AC 501 Unit 4 Homework Assignment

AC 501 Unit 4 Homework Assignment
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homework-assignment
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
$ 2,000,000
December 31, 2007
Short-term loan-10% interest, payable monthly, and principle
payable
1,400,000
At maturity on May 30, 2009
Long-term loan- 11% interest, payable on January 1 of each
1,000,000
Year. Principle payable on January 1, 2012
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 nuclearpowered
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.

Fair Value
Securities Cost
3,000 shares of Myers Corporation Common Stock $ 40,000
$ 48,000
1,000 shares of Cole Incorporated Preferred Stock 25,000
22,000
$ 70,000
$ 65,000
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.
Instructions:
1,000,000
110,000
44,000

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?