Intermediate Accounting
1st Edition
ISBN: 9780132162302
Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Textbook Question
Chapter 11, Problem 11.1P
Note Payable Exchanged for a Plant Asset (Deferred Payment Arrangement). Hoppie Products signed a contract with Coleman Manufacturing to design, develop, and produce a specialized plastic molding machine for its factory operations. The machine is not currently sold to the public. Hoppie issued a 3%, 8-year, $690,000 note payable to Coleman to pay for the machine. If Hoppie were required to borrow at a commercial bank to finance the acquisition, it would have incurred the current market rate of 6%. Assume that all transactions occurred at the beginning of the current fiscal year (January 1). Interest is paid at the end of each year.
Required
- a. Prepare the
journal entry required to record the asset acquisition. - b. Prepare the amortization table for the note payable.
- c. Record the interest expense for the first 2 years.
- d. Indicate the effects of these transactions (i.e., the asset acquisition and the interest payment and amortization of discount) on the current year-end
balance sheet (ignore cash effects), income statement, and cash flow statement under the direct and indirect methods. - e. Independent of parts (a)–(d), assume that the molding machine is sold to the general public on a regular basis and has a fair value of $560,000. Prepare the journal entry to record the acquisition of the machine from Coleman.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Handy Products signed a contract with Cooper Manufacturing to design, develop, and produce a specialized plastic molding machine for its factory operations. The machine is not currently sold to the public.
Handy issued a 4%, 8-year, $720,000 note payable to Cooper to pay for the machine. If Handy were required to borrow at a commercial bank to finance the acquisition, it would have incurred the current market rate of 8%. Assume that all transactions occurred at the beginning of the current fiscal year (January 1). Interest is paid at the end of each year.
Requirement a. Prepare the journal entry required to record the asset acquisition. (Record debits first, then credits. Exclude explanations from any journal entries. Use the present value and future value tables, a financial calculator, or a spreadsheet for your calculations. If using present and future value tables or the formula method, use factor amounts rounded to five decimal places, X.XXXXX. Round your final…
On June 30, 2018, Kimberly Farms purchased custom-made harvesting equipment from a local producer. In payment, Kimberly signed a noninterest-bearing note requiring the payment of $60,000 in two years. The fair valueof the equipment is not known, but an 8% interest rate properly reflects the time value of money for this type ofloan agreement. At what amount will Kimberly initially value the equipment? How much interest expense willKimberly recognize in its income statement for this note for the year ended December 31, 2018?
On June 30, 2021, Kimberly Farms purchased custom-made harvesting equipment from a local producer. In payment, Kimberly signed a noninterest-bearing note requiring the payment of $60,000 in two years. The fair value of the equipment is not known, but an 8% interest rate properly reflects the time value of money for this type of loan agreement. At what amount will Kimberly initially value the equipment? How much interest expense will Kimberly recognize in its income statement for this note for the year ended December 31, 2021?
Chapter 11 Solutions
Intermediate Accounting
Ch. 11 - Stephen J. Cosgrove is the Former Vice President....Ch. 11 - Prob. 11.2QCh. 11 - Prob. 11.3QCh. 11 - Prob. 11.4QCh. 11 - Will the expense/capitalization choice impact...Ch. 11 - Prob. 11.6QCh. 11 - Prob. 11.7QCh. 11 - For a long-lived operating asset acquired by...Ch. 11 - Prob. 11.9QCh. 11 - Prob. 11.10Q
