Chapter 12: Q33. (page 610)
What is the purpose of a cash flow hedge?
The primary purpose of a cash flow hedge is to hedge exposure to the cash flow risk.
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Use the information provided in BE12-1. Assume that at January 1, 2019, the carrying amount of the patent on Taylor Swift’s books is \(43,200. In January, Taylor Swift spends \)24,000 successfully defending a patent suit. Taylor Swift still feels the patent will be useful until the end of 2026. Prepare the journal entries to record the $24,000 expenditure and 2019 amortization.
Question: On September 1, 2017, Winans Corporation acquired Aumont Enterprises for a cash payment of \(700,000. At the time of purchase, Aumont’s balance sheet showed assets of \)620,000, liabilities of \(200,000, and owners’ equity of \)420,000. The fair value of Aumont’s assets is estimated to be $800,000. Compute the amount of goodwill acquired by Winans.
On January 1, 2017, Hi and Lois Company purchased 12% bonds having a maturity value of \(300,000 for \)322,744.44. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2017, and mature January 1, 2022, with interest received on January 1 of each year. Hi and Lois Company uses the effective interest method to allocate unamortized discount or premium. The bonds are classified in the held-to-maturity category.
Instructions
(a) Prepare the journal entry at the date of the bond purchase.
(b) Prepare a bond amortization schedule.
(c) Prepare the journal entry to record the interest revenue and the amortization at December 31, 2017.
(d) Prepare the journal entry to record the interestand the amortization at December 31, 2018.
Franklin Corp. has a debt investment that it has held for several years. When it purchased the debt investment, Franklin classified and accounted for it as an available-for-sale. Can Franklin use the fair value option for this investment? Explain.
Merck and Johnson & Johnson
Question: Merck & Co., Inc. and Johnson & Johnson are two leading producers of healthcare products. Each has considerable assets, and each expends considerable funds each year toward the development of new products. The development of a new healthcare product is often very expensive, and risky. New products frequently must undergo considerable testing before approval for distribution to the public. For example, it took Johnson & Johnson 4 years and \(200 million to develop its 1-DAY ACUVUE contact lenses. Below are some basic data compiled from the financial statements of these two companies.
(all dollars in millions) | Johnson & Johnson | Merck |
Total assets | \)53,317 | \(42,573 |
Total revenue | 47,348 | 22,939 |
Net income | 8,509 | 5,813 |
Research and development expense | 5,203 | 4,010 |
Intangible assets | 11,842 | 2,765 |
Instructions
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