As of January 1 of last year, Dylan’s outside basis and at-risk limitation for his 40% interest in the DEF Partnership were $60,000. Dylan and the partnership use the calendar year for tax purposes. The partnership incurred an operating loss of $200,000 for last year and a profit of $120,000 for the current year. Dylan is a material participant in the partnership.
a. How much loss, if any, may Dylan recognize for last year?
b. How much net reportable income must Dylan recognize for the current year?
Click here for the solution: As of January 1 of last year, Dylan’s outside basis and at-risk limitation for his 40% interest in the DEF Partnership were $60,000
Friday, July 31, 2015
In 2008, Adrianna contributed land with a basis of $16,000 and a fair market value of $25,000 to the A&I Partnership in exchange for a 25% interest in capital and profits
In 2008, Adrianna contributed land with a basis of $16,000 and a fair market value of $25,000 to the A&I Partnership in exchange for a 25% interest in capital and profits. In 2011, the partnership distributes this property to Isabel, also a 25% partner, in a no liquidating distribution. The fair market value has increased to $30,000 at the time the property is distributed. Isabel’s and Adrianna’s bases in their partnership interests are each $40,000 at the time of the distribution.
a. How much gain or loss, if any, does Adrianna recognize on the distribution to Isabel? What is Adrianna’s basis in her partnership interest following the distribution?
b. What is Isabel’s basis in the land she received in the distribution?
c. How much gain or loss, if any, does Isabel recognize on the distribution? What is Isabel’s basis in her partnership interest following the distribution?
d. How much gain or loss would Isabel recognize if she later sells the land for its $30,000 fair market value? Is this result equitable?
e. Would your answers to (a) and (b) change if Adrianna originally contributed the property to the partnership in 2000?
Click here for the solution: In 2008, Adrianna contributed land with a basis of $16,000 and a fair market value of $25,000 to the A&I Partnership in exchange for a 25% interest in capital and profits
a. How much gain or loss, if any, does Adrianna recognize on the distribution to Isabel? What is Adrianna’s basis in her partnership interest following the distribution?
b. What is Isabel’s basis in the land she received in the distribution?
c. How much gain or loss, if any, does Isabel recognize on the distribution? What is Isabel’s basis in her partnership interest following the distribution?
d. How much gain or loss would Isabel recognize if she later sells the land for its $30,000 fair market value? Is this result equitable?
e. Would your answers to (a) and (b) change if Adrianna originally contributed the property to the partnership in 2000?
Click here for the solution: In 2008, Adrianna contributed land with a basis of $16,000 and a fair market value of $25,000 to the A&I Partnership in exchange for a 25% interest in capital and profits
Whitehead, CPA, is planning the audit of a newly obtained client, Henderson Energy Corporation, for the year ended December 31, 2009
P 9.35 Whitehead, CPA, is planning the audit of a newly obtained client, Henderson Energy Corporation, for the year ended December 31, 2009. Henderson Energy is regulated by the state utility commission and because it is a publicly traded company the audited financial statements must be filed with the Securities and Exchange Commission (SEC).
Henderson Energy is considerably more profitable than many of its competitiors, largely due to its extensive investment in information technologies used in its energy distribution and other key business processes. Recent growth into rural markets, however, has placed some strain on 2009 operations. Additionally, Henderson Energy expanded its investments into speculative markets and is also making greater use of derivative and hedging transactions to mitigate some of its investment risks, Because of the complexities of the underlying accounting associated with these activities, Henderson Energy added several highly experienced accountants within its financial reporting team. Internal audit, which has didrect reporting responsibility to the audit committee, is also actively involved in reviewing key accounting assumptions and estimates on a quarterly basis.
Whiteheads discussions with the predeccessor auditor revealed that the client has experienced some difficulty in correctly tracking existing property, plant, and equipment items. This largely involves equipment located at its multiple energy production facilities. During the recent year, Henderson acquired a regional electric company, which expanded the number of energy production facilities.
Whitehead plans to staff the audit engagement with several members of the firm who have experience in auditing energy and public companies. The extent of partner review of key accounts will be extensive.
Based the above information, identify factors that affect the risk of material misstatement in the December 31, 2009 financial statements of Henderson Energy. Indicate whether the factor increases or decreases the risk of material misstatement. Also, identify which audit risk model component is affected by the factor. Use the format below:
Factor-Effect on the Risk of Material Misstatement-Audit Risk ModelcComponent
Henderson is a new client - Increases - Inherent risk
Click here for the solution: Whitehead, CPA, is planning the audit of a newly obtained client, Henderson Energy Corporation, for the year ended December 31, 2009
Henderson Energy is considerably more profitable than many of its competitiors, largely due to its extensive investment in information technologies used in its energy distribution and other key business processes. Recent growth into rural markets, however, has placed some strain on 2009 operations. Additionally, Henderson Energy expanded its investments into speculative markets and is also making greater use of derivative and hedging transactions to mitigate some of its investment risks, Because of the complexities of the underlying accounting associated with these activities, Henderson Energy added several highly experienced accountants within its financial reporting team. Internal audit, which has didrect reporting responsibility to the audit committee, is also actively involved in reviewing key accounting assumptions and estimates on a quarterly basis.
Whiteheads discussions with the predeccessor auditor revealed that the client has experienced some difficulty in correctly tracking existing property, plant, and equipment items. This largely involves equipment located at its multiple energy production facilities. During the recent year, Henderson acquired a regional electric company, which expanded the number of energy production facilities.
Whitehead plans to staff the audit engagement with several members of the firm who have experience in auditing energy and public companies. The extent of partner review of key accounts will be extensive.
Based the above information, identify factors that affect the risk of material misstatement in the December 31, 2009 financial statements of Henderson Energy. Indicate whether the factor increases or decreases the risk of material misstatement. Also, identify which audit risk model component is affected by the factor. Use the format below:
Factor-Effect on the Risk of Material Misstatement-Audit Risk ModelcComponent
Henderson is a new client - Increases - Inherent risk
Click here for the solution: Whitehead, CPA, is planning the audit of a newly obtained client, Henderson Energy Corporation, for the year ended December 31, 2009
Vincent is a 50% partner in the TAV Partnership
Vincent is a 50% partner in the TAV Partnership. He became a partner three years ago when he contributed land with a value of $60,000 and a basis of $30,000 (current value is $100,000). Tyler and Anita each contributed $30,000 cash for a 25% interest. Vincent’s basis in his partnership interest is currently $150,000; the other partners’ bases are each $75,000. The partnership has the following assets:
Basis FMV
Cash $200,000 200,000
Accounts receivable -0- 200,000
Marketable securities 70,000 100,000
Land 30,000 100,000
Total 300,000 600,000
In general terms, describe the tax result if TAV distributes a $50,000 interest in the land each to Tyler and Anita and $100,000 of accounts receivable to Vincent at the end of the current year.
Click here for the solution: Vincent is a 50% partner in the TAV Partnership
Basis FMV
Cash $200,000 200,000
Accounts receivable -0- 200,000
Marketable securities 70,000 100,000
Land 30,000 100,000
Total 300,000 600,000
In general terms, describe the tax result if TAV distributes a $50,000 interest in the land each to Tyler and Anita and $100,000 of accounts receivable to Vincent at the end of the current year.
Click here for the solution: Vincent is a 50% partner in the TAV Partnership
Use the assets and partners’ bases from Problem 28. Assume the partnership distributes all its assets in a liquidating distribution
Use the assets and partners’ bases from Problem 28. Assume the partnership distributes all its assets in a liquidating distribution. In deciding the allocation of assets, what issues should the partnership consider to minimize each partner’s taxable gains?