Ch. 11 - Prob. 11.11QCh. 11 - What is the maximum amount of interest to be...Ch. 11 - Prob. 11.13QCh. 11 - Prob. 11.14QCh. 11 - Prob. 11.15QCh. 11 - Do firms expense all costs incurred after the...Ch. 11 - Prob. 11.17QCh. 11 - Prob. 11.18QCh. 11 - When using the double-declining balance...Ch. 11 - Prob. 11.20QCh. 11 - Will a firm recognize a loss on the income...Ch. 11 - Prob. 11.22QCh. 11 - Prob. 11.23QCh. 11 - Prob. 11.24QCh. 11 - Prob. 11.25QCh. 11 - Prob. 11.26QCh. 11 - Prob. 11.27QCh. 11 - Prob. 11.28QCh. 11 - Prob. 11.29QCh. 11 - Prob. 11.30QCh. 11 - Prob. 11.31QCh. 11 - Prob. 11.32QCh. 11 - Prob. 11.33QCh. 11 - Prob. 11.34QCh. 11 - Prob. 11.35QCh. 11 - In a nonmonetary exchange does a firm record the...Ch. 11 - Prob. 11.37QCh. 11 - Prob. 11.38QCh. 11 - Prob. 11.39QCh. 11 - Prob. 11.40QCh. 11 - Prob. 11.1MCCh. 11 - On January 1, Year 1, Bluebird Inc. borrowed 10...Ch. 11 - Prob. 11.3MCCh. 11 - Prob. 11.4MCCh. 11 - Prob. 11.5MCCh. 11 - Prob. 11.6MCCh. 11 - Prob. 11.7MCCh. 11 - Prob. 11.8MCCh. 11 - Determining Acquisition Cost. Haply, Inc. incurred...Ch. 11 - Determining Acquisition Cost. Tarpley, Inc....Ch. 11 - Prob. 11.3BECh. 11 - Prob. 11.4BECh. 11 - Prob. 11.5BECh. 11 - Prob. 11.6BECh. 11 - Prob. 11.7BECh. 11 - Prob. 11.8BECh. 11 - Depreciation, Straight-Line Method. Hermit...Ch. 11 - Prob. 11.10BECh. 11 - Prob. 11.11BECh. 11 - Prob. 11.12BECh. 11 - Prob. 11.13BECh. 11 - Derecognition Due to Abandonment. Greene Corp....Ch. 11 - Prob. 11.15BECh. 11 - Prob. 11.16BECh. 11 - Prob. 11.17BECh. 11 - Prob. 11.18BECh. 11 - Prob. 11.19BECh. 11 - Prob. 11.20BECh. 11 - Leasehold Improvements. At the beginning of its...Ch. 11 - Determining Acquisition Cost. St Charles Flooring...Ch. 11 - Prob. 11.2ECh. 11 - Prob. 11.3ECh. 11 - Prob. 11.4ECh. 11 - Prob. 11.5ECh. 11 - Prob. 11.6ECh. 11 - Capitalization of Interest, Specific and General...Ch. 11 - Prob. 11.8ECh. 11 - Prob. 11.9ECh. 11 - Capitalization of Interest, Specific and General...Ch. 11 - Prob. 11.11ECh. 11 - Expensing versus Capitalizing ExpendituresAnalysis...Ch. 11 - Depreciation Methods, Disposal. Kurtis Koal...Ch. 11 - Prob. 11.14ECh. 11 - Depreciation Methods, Partial-Year Depreciation....Ch. 11 - Prob. 11.16ECh. 11 - Depreciation Methods. Ace Manufacturing, Inc....Ch. 11 - Prob. 11.18ECh. 11 - Depreciation Methods, Partial-Year Depreciation,...Ch. 11 - Prob. 11.20ECh. 11 - Partial-Year Depreciation, Sale of Property,...Ch. 11 - Prob. 11.22ECh. 11 - Disclosure of Property, Plant, and Equipment. Use...Ch. 11 - Disclosure of Property, Plant, and Equipment,...Ch. 11 - Prob. 11.25ECh. 11 - Research and Development Activities. During the...Ch. 11 - Prob. 11.27ECh. 11 - Goodwill Computation, Acquisition of Intangibles,...Ch. 11 - Prob. 11.29ECh. 11 - Prob. 11.30ECh. 11 - Prob. 11.31ECh. 11 - Prob. 11.32ECh. 11 - Prob. 11.33ECh. 11 - Prob. 11.34ECh. 11 - Prob. 11.35ECh. 11 - Prob. 11.36ECh. 11 - Prob. 11.37ECh. 11 - Exchanges Lacking Commercial Substance, Cash...Ch. 11 - Prob. 11.39ECh. 11 - Prob. 11.41ECh. 11 - Prob. 11.42ECh. 11 - Note Payable Exchanged for a Plant Asset (Deferred...Ch. 11 - Prob. 11.2PCh. 11 - Prob. 11.3PCh. 11 - Depreciation Methods and Depreciation Schedules....Ch. 11 - Prob. 11.5PCh. 11 - Prob. 11.6PCh. 11 - Goodwill and Bargain Purchase Computations. The...Ch. 11 - Prob. 11.8PCh. 11 - Prob. 11.9PCh. 11 - Prob. 11.10PCh. 11 - Prob. 11.11PCh. 11 - Judgment Case 1: Property, Plant, and Equipment:...Ch. 11 - Prob. 2JCCh. 11 - Prob. 1FSACCh. 11 - Surfing the Standards Cases Surfing the Standards...Ch. 11 - Prob. 2SSCCh. 11 - Surfing the Standards Case 3: Involuntary...Ch. 11 - Prob. 4SSCCh. 11 - Prob. 5SSCCh. 11 - Prob. 6SSCCh. 11 - Prob. 1BCCCh. 11 - Prob. 2BCC
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- TBTF Incorporated rents commercial real state to locally based businesses. TBTF purchased a large office complex on January 2, 2022. In exchange for the real estate, TBTF issued a noninterest bearing note to the seller. This note will be paid in equal instalments that include both principal and interest at the end of each calendar year. Other information pertaining to the purchase of the real estate follows: Annual instalment payment amount Market rate of borrowing for TBTF Number of years note will be outstanding Portion of the purchase price to be allocated to land Portion of the purchase price to be allocated to land improvements $ 253,134 8% 9 24% 14% TBTF has a year end date of December 31. Required: Prepare the journal entries required by TBTF to account for the note on each of the following dates: January 2, 2022 December 31, 2024arrow_forwardOn January 1, 2021 Simon Co. purchased an item of equipment for P600,000, including P50,000 refundable purchase taxes. The purchase price was funded by raising a loan of P605,000. In addition, the entity has to pay P5,000 in loan raising fees to the Bank. The