(a) Bridge to the Profession: Professional Research: FASB Codification, page 634.

Bridge to the Profession: Professional Research: FASB Codification, page 634.(20 points) On May 31, 2011, Armstrong Company (A US company) paid US$3,700,000 to acquire all of the common stock of Hall Corporation (a German company), which now became a division of Armstrong. Hall reported the following US$ balance sheet at the time of the acquisition: 600,000 500,000 2,500,000 Total liabilities and $3,600,000 It was determined at the date of purchase that the fair value of the identifiable net assets of Hall was US$2,800,000. At December 31, 2011, Hall reports the following US$ balance sheet information: 800,000 2,400,000 (700,000) (500,000) $2,000,000 It is determined that the future significant net cash flows of the Hall division will be US$300,000 per year for the next 20 years, occurring at year-end (Hint: the present value of future cash flows can be used as a proxy for the fair value). The recorded amount for Hall’s net assets (excluding goodwill) is the same as fair value, except for property which has a fair value of US$200,000 above the carrying value. The appropriate discount rate for Armstrong is 15%, while that for the Hall division is 10%. Required: Compute the amount of goodwill recognized, if any, on May 31, 2011. (5 points) (6 points) On the assumption that the appropriate discount rate for Hall is the same as that for Armstrong, determine the impairment loss, if any, to be recorded on December 31, 2011. (17 points) Prepare the journal entry to record the impairment loss, if any, on December 31, 2011. (2 points) (Points : 50) Question 2 (15 points) (b) Alvarado Company sells a machine for $6,500 under a 12-month warranty agreement that requires the company to replace all defective parts and to provide the repair labor at no cost to the customers. With sales being made evenly throughout the year, the company sells 600 machines in 2010 (warranty expense is incurred 40% in 2010 and 60% in 2011). As a result of product testing, the company estimates that the warranty cost is $370 per machine ($230 parts and $140 labor). Required: Assuming that actual warranty costs are incurred exactly as estimated, prepare the journal entries that would be made under application of the expense warranty accrual method for the following: (6 points) (16 points) (8 points) (Points : 45) 3. Question 3 Under terms of a Troubled Debt Restructuring, will the debtor always be better off? Explain (24 points) XYZ Company is building a new baseball stadium at a cost of $3,000,000. It received a down payment of $600,000 from local businesses to support the project, and now needs to borrow $2,400,000 to complete the project. It therefore decides to issue $2,400,000 of 10%, 10-year bonds. These bonds were issued on January 1, 2010, and pay interest annually on each January 1, beginning 2011. The bonds yield 8%. Required: (12 points) (13 points) (31 points) (Points : 80)

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