answer the following three questions

March 6, 2023March 6, 2023 Discipline: Accounting
Learning Goal: I’m working on a accounting question and need the explanation and answer to help me learn.

1)

Finley Roofing is involved with several situations that possibly involve contingencies. Each is described below. Finley’s fiscal year ends December 31, and the 2023 financial statements are issued on March 20, 2024.
1. Finley is involved in a lawsuit resulting from a dispute with a customer. On January 25, 2023, judgment was rendered against Finley in the amount of $30 million plus interest, a total of $33 million. Finley plans to appeal the judgment, and believes it highly probable that the judgement will be reduced to between $18 million to $20 million.
2. At March 20, 2023, the EPA is in the process of investigating possible environmental violations at one of Finley’s work sites, but has not proposed a deficiency assessment. Management feels an assessment is probable, and if an assessment is made an unfavorable settlement of $11 million is reasonably possible.
3. Finley is the plaintiff in a $75 million lawsuit filed against AA Asphalt for damages due to lost profits from rejected contracts and for unpaid receivables. The case is in final appeal and legal counsel advises that it is certain that Finley will prevail and be awarded $68 million. The settlement is material to Finley’s financial statements.
4. In October 2022, the State of Montana filed suit against Finley, seeking civil penalties and injunctive relief for violations of environmental laws regulating hazardous waste. At the time, the company’s lawyers stated that it was probable that the company would have to pay $32 million in fines. On February 3, 2023, Finley reached a settlement with state authorities. Based upon discussions with legal counsel, the Company feels it is probable that $45 million will be required to cover the cost of violations.
Instructions:
1. Determine the appropriate means of reporting each situation and explain why
2. Prepare any necessary journal entry.

2)

Vanguard Corporation issued $9,000,000 of 15% bonds on January 1, 2023, due on January 1, 2035. The interest is to be paid twice a year on January 1 and July 1. The bonds were sold to yield 10% effective annual interest. Grove Corporation closes its books annually on December 31.
Present value of 1 for 24 periods at 5.0% 0.31007
Present value of 1 for 24 periods at 7.5% 0.17628
Present value of an ordinary annuity for 24 periods at 5.0% 13.79864
Present value of an ordinary annuity for 24 periods at 7.5% 10.98297
Instructions
(a) Calculate the issuing price of the bonds (show your work).
(b) Prepare the journal entries for the second year (January 1, 2024 – January 1, 2025) using the effective-interest method.
(c) Compute the interest expense to be reported in the income statement for the year ended, December 31, 2024.

3) Lehman Dairy leases its milking equipment from Chavez Finance Company under the following lease terms.
The lease term is 8 years, noncancelable, and requires equal rental payments due at the beginning of each year starting May 1, 2022.
The equipment has a fair value of $475,000, and cost Chavez $350,000, at the inception of the lease (May 1, 2022).
Lehman Dairy has the option to purchase the equipment for $12,600, at the end of the lease. This represents a signficant discount on the equipment.
The estimated economic life of the equipment is 10 years, and a residual value (which is guaranteed by Lehman Dairy) of $35,000. If the purchase option is not exercised, Lehman Dairy expects to pay $21,000 under the guaranteed residual value.
The lease contains no renewable options, and the equipment reverts to Chavez Finance Company upon termination of the lease, if the purchase option is not exercised.
Lehman Dairy’s incremental borrowing rate is 9% per year. Chavez’s implicit rate is 7% and is known to Lehman Dairy.
Collectability of the payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor.
Present value of 1 for 8 periods at 7% 0.58201
Present value of 1 for 8 periods at 9% 0.50187
Present value of an ordinary annuity for 8 periods at 7% 5.97130
Present value of an ordinary annuity for 8 periods at 9% 5.53482
Present value of an annuity due for 8 periods at 7% 6.38929
Present value of an annuity due for 8 periods at 9% 6.03295
Instructions
(Assume the accounting period ends on December 31.)
(a) Calculate the required payment Chavez Finance requires to earn the Fair Value of the asset.
(b) Lehman Dairy is able to negotiate the payment down to $73,000 per year. Compute the present value of the minimum lease payments for both the lessee and lessor.
(c) What type of lease is this for the lessee? For the lessor?
(d) Prepare the journal entries Chavez would make in the first full calendar year of the lease (January 1, 2023 – December 31, 2023) related to the lease arrangement.
(e) Prepare the journal entries Lehman would make in the first full calendar year of the lease (January 1, 2023 – December 31, 2023) related to the lease arrangement.

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