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Accounting 3301 EXAM 1, Exams of Accounting

Beeman Company exchanged machinery with an appraised value of $3,510,000, a recorded cost of $5,400,000 and accumulated depreciation of $2,700,000 with Lacey Corporation for machinery Lacey owns. The machinery has an appraised value of $3,390,000, a recorded cost of $6,480,000, and accumulated depreciation of $3,564,000. Lacey also gave Beeman $120,000 in the exchange. Assume depreciation has already been updated

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Accounting 3301 EXAM 1
Beeman Company exchanged machinery with an appraised value of $3,510,000, a recorded
cost of $5,400,000 and accumulated depreciation of $2,700,000 with Lacey Corporation for
machinery Lacey owns. The machinery has an appraised value of $3,390,000, a recorded cost
of $6,480,000, and accumulated depreciation of $3,564,000. Lacey also gave Beeman
$120,000 in the exchange. Assume depreciation has already been updated.
Instructions
(a) Prepare the entries on both companies' books assuming that the exchange had
commercial substance. (Round all computations to the nearest dollar.)
(b) Prepare the entries on both companies' books assuming that the exchange lacked
commercial substance. (Round all computations to the nearest dollar.)
Solution 10-146
(a) Commercial Substance
Beeman
Machinery.............................................. 3,390,000 Cost $5,400,000
Cash.......................................................... 120,000 A/D 2,700,000
Accum. Depreciation— BV 2,700,000
Machinery......................................... 2,700,000 FV 3,510,000
Gain on Disposal of Gain $ 810,000
Machinery......................... 810,000
Machinery............................ 5,400,000
Lacey
Machinery.............................................. 3,510,000 Cost $6,480,000
Accum. Depreciation— A/D 3,564,000
Machinery......................................... 3,564,000 BV 2,916,000
Gain on Disposal of FV 3,390,000
Machinery......................... 474,000 Gain $ 474,000
Machinery............................ 6,480,000
Cash........................................ 120,000
(b) No Commercial Substance
Beeman
Machinery...................................................................................................... 2,607,692
Cash.................................................................................................................. 120,000
Accumulated Depreciation—Machinery........................................... 2,700,000
Gain on Disposal of Machinery............................................ 27,692
Machinery.................................................................................... 5,400,000
$120,000 ÷ ($120,000 + $3,390,000) × $810,000 = $27,692
Lacey
Machinery...................................................................................................... 3,036,000
Accumulated Depreciation—Machinery........................................... 3,564,000
Machinery.................................................................................... 6,480,000
Cash................................................................................................ 120,000
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Accounting 3301 EXAM 1 Beeman Company exchanged machinery with an appraised value of $3,510,000, a recorded cost of $5,400,000 and accumulated depreciation of $2,700,000 with Lacey Corporation for machinery Lacey owns. The machinery has an appraised value of $3,390,000, a recorded cost of $6,480,000, and accumulated depreciation of $3,564,000. Lacey also gave Beeman $120,000 in the exchange. Assume depreciation has already been updated. Instructions (a) Prepare the entries on both companies' books assuming that the exchange had commercial substance. (Round all computations to the nearest dollar.) (b) Prepare the entries on both companies' books assuming that the exchange lacked commercial substance. (Round all computations to the nearest dollar.) Solution 10- (a) Commercial Substance Beeman Machinery.............................................. 3,390,000 Cost $5,400, Cash.......................................................... 120,000 A/D 2,700, Accum. Depreciation— BV 2,700, Machinery......................................... 2,700,000 FV 3,510, Gain on Disposal of Gain $ 810, Machinery......................... 810, Machinery............................ 5,400, Lacey Machinery.............................................. 3,510,000 Cost $6,480, Accum. Depreciation— A/D 3,564, Machinery......................................... 3,564,000 BV 2,916, Gain on Disposal of FV 3,390, Machinery......................... 474,000 Gain $ 474, Machinery............................ 6,480, Cash........................................ 120, (b) No Commercial Substance Beeman Machinery...................................................................................................... 2,607, Cash.................................................................................................................. 120, Accumulated Depreciation—Machinery........................................... 2,700, Gain on Disposal of Machinery............................................ 27, Machinery.................................................................................... 5,400, $120,000 ÷ ($120,000 + $3,390,000) × $810,000 = $27, Lacey Machinery...................................................................................................... 3,036, Accumulated Depreciation—Machinery........................................... 3,564, Machinery.................................................................................... 6,480, Cash................................................................................................ 120,

