Exercising Accounting Judgment
Response to the following problem:
You have recently started business as an accounting consultant. Companies come to you when they face difficult decisions about how to make certain journal entries. You are currently working on the following two problems, which are independent of one another.
a. Baggins Company sells hamburgers for $1.00 each. The cost of the materials used to make each hamburger is 30 cents. Baggins has a compensation plan in which its employees are paid in the form of cash and hamburgers. During 2009, Baggins paid cash salaries of $500,000 and also issued certificates to employees entitling them to 200,000 free hamburgers. The certificates are not redeemable until 2010. What journal entry or entries should Baggins make in 2009 to record this employee compensation information?
b. Radagast Company purchased a building for $100,000 cash on January 1, 2009. Because of poor business decisions, as of December 31, 2009, the building is worthless. Make all journal entries necessary in 2009 in connection with this building.