Free Depreciation Essay Example

Chapter 9

A fully depreciated asset refers to an asset whose accumulated depreciation is equal to its initial cost less the salvage value. Lakeland Corporation will still record the fully depreciated asset and include it under non-current assets in the balance sheet. The company should report the asset on the balance sheet at its cost. In addition, the Corporation will record and present the accumulated depreciation for the asset in the balance sheet. However, the corporation will no longer charge any depreciation expense on the asset. Therefore, no depreciation on the fully depreciated asset will be included in the income statement.

Goodwill

Goodwill is an intangible asset and occurs when a business is acquired by another at a consideration more than the fair value of its identifiable assets net the value of identifiable liabilities. It arises from aspects such as brand recognition, company reputation, among other factors. Goodwill is included under the company’s assets, but it is not separable from the company. Megan should explain to Jeff that it is not possible to separate goodwill and sell it to another company. Goodwill can only be sold along with all other assets of the company. For instance, it is only when the company is acquired by another that the goodwill can be said to have been sold to the acquiring company. In this case, the acquiring company will pay more than the market value of the net assets of the acquired company.

Chapter 10

Warranties
The business implication of increasing warranty period to ten years is an increase in sales. Hinrich Corporation will experience an increase in the demand for their motor vehicles. The main concern of customers has been the quality of vehicles hence an increase in the warranty period will offer some sense of assurance on the quality of Hinrich’s vehicles. Consumers will readily buy the vehicles since the company will meet the cost of repairs and replacement if the vehicle undergoes a warrantable damage within ten years.
Warranties are considered as contingent liabilities hence this change will have an effect on the accounting for warranties. Standards require warranty liabilities to be recognized when it is probable and when the amount can be reasonably estimated. It is highly probable that a vehicle will get damaged within ten years of purchase than within three years of purchase. This implies that the warranty liability will always be probable at the time of sale. Hinrich will, therefore, recognize the warranty liability at the time of sale and record the corresponding warranty expense in the income statement. The accounting effect will be a reduction in net income at the time of purchase as this policy will increase warranty expense on sale of vehicles.

Bond pricing

Jack is wrong. The price of a bond is not only a function of its principal payment on maturity but also a function of regular interest payments. Unless the bond has a zero coupon, its value will include the coupon interest payments. Therefore, the price of the bond will be the sum of the present value of the face value and that of the regular (annual or semiannual) coupon interest payments.

Unearned revenue

When tickets are sold before the match, Dakota University will receive the revenue. This revenue will be unearned hence a liability since the University will not have performed the corresponding service. The following entry will be made:

DR. Cash $900,000

CR. Unearned ticket revenue $900,000
After each game, the revenue will be earned, and it will no longer be a liability to the University. The University will make the following entry.

DR. Unearned ticket revenue $900,000

CR. Ticket revenue $900,000