In 2011, the Marion Company purchased land containing a mineral mine for $1,600,000

P11-7 Depletion; change in estimate

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 was 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.

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.

Click here for the solution: In 2011, the Marion Company purchased land containing a mineral mine for $1,600,000

On January 2, 2011, the Jackson Company purchased equipment to be used in its manufacturing process

E11-10 Double-declining-balance method; switch to straight line

On January 2, 2011, the Jackson Company purchased equipment to be used in its manufacturing process. The equipment has an estimated life of eight years and an estimated residual value of $30,625. The expenditures made to acquire the asset were as follows:

Purchase price $154,000
Freight charges 2,000
Installation charges 4,000

Jackson's policy is to use the double-declining-balance (DDB) method of depreciation in the early years of the equipment's life and then switch to straight line halfway through the equipment's life.

Required:
1. Calculate depreciation for each year of the asset's eight-year life.
2. Discuss the accounting treatment of the depreciation on the equipment.

Click here for the solution: On January 2, 2011, the Jackson Company purchased equipment to be used in its manufacturing process

On January 1, 2010, Novotna Company purchased $400,000, 8% bonds of Aguirre Co for $369,114

P17-2 (Available-for-Sale Debt Securities) On January 1, 2010, Novotna Company purchased $400,000, 8% bonds of Aguirre Co for $369,114. The bonds were purchased to yield 10% interest. Interest is payable semiannually on July 1 and January 1. The bonds mature on January 1, 2015. Novotna Company uses the effective-interest method to amortize discount or premium. On January 1, 2012, Novotna Company sold the bonds for $370,726 after receiving interest to meet its liquidity needs.

a. Prepare journal entry to record purchase of bonds on Jan. 1. (Assume bonds are classified as available-for-sale.)
b. Prepare the amortization schedule for the bonds.
c. Prepare the journal entries to record the semiannual interest on July 1, 2010, and Dec. 31, 2010.
d. If fair value of Aguirre bonds is $372,726 on Dec. 31, 2011, prepare the necessary adjusting entry. (Assume the securities fair value adjustment balance on Jan 1, 2011 is a debit of $3,375.)
e. Prepare journal entry to record the sale of the bonds on Jan 1, 2012.

Click here for the solution: On January 1, 2010, Novotna Company purchased $400,000, 8% bonds of Aguirre Co for $369,114

On May 1, 2010, Kirmer Corp. purchased $450,000 of 12% bonds, interest payable on January 1 and July 1, for $422,800 plus accrued interest

On May 1, 2010, Kirmer Corp. purchased $450,000 of 12% bonds, interest payable on January 1 and July 1, for $422,800 plus accrued interest. The bonds mature on January 1, 2016.  Amortization is recorded when interest is received by the straight-line method (by months and rounded to the nearest dollar). (Assume bonds are available for sale.)

Instructions
(a) Prepare the entry for May 1, 2010.
(b) The bonds are sold on August 1, 2011 for $425,000 plus accrued interest. Prepare all entries required to properly record the sale.

Click here for the solution: On May 1, 2010, Kirmer Corp. purchased $450,000 of 12% bonds, interest payable on January 1 and July 1, for $422,800 plus accrued interest

Joy Cunningham Co. purchased a machine on January 1, 2005 for $550,000

E22-9 (Error and Change in Estimate-Depreciation) Joy Cunningham Co. purchased a machine on January 1, 2005 for $550,000. At that time it was estimated that the machine would have a 10 year life and no salvage value. On December 31, 2008, the firm’s accountant found that the entry for depreciation expense had been omitted in 2006. In addition, management has informed the accountant that the company plans to switch to straight-line depreciation, starting with the year 2008. At present the company uses the sum of the year’s digits method for depreciating equipment.

Instructions
Prepare the general journal entries that should be made at December, 31 2008 to record these events. (Ignore the effects)

Click here for the solution: Joy Cunningham Co. purchased a machine on January 1, 2005 for $550,000

On January 1 2008, Hi and Lois Company purchased 12% bonds having a maturity value of $300,000 for $322,744.44

E17-3 (Entries for Held-to-Maturity Securities) On January 1 2008, Hi and Lois Company purchased 12% bonds having a maturity value of $300,000 for $322,744.44. The bonds provide the bondholders with a 10%yield. They are dated January 1, 2008, and mature January 1, 2013, with interest receivable Dec 21 of each year. Hi and Lois Company uses effective interest method to allocate unamortized discount or premium. The bonds are classified in the held to maturity category.

