Question 1

Lola industries purchased the following assets and constructed a building as well. All of this was done during the current year.

Assets 1 and 2:

These assets were purchased as a lump sum for $110,000 cash. The following was gathered:

Description	Initial Cost on Sellers Books	Depreciation to Date on Sellers Books	Book Value on Sellers Books	Appraised Value
Machinery	$100,000	$40,000	$60,000	$81,000
Office Equipment	70,000	25,000	45,000	44,000

Asset 3:

Office Equipment was acquired by issuing 300 shares of $6 par value common stock. The stock had a market value of $14 per share.

Construction of Building

A building was constructed on land purchased last year at a cost of $150,000. Construction began on February 1 and was completed on November 1. The payments to the contractor were as follows:

Date	Payment
2/1	$100,000
6/1	380,000
9/1	460,000
11/1	120,000

To finance construction of the building, a $600,000 10% construction loan was taken out on February 1. The loan was repaid on November 1. The firm had $200,000 of other outstanding debt during the year at a borrowing rate of 7%.

Required: Record all of the applicable acquisition/construction entries for each of these assets.

Question 2

Rohan Company purchased equipment in January 2008 for $8,000,000 and had an estimated useful life of 6 years with a salvage value of $2,000,000. At December 31, 2010, new technology was introduced that would accelerate the obsolescence of Rohans equipment. Rohans controller estimates that expected future net cash flows on the equipment will be $4,900,000 and that the fair value of the equipment is $4,600,000. Rohan intends to continue using the equipment, but it is estimated that the remaining life is 2 years and new salvage value is $1,000,000. Rohan uses straight-line depreciation.

Required:

(a) Prepare the journal entry (if any) to record the impairment at December 31, 2010.

(b) Prepare any journal entries for the depreciation of the equipment at December 31, 2011.

(c) Assume that Rohan used the double-declining balance method of depreciation, prepare the journal entry (if any) to record the impairment at December 31, 2010.

(d) Assume that Rohan used the double-declining balance method of depreciation, prepare the journal entries for the depreciation of the equipment at December 31, 2011.