Question 1 - While preparing for their year end, Luge Inc. noticed an error from the previous year, they had recorded the $20,000 interest portion of a payment on Notes Payable had not been included in their interest expense.
Luge's income tax rate 20%
Required A: Prepare the entry to correct the prior period error.
Required B: Explain the accounting for a change in accounting estimate.
Question 2 - On January 1, 2014 Bubba Inc. issued 5 years bonds with semi-annual payments and the additional details below:
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Total face value of bonds issued
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300,000.00
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Bond interest rate
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5%
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Market interest rate at time of issue
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6%
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Required A: Prepare a bond amortization table for the new issue.
Required B: Prepare the journal entry to record the issuance of the bonds. Prepare the journal entries for the first two interest payments.
Required C: Show how the bonds would appear on the balance sheet as of December 31, 2014.
Question 3: Rocket Co. has decided to lease some equipment for their manufacturing facility beginning July 1, 2014. Payments are made annually on June 30th. Rocket Co. uses the straight line method of depreciation. The equipment has a useful life of 10 years with no salvage value at the end.
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Annual lease payment
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$ 25,000.00
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Market rate of interest
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7%
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Length of lease (# of years)
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10
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Required A: Calculate the Present Value of the lease.
Required B: Prepare the journal entry to record the initial leasing of the equipment.
Required C: Prepare the journal entries for the first two lease payments.
Required D: Prepare the journal entry for the first year's deprectiaton.
Required E: Is the lease an operating lease or a finance lease? Why?