Question 1: Monty Company traded a used welding machine (cost $9,180, accumulated depreciation $3,060) for office equipment with an estimated fair value of $5,100. Monty also paid $3,060 cash in the transaction.
Prepare the journal entry to record the exchange. (The exchange has commercial substance.) (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Question 2: Cheyenne Corporation operates a retail computer store. To improve delivery services to customers, the company purchases four new trucks on April 1, 2017. The terms of acquisition for each truck are described below.
1. Truck #1 has a list price of $40,350 and is acquired for a cash payment of $37,391.
2. Truck #2 has a list price of $43,040 and is acquired for a down payment of $5,380 cash and a zero-interest-bearing note with a face amount of $37,660. The note is due April 1, 2018. Cheyenne would normally have to pay interest at a rate of 9% for such a borrowing, and the dealership has an incremental borrowing rate of 8%.
3. Truck #3 has a list price of $43,040. It is acquired in exchange for a computer system that Cheyenne carries in inventory. The computer system cost $32,280 and is normally sold by Cheyenne for $40,888. Cheyenne uses a perpetual inventory system.
4. Truck #4 has a list price of $37,660. It is acquired in exchange for 900 shares of common stock in Cheyenne Corporation. The stock has a par value per share of $10 and a market price of $13 per share.
Prepare the appropriate journal entries for the above transactions for Cheyenne Corporation. (Round present value factors to 5 decimal places, e.g. 0.52587 and final answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Question 3: Presented below is information related to Cheyenne Company.
1. On July 6, Cheyenne Company acquired the plant assets of Doonesbury Company, which had discontinued operations. The appraised value of the property is:
Land $435,000
Buildings 1,305,000
Equipment 870,000
Total $2,610,000
Cheyenne Company gave 12,500 shares of its $100 par value common stock in exchange. The stock had a market price of $181 per share on the date of the purchase of the property.
2. Cheyenne Company expended the following amounts in cash between July 6 and December 15, the date when it first occupied the building. (Prepare consolidated entry for all transactions below.)
Repairs to building $104,110
Construction of bases for equipment to be installed later 137,610
Driveways and parking lots 132,120
Remodeling of office space in building, including new partitions and walls 150,190
Special assessment by city on land 16,730
3. On December 20, the company paid cash for equipment, $277,700, subject to a 2% cash discount, and freight on equipment of $10,120.
Prepare entries on the books of Cheyenne Company for these transactions. (Round intermediate calculations to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places e.g. 58,971. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Question 4: Whispering Company purchased equipment for $251,930 on October 1, 2017. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $14,160. Estimated production is 40,300 units and estimated working hours are 20,100. During 2017, Whispering uses the equipment for 530 hours and the equipment produces 1,100 units.
Compute depreciation expense under each of the following methods. Whispering is on a calendar-year basis ending December 31. (Round rate per hour and rate per unit to 2 decimal places, e.g. 5.35 and final answers to 0 decimal places, e.g. 45,892.)
(a) Straight-line method for 2017 $
(b) Activity method (units of output) for 2017 $
(c) Activity method (working hours) for 2017 $
(d) Sum-of-the-years'-digits method for 2019 $
(e) Double-declining-balance method for 2018 $
Question 5: On March 10, 2019, Coronado Company sells equipment that it purchased for $195,840 on August 20, 2012. It was originally estimated that the equipment would have a life of 12 years and a salvage value of $17,136 at the end of that time, and depreciation has been computed on that basis. The company uses the straight-line method of depreciation.
Compute the depreciation charge on this equipment for 2012, for 2019, and the total charge for the period from 2013 to 2018, inclusive, under each of the six following assumptions with respect to partial periods. (Round depreciation per day to 2 decimal places, e.g. 15.64 and final answers to 0 decimal places, e.g. 45,892.)
2012 2013-2018 Inclusive 2019
(1) Depreciation is computed for the exact period of time during which the asset is owned. (Use 365 days for the base and record depreciation through March 9, 2019.) $
(2) Depreciation is computed for the full year on the January 1 balance in the asset account. $
(3) Depreciation is computed for the full year on the December 31 balance in the asset account. $
(4) Depreciation for one-half year is charged on plant assets acquired or disposed of during the year. $
(5) Depreciation is computed on additions from the beginning of the month following acquisition and on disposals to the beginning of the month following disposal. $
(6) Depreciation is computed for a full period on all assets in use for over one-half year, and no depreciation is charged on assets in use for less than one-half year. (Use 365 days for base.) $
Question 6: On March 10, 2019, Lost World Company sells equipment that it purchased for $192,000 on August 20, 2012. It was originally estimated that the equipment would have a life of 12 years and a salvage value of $16,800 at the end of that time, and depreciation has been computed on that basis. The company uses the straightline method of depreciation.