loan is secured against the equipment. In January 2021 the entity incurred costs of P20,000 in transporting the equipment to the entity’s site and P100,000 in installing the equipment at the site. At the end of the equipment’s 10-year useful life the entity is required to dismantle the equipment and restore the building housing the equipment. The present value of the cost of dismantling the equipment and restoring the building is estimated to be P100,000. In January 2021 the entity’s engineer incurred the following costs in modifying the equipment so that it can produce the products manufactured by the entity: • Materials – P55,000 • Labour – P65,000 • Depreciation of plant and equipment used to perform the modifications –…arrow_forwardMcClelland Corporation agreed to purchase some landscaping equipment from Agri-Products for a cash price of $500,000. Before accepting delivery of the equipment, McClelland learned that the same equipment could be purchased from another dealer for $460,000. To avoid losing the sale, Agri-Products has offered McClelland a “no interest” payment plan—McClelland would pay $100,000 at delivery, $200,000 one year later, and the final $200,000 in two years. Use the following links to the present value tables to calculate answers.(PV of 1, PVAD of 1, and PVOA of 1) (Use the appropriate factor(s) from the tables provided.) Required: McClelland would usually pay 9% annual interest on a loan of this type. What is the present value of the Agri-Products loan at the delivery date? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar.) What journal entry would McClelland make if it accepts the deal and buys from Agri-Products? (If no entry is required for a…arrow_forward
- Diaz Company obtained a loan from Pacific Bank amounting to P720,000.00 secured by a mortgage over its two (2) parcels of land. Diaz Company entered into a lease with Allied Bank where the latter shall pay its rentals directly to Pacific Bank which bank subsequently closed. Far East Bank and Trust Co. (FEBTC) later on purchased the credit of the Company from Pacific Bank. The Company then tendered to FEBTC a check in the amount of PI,450,000.00 which FEBTC did not accept as payment but instead treated it as a deposit pending approval of the CB Liquidator. The check was cleared and honored. FEBTC’s contention correct? Decide the case.arrow_forwardFirenze Company developed a specialized banking application software program that it licenses to various financial institutions through multiple-year agreements. On January 1, 2018, these licensing agreements have a fair value of $830,000 and represent Firenze’s sole asset. Although Firenze currently has no liabilities, the company has a $155,000 net operating loss (NOL) carryforward because of recent operating losses.On January 1, 2018, Parma, Inc., acquired all of Firenze’s voting stock for $1,080,000. Parma expects to extract operating synergies by integrating Firenze’s software into its own products. Parma also hopes that Firenze will be able to receive a future tax reduction from its NOL. Assume an applicable federal income tax rate of 35 percent.a. If there is a greater than 50 percent chance that the subsidiary will be able to utilize the NOL carryforward, how much goodwill should Parma recognize from the acquisition?b. If there is a less than 50 percent chance that the…arrow_forwardBay Lake Mining Ltd. purchases earth-moving equipment on 1 August 20X6 and signs a three-year note with the supplier, agreeing to pay $430,000 on 31 July 20X9. There is no interest in the note. The equipment purchased does not have a readily determinable market value. (PV of $1, PVA of $1, and PVAD of $1.) (Use appropriate factor(s) from the tables provided.) Required: 1-a. Does Bay Lake Mining Ltd. actually have a no-interest loan? 1-b. This part of the question is not part of your Connect assignment. 2. Calculate the present value of the note payable, using an interest rate of 7%. (Round time value factor to 5 decimal places and final answer to the nearest dollar amount.) Yes No Present value Year 1 2 3 Answer is complete and correct. $ 3. This part of the question is not part of your Connect assignment. 4. Prepare a table that shows the balance of the note payable and interest expense over the life of the note. (Round your final answers to the nearest dollar amount.) لنا 351,008…arrow_forward
