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During the current year, TIK Drilling trades an old derrick that has a book value of $300,000(original cost $600,000 less accumulated depreciation $300,000) for a new derrick from MateHeavy Equipment Co. The new derrick cost Mate $500,000 to manufacture and is classified asinventory. The following information is also available

Assignment 3 Question 1: The following table gives data pertinent to the inventory of five different products. Normal profit margin on each of the five inventory items is 10 percent of the selling price of the item. Use the information above and in the table below to inventory value under the lowerofcostor market rule for each of the 5 inventory items (A, B, C, D & E), under the following assumptions: a. Assume that the uses FIFO to calculate the cost of its inventory. b. Assume that the uses LIFO to calculate the cost of its inventory. Provide these calculated values in the boxes below. A B C D E Inventory Cost $83 $102 $78 $40 $98 Selling price 90 100 110 30 90 Replacement cost 75 85 86 35 64 Estimated cost to complete the sale (1) NRV (Ceiling) 15 10 15 3 20 (2) Floor (3) Unit inventory value under LCM rule, assuming cost is calculated using LIFO (4) Unit inventory value under LCM rule, assuming cost is calculated using FIFO 1 | P a g e Question 2: On January 1, 2016, the Jordan Co. began selfconstructing a building for its manufacturing division. The building was completed in 2017. The company took out a construction loan on January 1, 2016 for $1,000,000 with an interest rate of 10%. Jordan's other interestbearing debt included two long term notes of $6,000,000 and $9,000,000 at 8% and 10% respectively. Both notes were outstanding all of 2016 and 2017. During 2016, the qualifying expenditures on the building were committed as follows: January 1 $1,000,000 April 1 $600,000 Sep 1 $9,000,000 December 31 $1,000,000 a. How much interest is capitalized in 2016? b. What is the amount of interest expense that will appear on Jordan's 2016 income statement? Question 3: Flex Inc. purchased a new machine on July 1, 2016 at a cost of $175,000. Flex paid additional $50,000 for installation. Flex intends to use the equipment for 4 years, after which it expects to be able to sell it for $25,000. 1. Assuming Flex uses the sumoftheyears'digits method, what is depreciation expense in 2016 and 2017? 2. Assuming Flex uses the double declining balance method, what is depreciation expense in 2016 and 2017? 2 | P a g e Question 4: Below is information related to equipment owned by Yellow on December 31, 2017 (after adjusting journal entry for depreciation is made): Cost 650,000 Accumulated depreciation 350,000 Undiscounted expected future net cash flow 160,000 Present value of expected future net cash flow 130,000 As of December 31, 2017, the equipment has a salvage value of $30,000 and is expected to produce 1,000,000 more units over its remaining useful life. Yellow uses the unitsofproduction depreciation method. a. What is the amount of impairment loss (if any) to be recorded at 12/31/2017? b. How much depreciation should be taken on the equipment in 2018, assuming 200,000 units were produced in 2018? Question 5: During the current year, TIK Drilling trades an old derrick that has a book value of $300,000 (original cost $600,000 less accumulated depreciation $300,000) for a new derrick from Mate Heavy Equipment Co. The new derrick cost Mate $500,000 to manufacture and is classified as inventory. The following information is also available. TIK Drilling Mate Heavy Equip. Co. Fair value of new derrick $700,000 Cash paid 500,000 Cash received 500,000 Required: a. Assuming that this exchange is considered to have commercial substance, prepare the journal entries on the books of (1) TIK Drilling and (2) Mate Heavy Equipment. b. Assuming that this exchange lacks commercial substance for TIK, prepare the journal entries on the books of TIK Drilling. 3 | P a g e