Federated Fabrications leased a tooling machine on January 1,
2018, for a three-year period ending December 31, 2020. The lease
agreement specified annual payments of $43,000 beginning with the
first payment at the beginning of the lease, and each December 31
through 2019. The company had the option to purchase the machine on
December 30, 2020, for $52,000 when its fair value was expected to
be $67,000 a sufficient difference that exercise seems reasonably
certain. The machine's estimated useful life was six years with no
salvage value. Federated was aware that the lessor’s implicit rate
of return was 10%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD
of $1 and PVAD of $1) (Use appropriate factor(s) from the
tables provided.)
Required:
1. Calculate the amount Federated should record as
a right-of-use asset and lease liability for this finance
lease.
2. Prepare an amortization schedule that describes
the pattern of interest expense for Federated over the lease
term.
3. Prepare the appropriate entries for Federated
from the beginning of the lease through the end of the lease
term.
In: Accounting
Independent Energy depreciates all assets using the straight-line method. The company's fiscal year end is December 31. The following selected transactions and events occurred during the first three years:
|
2020 |
Jan | 1 | Purchased equipment from the Equipment World for $214,500 on account. |
Independent Energy also incurred freight and installation costs of $1,500 and $4,000 respectively.
| Sep | 30 | Paid for annual insurance of $4,200 and routine maintenance of $1,700 for the |
machine. The insurance policy expires on September 30, 2021.
| Dec | 31 | Recorded 2020 depreciation on the basis of an estimated 10-year useful life and |
residual value of $20,000.
|
2021 |
Dec | 31 | Recorded 2021 depreciation and impairment loss (if any). Independent Energy |
conducted an impairment assessment as indicators suggested that an impairment may be possible. It was determined that the recoverable amount of the equipment is currently $160,000. The estimated residual value remained unchanged.
|
2022 |
Dec | 31 | Independent Energy sold the equipment to Engaged Auto Company for |
proceeds of $140,000.
Instructions
Prepare the necessary entries. (Show calculations.)
In: Accounting
The Matson Company had the following financial information for the year ended April 30
Salaries Expense $123,800
Common Stock 72,000
Allowance for Doubtful Accounts 7,000
Bad Debts Expense 15,800
Supplies 14,500
Interest Revenue 4,600
Accumulated Depreciation 38,000
Sales 500,000
Dividends 12,000
Interest Receivable (short term) 3,300
Beginning Retained Earnings 28,800
Advertising Expense 79,000
Accounts Payable 142,000
Cash Flow from Investing Activities 105,000
Notes Receivable (short-term) 17,000
Land 50,000
Cash 23,000
Inventory 154,000
Salaries Payable 102,000
Cost of Goods Sold 212,000
Accounts Receivable 113,000
Equipment 77,000
a) Prepare the multistep income statement (in good form) for April 30, 2020.
b) Prepare the classified balance sheet (in good form) as of April 30, 2020.
There may be items that will NOT appear on either statement. The total current assets are $317,800 and the total current liabilities are $244,000. You do not need any detail for cost of goods sold so don't include it!
In: Accounting
ABC Ltd is an Australian company issued $10 million convertible notes on 1 July 2019 that carry a nominal interest (coupon) rate of 5% per annum. They are redeemable on 30 June 2022 for cash or can be exchanged for ordinary shares in ABC Ltd on the basis of 20 shares for each $100 of note. The prevailing market interest rate for the notes without conversion options are 8%.
When preparing the draft financial statements for the year ended 30 June 2020, the directors are proposing to show the convertible note within equity in the statement of financial position, as they believe all the convertible note holders will choose the equity option when the convertible note is due for redemption. They further intend to charge a finance cost of $500,000 ($10 million x 5%) in the income statement for each year up to the date of redemption.
Required:
Prepare extracts to show how the convertible notes and the finance charge should be treated by ABC Ltd in its financial statements for the year ended 30 June 2020. Show your workings.
Using Australian Accounting System - AASB
In: Accounting
Westby Corp., a high school uniform manufacturer, was authorized
to issue an unlimited number of common shares. During January 2020,
its first month of operations, the following selected transactions
occurred:
Jan. 1 1,000 shares
were issued to the organizers of the corporation. The total value
of the shares was determined to be $11,700.
5 15,000 shares were
sold to various shareholders for $13.20 each.
15 The board of
directors declared a cash dividend of $0.72 per common share to
shareholders of record on January 19, payable January 31.
20 4,000 shares were
issued in exchange for land valued at $46,800. The shares were
actively trading on this date at $11.20 per share.
31 Closed the Income
Summary account, which showed a credit balance of $162,000.
31 Paid the dividends
declared on January 15.
