A patent was acquired by Renfro Corporationon January1,2014 ,at a cost of $80,000.The useful life of the patent was estimated to be 10 years. At the beginning of 2017, Renfro spent $14,000 in successfully defending an infringement of the patent. At the beginning of 2018, Renfro purchased a patent for $21,000 that was expected to prolong the life of its original patent for 5 additional years.

Instructions

Calculate the following amounts for Renfro Corporation.

(a) Amortization expense for 2014.

(b) The balance in the Patent account at the beginning of 2017, immediately after the infringement suit.

(c) Amortization expense for 2017.

(d) The balance in the Patent account at the beginning of 2018, after purchase of the additional patent.

(e) Amortization expense for 2018.

New lithographic equipment, acquired at a cost of $950,400 on March 1 at the beginning of a fiscal year, has an estimated useful life of five years and an estimated residual value of $106,920. The manager requested information regarding the effect of alternative methods on the amount of depreciation expense each year. On the basis of the data presented to the manager, the double-declining-balance method was selected.

In the first week of the fifth year, on March 4, the equipment was sold for $154,682.

Hirsch Company acquired equipment at the beginning of 2017 at a cost of $124,300. The equipment has a five-year life with no expected salvage value and is depreciated on a straight-line basis. At December 31, 2017, Hirsch compiled the following information related to this equipment:                    Expected future cash flows from use of the equipment    $    106,400       Present value of expected future cash flows from use of the equipment        90,700       Fair value (selling price less costs to dispose)        86,350           Assume that a U.S.–based company is issuing securities to foreign investors who require financial statements prepared in accordance with IFRS. Thus, adjustments to convert from U.S. GAAP to IFRS must be made. Ignore income taxes.     Required:      Prepare journal entries for this equipment for the years ending December 31, 2017, and December 31, 2018, under (1) U.S. GAAP and (2) IFRS.      Prepare the entry(ies) that Hirsch would make on the December 31, 2017, and December 31, 2018, conversion worksheets to convert U.S. GAAP balances to IFRS. Ignore the possibility of any additional impairment at the end of 2018.

Mace Company acquired equipment that cost $60,000, which will be depreciated on the assumption that the equipment will last six years and have a $4,000 residual value. Component parts are not significant and need not be recognized and depreciated separately. Several possible methods of depreciation are under consideration.

Required:
1. Prepare a schedule that shows annual depreciation expense for the first two years, assuming the following (Round your answer to nearest whole dollar.):

1. Declining-balance method, using a rate of 30%.
2. Productive-output method. Estimated output is a total of 210,000 units, of which 24,000 will be produced the first year; 36,000 in each of the next two years; 30,000 the fourth year; and 42,000 the fifth and sixth years.
3. Straight-line method.

2. Repeat your calculations for requirement 1, assuming a useful life of 10 years, and a declining-balance rate of 20% that reflects the longer life, but the same number of units of production. The residual value is unchanged.

At the beginning of 2018, VHF Industries acquired a equipment with a fair value of $7,209,560 by issuing a five-year, noninterest-bearing note in the face amount of $10 million. The note is payable in five annual installments of $2 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. to 4. Prepare the necessary journal entry.
5. 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.

Required1:

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

nterest rate? __________?

Required2-4:

Prepare the necessary journal entry. (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.)

a) 01/01/2018 Record the purchase of the equipment.

b) 12/31/2018 Record the interest expense.

c) 12/31/2019 Record the interest expense.

Required 5:

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 9%. 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 dolla

a) 01/01/2018 Record the purchase of equipment.

Scenario

XYZ Corporation owns a landfill that was acquired in the purchase of a small waste management company 30 years ago. During routine testing of the soil surrounding the landfill a technician of the company discovered that the soil on the west side of the landfill showed evidence of heavy metals which may be carcinogenic (cause cancer) to humans and animals. If the source of the contamination is not located and contained, the chemicals might enter the public water supply by draining into the local reservoir. The cost of cleaning up the chemical contamination could be very large. The Vice President of the company in charge of the landfill has been given the test results. When he informed the CEO of the situation he was told to ignore the results and continue operating the landfill. The Vice President is trying to determine his course of action.

