Depreciation and Fair Value Adjustment
ACCT332 Quiz 1
Last Name___________________ First Name ________________ Section#____________________
1. Diversified Industries sells electronic products in reusable containers. Customers pay a deposit for each container. The deposit is equal to the container's cost. Customers receive a refund when the container is returned. During 2012, deposits collected on containers shipped were $350,000. Deposits are forfeited if containers are not returned in 18 months. During 2012, $250,000 was refunded and deposits of $20,000 were forfeited. (8 points)
Required:
1) Prepare separate journal entries for the deposits (a) received, (b) returned, and (c) forfeited in 2012.
a. Dr. Cash 350,000 Cr. Customer Deposits 350,000
b. Dr. Customer Deposit 250,000 Cr. Cash 250,000
c. Dr. Customer Deposits 20,000
Dr. COGS 20,000 Cr. Breakage Revenue 20,000 Cr. Inventory – Containers 20,000
2. On January 1, 2013, JP Corp issued $1 million ten-year bonds. The bonds pay 12% interest semi-annually on June 30 and December 31. The bonds are issued to yield 10%. The bonds are callable at 120 at any time on or after 12/31/2013. JP Corp uses effective interest rate method to calculate their interest expense each period. (12 points)
Required:
1) Calculate the issue price of the bonds.
Present value of face amount = $1,000,000*0.37689 = 376,890 Present value of interest payments = $60,000*12.46221 = 747,733 Total price of bonds at issuance = 1,124,623
Face amount discount factor from PV of $1, n = 20, i = 5% Interest payment amounts = $1,000,000*12%*1/2 = $60,000 Interest payment discount factor from PV of Ordinary Annuity, n = 20, i = 5%
2) Prepare the journal entry necessary to record the issuance of the bonds.
Dr. Cash 1,124,623 Cr. Premium on bonds payable 124,623 Cr. Bonds payable 1,000,000
3) Prepare the amortization schedule through December 31, 2013.
Cash payment = $1,000,000*12%*1/2
Last Name___________________ First Name ________________ Section#____________________
1. Diversified Industries sells electronic products in reusable containers. Customers pay a deposit for each container. The deposit is equal to the container's cost. Customers receive a refund when the container is returned. During 2012, deposits collected on containers shipped were $350,000. Deposits are forfeited if containers are not returned in 18 months. During 2012, $250,000 was refunded and deposits of $20,000 were forfeited. (8 points)
Required:
1) Prepare separate journal entries for the deposits (a) received, (b) returned, and (c) forfeited in 2012.
a. Dr. Cash 350,000 Cr. Customer Deposits 350,000
b. Dr. Customer Deposit 250,000 Cr. Cash 250,000
c. Dr. Customer Deposits 20,000
Dr. COGS 20,000 Cr. Breakage Revenue 20,000 Cr. Inventory – Containers 20,000
2. On January 1, 2013, JP Corp issued $1 million ten-year bonds. The bonds pay 12% interest semi-annually on June 30 and December 31. The bonds are issued to yield 10%. The bonds are callable at 120 at any time on or after 12/31/2013. JP Corp uses effective interest rate method to calculate their interest expense each period. (12 points)
Required:
1) Calculate the issue price of the bonds.
Present value of face amount = $1,000,000*0.37689 = 376,890 Present value of interest payments = $60,000*12.46221 = 747,733 Total price of bonds at issuance = 1,124,623
Face amount discount factor from PV of $1, n = 20, i = 5% Interest payment amounts = $1,000,000*12%*1/2 = $60,000 Interest payment discount factor from PV of Ordinary Annuity, n = 20, i = 5%
2) Prepare the journal entry necessary to record the issuance of the bonds.
Dr. Cash 1,124,623 Cr. Premium on bonds payable 124,623 Cr. Bonds payable 1,000,000
3) Prepare the amortization schedule through December 31, 2013.
Cash payment = $1,000,000*12%*1/2