Example #2, On January 1, 2019 a company purchases an automobile for $100,000 by signing a note for the $100,000, with 4% interest rate. The note is to be paid in three equal payments of $36,034.85 at the end of each year beginning December 31, 2019.

Below is the loan reduction schedule (please be sure you understand it)!!!!!!

1. PREPARE THE JOURNAL ENTRIES FOR 2019:

2. PREPARE THE JOURNAL ENTRIES FOR 2020:

3. PREPARE THE JOURNAL ENTRIES FOR 2021:

Required information

[The following information applies to the questions displayed below.]
  
In 2018, the Westgate Construction Company entered into a contract to construct a road for Santa Clara County for $10,000,000. The road was completed in 2020. Information related to the contract is as follows:

Westgate recognizes revenue over time according to percentage of completion.

rev: 09_15_2017_QC_CS-99734

5. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years assuming the following costs incurred and costs to complete information. (Do not round intermediate calculations and round your final answers to the nearest whole dollar amount. Loss amounts should be indicated with a minus sign.)

Required information

[The following information applies to the questions displayed below.]
  
In 2018, the Westgate Construction Company entered into a contract to construct a road for Santa Clara County for $10,000,000. The road was completed in 2020. Information related to the contract is as follows:

Westgate recognizes revenue over time according to percentage of completion.

rev: 09_15_2017_QC_CS-99734

4. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years assuming the following costs incurred and costs to complete information. (Do not round intermediate calculations and round your final answers to the nearest whole dollar amount. Loss amounts should be indicated with a minus sign.)

NashFurniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $4,500,000 on January 1, 2020. Nash expected to complete the building by December 31, 2020. Nash has the following debt obligations outstanding during the construction period.

(a)

Assume that Nash completed the office and warehouse building on December 31, 2020, as planned at a total cost of $4,680,000, and the weighted-average amount of accumulated expenditures was $3,240,000. Compute the avoidable interest on this project.

*Answer 366,000 is incorrect.

(b)

Compute the depreciation expense for the year ended December 31, 2021. Nash elected to depreciate the building on a straight-line basis and determined that the asset has a useful life of 30 years and a salvage value of $270,000.

On October 5, 2020, Diamond in the Flounder Recruiting Group Inc.’s board of directors decided to dispose of the Blue Division. A formal plan was approved. Diamond derives approximately 73% of its income from its human resources management practice. The Blue Division gets contracts to perform human resources management on an outsourced basis. The board decided to dispose of the division because of unfavourable operating results. Net income for Diamond was $95,970 for the fiscal year ended December 31, 2020 (after a charge for tax at 30% and after a writedown for the Blue assets). Income from operations of the Blue Division accounted for $4,270 (after tax) of this amount. Because of the unfavourable results and the extreme competition, the board believes that it cannot sell the business intact. Its final decision is to auction off the office equipment. The equipment is the division’s only asset and has a carrying value of $23,000 at October 5, 2020. The board believes that proceeds from the sale will be approximately $6,000 after the auction expenses. Currently, the equipment’s estimated fair value is $9,600. The Blue Division qualifies for treatment as a discontinued operation. Diamond prepares financial statements in accordance with ASPE.

Prepare a partial income statement for Diamond in the Flounder Recruiting Group. The income statement should begin with income from continuing operations before income tax.

Mikkeli OY acquired a brand name with an indefinite life in 2015 for 43,200 markkas. At December 31, 2017, the brand name could be sold for 35,200 markkas, with zero costs to sell. Expected cash flows from the continued use of the brand are 45,500 markkas, and the present value of this amount is 34,200 markkas. Assume that a foreign company using IFRS is owned by a company using U.S. GAAP. Thus, IFRS balances must be converted to U.S. GAAP to prepare consolidated financial statements. Ignore income taxes. Required: Prepare journal entries for this brand name for the year ending December 31, 2017, under (1) IFRS and (2) U.S. GAAP. Prepare the entry(ies) that the U.S. parent would make on the December 31, 2017 and December 31, 2018 conversion worksheet to convert IFRS balances to U.S. GAAP.

A)

1. Record the entry for the loss on impairment of brand as per IFRS.

2. Record the entry for the loss on impairment of brand as per U.S. GAAP.

B)

1. Record the conversion entry needed for 12/31/17.

2. Record the conversion entry needed for 12/31/18.

At the beginning of the year, Lambert Motors issued the three notes described below. Interest is paid at year-end. (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.)

1. The company issued a two-year, 12%, $600,000 note in exchange for a tract of land. The current market rate of interest is 12%.
2. Lambert acquired some office equipment with a fair value of $94,643 by issuing a one-year, $100,000 note. The stated interest on the note is 6%. The current market rate of interest is 12%.
3. The company purchased a building by issuing a three-year installment note. The note is to be repaid in equal installments of $1 million per year beginning one year hence. The current market rate of interest is 12%.

Required:
Prepare the journal entries to record each of the three transactions and the interest expense at the end of the first year for each. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Enter your answers in whole dollars.)

As the financial manager of Wilmore Company Limited, with a passion to boost employment creation through intraregional tourism in Ghana, you have acquired a land at Ho to put up an exquisite amusement park that features a number of attractions including games, pools, gardens, rides etc. The project will cost a total of GH₵100,000. The following cash flows are expected from the project. The beta of the project is 1.5 and the market return is 15%. The risk-free rate of return is 8%.
Year
₵

0
(100,000)

1
20,000

2
25,000

3
32,000

4
35,000

Using the CAPM approach, what is the cost of equity on this project?
[2 marks]
Wilmore Company Limited is a levered entity with percentage of debt out of total capital being 40%. If the interest rate on a bank loan is 10%, the tax rate is 20%, and the cost of equity is as computed in (a), what will be the after tax cost of debt? [2 mark]
What will be the weighted average cost of capital (WACC)? [2 mark]
Using the WACC computed in (c), what will be the NPV of the investment? ` [3 marks]
Compute the IRR for the project? [3 marks]
What will be your overall advice concerning viability of the project?
[2 marks]