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Chapter 9: Q12RQ (page 525)
What financial statements are property, plant, and equipment reported on, and how?
Thenon-current asset section of the balance sheet reports the property, plant, and equipment.
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During 2018, Lora Company completed the following transactions:
Jan. 1 Traded in old office equipment with book value of \(55,000 (cost of \)129,000 and accumulated depreciation of \(74,000) for new equipment. Lora also paid \)55,000 in cash. Fair value of new equipment is \(116,000. Assume the exchange had commercial substance.
Apr. 1 Sold equipment that cost \)12,000 (accumulated depreciation of \(1,000 through December 31 of the preceding year). Lora received \)7,100 cash from the sale of the equipment. Depreciation is computed on a straightline basis. The equipment has a five-year useful life and a residual value of \(0.
Dec. 31 Recorded depreciation as follows:
Office equipment is depreciated using the double-declining-balance method over four years with a \)7,000 residual value.
Record the transactions in the journal of Lora Company.
Accounting for intangibles
Midland States Telecom provides communication services in Iowa, Nebraska, the Dakotas, and Montana. Midland States Telecom purchased goodwill as part of the acquisition of Sheldon Wireless Enterprises, which had the following figures:
Book value of assets \( 900,000
Market value of assets 1,400,000
Market value of liabilities 530,000
Requirements
1. Journalize the entry to record Midland States Telecom鈥檚 purchase of Sheldon Wireless for \)440,000 cash plus a $660,000 note payable.
2. What special asset does Midland States Telecom鈥檚 acquisition of Sheldon Wireless identify? How should Midland States Telecom account for this asset after acquiring Sheldon Wireless? Explain in detail.
What is depreciation? Define useful life, residual value, and depreciable cost.
Question:Western Bank & Trust purchased land and a building for the lump sum of $3,000,000. To get the maximum tax deduction, Western allocated 90% of the purchase price to the building and only 10% to the land. A more realistic allocation would have been 70% to the building and 30% to the land.
Requirements
1. Explain the tax advantage of allocating too much to the building and too little to the land.
2. Was Western鈥檚 allocation ethical? If so, state why. If not, why not? Identify who was harmed.
Core Telecom provides communication services in Iowa, Nebraska, the Dakotas, and Montana. Core purchased goodwill as part of the acquisition of Surety Wireless Company, which had the following figures:
Book value of assets \( 700,000
Market value of assets 1,000,000
Market value of liabilities 510,000
Requirements
1. Journalize the entry to record Core鈥檚 purchase of Surety Wireless for \)280,000 cash plus a $420,000 note payable.
2. What special asset does Core鈥檚 acquisition of Surety Wireless identify? How should Core Telecom account for this asset after acquiring Surety Wireless? Explain in detail.
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