Question

Post Adjusting Journal Entries

5 On November 30, 2014, ABC borrowed $235,000 from American National Bank by issuing an interest-bearing note payable. This loan is to be repaid in three months (on February 28, 2015), along with interest computed at an annual rate of 6%. The entry made on November 30 to record the borrowing was: (for Statement of Cash Flow purposes, consider a financing item) Dr Cash 235,000 Cr Notes payable 235,000 On February 28, 2015 ABC must pay the bank the amount borrowed plus interest. Assume the beginning balance for Notes Payable is correct. Interest through 12/31/14 must be accrued on the $235,000 note.

6 ABC uses a periodic inventory system, and the ending inventory for each year is determined by taking a complete physical inventory at year-end. A physical count was taken on December 31, 2014, and the inventory on-hand at that time totaled $75,000, which reflects historical cost. Record the 2014 Cost of Goods Sold and the 12/31/14 Inventory adjustment. Additionally, ABC adheres to GAAP by recording ending inventory at the lower of cost and net realizable value at a total inventory level. A review of inventory data further indicated that the current retail sales value of the ending inventory is $110,000 and estimated costs of completion and shipping is 15% of retail. Be sure to make an additional adjustment, if necessary, to properly value ending inventory using the Loss and Allowance methodology. For Income Statement presentation purposes, be sure to use the Loss Method for accounting for adjustments of inventory to market value.

7 It would be unusual for a company to have an asset impairment in Year 1, but for the sake of this example, ABC realized that their intangible asset might be impaired on December 31, 2014. Record the impairment if any. The expected future net cash flows for this intangible asset totals $30,000, and the fair value of the asset is $27,500.

8 On 7/1/14, ABC purchased 7,000 shares of its own stock from existing stockholders as treasury stock. The cost of the treasury stock was $7 per share, or $49,000 in total. The effects of this transaction are already shown in the unadjusted trial balance. On 12/31/14, ABC reissued these 7,000 shares of treasury stock at $10 per share. Record the journal entry required for the reissuance of the treasury stock.

Answer 1

5.

Date	Particulars	Debit	Credit
12/31/14	Interest Expense	1,175
	Interest on Notes Payable		1,175
	(235,000 * 6% * 1/12)

6.

Cant calculate the COGS because purchase information is not given.

7.

Impairment test:-

U.S. GAAP requires a two step process to test impairment. The first step is to determine if the carrying amount of the assets exceeds undiscounted future cash flows. If it does, then proceed to the next step, which is to compute the impairment, using discounted cash flows.

Here, the fair value of assets does not exceed the future cash flows, so no impairment is required.

8.

Date	Particulars	Debit	Credit
12/31/14	Cash (7000 * 10)	70,000
	Treasury Stock (7000 * 7)		49,000
	Additional Paid in capital - Treasury stock (7000 * 3)		21,000