Exam 2 review
The following information relates to a company’s accounts receivable: gross accounts receivable balance at the beginning of the year, $300,000; allowance for uncollectible accounts at the beginning of the year, $25,000 (credit balance); credit sales during the year, $1,500,000; accounts receivable written off during the year, $16,000; cash collections from customers, $1,450,000. Assuming the company estimates bad debts at an amount equal to 2% of credit sales.
39000
Patty's Pet Store purchased inventory on October 10 at a price of $50,000, subject to credit terms of 4/10 , n/30 . Patty's uses the gross method for recording purchases and uses perpetual inventory system.
Prepare the journal entry to record the payment of one-half the invoice amount on October 18.
DEBIT Accounts payable 25,000
CREDIT Inventory 1,000
CREDIT Cash 24,000
Collison and Ryder Company (C&R) has been experiencing declining market conditions for its sportswear division. Management decided to test the assets of the division for possible impairment. The test revealed the following: book value of division’s assets, $26.5 million; fair value of division’s assets, $21 million; undiscounted sum of estimated future cash flows generated from the division’s assets, $28 million.
What amount of impairment loss should C&R report in its income statement?
On January 1, 2027, the Marjlee Company began construction of an office building to be used as its corporate headquarters. The building was completed early in 2028. Construction expenditures for 2027, which were incurred evenly throughout the year, totaled $6,000,000. Marjlee had the following debt obligations which were outstanding during all of 2027:
Calculate the amount of interest capitalized in 2027 for the building using the specific interest method.
Construction loan, 10% $ 1,500,000
Long-term note, 9% $2,000,000
Long-term note, 6% $4,000,000
Interest capitalized$255,000
Omni-Resistor, Incorporated specializes in waterproofing homes, office buildings and other structures. Recently it completed a waterproofing renovation for a building at a local university. The contract specifies that Omni-Resistor will receive a flat lump sum of $100,000 for the renovation, and an additional $2,500 if there is no water leaking through the roof within the first year after the renovation. The seller estimates that there is an 85% chance that no leakage will occur within the first year.
Assuming Omni-Resistor determines transaction price as the “expected value” of the variable consideration, calculate the transaction price.
102,500
A company acquired as a long-term investment $270 million of 8% bonds, dated July 1, on July 1, Year 1. Company management has classified the bonds as an available-for-sale investment. The market interest rate (yield) was 6% for bonds of similar risk and maturity. The company paid $310 million for the bonds. The company will receive interest semiannually on June 30 and December 31. As a result of changing market conditions, the fair value of the bonds at December 31, Year 1, was $290 million.
At what amount will the company report its investment in the December 31, Year 1, balance sheet?
290 million
Collison and Ryder Company (C&R) has been experiencing declining market conditions for its sportswear division. Management decided to test the assets of the division for possible impairment. The test revealed the following: book value of division’s assets, $26.5 million; fair value of division’s assets, $21 million; undiscounted sum of estimated future cash flows generated from the division’s assets, $24 million.
What amount of impairment loss should C&R report in its income statement?
5.5 million
Cedric Company recently traded in an older model of equipment for a new model. The old model’s book value was $180,000 (original cost of $400,000 less $220,000 in accumulated depreciation) and its fair value was $170,000. Cedric paid $60,000 to complete the exchange which has commercial substance.
DEBIT
Equipment - 230,000
Accumulated depreciation 220,000
Loss on exchange 10,000
CREDIT
Cash 60,000
Equipment - old 400,000
Sarjit Systems sold software to a customer for $80,000. As part of the contract, Sarjit promises to provide “free” technical support over the next six months. Sarjit sells the same software without technical support for $70,000 and a stand-alone six-month technical support contract for $30,000, so these products would sell for $100,000 if sold separately.
Prepare Sarjit’s journal entry to record the sale of the software.
DEBIT Cash 80,000
CREDIT Sales revenue 56,000
CREDIT Deferred revenues24,000
Shown below is activity for one of the products of Denver Office Equipment:
January 1 balance, 570 units @ $50 per unit $28,500
Purchases:
January 10: 570 units @ $60 per unit
January 20: 1,060 units @ $61 per unit
Sales:
January 12: 1,000 units
January 28: 770 units
Compute the January 31 ending inventory and cost of goods sold for January, assuming Denver uses average cost and a perpetual inventory system.
Ending inventory$25,929
Cost of goods sold$101,431
On May 28, 2027, Pesky Corporation acquired all of the outstanding common stock of Harman, Incorporated, for $420 million. The fair value of Harman's identifiable tangible and intangible assets totaled $512 million, and the fair value of liabilities assumed by Pesky was $150 million.
Pesky performed a goodwill impairment test at the end of its fiscal year ended December 31, 2027. Management has provided the following information:
Fair value of Harman, Incorporated:$ 400million
Fair value of Harman’s net assets (excluding goodwill): $370million
Book value of Harman’s net assets (including goodwill) $410million
If an impairment loss is required, prepare the journal entry to record the loss.
DEBIT Loss on Impairment of Goodwill 10
CREDIT Goodwill 10
On January 1, 2027, Wright Transport sold four school buses to the Elmira School District. In exchange for the buses, Wright received a note requiring payment of $515,000 by Elmira on December 31, 2029. The effective interest rate is 8%.
What is the interest accrual for 2028?
38,148
A company acquired as a long-term investment $280 million of 6.0% bonds, dated July 1, on July 1, Year 1. Company management has the positive intent and ability to hold the bonds until maturity. The market interest rate (yield) was 8% for bonds of similar risk and maturity. The company paid $250.0 million for the bonds. The company will receive interest semiannually on June 30 and December 31. As a result of changing market conditions, the fair value of the bonds at December 31, Year 1, was $260.0 million.
At what amount will the company report its investment in the December 31, Year 1, balance sheet?
251.6
At the beginning of 2025, Robotics Incorporated acquired a manufacturing facility for $12 million. $9 million of the purchase price was allocated to the building. Depreciation for 2025 and 2026 was calculated using the straight-line method, a 25-year useful life, and a $1 million residual value. In 2027, the estimates of useful life and residual value were changed to 20 total years and $500,000, respectively.
What is depreciation on the building for 2027?
436,667
Montana Minerals sold coal to Beta Electric, receiving a six-month, noninterest-bearing note for $200,000. The fair value of the goods sold to Beta is $192,000. Montana uses a periodic inventory system, and views the financing component of this transaction to be significant.
Compute the effective annual rate of interest.
8.33%
Shown below is activity for one of the products of Denver Office Equipment:
January 1 balance, 580 units @ $60 per unit $34,800
Purchases:
January 10: 580 units @ $65 per unit
January 20: 1,040 units @ $68 per unit
Sales:
January 12: 900 units
January 28: 780 units
Compute the January 31 ending inventory and cost of goods sold for January, assuming Denver uses LIFO and a periodic inventory system.
Ending inventory$31,200
Cost of goods sold$112,020
Chadwick Enterprises, Incorporated, operates several restaurants throughout the Midwest. Three of its restaurants located in the center of a large urban area have experienced declining profits due to declining population. The company’s management has decided to test the assets of the restaurants for possible impairment. The relevant information for these assets is presented below at the end of 2027.
Book value: 6.5m
Estimated undiscounted sum of future cash flow: 4m
Fair value$3.5m
Required
Impairment loss $3.0 m
Book value$3.5m
Impairment loss$0