Question

On the designated worksheet, prepare in journal entry form all adjusting and correcting journal entries based on the following information (round all numbers to the nearest dollar). Letter entries to correspond to the below information and present them in alphabetical order. Add any new accounts as needed to the trial balance. Each entry must be entirely correct to receive allocated points. Before preparing entries, finish the story by filling in the blanks.

Accounting Creations was authorized to issue 3,000,000 shares of $1 par Common Stock but has only issued 650,000 shares of common stock as of 12/31/2018. No new shares were issued during 2018.

I.) Accounting Creations Double Entry has two loans outstanding as of 12/31/2018. Interest is paid annually on January 1st.  The facts on each loan are as follows:

Onstar Bank Loan - outstanding since January 1, 2018 with a 4.0% interest rate. This loan was taken out to finance the construction of the Storage Building. Interest for the year and 10% of the principle will be paid to the bank on January 1, 2019. Except for recording the initial cash received and loan, no additional entries have been made. Loan amount: $650,000

Coldstar Bank Loan - also outstanding all of 2018 with 3.03 % interest rate Interest is due on January 1, 2019. Principle is due on January 1, 2024. Since interest will not be paid to the Bank until 2019, Accounting Creations' office staff did not accrue any interest. Loan amount: $2,000,000

J.) On March 1, 2018 (enter your birthday month), Accounting Creations recorded a patent in the amount of $150,000. The company paid outside legal fees of $80,000 to have the patent registered. The other $70,000 represents internal costs in developing the patent. The patent is good for 20 years, but the company estimates that the patent will have a useful life of 6 years with no residual value. Amortization is straight line. The company depreciates using partial years for intangible assets. No amortization has been recorded for 2018.

K.) As of 12/31/2018 the Available for Sale Securities have a fair value of $290,553 (enter the last three digits of your student number). Due to the market conditions, the company does not plan on selling the assets in 2019, but their intent is to sell at some point in time.  You can ignore the tax effect on unrealized gains and losses.

L.) The office building was bought in January 1, 2016 and Accounting Creations plans to use the building for 40 years and believes it will have a salvage value of $250,000 at the end of 40 years. Accounting Creations depreciates the building on a straight line basis. Due to the location of the building and use potential, Accounting Creations is concerned about impairment. At 12/31/2018 it is determined that the future cash flows for the building are $3,000,000. The fair value of the building is $3,400,000 (last digit of your student number) at 12/31/2018.

Answer 1

Answer

Corrective Entries Accounting Creations was authorized to issue 3,000,000 shares of $1 par Common Stock but has only issued 650,000 shares of common stock as of 12/31/2018. No new shares were issued during 2018. No En uired Transaction Date General Journal Debit Credit Dec 31, 2018 Interest Expense Interest Payable ($650,000 x 496) 26000 26000 Dec 31, 2018 Interest Expense 60600 Interest Payable $2,000,000 x 3.03 % 60600 Dec 31, 2018 Research & Development Expenditure-NI $70,000 Patents $70,000 Typically only the legal and filing costs associated with defending a patent are capitalized. The research and developmental costs for the product or process are treated as an expense as incurred. This is referenced in FASB No 142 Dec 31, 2018 Amortisation Expense Patent $80,000 /6 vears) xi 10 months/12 months

Available for sale securities can be either equity or debt marketable securities and are recorded at fair value and are usually classified in the balance sheet as non-current assets, depending on whether the business has made plans to sell the investments in the near future If at the period end AFS security has decreased in value, then the investments shall be written down to the new value and the unrealized loss arising is charged to the unrealized gain/loss- other comprehensive income account and vice- versa. The unrealized gain/loss-other comprehensive income account is a permanent account reported as part of comprehensive income as a separate component of shareholders equity Since the carrying Value is not provided hence assumed to be fair value Unrealised Loss 375,000 $290,553 $84,447 Dec 31, 2018 Unrealized gain/loss-other comprehensive income 84,447 Available for Sale Securities $84,447

Cost Salvage Value Depreciable Amount Life Annual Depreciation $3,750,000 250,000 $3,500,000 40 years $87,500 Dec 31, 2018 Depreciation $175,000 $175,000 Accumulated Depreciation Office Building (Depreciation for 2017 & 2018) $3,750,000 Cost Accumulated Depreciation Carrying Value Undiscounted Cash Flows Fair Value $262,500 $3,487,500 A 3,000,000 B 3,400,000 | C Under ASPE-Testing for impairment is a two-step process: Compare the carrying value of the asset group to the expected undiscounted cash flows If the carrying value is higher than the undiscounted cash flows, then compare the carrying value to the fair value and record an impairment loss if the carrying amount is greater than the fair value If the carrying value is lower than the undiscounted cash flows no impairment is requird Since Carrving Value is more than undiscounted cash flows, the Recoverable amount will be equal to fair value Hence recoverable amount- Impairment 3,400,000 D 87,500 E-A-D Debit Credit Dec 31, 2018 Impairment Loss 87,500 Accumulated Impairment Losses-Buldin 87,500 (Being recording of Impairment Loss)