Required:
a. Journalize the above transactions. The Company does not use a
Cash Dividends Account.
Prepare the equity section of Westby’s balance sheet at January 31, 2020.
What was the average issue price per common share?
In: Accounting
ABC Ltd is an Australian company issued $10 million convertible notes on 1 July 2019 that carry a nominal interest (coupon) rate of 5% per annum. They are redeemable on 30 June 2022 for cash or can be exchanged for ordinary shares in ABC Ltd on the basis of 20 shares for each $100 of note. The prevailing market interest rate for the notes without conversion options are 8%.
When preparing the draft financial statements for the year ended 30 June 2020, the directors are proposing to show the convertible note within equity in the statement of financial position, as they believe all the convertible note holders will choose the equity option when the convertible note is due for redemption. They further intend to charge a finance cost of $500,000 ($10 million x 5%) in the income statement for each year up to the date of redemption.
Required
Prepare extracts to show how the convertible notes and the finance charge should be treated by ABC Ltd in its financial statements for the year ended 30 June 2020. Show your workings.
Using Australian Accounting System - AASB
In: Accounting
Problem 21-03
Sandhill Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2020. Annual rental payments of $50,025 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 3%; Sandhill’s incremental borrowing rate is 5%. Sandhill is unaware of the rate being used by the lessor. At the end of the lease, Sandhill has the option to buy the equipment for $5,000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Sandhill uses the straight-line method of depreciation on similar owned equipment.
1. Prepare the journal entries, that Sandhill should record on December 31, 2020.
2. Prepare the journal entries, that Sandhill should record on December 31, 2021.
3. Prepare the journal entries, that Sandhill should record on December 31, 2022.
4. What amounts would appear on Sandhill’s December 31, 2022, balance sheet relative to the lease arrangement?
In: Accounting
On August 1, 2020, Sage Ltd. purchased a call option from Starco Corporation. The option gave Sage the right to buy 8,000 shares in a third company, Dillon Ltd., at a price of $10 per share. On the day Sage purchased the option, Dillon shares were trading at $10 each. Sage paid $1,300 for the options. On August 31, 2020, the Dillon shares were trading at $12 each, and the options for Dillon shares were trading at $25,000. On September 15, Sage settled the options in cash when the Dillon shares were trading at $16 and the options were trading at $48,000.
QUESTION:
1) Prepare the journal entries to record the above transactions.
A) (To record the acquisition of the option.)
B) (To record the change in value of the option.)
C) (To record the change in value of the option.)
D) (To record the settlement of the option.)
2) Prepare the September 15 journal entry settling the option for cash, and assuming Sage accepted instead the shares in Dillon.
A) (To record the change in value of the option.)
B) (To take delivery of the shares
using the option.)
In: Accounting
| P5-3A Prepare a CVP income statement, compute break-even point, contribution margin ratio, margin of safety ratio | |||||||||||||
| and sales for target net income | |||||||||||||
| Jorge Company bottles and distributes B-Lite, a diet soft drink. The beverage is sold for 50 cents per 16-ounce bottle | |||||||||||||
| to retailers. For the year 2020, management estimates the following revenues and costs. | |||||||||||||
| Sales | $1,800,000 | Selling expenses - variable | $70,000 | ||||||||||
| Direct materials | 430,000 | Selling expenses - fixed | 65,000 | ||||||||||
| Direct labor | 360,000 | Administrative expenses - variable | 20,000 | ||||||||||
| Manufacturing overhead- variable | 380,000 | Administrative expenses - fixed | 60,000 | ||||||||||
| Manufacturing overhead -fixed | 280,000 | ||||||||||||
| Instructions | |||||||||||||
| (a) | Prepare a CVP income statement for 2020 based on management estimates. (show column for total amounts only.) | ||||||||||||
| (b) | Compute the break-even point in (1) units and (2) dollars. | ||||||||||||
| (c ) | Compute the contribution margin ratio and the margin of safety ratio. (Round to the nearest full percent.) | ||||||||||||
| (d) | Determine the sales dollars required to earn net income of $180,000. | ||||||||||||
In: Accounting
Riverbed Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2020. Annual rental payments of $53,000 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 7%; Riverbed’s incremental borrowing rate is 9%. Riverbed is unaware of the rate being used by the lessor. At the end of the lease, Riverbed has the option to buy the equipment for $5,000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Riverbed uses the straight-line method of depreciation on similar owned equipment.
A)Prepare the journal entries, that Riverbed should record on December 31, 2020.
B)Prepare the journal entries, that Riverbed should record on December 31, 2021.
C)Prepare the journal entries, that Riverbed should record on December 31, 2022.
D)What amounts would appear on Riverbed’s December 31, 2022, balance sheet relative to the lease arrangement?
In: Accounting