ACCT 1209 Lecture Notes - Lecture 10: Matching Principle, Historical Cost, Income Statement
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6. On June 28 Lexicon Corporation acquired 100% of the common stock of Gulf & Eastern. The purchase price allocation included the following items: $5.7 million, patent; $4.7 million, developed technology; $3.7 million, in-process research and development; $6.7 million, goodwill. Lexiconâs policy is to amortize intangible assets using the straight-line method, no residual value, and a five-year useful life.
What is the total amount of expenses (ignoring taxes) that would appear in Lexiconâs income statement for the year ended December 31 related to these items? (Enter your answers in whole dollars.)
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7. On January 2, 2018, the Jackson Company purchased equipment to be used in its manufacturing process. The equipment has an estimated life of eight years and an estimated residual value of $56,625. The expenditures made to acquire the asset were as follows:
Purchase price | $ | 242,000 | |
Freight charges | 8,400 | ||
Installation charges | 12,000 | ||
Jacksonâs policy is to use the double-declining-balance (DDB) method of depreciation in the early years of the equipmentâs life and then switch to straight line halfway through the equipmentâs life.
Required:
1. Calculate depreciation for each year of the assetâs eight-year life.
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8. In 2018, internal auditors discovered that PKE Displays, Inc., had debited an expense account for the $369,000 cost of equipment purchased on January 1, 2015. The equipmentâs life was expected to be five years with no residual value. Straight-line depreciation is used by PKE.
Required:
1. Prepare the correcting entry assuming the error was discovered in 2018 before the adjusting and closing entries. (Ignore income taxes.)
2. Assume the error was discovered in 2020 after the 2019 financial statements are issued. Prepare the correcting entry.
Prepare the correcting entry assuming the error was discovered in 2018 before the adjusting and closing entries. (Ignore income taxes.) (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
A fire destroyed your firmâs ending balance sheet and income statement after the year-end
but before the financial statements are released. However, you have been successful in obtaining the
numbers for the beginning balance sheet and the statement of cash flows, which are provided to you and
your team members in Excel format. Fields representing the missing balance sheet and income statement
are End of year2 in the Excel sheet
CONSOLIDATED BALANCE SHEETS (USD $) | End of year 2 | End of year 1 | |
In Thousands, unless otherwise specified | |||
Current assets: | |||
Cash and cash equivalents | ã | 598 | |
Receivables, net | ã | 230 | |
Inventories, net | ã | 2309 | |
Other current assets | ã | 47 | |
Total current assets | ã | 3184 | |
Property and equipment, net of accumulated depreciation | ã | 1292 | |
Assets held for sale | ã | 1 | |
Goodwill | ã | 76 | |
Intangible assets, net | ã | 29 | |
Other assets, net | ã | 32 | |
Assets, Total | ã | 4614 | |
Current liabilities: | ã | 0 | |
Current portion of long-term debt | ã | 0 | |
Accounts payable | ã | 2030 | |
Accrued expenses | ã | 380 | |
Other current liabilities | ã | 150 | |
Total current liabilities | ã | 2560 | |
Long-term debt | ã | 604 | |
Other long-term liabilities | ã | 239 | |
Commitments and Contingencies | ã | 0 | |
Stockholders Equity Attributable to Parent [Abstract] | ã | 0 | |
Preferred stock, nonvoting, $00001 par value | ã | 0 | |
Common stock, voting, $00001 par value | ã | 0 | |
Additional paid-in capital | ã | 520 | |
Treasury stock, at cost | ã | -27 | |
Accumulated other comprehensive income (loss) | ã | 3 | |
Retained earnings | ã | 715 | |
Total stockholders equity | ã | 1210 | |
Liabilities and Stockholders Equity, Total | ã | 4613 | |
CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) | 12 Months Ended | ||
In Thousands, except Per Share data, unless otherwise specified | Year 2 | ||
Net sales | ã | ||
Cost of sales, including purchasing and warehousing costs | ã | ||
Gross profit | ã | ||
Selling, general and administrative expenses | ã | ||
Operating income | ã | ||
Interest expense | ã | ||
Other income, net | ã | ||
Total other, net | ã | ||
Income before provision for income taxes | ã | ||
Provision for income taxes | ã | ||
Net income | ã | ||
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) | 12 Months Ended | ||
In Thousands, unless otherwise specified | Year 2 | ||
Cash flows from operating activities: | |||
Net income | $392 | ||
Adjustments to reconcile net income to net cash provided by operating activities: | |||
Depreciation and amortization | 208 | ||
Share-based compensation | 13 | ||
Loss on property and equipment, net | 1 | ||
Other | 2 | ||
Provision for deferred income taxes | -2 | ||
Excess tax benefit from share-based compensation | -16 | ||
Increase Decrease in Operating Capital | |||
Receivables, net | -32 | ||
Inventories, net | -204 | ||
Other assets | 11 | ||
Accounts payable | 113 | ||
Accrued expenses | 63 | ||
Other liabilities | -4 | ||
Net cash provided by operating activities | 545 | ||
Cash flows from investing activities: | |||
Purchases of property and equipment | -196 | ||
Payments to Acquire Businesses, Gross | -186 | ||
Sale of certain assets of acquired business | 19 | ||
Proceeds from sales of property and equipment | 1 | ||
Net cash used in investing activities | -362 | ||
Cash flows from financing activities: | |||
(Decrease) increase in bank overdrafts | -3 | ||
Decrease in financed vendor accounts payable | 0 | ||
Issuance of senior unsecured notes | 449 | ||
Payment of debt related costs | -9 | ||
Borrowings under credit facilities | 0 | ||
Payments on credit facilities | 0 | ||
Dividends paid | -18 | ||
Proceeds from the issuance of common stock, primarily exercise of stock options | 4 | ||
Tax withholdings related to the exercise of stock appreciation rights | -22 | ||
Excess tax benefit from share-based compensation | 16 | ||
Repurchase of common stock | -81 | ||
Contingent payment accrued on acquisitions | 5 | ||
Other | -1 | ||
Net cash provided by (used in) financing activities | 331 | ||
Net increase (decrease) in cash and cash equivalents | 514 | ||
Cash and cash equivalents, beginning of period | 598 | ||
Cash and cash equivalents, end of period | 1,112 | ||
Supplemental cash flow information: | |||
Interest paid | 35 | ||
Income tax payments | 219 | ||
Non-cash transactions: | |||
Accrued purchases of property and equipment | 21 | ||
Retirement of common stock | 0 | ||
Contingent consideration accrued on acquisitions | 0 | ||
Changes in other comprehensive income | 1 | ||
Declared but unpaid cash dividends | $4 |