Accounting Solutions: 2019 Investments

Accounting Questions and Solutions

Answered

The company received government grants equipment equal $600,000 on Jan. 1, 2019, the useful life of the equipment is 4 years.
Record the transaction on Jan. 1, 2019 and prepare the required entries on Dec. 31, 2019.

1- The cost of equipment SR75,000 – accumulated depreciation SR75,000 The company disposes the equipment (no salvage value).

2- The cost of equipment SR80,000 – accumulated depreciation SR60,000 The company disposes the equipment (no salvage value).

3- The cost of equipment SR85,000 – accumulated depreciation SR70,000 The company sold the equipment for 12,000.

4- The cost of equipment SR95,000 – accumulated depreciation SR70,000 The company sold the equipment for 30,000.

5- Delta Inc. trades (exchange) it’s used (old) machine for a new model with Alpha Co.

The used machine has a book value of SR8,000 (original cost SR12,000 less SR4,000 accumulated depreciation) and a fair value of SR5,000.

Delta will pay SR9000.

The exchange has commercial substance.

6- Delta Inc. trades its used (old) machine for a new model at Alpha Inc.

The exchange has commercial substance.

The used machine has a book value of $6,000 (original cost $11,000 less $5,000 accumulated depreciation) and a fair value of $8,000.

Delta will pay $8000 cash.

Computes the cost of the new machine for Delta Company, and record the exchange transaction in Delta Journal book?

The cost of new machine = fair value of old machine + cash paid= 8000 + 8000 = 18000

There is a gain = fair value - book value = 8000 – 6000 = 2000

1-Current Cash Debt Coverage Ratio and 2-Cash Debt Coverage Ratio using the following data:

Net Cash Provided by Operating Activities $70,000

Average Current Liabilities $50,000

Average Total Liabilities $100,000

Net operating cash flow 90,000 – capital expenditure 20,000 – dividends 15,000

Assume a company borrowed $200,000 at 10% interest from State Bank on Jan. 1, 2015, for specific purposes of constructing special-purpose equipment to be used in its operations. Construction on the equipment began on Jan. 1, 2015, and the following expenditures were made prior to the project’s completion on Dec. 31, 2015:

Cost of Direct material and labor $300,000

Overhead cost $100,000

Required: compute the cost of the asset.

Investments in Debt and Equity Securities: Complete the following table

Portfolio	Type	Valuation	Classification
Held-for-Collection
Trading
Non-Trading Equity

1	ASSET	Provides information about resources, obligations to creditors, and equity in net resources
2	EQUITY	Computing rates of return - Evaluating t Non-Current Assets he capital structure
3	LIABILITY	Most assets and liabilities are reported at historical cost - Use of judgments and estimates
4	Statement of financial position	Resource controlled by the entity - Result of past events - Future economic benefits are expected to flow to the entity
5	Limitations of balance sheet	Present obligation of the entity - Arising from past events
6	Usefulness of balance sheet	Residual interest in the assets of the entity after deducting all its liabilities

1	Current Assets	Generally consists of: u Long-term Investments u Property, Plant, and Equipment u Intangibles Assets u Other Assets
2	Cash equivalents	Long-term prepaid expenses Non-current receivables Assets in special funds Property held for sale Restricted cash or securities
3	Non-Current Assets	Cash and other assets a company expects to convert into cash, sell, or consume either in one year or in the operating cycle, whichever is longer
4	Other Assets	- Lack physical substance and are not financial instruments. - Patents, copyrights, franchises, goodwill, trademarks, trade names, and customer lists. - Amortize limited-life intangible assets over their useful lives. - Periodically assess indefinite-life intangibles for impairment.
5	Intangible Assets	short-term highly liquid investments that mature within three months or less

1	Non-Current Liabilities	Obligations that a company generally expects to settle in its normal operating cycle or one year, whichever is longer
2	Current Liabilities	Obligations that a company does not reasonably expect to liquidate within the longer of one year or the normal operating cycle
3	treasury shares	the excess of amounts paid-in over the par value
4	share premium	Share capital – share premium – retained earnings – accumulated other comprehensive income – treasury shares – non-controlling interest
5	Equity	ordinary shares repurchased

1	intangible assets	a- Property, Plant, and Equipment	x- depletion
2	wasting resources	b- minerals – oil - gaz	Y- amortization
3	tangible assets	c- patents – trade mark - goodwill	Z- depreciation

1	Operating Activities	Making and collecting loans and acquiring and disposing of investments and property, plant, and equipment
2	Investing Activities	Transactions involving liability and equity items
3	Financing Activities	Transactions that enter into the determination of net income

1	Current Cash Debt Coverage Ratio	a- Ratio indicates the ability to repay liabilities from net cash provided by operating activities, without having to liquidate assets employed in operations
2	Cash Debt Coverage Ratio	b- Ratio indicates the ability to pay off current liabilities from operations (Ratio near 1:1 is good)
	Free Cash Flow	c- is often used to assess Financial liquidity
		d- is often used to assess Financial Flexibility
		e- Indicates the amount of discretionary cash flow available