INTERMEDIATE ACCOUNTING II WEEK 2 ASSIGNMENT EXERCISES

$21.00

Description

INTERMEDIATE ACCOUNTING II WEEK 2 ASSIGNMENT EXERCISES

E 14-16 Error in amortization schedule

Wilkins Food Products, Inc. acquired a packaging machine
from Lawrence Specialists Corporation. Lawrence completed construction of the
machine on January 1, 2009. In payment for the machine Wilkins issued a
three-year installment note to be paid in three equal payments at the end of
each year. The payments include interest at the rate of 10%.

Lawrence made a conceptual error in preparing the
amortization schedule, which Wilkins failed to discover until 2011. The error
had caused Wilkins to understate interest expense by 45,000 in 2009 and 40,000
in 2010.

Required:

1. Determine
which accounts are incorrect as a result of these errors at January 1, 2011,
before adjustments. Explain your answer. (Ignore income taxes)

2. Prepare a
journal entry to correct the error.

3. What
other step(s) would be taken in connection with the error.

E 14-18 Installment note; amortization schedule

American Food Services, Inc. acquired a packaging machine
from Barton and Barton Corporation. Barton and Barton completed construction of
the machine on January 1, 2011. In payment for the 4 million machine, American
Food Services issued a four-year installment note to be paid in four equal
monthly payments at the end of each month. The payments include interest at the
rate of 12%.

Required:

1. Prepare
the journal entry for American Food Services’ purchase of the machine on January
1, 2011.

2. Prepare
an amortization schedule for the four-year term of the installment note.

3. Prepare
the journal entry for the first installment payment on December 31, 2011.

4. Prepare
the journal entry for the third installment payment on December 31, 2011.

P 14-21 Report bonds at fair value; quarterly reporting

Appling Enterprises issued 8% bonds with a face amount of
400,000 on January 1, 2011. The bonds sold for 331,364 and mature in 2030 (20
years). For bonds of similar risk and maturity the market yield was 10%.
Interest is paid semiannually on June 30 and December 31. Appling determines
interest expense at the effective rate. Appling elected the option to report
these bonds at their fair value. The fair values of the bonds at the end of each
quarter during 2011 as determined by their market values in the over-the-
counter market were the following:

March 31 $350,000

June 30 340,000

September 30 335,000

December 31 342,000

Required:

1. By how
much will Appling’s earnings be increased or decreased by the bon ds (ignoring
taxes) in the March 31 quarterly financial statements?

2. By how
much will Appling’s earnings be increased or decreased by the bonds (ignoring
taxes) in the June 30 quarterly financial statements?

3. By how
much will Appling’s earnings be increased or decreased by the bonds (ignoring
taxes) in the September 30 quarterly financial statements?

4. By how
much will Appling’s earnings be increased or decreased by the bonds (ignoring
taxes) in the December 31 annual financial statements?

P 15-3 Direct financing and sales-type lease; lessee and
lessor

Rand Medical manufactures lithotripters. Lithotripsy uses
shock waves instead of surgery to eliminate kidney stones. Physicians’ Leasing
purchased a lithotripter from Rand for 2,000,000 and leased it to Mid-South
Urologists Group, Inc. on January 1, 2011.

Lease Description

Quarterly lease payments $130,516-beginning of each period

Lease term 5 years (20 quarters)

No residual value; no BPO

Economic life of lithotripter 5 years

Implicit interest rate and lessee’s incremental borrowing
rate 12 %

Fair Value of asset $2,000,000

Collectively of the lease payments is reasonably assured,
and there are no lessor costs yet to be incurred.

Required:

1. How
should this lease be classified by Mid-South Urologist Group and by Physicians’
Leasing?

2. Prepare
appropriate entries for both Mid –South Urologist Group and Physicians’ Leasing
from the inception of the lease through the second rental on April 1, 2011.
Depreciation is recorded at the end of each fiscal year (December 31).

Reviews

There are no reviews yet.

Be the first to review “INTERMEDIATE ACCOUNTING II WEEK 2 ASSIGNMENT EXERCISES”

Your email address will not be published. Required fields are marked *