Advanced Accounting 14th Edition
14th Edition
ISBN: 9781260726442
Author: By Joe Ben Hoyle And Thomas Schaefer And Timothy Doupnik
Publisher: Mc Grawhill Education
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Jonas Tech Corporation recently acquired Innovation Plus Company. The combined firm consists of three related businesses that will serve as reporting units. In connection with the acquisition, Jonas requests your help with the following asset valuation and allocation issues. Support your answers with references to FASB ASC as appropriate.Jonas recognizes several identifiable intangibles from its acquisition of Innovation Plus. It expresses the desire to have these intangible assets written down to zero in the acquisition period.The price Jonas paid for Innovation Plus indicates that it paid a large amount for goodwill. However, Jonas worries that any future goodwill impairment may send the wrong signal to its investors about the wisdom of the Innovation Plus acquisition. Jonas thus wishes to allocate the combined goodwill of all of its reporting units to one account called Enterprise Goodwill. In this way, Jonas hopes to minimize the possibility of goodwill impairment because a decline…
Bomarks acquires an equipment from a foreign supplier on credit for $6 million on 31 March 2022, when the exchange rate was $1 = GH¢ 5. The entity incurred other direct costs of GH¢1.5 million in installing the equipment. The estimated useful life of the equipment is 10 years and the entity has obligation to restore the location to its original state after usage. The estimated cost of dismantling and restoration in 10 years is GH¢3.5 million and the entity’s cost of capital is 8%. Although the equipment was available for use from 1 May 2022, the entity did not bring it into use until 1 July, 2022. Bomarks also sold goods to a foreign customer for $3.5 million on 30 April 2022, when the exchange rate was $1 = GH¢5.75. The customer paid $1 million on 1 July when the rates were $1 = GH¢5.60. On that date, Bomarks paid half of the amount owed for the equipment. At the entity’s year-end of 31 December 2022, the closing exchange rate was $1 = GH¢5.9. The entity’s functional currency is the…
In late September 2020, Federation Construction Services Pty Ltd (FCS) acquires the following items from another entity for $600,000 cash: land, building, and equipment. In addition to the acquisition price, stamp duty of $20,000, clean-up of hazardous pollution on the land of $35,000, and safety repairs and upgrades on the equipment of $8,000 were incurred. These assets are not part of a business combination. After consulting with relevant experts, the following fair values for the acquired assets wereestimated as follows:
Fair valuesLand $350,000Building $150,000Equipment $250,000
The building is estimated to have a useful life of 20 years with residual value of $10,000. The economic benefits of the building are expected to be used in equal amounts over its life. The equipment is estimated to have a useful life of 10 years with residual value of $5,000. The majority of the economic benefits of the equipment are expected to be consumed in the earlier years of its useful life.…
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- In 2024, Bratten Fitness Company made the following cash purchases: The exclusive right to manufacture and sell the X-Core workout machine from Symmetry Corporation for $201,000. Symmetry created the unique design for the equipment. Bratten also paid an additional $10,500 in legal and filing fees to attorneys to complete the transaction. An initial fee of $250,000 for a three-year agreement with Silver’s Gym to use its name for a new facility in the local area. Silver’s Gym has locations throughout the country. Bratten is required to pay an additional fee of $5,100 for each month it operates under the Silver’s Gym name, with payments beginning in March of 2024. Bratten also purchased $401,000 of exercise equipment to be placed in the new facility. The exclusive right to sell Healthy Choice, a book authored by Kent Patterson, for $20,000. The book includes healthy recipes, recommendations for dietary supplements, and natural remedies. Bratten plans to display the book at the check-in…arrow_forwardIn late September 2020, Federation Construction Services Pty Ltd (FCS) acquires the following items from another entity for $600,000 cash: land, building, and equipment. In addition to the acquisition price, stamp duty of $20,000, clean-up of hazardous pollution on the land of $35,000, and safety repairs and upgrades on the equipment of $8,000 were incurred. These assets are not part of a business combination. After consulting with relevant experts, the following fair values for the acquired assets were estimated