Instructions
a.) Prepare the journal entry at the date of the bond purchase.
b.) Prepare a bond amortization schedule.
c.) Prepare the journal entry to record the interest received and the amortization for 2008.
d.) Prepare the journal entry to record the interest received and the amortization for 2009.

Click here for the solution: On January 1 2008, Hi and Lois Company purchased 12% bonds having a maturity value of $300,000 for $322,744.44

Jane Geddes Engineering Corporation purchased conveyor equipment with a list price of $10,000

E10-11 (Entries for Equipment Acquisitions) Jane Geddes Engineering Corporation purchased conveyor equipment with a list price of $10,000. The vendors credit terms were 2/10, n/30. Presented below are two independent cases related to equipment. Assume that the purchases of equipment are recorded gross. (Round to nearest dollar)

a.) Geddes paid cash for the equipment 8 days after the purchase.
b.) Geddes traded in equipment with a book value of $2,000 (initial cost $8,000) and paid $9,500 in case one month after the purchase. The old equipment could have been sold for $400 at the date of trade. Assume the exchange has commercial substance.

Instructions
Prepare the general journal entries required to record the acquisition and payment in cash of the independent cases above. Round to the nearest dollar.

Click here for the solution: Jane Geddes Engineering Corporation purchased conveyor equipment with a list price of $10,000

Peter M. Dell Co. purchased equipment for $510,000 which was estimated to have a useful life of 10 years with a salvage value of $10,000 at the end of that time

E22-11 (Change in Estimate—Depreciation) Peter M. Dell Co. purchased equipment for $510,000 which was estimated to have a useful life of 10 years with a salvage value of $10,000 at the end of that time. Depreciation has been entered for 7 years on a straight-line basis. In 2008, it is determined that the total estimated life should be 15 years with a salvage value of $5,000 at the end of that time.

Instructions
(a) Prepare the entry (if any) to correct the prior years’ depreciation.
(b) Prepare the entry to record depreciation for 2008.

Click here for the solution: Peter M. Dell Co. purchased equipment for $510,000 which was estimated to have a useful life of 10 years with a salvage value of $10,000 at the end of that time

Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2011

P 12-1 Securities held-to-maturity; bond investment; effective interest

Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2011. Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the market yield was 10%. The price paid for the bonds was $66 million. Interest is received semiannually on June 30 and December 31. Due to changing market conditions, the fair value of the bonds at December 31, 2011, was $70 million.

Required:
1. Prepare the journal entry to record Fuzzy Monkey's investment on January 1, 2011.
2. Prepare the journal entry by Fuzzy Monkey to record interest on June 30, 2011 (at the effective rate).
3. Prepare the journal entries by Fuzzy Monkey to record interest on December 31, 2011 (at the effective rate).
4. At what amount will Fuzzy Monkey report its investment in the December 31, 2011, balance sheet? Why?
5. How would Fuzzy Monkey's 2011 statement of cash flows be affected by this investment?

Click here for the solution: Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2011

In its first month of operation, Moraine Company purchased 100 units of inventory for $6, then 200 units for $7, and finally 140 units for $8

BE6-5 In its first month of operation, Moraine Company purchased 100 units of inventory for $6, then 200 units for $7, and finally 140 units for $8. At the end of the month, 180 units remained. Compute the amount of phantom profit that would result if the company used FIFO rather than LIFO. Explain why this amount is referred to as phantom profit. The company uses the periodic method.

Click here for the solution: In its first month of operation, Moraine Company purchased 100 units of inventory for $6, then 200 units for $7, and finally 140 units for $8

The cost of equipment purchased by Charleston, Inc., on June 1, 2010 is $89,000

P11-2 (Depreciation for Partial Periods—SL, Act., SYD, and DDB)

The cost of equipment purchased by Charleston, Inc., on June 1, 2010 is $89,000. It is estimated that the machine will have a $5,000 salvage value at the end of its service life. Its service life is estimated at 7 years; its total working hours are estimated at 42,000 and its total production is estimated at 525,000 units. During 2010 the machine was operated 6,000 hours and produced 55,000 units. During 2011 the machine was operated 5,500 hours and produced 48,000 units.

