Discontinued Operations and Extraordinary Items Exercises

Complete the following assignments on discontinued operations and extraordinary items, and submit your response in the form of a Word document, Excel spreadsheet, or Quickbooks document:
In February 2010, Harris Co. decided to sell its dairy farming business, which was a component of the whole company. On December 31, 2010, Harris classified the dairy farming business as held for sale. The book value of the assets and liabilities were $560,000 and $230,000 respectively, and the business had earnings of $1.3 million and accrued expenses of $1.45 million. Harris was subject to a 35% income tax rate.
Prepare the results from discontinued operations section for Harris Co. as of December 31, 2010. Include the disclosure information that FASB requires.
In July 2010, Harris had a major explosion in one of its milk production plants, which caused $2.5 million in damages. The insurance company was able to reimburse Harris $2.1 million. Harris classified this event as an extraordinary item and listed it on its income statement on December 31, 2010.
Prepare the extraordinary item disclosure and portion of Harris’s income statement on December 31, 2010.
Part 2. Long-Term Liabilities Exercises
Answer the following questions, and submit your response in the form of a Word document, Excel spreadsheet, or Quickbooks document:
On July 1, 2010, Harris Co. issued 6,000 bonds at $1,000 each. The bonds paid interest semiannually at 5%. The bonds had a term of 20 years. At the time of issuance, the market rate of interest was 7%. Harris uses the effective interest rate method to amortize bond premium or discount.
a. Calculate the present value of the bonds.
b. Prepare the journal entries to issue the bonds.
c. Prepare the journal entries to amortize the premium or discount as of July 1, 2011.
d. Prepare the journal entries to pay interest due to the bondholders as of January 1 and July 1, 2011.
On March 1, 2010, Harris Co. issued a 3-year, non-interest-bearing note due February 28, 2013. The face value of the note was $15,000. Harris received $12,350.12 in exchange.
a. Prepare the journal entries to issue the note.
b. Prepare the journal entries to account for the note as of February 28, 2011.
Harris purchased equipment and issued a $20,000 note in exchange on January 1, 2011. The fair value of the equipment was not determinable, so Harris used an incremental borrowing rate of 10%. Harris used the straight-line method to calculate annual depreciation.
a. Prepare the journal entries to issue the note.
b. Prepare the journal entries to show the interest payments at December 31, 2011 and December 31, 2012.
c. Prepare the journal entries to account for the depreciation of the equipment as of December 31, 2011 and December 31, 2012

Sample Solution

ACED ESSAYS