Project #4392 - 17 accounting problems MUST SHOW ALL CALCULATIONS AND USE EXCEL TEMPLATES ATTACHED. E

 
 
P 10-1
 
 
PLEASE SHOW ALL CALCULATIONS AND USE ALL EXCEL TEMPLATES PROVIDED.
 
Acquisition costs
 
? LO1  through LO4

 

Tristar Production Company began operations on September 1, 2011. Listed below are a number of transactions that occurred during its first four months of operations.

1.

 

On September 1, the company acquired five acres of land with a building that will be used as a warehouse. Tristar paid $100,000 in cash for the property. According to appraisals, the land had a fair value of $75,000 and the building had a fair value of $45,000.

2.

 

On September 1, Tristar signed a $40,000 noninterest-bearing note to purchase equipment. The $40,000 payment is due on September 1, 2012. Assume that 8% is a reasonable interest rate.

3.

 

On September 15, a truck was donated to the corporation. Similar trucks were selling for $2,500.

4.

 

On September 18, the company paid its lawyer $3,000 for organizing the corporation.

5.

 

On October 10, Tristar purchased machinery for cash. The purchase price was $15,000 and $500 in freight charges also were paid.

6.

 

On December 2, Tristar acquired various items of office equipment. The company was short of cash and could not pay the $5,500 normal cash price. The supplier agreed to accept 200 shares of the company's nopar common stock in exchange for the equipment. The fair value of the stock is not readily determinable.

7.

 

On December 10, the company acquired a tract of land at a cost of $20,000. It paid $2,000 down and signed a 10% note with both principal and interest due in one year. Ten percent is an appropriate rate of interest for this note.

 

Required:

Prepare journal entries to record each of the above transactions.

         

 

     
       
(AICPA adapted)
 
Acquisition costs
 
? LO1 LO4 LO6

 

The plant asset and accumulated depreciation accounts of Pell Corporation had the following balances at December 31, 2010:

 

    Transactions during 2011 were as follows:

a.

 

On January 2, 2011, machinery and equipment were purchased at a total invoice cost of $260,000, which included a $5,500 charge for freight. Installation costs of $27,000 were incurred.

p. 547

b.

 

On March 31, 2011, a machine purchased for $58,000 in 2007 was sold for $36,500. Depreciation recorded through the date of sale totaled $24,650.

c.

 

On May 1, 2011, expenditures of $50,000 were made to repave parking lots at Pell's plant location. The work was necessitated by damage caused by severe winter weather.

d.

 

On November 1, 2011, Pell acquired a tract of land with an existing building in exchange for 10,000 shares of Pell's common stock that had a market price of $38 per share. Pell paid legal fees and title insurance totaling $23,000. Shortly after acquisition, the building was razed at a cost of $35,000 in anticipation of new building construction in 2012.

e.

 

On December 31, 2011, Pell purchased a new automobile for $15,250 cash and trade-in of an old automobile purchased for $18,000 in 2007. Depreciation on the old automobile recorded through December 31, 2011, totaled $13,500. The fair value of the old automobile was $3,750.

Required:

1.

 

Prepare a schedule analyzing the changes in each of the plant assets during 2011, with detailed supporting computations.

2.

 

Prepare a schedule showing the gain or loss from each asset disposal that would be recognized in Pell's income statement for the year ended December 31, 2011.

 
(AICPA adapted)
P 10-4
 
Intangibles
 
? LO1 LO8

 

The Horstmeyer Corporation commenced operations early in 2011. A number of expenditures were made during 2011 that were debited to one account called intangible asset. A recap of the $644,000 balance in this account at the end of 2011 is as follows:

   The total purchase price of the Stiltz Corp. stock was debited to this account. The fair values of Stiltz Corp.'s assets and liabilities on the date of the purchase were as follows:

Required:

Prepare the necessary journal entries to clear the intangible asset account and to set up accounts for separate intangible assets, other types of assets, and expenses indicated by the transactions.

         

 

 

P 10-8
 
Nonmonetary exchange
 
? LO6

 

Case A. Kapono Farms exchanged an old tractor for a newer model. The old tractor had a book value of $12,000 (original cost of $28,000 less accumulated depreciation of $16,000) and a fair value of $9,000. Kapono paid $20,000 cash to complete the exchange. The exchange has commercial substance.

 

Required:

1.

 

What is the amount of gain or loss that Kapono would recognize on the exchange? What is the initial value of the new tractor?

2.

 

Repeat requirement 1 assuming that the fair value of the old tractor is $14,000 instead of $9,000.

