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Problem 3




Problem #1 Reese Corporation;Assume that the following was shown on the balance sheet related to property, plant and equipment on January 1, 2014;Total PPE: $29,347;Less: Accum. Depr. 17,588;$11,759;Also assume that a footnote says the following: ?property, plant, and equipment is depreciated using the straight-line method.? Annual depreciation expense is approximately $1,800.;1. Estimate the average useful life of depreciable assets (assume no residual values).;2. Estimate the average age of depreciable assets on January 1, 2014.;Problem # 2 Obtain Wal-Mart?s 2013 Annual Report;1. a) How much cash was received from the sale (disposal) of property, plant, and equipment during 2013?;b) Assume the cost of the PPE sold during 2013 was $950M and the accumulated depreciation on PPE sold amounted to $350M. What is the gain or loss on the sale?;2. Assume that Wal-Mart purchased equipment at the beginning of fiscal year 2009 for $480,000 cash. The equipment had an estimated useful life of 8 years and a residual value of $30,000.;a. What would depreciation expense be for year 3 under the straight-line method?;b. What would depreciation expense be for year 3 under the double-declining balance method?;c. What is the first year in which depreciation expense under the straight-line method is higher than under the declining balance method?;d. Assume Wal-Mart uses the straight-line depreciation method for its equipment. Also assume that at fiscal year-end 2013, Wal-Mart sold the equipment purchased at the beginning of fiscal year 2009 for $200,000 cash. Prepare the journal entry to record the sale of the equipment at year-end 2013.;3. a) What was the total current portion of Wal-Mart?s long-term debt at January 31, 2013?;b) What would have been the effect on working capital on January 31, 2013 if the current portion of long-term debt had not been properly reclassified? State the direction and dollar amount.;4. Refer to the Note 6 (with respect to the total long-term debt only). Wal-Mart is scheduled to pay debt maturities each fiscal year-end as indicated in the notes. At January 31, 2013, what was the present value of Wal-Mart?s fourth debt payment (due January 31, 2017)? (assume an 8% interest rate).;Problem #3 Sayers;On December 31, 2013, Sayers Nissan issued $3 million of 10-year, 10% debentures. The market interest rate at issuance was 12%. Interest payments are semi-annual.;1. Compute the proceeds from the issuance and prepare the journal entry to record the issuance.;2. Prepare the journal entries to record the first two semiannual interest payments, including any bond discount or premium amortization.;3. Prepare the journal entry to record payment at the maturity date.;4. Show how the bond-related accounts would appear on the balance sheets as of December 31, 2013, and June 30, 2014.


Paper#79581 | Written in 18-Jul-2015

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