Pick one of the Theories of Ethics and answer the following questions:

1. Who are the potential stakeholders who may or may not be affected by the above situation?

2. What actions if any should the Vice president take or not take?

3. Explain your answers.

4. Would your answers change if you applied one of the other theories of ethics?

Question 4

A machine was acquired on January 1, 2015, at a cost of $80,000. The machine was originally estimated to have a residual value of $5,000 and an estimated life of 5 years. The machine is expected to produce a total of 100,000 components during its life, as follows: 15,000 in 2015, 20,000 in 2016, 20,000 in 2017, 30,000 in 2018, and 15,000 in 2019.

Instructions

(a)   Calculate the amount of depreciation to be charged each year, using each of the following methods:

       1.    Straight-line method

       2.    Units-of-production

       3.    Double diminishing-balance

(b)   Which method results in the highest depreciation expense during the first two years? Over all five years?

Question 5

Certossi Service Ltd. uses straight-line depreciation. The company's fiscal year end is December 31. The following transactions and events occurred during their first three years of operations:

2014    Jul       1          Purchased equipment for $32,000 cash, with shipping costs of $2,000.

            Nov     3          Incurred ordinary repairs on the computer of $360.

            Dec     31        Recorded 2014 depreciation on the basis of a four-year life and estimated residual value of $200.

2015    Dec     31        Recorded 2015 depreciation.

2016    Jan      1          Paid $1,600 for a major upgrade of the equipment. This expenditure is expected to increase the operating efficiency and capacity of the equipment.

Instructions

Prepare journal entries to record the above events. (Show calculations.)

Question 6

Comparative statements of financial position for Campbell Inc. appear below:

CAMPBELL INC.

Comparative Statements of Financial Position

–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

Assets

                                                                                                Dec. 31, 2016 Dec. 31, 2015

Cash                                                                                        $ 29,000         $15,000

Accounts receivable                                                                   28,000         19,000

Prepaid expenses                                                                         9,000         12,000

Merchandise inventory                                                               37,000         27,000

Long-term investments                                                               35,000         53,000

Equipment                                                                                   75,000         48,000

Accumulated depreciation—equipment                                   (26,000)        (22,000)

Total assets                                                                             $187,000         $152,000

Liabilities and Shareholders' Equity

Accounts payable                                                                   $ 21,000         $ 9,000

Mortgage payable                                                                       37,000         45,000

Common shares                                                                         40,000         23,000

Retained earnings                                                                       89,000         75,000

            Total liabilities and shareholders' equity                    $187,000         $152,000

Additional information regarding fiscal 2016:

1.         Profit for the year was $27,000.

2.         Cash dividends of $13,000 were declared and paid during the year.

3.         Long-term investments with a carrying amount of $53,000 were sold for $48,000 cash.

Instructions

Using the indirect method, prepare a statement of cash flows for the year ended December 31, 2016.

Sotheby’s has acquired a new Rothko painting and it has decided to auction it. There are two anonymous art-lover bidders of the painting, we will refer to them as Bidder A and Bidder B to protect their anonymity. In this auction format, Bidder A and Bidder B simultaneously submit a written bid for the Rothko painting. However, the auction has a weird twist. Sotheby’s requires that Bidder A must submit an odd number (in millions of US dollars) between 1 and 9 (that is, the bid must be 1, 3, 5, 7, or 9) and Bidder B’s bid must be an even number between 2 and 10 (that is, the bid must be 2, 4, 6, 8 or 10). The bidder who submits the highest bid wins the Rothko and pays a price equal to her bid. The winning bidder’s payoff equals his valuation of the item less the price she pays, whereas the losing bidder’s payoff is 0. Assume that Bidder A has a valuation of 7 (million US dollars) and that Bidder B has a valuation of 8 (million US dollars).

a) (10 points) Write down the strategic form of this game.

b) (10 points) Find all of the Nash equilibria of the game you wrote in part a.

Show every step of your calculations

At the beginning of 2018, VHF Industries acquired a machine with a fair value of $6,074,700 by signing a four-year lease. The lease is payable in four annual payments of $2 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, 2018 and the second lease payment at December 31, 2019.
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 11%. Prepare the lessee’s entry at the beginning of the lease.