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Chapter 10: Q15BE. (page 532)
Use the information presented for Ottawa Corporation in BE10-14, but assume the machinery is sold for \(5,200 instead of \)10,500. Prepare journal entries to (a) update depreciation for 2018 and (b) record the sale.
There is a loss of $4,800 on disposal of the machine.
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(Nonmonetary Exchanges) On August 1, Hyde, Inc. exchanged productive assets with Wiggins, Inc. Hyde’s asset is referred to below as “Asset A,” and Wiggins’ is referred to as “Asset B.” The following facts pertain to these assets.
Asset A | Asset B | |
Original cost | \(96,000 | \)110,000 |
Accumulated depreciation (to date of exchange) | 40,000 | 47,000 |
Fair value at date of exchange | 60,000 | 75,000 |
Cash paid by Hyde, Inc. | 15,000 | |
Cash received by Wiggins, Inc. | 15,000 | |
Instructions
Use the information for Hanson Company from BE10-2 and BE10-3. Compute avoidable interest for Hanson Company.
Hanson Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were \(1,800,000 on March 1, \)1,200,000 on June 1, and \(3,000,000 on December 31.
Hanson Company borrowed \)1,000,000 on March 1 on a 5-year, 12% note to help finance construction of the building. In addition, the company had outstanding all year a 10%, 5-year, \(2,000,000 note payable and an 11%, 4-year, \)3,500,000 note payable
New machinery, which replaced a number of employees, was installed and put in operation in the last month of the fiscal year. The employees had been dismissed after payment of an extra month’s wages, and this amount was added to the cost of the machinery. Discuss the propriety of the charge. If it was improper, describe the proper treatment.
Johnson & Johnson, the world’s leading and most diversified healthcare corporation, serves its customers through specialized worldwide franchises. Each of its franchises consists of a number of companies throughout the world that focus on a particular healthcare market, such as surgical sutures, consumer pharmaceuticals, or contact lenses. Information related to its property, plant, and equipment in its 2014 annual report is shown in the notes to the financial statements below.
1.Property, Plant and Equipment and Depreciation Property, plant and equipment are stated at cost. The Company utilizes the straight-line method of depreciation over the estimated useful lives of the assets: Building and building equipment 20–40 years Land and leasehold improvements 10–20 years Machinery and equipment 2–13 years 4. Property, Plant and Equipment At the end of 2014 and 2013, property, plant and equipment at cost and accumulated depreciation were: (dollars in millions) 2014 2013 Land and land improvements \( 833 \) 885 Buildings and building equipment 10,046 10,423 Machinery and equipment 22,206 22,527 Construction in progress 3,600 3,298 36,685 37,133 Less accumulated depreciation 20,559 20,423 \(16,126 \)16,710 The Company capitalizes interest expense as part of the cost of construction of facilities and equipment. Interest expense capitalized in 2014, 2013 and 2012 was \(115 million, \)105 million and \(115 million, respectively. Depreciation expense, including the amortization of capitalized interest in 2014, 2013 and 2012, was \)2.5 billion, \(2.7 billion and \)2.5 billion, respectively. |
Johnson & Johnson provided the following selected information in its 2014 cash flow statement.
Johnson & Johnson 2014 Annual Report Consolidated Financial Statements (excerpts) Net cash flows from operating activities \(18,471 Cash flows from investing activities Additions to property, plant and equipment (3,714) Proceeds from the disposal of assets 4,631 Acquisitions, net of cash acquired (2,129) Purchases of investments (34,913) Sales of investments 24,119 Other (primarily intangibles) (299) Net cash used by investing activities (12,305) Cash flows from financing activities Dividends to shareholders (7,768) Repurchase of common stock (7,124) Proceeds from short-term debt 1,863 Retirement of short-term debt (1,267) Proceeds from long-term debt 2,098 Retirement of long-term debt (1,844) Proceeds from the exercise of stock options/excess tax benefits 1,782 Net cash used by financing activities (12,260) Effect of exchange rate changes on cash and cash equivalents (310) Increase in cash and cash equivalents (6,404) Cash and cash equivalents, beginning of year (Note 1) 20,927 Cash and cash equivalents, end of year (Note 1) \)14,523 Supplemental cash flow data Cash paid during the year for: Interest $ 603 Income taxes 3,536 |
Instructions
Ottawa Corporation owns machinery that cost \(20,000 when purchased on July 1, 2014. Depreciation has been recorded at a rate of \)2,400 per year, resulting in a balance in accumulated depreciation of \(8,400 at December 31, 2017. The machinery is sold on September 1, 2018, for \)10,500. Prepare journal entries to (a) update depreciation for 2018 and (b) record the sale.
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