How each option affects the financial statements

Reference no: EM132730495

Construct the new equipment in-house and sell the old equipment for cash at a fair value of $60,000. B & E would take out a one-year construction loan for $500,000 at the time construction begins at a short-term borrowing rate of 10% for the construction Anticipated actual expenditures for constructing the equipment are $580,000. The bulk of the $580,000 will be financed with the construction loan, and the balance will be financed through accounts payable. The interest on the short-term note is due and payable by year-end. (Note: Construction is assumed to be completed at December 31,2019.)

Instructions

Question (a) journal entries in general journal form

Question (b) a brief memo on how each option affects the financial statements. Include your journal entry(ies) in the body of your memo. Discuss the strengths and weaknesses.

Question (c) Since you are now in the process of analyzing the quantitative effects of this decision, you decide to also consider whether the acquisition of any new equipment will cause any employees to lose jobs. Also you wonder if there are other non-financial and/or ethical considerations you should include in your analysis. Do a memo describing other qualitative or subjective issues that you think B & E should consider in their analysis.

Question (d) At the next management team meeting, Bruce & Emmett express some concern that any new equipment acquired to replace the old equipment may become obsolete within the next three to six years. Bruce & Emmett want to know how the accounting rules for impairments would apply to any new equipment. Research the accounting literature (e.g., access the FASB Codification), to determine the official guidance for information on impairments including the timing and calculation of the amount. Be sure you describe the reasons for recording impairments and how recording any impairment actually can benefit the financial statements.

Question (e) You seem to remember that asset impairments could be used to "manage earnings." Search the Internet and accounting journals for recent stories in the business press about asset impairments and earnings management. do a memo explaining how earnings might be managed through asset impairments

Question (f) What if you found out that the Research and Development account included current year costs of $190,000 and R& D Equipment with a cost of $100,000 and an estimated useful life of 5 years. Describe how that would impact the financial statements (do not revise the financial statements) and prepare the necessary journal entries assuming the financial statements have not been issued yet

Reference no: EM132730495

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