Compute depreciation expense on the machine for the year ending December 31, 2010, and the year ending December 31, 2011, using the following methods.

a) Straight-line.
b) Units of output.
c) Working hours.
d) Sum of the years' digits
e) Declining balance (twice the straight-line rate)

Click here for the solution: The cost of equipment purchased by Charleston, Inc., on June 1, 2010 is $89,000

Newbirth Coatings Company purchased waterproofing equipment on January 2, 2009, for $380,000

PR 10-2A Newbirth Coatings Company purchased waterproofing equipment on January 2, 2009, for $380,000. The equipment was expected to have a useful life of four years, or 8,000 operating hours, and a residual value of $36,000. The equipment was used for 3,000 hours during 2009, 2,500 hours in 2010, 1,400 hours in 2011, and 1,100 hours in 2012.

Instructions
Determine the amount of depreciation expense for the years ended December 31, 2009, 2010, 2011, and 2012, by (a) the straight-line method, (b) the units-of-production method, and (c) the double-declining-balance method. Also determine the total depreciation expense for the four years by each method. The following columnar headings are suggested for recording the depreciation expense amounts:

Click here for the solution: Newbirth Coatings Company purchased waterproofing equipment on January 2, 2009, for $380,000

Razar Sharp Company purchased tool sharpening equipment on July 1, 2008, for $48,600

PR 10-3A Razar Sharp Company purchased tool sharpening equipment on July 1, 2008, for $48,600. The equipment was expected to have a useful life of three years, or 7,500 operating hours, and a residual value of $3,000. The equipment was used for 1,800 hours during 2008, 2,600 hours in 2009, 2,000 hours in 2010, and 1,100 hours in 2011.

Instructions
Determine the amount of depreciation expense for the years ended December 31, 2009, 2010, 2011, and 2012, by (a) the straight-line method, (b) the units-of-production method, and (c) the double-declining-balance method. Also determine the total depreciation expense for the four years by each method. The following columnar headings are suggested for recording the depreciation expense amounts:

Click here for the solution: Razar Sharp Company purchased tool sharpening equipment on July 1, 2008, for $48,600

On June 10, Meredith Company purchased $8,000 of merchandise from Leinert Company FOB shipping point, terms 2/10, n/30

E5-4 On June 10, Meredith Company purchased $8,000 of merchandise from Leinert Company FOB shipping point, terms 2/10, n/30. Meredith pays the freight costs of $400 on June 11. Damaged goods totaling $300 are returned to Leinert for credit on June 12. The scrap value of these goods is $150. On June 19, Meredith pays Leinert Company in full, less the purchase discount. Both companies use a perpetual inventory system.

Instructions
(a) Prepare separate entries for each transaction on the books of Meredith Company.
(b) Prepare separate entries for each transaction for Leinert Company. The merchandise purchased by Meredith on June 10 had cost Leinert $5,000.

Click here for the solution: On June 10, Meredith Company purchased $8,000 of merchandise from Leinert Company FOB shipping point, terms 2/10, n/30

On January 1, 2008, a U.S. company purchased 100% of the outstanding stock of Ventana Grains, a company located in Latz City, New Zealand

Problem 13-1 Translation—Local Currency Is the Functional Currency

On January 1, 2008, a U.S. company purchased 100% of the outstanding stock of Ventana Grains, a company located in Latz City, New Zealand. Ventana Grains was organized on January 1, 1994. All the property, plant, and equipment held on January 1, 2008, was acquired when the company was organized. The business combination was accounted for as a purchase transaction. The 2008 financial statements for Ventana Grains, prepared in its local currency, the New Zealand dollar, are given here.

VENTANA GRAINS
Comparative Balance Sheets
January 1 and December 31, 2008
Jan. 1 Dec. 31
Cash and Receivables 500,000 880,000
Inventories 600,000 500,000
Land 400,000 400,000
Buildings (net) 650,000 605,000
Equipment (net) 465,000 470,000
Totals 2,615,000 2,855,000

Jan. 1 Dec. 31
Short-Term Accounts and Notes 295,000 210,000
Long-Term Notes (600,000 issued
September 1, 2000, 80,000 issued
July 1, 2008) 600,000 680,000
Common Stock 800,000 800,000
Additional Paid-in Capital 200,000 200,000
Retained Earnings 720,000 965,000
Total 2,615,000 2,855,000

