The characteristics of the pension plan during 2021 are as follows: Service cost: $750,000 Interest cost: $450,000 Actual return on plan assets: $200,000 Expected rate of return on plan assets: 8% Gain from change in acruarial assumption: $220,000 There were no AOCI balances related to pensions on January 1, 2021, but at the end of the year, the compay amended the pension formula, creating a prior service cost of $120,000
Microsoft Word - Capstone Project (Fall 2021) The Works operates as a merchandiser. The company uses the FIFO method of assigning costs to inventory and cost of goods sold with perpetual inventory system. The inventory balance of $3,969,000 is composed of 90,000 units purchased on December 22nd for $44.10 a unit. The company uses the allowance method to estimate bad debts expense, and the effective interest method to amortize bond premiums and discounts mostly. For depreciation, the company uses a straight-line method (or double-declining) for computer equipment and a double-declining method for buildings. The company buys debt securities, and has them available for sale in years. No investments were held by the company on December 31, 2020. For bonds, interest rate is 12%. The company’s common stock has a $1 par value. The trial balance for The Works as of December 31st, 2020 was as follows: Dr. Cr. Cash 64,042,000 Account Receivable (A/R) 40,000,000 Allowance for Doubtful Accounts 800,000 Office Supplies 250,000 Inventory 3,969,000 Prepaid Insurance 1,350,000 Deferred Tax Asset 3,500,000 Computer Equipment 25,000,000 Accumulated Depreciation - Computer Equipment 200,000 Buildings 100,000,000 Accumulated Depreciation - Buildings 22,131,200 Land 35,000,000 Plan Assets 4,800,000 Account Payable 22,500,000 Note Payable - Deferred Tax Liability 270,000 Bonds Payable 5,000,000 Premium/Discount on Bonds Payable - Projected Benfit Obligation 4,800,000 Common Stock 25,000,000 Paid-in Capital, CS 145,000,000 Retained Earnings 52,209,800 Dividends Sales Sales Discount Cost of Goods Sold Bad Debt Expense Office Supplies Expense Insurance Expense Interest Expense Depreciation Expense - Computer Equipment Depreciation Expense - Buildings Gain/Loss on Disposal of Plant Asset Total 277,911,000 277,911,000 The Works Trial Balance as of December 31, 2020 The following transactions took place during 2021: January 2nd Borrowed $1,500,000 with 8% note to help finance the construction which began for its own use on January 1st, 2020. The facility is completed in 2022. Interest is payable at maturity. January 2nd Sold the computer equipment with a cost of $12,500,000 (accumulated depreciation: 100,000), for $10,000,000 cash. January 5th Traded in all of used computer equipment with a fair value of $13,200,000., and received in exchange new computer equipment (useful life: 10 years, salvage value: 1,947,040) with a fair value of $8,000,000 plus cash of $500,000. Double-declining method will be used. January 11th Purchased 1,000,000 units of inventory at $42 per unit, on credit. January 15th Purchased land for $5,000,000 of cash. January 27th Paid for the goods purchased on January 11th. February 3rd Sold 490,000 units for $60 per unit, on credit. February 18th Received the outstanding balance from last year. February 25th Issued 3 millions of $10 pare preferred shares (8.8%) at $25 per share, and 10 milliions of $1 par common shares at $10 per share. March 1st Paid $1,200,000 of construction expenditure to subconductors. March 2nd Received the outstanding balance related to February 3rd. March 17th Sold 300,000 units at $60 per unit, on credit. March 31st Declared and paid a dividend of $0.20 per share. April 1st Issued a 10-year, $100,000,000 par value bond with an annual contract rate of interest of 8%, payable in semi-annual interest payments on September 30th and March 31st. the market rate of interest at the time of issuance was 9%. April 6th Received the outstanding balance related to March 17th. April 16th Declared and distributed a 5-for-4 stock split. The stock split was effected in the form of a 25 percent common stock dividend. The market value of the $1 par common stock was $11 per share. May 1st Purchased 8% DT Corp. bonds costing $400,000 at face value. May 15th Made $600,000 of pension contribution. May 24th Purchased $1,000,000 of office supplies with cash. June 1st Purchased 30% of SD's 800,000 shares for $5,600,000. June 15th $360,000 of pension benefit was paid. June 30th Under the resticted stock unit plan, the company granted restricted stock units (RSUs) representing 4 million of its $1 par common shares to various division managers. The shares are subject to forfeiture if employment is terminated within three years. The common shares