Click here for the solution: Use the assets and partners’ bases from Problem 28. Assume the partnership distributes all its assets in a liquidating distribution
Click here for the solution: Use the assets and partners’ bases from Problem 28. Assume the partnership distributes all its assets in a liquidating distribution
The following were selected from among the transactions completed by Sorento Co. during the current year
Problem 9-6A Sales and Notes Receivable Transactions
The following were selected from among the transactions completed by Sorento Co. during the current year. Sorento Co. sells and installs home and business security systems.
Jan. 5 Loaned $17,500 cash to Marc Jager, receiving a 90-days, 8% note.
Feb. 4 Sold merchandise on account to Tedra & Co., $19,000. The cost of merchandise sold was $11,000
Feb. 13 Sold merchandise on account to Centennial Co., $30,000. The cost of merchandise was $17,600.
Mar. 6 Accepted a 60-days, 6% note for $19,000 from Tedra & Co. on account
Mar. 14. Accepted a 60-day,9% note for $30,000 from Centennial Co, on account.
Apr. 5 Received the interest due from Marc Jager and a new 120-day,9% note as a renewal of the loan of January 5. (Record both the debit and credit to the notes receivable account.)
May. 5 Received from Tedra & Co. the amount due on the note of March 6.
May 13. Centennial Co. dishonored its note dated on March 14.
July. 12. Received from Centennial Co. the amount owed on the dishonored note, plus interest for 60 days at 12% computed on the maturity value of the note.
Aug 13. Received from Marc Jager the amount due on his note of April 5.
Sept 7. Sold merchandise on account to Lock-It Co., $9,000.The cost of merchandise sold was $5,000
Sept 17. Received from Lock-It Co, the amount of the invoice of September 7, less 1% discount.
Instructions:
Journalize the transactions. Assume 360 days in a year.
Click here for the solution: The following were selected from among the transactions completed by Sorento Co. during the current year
The following were selected from among the transactions completed by Sorento Co. during the current year. Sorento Co. sells and installs home and business security systems.
Jan. 5 Loaned $17,500 cash to Marc Jager, receiving a 90-days, 8% note.
Feb. 4 Sold merchandise on account to Tedra & Co., $19,000. The cost of merchandise sold was $11,000
Feb. 13 Sold merchandise on account to Centennial Co., $30,000. The cost of merchandise was $17,600.
Mar. 6 Accepted a 60-days, 6% note for $19,000 from Tedra & Co. on account
Mar. 14. Accepted a 60-day,9% note for $30,000 from Centennial Co, on account.
Apr. 5 Received the interest due from Marc Jager and a new 120-day,9% note as a renewal of the loan of January 5. (Record both the debit and credit to the notes receivable account.)
May. 5 Received from Tedra & Co. the amount due on the note of March 6.
May 13. Centennial Co. dishonored its note dated on March 14.
July. 12. Received from Centennial Co. the amount owed on the dishonored note, plus interest for 60 days at 12% computed on the maturity value of the note.
Aug 13. Received from Marc Jager the amount due on his note of April 5.
Sept 7. Sold merchandise on account to Lock-It Co., $9,000.The cost of merchandise sold was $5,000
Sept 17. Received from Lock-It Co, the amount of the invoice of September 7, less 1% discount.
Instructions:
Journalize the transactions. Assume 360 days in a year.
Click here for the solution: The following were selected from among the transactions completed by Sorento Co. during the current year
Tel-Com Company, a telephone service and supply company, has just completed its fourth year of operations
Problem 9-3A Compare Two Methods of Accounting for Uncollectible Receivables
Tel-Com Company, a telephone service and supply company, has just completed its fourth year of operations. The direct write-off method of recording bad debt expense has been used during the entire period. Because of substantial increases in sales volume and the amount of uncollectible accounts, the company is considering changing to the allowance method. Information is requested as to the effect that an annual provision of ¾% of sales would have had on the amount of bad debt expense reported for each of the past four years. It is also considered desirable to know what the balance of Allowance for Doubtful Accounts would have been at the end of each year. The following data have been obtained from the accounts:
Year Sales Written Off 1st 2nd 3rd 4th
1st $700,000 $2,000 $2,000
2nd $900,000 $3,400 $1,800 $1,600
3rd $1,200,000 $6,450 $1,000 $3,700 $1,750
4th $2,000,000 $9,200 - $1,260 $3,700 $4,240
Instructions
1. Assemble the desired data, using the following column headings:
2. Experience during the first four years of operations indicated that the receivables were either collected within two years or had to be written off as uncollectible. Does the estimate of 3/4% of sales appear to be reasonably close to the actual experience with uncollectible accounts originating during the first two years? Explain.
Check: 1. Year 4: Balance of Allowance Account, End of Year, $14,950
Click here for the solution: Tel-Com Company, a telephone service and supply company, has just completed its fourth year of operations
Tel-Com Company, a telephone service and supply company, has just completed its fourth year of operations. The direct write-off method of recording bad debt expense has been used during the entire period. Because of substantial increases in sales volume and the amount of uncollectible accounts, the company is considering changing to the allowance method. Information is requested as to the effect that an annual provision of ¾% of sales would have had on the amount of bad debt expense reported for each of the past four years. It is also considered desirable to know what the balance of Allowance for Doubtful Accounts would have been at the end of each year. The following data have been obtained from the accounts:
Year Sales Written Off 1st 2nd 3rd 4th
1st $700,000 $2,000 $2,000
2nd $900,000 $3,400 $1,800 $1,600
3rd $1,200,000 $6,450 $1,000 $3,700 $1,750
4th $2,000,000 $9,200 - $1,260 $3,700 $4,240
Instructions
1. Assemble the desired data, using the following column headings:
2. Experience during the first four years of operations indicated that the receivables were either collected within two years or had to be written off as uncollectible. Does the estimate of 3/4% of sales appear to be reasonably close to the actual experience with uncollectible accounts originating during the first two years? Explain.
Check: 1. Year 4: Balance of Allowance Account, End of Year, $14,950
Click here for the solution: Tel-Com Company, a telephone service and supply company, has just completed its fourth year of operations
H. Banks Company would like to design, produce, and sell versatile toasters for the home kitchen market
Exercise 13-35 Target Costing
H. Banks Company would like to design, produce, and sell versatile toasters for the home kitchen market. The toaster will have four slots that adjust in thickness to accommodate both slim slices of bread and oversized bagels. The target price is $75. Banks requires that new products be priced such that 20 percent of the price is profit.
Instructions
1. Calculate the amount of desired profit per unit of the new toaster.
2. Calculate the target cost per unit of the new toaster.
Click here for the solution: H. Banks Company would like to design, produce, and sell versatile toasters for the home kitchen market
H. Banks Company would like to design, produce, and sell versatile toasters for the home kitchen market. The toaster will have four slots that adjust in thickness to accommodate both slim slices of bread and oversized bagels. The target price is $75. Banks requires that new products be priced such that 20 percent of the price is profit.
