You were able to gather the following during your audit: a. To acquire land and building, the company paid P98,000 cash and 10,000 shares of its 9% cumulative preferred shares, P100 par value per share. The shares were then selling at P120. b. Legal fees covered the following: Cost of incorporation P 9,500 Examination of title covering purchase of the land 4,000 Legal work in connection with construction contract 1,500 P 15,000 c. Because of a general increase in construction costs after entering into the building contract, the board of directors increased the value of the building by P500,000, believing such increase is justified to reflect current market value at the time the building was completed. Retained earnings was credited for this amount. d. Estimated useful life of the building is 25 years. REQUIRED: 1. Prepare the necessary adjusting journal entries as of December 31, 2019. 2. Determine the adjusted balances of the following as of December 31, 2019: a. Land and building b. Land c. Carrying value of building d. Organization cost, net (presented under Noncurrent Assets)

You were able to gather the following during your audit: a. To acquire land and building, the company paid P98,000 cash and 10,000 shares of its 9% cumulative preferred shares, P100 par value per share. The shares were then selling at P120. b. Legal fees covered the following: Cost of incorporation P 9,500 Examination of title covering purchase of the land 4,000 Legal work in connection with construction contract 1,500 P 15,000 c. Because of a general increase in construction costs after entering into the building contract, the board of directors increased the value of the building by P500,000, believing such increase is justified to reflect current market value at the time the building was completed. Retained earnings was credited for this amount. d. Estimated useful life of the building is 25 years. REQUIRED: 1. Prepare the necessary adjusting journal entries as of December 31, 2019. 2. Determine the adjusted balances of the following as of December 31, 2019: a. Land and building b. Land c. Carrying value of building d. Organization cost, net (presented under Noncurrent Assets)

