Nonmonetary Exchange Santana Company exchanged equipment used in its manufacturing operations plus $2,000
Nonmonetary Exchange Santana Company exchanged equipment used in its manufacturing operations plus $2,000 in cash for similar equipment used in the operations of Delaware Company. The following information pertains to the exchange.
Santana Co. Delaware Co.
Equipment (cost) $28,000 $28,000
Accumulated depreciation 19,000 10,000
Fair value of equipment 13,500 15,500
Cash given up 2,000
(a) Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange lacks commercial substance.
(b) Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange has commercial substance.
On December 31, 2008, Travis Tritt Inc. has a machine with a book value of $940,000. The original cost and related accumulated depreciation at this date are as follows.
Machine .......... $1,300,000
Accumulated depreciation ..... 360,000
Depreciation is computed at $60,000 per year on a straight-line basis.
Presented below is a set of independent situations. For each independent situation, indicate the journal entry to be made to record the transaction. Make sure that depreciation entries are made to update the book value of the machine prior to its disposal.
(a) A fire completely destroys the machine on August 31, 2009. An insurance settlement of $430,000 was received for this casualty. Assume the settlement was received immediately.
(b) On April 1, 2009, Tritt sold the machine for $1,040,000 to Dwight Yoakam Company.
(c) On July 31, 2009, the company donated this machine to the Mountain King City Council. The fair market value of the machine at the time of the donation was estimated to be $1,100,000.
Analysis of Subsequent Expenditures The following transactions occurred during 2011. Assume that depreciation of 10% per year is charged on all machinery and 5% per year on buildings, on a straight-line basis, with no estimated salvage value. Depreciation is charged for a full year on all fixed assets acquired during the year, and no depreciation is charged on fixed assets disposed of during the year.
Jan. 30 A building that cost $112,000 in 1994 is torn down to make room for a new building. The wrecking contractor was paid $5,100 and was permitted to keep all materials salvaged.
Mar. 10 Machinery that was purchased in 2004 for $16,000 is sold for $2,900 cash, f.o.b. purchaser plant. Freight of $300 is paid on the sale of this machinery.
Mar. 20 A gear breaks on a machine that cost $9,000 in 2006. The gear is replaced at a cost of $3,000. The replacement does not extend the useful life of the machine.
May 18 A special base installed for a machine in 2005 when the machine was purchased has to be replaced at a cost of $5,500 because of defective workmanship on the original base. The cost of the machinery was $14,200 in 2005. The cost of the base was $4,000, and this amount was charged to the Machinery account in 2005.
June 23 One of the buildings is repainted at a cost of $6,900. It had not been painted since it was constructed in 2007.
Prepare general journal entries for the transactions. (Round to the nearest dollar)
Analysis of Subsequent Expenditures Plant assets often requires expenditures subsequent to acquisition
Analysis of Subsequent Expenditures Plant assets often requires expenditures subsequent to acquisition. It is important that they be accounted for properly. Any errors will affect both the balance sheets and income statements for a number of years. For each of the following items, indicate whether the expenditure should be capitalized (C) or expensed (E) in the period incurred.
(a) __________ Improvement.
(b) __________ Replacement of a minor broken part on a machine.
(c) __________ Expenditure that increases the useful life of an existing asset.
(d) __________ Expenditure that increases the efficiency and effectiveness of a productive asset but does not increase its salvage value.
(e) __________ Expenditure that increases the efficiency and effectiveness of a productive asset and increases the asset salvage value.
(f) __________ Ordinary repairs.
(g) __________ Improvement to a machine that increased its fair market value and its production capacity by 30% without extending the machine useful life.
(h) __________ Expenditure that increases the quality of the output of the productive asset.
Celine Dion Company issued $600,000 of 10%, 20-year bonds on January 1, 2009, at 102. Interest is payable semiannually on July 1 and January 1. Dion Company uses the effective interest method of amortization for bond premium or discount. Assume an effective yield of 9.75%.
Prepare the journal entries to record the following. (Round to the nearest dollar.)
(a) The issuance of the bonds.
(b) The payment of interest and related amortization on July 1, 2009.
(c) The accrual of interest and the related amortization on December 31, 2009.
(a) Compute the rate of depreciation per year to be applied to the plant assets under the composite method.
(b) Prepare the adjusting entry necessary at the end of the year to record depreciation for the year.
(c) Prepare the entry to record the sale of asset D for cash of $4,800. It was used for 6 years, and depreciation was entered under the compositemethod.
The income statement of Rodriquez Company is shown below.
1. Accounts receivable decreased $310,000 during the year.
2. Prepaid expenses increased $170,000 during the year.
3. Accounts payable to suppliers of merchandise decreased $275,000 during the year.
4. Accrued expenses payable decreased $120,000 during the year.
5. Administrative expenses include depreciation expense of $60,000.
Prepare the operating activities section of the statement of cash flows for the year ended December 31, 2010, for Rodriquez Company, using the indirectmethod.
On January 1, 2011, Palmer Company leased equipment to Woods Corporation. The following information pertains to this lease.
1. The term of the non-cancelable lease is 6 years, with no renewal option. The equipment reverts to the lessor at the termination of the lease.
2. Equal rental payments are due on January 1 of each year, beginning in 2011.
3. The fair value of the equipment on January 1, 2011, is $200,000, and its cost is $150,000.
4. The equipment has an economic life of 8 years, with an unguaranteed residual value of $10,000. Woods depreciates all of its equipment on a straight-line basis.
5. Palmer sets the annual rental to ensure an 11% rate of return. Woods incremental borrowing rate is 12%, and the implicit rate of the lessor is unknown.
6. Collectibility of lease payments is reasonably predictable, and no important uncertainties surround the amount of costs yet to be incurred by the lessor.
(Both the lessor and the lessee accounting period ends on December 31)
(a) Discuss the nature of this lease to Palmer and Woods.
(b) Calculate the amount of the annual rental payment.
(c) Prepare all the necessary journal entries for Woods for 2011.
(d) Prepare all the necessary journal entries for Palmer for 2011.
Wenner Furnace Corp. purchased machinery for $279,000 on May 1, 2012. 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 2013, Wenner Corp. uses the machinery for 2,650 hours, and the machinery produces 25,500 units.
From the information given, compute the depreciation charge for 2013 under each of the following methods.
(Round to the nearest dollar.)
(c) Working hours.
Asset Acquisition Logan Industries purchased the following assets and constructed a building as well. All this was done during the current year.
Assets 1 and 2
These assets were purchased as a lump sum for $104,000 cash. The following information was gathered.
This machine was acquired by making a $10,000 down payment and issuing a $30,000, 2-year, zero-interest bearing note. The note is to be paid off in two $15,000 installments made at the end of the first and second years. It was estimated that the asset could have been purchased outright for $35,900.
This machinery was acquired by trading in used machinery. (The exchange lacks commercial substance.) Facts concerning the trade-in are as follows.
Cost of machinery traded $100,000
Accumulated depreciation to date of sale 36,000
Fair value of machinery traded 80,000
Cash received 10,000
Fair value of machinery acquired 70,000
Office equipment was acquired by issuing 100 shares of $8 par value common stock. The stock had a market value of $11 per share. Construction of Building A building was constructed on land purchased last year at a cost of $180,000. Construction began on February 1 and was completed on November 1. The payments to the contractor were as follows.
To finance construction of the building, a $600,000, 12% construction loan was taken out on February1. The loan was repaid on November 1. The firm had $200,000 of other outstanding debt during the year at a borrowing rate of 8%.Record the acquisition of each of theseassets.