Instructions
1. Calculate the amount of desired profit per unit of the new toaster.
2. Calculate the target cost per unit of the new toaster.
Click here for the solution: H. Banks Company would like to design, produce, and sell versatile toasters for the home kitchen market
Jeremy Costa, owner of Costa Cabinets Inc., is preparing a bid on a job that requires $1,800 of direct materials, $1,600 of direct labor, and $800 of overhead
Problem 13-44 Cost-Based Pricing Decision
Jeremy Costa, owner of Costa Cabinets Inc., is preparing a bid on a job that requires $1,800 of direct materials, $1,600 of direct labor, and $800 of overhead. Jeremy normally applies a standard markup based on cost of goods sold to arrive at an initial bid price. He then adjusts the price as necessary in light of other factors (e.g., competitive pressure). Last year’s income statement is as follows:
Sales $130,000
Cost of Goods Sold $48,100
Gross Margin $81,900
Selling and Admin Expense $46,300
Operating Income $35,600
1. Calculate the markup that Jeremy will use.
2. What is Jeremy's initial bid price?
Click here for the solution: Jeremy Costa, owner of Costa Cabinets Inc., is preparing a bid on a job that requires $1,800 of direct materials, $1,600 of direct labor, and $800 of overhead
Jeremy Costa, owner of Costa Cabinets Inc., is preparing a bid on a job that requires $1,800 of direct materials, $1,600 of direct labor, and $800 of overhead. Jeremy normally applies a standard markup based on cost of goods sold to arrive at an initial bid price. He then adjusts the price as necessary in light of other factors (e.g., competitive pressure). Last year’s income statement is as follows:
Sales $130,000
Cost of Goods Sold $48,100
Gross Margin $81,900
Selling and Admin Expense $46,300
Operating Income $35,600
1. Calculate the markup that Jeremy will use.
2. What is Jeremy's initial bid price?
Click here for the solution: Jeremy Costa, owner of Costa Cabinets Inc., is preparing a bid on a job that requires $1,800 of direct materials, $1,600 of direct labor, and $800 of overhead
On January 1, 2011, P Company purchases equipment from its 80% owned subsidiary for $600,000
Problem 7-3 On January 1, 2011, P Company purchases equipment from its 80% owned subsidiary for $600,000. The carrying value of the equipment on the books of S Company was $450,000. The equipment had a remaining useful life of six years on January 1, 2011. On January 1, 2012, P Company sold the equipment it an outside party for $550,000.
Required:
A. Prepare in general journal form the entries necessary in 2011 and 2012 on the books of P Company to account for the purchase and sale of the equipment.
B. Determine the consolidated gain or loss on the sale of the equipment and prepare in general journal from the entry necessary on the December 31, 2012, consolidated statements workpaper to property reflects this gain or loss.
Click here for the solution: On January 1, 2011, P Company purchases equipment from its 80% owned subsidiary for $600,000
Required:
A. Prepare in general journal form the entries necessary in 2011 and 2012 on the books of P Company to account for the purchase and sale of the equipment.
B. Determine the consolidated gain or loss on the sale of the equipment and prepare in general journal from the entry necessary on the December 31, 2012, consolidated statements workpaper to property reflects this gain or loss.
Click here for the solution: On January 1, 2011, P Company purchases equipment from its 80% owned subsidiary for $600,000
Parsons Company acquired 90% of the outstanding common stock of Shea Company on June 30, 2011, for $426,000
Problem 7-7 Parsons Company acquired 90% of the outstanding common stock of Shea Company on June 30, 2011, for $426,000. On that date, Shea Company had retained earnings in the amount of $60,000, and the fair value of its recorded assets and liabilities was equal to their book value. The excess of implied over the fair value of the recorded net assets was attributed to an unrecorded manufacturing formula held by Shea Company, which had an expected remaining useful life of five years from June 30, 2011.
Financial data for 2013 are presented here:
Parsons Company Shea Company
Sales $2,555,500 $1,120,000
Dividend Income 54,000 -0-
Total Revenue 2,609,500 1,120,000
Cost of Goods Sold 1,730,000 690,500
Expenses 654,500 251,000
Total Cost and Expenses 2,384,500 941,500
Net Income $ 225,000 $ 178,500
1/1 Retained Earnings $ 595,000 $ 139,500
Net Income 225,000 178,500
Dividends Declared (100,000) (60,000)
12/31 Retained Earnings $ 720,000 $ 258,000
Cash $ 119,500 $ 132,500
Inventory 362,000 201,000
Other Current Assets 40,500 13,000
Land 150,000 -0-
Investment in Shea Company 426,000 -0-
Property and Equipment 825,000 241,000
Accumulated Depreciation (207,000) (53,500)
Total Assets $2,058,000 $ 659,000
Accounts Payable $ 295,000 $ 32,000
Other Liabilities 43,000 19,000
Capital Stock 1,000,000 300,000
Additional Paid-in Capital -0- 50,000
Retained Earnings 720,000 258,000
Total Liabilities and Equity $2,058,000 $ 659,000
On December 31, 2011, Parsons Company sold equipment (with an original cost of $100,000 and accumulated depreciation of $50,000) to Shea Company for $97,500. This equipment has since been depreciated at an annual rate of 20% of the purchase price. During, 2012 Shea Company sold land to Parsons Company at a profit of $15,000.
The inventory of Persons Company on December 31, 2012, included goods purchased from Shea Company on which Shea Company recognized a profit of $7,500. During 2013, Shea sold goods to Parsons Company for $375,000, of which $60,000 was unpaid on December 31, 2013. The December 31, 2013, inventory of Persons Company included goods acquired from Shea Company on which Shea Company recognized a profit of $10,500.
Required:
A. Prepare a consolidated financial statement workpaper for the year ended December 31, 2013.
B. Prepare a schedule to calculate consolidated retained earnings on December 31, 2013, using an analytical or t-account approach. (Hint: Due to rounding, you may be out of balance by $1. To avoid this, you should carry decimal until the final calculation.)
Click here for the solution: Parsons Company acquired 90% of the outstanding common stock of Shea Company on June 30, 2011, for $426,000
Financial data for 2013 are presented here:
Parsons Company Shea Company
Sales $2,555,500 $1,120,000
Dividend Income 54,000 -0-
Total Revenue 2,609,500 1,120,000
Cost of Goods Sold 1,730,000 690,500
Expenses 654,500 251,000
Total Cost and Expenses 2,384,500 941,500
Net Income $ 225,000 $ 178,500
1/1 Retained Earnings $ 595,000 $ 139,500
Net Income 225,000 178,500
Dividends Declared (100,000) (60,000)
12/31 Retained Earnings $ 720,000 $ 258,000
Cash $ 119,500 $ 132,500
Inventory 362,000 201,000
Other Current Assets 40,500 13,000
Land 150,000 -0-
Investment in Shea Company 426,000 -0-
Property and Equipment 825,000 241,000
Accumulated Depreciation (207,000) (53,500)
Total Assets $2,058,000 $ 659,000
Accounts Payable $ 295,000 $ 32,000
Other Liabilities 43,000 19,000
Capital Stock 1,000,000 300,000
Additional Paid-in Capital -0- 50,000
Retained Earnings 720,000 258,000
Total Liabilities and Equity $2,058,000 $ 659,000
On December 31, 2011, Parsons Company sold equipment (with an original cost of $100,000 and accumulated depreciation of $50,000) to Shea Company for $97,500. This equipment has since been depreciated at an annual rate of 20% of the purchase price. During, 2012 Shea Company sold land to Parsons Company at a profit of $15,000.
The inventory of Persons Company on December 31, 2012, included goods purchased from Shea Company on which Shea Company recognized a profit of $7,500. During 2013, Shea sold goods to Parsons Company for $375,000, of which $60,000 was unpaid on December 31, 2013. The December 31, 2013, inventory of Persons Company included goods acquired from Shea Company on which Shea Company recognized a profit of $10,500.
Required:
A. Prepare a consolidated financial statement workpaper for the year ended December 31, 2013.
B. Prepare a schedule to calculate consolidated retained earnings on December 31, 2013, using an analytical or t-account approach. (Hint: Due to rounding, you may be out of balance by $1. To avoid this, you should carry decimal until the final calculation.)
Click here for the solution: Parsons Company acquired 90% of the outstanding common stock of Shea Company on June 30, 2011, for $426,000
On January 1, 2011, Lowry Co. issued ten-year bonds with a face value of $5,000,000 and a stated interest rate of 8%, payable semiannually on June 30 and December 31
On January 1, 2011, Lowry Co. issued ten-year bonds with a face value of $5,000,000 and a stated interest rate of 8%, payable semiannually on June 30 and December 31. The bonds were sold to yield 10%. Table values are:
Present value of 1 for 10 periods at 8% 0.46319
Present value of 1 for 10 periods at 10% 0.38554
Present value of 1 for 20 periods at 4% 0.45639
Present value of 1 for 20 periods at 5% 0.37689
Present value of annuity for 10 periods at 8% 6.71008
Present value of annuity for 10 periods at 10% 6.14457
Present value of annuity for 20 periods at 4% 13.59033
Present value of annuity for 20 periods at 5% 12.46221
Instructions
(a) Calculate the issue price of the bonds.
