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For parts and C below, your Company had the opportunity to obtain additional assets on May 1, 2021, but decided not to do it. The
For parts and C below, your Company had the opportunity to obtain additional assets on May 1, 2021, but decided not to do it. The assets which could have been acquired were: B. Buy a patent for $90,000 which is owned by one of your competitors. The patent has an 8 year remaining legal life, but you believe the products protected by the patent can be sold for more than 10 years. You would have spent an additional $8,000 to advertise the new product line. You would have purchased and paid for $100,000 of the new products during 2021. Your market research indicated you could have sold $75,000 of the products during 2021 for $140,000 on account. Your accounting department projected that you would have collected 80% of the accounts by the end of the year and that bad debts from these transactions would have been 1% of sales to these new customers. In order to help pay for all of the above, you would have borrowed $60,000 from your bank on May 1, 2021, and issued a 9%, 5 year note which would require payments of interest each year on April 30. C. Purchase a new building for $400,000 in cash. The building has an estimated life of 30 years and an estimated salvage value of $40,000. Your company would use the straight- line method of depreciation on the building. Had you purchased the new building, you would have saved $2,000 of rent expense EACH MONTH on your current building from May through December. It was projected that the location of the new building could have increased your sales (all in cash to local customers) by $80,000 and your cost of goods sold by $37,000 (and reduced your existing inventory) in 2021. In order to help pay for these transactions, you would have sold 6,000 new shares of common stock for $34 per share in cash on May 1, 2021. You would have declared a $2.00 cash dividend on these shares on December 1 and paid the cash dividend on December 19, 2021 (as described in transaction "q." in computer problem 2. 1. INSTRUCTIONS FOR PARTS B AND C Prepare the entries which would have been made to record the events of Alternative B, including any adjusting entries on December 31, 2021. No dates are needed on these entries since the sales would have been made throughout several months of the year 2021
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