Case B. Kapono Farms exchanged 100 acres of farmland for similar land. The farmland given had a book value of $500,000 and a fair value of $700,000. Kapono paid $50,000 cash to complete the exchange. The exchange has commercial substance.

Required:

1.

 

What is the amount of gain or loss that Kapono would recognize on the exchange? What is the initial value of the new land?

2.

 

Repeat requirement 1 assuming that the fair value of the farmland given is $400,000 instead of $700,000.

3.

 

Repeat requirement 1 assuming that the exchange lacked commercial substance.

 
Interest capitalization; specific interest method
 
? LO7

 

On January 1, 2011, the Mason Manufacturing Company began construction of a building to be used as its office headquarters. The building was completed on September 30, 2012.

   Expenditures on the project were as follows:

 

         January 1, 2011
$1,000,000
         March 1, 2011
600,000
         June 30, 2011
800,000
         October 1, 2011
600,000
         January 31, 2012
270,000
         April 30, 2012
585,000
         August 31, 2012
900,000

On January 1, 2011, the company obtained a $3 million construction loan with a 10% interest rate. The loan was outstanding all of 2011 and 2012. The company's other interest-bearing debt included two long-term notes of $4,000,000 and $6,000,000 with interest rates of 6% and 8%, respectively. Both notes were outstanding during all of 2011 and 2012. Interest is paid annually on all debt. The company's fiscal year-end is December 31.

Required:

1.

 

Calculate the amount of interest that Mason should capitalize in 2011 and 2012 using the specific interest method.

2.

 

What is the total cost of the building?

3.

 

Calculate the amount of interest expense that will appear in the 2011 and 2012 income statements.

P 11-1

 

Depreciation methods; change in methods

 

?LO2 LO6

The fact that generally accepted accounting principles allow companies flexibility in choosing between certain allocation methods can make it difficult for a financial analyst to compare periodic performance from firm to firm.

   Suppose you were a financial analyst trying to compare the performance of two companies. Company A uses the double-declining-balance depreciation method. Company B uses the straight-line method. You have the following information taken from the 12/31/11 year-end financial statements for Company B:

   You also determine that all of the assets constituting the plant and equipment of Company B were acquired at the same time, and that all of the $200,000 represents depreciable assets. Also, all of the depreciable assets have the same useful life and residual values are zero.

Required:

1.

 

In order to compare performance with Company A, estimate what B's depreciation expense would have been for 2011 if the double-declining-balance depreciation method had been used by Company B since acquisition of the depreciable assets.

2.

 

If Company B decided to switch depreciation methods in 2011 from the straight line to the double-declining-balance method, prepare the 2011 adjusting journal entry to record depreciation for the year.

       

?LO2 LO4

   

 

     
     
     
     
     
     
   

 

 

     
     

 

 

 

 

?LO2

     

 

 

 

(AICPA adapted)

P 11-4

 

Partial-year depreciation; asset addition; increase in useful life

 

?LO2 LO5 LO9

On April 1, 2009, the KB Toy Company purchased equipment to be used in its manufacturing process. The equipment cost $48,000, has an eight-year useful life, and has no residual value. The company uses the straight-line depreciation method for all manufacturing equipment.

   On January 4, 2011, $12,350 was spent to repair the equipment and to add a feature that increased its operating efficiency. Of the total expenditure, $2,000 represented ordinary repairs and annual maintenance and $10,350 represented the cost of the new feature. In addition to increasing operating efficiency, the total useful life of the equipment was extended to 10 years.

Required:

Prepare journal entries for the following:

1.

 

Depreciation for 2009 and 2010.

2.

 

The 2011 expenditure.

3.

 

Depreciation for 2011.

         
   

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

   

 

g.

 

 

 

 

(AICPA adapted)

 

 

 

 

?LO2

 

 

 

 

1.

 

 

2.

   

3.

 

 

p. 610

P 11-7

 

Depletion; change in estimate

 

?LO3 LO5

In 2011, the Marion Company purchased land containing a mineral mine for $1,600,000. Additional costs of $600,000 were incurred to develop the mine. Geologists estimated that 400,000 tons of ore would be extracted. After the ore is removed, the land will have a resale value of $100,000.

   To aid in the extraction, Marion built various structures and small storage buildings on the site at a cost of $150,000. These structures have a useful life of 10 years. The structures cannot be moved after the ore has been removed and will be left at the site. In addition, new equipment costing $80,000 was purchased and installed at the site. Marion does not plan to move the equipment to another site, but estimates that it can be sold at auction for $4,000 after the mining project is completed.