VENTANA GRAINS
Consolidated Income and Retained Earnings Statement
for the Year Ended December 31, 2008
Revenues 3,225,000
Cost of Goods Sold:
Beginning Inventory 600,000
Purchases 2,100,000
Goods Available for Sale 2,700,000
Less: Ending Inventory 500,000
Cost of Goods Sold 2,200,000
Gross Profit on Sales 1,025,000
Depreciation Expense 140,000
Other Expenses 540,000 680,000
Net Income 345,000

Jan. 1 Retained Earnings 720,000
Total 1,065,000
Less: Dividends Paid 100,000
Dec. 31 Retained Earnings 965,000

The account balances are computed in conformity with U.S. generally accepted accounting standards.

Other information is as follows:
1. Direct exchange rates for the New Zealand dollar on various dates were:
Date Exchange Rate
January 1, 1994 $.8011
September 1, 2004 .5813
January 1, 2008 .7924
July 1, 2008 .7412
December 31, 2008 .7298
Average for 2008 .7480
Average for the last four months of 2008 .7476
2. Ventana Grains purchased additional equipment for 100,000 New Zealand dollars on July 1, 2008, by issuing a note for 80,000 New Zealand dollars and paying the balance in cash.
3. Sales were made and purchases and “Other Expenses” were incurred evenly throughout the year.
4. Depreciation for the period in New Zealand dollars was computed as follows:
Building 45,000
Equipment—Purchased before 1/1/2008 85,000
Equipment—Purchased July 1, 2008 10,000
5. The inventory is valued on a FIFO basis. The beginning inventory was acquired when the exchange rate was $.7480. The ending inventory was acquired during the last four months of 2008.
6. Dividends of 50,000 New Zealand dollars were paid on July 1 and December 31.

Required:
A. Translate the financial statements into dollars assuming that the local currency of the foreign subsidiary was identified as its functional currency.
B. Prepare a schedule to verify the translation adjustment determined in requirement A. Describe how the translation adjustment would be reported in the financial statements.

Click here for the solution: On January 1, 2008, a U.S. company purchased 100% of the outstanding stock of Ventana Grains, a company located in Latz City, New Zealand

(ACC 422 Week 4) Jon Seceda Furnace Corp. purchased machinery for $315,000 on May 1, 2007

ACC 422 Week Four (Week 4)

 E11-4 (Depreciation Computations—Five Methods) Jon Seceda Furnace Corp. purchased machinery for $315,000 on May 1, 2007. It is estimated that it will have a useful life of 10 years, salvage value of $15,000, production of 240,000 units, and working hours of 25,000. During 2008 Seceda Corp. uses the machinery for 2,650 hours, and the machinery produces 25,500 units.

Instructions
From the information given, compute the depreciation charge for 2008 under each of the following methods. (Round to the nearest dollar.)
(a) Straight-line.
(b) Units-of-output.
(c) Working hours.
(d) Sum-of-the-years’-digits.
(e) Declining-balance (use 20% as the annual rate).

Click here for the solution: (ACC 422 Week 4) Jon Seceda Furnace Corp. purchased machinery for $315,000 on May 1, 2007

On February 1, 2011, Punto Company purchased 95% of the outstanding common stock of Sara Company

PROBLEM 3-8 Intercompany Items, Two Subsidiaries

On February 1, 2011, Punto Company purchased 95% of the outstanding common stock of Sara Company and 85% of the outstanding common stock of Rob Company. Immediately before the two acquisitions, balance sheets of the three companies were as follows:

Punto Sara Rob
Cash $165,000 $ 45,000 $17,000
Accounts receivable 35,000 35,000 26,000
Notes receivable 18,000 0 0
Merchandise inventory 106,000 35,500 14,000
Prepaid insurance 13,500 2,500 500
Advances to Sara Company 10,000
Advances to Rob Company 5,000
Land 248,000 43,000 15,000
Buildings (net) 100,000 27,000 16,000
Equipment (net) 35,000 10,000 2,500
Total $735,500 $198,000 $91,000

Accounts payable $ 25,500 $ 20,000 $10,500
Income taxes payable 30,000 10,000 0
Notes payable 0 6,000 10,500
Bonds payable 100,000 0 0
Common stock, $10 par value 300,000 144,000 42,000
Other contributed capital 150,000 12,000 38,000
Retained earnings (deficit) 130,000 6,000 (10,000)
Total $735,500 $198,000 $91,000

