Beautiful, Inc. Balance Sheet December 31, 2018
Cash: $425,621
Accounts Receivable: $1,654,887
Note Receivable: $900,000
Received on 2/1/2018 in return for a large service contract
Terms = no interest - 3 payments of 300,000 each Feb
Building (net): $1,800,000
Being used for normal operations
Construction: $600,000
Weighted Average expenditures 375,000 to add in capitalized interest - started and completed in 2018
Equipment (net): $637,000
No change in use
Idle Equipment (net): $107,000
Used equipment dealer quoted $82,000 - original cost $450,000
Broadcast License (net): $1,423,000
10 year remaining life but changes to the broadcast spectrum
Company saves on royalties for using the broadcast spectrum on contract
Without the broadcast license the royalties would be 126,000 per year
Total Assets: $7,547,508
Accounts Payable: $1,067,450
Line of credit for construc: $300,000
Interest rate is 7%
Note Payable: $432,370
Borrowed 500,000 on January 1, 2016 with monthly payments for 15 years at 6%
Bond payable: $500,000
Sold on January 1, 2010 at face value - interest only payments
Coupon rate of 5.5% paid semi annually until January 1, 2030
Total Liabilities: $2,299,820
Paid In Capital: $4,000,000
Retained Earnings: $1,247,688
$7,547,508
Beautiful wants to report all possible amounts using fair value as possible under U.S. GAAP - that means the note and bond payable
The current interest rate for Beautiful is 7%.
Required:
1. Show all journal entries needed to adjust to fair value where necessary.
2. Show the new balance sheet with fair value as indicated.
3. Show the journal entry to record the trade in of the idle equipment for new equipment (sticker price $105,000) plus payment of $10,000 to the equipment dealer. So you gave up the old equipment and cash for new equipment on March 1, 2019