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July 2, 2016 at 9:55 pm #203375
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July 3, 2016 at 5:51 am #784853AnonymousInactive
Problem:
Following are selected balance sheet accounts of Zach Corp. at December 31, 1991 and 1990, and the increases or decreases in each account from 1990 to 1991. Also presented is selected income statement information for the year ended December 31, 1991, and additional information.
Selected income statement information for the year ended December 31, 1991
Sales revenue…………………..$155,000
Depreciation………………………..33,000
Gain on sale of equipment……….13,000
Net income………………………….28,000
Selected balance sheet accounts…………..1991………..1990………Incr/(Decr)
Assets: Accounts receivable………………$ 34,000$ …..24,000………$10,000
Property, plant, and equipment……………..277,000…….247,000……..30,00 0
Accumulated depreciation………………….(178,000)……(167,000).. …..(11,000)
Liabilities and stockholders' equity:
Bonds payable……………………………………49,000….. ….46,000…………3,000
Dividends payable……………………………….8,000……….. .5,000………….3,000
Common stock, $1 par………………………..22,000……….19,000…… …….3,000
Additional paid-in capital………………………9,000…………3,000…. ……….6,000
Retained earnings……………………………..104,000………. 91,000………..13,000
Additional information:
1. Accounts receivable relate to sales of merchandise.
2. During 1991, equipment costing $40,000 was sold for cash.
3. During 1991, $20,000 of bonds payable were issued in exchange for property, plant, and equipment. There was no amortization of bond discount or premium.
This question represents an activity that will be reported in Zach's statement of cash flows for the year ended December 31, 1991. Determine the amount that should be reported in Zach's 1991 statement of cash flows.
Question: What are the proceeds from sale of equipment?
(DR) Cash………..31,000 (plug = answer)
(DR) Acc. Dep…. x = 22,000
(CR) Equip……….40,000
(CR) Gain…………13,000(DR) Dep. Exp…..33,000
(CR) Acc. Dep…..33,000Since we're trying to get a (CR) of 11,000 on our T-account, it's gonna be 33,000 – x = 11,000, where x = 22,000.
Correct me if my approach is wrong!
July 3, 2016 at 3:44 pm #784854pracapParticipantHey Ninjas,
Can anyone help me to amortize BIC with Premium?I have Becker simulation material which is old and does not include the new rules of Bond Issuance cost. Below is the SIM question on bonds.
On January 1, Year 1, Acorn Financial Corp. issued 800 convertible bonds. Each $1,000 face value bond is convertible into 5 shares of common stock. The bonds have a 10 year term to maturity and pay interest semi-annually. Acorn's common stock has a par value of $20.00 per share. The bonds have a stated interest rate of 4% and pay interest semi-annually. The convertible bonds were sold for $875,500. Bond issue costs of $50,000 will be subtracted from the bond sale proceeds to be received by Acorn. The bonds were sold to yield a market interest rate of 3%. Acorn will use the effective interest method to amortize the bond discount and/or premium. Round all amounts to the nearest dollar.
Requirements:
1) Record the journal entry for the issuance of the convertible bonds on January 1, Year 1. Select “no entry” if no journal entry is required on this date.
January 1, Year 1
2) Record the journal entries on June 30, Year 1 to recognize interest expense and the amortization of the bond issue cost for the first six months of Year 1.
June 30, Year 1
3) Record the journal entries on December 31, Year 1 to recognize interest expense and the amortization of the bond issue cost for the second half of Year 1.
December 31, Year 1
4) Assume that the bonds are converted on January 1, Year 2 and Acorn uses the book value method to account for the conversion of bonds into common stock. Record the journal entry for the conversion.
January 1, Year 2
5) Assume that the bonds are converted on January 1, Year 2 and Acorn uses the market value method to account for the conversion of bonds into common stock. Assume the market price of the common stock on the date of conversion was
$ 250.00 per share. Record the journal entry for the conversion.January 1, Year 2
AUD - 81
BEC - 79
FAR - 80
REG - 79pracapJuly 3, 2016 at 5:30 pm #784855AnonymousInactiveSomeone correct me if I'm wrong, but Bond Issuance costs should be a direct reduction of the PV of the Bond. I think the first journal entry would be:
Dr. Cash 825500
Cr. Premium 25500
Cr. Bond Payable 800000Since the bonds are convertible (not detachable stock warrants) all the proceeds go to bonds for BV and MV method at issue date.
July 3, 2016 at 9:04 pm #784856jmc0434ParticipantBonds are not my strong suite (which I am glad I saw this question!) but I agree with AdSa. BICs are a direct reduction to the carrying amount of the bond.
Face = 800,000
CV = 825,500
Premium = 25,500
Coupon Rate = 4% / 2 = 2%
Mkt Rate = 3% / 2 = 1.5%Journal Entries
1. Bond Issuance
Dr. Cash 825,500
Cr. Premium on Bonds 25,500
Cr. Bonds Payable 800,0002. June 30, Year 1
Dr. Bond Interest Expense 12,383
Dr. Premium on Bonds 3617
Cr. Cash 160003. December 31, Year 1
Dr. Bond Interest Expense 12328
Dr. Premium on Bonds 3672
Cr. Cash 160004. Bond Conversion – Book Value
Dr. Bonds Payable 800,000
Dr. Premium on Bonds 18,211
Cr. Common Stock 80,000
Cr, APIC 738,2115. Bond Conversion – Market Value
Dr. Bonds Payable 800,000
Dr. Premium on Bonds 18,211
Dr. Loss on Conversion 181,789
Cr. Common Stock 80,000
Cr, APIC 920,000Let us know what the correct answer is!
BEC - 79
AUD - 89
REG - 80
FAR - 7/19/16July 3, 2016 at 9:24 pm #784857jmc0434Participant@eleuthromania – I agree with that approach although it may have taken me a few minutes to understand what exactly was going on.
