E10-12: (Depreciation Computations-SL, SYD, DDB) Montoni Company purchases equipment on January 1, year 1, at a cost of $ 469,000. The asset is expected to have a service life of 12 years and a salvage value of $ 40,000. Instructions Complete the amount of depreciation for each years 1 through 3 using the straight-line depreciation method. Complete the amount of depreciation for each years 1 through 3 using the sum-of-the-years’-digits method. Complete the amount of depreciation for each years 1 through 3 using the double-declining balance method. (In performing your calculations, round constant percentage to the nearest one-hundredth of a point and round answers to the nearest dollar. E10-27: (Capitalization of Interest) Harrisburg Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $ 5,000,000 on January 1, 2008. Harrisburg expected to complete the building by December 31, 2008. Harrisburg has the following debt obligations outstanding during the construction period. � � Construction loan-12% interest, payable semiannually, issued � � � � December 31, 2007 � � � � � � � � � � � � � � $ 2,000,000 � � Short-term loan-10% interest, payable monthly, and principle payable � � � � At maturity on May 30, 2009 � � � � � � � � � � � 1,400,000 � � Long-term loan- 11% interest, payable on January 1 of each � � � � Year. Principle payable on January 1, 2012 � � � � � � � 1,000,000 E11-4: (Intangible Amortization) Presented below is selected information for Alatorre Company. Alatorre purchased a patent from Vania Co. for $ 1,000,000 on January 1, 2006. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2016. During 2008, Alatorre determined that the economic benefits of the patent would not last longer than 6 years from the date of acquisition. What amount should be reported in the balance sheet for the patent, net of accumulated amortization, at December 31, 2008? Alatorre bought a franchise from Alexander Co on January 1, 2007 for $ 400,000. The carrying amount of the franchise on Alexander’s books on January 1, 2007, was $ 500,000. The franchise agreement had an estimated useful life of 30 years. Because Alatorre must enter a competitive bidding at the end of 2016, it is unlikely that the franchise will be retained beyond 2016. What amount should be amortized for the year ended December 31, 2008? On January 1, 2008, Alatorre incurred organization costs of $ 275,000. What amount of organization expense should be reported in 2008? Alatorre purchased the license for distribution of a popular consumer product on January 1, 2008, for $ 150,000. It is expected that this product will generate cash flow for an indefinite period of time. The license has an initial term of 5 years but by paying the normal fee, Alatorre can renew the license indefinitely for successive 5-year terms. What amount should be amortized for the year ended December 31, 2008? E11-18: (Goodwill Impairment) Presented below is net asset information related to the Carlos Division of Santana, Inc. Carlos Division Net Assets As of December 31, 2008 (in millions) Cash � � � � � � � � � � � � � � � � � � � � � � � � � � $ 50 Receivables � � � � � � � � � � � � � � � � � � � � � � � � � 200 Property, plant, and equipment (net) � � � � � � � � � � � � � � � � 2,600 Goodwill � � � � � � � � � � � � � � � � � � � � � � � � 200 Less: Notes payable � � � � � � � � � � � � � � � � � � � � � (2,700) Net assets � � � � � � � � � � � � � � � � � � � � � � � � $ 350 � � The purpose of the Carlos division is to develop a nuclear-powered aircraft. If successful, traveling delayes associated with refueling could be substantially reduced. Many other benefits would also occur. To date, management has not had much success and is deciding whether a writ-down at this time is appropriate. Management estimated its future net cash flows from the project to be $ 400 million. Management has also received an offer to purchase the division for $ 335 million. All identifiable assets’ and liabilities’ book and fair value amounts are the same. Instructions Prepare the journal entry (if any) to record the impairment at December 31, 2008. At December 31, 2009, it is estimated that the division’s fair value increased to $ 345 million. Prepare the journal entry (if any) to record this increase in fair value. E14-6: (Entries for Available-for-sale and Trading Securities) The following information is available Barkley Company at December 31, 2008, regarding its investments. � � � � Securities � � � � � � � � � � Cost � � � � Fair Value 3,000 shares of Myers Corporation Common Stock � � $ 40,000 � � � � $ 48,000 1,000 shares of Cole Incorporated Preferred Stock � � 25,000 � � � � 22,000 � � � � � � � � � � � � � � � � � � $ 65,000 � � � � $ 70,000 Instructions Prepare the adjusting entry (if any) for 2008, assuming the securities are classified as trading. Prepare the adjusting entry (if any) for 2008, assuming the securities are classified as available-for-sale. Discuss how the amounts reported in the financial statements are affected by the entries in (a) and (b). E14-13: (Equity Method) Parent Co. invested $ 1, 000,000 in Sub Co. for 25% of its outstanding stock. Sub Co. pays out 40% of net income in dividends each year. Investment in Sub Co. � � � � � � � � � � � 1,000,000 � � � � � � � � � � � 110,000 � � � � � � � � � � � � � � � � 44,000 Instructions: How much was Parent Co.’s shares of Sub Co.’s net income for the year? How much was Parent Co.’s shares of Sub Co.’s dividends for the year? What was Sub Co.’s total net income for the year? What was Sub Co.’s total dividends for the year?
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