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Eastern corporation, an east coast company, purchased some machinery from western industries located in west coast at a liquidation sale for a total purchase of $220,000. What is the total cost that...

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Eastern corporation, an east coast company, purchased some machinery from western industries located in west coast at a liquidation sale for a total purchase of $220,000.

  • What is the total cost that Eastern Corporation should capitalize for this machinery?

19. A coampany issued a 5 year annual coupned bond face value of $100,000. It was priced $90,000 at the time of issue. Using straight line method

20. At December 31, Folgeys Coffee company reports the following results

Answered Same DayOct 24, 2019

Solution

David answered on Dec 24 2019
63 Votes

Problem 19
Ca
y value can be calculated as follows
Total discount on the bond at issue = $100000-90000 = $10000
Amount of Discount amortized over 3 years = (10000/5 ) * 3 = $6000
Ca
ying value at the end of 3 years = 90000+6000 = $96,000
Problem 2
i) Direct Accounts receivable write off method.
ii)
    Description
    Not yet due
    1-30 days
    31-60
    61-90
    over 90 days
    Total amount
    60000
    50000
    10000
    15000
    15000
    % uncollectible
    10%
    20%
    30%
    40%
    80%
    Amount uncollectible= Total amount* %
    6000
    10000
    3000
    6000
    12000
    Total uncollectible amount
    37000
     
     
     
     
iii. Apple Allstars would pose the greatest risk of uncollectible. This is because the amount is greater than 90 days overdue. The amount of dues is $10000 which is higher than the amount due from Date Deals posing a greater risk to the firm.
iv. Date Deals would pose the second most risk to the business since the amount due from it is overdue for more than 90 days.
v. Implementing a 2/15 n 30 credit term with Be
y Babies will be beneficial. This is because the amount is still not due and if the firm is offered a discount for payment within 15 days, it is likely that the amount will be paid sooner. Moreover, as compared to Apple AllStars, Be
y Babies has a higher undue amount. Hence the firm will benefit by recovering a higher amount within 15 days.
vi. A notes receivable earns interest on the outstanding amount while accounts receivable does not. Converting $50000 overdue from Be
y babies in the 1-30 day
acket will be the best move since the business will be likely to earn substantial interest on the highest amount which is due from its debtors. Another possible benefit is that the debtor may make the payment quickly in order to avoid further interest payable on the notes receivable thus clearing the overdue amount.
Problem 3
a. Total Purchase price = $220,000
Add: Electrician costs = $22,500
Plumbing costs = $7,500
Cost of machinery = $250,000
*Transportation charges are not capitalized since the terms are FOB destination which means that seller is responsible for the delivery of the goods.
**Monthly maintenance is an expense.
. Salvage value considered for depreciation = $15000
Estimated useful life = 10 years
Depreciation on straight line basis = (Cost – Salvage value )/ Estimated useful life
= 250000-15000 / 10
= $23,500
c. Book value after 2 years = 250000-23500-23500 = 203,000
Add: cost of repairs = $80000
*Cost of repairs is capitalized since it increases the useful life of the machinery.
Net book value = 283,000
Remaining number of years before repairs = 10-2 = 8 years
Useful life after repairs = 8+6 = 14 years
Salvage value = 17000
Annual depreciation = (283000-17000)/ 14 = $19,000
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