For the Sale of Equipment it would be
Dr. Cash 31,000
Dr. ADA 22,000
Cr. Gain on Sale 13,000
Cr. Equipment 40,000I believe from this transaction the cash proceeds are considered as an investing activity while the gain is considered an operating activity.
BEC - 79
AUD - 89
REG - 80
FAR - 7/19/16July 3, 2016 at 9:56 pm #784858se7en.14ParticipantPenn Corp. paid $300,000 for the outstanding common stock of Star Co. At that time, Star had the following condensed balance sheet:
Carrying Amounts:
Current assets $ 40,000
Plant and equipment (net) $380,000
Liabilities $200,000
Stockholders' equity $220,000The fair value of the plant and equipment was $60,000 more than its recorded carrying amount. The fair values and carrying amounts were equal for all other assets and liabilities. The combination is accounted for as an acquisition (initiated in a fiscal year beginning after December 15, 2008). What amount of goodwill, related to Star's acquisition, should Penn report in its consolidated balance sheet?
A: 20,000
Measurement of GoodwillThe acquirer shall recognize goodwill as of the acquisition date, measured as the excess of (a) over (b):
a.The aggregate of the following:
……..1.The consideration transferred measured in accordance with this Section, which generally requires acquisition-date fair value (see paragraph 805-30-30-7)
……..2.The fair value of any noncontrolling interest in the acquiree
………3.In a business combination achieved in stages, the acquisition-date fair value of the acquirer's previously held equity interest in the acquiree.
b.The net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with this Topic.letter b: I thought it was only just assets and not incl liabilites? thats what I see in becker page 33.or am i just confused..
.July 4, 2016 at 12:33 am #784859gigabyte2001ParticipantFutures contracts anyone?
The Gleim example says – Co will need to buy 100k of Commodity B in the future, so to hedge against price increase, they purchase a futures contract for 100k of commodity b at 3.05. Then they buy 100k of Commodity B at the spot rate of 3.20.
I don't understand why they buy later at the spot rate when they have a contract at 3.05?
AUD - 87
BEC - 78
FAR - 82
REG - 93.B - 11/11/16
A - 4/16/16 87!!
R - 2/17/17
F - 7/26/16 - Waiting for 8/23July 4, 2016 at 1:41 am #784860jmc0434Participant@se7en.14 – The valuation does include liabilities. You would compare the Fair Value of Net Assets (equity) to the total consideration given to calculate if there is goodwill or a gain in the acquisition. So in this case
Total Consideration = 300,000
FV of Net Assets = 280,000 (220,000 + 60,000)
Goodwill = 20,000BEC - 79
AUD - 89
REG - 80
FAR - 7/19/16July 4, 2016 at 1:53 am #784861gigabyte2001Participant@se7en.4 – The math I would do:
Consideration = 300kValue –
Current Assets 40k
PPE: 380k
PPE FV Inc: 60k
Total Assets: 480k
Less Liab: 200k
Value = 280kConsideration less Value = 20k Goodwill
The original Goodwill on the books doesn't count because it's not an “identifiable asset” (at least that's what Gleim says.)
Does that help?
AUD - 87
BEC - 78
FAR - 82
REG - 93.B - 11/11/16
A - 4/16/16 87!!
R - 2/17/17
F - 7/26/16 - Waiting for 8/23July 4, 2016 at 2:00 am #784862gigabyte2001ParticipantJuly 4, 2016 at 2:33 am #784863jmc0434Participant@gigabyte2001 – I have seen Becker use both “net assets” and “net identifiable assets”
BEC - 79
AUD - 89
REG - 80
FAR - 7/19/16July 4, 2016 at 2:58 am #784864jmc0434Participant@gigabyte2001 – Future contracts… I have not gotten here for my review yet but I believe the Company bought a futures contract at a 3.05 exchange rate and when the sale actually occurs the spot rate was at 3.20. So when the company “cashs in” the futures contract to buy 100k of Commodity B at 3.05 they will recognize a gain??
That is the only thing I can think of that makes sense because I agree it does not make sense for them to buy commodity B at the spot rate if they already bought a futures contract at a lower exchange rate.
Let me know what the correct answer is!
BEC - 79
AUD - 89
REG - 80
FAR - 7/19/16July 4, 2016 at 3:07 am #784865nadrojParticipantThe Futures contract settles financially, unless they do an EFP, right?
July 4, 2016 at 3:58 am #784866gigabyte2001ParticipantOn the futures, I would come up with the same net result as Gleim, but in less steps.
I would:
debit Inventory for FMV at 3.2,
credit cash for 3.05 from the contract price
credit gain for the difference.Their example has 3 JE's,
Dr Inv & Cr Cash at the 3.2 rate,
Dr Futures & Cr Gain for the difference
Dr Cash & Cr Futures for the difference when paid.That suggests when inventory is bought, the entity pays market price of 3.20 and then i'm confused. Either way, you end up with 3.20 for Inventory, 3.05 for cash and .15 for the gain.
AUD - 87
BEC - 78
FAR - 82
REG - 93.B - 11/11/16
A - 4/16/16 87!!
R - 2/17/17
F - 7/26/16 - Waiting for 8/23July 4, 2016 at 6:47 am #784867pracapParticipant@jmc0434
@AdSa
Thanks for your response. In fact Becker text has been updated with an example for only bonds issued at discount with BIC and not for Premium.
Am wondering, as to amortization schedule for Premium with BIC. I have for discount with BIC.Has anybody knows amortization schedule for Premium with BIC? Is it the net amount (premium-BIC) to be considered for amortization?
AUD - 81
BEC - 79
FAR - 80
REG - 79pracap -
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