  1. Early in 2014, Dobbs Corporation engaged Kiner, Inc. to design and construct a complete modernization of Dobbs's manufacturing facility. Construction was begun on June 1, 2014 and was completed on December 31, 2014. Dobbs made the following payments to Kiner, Inc. during 2014: Date Payment June 1, 2014 $6,000, August 31, 2014 9,000, December 31, 2014 7,500, In order to help finance the construction, Dobbs issued the following during 2014:
  2. $5,000,000 of 10-year, 9% bonds payable, issued at par on May 31, 2014, with interest payable annually on May 31.
  3. 1,000,000 shares of no-par common stock, issued at $10 per share on October 1, 2014. In addition to the 9% bonds payable, the only debt outstanding during 2014 was a $1,250,000, 12% note payable dated January 1, 2010 and due January 1, 2020, with interest payable annually on January 1. Instructions Compute the amounts of each of the following (show computations):
  4. Weighted-average accumulated expenditures qualifying for capitalization of interest cost.
  5. Avoidable interest incurred during 2014.
  6. Total amount of interest cost to be capitalized during 2014. Solution 10-
  7. Weighted-Average Capitalization Accumulated Date Expenditures Period Expenditures June 1 $6,000,000 7/12 $3,500, August 31 9,000,000 4/12 3,000, December 31 7,500,000 0 0 $6,500,
  8. Weighted-Average Accumulated Appropriate Avoidable Expenditures Interest Rate Interest $5,000,000 .09 $450, 1,500,000 .12 180, $6,500,000 $630,
  9. Actual interest incurred during 2014: 9% bonds payable, $5,000,000 × .09 × 7/12 $262, 12% note payable, $1,250,000 × .12 150, $412, The interest cost to be capitalized is $412,500 (the lesser of the $630,000 avoidable interest and the $412,500 actual interest cost).

A machine which cost $300,000 is acquired on October 1, 2014. Its estimated salvage value is $30,000 and its expected life is eight years. Instructions (1) Calculate depreciation expense for 2014 and 2015 by each of the following methods, showing the figures used. (a) Double-declining balance (b) Sum-of-the-years'-digits (2) At the end of 2015, which method results in the larger accumulated depreciation amount? Solution 11- (1) (a) 2014: 25% × $300,000 × ¼ = $18, 2015: 25% × $187,500 = $70, (b) 2014: 8/36 × $270,000 × ¼ = $15, 2015: 8/36 × $270,000 × ¾ = $45, 7/36 × $270,000 × ¼ = 13, $58, (2) Double-declining balance Calculation: $18, $70, Larger accumulated depreciation $89,063 DDB $15, $58, $73,125 SYD

Ex. 11-131 —Asset depreciation and disposition. Answer each of the following questions.

  1. A plant asset purchased for $400,000 has an estimated life of 10 years and a residual value of $20,000. Depreciation for the second year of use , determined by the declining- balance method at twice the straight-line rate is $_____________. ANSWER $64,
  2. A plant asset purchased for $330,000 at the beginning of the year has an estimated life of 5 years and a residual value of $30,000. Depreciation for the third year, determined by the sum-of-the-years'-digits method is $______________. ANSWER $60,
  1. A plant asset with a cost of $320,000 and accumulated depreciation of $90,000, is given together with cash of $120,000 in exchange for a similar asset worth $330,000. The gain or loss recognized on the disposal (indicate by "G" or "L") is $_____ ANSWER $20,000 L
  2. A plant asset with a cost of $270,000, estimated life of 5 years, and residual value of $45,000, is depreciated by the straight-line method. This asset is sold for $190,000 at the end of the second year of use. The gain or loss on the disposal (indicate by "G" or "L") is $___________. ANSWER $10,000 G