Acc306 Intermediate Accounting: Week 2 Assignment (E14-16, E 14-18, E 15-25, P14-21, P15-3)

Acc306 Intermediate Accounting Week 2 Assignment (E14-16, E 14-18, E 15-25, P14-21, P15-3) 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 any 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 payments at the end of each year. The payments include interest at the rate of 10%. 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, 2013. P14-21 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 bonds (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 quarterly financial statements? E 15–25 Concepts; terminology Listed below are several terms and phrases associated with leases. Pair each item from List A with theitem from List B (by letter) that is most appropriately associated with it. List A List B 1. Effective rate times balance. a. PV of BPO price. 2. Realization principle. b. Lessor's net investment. 3. Minimum lease payments plus unguaranteed residual value. c. Lessor's gross investment. 4. Periodic lease payments plus lessee-guaranteed residual value. d. Operating lease. 5. PV of minimum lease payments plus PV of unguaranteed residual value. e. Depreciable assets. 6. Initial direct costs. f. Loss to lessee. 7. Rent revenue. g. Executory costs. 8. Bargain purchase option. h. Depreciation longer than lease term. 9. Leasehold improvements. i. Disclosure only. 10. Cash to satisfy residual value guarantee. j. Interest expense. 11. Capital lease expense. k. Additional lessor conditions. 12. Deducted in lessor's computation of lease payments. l. Lessee's minimum lease payments 13. Title transfers to lessee. m. Purchase price less than fair value. 14. Contingent rentals. n. Sales-type lease selling expense. 15. Lease payments plus lessee-guaranteed and 3rd-party-guaranteed residual value. o. Lessor's minimum lease payments. P15-3 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 Urologist 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 Collectability 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 Urologists Group and by Physicians’ Leasing? 2. Prepare appropriate entries for both Mid-South Urologists Group and Physicians’ Leasing from the inception of the lease through the second rental payment on April 1, 2011. Depreciation is recorded at the end of each fiscal year (December 31). 3. Assume Mid-South Urologists Group leased the lithotripter directly from the manufacturer, Rand Medical, which produced the machine at a cost of $1.7 million. Prepare appropriate entries for Rand Medical from the inception of the lease through the second lease payment on April 1, 2011.
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