Question 1. Income statement and balance sheet information abstracted from a recent annual report of The Kroger Company, one of the world's largest retailers, appears below:
The significant accounting policies note disclosure contained the following: Required: 1.
Required:
1. Why is Kroger disclosing there placement cost of its LIFO inventory?
2. Assuming that year-end replacement cost figures approximate FIFO inventory values, estimate what the beginning and ending inventory balances for the fiscal year ended February 2, 2014, would have been if Kroger had used FIFO for all of its inventories.
3. Estimate the effect on cost of goods sold (that is, would it have been greater or less and by how much?) for the fiscal year ended February 2, 2014, if Kroger had used FIFO for all of its inventories.
Question 2.
On January 1, 2016, the Blackstone Corporation purchased a tract of land (site number 11) with a building for $600,000. Additionally, Blackstone paid a real estate broker's commission of $36,000, legal fees of $6,000, and title insurance of $18,000. The closing statement indicated that the land value was $500,000 and the building value was $100,000. Shortly after acquisition, the building was razed at a cost of $75,000. Blackstone entered into a $3,000,000 fixed-price contract with Barnett Builders, Inc., on March 1, 2016, for the construction of an office building on land site 11. The building was completed and occupied on September 30, 2017. Additional construction costs were incurred as follows:
Plans, specifications, and blueprints $12,000
Architects' fees for design and supervision 95,000
To finance the construction cost, Blackstone borrowed $3,000,000 on March 1, 2016. The loan is payable in 10 annual installments of $300,000 plus interest at the rate of 14%. Blackstone's average amounts of accumu- lated building construction expenditures were as follows:
For the period March 1 to December 31, 2016 $ 900,000
For the period January 1 to September 30, 2017 2,300,000
Required:
1. Prepare a schedule that discloses the individual costs making up the balance in the land account in respect of land site 11 as of September 30, 2017.
2. Prepare a schedule that discloses the individual costs that should be capitalized in the office building account as of September 30, 2017.
Question 3.
At December 31, 2015, Cord Company's plant asset and accumulated depreciation and amortization accounts had balances as follows:
Depreciation is computed to the nearest month and residual values are immaterial. Transactions during 2016 and other information:
a. OnJanuary6,2016,aplantfacilityconsistingoflandandbuildingwasacquiredfromKingCorp.inexchange for 25,000 shares of Cord's common stock. On this date, Cord's stock had a fair value of $50 a share. Current assessed values of land and building for property tax purposes are $187,500 and $562,500, respectively.
b. On March 25, 2016, new parking lots, streets, and sidewalks at the acquired plant facility were completed at a total cost of $192,000. These expenditures had an estimated useful life of 12 years.
c. The leasehold improvements were completed on December 31, 2012, and had an estimated useful life of eight years. The related lease, which would terminate on December 31, 2018, was renewable for an additional four- year term. On April 29, 2016, Cord exercised the renewal option.
d. On July 1, 2016, machinery and equipment were purchased at a total invoice cost of $325,000. Additional costs of $10,000 for delivery and $50,000 for installation were incurred.
e. On August 30, 2016, Cord purchased a new automobile for $12,500.
f. On September 30, 2016, a truck with a cost of $24,000 and a book value of $9,100 on date of sale was sold for $11,500. Depreciation for the nine months ended September 30, 2016, was $2,650.
g. On December 20, 2016, a machine with a cost of $17,000 and a book value of $2,975 at date of disposition was scrapped without cash recovery.
Required:
1. Prepare a schedule analyzing the changes in each of the plant asset accounts during 2016. This schedule should include columns for beginning balance, increase, decrease, and ending balance for each of the plant asset accounts. Do not analyze changes in accumulated depreciation and amortization.
2. For each asset category, prepare a schedule showing depreciation or amortization expense for the year ended December 31, 2016. Round computations to the nearest whole dollar.
Question 4. Problem 13-1
Blanton Plastics, a household plastic product manufacturer, borrowed $14 million cash on October 1, 2016, to provide working capital for year-end production. Blanton issued a four-month, 12% promissory note to L&T Bank under a prearranged short-term line of credit. Interest on the note was payable at maturity. Each firm's fiscal period is the calendar year.
Required: 1. Prepare the journal entries to record (a) the issuance of the note by Blanton Plastics and (b) L&T Bank's receivable on October
1, 2016.
2. Prepare the journal entries by both firms to record all subsequent events related to the note through January 31, 2017.
3. Suppose the face amount of the note was adjusted to include interest (a noninterest-bearing note) and 12% is the bank's stated discount rate. (a) Prepare the journal entries to record the issuance of the noninterest-bearing note by Blanton Plastics on October 1, 2016, the adjusting entry at December 31, and payment of the note at maturity. (b) What would be the effective interest rate?