The following additional information is relevant.
1. One week before the acquisitions, Punto Company had advanced $10,000 to Sara Company and $5,000 to Rob Company. Sara Company recorded an increase to Accounts Payable for its advance, but Rob Company had not recorded the transaction.
2. On the date of acquisition, Punto Company owed Sara Company $12,000 for purchases on account, and Rob Company owed Punto Company $3,000 and Sara Company $6,000 for such purchases. The goods purchased had all been sold to outside parties prior to acquisition.
3. Punto Company exchanged 13,400 shares of its common stock with a fair value of $12 per share for 95% of the outstanding common stock of Sara Company. In addition, stock issue fees of $4,000 were paid in cash. The acquisition was accounted for as a purchase.
4. Punto Company paid $50,000 cash for the 85% interest in Rob Company.
5. Three thousand dollars of Sara Companys notes payable and $9,500 of Rob Company's notes payable were payable to Punto Company.
6. Assume that for Sara, any difference between book value and the value implied by the purchase price relates to subsidiary land. However, for Rob, assume that any excess of book value over the value implied by the purchase price is due to overvalued buildings.

A. Give the book entries to record the two acquisitions in the accounts of Punto Company.
B. Prepare a consolidated balance sheet workpaper immediately after acquisition.
C. Prepare a consolidated balance sheet at the date of acquisition for Punto Company and its subsidiaries.


Click here for the solution: On February 1, 2011, Punto Company purchased 95% of the outstanding common stock of Sara Company

Brainiac Company purchased a delivery truck for $30,000 on January 1, 2011 (ACC 291 Week 2 Assignment)

ACC 291 Week 2 Assignment

E9-7 Brainiac Company purchased a delivery truck for $30,000 on January 1, 2011. The truck has a expected salvage value of 2,000 and is expected to be driven 100,000 miles over its estimated useful life of 8 years. Actual miles driven were 15,000 in 2011 and 12,000 in 2012.

Instructions
a) compute depreciation expense for 2010 and 2011 using (1) the straight line method (2) the units of activity method and (3) the double declining balance method.
b) Assume that Brainiac uses the straight line method
(1) prepare the journal entry to record 2010 depreciation.
(2) Show how the truck would be reported in the December 31, 2010 balance sheet.


Click here for the solution: Brainiac Company purchased a delivery truck for $30,000 on January 1, 2011

Shine Corporation purchased 30 percent of the common stock of Ash Corporation on January 1, 2002

Shine Corporation purchased 30 percent of the common stock of Ash Corporation on January 1, 2002, at $28,000 in excess of underlying book value. The excess is attributable to equipment with a remaining useful life of 2 years. The companies reported the following operating results and dividends for the 3 years following the date of purchase:

Shine Ash
Operating Income Dividends Net Income Dividends
2002 1,000,000 130,000 400,000 40,000
2003 960,000 140,000 300,000 40,000
2004 1,200,000 140,000 500,000 22,000

Required:
A) Compute the net income reported by Shine for each of the 3 years, assuming Shine accounts for its investment in Ash using the cost method.

B) Compute the net income reported by Shine for each of the 3 years, assuming Shine accounts for its investment in Ash using the equity method.


Click here for the solution: Shine Corporation purchased 30 percent of the common stock of Ash Corporation on January 1, 2002

Two years ago your corporate treasurer purchased for the firm a 20-year bond at its par value of $1,000

16.9. (Interest rate risk) Two years ago your corporate treasurer purchased for the firm a 20-year bond at its par value of $1,000. The coupon rate on this security is 8 percent. Interest payments are made to bond holders once a year. Currently, bonds of this particular risk class are yielding investors 9 percent. A cash shortage has forced you to instruct your treasurer to liquidate the bond.

a. At what price will your bond be sold? Assume annual compounding.
b. What will be the amount of your gain or loss over the original purchase price?
c. What would be the amount of your gain or loss had the treasurer originally purchased a bond with a 4-year rather than a 20-year maturity?(Assume all the characteristics of the bonds are identical except their maturity periods.)
d. What do we call this type of risk assumed by your corporate treasurer?


Click here for the solution: Two years ago your corporate treasurer purchased for the firm a 20-year bond at its par value of $1,000