Intermediate accounting exam | Accounting homework help

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Early in 2017, Dobbs Corporation engaged Kiner, Inc. to design and construct a complete modernization of Dobbs’s manufacturing facility. Construction was begun on June 1, 2017 and was completed on December 31, 2017. Dobbs made the following payments to Kiner, Inc. during 2017:

Date		Payment
June 1, 2017		$6,156,000
August 31, 2017		9,084,000
December 31, 2017		7,380,000

In order to help finance the construction, Dobbs issued the following during 2017:

1.	$5,050,000 of 10-year, 9% bonds payable, issued at par on May 31, 2017, with interest payable annually on May 31.
2.	300,000 shares of no-par common stock, issued at $10 per share on October 1, 2017.

In addition to the 9% bonds payable, the only debt outstanding during 2017 was a $1,270,000, 12% note payable dated January 1, 2013 and due January 1, 2023, with interest payable annually on January 1.

Compute the amounts of each of the following:

1.		Weighted-average accumulated expenditures qualifying for capitalization of interest cost.
2.		Avoidable interest incurred during 2017.
3.		Total amount of interest cost to be capitalized during 2017.

Problem 146

Beeman Company exchanged machinery with an appraised value of $3,551,000, a recorded cost of $5,490,000 and accumulated depreciation of $2,745,000 with Lacey Corporation for machinery Lacey owns. The machinery has an appraised value of $3,367,000, a recorded cost of $6,460,000, and accumulated depreciation of $3,553,000. Lacey also gave Beeman $184,000 in the exchange. Assume depreciation has already been updated.

Prepare the entries on both companies’ books assuming that the exchange had commercial substance. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Prepare the entries on both companies’ books assuming that the exchange lacked commercial substance. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 12,515.)

On July 1, 2017, Sport Company purchased for $3,600,000 snow-making equipment having an estimated useful life of 5 years with an estimated salvage value of $150,000. Depreciation is taken for the portion of the year the asset is used.

Complete the form below by determining the depreciation expense and year-end book values for 2017 and 2018 using the

1. sum-of-the-years’-digits method.

2. double-declining balance method.

	2017	2018
Sum-of-the-Years’-Digits Method
Equipment	$3,600,000	$3,600,000
Less: Accumulated Depreciation	$ 575000	$ 1610000
Year-End Book Value	3025000	1990000
Depreciation Expense for the Year	575000	1035000
Double-Declining Balance Method
Equipment	$3,600,000	$3,600,000
Less: Accumulated Depreciation	$ 720000	$ 1872000
Year-End Book Value	2880000	1728000
Depreciation Expense for the Year	720000	1152000

Assume the company had used straight-line depreciation during 2017 and 2018. During 2019, the company determined that the equipment would be useful to the company for only one more year beyond 2019. Salvage value is estimated at $200,000.

Compute the amount of depreciation expense for the 2019 income statement.

Depreciation expense

What is the depreciation base of this asset?

Depreciation base

Dolphin Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2016 for $6,000,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 2017, new technology was introduced that would accelerate the obsolescence of Dolphin’s equipment. Dolphin’s controller estimates that expected future net cash flows on the equipment will be $3,750,000 and that the fair value of the equipment is $3,300,000. Dolphin intends to continue using the equipment, but it is estimated that the remaining useful life is 4 years. Dolphin uses straight-line depreciation.

What is the carrying value of the asset?

Prepare the journal entry (if any) to record the impairment at December 31, 2017. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

Prepare any journal entries for the equipment at December 31, 2018. The fair value of the equipment at December 31, 2018, is estimated to be $3,450,000. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

On May 31, 2018, Armstrong Company paid $3,500,000 to acquire all of the common stock of Hall Corporation, which became a division of Armstrong. Hall reported the following balance sheet at the time of the acquisition:

Current assets	$ 900,000	Current liabilities	$ 600,000
Noncurrent assets	2,700,000	Long-term liabilities	500,000
		Stockholder’s equity	2,500,000
Total assets	$3,600,000	Total liabilities and stockholder’s equity	$3,600,000

It was determined at the date of the purchase that the fair value of the identifiable net assets of Hall was $3,100,000. At December 31, 2018, Hall reports the following balance sheet information:

Current assets	$ 800,000
Noncurrent assets (including goodwill recognized in purchase)	2,400,000
Current liabilities	(700,000	)
Long-term liabilities	(500,000	)
Net assets	$2,000,000

It is determined that the fair value of the Hall division is $2,200,000. The recorded amount for Hall’s net assets (excluding goodwill) is the same as fair value, except for property, plant, and equipment, which has a fair value of $200,000 above the carrying value.

Compute the amount of goodwill recognized, if any, on May 31, 2018.

Determine the impairment loss, if any, to be recorded on December 31, 2018.

Assume that the fair value of the Hall division is $2,150,000 instead of $2,200,000. Prepare the journal entry to record the impairment loss, if any, on December 31, 2018. (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 the amount is entered. Do not indent manually.)

On July 31, 2017, Crane Company paid $2,750,000 to acquire all of the common stock of Conchita Incorporated, which became a division of Crane. Conchita reported the following balance sheet at the time of the acquisition.

