Problem
Beautiful, Inc.
Balance Sheet
December 31, 2021
Cash 425,621$
Accounts Receivable 1,654,887$ Not long term so no adjustment
Note Receivable 900,000$ Received on 2/1/2021 in return for a large service contract
Terms = no interest - 3 payments of 300,000 each Feb - need to calculate the present value
Building (net) 1,800,000$ Being used for normal operations so no adjustment
Construction 600,000$ Weighted Average expenditures 375000 to add in capitalized interest - started and completed in 2021
Equipment (net) 637,000$ No change in use
Idle Equipment (net) 107,000$ Used equipment dealer quoted $82,000 - original cost $450,000 - change in use so consider impairment
Broadcast License (net) 1,423,000$ 10 year remaining life but changes to the broadcast spectrum - so need to consider impairment
Company saves on royalties for using the broadcast spectrum on contract
Without the broadcast license the royalties would be 126,000 per year (this is the future cash flows)
Total Assets 7,547,508$
Accounts Payable 1,067,450$
Line of credit for construction 300,000$ Interest rate is 7% (rate for capitalized interest)
Note Payable 651,185$ Borrowed 800,000 on January 1, 2018 with monthly payments for 15 years at 6%
Need to calculate the payment and then the present value of future cash flows using new interest rate
Total Liabilities 2,018,635$
Paid In Capital 4,000,000$
Retained Earnings 1,528,873$
7,547,508$
The current interest rate for Beautiful is 7%.
Task
A. Show all journal entries needed to adjust to fair value where necessary.
B. Show the new balance sheet with fair value as indicated.
C. Show the journal entry to record the trade in of the idle equipment for new equipment (sticker price $105,000) plus payment of $10,000 to the equipment dealer. So you gave up the old equipment and cash for new equipment on March 1, 2022.