# DeVry AC 551 Intermediate Accounting II Mid Term Exam Latest

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## DeVry AC 551 Intermediate Accounting II Mid Term Exam Latest

Question 1 (60 points)
(a) Bridge to the Profession: Professional Research: FASB Codification, page 634. . (30 points)
(b) On May 31, 2011, Armstrong Company paid \$3,500,000 to acquire all of the common stock of Hall
Corporation, which became a division of Armstrong. Hall reported the following balance sheet at the
time of the acquisition:
Current assets
Noncurrent assets

\$ 900,000
2,700,000

Total assets

\$3,600,000

Current liabilities
Long-term liabilities
Stockholders equity
Total liabilities and
stockholders equity

\$ 600,000
500,000
2,500,000
\$3,600,000

It was determined at the date of the purchase that the fair value of the identifiable net assets of Hall
was \$2,800,000. At December 31, 2011, Hall reports the following balance sheet information:
Current assets
Noncurrent assets (including goodwill recognized in purchase)
Current liabilities
Long-term liabilities
Net assets

\$ 800,000
2,400,000
(700,000)
(500,000)
\$2,000,000

It is determined that the fair market value of the Hall division is \$2,100,000. The recorded amount
for Halls net assets (excluding goodwill) is the same as fair value, except for property, plant, and
equipment, which has a fair value of \$200,000 above the carrying value.
Required:
i. Compute the amount of goodwill recognized, if any, on May 31, 2011.
(5 points)
ii. Determine the impairment loss, if any, to be recorded on December 31, 2011.
(4 points)
iii. On the assumption that the fair value of the Hall division is \$1,900,000 instead of \$2,100,000,
determine the impairment loss, if any, to be recorded on December 31, 2011.
(19 points)
iv. Prepare the journal entry to record the impairment loss, if any, on December 31, 2011. (2 points)

1

Question 2 (45 points)
(a) Bridge to the Profession: Professional Research: FASB Codification, page 687.

(15 points)

(b) Alvarado Company sells a machine for \$6,500 under a 12-month warranty agreement that requires
the company to replace all defective parts and to provide the repair labor at no cost to the customers.
With sales being made evenly throughout the year, the company sells 600 machines in 2010
(warranty expense is incurred 40% in 2010 and 60% in 2011). As a result of product testing, the
company estimates that the warranty cost is \$370 per machine (\$230 parts and \$140 labor).
Required:
Assuming that actual warranty costs are incurred exactly as estimated, prepare the journal entries
that would be made under application of both the expense warranty accrual method and the cashbasis method for the following:
i.
ii.
iii.
iv.

Sale of machinery in 2010.
Warranty costs incurred in 2010.
Warranty expense charged against 2010 revenues.
Warranty costs incurred in 2011.

(4 points)
(14 points)
(6 points)
(6 points)

Question 3 (70 points)
(a) James Brown &amp; Cos \$500,000, 10%, 20-year note with Bank One was refinanced with a \$500,000,
8%, 20-year note.
Required:
i. Prepare the journal entry to record this refinancing in the books of James Brown &amp; Co. (4 points)
ii. Prepare the journal entry to record this refinancing in the books of Bank One.
(14 points)
(b) XYZ Company is building a new baseball stadium at a cost of \$3,000,000. It received a down
payment of \$600,000 from local businesses to support the project, and now needs to borrow
\$2,400,000 to complete the project. It therefore decides to issue \$2,400,000 of 10%, 10-year bonds.
These bonds were issued on January 1, 2010, and pay interest annually on each January 1. The bonds
yield 8%. XYZ paid \$40,000 in bond issue costs related to the bond sale.
Required:
i. Prepare the journal entry to record the issuance of the bonds and the related bond issues costs
incurred on January 1, 2010.
(10 points)
ii. Prepare a bond amortization schedule up to and including January 1, 2014, using the effectiveinterest method.
(30 points)
iii. Assume that on July 1, 2013, XYZ Company retires a quarter of the bonds at a cost of \$700,000
plus accrued interest. Prepare the journal entry to record this retirement.

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DeVry AC 551 Intermediate Accounting II Mid Term Exam Latest

DeVry AC 551 Intermediate Accounting II Mid Term Exam Latest