1. Wilson Service Company was incorporated on January 2, 2016. Wilson began its operations on August 15, 2016. During the period 01-02-16 to 08-15-16, Wilson entered into the following transactions:
a. Incurred $100,000 of legal fees related to corporate organization.
b. Purchased land for $4,650,000. Wilson's corporate office building will sit on this land.
c. Incurred $50,000 of legal fees for a title search related to the land.
d. Paid $400,000 to level the land, $750,000 to remove toxic materials from the land, and $15,000 to tear down an old building on the land.
e. Sold salvage from the old building for $45,000.
f. Paid architect's fees of $100,000 for the office building.
g. In erecting the building, incurred $200,000 of excavation costs, $20,000,000 of construction costs, and $1,250,000 of capitalized interest costs.
h. Purchased for $36,000 a one-year insurance premium covering the office building.
What is the balance in Wilson's land account?
What is the balance in Wilson's building account?
2. Greg, a publicly-traded company, acquired a machine from Marsha. Greg gave Marsha 750 shares of Greg's $1 par value common stock. At that time, Greg's stock had a market value of $50 per share. Prepare the entry Greg should make to record its acquisition of the machine.
3. On 12-31-15, Acme purchased a machine. Acme signed a $950,000 zero-interest bearing note. The note is payable in full on 12-31-18. Assume an acceptable interest rate on similar notes was 5%. In addition, Acme paid on 12-31-15, $37,500 of sales tax on the purchase AND $50,000 of installation costs. Acme uses straight-line depreciation, assumes $0 salvage value, and an estimated useful life of 10 years. Prepare the entries Acme should make on:
a. 12-31-15.
b. 12-31-16.
c. 12-31-17.
d. 12-31-18.
4. B constructed a warehouse for its own use. B started construction on January 1 and completed construction on December 31. Construction expenditures were as follows:
- $1,000,000 on January 1
- $900,000 on March 31
- $600,000 on September 30
- $240,000 on December 1
During the entire year B had the following outstanding notes payable:
- A 4.00%, 5-year $5,000,000 note payable
- A 3.25%, 8-year $9,000,000 note payable
a) What were B's total interest costs for the year?
b) What amount of interest should B capitalize on this construction project?
c) What was B's interest expense for the year?
When necessary, round any interest rate as follows: 4.873% = 4.9% while 3.314% = 3.3%.
5. For each of the items below, prepare the appropriate entry.
1. A motor in one of Excel's trucks was overhauled at a cost of $4,200. Excel expects this overhaul will make the truck operated on a more efficient basis, i.e., the truck will get better gas mileage.
2. James, a maintenance worker at Excel, spent the entire week unloading and setting up a new machine in Excel's factory. James' earned $2,000 that week, however, James will not be paid until the following week. (Do not worry about any withholdings from James' pay.)
3. Excel incurred and paid $1,600 for ordinary repairs on one of its machines.
4. Excel incurred and paid $4,000 for adjustments to one of its machines. The adjustments will increase the useful life of the machine.
6. Diane's balance sheets as of December 31, 2013 and 2014 are presented below:
2013 2014
Cash $ 500,000 $ 550,000
Accounts receivable 295,571 220,281
Long-term notes receivable 60,000 75,000
Discount on long-term notes receivable (571) (281)
Property, plant, and equipment - at cost 400,000 740,000
Accumulated depreciation (155,000) (185,000)
TOTAL ASSETS $1,100,000 $1,400,000
Accounts payable $ 200,000 $ 200,000
Accrued liabilities 100,000 82,000
Unearned revenues 65,000 18,000
Long-term debt 210,000 200,000
Common stock, $1 par value 50,000 75,000
Additional paid-in-capital 250,000 325,000
Retained earnings 225,000 500,000
TOTAL LIABILITIES & SE $1,100,000 $1,400,000
SELECTED OTHER INFORMATION:
1. During 2014, Diane reported net income of $400,000.
2. During 2014, Diane declared and distributed a cash dividend.
3. During 2014, Diane issued, in exchange for cash, 25,000 additional shares of her common stock.
4. During 2014, Diane both borrowed on a long-term basis and paid back some long-term debt. During 2014, Diane paid back $160,000.
5. During 2014, Diane both bought and sold some PP&E. Diane's PP&E sales related to two items:
a. A machine. When Diane purchased the machine in 2008, she paid $15,000. At the time of the sale, the machine had a book value of $7,000. Diane sold the machine for $12,000.
b. A building. When Diane purchased the building in 2000, she paid $150,000. Diane sold the building for $130,000. As a result of the sale, Diane recorded a gain of $75,000.
6. On January 1, 2012, Diane provided services to a customer in exchange for a $60,000, 4% note receivable. Diane will collect the note principal in full on January 1, 2015. Diane will collect interest on the note every December 31 starting December 31, 2012. The market rate of interest at the time of the sale was 5%.
7. On December 31, 2014, Diane provided services to a customer in exchange for a $15,000, 3.5% note receivable. Diane will collect the note principal in full on December 31, 2016. Diane will collect interest on the note every December 31 starting December 31, 2015. The market rate of interest at the time of the sale was 4.5%.
8. During 2014, Diane did NOT enter into any non-cash investing or financing activities.
Prepare Diane's Statement of Cash Flows (in good form) for the year ended December 31, 2014. Diane uses the indirect method.