Following are the assumptions with respect to partial periods:
(1) Depreciation is computed for the exact period of time during which the asset is owned. (Use 365 days for the base and record depreciation through March 9, 2019.)
(2) Depreciation is computed for the full year on the January 1 balance in the asset account.
(3) Depreciation is computed for the full year on the December 31 balance in the asset account.
(4) Depreciation for one-half year is charged on plant assets acquired or disposed of during the year.
(5) Depreciation is computed on additions from the beginning of the month following acquisition and on disposals to the beginning of the month following disposal.
(6) Depreciation is computed for a full period on all assets in use for over one-half year, and no depreciation is charged on assets in use for less than one-half year. (Use 365 days for base.)
Briefly evaluate the methods above, considering them from the point of view of basic accounting theory as well as simplicity of application.
Question 7: The 2014 Annual Report of Tootsie Roll Industries contains the following information. (in millions) December 31, 2014 December 31, 2013
Total assets $910.4 $888.4
Total liabilities 219.3 208.1
Net sales 539.9 539.6
Net income 63.2 60.8
Compute the following ratios for Tootsie Roll for 2014.
(a) Asset turnover (Round answer to 4 decimal places, e.g. 0.8512 times.) times
(b) Return on assets (Round answer to 2 decimal places, e.g. 4.87%.) %
(c) Profit margin on sales (Round answer to 3 decimal places, e.g. 4.872%.) %
Question 8: Presented below is a list of items that could be included in the intangible assets section of the balance sheet.
(a) Indicate which items on the list below would generally be reported as intangible assets in the balance sheet.
Reported as: 1. Investment in a subsidiary company.
2. Timberland.
3. Cost of engineering activity required to advance the design of a product to the manufacturing stage.
4. Lease prepayment (6 months' rent paid in advance).
5. Cost of equipment obtained.
6. Cost of searching for applications of new research findings.
7. Costs incurred in the formation of a corporation.
8. Operating losses incurred in the start-up of a business.
9. Training costs incurred in start-up of new operation.
10. Purchase cost of a franchise.
11. Goodwill generated internally.
12. Cost of testing in search for product alternatives.
13. Goodwill acquired in the purchase of a business.
14. Cost of developing a patent.
15. Cost of purchasing a patent from an inventor.
16. Legal costs incurred in securing a patent.
17. Unrecovered costs of a successful legal suit to protect the patent.
18. Cost of conceptual formulation of possible product alternatives.
19. Cost of purchasing a copyright.
20. Research and development costs.
21. Long-term receivables.
22. Cost of developing a trademark.
23. Cost of purchasing a trademark.
Question 9: Presented below is selected information for Oriole Company.
Answer the questions asked about each of the factual situations.
1. Oriole purchased a patent from Vania Co. for $1,140,000 on January 1, 2015. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2025. During 2017, Oriole determined that the economic benefits of the patent would not last longer than 6 years from the date of acquisition. What amount should be reported in the balance sheet for the patent, net of accumulated amortization, at December 31, 2017?
The amount to be reported $
2. Oriole bought a franchise from Alexander Co. on January 1, 2016, for $320,000. The carrying amount of the franchise on Alexander's books on January 1, 2016, was $470,000. The franchise agreement had an estimated useful life of 30 years. Because Oriole must enter a competitive bidding at the end of 2018, it is unlikely that the franchise will be retained beyond 2025. What amount should be amortized for the year ended December 31, 2017?
The amount to be amortized $
3. On January 1, 2017, Oriole incurred organization costs of $260,000. What amount of organization expense should be reported in 2017?
The amount to be reported $
4. Oriole purchased the license for distribution of a popular consumer product on January 1, 2017, for $144,000. It is expected that this product will generate cash flows for an indefinite period of time. The license has an initial term of 5 years but by paying a nominal fee, Oriole can renew the license indefinitely for successive 5-year terms. What amount should be amortized for the year ended December 31, 2017?
The amount to be amortized $
Question 10: Presented below is net asset information related to the Kingbird Division of Santana, Inc.
KINGBIRD DIVISION
NET ASSETS
AS OF DECEMBER 31, 2017
(IN MILLIONS)
Cash $51
Accounts receivable 200
Property, plant, and equipment (net) 2,595
Goodwill 201
Less: Notes payable (2,590 )
Net assets $457
The purpose of the Kingbird Division is to develop a nuclear-powered aircraft. If successful, traveling delays associated with refueling could be substantially reduced. Many other benefits would also occur. To date, management has not had much success and is deciding whether a write-down at this time is appropriate. Management estimated its future net cash flows from the project to be $405 million. Management has also received an offer to purchase the division for $330 million. All identifiable assets' and liabilities' book and fair value amounts are the same.
(a) Prepare the journal entry to record the impairment at December 31, 2017. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)