Click here for the solution: On January 1, 2011, Lowry Co. issued ten-year bonds with a face value of $5,000,000 and a stated interest rate of 8%, payable semiannually on June 30 and December 31
Present value of 1 for 10 periods at 8% 0.46319
Present value of 1 for 10 periods at 10% 0.38554
Present value of 1 for 20 periods at 4% 0.45639
Present value of 1 for 20 periods at 5% 0.37689
Present value of annuity for 10 periods at 8% 6.71008
Present value of annuity for 10 periods at 10% 6.14457
Present value of annuity for 20 periods at 4% 13.59033
Present value of annuity for 20 periods at 5% 12.46221
Instructions
(a) Calculate the issue price of the bonds.
Click here for the solution: On January 1, 2011, Lowry Co. issued ten-year bonds with a face value of $5,000,000 and a stated interest rate of 8%, payable semiannually on June 30 and December 31
Highline Hospital provides a wide range of health services in its community
7-44 Cash Budgeting for a Hospital
Highline Hospital provides a wide range of health services in its community. Highline’s board of directors has authorized the following capital expenditures:
Intra-aortic balloon pump $1,400,000
Computed tomographic scanner 850,000
X-ray equipment 550,000
Laboratory equipment 1,200,000
Total $4,000,000
The expenditures are planned for October 1, 20X7, and the board wishes to know the amount of borrowing, if any, necessary on that date. Rebecca Singer, hospital controller, has gathered the following information to be used in preparing an analysis of future cash flows. Billings, made in the month of service, for 20X7 are shown below, with actual amounts for January through June and estimated amounts for July through December:
Month Actual Amount
January $5,300,000
February 5,300,000
March 5,400,000
April 5,400,000
May 6,000,000
June 6,000,000
July (estimated) 5,800,000
August (estimated) 6,000,000
September (estimated) 6,600,000
October (estimated) 6,800,000
November (estimated) 7,000,000
December (estimated) 6,600,000
Ninety percent of Highline billings are made to third parties, such as BlueCross, federal or state governments, and private insurance companies. The remaining 10% of the billings are made directly to patients. Historical patterns of billing collections are
Third-Party Billings Direct-Patient Billings
Month of service 20% 10%
Month following service 50 40
Second month following service 20 40
Uncollectible 10 10
Singer expects the same billing and collection patterns that have been experienced during the first six months of 20X7 to continue during the last six months of the year. The following schedule presents the purchases that have been made during the past three months and the planned purchases for the last six months of 20X7.
Month Amount
April $1,300,000
May 1,450,000
June 1,450,000
July 1,500,000
August 1,800,000
September 2,200,000
October 2,350,000
November 2,700,000
December 2,100,000
All purchases are made on account, and accounts payable are remitted in the month following the purchase.
• Salaries for each month during the remainder of 20X7 are expected to be $1,800,000 per month plus 20% of that month’s billings. Salaries are paid in the month of service.
• Highline’s monthly depreciation charges are $150,000.
• Highline incurs interest expenses of $180,000 per month and makes interest payments of $540,000 on the last day of each calendar quarter.
• Endowment fund income is expected to continue to total $210,000 per month.
• Highline has a cash balance of $350,000 on July 1, 20X7, and has a policy of maintaining a minimum end-of-month cash balance of 10% of the current month’s purchases.
• Highline Hospital employs a calendar-year reporting period.
1. Prepare a schedule of budgeted cash receipts by month for the third quarter of 20X7.
2. Prepare a schedule of budgeted cash disbursements by month for the third quarter of 20X7.
3. Determine the amount of borrowing, if any, necessary on October 1, 20X7, to acquire the capital items totaling $4,000,000.
Click here for the solution: Highline Hospital provides a wide range of health services in its community
Highline Hospital provides a wide range of health services in its community. Highline’s board of directors has authorized the following capital expenditures:
Intra-aortic balloon pump $1,400,000
Computed tomographic scanner 850,000
X-ray equipment 550,000
Laboratory equipment 1,200,000
Total $4,000,000
The expenditures are planned for October 1, 20X7, and the board wishes to know the amount of borrowing, if any, necessary on that date. Rebecca Singer, hospital controller, has gathered the following information to be used in preparing an analysis of future cash flows. Billings, made in the month of service, for 20X7 are shown below, with actual amounts for January through June and estimated amounts for July through December:
Month Actual Amount
January $5,300,000
February 5,300,000
March 5,400,000
April 5,400,000
May 6,000,000
June 6,000,000
July (estimated) 5,800,000
August (estimated) 6,000,000
September (estimated) 6,600,000
October (estimated) 6,800,000
November (estimated) 7,000,000
December (estimated) 6,600,000
Ninety percent of Highline billings are made to third parties, such as BlueCross, federal or state governments, and private insurance companies. The remaining 10% of the billings are made directly to patients. Historical patterns of billing collections are
Third-Party Billings Direct-Patient Billings
Month of service 20% 10%
Month following service 50 40
Second month following service 20 40
Uncollectible 10 10
Singer expects the same billing and collection patterns that have been experienced during the first six months of 20X7 to continue during the last six months of the year. The following schedule presents the purchases that have been made during the past three months and the planned purchases for the last six months of 20X7.
Month Amount
April $1,300,000
May 1,450,000
June 1,450,000
July 1,500,000
August 1,800,000
September 2,200,000
October 2,350,000
November 2,700,000
December 2,100,000
All purchases are made on account, and accounts payable are remitted in the month following the purchase.
• Salaries for each month during the remainder of 20X7 are expected to be $1,800,000 per month plus 20% of that month’s billings. Salaries are paid in the month of service.
• Highline’s monthly depreciation charges are $150,000.
• Highline incurs interest expenses of $180,000 per month and makes interest payments of $540,000 on the last day of each calendar quarter.
• Endowment fund income is expected to continue to total $210,000 per month.
• Highline has a cash balance of $350,000 on July 1, 20X7, and has a policy of maintaining a minimum end-of-month cash balance of 10% of the current month’s purchases.
• Highline Hospital employs a calendar-year reporting period.
1. Prepare a schedule of budgeted cash receipts by month for the third quarter of 20X7.
2. Prepare a schedule of budgeted cash disbursements by month for the third quarter of 20X7.
3. Determine the amount of borrowing, if any, necessary on October 1, 20X7, to acquire the capital items totaling $4,000,000.
Click here for the solution: Highline Hospital provides a wide range of health services in its community
Thursday, July 30, 2015
Nick Waege started his own consulting firm, Waegelein Consulting, on June 1, 2010
Nick Waege started his own consulting firm, Waegelein Consulting, on June 1, 2010. The trial balance at June 30 is as follows.
WAEGELEIN CONSULTING
Trial Balance
June 30, 2010
Debit Credit
Cash 6,850
Accounts Receivable 7,000
Prepaid Insurance 2,640
Supplies 2,000
Office Equipment 15,000
Accounts Payable 4,540
Unearned Service Revenue 5,200
Common Stock 21,750
Service Revenue 8,000
Salaries Expense 4,000
Rent Expense 2,000
39,490 39,490
In addition to those accounts listed on the trial balance, the chart of accounts for Waegelein also contains the following accounts:
Accumulated Depreciation - Office Equipment, Utilities Payable, Salaries Payable, Depreciation Expense, Insurance Expense, Utilities Expense, Supplies Expense
Other data:
1. Supplies on hand at June 30 total $980.
2. A utility bill for $180 has not been recorded and will not be paid until next month.
3. The insurance policy is for a year.
4. $3,900 of unearned service revenue has been earned at the end of the month.
