Complete the following individually and discuss your individual answers as a team:
• Problem 10-4, p. 543
• Problem 10-6, p. 544
• CA 11-5, p. 597
• Problem 12-2, p. 644
After discussing your answers, compile each into a team response.
Click the Assignment Files tab to submit your assignment.
Problem 10-4, p. 543
P10-4 (LO1,4,6) GROUPWORK (Dispositions, Including Condemnation, Demolition, and Trade-In) Presented below is a schedule of property dispositions for Hollerith Co.
Schedule of Property Dispositions
Cost Accumulated Depreciation Cash Proceeds Fair Value Nature of Disposition
Land $40,000 -- $31,000 $31,000 Condemnation
Building 15,000 -- 3,600 -- Demolition
Warehouse 70,000 $16,000 74,000 74,000 Destruction by fire
Machine 8,000 2,800 900 7,200 Trade-in
Furniture 10,000 7,850 -- 3,100 Contribution
Automobile 9,000 3,460 2,960 2,960 Sale
The following additional information is available.
Land: On February 15, a condemnation award was received as consideration for unimproved land held primarily as an investment, and on March 31, another parcel of unimproved land to be held as an investment was purchased at a cost of $35,000.
Building: On April 2, land and building were purchased at a total cost of $75,000, of which 20% was allocated to the building on the corporate books. The real estate was acquired with the intention of demolishing the building, and this was accomplished during the month of November. Cash proceeds received in November represent the net proceeds from demolition of the building.
Warehouse: On June 30, the warehouse was destroyed by fire. The warehouse was purchased January 2, 2014, and had depreciated $16,000. On December 27, the insurance proceeds and other funds were used to purchase a replacement warehouse at a cost of $90,000.
Machine: On December 26, the machine was exchanged for another machine having a fair value of $6,300 and cash of $900 was received. (The exchange lacks commercial substance.)
Furniture: On August 15, furniture was contributed to a qualified charitable organization. No other contributions were made or pledged during the year.
Automobile: On November 3, the automobile was sold to Jared Winger, a stockholder.
P10-6 (LO1,3) (Interest During Construction) Grieg Landscaping began construction of a new plant on December 1, 2017. On this date, the company purchased a parcel of land for $139,000 in cash. In addition, it paid $2,000 in surveying costs and $4,000 for a title insurance policy. An old dwelling on the premises was demolished at a cost of $3,000, with $1,000 being received from the sale of materials. Architectural plans were also formalized on December 1, 2017, when the architect was paid $30,000. The necessary building permits costing $3,000 were obtained from the city and paid for on December 1 as well. The excavation work began during the first week in December with payments made to the contractor in 2018 as follows.
Jerry Prior, Beeler Corporation’s controller, is concerned that net income may be lower this year. He is afraid upper-level management might recommend cost reductions by laying off accounting staff, including him.
Prior knows that depreciation is a major expense for Beeler. The company currently uses the double-declining-balance method for both financial reporting and tax purposes, and he’s thinking of selling equipment that, given its age, is primarily used when there are periodic spikes in demand. The equipment has a carrying value of $2,000,000 and a fair value of $2,180,000. The gain on the sale would be reported in the income statement. He doesn’t want to highlight this method of increasing income. He thinks, “Why don’t I increase the estimated useful lives and the salvage values? That will decrease depreciation expense and require less extensive disclosure, since the changes are accounted for prospectively. I may be able to save my job and those of my staff.”
a. Who are the stakeholders in this situation?
b. What are the ethical issues involved?
c. What should Prior do?
P12-2 (LO1,2,4,5) EXCEL (Accounting for Patents) Fields Laboratories holds a valuable patent (No. 758-6002-1A) on a precipitator that prevents certain types of air pollution. Fields does not manufacture or sell the products and processes it develops. Instead, it conducts research and develops products and processes which it patents, and then assigns the patents to manufacturers on a royalty basis. Occasionally it sells a patent. The history of Fields patent number 758-6002-1A is as follows.
Compute the carrying value of patent No. 758-6002-1A on each of the following dates:
(a)December 31, 2011.
(b)December 31, 2015.