as follows: Fair valuesLand $350,000Building $150,000Equipment $250,000 Prepare the journal entries for all these transactionsarrow_forwardSamtech Manufacturing purchased land and a building for $4 million. In addition to the purchase price, Samtech made the following expenditures in connection with the purchase of the land and building: Title insurance Legal fees for drawing the contract Pro-rated property taxes for the period after acquisition State transfer fees An independent appraisal estimated the fair values of the land and building, if purchased separately, at $3.2 and $1.8 million, respectively. Shortly after acquisition, Samtech spent $92,000 to construct a parking lot and $50,000 for landscaping. Required: 1. Determine the initial valuation of each asset Samtech acquired in these transactions. 2. Determine the initial valuation of each asset, assuming that immediately after acquisition, Samtech demolished the building. Demolition costs were $350,000 and the salvaged materials were sold for $6,000. In addition, Samtech spent $89,000 clearing and grading the land in preparation for the construction of a new…arrow_forward
- The following information relates to the intangible assets of University Testing Services (UTS): On January 1, 2024, UTS completed the purchase of Heinrich Corporation for $2,796,000 in cash. The fair value of the net identifiable assets of Heinrich was $2,500,000. Included in the assets purchased from Heinrich was a patent valued at $103,950. The original legal life of the patent was 20 years; there are 12 years remaining, but UTS believes the patent will be useful for only nine more years. UTS acquired a franchise on July 1, 2024, by paying an initial franchise fee of $273,600. The contractual life of the franchise is 8 years. Required Record the year-end adjusting entry for amortization expense, if any, for the intangible assets at December 31, 2024. Prepare the intangible asset section of the December 31, 2024, balance sheet.arrow_forwardOn 1 January 2018, Sharp Limited (Sharp) applied for a government grant of $20 million to finance the acquisition of a specialized machine for $40 million. The grant was subject to an inspection by government officials on the machine and an operating license would be issued upon the satisfactory inspection. Sharp obtained the license on 1 April 2018 but the funds were not released by the government until 1 July 2018. Sharp purchased the machine and started using it on 1 October 2018. The machine is depreciated at 20% per annum on cost using straight-line basis. On 1 January 2019, Sharp has to pay back $10 million to the government due to non- fulfillment of the required conditions of using the machine. Sharp prepares its financial statements at 31 December each year. Required: (a) With reference to HKAS 20, on which date should Sharp recognize the government grant? Explain. (b) Sharp recognizes the government grant as deferred income. Prepare the accounting journal entries…arrow_forwardBroadsystems designs websites and writes bespoke software. It disclosed in its financial statements $15 million of music and screen production rights which it had acquired via the purchase of another subsidiary. The group policy is to classify this intangible as current assets under inventory. Further, during the current financial period, the group has capitalised its domain names acquisition costs of $1 million within tangible non-current assets, and revalued the asset to $3 million. Evaluate and comment the accounting treatment of Broadsystems.arrow_forward
- AGI software inc entered into a $250,000 contract with mcdonald company to transfer a software license, perform the related installation service and provide a tech support for three-year period. AGI sells the license to the software, installation service, and tech support as a bundle of product for a lump-sum price. the installation service and tech support could be performed by other entities and there is a ready market for those services. the stand-alone prices for software, installation service, and tech support service were 160,000 20,000 and 30,000 per year (i.e., total of 90,000 for three years) respectively. The contract was finalized on march 1 2020. AGI delivered the software license on april 1 2020 when its title was transferred to mcdonald. AGI completed installation on may 15 2020 at which point the tech support service will begin covering a period of three years. Upon installation of software on may 15, mcdonald paid for the software, installation service, and one-year…arrow_forward: On May 1, 2022, Hecala Mining entered into an agreement with the state of New Mexico to obtain the rights to operate a mineral mine in New Mexico for $10 million. Additional costs and purchases included