5. Salaries of $1,250 are accrued at June 30.
6. The office equipment has a 5-year life with no salvage value and is being depreciated at $250 per month for 60 months.
7. Invoices representing $3,500 of services performed during the month have not been recorded as of June 30.
Instructions:
a. Prepare the adjusting entries for the month of June.
b. Post the adjusting entries to the ledger accounts. Enter the totals from the trial balance as beginning account balances. Use T accounts.
c. Prepare an adjusted trial balance at June 30, 2010.
Click here for the solution: Nick Waege started his own consulting firm, Waegelein Consulting, on June 1, 2010
WAEGELEIN CONSULTING
Trial Balance
June 30, 2010
Debit Credit
Cash 6,850
Accounts Receivable 7,000
Prepaid Insurance 2,640
Supplies 2,000
Office Equipment 15,000
Accounts Payable 4,540
Unearned Service Revenue 5,200
Common Stock 21,750
Service Revenue 8,000
Salaries Expense 4,000
Rent Expense 2,000
39,490 39,490
In addition to those accounts listed on the trial balance, the chart of accounts for Waegelein also contains the following accounts:
Accumulated Depreciation - Office Equipment, Utilities Payable, Salaries Payable, Depreciation Expense, Insurance Expense, Utilities Expense, Supplies Expense
Other data:
1. Supplies on hand at June 30 total $980.
2. A utility bill for $180 has not been recorded and will not be paid until next month.
3. The insurance policy is for a year.
4. $3,900 of unearned service revenue has been earned at the end of the month.
5. Salaries of $1,250 are accrued at June 30.
6. The office equipment has a 5-year life with no salvage value and is being depreciated at $250 per month for 60 months.
7. Invoices representing $3,500 of services performed during the month have not been recorded as of June 30.
Instructions:
a. Prepare the adjusting entries for the month of June.
b. Post the adjusting entries to the ledger accounts. Enter the totals from the trial balance as beginning account balances. Use T accounts.
c. Prepare an adjusted trial balance at June 30, 2010.
Click here for the solution: Nick Waege started his own consulting firm, Waegelein Consulting, on June 1, 2010
Presented here are the components in Pedersen Company’s income statement
BE5-1 Presented here are the components in Pedersen Company’s income statement. Determine the missing amounts.
Cost of Gross Operating Net
Sales Goods Sold Profit Expenses Income
$ 71,200 (b) $ 30,000 (d) $10,800
$108,000 $70,000 (c) (e) $29,500
(a) $71,900 $109,600 $46,200 (f )
Click here for the solution: Presented here are the components in Pedersen Company’s income statement
Cost of Gross Operating Net
Sales Goods Sold Profit Expenses Income
$ 71,200 (b) $ 30,000 (d) $10,800
$108,000 $70,000 (c) (e) $29,500
(a) $71,900 $109,600 $46,200 (f )
Click here for the solution: Presented here are the components in Pedersen Company’s income statement
Each of the items below must be considered in preparing a statement of cash flows for Alpha-Omega Co. for the year ended December 31, 2014
BE13-1 Each of the items below must be considered in preparing a statement of cash flows for Alpha-Omega Co. for the year ended December 31, 2014. For each item, state how it should be shown in the statement of Cash flows for 2014.
(a) Issued bonds for $150,000 cash.
(b) Purchased equipment for $200,000 cash.
(c) Sold land costing $50,000 for $50,000 cash.
(d) Declared and paid a $20,000 cash dividend.
Click here for the solution: Each of the items below must be considered in preparing a statement of cash flows for Alpha-Omega Co. for the year ended December 31, 2014
(a) Issued bonds for $150,000 cash.
(b) Purchased equipment for $200,000 cash.
(c) Sold land costing $50,000 for $50,000 cash.
(d) Declared and paid a $20,000 cash dividend.
Click here for the solution: Each of the items below must be considered in preparing a statement of cash flows for Alpha-Omega Co. for the year ended December 31, 2014
Sales budget data for Palermo Company are given in BE9-2
BE9-3: Sales budget data for Palermo Company are given in BE9-2. Management desires to have an ending finished goods inventory equal to 25% of the next quarter’s expected unit sales. Prepare a production budget by quarters for the first 6 months of 2014.
Click here for the solution: Sales budget data for Palermo Company are given in BE9-2
Click here for the solution: Sales budget data for Palermo Company are given in BE9-2
Perine Company has 2,000 pounds of raw materials in its December 31, 2013, ending inventory
BE9-4 Perine Company has 2,000 pounds of raw materials in its December 31, 2013, ending inventory. Required production for January and February of 2014 are 4,000 and 5,000 units, respectively. Two pounds of raw materials are needed for each unit, and the estimated cost per pound is $6. Management desires an ending inventory equal to 25% of next month’s materials requirements. Prepare the direct materials budget for January.
Click here for the solution: Perine Company has 2,000 pounds of raw materials in its December 31, 2013, ending inventory
Click here for the solution: Perine Company has 2,000 pounds of raw materials in its December 31, 2013, ending inventory
Data for Maris Company are given in BE10-1
BE10-2 Data for Maris Company are given in BE10-1. In the second quarter, budgeted sales were $380,000, and actual sales were $384,000. Prepare a static budget report for the second quarter and for the year to date.
Click here for the solution: Data for Maris Company are given in BE10-1
Click here for the solution: Data for Maris Company are given in BE10-1
In Paige Company, direct labor is $20 per hour
BE10-3 In Paige Company, direct labor is $20 per hour. The company expects to operate at 10,000 direct labor hours each month. In January 2014, direct labor totaling $204,000 in incurred in working 10,400 hours.
Prepare (a) a static budget report and (b) a flexible budget report. Evaluate the usefulness of each report.
Click here for the solution: In Paige Company, direct labor is $20 per hour
Prepare (a) a static budget report and (b) a flexible budget report. Evaluate the usefulness of each report.
Click here for the solution: In Paige Company, direct labor is $20 per hour
The Management of Russel Inc. is trying to decide whether it can increase its dividend
BE13-11 The Management of Russel Inc. is trying to decide whether it can increase its dividend. During the current year, it reported net income of $875,000. It had cash provided by operating activities of $643,000, paid cash dividends of $80,000, and had capital expenditures of $280,000.
Compute the company’s free cash flow, and discuss whether an increase in the dividend appears warranted. What other factors should be considered?
Click here for the solution: The Management of Russel Inc. is trying to decide whether it can increase its dividend
Compute the company’s free cash flow, and discuss whether an increase in the dividend appears warranted. What other factors should be considered?
Click here for the solution: The Management of Russel Inc. is trying to decide whether it can increase its dividend
Thorup Company had gross wages of $200,000 during the week ended December 10
Thorup Company had gross wages of $200,000 during the week ended December 10. The amount of wages subject to social security tax was $180,000, while the amount of wages subject to federal and state unemployment taxes was $25,000. Tax rates are as follows:
Social Security 6.0%
Medicare 1.5%
State unemployment 5.3%
Federal unemployment 0.8%
The total amount withheld from employee wages for federal taxes was $40,000.
a. Journalize the entry to record the payroll for the week of December 10.
b. Journalize the entry to record the payroll tax expense incurred for the week of December 10.
Click here for the solution: Thorup Company had gross wages of $200,000 during the week ended December 10
Social Security 6.0%
Medicare 1.5%
State unemployment 5.3%
Federal unemployment 0.8%
The total amount withheld from employee wages for federal taxes was $40,000.
a. Journalize the entry to record the payroll for the week of December 10.
b. Journalize the entry to record the payroll tax expense incurred for the week of December 10.
