Comprehensive Problem

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# Comprehensive Problem - PowerPoint PPT Presentation

Comprehensive Problem. Chapter 12 Example.

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Chapter 12 Example

On May 28, 2011, Pesky Corporation acquired all of the outstanding common stock of Harman, Inc., for \$420 million. The fair value of Harman’s identifiable tangible and intangible assets totaled \$512 million, and the fair value of liabilities assumed by Pesky was \$150 million.

• Determine the amount of goodwill that resulted from the Harman acquisition.
Chapter 12 Example, part b

On May 28, 2011, Pesky Corporation acquired all of the outstanding common stock of Harman, Inc., for \$420 million. The fair value of Harman’s identifiable tangible and intangible assets totaled \$512 million, and the fair value of liabilities assumed by Pesky was \$150 million. Pesky performed the required goodwill impairment test at the end of its fiscal year ended December 31, 2011. Management has provided the following information:

FV of Harman, Inc. \$ 400 million

FV of Harman’s net assets (excluding goodwill) 370 million

BV of Harman’s net assets (including goodwill) 410 million

• Determine the amount of goodwill impairment loss that Pesky should recognize at the end of 2011, if any.
• If an impairment loss is required, prepare the journal entry to record the loss.
Chapter 12 Example, part b

Determination of implied goodwill:

Measurement of impairment loss:

Entry to record the impairment loss:

Chapter 22 Example

Below are three independent and unrelated errors.

• On December 31, 2010, Wolfe Corp failed to accrue office supplies expense of \$1,800. In January 2011, when it received the bill from its supplier, Wolfe made the following entry:

Office supplies expense......1,800

Cash...................................1,800

• On the last day of 2010, MW Importers received a \$90,000 prepayment from a tenant for 2011 rent of a building. MW recorded the receipt as rent revenue.
• At the end of 2010, Dinkins failed to accrue interest of \$8,000 on a note receivable. At the beginning of 2011, when the company received the cash, it was recorded as interest revenue.

For each error, what would be the effect of each error on the income statement and the balance sheet in the 2010 financial statements? Prepare any journal entries each company should record in 2011 to correct the errors.

Chapter 22 Example

Error a.

Error b.

Error c.

E22-16

You have been engaged to review the financial statements of Longfellow Corporation. In the course of your examination, you conclude that the bookkeeper hired during the current year is not doing a good job. You notice a number of irregularities as follows.

• Year-end wages payable of \$3,400 were not recorded because the bookkeeper thought that “they were immaterial.”
• Accrued vacation pay for the year of \$31,100 was not recorded because the bookkeeper “never heard that you had to do it.”
• Insurance for a 12-month period purchased on November 1 of this year was charged to insurance expense in the amount of \$3,300 because “the amount of the check is about the same every year.”
• Reported sales revenue for the year is \$1,908,000. This includes all sales taxes collected for the year. The sales tax rate is 6%. Because the sales tax is forwarded to the state’s Department of Revenue, the Sales Tax Expense account is debited. The bookkeeper thought that “the sales tax is a selling expense.” At the end of the current year, the balance in the Sales Tax Expense account is \$103,400.

Prepare the necessary correcting entries, assuming that Longfellow uses a calendar-year basis.

E22-16
• Year-end wages payable of \$3,400 were not recorded because the bookkeeper thought that “they were immaterial.”
E22-16
• Accrued vacation pay for the year of \$31,100 was not recorded because the bookkeeper “never heard that you had to do it.”
E22-16
• Insurance for a 12-month period purchased on November 1 of this year was charged to insurance expense in the amount of \$3,300 because “the amount of the check is about the same every year.”
E22-16
• Reported sales revenue for the year is \$1,908,000. This includes all sales taxes collected for the year. The sales tax rate is 6%. Because the sales tax is forwarded to the state’s Department of Revenue, the Sales Tax Expense account is debited. The bookkeeper thought that “the sales tax is a selling expense.” At the end of the current year, the balance in the Sales Tax Expense account is \$103,400.
E11-6

MuggsyBogues Company purchased equipment for \$212,000 on October 1, 2014. It is estimated that the equipment will have a useful life of 8 years and a salvage value of \$12,000. Estimated production is 40,000 units and estimated working hours are 20,000. During 2014, Bogues uses the equipment for 525 hours and the equipment produces 1,000 units. Compute depreciation expense under each of the following methods. Bogues is on a calendar-year basis ending December 31.

• Straight-line method for 2014.
• Activity method (units of output) for 2014.
• Activity method (working hours) for 2014.
• Sum-of-the-years’-digits method for 2016.
• Double-declining-balance method for 2015.
E11-21

Jonas Lumber Company owns a 7,000-acre tract of timber purchased in 2005 at a cost of \$1,300 per acre. At the time of purchase, the land was estimated to have a value of \$300 per acre without the timber. Jonas Lumber Company has not logged this tract since it was purchased. In 2012, Jonas had the timber cruised. The cruise (appraiser) estimated that each acre contained 8,000 board feet of timber. In 2012, Jonas built 10 miles of roads at a cost of \$8,400 per mile. After the roads were completed, Jonas logged and sold 3,500 trees containing 880,000 board feet.

• Determine the cost of timber sold related to depletion for 2012.
• If Jonas depreciates the logging roads on the basis of timber cut, determine the depreciation expense for 2012.
• If Jonas plants five seedlings at a cost of \$4 per seedling for each tree cut, how should Jonas treat the reforestation?
E11-21

Jonas Lumber Company owns a 7,000-acre tract of timber purchased in 2005 at a cost of \$1,300 per acre. At the time of purchase, the land was estimated to have a value of \$300 per acre without the timber. Jonas Lumber Company has not logged this tract since it was purchased. In 2012, Jonas had the timber cruised. The cruise (appraiser) estimated that each acre contained 8,000 board feet of timber. In 2012, Jonas built 10 miles of roads at a cost of \$8,400 per mile. After the roads were completed, Jonas logged and sold 3,500 trees containing 880,000 board feet.

• Determine the cost of timber sold related to depletion for 2012.
E11-21

Jonas Lumber Company owns a 7,000-acre tract of timber purchased in 2005 at a cost of \$1,300 per acre. At the time of purchase, the land was estimated to have a value of \$300 per acre without the timber. Jonas Lumber Company has not logged this tract since it was purchased. In 2012, Jonas had the timber cruised. The cruise (appraiser) estimated that each acre contained 8,000 board feet of timber. In 2012, Jonas built 10 miles of roads at a cost of \$8,400 per mile. After the roads were completed, Jonas logged and sold 3,500 trees containing 880,000 board feet.

• If Jonas depreciates the logging roads on the basis of timber cut, determine the depreciation expense for 2012.
E11-21

Jonas Lumber Company owns a 7,000-acre tract of timber purchased in 2005 at a cost of \$1,300 per acre. At the time of purchase, the land was estimated to have a value of \$300 per acre without the timber. Jonas Lumber Company has not logged this tract since it was purchased. In 2012, Jonas had the timber cruised. The cruise (appraiser) estimated that each acre contained 8,000 board feet of timber. In 2012, Jonas built 10 miles of roads at a cost of \$8,400 per mile. After the roads were completed, Jonas logged and sold 3,500 trees containing 880,000 board feet.

• If Jonas plants five seedlings at a cost of \$4 per seedling for each tree cut, how should Jonas treat the reforestation?