the following Development costs in preparing the mine $3,200,000; Mining equipment 140,000 Construction of various structures on site 68,000 After the minerals are removed from the mine, the equipment will be sold for an estimated residual value of $10,000. The structures will be torn down. Geologists estimate that 800,000 tons of ore can be extracted from the mine. After the ore is removed the land will revert back to the state of New Mexico. The contract with the state requires Hecala to restore the land to its original condition after mining operations are completed in approximately four years. Management has provided the following possible outflows for the restoration costs: Cash Outflow Probability $600,000 30% 700,000 30% 800,000 40% Hecala's credit-adjusted risk-free interest…arrow_forwardIn 2018, Bratten Fitness Company made the following cash purchases:1. The exclusive right to manufacture and sell the X-Core workout machine from Symmetry Corporation for$200,000. Symmetry created the unique design for the machine. Bratten also paid an additional $10,000 inlegal and filing fees to attorneys to complete the transaction.2. An initial fee of $300,000 for a three-year agreement with Silver’s Gym to use its name for a new facility inthe local area. Silver’s Gym has locations throughout the country. Bratten is required to pay an additional feeof $5,000 for each month it operates under the Silver’s Gym name, with payments beginning in March 2018.Bratten also purchased $400,000 of exercise equipment to be placed in the new facility.3. The exclusive right to sell Healthy Choice, a book authored by Kent Patterson, for $25,000. The bookincludes healthy recipes, recommendations for dietary supplements, and natural remedies. Bratten plans todisplay the book at the check-in counter…arrow_forward
- Sheridan Corporation owns and manages a small 10-store shopping centre, which it classifies as an investment property. Sheridan has a May 31 year end and initially recognized the property at its acquisition cost of $11.2 million on June 2, 2022. The acquisition cost consisted of the purchase price of $105 million, costs to survey and transfer the property of $460,000, and legal fees to acquire the property of $240,000. Sheridan determines that approximately 26% of the shopping centre's value is attributable to the land, with the remainder attributable to the building. The following fair values are determined: Date May 31, 2023 May 31, 2024 Fair Value $10,700,000 $10,594,000 May 31, 2025 $11,208,000 Sheridan expects the shopping centre building to have a 35-year useful life and a residual value of $1.428 million. Sheridan uses the straight-line method for depreciation.arrow_forwardKlaus, Inc. has the ff. information regarding their intangible assets. Klaus spent P2,600,000 of experimental and development costs in its laboratory to develop a patent which was granted on January 2, 2018. Legal fees and other costs associated with the registration of the patent totaled P544,000. Klaus estimates that the useful life of the patent will be 8 years. Klaus purchased a trademark from Nikolai Co. for P1,280,000 on July 1, 2015. The trademark was successfully defended for a total cost of P326,400 which were paid on July 1, 2017. Klaus estimates that the useful life of the trademark will be 20 years from the date of acquisition. Klaus signed an agreement on January 1, 2018, to operate as a franchise of Chooks to Go. For an initial franchise fee of P3,000,000. Of this amount, P600,000 was paid when the agreement was signed and the balance is payable in 4 annual installments of P600,000 each, beginning January 1, 2019. The downpayment is nonrefundable and no future services…arrow_forwardOn January 1, 2023, IIV purchased the right to extract oil from proven oil reserves on provincial government land. It paid $1,900,000 for production equipment and debited the "Equipment" account for the purchase price. Operations began on that day, and the agreement provided for three years of operations (until December 31, 2025), at which time it was estimated the oil reserves would be exhausted. DMH planned to extract the oil evenly over the three-year period and therefore decided to depreciate the cost of the equipment using the straight-line method, with no residual or salvage value. Included in the agreement with the government was a provision that the business would clean up the site at the end of the three years. On the date of purchase, IIV'Ss engineers and accountants estimated that the total cost to clean up the site on December 31, 2025 would total $350,000, and the discount rate to be applied to that future cost would be 8%. (Note: clean-up costs are also being debited to…arrow_forward
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