SWFT Comprehensive Vol 2020

43rd Edition

ISBN:9780357391723

Author:Maloney

Publisher:Maloney

Chapter8: Depreciation, Cost Recovery, Amortization, And Depletion

Section: Chapter Questions

Problem 38P

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The following are independent errors: a. In January 2019, repair costs of 9,000 were debited to the Machinery account. At the beginning of 2019, the book value of the machinery was 100,000. No residual value is expected, the remaining estimated life is 10 years, and straight-line depreciation is used. b. All purchases of materials for construction contracts still in progress have been immediately expensed. It is discovered that the use of these materials was 10,000 during 2018 and 12,000 during 2019. c. Depreciation on manufacturing equipment has been excluded from manufacturing costs and treated as a period expense. During 2019, 40,000 of depreciation was accounted for in that manner. Production was 15,000 units during 2019, of which 3,000 remained in inventory at the end of the year. Assume there was no inventory at the beginning of 2019. Required: Prepare journal entries for the preceding errors discovered during 2020. Ignore income taxes.
During 2019, Ryel Companys controller asked you to prepare correcting journal entries for the following three situations: 1. Machine A was purchased for 50,000 on January 1, 2014. Straight-line depreciation has been recorded for 5 years, and the Accumulated Depreciation account has a balance of 25,000. The estimated residual value remains at 5,000, but the service life is now estimated to be 1 year longer than estimated originally. 2. Machine B was purchased for 40,000 on January 1, 2017. It had an estimated residual value of 5,000 and an estimated service life of 10 years. it has been depreciated under the double-declining-balance method for 2 years. Now, at the beginning of the third year, Ryel has decided to change to the straight-line method. 3. Machine C was purchased for 20,000 on January 1, 2018, Double-declining-balance depreciation has been recorded for 1 year. The estimated residual value of the machine is 2,000 and the estimated service life is 5 years. The computation of the depreciation erroneously included the estimated residual value. Required: Prepare any necessary correcting journal entries for each situation. Also prepare the journal entry necessary for each situation to record depreciation expense for 2019.
Worksheet Devlin Company has prepared the following partially completed worksheet for the year ended December 31, 2019: The following additional information is available: (a) salaries accrued but unpaid total 250; (b) the 80 heat and light bill for December has not been recorded or paid; (c) depreciation expense totals 810 on the buildings and equipment; (d) interest accrued on the note payable totals 380 (this will be paid when the note is repaid); (e) the company leases a portion of its floor space to KT Daniel Specialty Company for 50 per month, and KT Daniel has not yet paid its December rent; (f) interest accrued on the note receivable totals 80; (g) bad debts expense is 70; and (h) the income tax rate is 30% on current income and is payable in the first quarter of 2017. Required: 1. Complete the worksheet. (Round to the nearest dollar.) 2. Prepare the companys financial statements. 3. Prepare (a) adjusting and (b) closing entries in the general journal.
At the beginning of 2020, Holden Companys controller asked you to prepare correcting entries for the following three situations: 1. Machine X was purchased for 100,000 on January 1, 2015. Straight-line depreciation has been recorded for 5 years, and the Accumulated Depreciation account has a balance of 45,000. The estimated residual value remains at 10,000, but the service life is now estimated to be 1 year longer than originally estimated. 2. Machine Y was purchased for 40,000 on January 1, 2018. It had an estimated residual value of 4,000 and an estimated service life of 8 years. It has been depreciated under the sum-of-the-years-digits method for 2 years. Now, the company has decided to change to the straight-line method. 3. Machine Z was purchased for 80,000 on January 1, 2019. Double-declining-balance depreciation has been recorded for 1 year. The estimated residual value is 8,000 and the estimated service life is 5 years. The computation of the depreciation erroneously included the estimated residual value. Required: Prepare any necessary correcting journal entries for each situation. Also prepare the journal entry for each situation to record the depreciation for 2020. Ignore income taxes.
Lee Manufacturing Corporation was incorporated on January 3, 2018. The corporations financial statements for its first years operations were not examined by a CPA. You have been engaged to examine the financial statements for the year ended December 31, 2019, and your examination is substantially completed. Lees trial balance at December 31, 2019, appears as follows: The following information relates to accounts that may vet require adjustment: 1. Patents for Lees manufacturing process were acquired January 2, 2019, at a cost of 68,000. An additional 17,000 was spent in December 2019 to improve machinery covered by the patents and charged to the Patent account. Depreciation on fixed assets has been properly recorded for 2019 in accordance with Lees practice which provides a full years depreciation for property on hand June 30 and no depreciation otherwise. Lee uses the straight-line method fix all depreciation and amortization and amortizes its patents over their legal life. 2. On January 3. 2018, Lee purchased licensing Agreement No. 1, which was believed to have an indefinite useful life. The balance in the licensing Agreement No. 1 account includes its purchase price of 48,000 and costs of 2,000 related to the acquisition. On January 1, 2019, Lee purchased licensing Agreement No. 2, which has a life expectancy of 10 years. The balance in the Licensing Agreement No. 2 account includes its 48,000 purchase price and 2,000 in acquisition costs, but it has been reduced by a credit of 1,000 for the advance collection of 2020 revenue from the agreement. In late December 2018, an explosion caused a permanent 60% reduction in the expected revenue-producing value of licensing Agreement No. 1, and in January 2020 a flood caused additional damage that rendered the agreement worthless. 3. The balance in the Goodwill account includes (a) 8,000 paid December 30, 2018, for newspaper advertising for the next 4 years following the payment, and (b) legal costs of 16,000 incurred for Lees incorporation on January 3, 2018. 4. The Leasehold Improvements account includes (a) the 15,000 cost of improvements with a total estimated useful life of 12 years, which Lee, as tenant, made to leased premises in January 2018; (b) movable assembly line equipment costing 8,500 that was installed in the leased premises in December 2019; and (c) real estate taxes of 2,500 paid by Lee in 2019, which under the terms of the lease should have been paid by the land-lord. Lee paid its rent in full during 2019. A 10-year nonrenewable lease was signed January 3, 2018, fix the leased building that Lee used in manufacturing operations. 5. The balance in the Organization Costs account includes costs incurred during the organizational period. Required: Prepare a worksheet (spreadsheet) to adjust accounts that require adjustment and prepare financial statements. Formal adjusting journal entries and financial statements are not required. No intangible assets are impaired at the end of 2019. Ignore income taxes.
Koolman Construction Company began work on a contract in 2019. The contract price is 3,000,000, and the company determined that its performance obligation was satisfied over time. Other information relating to the contract is as follows: Required: 1. Compute the gross profit or loss recognized in 2019 and 2020. 2. Prepare the appropriate sections of the income statement and ending balance sheet for each year.
On March 1, 2019, Elkhart enters into a new contract to build a specialized warehouse for 7 million. The promise to transfer the warehouse is determined to be a performance obligation. The contract states that if the warehouse is usable by November 30, 2019, Elkhart will receive a bonus of 600,000. For every week after November 30 that the warehouse is not usable, the bonus will decrease by 150,000. Elkhart provides the following completion schedule: Required: 1. Assume that Elkhart uses the expected value approach. What amount should Elkhart use for the transaction price? 2. Assume that Elkhart uses the most likely amount approach. What amount should Elkhart use for the transaction price? 3. Next Level What is the purpose of assessing whether a constraint on the variable consideration exists?
At the end of 2020, Magenta Manufacturing Company discovered that construction cost had been capitalized as a cost of the factory building in 2015 when it should have been treated as a cost of production equipment installation costs. As a result of the misclassification, the depreciation through 2018 was understated by 110,000, and depreciation for 2019 was understated by 90,000. What would be the consequences of correcting for the misclassification of the property cost? a. The taxpayer uses the FIFO inventory method, and 25% of goods produced during the period were included in the ending inventory. b. The taxpayer uses the LIFO inventory method, and no new LIFO layer was added during 2019.