Click here for the solution: Thorup Company had gross wages of $200,000 during the week ended December 10
Kelvin Aerospace, Inc., manufactures parts such as rudder hinges for the aerospace industry
Kelvin Aerospace, Inc., manufactures parts such as rudder hinges for the
aerospace industry. The company uses a job-order costing system with a
predetermined plantwide overhead rate based on direct labor-hours. On
December 16, 2008, the company's controller made a preliminary estimate
of the predetermined overhead rate for the year 2009. The new rate was
based on the estimated total manufacturing overhead cost of $3,402,000
and the estimated 63,000 total direct labor-hours for 2009:
Predetermined overhead rate =3,402,000
63,000 hours
= $54 per direct labor – hour
This new predetermined overhead rate was communicated to top managers in a meeting on December 19. The rate did not cause any comment because it was within a few pennies of the overhead rate that had been used during 2008. One of the subjects discussed at the meeting was a proposal by the production manager to purchase an automated milling machine built by Sunghi Industries. The president of Kelvin Aerospace, Harry Arcany, agreed to meet with the sales representative from Sunghi Industries to discuss the proposal.
On the day following the meeting, Mr. Arcany met with Jasmine Chang, Sunghi Industries' sales representative. The following discussion took place:
Arcany: Wally, our production manager, asked me to meet with you because he is interested in installing an automated milling machine. Frankly, I'm skeptical. You're going to have to show me this isn't just another expensive toy for Wally's people to play with.
Chang: This is a great machine with direct bottom-line benefits. The automated milling machine has three major advantages. First, it is much faster than the manual methods you are using. It can process about twice as many parts per hour as your present milling machines. Second, it is much more flexible. There are some up-front programming costs, but once those have been incurred, almost no setup is required to run a standard operation. You just punch in the code for the standard operation, load the machine's hopper with raw material, and the machine does the rest.
Arcany: What about cost? Having twice the capacity in the milling machine area won't do us much good. That center is idle much of the time anyway.
Chang: I was getting there. The third advantage of the automated milling machine is lower cost. Wally and I looked over your present operations, and we estimated that the automated equipment would eliminate the need for about 6,000 direct labor-hours a year. What is your direct labor cost per hour?
Arcany: The wage rate in the milling area averages about $32 per hour. Fringe benefits raise that figure to about $41 per hour.
Chang: Don't forget your overhead.
Arcany: Next year the overhead rate will be $54 per hour.
Chang: So including fringe benefits and overhead, the cost per direct labor-hour is about $95.
Arcany: That's right.
Chang: Since you can save 6,000 direct labor-hours per year, the cost savings would amount to about $570,000 a year. And our 60-month lease plan would require payments of only $348,000 per year.
Arcany: That sounds like a no-brainer. When can you install the equipment?
Shortly after this meeting, Mr. Arcany informed the company's controller of the decision to lease the new equipment, which would be installed over the Christmas vacation period. The controller realized that this decision would require a recomputation of the predetermined overhead rate for the year 2009 because the decision would affect both the manufacturing overhead and the direct labor-hours for the year. After talking with both the production manager and the sales representative from Sunghi Industries, the controller discovered that in addition to the annual lease cost of $348,000, the new machine would also require a skilled technician/programmer who would have to be hired at a cost of $50,000 per year to maintain and program the equipment. Both of these costs would be included in factory overhead. There would be no other changes in total manufacturing overhead cost, which is almost entirely fixed. The controller assumed that the new machine would result in a reduction of 6,000 direct labor-hours for the year from the levels that had initially been planned.
When the revised predetermined overhead rate for the year 2009 was circulated among the company's top managers, there was considerable dismay.
Requirement 1:Recompute the predetermined rate assuming that the new machine will be installed. (Round your answer to 2 decimal places.
Requirement 2:What effect (if any) would this new rate have on the cost of jobs that do not use the new automated milling machine?
Requirement 3:Why would managers be concerned about the new overhead rate?
Requirement 4:After seeing the new predetermined overhead rate, the production manager admitted that he probably wouldn't be able to eliminate all of the 6,000 direct labor-hours. He had been hoping to accomplish the reduction by not replacing workers who retire or quit, but that had not been possible. As a result, the real labor savings would be only about 2,000 hours—one worker. Compute the net increase or decrease in annual manufacturing overhead cost considering 2,000 hours saving.
Click here for the solution: Kelvin Aerospace, Inc., manufactures parts such as rudder hinges for the aerospace industry
Predetermined overhead rate =3,402,000
63,000 hours
= $54 per direct labor – hour
This new predetermined overhead rate was communicated to top managers in a meeting on December 19. The rate did not cause any comment because it was within a few pennies of the overhead rate that had been used during 2008. One of the subjects discussed at the meeting was a proposal by the production manager to purchase an automated milling machine built by Sunghi Industries. The president of Kelvin Aerospace, Harry Arcany, agreed to meet with the sales representative from Sunghi Industries to discuss the proposal.
On the day following the meeting, Mr. Arcany met with Jasmine Chang, Sunghi Industries' sales representative. The following discussion took place:
Arcany: Wally, our production manager, asked me to meet with you because he is interested in installing an automated milling machine. Frankly, I'm skeptical. You're going to have to show me this isn't just another expensive toy for Wally's people to play with.
Chang: This is a great machine with direct bottom-line benefits. The automated milling machine has three major advantages. First, it is much faster than the manual methods you are using. It can process about twice as many parts per hour as your present milling machines. Second, it is much more flexible. There are some up-front programming costs, but once those have been incurred, almost no setup is required to run a standard operation. You just punch in the code for the standard operation, load the machine's hopper with raw material, and the machine does the rest.
Arcany: What about cost? Having twice the capacity in the milling machine area won't do us much good. That center is idle much of the time anyway.
Chang: I was getting there. The third advantage of the automated milling machine is lower cost. Wally and I looked over your present operations, and we estimated that the automated equipment would eliminate the need for about 6,000 direct labor-hours a year. What is your direct labor cost per hour?
Arcany: The wage rate in the milling area averages about $32 per hour. Fringe benefits raise that figure to about $41 per hour.
Chang: Don't forget your overhead.
Arcany: Next year the overhead rate will be $54 per hour.
Chang: So including fringe benefits and overhead, the cost per direct labor-hour is about $95.
Arcany: That's right.
Chang: Since you can save 6,000 direct labor-hours per year, the cost savings would amount to about $570,000 a year. And our 60-month lease plan would require payments of only $348,000 per year.
Arcany: That sounds like a no-brainer. When can you install the equipment?
Shortly after this meeting, Mr. Arcany informed the company's controller of the decision to lease the new equipment, which would be installed over the Christmas vacation period. The controller realized that this decision would require a recomputation of the predetermined overhead rate for the year 2009 because the decision would affect both the manufacturing overhead and the direct labor-hours for the year. After talking with both the production manager and the sales representative from Sunghi Industries, the controller discovered that in addition to the annual lease cost of $348,000, the new machine would also require a skilled technician/programmer who would have to be hired at a cost of $50,000 per year to maintain and program the equipment. Both of these costs would be included in factory overhead. There would be no other changes in total manufacturing overhead cost, which is almost entirely fixed. The controller assumed that the new machine would result in a reduction of 6,000 direct labor-hours for the year from the levels that had initially been planned.
When the revised predetermined overhead rate for the year 2009 was circulated among the company's top managers, there was considerable dismay.
Requirement 1:Recompute the predetermined rate assuming that the new machine will be installed. (Round your answer to 2 decimal places.
Requirement 2:What effect (if any) would this new rate have on the cost of jobs that do not use the new automated milling machine?
Requirement 3:Why would managers be concerned about the new overhead rate?
Requirement 4:After seeing the new predetermined overhead rate, the production manager admitted that he probably wouldn't be able to eliminate all of the 6,000 direct labor-hours. He had been hoping to accomplish the reduction by not replacing workers who retire or quit, but that had not been possible. As a result, the real labor savings would be only about 2,000 hours—one worker. Compute the net increase or decrease in annual manufacturing overhead cost considering 2,000 hours saving.
