Reference no: EM13496944

Allocating the Cost of Long-Lived Assets ( put a link for the article to support your answer )

As you have seen, companies sometimes have choices in financial accounting. In this module, you have learned of three widely

used depreciation methods that can be used. Discuss why these choices exist.

Would it be possible to force all companies to use one depreciation method?  Why or why not?

Problem 1

Assume the following transactions occurred during the year. The annual accounting period ends on December 31.

 

Jan. 15	Purchased and paid for merchandise for resale at an invoice cost of $15,600. A periodic inventory system is used.
Apr. 1	Borrowed $800,000 from a bank for general use, executing a one-year, 5% note payable
June 14	Received a $12,000 customer deposit for services to be performed in the future.
July 15	Performed $4,250 of the services paid for on June 14.
Dec. 15	Received an electric bill for $25,680. The bill will be paid in early January.
Dec. 31	Determined wages owed to employees to be $13,500 that will be paid on January 2.

Required:

1. Prepare journal entries for each of the transactions listed.
2. Prepare any required adjusting entries on December 31.

 

Problem 2

On January 1, a company completed the following transactions.

1. Borrowed $100,000 for six years. Interest payments of $6,200 will be due at the end of each year and the $100,000 will be repaid at the end of the sixth year.
2. Established a plant fund of $390,000 to be available at the end of year seven. A single amount will be deposited today to grow to $390,000.
3. Agreed to a buyout package for a former executive. The company will pay $80,000 at the end of the first year; $120,000 at the end of the second year; and $165,000 at the end of the third year.

 

Required (assume a 6% annual rate for all transactions and round to the nearest dollar):

1. For transaction a, determine the present value of the debt.
2. For transaction b, determine the amount that must be deposited on January 1. How much interest revenue will be earned over the six years?
3. For transaction c, determine the present value of the obligation.

Problem 3

A company issued a $50,000 four-year, 4% bond on January 1. Bond interest is paid each December 31. The bond was sold to yield 5%.

Required:

Complete a bond amortization schedule for the life of the bond using the effective interest method.

Problem 4

A company with an annual accounting year ending on December 31 issued bonds on January 1 in the amount of $500,000 maturing in 10 years with interest payable each June 30 and December 31 at a 6% annual rate. The company uses straight-line amortization for any bond discounts or premiums.

Required:

Provide the following amounts to be reported in the company financial statements at the end of year one under each scenario.

 

	Issued at Par	Issued at 99	Issued at 102
Interest expense
Bonds payable
Unamortized premium or discount
Net bond liability
Cash interest paid

Problem 5

A corporation was formed on January 1 and was authorized to issue 400,000 shares of common stock at $2 par value. During the first year of operations, the company earned $325,000 and the following transactions occurred:

1. Sold 150,000 shares of common stock in an initial public offering of $15 per share
2. Repurchased 35,000 shares of previously common stock at $20 to be held as treasury shares.
3. Resold 5,000 of the treasury stock at $22 per share.
4. Market price of the outstanding shares on December 31 was $25

 

Required:

Prepare the stockholders' equity section of the balance sheet at December 31 of the first year.