Current assets	$890,000	Current liabilities	$580,000
Noncurrent assets	2,450,000	Long-term liabilities	480,000
Total assets	$3,340,000	Stockholders’ equity	2,280,000
		Total liabilities and stockholders’ equity	$3,340,000

It was determined at the date of the purchase that the fair value of the identifiable net assets of Conchita was $2,480,000. Over the next 6 months of operations, the newly purchased division experienced operating losses. In addition, it now appears that it will generate substantial losses for the foreseeable future. At December 31, 2017, Conchita reports the following balance sheet information.

Current assets	$430,000
Noncurrent assets (including goodwill recognized in purchase)	2,370,000
Current liabilities	(600,000	)
Long-term liabilities	(400,000	)
Net assets	$1,800,000

It is determined that the fair value of the Conchita Division is $1,850,000. The recorded amount for Conchita’s net assets (excluding goodwill) is the same as fair value, except for property, plant, and equipment, which has a fair value $100,000 above the carrying value.

Compute the amount of goodwill recognized, if any, on July 31, 2017.

Determine the impairment loss, if any, to be recorded on December 31, 2017.

Assume that fair value of the Conchita Division is $1,696,000 instead of $1,850,000. Determine the impairment loss, if any, to be recorded on December 31, 2017.

Prepare the journal entry to record the impairment loss, if any, and indicate where the loss would be reported in the income statement. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

This loss will be reported in income as a separate line item before the subtotal

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July 1, 2023

Case Study 1

Your clients, Jerry and Jenny, are 25 years old. They have come to you for assistance with planning for the cost their child’s education and their retirement. They would like to know if they are on track to reach these two goals. Below are the facts about the family.

· Jenny currently earns $150,000 and they expect to need $150,000 per year in today’s dollars in retirement. Jerry is a stay-at-home dad.

· Jenny plans to retire at age 67, and they expect to live until age 100.

· They also expect that Social Security will provide $40,000 of benefits in today’s dollars at age 67.

· Jenny has been saving $5,000 annually in her 401(k) plan.

· Their son, Jazz, was just born and is expected to go to college in 18 years.

· They want to save for Jazz’s college education, which they expect will cost $20,000 in today’s dollars per year and they are willing to fund 5 years of college.They want all funds needed for Jazz’s college education available the first year Jazz starts college.

· They were told that college costs are increasing at 7% per year, while general inflation is 3%.

· They currently have $100,000 saved in total and they are averaging a 10% rate of return and expect to continue to earn the same return over time.

1. Calculate the current cost of Jazz’s college education.

2. Calculate the capital needs of the couple at retirement and the current value (today’s value) of their retirement needs.

3. Provide the couple with a summary of their goals with the current total amount needed to reach their goals, showing how you arrived at the total.

4. Given their current resources, does the couple have sufficient resources to achieve their goals? Using calculations, show and explain your answer to the couple.

5. Using calculations and explanations provide the couple with three alternatives for meeting their goals.

6. In your own words, provide the couple with the advantages and disadvantages of two accounts and/or investment instruments that are used specifically to save for college education expenses. Which would you recommend and why?

Your completed Case Study must contain a minimum of 500 words and 2 citations in current APA format. Acceptable sources are personal finance journals, magazines, or newspapers.

Case Study 2

Your client, Steven, age 43, has come to you for assistance with retirement planning. He provides you with the following facts.

· He earns $80,000 annually.

· His wage replacement ratio has been determined to be 80%.

· He expects inflation will average 3% for his entire life expectancy.

· He expects to work until 68, and live until 90.

· He currently has $60,000 saved, and he is averaging a 9% rate of return and expects to continue to earn the same return over time.

· He has been saving $3,000 annually in his 401(k) plan.

· Additionally, Social Security Administration has notified him that his annual retirement benefit, in today’s dollars will be $26,000.

1. Using calculations, explain to Steven why it is realistic to use a wage replacement ratio of 80%.

2. Using the annuity method, calculate how much capital Steven will need to be able to retire at age 68.

3. Given his current resources, does he have sufficient resources to achieve his retirement goal? Using calculations, show and explain your answer to Steven.

4. Provide Steven with 3 alternatives for meeting his retirement goal. In doing so, use calculations to show the impact of each alternative.

Before hiring you as his financial planner, Steven was going to another planner. He mentions that the other planner calculated this retirement needs another way, so he asks you to calculate his retirement needs using other methods.

5. Using the capital preservation method, calculate how much capital Steven needs in order to retire at 68.

6. Using the purchasing power preservation method, calculate how much capital Steven needs in order to retire at 68.

7. In your own words, provide Steven with the advantages and disadvantages of each method and explain why the amounts calculated are different with the three methods.

8. In your own words, provide Steven with the advantages and disadvantages of 2 investment instruments that are used specifically to save for retirement. Which would you recommend and why?

Your completed Case Study must contain a minimum of 700 words and 2 citations in current APA format. Acceptable sources are personal finance journals, magazines, or newspapers.