Click here for the solution: Kelvin Aerospace, Inc., manufactures parts such as rudder hinges for the aerospace industry
The Olathe Hotel opened for business on May 1, 2010
P4-3A The Olathe Hotel opened for business on May 1, 2010. Here is its trial balance before adjustment on May 31.
OLATHE HOTEL
Trial Balance
May 31, 2010
Debit Credit
Cash $ 2,500
Prepaid Insurance 1,800
Supplies 2,600
Land 15,000
Lodge 70,000
Furniture 16,800
Accounts Payable $ 4,700
Unearned Rent Revenue 3,300
Mortgage Payable 36,000
Common Stock 60,000
Rent Revenue 9,000
Salaries Expense 3,000
Utilities Expense 800
Advertising Expense 500
$113,000 $113,000
Other data:
1. Insurance expires at the rate of $300 per month.
2. A count of supplies shows $1,050 of unused supplies on May 31.
3. Annual depreciation is $3,600 on the lodge and $3,000 on furniture.
4. The mortgage interest rate is 7%. (The mortgage was taken out on May 1.)
5. Unearned rent of $2,500 has been earned.
6. Salaries of $750 are accrued and unpaid at May 31.
Instructions
(a) Journalize the adjusting entries on May 31.
(b) Prepare a ledger using T accounts. Enter the trial balance amounts and post the adjusting entries.
(c) Prepare an adjusted trial balance on May 31.
Check: Rent revenue $ 11,500
Tot. adj. trial balance $114,510
(d) Prepare an income statement and a retained earnings statement for the month of May and a classified balance sheet at May 31.
Check: Net income $ 3,840
(e) Identify which accounts should be closed on May 31.
Click here for the solution: The Olathe Hotel opened for business on May 1, 2010
OLATHE HOTEL
Trial Balance
May 31, 2010
Debit Credit
Cash $ 2,500
Prepaid Insurance 1,800
Supplies 2,600
Land 15,000
Lodge 70,000
Furniture 16,800
Accounts Payable $ 4,700
Unearned Rent Revenue 3,300
Mortgage Payable 36,000
Common Stock 60,000
Rent Revenue 9,000
Salaries Expense 3,000
Utilities Expense 800
Advertising Expense 500
$113,000 $113,000
Other data:
1. Insurance expires at the rate of $300 per month.
2. A count of supplies shows $1,050 of unused supplies on May 31.
3. Annual depreciation is $3,600 on the lodge and $3,000 on furniture.
4. The mortgage interest rate is 7%. (The mortgage was taken out on May 1.)
5. Unearned rent of $2,500 has been earned.
6. Salaries of $750 are accrued and unpaid at May 31.
Instructions
(a) Journalize the adjusting entries on May 31.
(b) Prepare a ledger using T accounts. Enter the trial balance amounts and post the adjusting entries.
(c) Prepare an adjusted trial balance on May 31.
Check: Rent revenue $ 11,500
Tot. adj. trial balance $114,510
(d) Prepare an income statement and a retained earnings statement for the month of May and a classified balance sheet at May 31.
Check: Net income $ 3,840
(e) Identify which accounts should be closed on May 31.
Click here for the solution: The Olathe Hotel opened for business on May 1, 2010
On February 1, 2007, Reardon Corporation purchased a parcel of land as a factory site for $320,000
On February 1, 2007, Reardon Corporation purchased a parcel of land as a factory site for $320,000. An old building on the property was demolished and construction begun on a new warehouse that was completed April 15, 2008. Costs incurred on the construction project are listed below.
Demolition of old building $21,000
Architect's fees 31,700
Legal fees/title investigation 4,100
Construction costs 950,000
Imputed interest based on stock financing 14,000
Landfill for building site 19,300
Clearing of trees from the building site 9,600
Temporary buildings used for construction activities 29,000
Land survey 4,000
Excavation for basement 13,200
(Salvage materials from demolition sold for $1,800)
(Timber sold for $3,300)
Determine the cost of the land and new building.
Click here for the solution: On February 1, 2007, Reardon Corporation purchased a parcel of land as a factory site for $320,000
Demolition of old building $21,000
Architect's fees 31,700
Legal fees/title investigation 4,100
Construction costs 950,000
Imputed interest based on stock financing 14,000
Landfill for building site 19,300
Clearing of trees from the building site 9,600
Temporary buildings used for construction activities 29,000
Land survey 4,000
Excavation for basement 13,200
(Salvage materials from demolition sold for $1,800)
(Timber sold for $3,300)
Determine the cost of the land and new building.
Click here for the solution: On February 1, 2007, Reardon Corporation purchased a parcel of land as a factory site for $320,000
Seebach Corporation has two major business segments-Apparel and Accessories
Seebach Corporation has two major business segments-Apparel and Accessories. Data concerning those segments for June appear below.
Sales revenues, Apparel $700,000
Variable expenses, Apparel $406,000
Traceable fixed expenses, Apparel $98,000
Sales revenues, Accessories $710,000
Variable expenses, Accessories $312,000
Traceable fixed expenses, Accessories $107,000
Common fixed expenses totaled $292,000 and were allocated as follows: $155,000 to the Apparel business segment and $137,000 to the Accessories business segment.
Required:
Prepare a segmented income statement in the contribution format for the company. Omit percentages; show only dollar amounts.
Click here for the solution: Seebach Corporation has two major business segments-Apparel and Accessories
Sales revenues, Apparel $700,000
Variable expenses, Apparel $406,000
Traceable fixed expenses, Apparel $98,000
Sales revenues, Accessories $710,000
Variable expenses, Accessories $312,000
Traceable fixed expenses, Accessories $107,000
Common fixed expenses totaled $292,000 and were allocated as follows: $155,000 to the Apparel business segment and $137,000 to the Accessories business segment.
Required:
Prepare a segmented income statement in the contribution format for the company. Omit percentages; show only dollar amounts.
Click here for the solution: Seebach Corporation has two major business segments-Apparel and Accessories
Eber Wares is a division of a major corporation
Eber Wares is a division of a major corporation. The following data are for the latest year of operations.
Sales $30,000,000
Net Operating income $1,170,000
Average operating assets $8,000,000
The company's minimum required rate of return 18%
Required:
i. What is the division's margin?
ii. What is the division's turnover?
iii. What is the division's ROI?
iv. What is the division's residual income?
Click here for the solution: Eber Wares is a division of a major corporation
Sales $30,000,000
Net Operating income $1,170,000
Average operating assets $8,000,000
The company's minimum required rate of return 18%
Required:
i. What is the division's margin?
ii. What is the division's turnover?
iii. What is the division's ROI?
iv. What is the division's residual income?
Click here for the solution: Eber Wares is a division of a major corporation
The management of Thews Corporation is considering dropping product E28I
The management of Thews Corporation is considering dropping product E28I. Data from the company's accounting system appear below.
Sales $480,000
Variable Expenses $202,000
Fixed Manufacturing Expenses $158,000
Fixed Selling and Administrative Expenses $130,000
All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $86,000 of the fixed manufacturing expenses and $67,000 of the fixed selling and administrative expenses are avoidable if product E28I is discontinued.
Required:
i. What is the net operating income earned by product E28I according to the company's accounting system? Show your work!
ii. What would be the effect on the company's overall net operating income of dropping product E28I? Should the product be dropped? Show your work!
Click here for the solution: The management of Thews Corporation is considering dropping product E28I
Sales $480,000
Variable Expenses $202,000
Fixed Manufacturing Expenses $158,000
Fixed Selling and Administrative Expenses $130,000
All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $86,000 of the fixed manufacturing expenses and $67,000 of the fixed selling and administrative expenses are avoidable if product E28I is discontinued.
Required:
i. What is the net operating income earned by product E28I according to the company's accounting system? Show your work!
ii. What would be the effect on the company's overall net operating income of dropping product E28I? Should the product be dropped? Show your work!
