Intermediate Financial Accounting I                      

Question

Brake Company utilizes the perpetual inventory method. Inventory information for Part # AB124 revealed the following for the month of May:

Required: Determine the value of ending inventory and gross profit under each of the following methods:

(a)    LIFO                                                                                                                              

(b)   FIFO                                                                                                                               

(c)    Average Cost                                                                                                                  

Question

Grande Incorporated, a window installation company, is preparing its annual financial statements for the year ended December 31, 2009 and the following information in dollars is available:

• Selling Expenses are 15% of Sales.

• Normal Profit Margin is 20% of Sales.

• At December 31, 2009, the balance in Grande's Raw Material inventory account was $380,000 and the Allowance to Reduce Inventory to Market had a credit balance of $50,000.

Required:

(a)    Prepare a table with the headings below (and a row for each type of raw material) and determine the proper balance in the Allowance to Reduce Inventory to Market account at December 31, 2009.

(b)   Determine the amount of gain or loss that would be recorded due to the change in the Allowance to Reduce Inventory to Market account.                                                                           

Question 

Lola industries purchased the following assets and constructed a building as well. All of this was done during the current year.

Assets 1 and 2:

These assets were purchased as a lump sum for $110,000 cash. The following was gathered:

Asset 3

Office Equipment was acquired by issuing 300 shares of $6 par value common stock. The stock had a market value of $14 per share.

Construction of Building

A building was constructed on land purchased last year at a cost of $150,000. Construction began on February 1 and was completed on November 1. The payments to the contractor were as follows:

To finance construction of the building, a $600,000 10% construction loan was taken out on February 1. The loan was repaid on November 1. The firm had $200,000 of other outstanding debt during the year at a borrowing rate of 7%.

Required: Record all of the applicable acquisition/construction entries for each of these assets.

Question 

Rohan Company purchased equipment in January 2008 for $8,000,000 and had an estimated useful life of 6 years with a salvage value of $2,000,000. At December 31, 2010, new technology was introduced that would accelerate the obsolescence of Rohan's equipment. Rohan's controller estimates that expected future net cash flows on the equipment will be $4,900,000 and that the fair value of the equipment is $4,600,000. Rohan intends to continue using the equipment, but it is estimated that the remaining life is 2 years and new salvage value is $1,000,000. Rohan uses straight-line depreciation.

Required:

(a)    Prepare the journal entry (if any) to record the impairment at December 31, 2010. 

(b)   Prepare any journal entries for the equipment at December 31, 2011.                                       

Question 

On May 1, 2011, Walker Company (a US company) paid US$3,700,000 to acquire all of the common stock of Hayden Corporation (an Australian company), which now became a division of Walker. Hayden reported the following US$ balance sheet at the time of the acquisition:

At December 31, 2011, Hayden reports the following US$ balance sheet information:

During the annual impairment test conducted on December 31, 2011, it was determined that the fair value of the Hayden division as a whole was $2,400,000.

Required:

(a)    Compute the amount of goodwill recognized, if any, on May 1, 2011.        

(b)   Determine the impairment loss, if any, to be recorded on December 31, 2011.               

(c)    Determine the implied fair value of goodwill on December 31, 2011.                     

(d)   On the assumption that the fair value of Hayden on December 31, 2010 was $1,650,000 instead of $2,400,000, determine the impairment loss, if any, to be recorded.                          

Question

Walter & Company has produced the following detailed aging of outstanding accounts receivable as at December 31, 2009.

Required:

(a)    Prepare an aging analysis and show how accounts receivable and the related allowance for doubtful accounts would appear in the balance sheet at December 31, 2009.    

(b)   Prepare the necessary journal entry to update the allowance for doubtful accounts assuming that the balance prior to preparing the aging was a credit of $100,000.                      

(c)    One of the customers, Janet, who was in the "Over 180" days category owed $60,000. On January 15, 2010, it was revealed that Janet was officially declared bankrupt and would only be able to repay a quarter of what she owed to any company. Prepare the journal entry to write off Janet's uncollectible debt.                                                                                  

(d)   On January 31, 2010, Janet won the lottery and on the same day she decided to repay all of her original debts to everyone whom she owed money. Prepare the journal entry to record Walter's unexpected receipt of Janet's payment.                                                        

Question

Shown below is an income statement for 2010 that was prepared by a poorly trained bookkeeper of Howell Corporation.

Howell Corporation

INCOME STATEMENT

December 31, 2010

            Sales revenue                                                                                            $945,000

            Investment revenue                                                                                    19,500

            Cost of merchandise sold                                                                             (408,500)

            Selling expenses                                                                                         (145,000)

            Administrative expense                                                                                (215,000)

            Interest expense                                                                                         (13,000)

            Income before special items                                                                           183,000

            Special items

                  Loss on disposal of a component of the business                                          (30,000)

                  Major casualty loss (extraordinary item)                                                      (70,000)

            Net federal income tax liability                                                                           (24,900)

            Net income                                                                                                    $  58,100

Required

Prepare a multiple-step income statement for 2010 for Howell Corporation that is presented in accordance with generally accepted accounting principles (including format and terminology). Howell Corporation has 50,000 shares of common stock outstanding and has a 30% federal income tax rate on all tax related items. Round all earnings per share figures to the nearest cent.