1.               On January 15, 2013, Talbot Corporation purchased a parcel of land as a factory site for $450,000. An old building on the property was demolished, and construction began on a new building which was completed on November 31, 2013. Salvaged materials resulting from the demolition were sold for $12,000. Costs incurred during this period included: Demolition of old building, $35,000, Architect's fees, $15,000, Legal fees for title investigation and purchase contract, $7,000, and Construction costs, $1,000,000. Talbot should record the cost of the land and new building, respectively, as $480,000 and $1,015,000

2.               On January 2, 2013, Apple Valley Produce began construction of a new processing plant. The plant was expected to be finished and ready for use on September 30, 2014. Expenditures for construction during 2013 were as follows: January 2, 2013, $500,000,July 1, 2013, $1,200,000, and December 31, 2013, $1,000,000. To fund this project, on January 2, 2013, Apple Valley borrowed $1,800,000 on a construction loan at 10% interest. This loan was outstanding during the construction period. The company also had $5,000,000 in 9% bonds outstanding in 2013. The interest capitalized for 2013 should be: $110,000

3. Hodgson Company's December 31, 2014 balance sheet reports assets of $10,000,000 and liabilities of $4,500,000. All of Hodgson's book values approximate their fair value, except for land, which has a fair value that is $500,000 greater than its book value. On December 31, 3014, Motley Corporation paid $11,000,000 to acquire Hodgson. What amount of goodwill should Motley record as a result of this purchase? $5,000,000

4. Corresponds to CLO 4(c) On January 1, 2014, Huntington Corporation issued eight year bonds with a face value of $6,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are: Present value of 1 for 8 periods at 6%..... .627 Present value of 1 for 8 periods at 8%..... .540 Present value of 1 for 16 periods at 3%... .623 Present value of 1 for 16 periods at 4%... .534 Present value of an annuity for 8 periods at 6%... 6.210 Present value of an annuity for 8 periods at 8%... 5.747 Present value of an annuity for 16 periods at 3%... 12.561 Present value of an annuity for 16 periods at 4%... 11.652 What is the issue price of the bonds? $5,301,360

5. On December 31, 2013, the 11% bonds payable of Goodly Corporation had a carrying amount of $2,060,000. The bonds, which had a face value of $2,000,000 were issued at a premium to yield 10%. Goodly uses the effective-interest method of amortization. Interest is paid on June 30 and December 31. On July 1, 2014, several years before their maturity, Goodly retired the bonds at 105. The interest payment on June 30, 2014 was made as scheduled. The loss on retirement, ignoring taxes, is

6. On January 1, 2013, Martin Corporation signed a ten-year noncancelable lease for machinery. The terms of the lease called for Martin to make annual payments of $350,000 at the end of each year for ten years with title to pass to Martin at the end of this period. The machinery has an estimated useful life of 20 years and no salvage value. Martin uses the straight-line method of depreciation for all of its fixed assets. Martin accounted for this lease transaction as a capital lease. The lease payments were determined to have a present value of $1,977,577 at an effective interest rate of 12%. With respect to this capitalized lease, Martin should record for 2013:

7. On December 31, 2014, Pacific Rail Corporation leased a train car from Southern Transportation Company for a ten year period expiring December 30, 2024. Equal annual payments of $120,000 are due on December 31 of each year, beginning with December 31, 2014. The lease is properly classified as a capital lease on Pacific Rail's books. The present value at December 31, 2013 of the ten lease payments over the lease term discounted at 8% is $869,627. Assuming the first payment is made on time, the amount that should be reported by Pacific Rail Corporation as the lease liability on its December 31, 2014 balance sheet is

 

 

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