2017, renegotiated the terms of its $10,500,000 loan by: 1. Reducing the principal amount from $10,500,000 to $7,000,000. 2. Extending the maturity date from December31,2017, to December 31, 2021. 3. Reducing the coupon rate from 12% to 8%. Record any gain or loss on the date of the restructuring.
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