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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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CONTINUING PROBLEM: FRONT ROW ENTERTAINMENT

After a successful first year, Cam and Anna decide to expand Front Row Entertainment’s operations by becoming a venue operator as well as a tour promoter. A venue operator contracts with promoters to rent the venue (which can range from amphitheaters to indoor arenas to night-clubs) for events on specific dates. In addition to receiving revenue from renting the venue, venue operators also provide services such as concessions, parking, security, and ushering services. By vertically integrating their business, Cam and Anna can reduce the expense that they pay to rent venues. In addition, they will generate additional revenue by providing services to other tour promoters.

After a little investigation, Cam and Anna locate a small venue operator that owns The Chicago Music House, a small indoor arena with a rich history in the music industry. The current owner has experienced severe health issues and has let the arena fall into a state of disrepair. However, he would like the arena to be preserved and its musical legacy to continue. After a short negotiation, on January 1, 2020, Front Row purchases the venue by paying $10,000 in cash and signing a 15-year 10% note for $380,000. In addition, Front Row purchases the right to use the "Chicago Music House" name for $25,000 cash.

During the month of January 2020, Front Row incurred the following as they renovated the arena and prepared it for the first major event scheduled for February.

Jan. 5 Paid $21,530 to repair damage to the roof of the arena.

10 Paid $45,720 to remodel the stage area.

21 Purchased concessions equipment (e.g., popcorn poppers, soda machines) for $12,350.

Renovations were completed on January 28, and the first concert was held in the arena on February 1. The arena is expected to have a useful life of 30 years and a residual value of $35,000. The concessions equipment will have a useful life of 5 years and a residual value of $250.

Required:

Compute and record the depreciation for 2020 (11 months) on the arena (use the straight-line method) and on the concessions equipment (use the double-declining-balance method). Round all answers to the nearest dollar.

To determine

Introduction:

If a company purchase any assets or make some expense on assets for the purpose of increase some capacity then, company will record the all type of expense. These expenses will be capitalized.

Double declining balance method means company records the deprecation value 2 times of straight-line method. Its just because of benefit of assets to be long terms.

To choose:

Compute and record the depreciation for 2020 (11 month) on the arena (use the straight-line method) and on the concession equipment (use double-declining balance method). Round all answer to the nearest dollar.

Explanation

If company acquire some assets and make some expense on these assets, then that expense also will be capitalized with the main asset.

As per this question

Lease hold assets = $390,000

Damage on the roof

= $21,530

Remodel the stage = $45,720

Total cost of the arena = $457,250

Straight-line method used for 11 months

annual depreciation = total cost + Installation cost - salvage valueuseful life of asset

annual depreciation = $390,000 + $21,530+$45,720 -$35,00030yearAnnual depreciation = $422,28030year=$14076

Date Particular L.f Dr ($) Cr ($)
Depreciation on property a/c...

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