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Plote Company assumes direct responsibility for all executor costs, which include the
following annual amounts: (1) $ 900 to Rocky Mountain Insurance Company for
insurance, and (2) $ 1,600 to Laclede County for property taxes.
The agreement requires equal annual rental payments of $ 18,142.95 to the lessor,
beginning on January 1, 2008.
The lessee’s incremental borrowing rate is 12%. The lessor’s implicit rate is 10% and
is known to the lessee.
Plote Company uses the straight-line depreciation method for all equipment.
Plote uses reversing entries when appropriate.
Instructions: (Round all numbers to the nearest cent.)
Prepare an amortization schedule that would be suitable for the lessee for the lease
term.
Prepare all of the journal entries for the lessee for 2008 and 2009 to record the lease
agreement, the lease payments, and all expenses related this lease. Assume the
lessee’s annual accounting period ends on December 31.
E18-11: (Change in Estimate - Depreciation) Peter M. Dell Co. purchased equipment
for $ 510,000 which was estimated to have a useful life of 10 years with a salvage
value of $ 10,000 at the end of that time. Depreciation has been entered for 7 years
on a straight-line basis. In 2008, it is determined that the total estimated life should
be 15 years with a salvage value of $ 5,000 at the end of that time.
Instructions:
Prepare the entry (if any) to correct the prior years’ depreciation.
Prepare the entry to record depreciation for 2008.
E18-23: (EPS with Convertible Bonds and Preferred Stock) On January 1, 2008,
Crocker Company issued 10-year, $ 2,000,000 face value, 6% bonds, at par. Each $
1,000 bond is convertible into 15 shares of Crocker common stock. Crocker’s net
income in 2008 was $ 300,000, and its tax rate was 40%. The company had 100,000
shares of common stock outstanding throughout 2008. None of the bonds were
converted in 2008.
Instructions:
Compute diluted earnings per share for 2008.
Compute diluted earnings per share for 2008, assuming the same facts as above,
except that $ 1,000,000 of 6% convertible preferred stock was issued instead of the
bonds. Each $ 100 preferred shares are convertible into 5 shares of Crocker’s
common stock.
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