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Requirement A

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Emerson Rivera
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16 views2 pages

Requirement A

Uploaded by

Emerson Rivera
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Requirement (a):

(a) No entry

(DIT and OC are bank reconciling


items; not book)

(The money market placements will be


included in ‘Cash and cash
equivalents’)
(b) No entry

(c) Inventory 200,000


Accounts payable 200,000
(d) Investment property (2.9M – 2.8M) 100,000
Unrealized gain 100,000
(e) Depreciation expense – Bldg. 405,000 (1)
Accumulated depreciation – Bldg. 405,000

(1) Double declining balance rate = (450K ÷ 4.5M) = 10%


Depreciation, 20x1 = (4.5M – 450K) x 10% = 405,000

(f) Depreciation – Equipment 320,000 (2)


Accumulated depreciation – 320,000
Equipt.

(2) Using trial and error, the depreciation method used for the equipment is the SYD method.

Proof: SYD denominator = 5 x [(5+1) ÷ 2] = 15


Depreciation, 20x0 = (1.4M – 200K) x 5/15 = 400,000
Depreciation, 20x1 = (1.4M – 200K) x 4/15 = 320,000

(g) Amortization expense 30,000 (3)


Accumulated amortization 30,000

(3) Estimated useful life = 17 yrs.


Remaining legal life = 20 yrs. – 5 yrs. = 15 yrs. (shorter)
Amortization expense = 900,000 ÷ 15 x 6/12 = 30,000

(h) Inventory 108,000 (4)


Interest expense 108,000

(4) The borrowing costs eligible for capitalization are computed as follows:
(1.8M ÷ 2) x 12% = 108,000
(i) Discount on bonds payable (8M – 932, 392
7,067,608)
Cash 932,392
to correct the initial recording of the
bond issue

(5) The issue price of the bonds is computed as follows:


Cash flows PVF PV

P: 8,000,000 PV of 1 @14%, n=4 0.59208 4,736,640


i: 800,000 PV ord. annuity @14%, n=4 2.91371 2,330,968
7,067,608

(i) Interest expense 189,465


Discount on bonds payable 189,465
to amortize the discount on bonds
payable

(6) Partial amortization table:


Date Payments Payments Int. expense Amort. Present value
1/1/x1 7,067,608
12/31/x1 800,000 989,465 189,465 7,257,073

The balance of the “interest payable” on the trial balance is tested for its
Present value Effective Int. rate Interest payable
Note payable 2,000,000 12% 240,000
Bonds payable 8,000,000 10% 800,000
Required balance 1,040,000
Carrying amount 1,040,000
Adjustment -

The adjusted “interest expense” is computed as follows:


Face amount Nominal rate Interest payable
Notes payable 2,000,000 12% 240,000
Capitalizable b. costs (h) (108,000)
Total 132,000
Bonds payable 7,067,608 14% 989,465
Adj. Int. expense 1,121,465

(j) Utilities 360,000


Accrued liabilities 360,000
(k) Income tax expense 719,861
Current tax asset 719,861

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