A company acquired a building, paying a portion of the purchase price in cash and issuing a mortgage note payable to the seller for the balance. In a statement of cash flows, what amount is included in investing activities for the above transaction?

Select one:

a. Cash payment

b. Acquisition price

c. Zero

d. Mortgage amount

At the beginning of 2021, VHF Industries acquired a machine with a fair value of $5,070,150 by issuing a two-year, noninterest-bearing note in the face amount of $6 million. The note is payable in two annual installments of $3 million at the end of each year. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)

1. What is the effective rate of interest implicit in the agreement?

2.Prepare the necessary journal entries. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollar.)

3. Suppose the market value of the equipment was unknown at the time of purchase, but the market rate of interest for notes of similar risk was 11%. Prepare the journal entry to record the purchase of the equipment. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollar.)

The following expenditures are related to land, land improvements, and buildings acquired for use in a business enterprise. Determine how they should be classified (building/land or both and direct or indirect).

1. Money borrowed to pay building contractors:
2. Payment for construction from note proceeds:
3. Cost of land fill and clearing:
4. Delinquent real estate taxes on property assumed:
5. Premium on 6-month insurance policy during construction
6. Refund of 1-month insurance premium because construction completed early
7. Architect’s fees on building
8. Cost of real estate purchased – land $200,000 and building $50,000
1. Commission fees paid to a real estate agent
10. Installation of fences around the property
11. Cost of razing and removing the old building
50. Proceeds from salvage of the old building
1000. Costs of parking lots and driveways
14. Cost of trees and other debris:

Equipment was acquired on January 1, 2014, at a cost of $170,000. The equipment was originally estimated to have a salvage value of $10,000 and an estimated life of 10 years. Depreciation has been recorded through December 31, 2016, using the straight-line method. On January 1, 2017, the estimated salvage value was revised to $16,000 and the useful life was revised to a total of 8 years.
Determine the depreciation expense for 2017.

Consider a 100,000 sq. ft. building that will be acquired (at price $0) and demolished by local government at the end of 15 years.  Assume the building is fully leased building under an absolute net lease structure (all expenses paid by tenant); Consider 2 leases:

      15 year lease at $15/ft./yr.

      5 year lease at $15/ft./yr.

Suppose that $15 is the market rate and that the forecasted rent growth rate is 0% . Also suppose that the discount rate for contractual lease cash flows (corporate bonds) is 7%, regardless of maturity, and that there is no TI at the end of each lease.

a) Under which lease is the building worth more?  Why?

b) What is the value of the building under the first scenario? Suppose you know that the market will pay $11.8 mil.  for the building under the second scenario.  What is the discount rate for speculative lease cash flows? (Hint: year 1-5 cash flows in the second scenario should be discounted at the bond rate, since they are under contract. Find the PV of the speculative cash flows (years 6-15) and then find the discount rate consistent with that PV.)  

c) What are the respective cap rates under the two lease structures?

6. A plant asset is acquired by a business on January 1, 2016, for $100,000. The asset's estimated residual value is $10,000 and its estimated life is 5 years. Management chooses to use straight-line depreciation.

On January 1, 2018, management revises the total useful life to 8 years and the residual value to $5,000.

Required:

Compute the balance in Accumulated Depreciation on January 1, 2018.

Compute the Depreciation Expense for the year ending December 31, 2018.

Compute the balance in Accumulated Depreciation on December 31, 2018.

Prepare the adjusting journal entry on December 31, 2018 for the year. Omit the explanation.

At the beginning of 2021, VHF Industries acquired a machine with a fair value of $9,978,930 by signing a five-year lease. The lease is payable in five annual payments of $2.7 million at the end of each year. (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. What is the effective rate of interest implicit in the agreement? 2-4. Prepare the lessee’s journal entries at the beginning of the lease, the first lease payment at December 31, 2021 and the second lease payment at December 31, 2022. 5. Suppose the fair value of the machine and the lessor’s implicit rate were unknown at the time of the lease, but that the lessee’s incremental borrowing rate of interest for notes of similar risk was 10%. Prepare the lessee’s entry at the beginning of the lease.

H Plc acquired 80 % of the ordinary shares , 25% of the preference shares of S plc when the retained profits S Plc were Sh.10,000.In addition , H Plc owns 30% of the loan stock of S Plc. The following are their draft profit and loss accounts of the year to 31st December Yr 5.