- On January 3, 2024, Michelson & Sons acquired a tract of land just outside the city limits. The land and existing building were purchased for $2.4 million. Michelson paid $400,000 and signed a noninterest-bearing note requiring the company to pay the remaining $2,000,000 on December 31, 2025. An interest rate of 7% properly reflects the time value of money for this type of loan agreement. Transfer taxes, title insurance, and other costs totaling $24,000 were paid at closing. At the end of February, the old building was demolished at a cost of $120,000, and an additional $100,000 was paid to clear and grade the land. Construction of a new building began on March 1 and was completed on October 30. Construction expenditures were as follows: $ 800,000 March 30 June 30 July 30 1,200,000 September 1 600,000 Michelson did not borrow specifically for the construction project, but did have the following debt outstanding throughout 2024: 1,200,000 $6,000,000, 8% long-term note payable…arrow_forwardOn January 2, 2024, the Midwestern Steam Gas Corporation purchased an industrial furnace. In payment, Midwestern signed a noninterest - bearing note requiring $50,000 to be paid on December 31, 2025 (two years later). If Midwestern had borrowed cash to buy the furnace, the bank would have required an interest rate of 10% . Required: Record the journal entry for Midwestern for 1/2/2024, 12/31/2024, and 12/31/2025.arrow_forwardBay Lake Mining Ltd. purchases earth-moving equipment on 1 August 20X6 and signs a three-year note with the supplier, agreeing to pay $430,000 on 31 July 20X9. There is no interest in the note. The equipment purchased does not have a readily determinable market value. (PV of $1. PVA of $1, and PVAD of $1.) (Use appropriate factor(s) from the tables provided.) Required: 1-a. Does Bay Lake Mining Ltd. actually have a no-Interest loan? 1-b. This part of the question is not part of your Connect assignment. 2. Calculate the present value of the note payable, using an interest rate of 7%. (Round time value factor to 5 decimal places and final answer to the nearest dollar amount.) Present value Year 3. This part of the question is not part of your Connect assignment. 4. Prepare a table that shows the balance of the note payable and Interest expense over the life of the note. (Round your final answers to the nearest dollar amount.) No 1 Yes No 2 1 2 3 3 Answer is complete and correct. $…arrow_forward
- On March 1, 2018, Gold Examiner receives $147,000 from a local bank and promises to deliver 100 units ofcertified 1-oz. gold bars on a future date. The contract states that ownership passes to the bank when Gold Examiner delivers the products to Brink’s, a third-party carrier. In addition, Gold Examiner has agreed to provide areplacement shipment at no additional cost if the product is lost in transit. The stand-alone price of a gold bar is$1,440 per unit, and Gold Examiner estimates the stand-alone price of the replacement insurance service to be $60per unit. Brink’s picked up the gold bars from Gold Examiner on March 30, and delivery to the bank occurred onApril 1.Required:1. How many performance obligations are in this contract?arrow_forwardZephyr Company is provided a grant by a foreign government for the purpose of acquiring land for a building site. The grant is a zero-interest loan for 5 years evidenced by a promissory note. The loan was granted on January 1, 2021 for 8,000,000. The market rate of interest is 6%. The present value of 1 for five periods at 6% is .7473. Required: Prepare journal entries for 2021 and 2022.arrow_forwardOn 1 January, 2010, Ahafoman Contractors (AC) bought an Heavy Duty Crane machine from Tractor and EquipmentCompany (TEC) on Hire Purchase. The terms of the agreement were that an initial deposit of GHS200,000 was payable , followed by three installments of GHS189,890 on 31 December in each of the years from 2010 onwards.. TEC sells the machine for cash at GHS600,000. AC depreciates cranes at the rate of 25% on cost (assuming a nil residual value) The accounting years for both TEC and AC end on 31 December. Required b) Apportion the Hire Purchase Interest over the relevant years using the Sum of the digits methodarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Property, Plant and Equipment (PP&E) - Introduction to PPE; Author: Gleim Accounting;https://www.youtube.com/watch?v=e_Hx-e-h9M4;License: Standard Youtube License