ACC 100 Final: ACC 100 Final Exam Review

Before you begin this assignment, it will be helpful if you review

McDonald'sMcDonald's

Corporation

20152015

annual report

(https://www.sec.gov/Archives/edgar/data/63908/000006390816000103/mcd-12312015x10k.htm ).

McDonald'sMcDonald's

Corporation is the world's leading global food service retailer with more than 36,000 locations worldwide in more than 100 countries. The corporation operates and franchises

McDonald'sMcDonald's

restaurants, which serve menu items such as the Big Mac, Chicken McNuggets, and McFlurry desserts. In addition,

McDonald'sMcDonald's

also serves McCafe beverages and pastries.Read the requirements

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Requirement 1. Where would

McDonald'sMcDonald's

Corporation report plant assets on its financial statements? How are plant assets reported and what is the value as of December 31,

20152015 ?

(Enter any amounts in millions, to the nearest tenth of a million, X.X, as shown in the financial statements.)

Requirement 2. Does

McDonald'sMcDonald's

Corporation depreciate its plant assets? How do you know? What is the depreciation method used and the useful lives?

A.

No,

McDonald'sMcDonald's

Corporation does not depreciate its plant assets. We know this because there is no difference between the cost and net value of the plant assets as shown on the consolidated balance sheet. This is reasonable given that the company's only category of plant assets is land, which is not depreciated. As such, no depreciation method is in use.

B.

Yes,

McDonald'sMcDonald's

Corporation depreciates its plant asset. We know this because information about depreciation can be found in the Notes to the Consolidated Financial Statement and an accumulated depreciation and amortization balance is shown on the consolidated balance sheet. The company use the straight-line method to depreciate assets with the following estimated useful lives: up to 40 years for buildings, the lesser of the useful lives of assets or lease terms for leasehold improvements, and three to 12 years for equipment.

C.

Yes,

McDonald'sMcDonald's

Corporation depreciates its plant asset. We know this because information about depreciation can be found in the Notes to the Consolidated Financial Statement and an accumulated depreciation and amortization balance is shown on the consolidated balance sheet. The company use the double-declining-balance method to depreciate assets with the following estimated useful lives: up to 30 years for buildings, five to 10 years for leasehold improvements, and three to 12 years for furniture and equipment.

D.

Yes,

McDonald'sMcDonald's

Corporation depreciates its plant asset. We know this because information about depreciation can be found in the Notes to the Consolidated Financial Statement and depreciation expense is reported on the consolidated statement of income. The company use the double-declining-balance method to depreciate assets with the following estimated useful lives: up to 40 years for buildings, the lesser of the useful lives of assets or lease terms for leasehold improvements, and three to 12 years for equipment.

You are the CFO for Jones company (reporting using IFRS) andmust reconcile your financial statements for the years ending 2008,2009, and 2010 to U.S. GAAP (The Income Statement and StatementStockholders’ Equity). You have identified the following 4 areaswhere there are differences between IFRS and U.S. GAAP at variousdates. Be sure to consider the cumulative effects of prior yeartransactions for each year.

Intangible Assets (Impairment)

As part of a business combination in January 2005, the companyacquired a brand for $10,000,000. The brand is classified as anintangible asset with a 10 year useful life. At year-end 2008, thebrand is determined to have a selling price of $5,500,000 with zerocost to sell. Expected future cash flows from continued use of thebrand are $6,200,000 (undiscounted) and the present value of futurecash flows is 5,700,000

Research and Development Costs

The company incurred research and development costs of $500,000in 2008. Of this amount, 70% related to development activitiessubsequent to the point at which criteria had been met that anintangible asset existed. The development costs were completed atthe end of 2008 and will be amortized over 10 years beginning2009.

Property Plant and Equipment

On January 1, 2009 a building that had an original cost of$5,000,000 and (Purchase date January 1 2004) and was beingdepreciated over 25 years was determined to have a fair value of$6,000,000. The company uses the revaluation model for suchassets.

Sale Leaseback

On January 1, 2005 the company realized a gain on a salesleaseback of $1,000,000. The term of the lease (starting the dateof the sale) is 20 years.

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. Lexicon’s 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 Lexicon’s income statement for the year ended December 31 related to these items? (Enter your answers in whole dollars.)

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:

Jackson’s policy is to use the double-declining-balance (DDB) method of depreciation in the early years of the equipment’s life and then switch to straight line halfway through the equipment’s life.

Required:

1. Calculate depreciation for each year of the asset’s eight-year life.

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 equipment’s 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.)