The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2018. The company buys debt securities, intending to profit from short-term differences in price and maintaining them in an active trading portfolio. Ornamental’s fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2017.
Mar. 31 Acquired 8% Distribution Transformers Corporation bonds costing $550,000 at face value.
Sep. 1 Acquired $1,350,000 of American Instruments' 10% bonds at face value.
Sep. 30 Received semiannual interest payment on the Distribution Transformers bonds.
Oct. 2 Sold the Distribution Transformers bonds for $595,000.
Nov. 1 Purchased $2,150,000 of M&D Corporation 6% bonds at face value.
Dec. 31 Recorded any necessary adjusting entry(s) relating to the investments. The market prices of the investments are: American Instruments bonds $ 1,305,000 M&D Corporation bonds $ 2,225,000 (Hint: Interest must be accrued.)
Required: 1. Prepare the appropriate journal entry for each transaction or event during 2018, as well as any adjusting entries necessary at year end.
2. Indicate any amounts that Ornamental Insulation would report in its 2018 income statement, 2018 statement of comprehensive income, and 12/31/2018 balance sheet as a result of these investments.
In: Accounting
Spitz Company ordered merchandise from a foreign supplier on November 20 at a price of 104,000 forints when the spot rate was $0.54 per forint. Delivery and payment were scheduled for December 20. On November 20, Spitz acquired a call option on 104,000 forints at a strike price of $0.54, paying a premium of $0.02 per forint. It designates the option as a fair value hedge of a foreign currency firm commitment. The fair value of the firm commitment is measured by referring to changes in the spot rate. The merchandise arrives and Spitz makes payment according to schedule. Spitz sells the merchandise by December 31, when it closes its books.
Assuming a spot rate of $0.57 per forint on December 20, prepntry are all journal entries to account for the foreign currency option, foreign currency firm commitment, and purchase of inventory.
Entry 1. Record the foreign currency option.E
Entry 2. Record entry for order placed with foreign supplier.
Entry 3. Record gain or loss on the firm commitment.
Entry 4. Record gain or loss on the foreign currency option.
Entry 5. Record the entry for foreign currency acquired at the spot rate.
Entry 6. Record receipt of goods and payment made.
Entry 7. Record the entry for cost of goods sold.
Entry 8. Record entry to close the firm commitment.
In: Accounting
Manufacturing Inc. (MI) is a public company that sells construction equipment to builders of primarily homes, office buildings, and highways. MI has been in operation for over 30 years. Up until this year the company has had profits with the real estate boom and large amounts of government funding for highway construction. With the recent economic downturn MI has had to go to its bank for increased financing. The bank has imposed a minimum current ratio as well as a minimum balance that must be maintained in one of its accounts. You have been recently hired as an accounting policy analyst to assist MI with its accounting policies. You have just finished meeting with Nancy who is the majority shareholder as well as CEO. Nancy had a lot of questions for you! You are trying to get a handle on what Nancy wants you to do and feeling a little overwhelmed at the moment. The following are comments made by Nancy at that meeting.
“This economic downturn has hit us really hard. We have had profits for a number of years and never worried about having enough cash on hand. Cash is critical in our business where the manufacturing of this specialized equipment can take a long period of time. In addition, our customers are really struggling to be able to invest in new machinery and pay their bills.
“I am very excited that you are able to join us and help out with a number of new situations that have arisen due to the economic downturn and possible solutions I have to solve our current cash crisis. Our bank has been very supportive but they are a little nervous about the economic downturn. I am not sure what, if anything, I need to do in the financial statements and notes about their recent covenant and restrictions. In addition, we have a number of bank accounts with our bank. Our line of credit has been in an overdraft position for over a year now. But we also have positive balances in our other accounts. All of these accounts are currently in cash and cash equivalents on our balance sheet. Is that okay?
“Some of our purchases for our manufacturing purchases are from the U.S. and we are required to pay in U.S. dollars. This has never been an issue for us before since the Canadian and U.S. dollar have been at par. As you know, with the recent economic downturn the Canadian dollar has been dropping in value and is currently at an all time low and may continue to drop. What is the appropriate accounting for this drop in value and what impact will this have on our financial statements?
“Some customers who have been buying from us are having difficulty paying and are currently overdue. I know they will pay eventually and I want to help them out. What I have done is make their life a little easier by changing their accounts receivable to a note. This note allows them a two year period to pay with an interest rate of 4% even though the current market rate is 8%. I have just taken the $500,000 of accounts receivable and reclassified them as a note receivable since I am sure they will pay. Is this okay?
“To get some extra cash I was considering selling some of my high quality receivables to a financial institution. I have $5,000,000 in these receivables. The financial institution will provide me with $4,800,000 in cash if I agree to make any payments that default. What would be the impact of this on my financial statements?
“One last thing: our head office was purchased a long time ago when real estate values were low. Currently, the carrying amount of that building is $520,000 but recent appraisals say it is worth $2 million. So I was thinking I could sell the building then immediately lease it back for its remaining useful life. What do you think of this idea? This could give me some much needed cash and an immediate gain of $1.48 million on my financial statements. “Sorry; I have to run to another meeting. Can you draft up a report on your preliminary ideas to all of my concerns? Thanks, and again we are so glad that you have become part of our team.”
Required:
Prepare the requested report for Nancy.