   In 2011, 50,000 tons of ore were extracted and sold. In 2012, the estimate of total tons of ore in the mine was revised from 400,000 to 487,500. During 2012, 80,000 tons were extracted, of which 60,000 tons were sold.

 

Required:

1.

 

Compute depletion and depreciation of the mine and the mining facilities and equipment for 2011 and 2012. Marion uses the units-of-production method to determine depreciation on mining facilities and equipment.

2.

 

Compute the book value of the mineral mine, structures, and equipment as of December 31, 2012.

3.

 

Discuss the accounting treatment of the depletion and depreciation on the mine and mining facilities and equipment.

 

 

 

 

?LO4

 

a.

 

 

b.

 

 

c.

 

 

 

1.

 

 

2.

 

 

 

 

 

 

?LO2 LO5

 


     
     
     
p. 611

P 11-10

 

Accounting changes; three accounting situations

 

?LO2 LO5 LO6

Described below are three independent and unrelated situations involving accounting changes. Each change occurs during 2011 before any adjusting entries or closing entries are prepared.

a.

 

On December 30, 2007, Rival Industries acquired its office building at a cost of $10,000,000. It has been depreciated on a straight-line basis assuming a useful life of 40 years and no residual value. Early in 2011, the estimate of useful life was revised to 28 years in total with no change in residual value.

b.

 

At the beginning of 2007, the Hoffman Group purchased office equipment at a cost of $330,000. Its useful life was estimated to be 10 years with no residual value. The equipment has been depreciated by the sum-of-the-years'-digits method. On January 1, 2011, the company changed to the straight-line method.

c.

 

At the beginning of 2011, Jantzen Specialties, which uses the sum-of-the-years'-digits method, changed to the straight-line method for newly acquired buildings and equipment. The change increased current year net income by $445,000.

Required:

For each situation:

1.

 

Identify the type of change.

2.

 

Prepare any journal entry necessary as a direct result of the change as well as any adjusting entry for 2011 related to the situation described. (Ignore income tax effects.)

3.

 

Briefly describe any other steps that should be taken to appropriately report the situation.

   

 

 

?LO2 LO6 LO7


     
     

P 11-12

 

Depreciation and amortization; impairment

 

?LO2 LO4 LO8

At the beginning of 2009, Metatec Inc. acquired Ellison Technology Corporation for $600 million. In addition to cash, receivables, and inventory, the following assets and their fair values were also acquired:

   The plant and equipment are depreciated over a 10-year useful life on a straight-line basis. There is no estimated residual value. The patent is estimated to have a 5-year useful life, no residual value, and is amortized using the straight-line method.

   At the end of 2011, a change in business climate indicated to management that the assets of Ellison might be impaired. The following amounts have been determined:

*After first recording any impairment losses on plant and equipment and the patent.

p. 612

Required:

1.

 

Compute the book value of the plant and equipment and patent at the end of 2011.

2.

 

When should the plant and equipment and the patent be tested for impairment?

3.

 

When should goodwill be tested for impairment?

4.

 

Determine the amount of any impairment loss to be recorded, if any, for the three assets.

 

P 8-1
 

Various inventory transactions;
journal entries

 
? LO1 through  LO3

James Company began the month of October with inventory of $15,000. The following inventory transactions occurred during the month:

a.

 

The company purchased merchandise on account for $22,000 on October 12, 2011. Terms of the purchase were 2/10, n/30. James uses the net method to record purchases. The merchandise was shipped f.o.b. shipping point and freight charges of $500 were paid in cash.

b.

 

On October 18 the company returned merchandise costing $3,000. The return reduced the amount owed to the supplier. The merchandise returned came from beginning inventory, not from the October 12 purchase.

c.

 

On October 31, James paid for the merchandise purchased on October 12.

d.

 

During October merchandise costing $18,000 was sold on account for $28,000.

e.

 

It was determined that inventory on hand at the end of October cost $16,060.

Required:

1.

 

Assuming that the James Company uses a periodic inventory system, prepare journal entries for the above transactions including the adjusting entry at the end of October to record cost of goods sold.

2.

 

Assuming that the James Company uses a perpetual inventory system, prepare journal entries for the above transactions.

P 8-2
 

Items to be included in inventory

 
?  LO2
The following inventory transactions took place near December 31, 2011, the end of the Rasul Company's fiscal year-end:

1.

 

On December 27, 2011, merchandise costing $2,000 was shipped to the Myers Company on consignment. The shipment arrived at Myers's location on December 29, but none of the merchandise was sold by the end of the year. The merchandise was not included in the 2011 ending inventory.

2.

