Question of the Day

Indicate the proper accounting treatment for the contingent liabilities of the JIS Machinery Co. Assume all amounts are material and the situation occurred in year 1. Indicate whether an accrual is required and the accrual amount if any required for the situation.

JRM co. is in the process of closing its books for the year ended December 31, year 2.

The following business events are not properly reflected in JRM’s December 31, year 2, unadjusted trial balance:

Based on the business events above, calculate the adjustments necessary to JRM’s unadjusted trial balance for the allowance for doubtful debt account. The trial balance shows a credit balance of $2,500 for the allowance for doubtful debt account.

Richter Corp uses the straight-line method for amortization and depreciation and that all amortization and depreciation is recorded on December 31 of each year. Richter uses separate general ledger accounts to record accumulated amortization for each intangible asset.

On April 1, year 1 Richter purchased a patent with a 10-year life for $50,000 from DD co. DD incurred costs of $35,000 developing the patent. Prepare the journal entry, if any, to record the patent. 

Peterson Co. owns 100% of the outstanding common stock of Silver Corp. On January 1, year 3, Peterson sold equipment to Silver for $120,000, which was originally purchased on January 1, year 1 for $100,000. Peterson was depreciating the equipment over 10 years using straight-line depreciation. There was no salvage value. Silver decides to depreciate the equipment over eight years, also using straight-line depreciation with no salvage value. Assume all other appropriate year-end and income tax journal entries have been made. 

Prepare Peterson’s eliminating journal entry required for consolidation purposes for the year ended December 31, year 3.

Adell Corp. is a manufacturer of paper products with a December 31 year end. Adell has not elected the fair value option. 

For the transaction below, provide the correct classification and how should it be reported in the company’s balance sheet. 

100 shares of ABC Co. were purchased as an investment on June 1, year 1, for $20 per share. The company intends to sell all of the shares within 30 days of the year end. The market value per share at December 31, year 1, is $22 per share.

On January 1, year 1, Stopaz Co. Issued 8% fiver-year bonds with a face value of $200,000. The bonds pay interest semiannually on June 30 and December 31 of each year. The bonds were issued when the market interest rate was 4% and the bond proceeds were $235,931.

Stopaz uses the effective interest method for amortizing bond premiums/discounts and maintains separate general ledger accounts for each.

Calculate the actual cash expense in relation to the payment of interest on June 30, year 1.

Larkin Co. has owned 25% of the common stock of Devon Co. for a number of years, and has the ability to exercise significant influence over Devon. The following information relates to Larkin’s investment in Devon during the most recent year:

What is the carrying amount of Larkin’s investment in Devon at year end?