UNIVERSITY / INSTITUTE: Adams State College
CLASS / COURSE: BUS 306 Intermediate Accounting II
BUS 306 Intermediate Accounting II
Inter II Exam 2 Ch 11-13
On January 1, 2011, Hobart Mfg. Co. purchased a drill press at a cost of $36,000. The drill press is expected to last 10 years and have a residual value of $6,000. During its 10-year life, the equipment is expected to produce 500,000 units of product. In 2011 and 2012, 25,000 and 84,000 units, respectively, were produced.
1. Required: Compute depreciation for 2011 and 2012 and the book value of the drill press at December 31, 2011 and 2012, assuming the double-declining-balance method is used.
2. Required: Compute depreciation for 2011 and 2012 and the book value of the drill press at December 31, 2011 and 2012, assuming the units-of-production method is used.
3. On June 30, 2009, Mobley Corporation acquired a patent for $4 million. The patent was estimated to have an eight-year life and no residual value. Mobley uses the straight-line method of amortization for intangible assets. At the beginning of January 2011, Mobley successfully defended its patent against infringement. Litigation costs totaled $650,000.
Calculate patent amortization for 2009 and 2010.
Prepare the journal entry to record the 2011 litigation costs.
Calculate amortization for 2011.
Repeat requirements 2 and 3 assuming that Mobley prepares its financial statements according to International Financial Reporting Standards.
4. Sanders Corporation operates a factory in Arizona. Due to a change in business climate, an impairment test is deemed appropriate. Management has acquired the following information for the assets at the plant:
Required: 1. Determine the amount of impairment loss, if any.
2. If a loss is indicated, prepare the entry to record the loss
3. Repeat requirement 1 assuming that Sanders prepares its financial statements according to International Financial Reporting Standards. Also assume that the estimated fair value of the factory approximates fair value less costs to sell.
5. In 2009, Quasar LTD. acquired all of the common stock of Penlight Laser for $124 million. The fair value of Penlight's identifiable tangible and intangible assets totaled $205 million, and the fair value of liabilities assumed by Quasar was $95 million. Quasar performed the required goodwill impairment test at the end of its fiscal year ended December 31, 2011. Management has provided the following information:
Required: 1. Determine the amount of goodwill that resulted from the Penlight acquisition.
Determine the amount of goodwill impairment loss that Quasar should recognize at the end of 2011, if any. If an impairment loss is required, prepare the journal entry to record the loss.
6. FKG Inc. carries the following investments on its books at December 31, 2010, and December 31, 2011. All securities were purchased during 2010.
(1.) Prepare the necessary journal entries for FKG on December 31, 2010, and December 31, 2011.
(2.) What net effect would the valuation of these stock investments have on 2009 net income? On 2011 net income?
7. Jackson Company engaged in the following investment transactions during the current year.
Prepare the appropriate journal entries to record the transactions for the year including year-end adjustments. Show calculations.
8. On February 2, 2011, MBH Inc. acquired 30% of the voting common stock of Construction Corporation as a long-term investment. Data from Construction Corporation's financial statements for the year ended December 31, 2011, include the following:
Required: Prepare any necessary journal entries for MBH at December 31, 2011, under the equity method of accounting for investments.
9. On January 1, 2011, American Corporation purchased 25% of the outstanding voting shares of Short Supplies common stock for $210,000 cash. On that date, Short's book value and fair value were both $840,000. The equity method is deemed appropriate for this investment. Short's net income reported on December 31, 2011, was $80,000. During 2011, Short also paid cash dividends in the amount of $24,000.
Compute the amount that would be reported for the investment on American Corporation's financial statements at December 31, 2011.
10. Matrix, Inc acquired 25% of Neo Enterprises for $2,000,000 on January 1, 2011. The fair value and book value of 25% of Neo's identifiable net assets was $2,000,000 and $1,600,000 on that date, and the difference was attributable to assets that would be depreciated over 10 years. During 2011 Neo recognized net income of $500,000 and paid dividends of $400,000. Neo had a total fair value of $10,000,000 as of December 31, 2011.