 

On January 5, 2012, merchandise costing $8,000 was received from a supplier and recorded as a purchase on that date and not included in the 2011 ending inventory. The invoice revealed that the shipment was made f.o.b. shipping point on December 28, 2011.

3.

 

On December 29, 2011, the company shipped merchandise costing $12,000 to a customer f.o.b. destination. The goods, which arrived at the customer's location on January 4, 2012, were not included in Rasul's 2011 ending inventory. The sale was recorded in 2011.

4.

 

Merchandise costing $4,000 was received on December 28, 2011, on consignment from the Aborn Company. A purchase was not recorded and the merchandise was not included in 2011 ending inventory.

5.

 

Merchandise costing $6,000 was received and recorded as a purchase on January 8, 2012. The invoice revealed that the merchandise was shipped from the supplier on December 28, 2011, f.o.b. destination. The merchandise was not included in 2011 ending inventory.

Required:

State whether Rasul correctly accounted for each of the above transactions. Give the reason for your answer.

P 8-5
 

Various inventory costing methods

 
?  LO1  LO4

Ferris Company began 2011 with 6,000 units of its principal product. The cost of each unit is $8. Merchandise transactions for the month of January 2011 are as follows:  

   8,000 units were on hand at the end of the month.

Required:

Calculate January's ending inventory and cost of goods sold for the month using each of the following alternatives:

1.

 

FIFO, periodic system

2.

 

LIFO, periodic system

3.

 

LIFO, perpetual system

4.

 

Average cost, periodic system

5.

 

Average cost, perpetual system

P 8-9
 

LIFO liquidation

 
?  LO4  LO6
Taylor Corporation has used a periodic inventory system and the LIFO cost method since its inception in 2004. The company began 2011 with the following inventory layers (listed in chronological order of acquisition):

   During 2011, 30,000 units were purchased for $25 per unit. Due to unexpected demand for the company's product, 2011 sales totaled 40,000 units at various prices, leaving 15,000 units in ending inventory.

Required:

1.

 

Calculate cost of goods sold for 2011.

2.

 

Determine the amount of LIFO liquidation profit that the company must report in a disclosure note to its 2011 financial statements. Assume an income tax rate of 40%.

3.

 

If the company decided to purchase an additional 10,000 units at $25 per unit at the end of the year, how much income tax currently payable would be saved?

P 9-1

 

Lower of cost or market

 
 LO1

Decker Company has five products in its inventory. Information about the December 31, 2011, inventory follows.

 

   The selling cost for each product consists of a 15 percent sales commission. The normal profit percentage for each product is 40 percent of the selling price.

Required:

1.

  

Determine the balance sheet inventory carrying value at December 31, 2011, assuming the LCM rule is applied to individual products.

2.

  

Determine the balance sheet inventory carrying value at December 31, 2011, assuming the LCM rule is applied to the entire inventory. Also, assuming that Decker recognizes an inventory write-down as a separate income statement item, determine the amount of the loss.

P 9-5

 

Retail inventory method; conventional and LIFO

 
 LO3 LO4

Alquist Company uses the retail method to estimate its ending inventory. Selected information about its year 2011 operations is as follows:

 

a.

  

January 1, 2011, beginning inventory had a cost of $100,000 and a retail value of $150,000.

b.

  

Purchases during 2011 cost $1,387,500 with an original retail value of $2,000,000.

c.

  

Freight costs were $10,000 for incoming merchandise.

d.

  

Net additional markups were $300,000 and net markdowns were $150,000.

e.

  

Based on prior experience, shrinkage due to shoplifting was estimated to be $15,000 of retail value.

f.

  

Merchandise is sold to employees at a 20% of selling price discount. Employee sales are recorded in a separate account at the net selling price. The balance in this account at the end of 2011 is $250,000.

g.

  

Sales to customers totaled $1,750,000 for the year.

Required:

1.

  

Estimate ending inventory and cost of goods sold using the conventional retail method (average, LCM).

2.

  

Estimate ending inventory and cost of goods sold using the LIFO retail method. (Assume stable prices.)

P 9-6

 

Retail inventory method; conventional

 
 LO4

Grand Department Store, Inc., uses the retail inventory method to estimate ending inventory for its monthly financial statements. The following data pertain to a single department for the month of October 2011:

 

Required:

1.

  

Using the conventional retail method, prepare a schedule computing estimated lower-of-cost-or-market inventory for October 31, 2011.

2.

  

A department store using the conventional retail inventory method estimates the cost of its ending inventory as $29,000. An accurate physical count reveals only $22,000 of inventory at lower of cost or market. List the factors that may have caused the difference between computed inventory and the physical count.

 

 

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