On January 1, 2016, 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, 2016, was $80,000.
During 2016, Short also paid cash dividends in the amount of $24,000.
Required:
Prepare the journal entries necessary to record the above information on American
Corporation’s books during 2016.
Buckeye Company purchased a machine on January 1, 2014. The machine had a cost of
$260,000 with a $10,000 residual value. The estimated useful life of the machine was
eight years. On January 1, 2016, due to technological innovations, the estimated useful
life was reduced by two years from the original life and the residual value was reduced
by 50%. The company uses straight-line depreciation.
Required:
Prepare the journal entry to record the annual depreciation on December 31, 2016.
Holly Springs, Inc. contracted with Coldwater Corporation to have constructed a
custom-made lathe. The machine was completed and ready for use on January 1, 2016.
Holly Springs paid for the lathe by issuing a $300,000 note due in three years. Interest,
specified at 2%, was payable annually on December 31 of each year. The cash market
price of the lathe was unknown. It was determined by comparison with similar
transactions for which 6% was a reasonable rate of interest.
McCombs Contractors received a contract to construct a mental health facility for
$2,500,000. Construction was begun in 2015 and completed in 2016. Cost and other
data are presented below:
Assume that McCombs recognizes revenue on this contract over time according to
percentage of completion.
Required: Prepare all journal entries to record costs, billings, collections, and profit
recognition.
Round your answers to the nearest whole dollar.
Pension data for the Ben Franklin Company include the following for the current
calendar year:
Discount rate, 8%
Expected return on plan assets, 10%
Actual return on plan assets, 9%
Service cost, $200,000
Required:
1) Determine pension expense for the year.
2) Prepare the journal entries to record pension expense and funding for the year.
Bison Mfg. is considering two options for purchasing comparable machinery. Machine
1 will cost $27,500 plus an annual maintenance fee of $1,500 per year for four years.
Machine 2 will cost $25,000 with maintenance being an add-on charge. The estimated
cost of maintenance is $1,000 the first year, $3,000 the second year, and $4,000 the
third year and the fourth year. Assume the purchase cost is paid up front, but that
maintenance is paid for at the end of each year. Interest is at 10%. Ignore income taxes
and residual values.
Required: Determine which machine should be chosen based on present value
considerations.
According to GAAP, companies can elect the fair value option when accounting for
many investments. Required:
Describe how accounting for a held-to-maturity investment, an available-for-sale
investment, and an equity-method investment is affected by a company electing the fair
value option.
Compute the present value of the following single amounts to be received at the end of
the specified period at the given interest rate.