ACCT 200 1st Edition Lecture 14 Outline of Last Lecture I Review II BE 6 16 Outline of Current Lecture I Test Info II BE 7 1 III BE 7 2 IV Basket Purchase V Goodwill VI BE 7 3 VII E 7 7 VIII BE 7 5 IX E 7 5 X BE 7 7 Current Lecture Test ch 5 7 ch 6 is like 2 chapters and will be treated as such on test Know multi step income statement net sales gross profit total operating expenses operating income income before taxes net income balance sheet net acct rec total current assets net long term assets total assets total current liabilities total liabilities total equity and total liabilities equity BE 7 1 Land and warehouse 500 000 Broker fee 30 000 Title insurance 2000 Closing costs 5000 Demolish existing building 30 000 Are any of these not included in cost of land No they are all included 567 000 cost of land Title insurance is different than annual insurance BE 7 2 Purchasing bread making machine 25 000 Freight charges 1500 Installation 3000 Testing 1000 Property taxes for first year 500 annual property taxes What is the cost of equipment Include all but last entry so 30 500 is cost of equipment Basket Purchase 400 000 purchase price Fair market value 150 000 land 300 000 building 50 000 equipment Land 150 500 400 000 120 000 Building 300 500 400 000 240 000 Equipment 50 500 400 000 40 000 Goodwill Buy entire business equipment 100 patent 10 debts 7 cash 5 Worth 108 Pay 120 12 is goodwill Have to negotiate to find goodwill BE 7 3 Pay 14 million for all existing shares of stock of a company Fair value of assets 11 3 Fair value of debts 1 5 Price paid 14 Net value of assets 11 3 1 5 9 8 So goodwill is 14 9 8 4 2 millions E 7 7 Basic research costs 4 000 000 Engineering design cost 1 360 000 Develop a prototype 600 000 Testing and modifying prototype 400 000 Legal fees for patent application 80 000 Legal fees for defense of patent 40 000 What is cost of patent 80 40 120 000 What is expensed not sellable yet 4 mil 1 36 mil 600 000 400 000 6 360 000 BE 7 5 Annual maintenance on equipment expense Remodeling of offices capitalize and add to cost Improvement to shipping and receiving area improves productivity capitalize and add to cost Addition of security system capitalize as its own asset E 7 5 Machine 126 000 Shipping 3000 Testing 5000 Installation 4000 Cost is sum of all these items 138 000 BE 7 7 Cost of equipment 35 000 Estimated salvage 5000 Useful life 10 years Purchased on Sept 1 2010 Give depreciation for 2010 and 2011 Annual depreciation 35 000 5000 10 cost salvage life 3000 per full year In 2010 only owned for 4 months so 3000 4 12 1000 2011 3000 2012 3000 Journal entry 12 31 10 depreciation expense 1000 accumulated depreciation 1000 Book value at 12 31 10 35 000 1000 34 000 12 31 11 depreciation expense 3000 accumulated depreciation 3000 Book value at 12 31 11 35 000 1000 3000 31 000 OR could think 34 000 prior year 3000 this year 31 000
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