Question 1: Basket purchase allocation Crow Co. purchased some of the machinery of Hare, Inc., a bankrupt competitor, at a liquidation sale for a total cost of $50,400. Crow’s cost of moving and installing the machinery totaled $4,800. The following data are available:
| Item |
Hares NBV on date of sale |
|
List Price same Item new |
|
Appraiser estimate of FMV |
| Punch press |
$30,240 |
$54,000 |
$36,000 |
| Lathe |
$24,192 |
$27,000 |
$18,000 |
| Welder |
$6,048 |
$9,000 |
$6,000 |
| Total |
$60,480 |
$90,000 |
$60,000 |
a. Calculate the amount that should be recorded by Crow Co. as the cost of each piece of equipment
| First calculate the value of the equipment |
|
Cost |
|
|
| Move/Install |
|
| Total |
|
| Item |
Appraiser estimate of FMV |
|
% of Total |
|
Total Allocated |
|
Purcase Price Allocation |
| Punch press |
|
|
|
|
| Lathe |
|
|
|
|
| Welder |
|
|
|
|
| Total |
|
|
|
|
b. Which of the following alternatives should be used as the depreciable life for Crow Co.’s depreciation calculation? Explain your answer.
The remaining useful life to Hare, Inc.
The life of a new machine.
The useful life of the asset to Crow Co.
Question 2: Transaction analysis—various accounts. Prepare an answer sheet with the fol-lowing column headings. For each of the following transactions or adjustments, in-dicate the effect of the transaction or adjustment on assets, liabilities, and net income by entering for each account affected the account name and amount and indicating whether it is an addition (1) or a subtraction (2). Transaction a has been done as an illustration. Net income is not affected by every transaction.
| |
Assets |
Liabilities |
Net Income |
| |
|
Acct |
$ |
Acct |
$ |
Acct |
$ |
| a |
Accumulated Depr |
($200) |
|
|
Depr exp |
($200) |
| |
|
| b |
|
|
|
|
|
|
| |
|
|
|
| c |
|
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| d |
|
|
|
|
|
|
| e |
|
|
|
|
|
|
| |
|
|
|
|
|
| f |
|
|
|
|
|
|
| g |
|
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| h |
|
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
Assets Liabilities Net Income
a. Recorded 5200 Accumulated Depreciation
of depreciation Depreciation Expense
expense. -200 -200
b. Sold land that had originally cost $39,000 for $34,200 in cash.
c. Recorded a $204.000 payment for the cost of developing and registering a patent.
d. Recognized periodic amortization for the patent (in part c) using the maximum statutory useful life.
e. Capitalized $9,600 of cash expenditures made to extend the useful life of produc¬tion equipment.
f. Expensed $5,400 of cash expenditures incurred for routine maintenance of pro¬duction equipment.
g. Sold a used machine for $27,000 in cash. The machine originally cost $90.000 and had been depreciated for the first two years of its five-year useful life using the double-declining-balance method. (Hint You must compute the balance of the accumulated depreciation account before you can record the sale.)
h. Purchased a business for $960,000 in cash. The fair values of the net assets acquired were as follows: Land, $120,000; Buildings, $600.000; Equipment, $300,000: and Long-Term Debt, $210,000.
Question 3: Unearned revenues—ticket sales Kirkland Theater sells season tickets for six events at a price of $378. For the 2013 season, 1,200 season tickets were sold.
Price $378
Tickets 1,200
Required:
a. Use the horizontal model (or write the journal entry) to show the effect of the sale of the season tickets.
| Balance sheet |
Income statement |
| Assets |
Liabilities |
SE |
Income |
| Acct |
$ |
Acct |
$ |
Acct |
$ |
Acct |
$ |
| |
|
|
|
|
|
|
|
b. Use the horizontal model (or write the journal entry) to show the effect of presenting an event.
| Balance sheet |
Income statement |
| Assets |
Liabilities |
SE |
Income |
| Acct |
$ |
Acct |
$ |
Acct |
$ |
Acct |
$ |
| |
|
|
|
|
|
|
| |
|
|
|
|
|
c. Where on the balance sheet would the account balance representing funds received for performances not yet presented be classified?
Question 4: Transaction analysis—various accounts Enter the following column headings. Enter the transaction/adjustment letter in the first column and show the effect, if any, of each transaction/adjustment on the appropriate balance sheet category or on net income by entering for each category affected the account name and amount, and indicating whether it is an addition (1) or a subtraction (−). Items that affect net income should not also be shown as affecting stockholders’ equity. You may also write the journal entries to record each transaction/adjustment.
| |
Current assets |
Noncurrent asset |
Current Liability |
Non current liability |
SE |
Net income |
| |
Acct |
$ |
Acct |
$ |
Acct |
$ |
Acct |
$ |
Acct |
$ |
Acct |
$ |
| a |
|
|
|
|
|
|
|
|
|
|
|
|
| b |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| c |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| d |
|
|
|
|
|
|
|
|
|
|
|
|
| e |
|
|
|
|
|
|
|
|
|
|
|
|
| f |
|
|
|
|
|
|
|
|
|
|
|
|
a. Recorded the financing (capital) lease of a truck. The present value of the lease payments is $65,000; the total of the lease payments to be made is $78,000.
b. Recorded the company's payroll for the month. Gross pay was $7,200, net pay was $5,100, and various withholding liability accounts were credited for the difference.
c. Issued $21,000 of bonds payable at a price of 103.
d. Adjusted the estimated liability under a warranty program by reducing previ¬ously accrued warranty expense by $4,200.
e. Retired bonds payable with a carrying value of $12,000 by calling them at a redemption value of 101.
f. Accrued estimated health care costs for retirees; $18,000 is expected to be paid within a year, and $155,000 is expected to be paid in more than a year.