Required: Prepare the journal entries necessary to account for the Neo investment, assuming that Fredo accounts for that investment as (1) an equity method investment, and (2) elects the fair-value option.
11. On September 1, 2011, Triton Entertainment borrowed $24 million cash to fund a new Fun Park. The loan was made by Nevada Bank under a noncommitted short-term line of credit arrangement. Triton issued a 9-month, 12% promissory note. Interest was payable at maturity. Triton's fiscal period is the calendar year.
1. Prepare the journal entry for the issuance of the note by Triton.
2. Prepare the appropriate adjusting entry for the note by Triton on December 31, 2011.
3. Prepare the journal entry for the payment of the note at maturity.
12. Grossman Products began operations in 2011. The following selected transactions occurred from September 2011 through March 2012. Grossman's fiscal year ends on December 31.
(a.) On September 5, Grossman opened a checking account and negotiated a short-term line of credit of up to $10,000,000 at 10% interest. The company is not required to pay any commitment fees.
(b.) On October 1, Grossman borrowed $8,000,000 cash and issued a 5-month promissory note with 10% interest payable at maturity.
(c.) Grossman received $3,000 of refundable deposits in December for reusable containers.
(d.) For the September through December period, sales totaled $5,000,000. The state sales tax rate is 4% and 75% of sales are subject to sales tax.
(e.) Grossman recorded accrued interest.
(f.) Grossman paid the promissory note on the March 1 due date.
(g.) Half of the storage containers are returned in March, with the other half expected to be returned over the next 6 months.
1. Prepare the appropriate journal entries for the 2011 transactions.
2. Prepare the liability section of the balance sheet at December 31, 2011, based on the data supplied.
3. Prepare the appropriate journal entries for the 2012 transactions.
13. On November 1, 2011, a $216,000, 9-month, noninterest-bearing note is issued at a 10% discount rate.
(1.) Prepare the appropriate journal entry to record the issuance of the note.
(2.) Determine the effective interest rate.
(3.) Prepare the appropriate journal entry on December 31, 2011, to record interest on the note for the 2011 financial statements.
(4.) Prepare the appropriate journal entry(s) on July 31, 2012, to record interest and the payment of the note.
14. The following selected transactions relate to liabilities of Rose Dish Corporation. Rose's fiscal year ends on December 31.
Prepare the appropriate journal entries through the maturity of each liability.
Feb. 3 Negotiated a revolving credit agreement with Second Bank which can be renewed annually upon bank approval. The amount available under the line of credit is $30,000,000 at the bank's prime rate.
April 1 Arranged a 3-month bank loan of $12 million with Second Bank under the line of credit agreement. Interest at the prime rate of 8% was payable at maturity.
July 1 Paid the 8% note at maturity.
Nov. 1 Supported by the credit line, issued $20 million of commercial paper on a nine-month note. Interest was discounted at issuance at a 6% discount rate.
Dec. 31 Recorded any necessary adjusting entry(s).
Aug. 1 Paid the commercial paper at maturity.
15. The following facts relate to gift cards sold by Sunbru Coffee Company during 2011. Sunbru's fiscal year ends on December 31.
(a.) In October, 2011 sold $3,000 of gift cards, and redeemed $500 of those gift cards.
(b.) In November, 2011, sold $4,000 of gift cards, and redeemed $1,400 of October gift cards and $700 of November gift cards.
(c.) In December, 2011, sold $3,000 of gift cards, and redeemed $200 of October gift cards, $2,000 of November gift cards, and $400 of December gift cards.
(d.) Sunbru views a gift card to be "broken" (with a remote probability of redemption) two months after the end of the month in which it is sold. Thus, an unredeemed gift card sold at any time during July would be viewed as broken as of September 30.
1. Prepare all journal entries appropriate to be recorded only during the month of December, 2011 relevant to gift card sales, gift card redemptions, and gift card breakage.
2. Determine the balance of the unearned revenue liability to be reported in the December 31, 2011, balance sheet. Show the relevant T-account information to support your answer.
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