The following information is relevant:

a)Turnover of of H included Sh.100,129 of goods sold to S

b) The Stock of S includes an unrealized profit of Sh.3,400

c)The Dividends of S are Sh.6,000 ordinary and Sh.4,000 preference

d) The investment income of H included Sh.4,800 of S ordinary dividend, Sh.1,000 of S preference dividend and Sh.1,200 of S loan stock interest.

Required:

Provide Consolidated Income Statement .Show the necesary workings

During the financial crisis at the end of the last decade, Merrill Lynch was acquired by Bank of America for $50 billion. The reason for the acquisition was that Merrill Lynch was unsure it could survive the crisis on its own. Bank of America received government assistance during the financial crisis from (and was thus covered by) TARP (the Troubled Asset Relief Program). So too then was Merrill Lynch. One initial consequence of TARP coverage was that some employees, including some high-level, high-revenue generating employees, began to leave larger financial institutions like Merrill Lynch/Bank of America to go to so-called “boutique” financial services firms, which had not received TARP money and thus were not covered by TARP restrictions on compensation. Another initial reaction was an increase in base salary levels and a decrease in bonus levels, apparently in response to all of the negative publicity bonuses had received and as a way to get around TARP restrictions. One senior executive at a company receiving TARP money and now paying smaller bonuses and bigger salaries, however, questioned whether the TARP-induced greater emphasis on base pay made sense: So, “You’re going to overpay them regularly, instead of just sometimes?” However, now that some time has passed, the economy has recovered (somewhat), and the stock market has bounced back, Merrill Lynch (as we saw earlier) and other financial services companies are making money again. At Merrill Lynch, there is always a lot of action and discussion around compensation strategy. Merrill introduced a plan to expand its number of financial advisors by 8% (about 1,200 people). Where would they come from? Other firms? How would Merrill get them to move? By offering unusually high up-front signing bonuses and decentralizing authority to make such offers. Traditionally, top brokers from other firms can receive 1.5 times their pay at the firm they are leaving. Merrill was not the only firm looking to add top brokers. Indeed, what was described as a “bidding war” broke out, and signing bonuses were reported to have gone as high as three to four times previous pay in some cases. Why the bidding war? “Wealth management firms make the bulk of their profits on the top 10 percent of their producers” according to compensation attorney Katten Muchin. And, very wealthy clients tend to be more loyal to their advisors than to the advisors’ firms. At Merrill, there are some concerns among financial advisors. First, in the non-Merrill part of Bank of America, brokers are under a discretionary bonus system rather than an (objective) incentive system where pay is based on a formula. Merrill financial advisors fear that Bank of America wants to extend that system to cover them. Second, and likely related, non-Merrill brokers at B of A are expected to cross-sell—in other words, to push products sold by other parts of the bank. The opportunities for such synergies are typically seen as a source of competitive advantage for a large, diversified financial intsitution such as B of A. However, cross-selling performance (and cooperation) is difficult to assess objectively. Thus, subjective evaluations are likely necessary. Merrill brokers appear to be opposed to cross-selling, both because they are concerned it could undermine their relationships with their clients and they prefer to have their pay determined by objective measures.

Answer the following questions

> What is the likely result of bidding wars of this type for top brokers? Will most firms benefit? Who will be the winners and losers? What about the brokers?
> Explain why there is such a strong relationship between pay and performance for brokers. Why isn’t this true of many other jobs?
> Should Bank of America change its compensation strategy to include more subjective assessments of performance and a greater emphasis on cross-selling? What effect might this have on its success in the bidding war for top brokers?
> In chapter 1, we talked about incentive and sorting effects of pay strategies. Describe the incentive and sorting effects at Merrill Lynch and how changes to the compensation strategy might affect them.

“Indimex” is a Mexicam company that was intending to expand their fashion business, so they acquired new factory for USD 20 million, that would allow them to expand their business abroad. Its useful life is 20 years, and its expected residual value is USD 8 million.

Prepare a tabular comparison of the annual depreciation and book value for each of the first 3 years of service life under straight line and the double-declining-balance (DDB) depreciation method. Show all amounts in thousands of euros (rounded to the nearest thousand).