had a market price of $12.50 per share on the grant date. July 1st Purchased computer equipment for $30,000,000 of cash, and will use straight-line method. July 11th Purchased 1,250,000 units of inventoryat $40 per unit, on credit. July 23rd Paid for the goods purchased on July 11th. August 1st Issued $3 million of 10% nonconvertible bonds at 104. The bonds are de on July 31, 2041. Each $1,000 bond was issued with 20 detachable stock warrants, each of which etitled the bondholder to purchase, for $60, one share of no par common stock. The market value of the common stock was $58 per share and the market value of stock warrant was $8. August 5th Issued an additional 5,000,000 shares of common stock $11 a share. August 17th Declared and distributed 2% common stock dividends. The market value of the common stock was $11 per share. September 1st Purchased $900,000 of AI' 10% bonds at face value. September 25th Sold 200,000 units at $60 per unit, on credit. September 30th Declared and paid a dividend of $0.1 per common share. September 30th Paid the semi-annual interest payment on the bonds issued on April 1st. October 1st Paid $600,000 of construction expenditure to subconductors. October 1st Paid $900,000 of cash for a six-month insurance policy. October 1st Leased a commercial processor from UL Lease Corp. The five-year finance lease agreement calls for the company to make quarterly payments of $195,774, payable each October 1, January 1, April 1, July 1, with the first payment at October 1, 2021. The incremental borrowing interst rate is 12%. The company records amortization on a straight-line basis at the end of each fiscal year. October 13th Received the outstanding balance related to September 25th. October 31st Received semi-annual interest payment on the DT bonds. November 1st Purchased $1,400,000 of MDC's 6% bonds costing at face value. November 2nd Sold the DT bonds for $425,000. For this investment, the company uses available-for-sales methold. November 4th Reaquired 625,000 shares at $15 per share for treasury stock purpose. November 14th Sold 1,200,000 units at $60 per unit, on credit. December 1st Declared and paid 8.8% cash dividend on preferred shares, and cash dividend of $0.10 per share on common shares. December 5th Sold 500,000 treasury shares at $20 per share. December 16th Purchased 750,000 units of inventory at $41 per unit, on credit. December 17th Sold 75,000 treasury shares at $13 per share. December 20th Declared and paid cash dividend of $0.05 per share on common shares. December 30th Made a lump-sum purchase from a contractor at a total cash price of $1,800,000 for a building, land, land improvement, and five trucks. The estimated market values of the assets are building (12-year life, $120,000 salvage value), $890,000; land, $427,200; land improvement (10-year life), $249.200; and five trucks (5-year life,, no salvage value), $213,600. December 31st Leased a delivery truck to YA right after purchasing it for $40,000 on December 31st, 2021. Its retail value is $45,114. The lease agreement specifies annual payments of $11,000, including $1,000 maintenance fee, beginning December 31st, and at each December 31 through 2024. The interst rate for determining payments was 10%. At the end of the four-year lease term (December 31, 2025), the truck was expected to be worth $15,000. The useful life of the truck is five years with no salvage value. The company uses straight-line method. In addition, the guaranteed residual value was $6,000. Additionals: Use the following information to record the necessary adjusting journal entries ended December 31 st . a. Physical count of office supplies shows $400,000 worth of office supplies remaining. b. The remaining nine months of the twelve-month insurance policy purchased on October 1, 2020 for 1,800,000 has expired. In addition, three months of the six-month insurance policy purchased on October 1, 2021 for $900,000 has expired. c. The computer equipment purchased on July 1, 2021 for $30,000,000 has an estimated salvage value of zero and a useful life of 5 years. This asset has not been depreciated for the six months that it has been owned. In addition, the computer equipment traded on January 5th has not been depreciated for whole year. d. The buildings, originally acquired on January 1st, 2018 for $100,000,000 with a salvage value of $25,000,000 and a useful life of 25 years. The buildings have not been depreciated for the twelve months of 2021. The company uses double decling method for building this year. e. The company estimates that 2% of account receivable are uncollectible. f. The company recognizes accrued interest for the bonds issued on April 1st. g. The company recognizes accrued