Question

1/1/17 Co buys land and pays $50,000 for the land, $500 for removal of scrap, $2500 for attorney’s fee (associated with land purchase), $2500 real estate commission, $5000 for accrued taxes and $1000 for current-year taxes. Journalize the land purchase.

Also on 1/1/17, Co buys a car and a computer. The car costs $25,000 , sales tax $2000 and insurance during delivery $1000. The car has an estimated 100,000 miles of useful life and a salvage value of $3000. The computer costs $3000, tax $400 and insurance during deliver of $100. The computer has and estimated useful life of 5 years and a salvage value of $500. Journalize the purchase of both.

On 12/31/17 the car has 10,000 miles on the odometer. Journalize the depreciation of the car using units of activity and the computer using straight-line.

On 7/1/18 the car has 15,000 on the odometer and was sold for $25,250. Make the appropriate journal entries.

12/31/18 Co exchanges computer for a new one and pays $500 cash in the trade. The fair market value of the old computer is $2000.   Remember the company is using straight line method for the computer. Make the appropriate journal entries.

1/1/19 Co pay $50,000 for a patent estimated to have a useful life of 10 years. Co also pays $10,000 research and development costs associated with the patent and $5000 legal costs to defend the patent in court. Make appropriate journal entries:

12/31/19 the company adjusts its books to reflect patent amortization. Make the appropriate journal entry.

If 5 years ago a company bought a $10,500 piece of equipment with $500 salvage value and 10 year usefull life and is using straight-line depreciation what is its book value now? If it revises estimated life to 15 years (10 more years left) what is revised annual depreciation?

What is the cost-allocation account for a natural resourse?

On January 1, Company sells merchandise and collects $5000 in cash which includes 6% sales tax. Journalize the sale.

Company’s employees earned $20,000 for the pay period ending January 31. The Company withholds $1530 FICA, $4373 Federal Income Tax and $585 State Income Tax. Journalize the entry.

On January 1 Company issues a 5 year $1,000,000 face value bond with a 5% annual coupon paid semiannually. The company issues it for $916,884 for an effective interest rate of 7% and uses the effective-interest amortization method. Journalize the issuance:

What is the total cost of the borrowing over the life of the SSS bond?

Journalize the entry on July 1 to record SSS’s payment of interest and the amortization of the bond discount (assume no accrual was made June 30):

What is the accrual JE on 12/31?

On July 1 Incorporation issues a 10 year $2,000,000 face value bond with a 6% coupon paid semiannually. The Company issues it for $2,327,029 at an effective interest rate of 4%. Journalize the issuance.

Journalize the adjustments made by Incorporation on December 31 for the accrual of interest expense and the amortization of bond premium.

On February 1, ABC redeems its $3,000,000 face value bonds before maturity at a price of $2,600,000. The bonds were originally issued at a discount and currently the account Discount on Bond Payable has a debit balance of $500,000. Journalize the bond redemption.

What is a sinking fund bond?

What is a secured bond?

When would a company exercise their call on a callable bond?

How do you calculate working capital and current ratio?

Why might a company choose to issue a bond instead of issuing stock?

What are the two components of a mortgage payment?

Answer 1

Requirement 1: Prepare the following journal entry

Date	Account Title and Explanation	Debit	Credit
1/1/17	Land ($50,000 + $500 + $2,500 + $2,500 + $5,000)	$60,500
	Cash		$60,500
	To record land purchased

Note: Compute cost of land to be capitalized as follows

Particulars	Amount
Land	$50,000
Scrap removal	$500
Attorney's fee	$2,500
Real estate commission	$2,500
Accrued taxes	$5,000
Total cost of land	$60,500

Requirement 2: Prepare the following journal entry

Date	Account Title and Explanation	Debit	Credit
1/1/17	Motor Vehicles ($25,000 + $2,000 + $1,000)	$28,000
	Equipment - Computer ($3,000 + $400 + $100)	$3,500
	Cash		$31,500
	To record car and computer purchased

Requirement 3: Prepare the following journal entry

Date	Account Title and Explanation	Debit	Credit
12/31/17	Depreciation Expense (10,000 × $0.25)	$2,500
	Accumulated Depreciation - Motor Vehicle		$2,500
	To record depreciation expense on motor vehicle
	Depreciation Expense (3,500 − $500) ÷ 5	$600
	Accumulated Depreciation - Equipment - Computer		$600
	To record depreciation expense on computer

Note: Compute depreication rate per mile as follows

Particulars	Amount
Cost of motor vehicle	$28,000
Deduct: Salvage value	$3,000
Depreciable cost	$25,000
÷ Useful life in miles	100,000
Depreciation rate per mile	$0.25

Requirement 4: Prepare the following journal entry

Date	Account Title and Explanation	Debit	Credit
7/1/18	Depreciation Expense (15,000 − 10,000) × $0.25)	$1,250
	Accumulated Depreciation - Motor Vehicle		$1,250
	To record depreciation expense on motor vehicle
	Cash	$25,250
	Accumulated Depreciation - Motor Vehicle ($2,500 + 1,250)	$3,750
	Motor Vehicles		$28,000
	Gain on Sale of Motor Vehicle		$1,000
	To record sale car at a gain of $1,000

Requirement 5: Prepare the following journal entry

Date	Account Title and Explanation	Debit	Credit
12/31/18	Depreciation Expense (3,500 − $500) ÷ 5	$600
	Accumulated Depreciation - Equipment - Computer		$600
	To record depreciation expense on computer
	Equipment - Computer (New)	$2,500
	Accumulated Depreciation - Equipment - Computer ($600 + $600)	$1,200
	Loss on exchange of old computer	$300
	Equipment - Computer (Old)		$3,500
	Cash		$500
	To record exchange of old computer for a new model

Requirement 6: Prepare the following journal entry

Date	Account Title and Explanation	Debit	Credit
1/1/19	Patents ($50,000 + $5,000)	$55,000
	Cash		$55,000
	To record patents purchased
	Research and Development Expenses	$10,000
	Cash		$10,000
	To record research and development costs

Requirement 7: Prepare the following journal entry

Date	Account Title and Explanation	Debit	Credit
12/31/19	Amortization Expense ($55,000 ÷ 10)	$5,500
	Patents		$5,500
	To record amortization expense on patents

Requirement 8: Book Value of Equipment = $5,500 ($10,500 − ($1,000 × 5 years))

Note: Compute annual depreciation expense as follows

Particulars	Amount
Cost of equipment	$10,500
Deduct: Salvage value	$500
Depreciable cost	$10,000
÷ Useful life	10
Annual Depreciation Expense	$1,000

Revised annual depreciation expense = $500

Note: Revised annual depreciation is computed as follows

Particulars	Amount
Cost of equipment	$10,500
Deduct: Accumulated depreciation ($1,000 × 5 years)	$5,000
Deduct: Salvage value	$500
Depreciable cost	$5,000
÷ Remaining useful life	10
Revisied annual depreciation expense	$500