Beautiful, Inc.
Balance Sheet
December 31, 2021
Cash
\$ 425,621
Accounts Receivable
\$ 1,654,887
Note Receivable
\$ 900,000
Building (net)
\$ 1,800,000
Construction
\$ 600,000
Equipment (net)
\$ 637,000
Idle Equipment (net)
\$ 107,000
Broadcast License (net)
\$ 1,423,000
Total Assets
\$ 7,547,508
Accounts Payable
\$ 1,067,450
Line of credit for construction
\$ 300,000
Note Payable
\$ 651,185
Total Liabilities
\$ 2,018,635
Paid In Capital
\$ 4,000,000
Retained Earnings
\$ 1,528,873
\$ 7,547,508
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, 202.
Not long term so no adjustment
Received on 2/1/2021 in return for a large service contract
Terms = no interest - 3 payments of 300,000 each Feb - need to calculate the present value
Being used for normal operations so no adjustment
Weighted Average expenditures 375000 to add in capitalized interest - started and completed in 2021
No change in use
Used equipment dealer quoted \$82,000 - original cost \$450,000 - change in use so consider impairment
10 year remaining life but changes to the broadcast spectrum - so need to consider impairment
Company saves on royalties for using the broadcast spectrum on contract
Without the broadcast license the royalties would be 126,000 per year (this is the future cash flows)
Interest rate is 7% (rate for capitalized interest)
Borrowed 800,000 on January 1, 2018 with monthly payments for 15 years at 6%
Need to calculate the payment and then the present value of future cash flows using new interest rate