Continuing Problem: Front Row Entertainment After a successful first year, Cam a

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Continuing Problem: Front Row Entertainment

After a successful first year, Cam and Anna decide to expand Front Row Entertainment's operations by becoming a venue operator as well as a tour promoter. A venue operator contracts with promoters to rent the venue (which can range from amphitheaters to indoor arenas to nightclubs) for specific events on specific dates. In addition to receiving revenue from renting the venue, venue operators also provide services such as concessions, parking, security, and ushering services. By vertically integrating their business, Cam and Anna can reduce the expense that they pay to rent venues. In addition, they will generate additional revenue by providing services to other tour promoters.

After a little investigation, Cam and Anna locate a small venue operator that owns The Chicago Music House, a small indoor arena with a rich history in the music industry. The current owner has experienced severe health issues and has let the arena fall into a state of disrepair. However, he would like the arena to be preserved and its musical legacy to continue. After a short negotiation, on January 1, 2014, Front Row purchases the venue by paying $10,000 in cash and signing a 15-year 10% note for $380,000. In addition, Front Row purchases the right to use the "Chicago Music House" name for $25,000 cash.

Renovations were completed on January 28, and the first concert was held in the arena on February 1. The arena is expected to have a useful life of 30 years and a residual value of $35,000. The concessions equipment will have a useful life of 5 years and a residual value of $250.

Required:

1. Prepare the journal entries to record the acquisition of the arena, the concessions equipment, and the trademark.

2. Prepare the journal entries to record the expenditures made in January. If no entry is required, leave answer boxes blank.

Jan. 1

  

  

  

  

(Purchase trademark)

3. Compute and record the depreciation for 2014 (11 months) on the arena (use the straight-line method) and on the concessions equipment (use the double-declining-balance method). Round all answers to the nearest dollar.

Dec. 31

  

  

  

  

(Record depreciation on building)

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1. Prepare the journal entries to record the acquisition of the arena, the concessions equipment, and the trademark.

2. Prepare the journal entries to record the expenditures made in January. If no entry is required, leave answer boxes blank.

Jan. 1

  

  

  

  

(Purchase trademark)

3. Compute and record the depreciation for 2014 (11 months) on the arena (use the straight-line method) and on the concessions equipment (use the double-declining-balance method). Round all answers to the nearest dollar.

Dec. 31

  

  

  

  

(Record depreciation on building)

Explanation / Answer

Depreciation of arena = (390000 - 35000) / 30 = $11833 / year

Depreciation of the concessions equipment:

straight line rate = 1/ useful life = 1/5 = 0.20 = 20%

double declining rate of depreciation = 2 x 20% = 40%

Depreciation on Arena for 11 months =  ((390000 - 35000) / 30)*(11/12) = $10847

Amortization of machine for 11 months = 35000 * 40% * (11/12) = $12833

Date AccounTitle and Explanations Debit($) Credit($) Jan-01 Building-Arena 390000 Cash 10000 Notes payable 380000 (purchase of the venue recorded) Trademark 25000 Common Stock 25000 (Purchase of right to use the name "Chicago Music House) Jan-05 Renovation expenses 21530 Cash 21530 (reparing the roof of the arena) Jan-10 Renovation expense $       45,720.00 Cash 45720 (remodelling of the arena)

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