In: Accounting
Cleansea Ltd. needed to raise $150 million of additional capital to finance the design, development, and construction of its water desalination facility. Volta decided to issue bonds that pay interest of $2,250,000 on each of March 31 and September 30 and that will reach maturity on September 30, 2033. The bonds were issued at 94.4 on October 1, 2020, for $141.6 million, which represented a yield of 3.54%.
a. Has the company raised enough funds to start the development and construction of the water desalination facility? Explain why or why not.
b. Show the journal entry to record the issuance of the bonds.
c. Show the journal entries to record the first two interest payments. Ignore year-end accruals of -interest.
d. Assuming the company has a year end of December 31, what amount will be reported on the statement of financial position at December 31, 2020, related to these bonds?
In: Accounting
Presented below are two independent situations.
1. On January 1, 2020, Sandhill Company issued $120,000 of 7%, 10-year bonds at par. Interest is payable quarterly on April 1, July 1, October 1, and January 1.
2. On June 1, 2020, Teal Company issued $72,000 of 10%, 10-year bonds dated January 1 at par plus accrued interest. Interest is payable semiannually on July 1 and January 1.
For each of these two independent situations, prepare journal entries to record the following. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) (a) The issuance of the bonds. (b) The payment of interest on July 1. (c) The accrual of interest on December 31.
In: Accounting
Depreciation and Rate of Return
Burrell Company purchased a machine for $51,000 on January 2, 2016. The machine has an estimated service life of 5 years and a zero estimated residual value. The asset earns income before depreciation and income taxes of $25,500 each year. The tax rate is 25%.
Required:
Compute the rate of return earned (on the average net asset value) by the company each year of the asset's life under the straight-line and the double-declining-balance depreciation methods. Assume that the machine is the company's only asset.
Straight-line method. Do not round intermediate calculations. Round final answers to two decimal places.
| 2016 | % |
| 2017 | % |
| 2018 | % |
| 2019 | % |
| 2020 | % |
Double-declining-balance depreciation method. Do not round
intermediate calculations. Round final answers to two decimal
places.
| 2016 | % |
| 2017 | % |
| 2018 | % |
| 2019 | % |
| 2020 | % |
In: Accounting
Sage Creek Inc. began operations on 1/1/20. The
company purchased $10,000 worth of computer equipment on August 1,
and $50,000 worth of restaurant equipment on November 1. All of the
equipment is 5 year property. Assuming that the company elects out
of bonus depreciation and elects a Section 179 deduction of $10,000
on the restaurant equipment purchased in November.
(a) compute the total depreciation expense including
Section 179 for Gallagher for 2020.
(b) compute the 2022 depreciation expense on the
computer equipment if the equipment was sold on January
10th, 2022.
(c) Assume that in addition to the assets listed
above, Gallagher also purchased a Ford F350 diesel pickup for
$70,000 in May 2020. Assuming no bonus depreciation or Section 179
deduction on this asset, what is the amount of depreciation expense
for this pickup in 2019?
please it's urgent, provide correct answer only!! thanku
In: Accounting
Monty Inc. manufactures cycling equipment. Recently, the vice
president of operations of the company has requested construction
of a new plant to meet the increasing demand for the company’s
bikes. After a careful evaluation of the request, the board of
directors has decided to raise funds for the new plant by issuing
$3,258,500 of 8% term corporate bonds on March 1, 2020, due on
March 1, 2035, with interest payable each March 1 and September 1,
with the first interest payment on September 1st, 2020. At the time
of issuance, the market interest rate for similar financial
instruments is 6%.
Click here to view factor tables
As the controller of the company, determine the selling price of
the bonds. (Round factor values to 5 decimal places,
e.g. 1.25124 and final answer to 0 decimal places, e.g.
458,581.)
| Selling price of the bonds |
In: Accounting
Atlanta Company is preparing its manufacturing overhead budget
for 2020. Relevant data consist of the following.
| Units to be produced (by quarters): 10,500, 12,400, 14,700, 16,700. |
| Direct labor: Time is 1.5 hours per unit. |
| Variable overhead costs per direct labor hour: indirect materials $0.80; indirect labor $1.30; and maintenance $0.60. |
| Fixed overhead costs per quarter: supervisory salaries $36,820; depreciation $18,270; and maintenance $14,100. |
Prepare the manufacturing overhead budget for the year, showing
quarterly data. (Round overhead rate to 2 decimal
places, e.g. 1.25. List variable expenses before fixed
expense.)
| ATLANTA COMPANY Manufacturing Overhead Budget For the Quarter Ending December 31, 2020For the Year Ending December 31, 2020December 31, 2020 |
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| Quarter | ||||||||||
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1 |
2 |
3 |
4 |
Year |
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In: Accounting
Burrell Company purchased a machine for $49000 on January 2, 2016. The machine has an estimated service life of 5 years and a zero estimated residual value. The asset earns income before depreciation and income taxes of $24500 each year. The tax rate is 25%.
Required:
Compute the rate of return earned (on the average net asset value) by the company each year of the asset's life under the straight-line and the double-declining-balance depreciation methods. Assume that the machine is the company's only asset.
Straight-line method. Do not round intermediate calculations. Round final answer to two decimal places.
2016?
2017?
2018?
2019?
2020?
Double-declining-balance depreciation method. Do not round intermediate calculations. Round final answer to two decimal places.
2016?
2017?
2018?
2019?
2020?
In: Accounting