On January 1 2007 UNLV Corp purchases a private plane with a zero interest

On january 1 2007 unlv corp purchases a private plane

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On January 1, 2007, UNLV Corp purchases a private plane with a zero-interest bearing note and agrees to pay $2,000,000 on December 31, 2009, which is an amount representing the cash equivalent price of the plane plus interest for 3 years. The market interest rate for the note is 7% (annual). Record the journal entries associated with the purchase of the plane. Amount Interest Periods = 2,000,000 = 7% = 3 PV Factor = ? Inputs 2,000,000 x 0.8163 = 1,632,600 Lump Sum Amount x PV Factor = PV of Lump Sum
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Single Sum Liability - Example On January 1, 2007, UNLV Corp purchases a private plane with a zero-interest bearing note and agrees to pay $2,000,000 on December 31, 2009, which is an amount representing the cash equivalent price of the plane plus interest for 3 years. The market interest rate for the note is 7% (annual). Record the journal entries associated with the purchase of the plane. Amount Interest Periods = 2,000,000 = 7% = 3 PV Factor = 0.8163 Inputs 2,000,000 x 0.8163 = 1,632,600 Lump Sum Amount x PV Factor = PV of Lump Sum Private Plane 1,632,600 Journal Entry Note Payable 1,632,600 1/1/07 Interest Expense (1,632,600 * .07) 114,282 31/12/07 Note Payable 114,282 Interest Expense (1,746,881 * .07) 122,281 31/12/08 Note Payable 122,281 Interest Expense (1,869,162 * .07) 130,838 31/12/09 Note Payable 130,838 Notes Payable 1,632,600 1/1/07 114,282 31/12/07 122,281 31/12/08 130,838 31/12/09 2,000,000 Notes Payable 2,000,000 Cash 2,000,000 31/12/09 2,000,000
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Exchanges of Non-monetary Assets Companies typically exchange non-monetary assets based on the fair market value of the asset given up or the fair market value of the asset received Use whichever is most clear The acquired item is measured at fair value unless : The exchange transaction lacks commercial substance ; or The fair value of neither the asset received nor the asset given up is reliably measurable. An entity determines whether an exchange transaction has commercial substance by considering the extent to which its future cash flows are expected to change as a result of the transaction.
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Exchange has Commercial Substance Exchange Lacks Commercial Substance Recognize Gains and Losses Immediately Defer gains and losses What does it mean for the non-monetary exchange to have commercial substance? Does the economic position of the two parties change (e.g., do the future cash flows change)? Exchanges of Non-monetary Assets
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Commercial Substance Example On February 1, 2020, Huskies Corp exchanges a warehouse plus $10,000 cash for an office building currently owned by Cougars Corp. The fair market value of the office building is $110,000. The original cost of the warehouse is $100,000 and the accumulated depreciation is $40,000. Assume that the exchange has commercial substance. What is the journal entry recorded on February 1, 2020? CALCULATION OF GAIN/LOSS Fair value of Office Building 110,000 Less: Cash paid by Huskies (10,000) Carying Value of Warehouse (60,000) Gain/(Loss) on sale of Warehouse 40,000 JOURNAL ENTRIES Office Building 110,000 Accumulated Depreciation 40,000 Warehouse 100,000 Cash 10,000 Gain on Sale of Warehouse 40,000
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No Commercial Substance Example On February 1, 2020, Huskies Corp exchanges a warehouse plus $10,000 cash for an office building currently owned by Cougars Corp. The fair market value of the office building is $110,000. The original cost of the warehouse is $100,000 and the accumulated depreciation is $40,000.
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  • Winter '18
  • jane smith

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