Click here for the solution: The management of Thews Corporation is considering dropping product E28I
Rosiek Corporation uses part A55 in one of its products
Rosiek Corporation uses part A55 in one of its products. The company's accounting department reports the following costs of producing the 4,000 units of the part that are needed every year.
Per Unit
Direct Materials $2.80
Direct Labor $6.30
Variable Overhead $8.50
Supervisor's Salary $2.60
Depreciation of Special Equipment $6.80
Allocated General Overhead $6.10
An outside supplier has offered to make the part and sell it to the company for $32.30 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $4,000 of these allocated general overhead costs would be avoided. In addition, the space used to produce part A55 could be used to make more of one of the company's other products, generating an additional segment margin of $26,000 per year for that product.
Required:
i. Prepare a report that shows the effect on the company's total net operating income of buying part A55 from the supplier rather than continuing to make it inside the company.
ii. Which alternative should the company choose?
Click here for the solution: Rosiek Corporation uses part A55 in one of its products
Per Unit
Direct Materials $2.80
Direct Labor $6.30
Variable Overhead $8.50
Supervisor's Salary $2.60
Depreciation of Special Equipment $6.80
Allocated General Overhead $6.10
An outside supplier has offered to make the part and sell it to the company for $32.30 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $4,000 of these allocated general overhead costs would be avoided. In addition, the space used to produce part A55 could be used to make more of one of the company's other products, generating an additional segment margin of $26,000 per year for that product.
Required:
i. Prepare a report that shows the effect on the company's total net operating income of buying part A55 from the supplier rather than continuing to make it inside the company.
ii. Which alternative should the company choose?
Click here for the solution: Rosiek Corporation uses part A55 in one of its products
Wednesday, July 29, 2015
Biello Co. manufactures and sells medals for winners of athletic and other events
Biello Co. manufactures and sells medals for winners of athletic and other events. Its manufacturing plant has the capacity to produce 15,000 medals each month; current monthly production is 14,250 medals. The company normally charges $115 per medal. Cost data for the current level of production are shown below.
Variable Costs
Direct Materials $969,000
Direct Labor $270,750
Selling and Administrative $270,075
Fixed Costs
Manufacturing $370,550
Selling and Administrative $89,775
The company has just received a special one-time order for 600 medals at $102 each. For this particular order, no variable selling and administrative costs would be incurred. This order would also have no effect on fixed costs.
Required:
Should the company accept this special order? Why?
Click here for the solution: Biello Co. manufactures and sells medals for winners of athletic and other events
Variable Costs
Direct Materials $969,000
Direct Labor $270,750
Selling and Administrative $270,075
Fixed Costs
Manufacturing $370,550
Selling and Administrative $89,775
The company has just received a special one-time order for 600 medals at $102 each. For this particular order, no variable selling and administrative costs would be incurred. This order would also have no effect on fixed costs.
Required:
Should the company accept this special order? Why?
Click here for the solution: Biello Co. manufactures and sells medals for winners of athletic and other events
Sunday, July 26, 2015
Weimar Company’s income statement information follows
Problem 13-17A Ratio analysis
Weimar Company’s income statement information follows.
2011 2010
Net sales $420,000 $260,000
Income before interest and taxes 110,000 85,000
Net income after taxes 55,500 63,000
Interest expense 9,000 8,000
Stockholders’ equity, December 31 (2009: $200,000) 305,000 235,000
Common stock, par $50, December 31 206,000 230,000
The average number of shares outstanding was 7,800 for 2011 and 6,900 for 2010.
Required
Compute the following ratios for Weimar for 2011 and 2010.
a. Number of times interest was earned.
b. Earnings per share based on the average number of shares outstanding.
c. Price-earnings ratio (market prices: 2011, $64 per share; 2010, $78 per share).
d. Return on average equity.
e. Net margin.
CHECK FIGURES
a. 2011: 12.22 times
c. 2010: 8.5 times
Click here for the solution: Weimar Company’s income statement information follows
Weimar Company’s income statement information follows.
2011 2010
Net sales $420,000 $260,000
Income before interest and taxes 110,000 85,000
Net income after taxes 55,500 63,000
Interest expense 9,000 8,000
Stockholders’ equity, December 31 (2009: $200,000) 305,000 235,000
Common stock, par $50, December 31 206,000 230,000
The average number of shares outstanding was 7,800 for 2011 and 6,900 for 2010.
Required
Compute the following ratios for Weimar for 2011 and 2010.
a. Number of times interest was earned.
b. Earnings per share based on the average number of shares outstanding.
c. Price-earnings ratio (market prices: 2011, $64 per share; 2010, $78 per share).
d. Return on average equity.
e. Net margin.
CHECK FIGURES
a. 2011: 12.22 times
c. 2010: 8.5 times
Click here for the solution: Weimar Company’s income statement information follows
R&J Associates leased certain commercial real estate from T&C Associates, Inc., for a one-year period beginning May 1
R&J Associates leased certain commercial real estate from T&C
Associates, Inc., for a one-year period beginning May 1. The lease
required that T&C give R&J 10 days’ notice before canceling the
lease. R&J operated the leased premises as a bar that featured
seminude dancers but discontinued the business during the following
March when it lost a necessary dance permit. In late March and early
April, T&C noticed that the bar was not open and learned that
R&J had lost its permit. R&J was behind on its rent at this
time. Utility companies were seeking to shut off service to the premises
because R&J was also behind on its utility bills. When T&C
informed R&J that its monthly rent would be higher if it renewed the
lease, R&J said it had no interest in renewing. For the above
reasons, T&C took possession of the premises in April. T&C,
however, did not give R&J the 10 days’ notice referred to in the
lease. T&C leased the premises to a new tenant later that month. At
approximately the same time, R&J demanded the return of certain
personal property items it had left on the premises. T&C told
R&J to contact the new tenant, adding that there should be no
problem with the return of the items of personal property. R&J
contacted the new tenant, who told R&J to submit a list of its
personal property because other parties were also claiming rights to
what had been left on the premises. R&J did not submit this list and
did not contact T&C again about the personal property items. Later,
R&J sued T&C for conversion of the personal property. Did
R&J have a valid conversion claim?
Click here for the solution: R&J Associates leased certain commercial real estate from T&C Associates, Inc., for a one-year period beginning May 1
Click here for the solution: R&J Associates leased certain commercial real estate from T&C Associates, Inc., for a one-year period beginning May 1
Stephen Gall and his family became ill after drinking contaminated water supplied to their home by the McKeesport Municipal Water Authority
Stephen Gall and his family became ill after drinking contaminated water supplied to their home by the McKeesport Municipal Water Authority. They filed suit against the utility, arguing, among other things, that the utility had breached the UCC implied warranty of merchantability when it sold them contaminated water. The utility moved to dismiss their complaint, arguing that since water was not “goods,” the UCC did not apply. Should the Galls’ complaint be dismissed?
Click here for the solution: Stephen Gall and his family became ill after drinking contaminated water supplied to their home by the McKeesport Municipal Water Authority
Click here for the solution: Stephen Gall and his family became ill after drinking contaminated water supplied to their home by the McKeesport Municipal Water Authority
In 1994, Schumacher and his wife and their two daughters moved to Finland, Minnesota, to operate a bar and restaurant called the Trestle Inn
In 1994, Schumacher and his wife and their two daughters moved to Finland, Minnesota, to operate a bar and restaurant called the Trestle Inn, which was owned by his parents. Schumacher claims that his parents induced him to leave his previous job and to make the move by orally agreeing to provide him a job managing the inn for life and to leave the business and a large parcel of land to him when his first parent died. Schumacher was given free reign in managing the inn and was allowed to retain all profits of the business but was not given any salary or wage. While he was operating the inn, Schumacher used his own funds to build a home for his family on his parents’ land, install a well, buy equipment for the business, and develop various marketing tools for the business. In the fall of 1998, Schumacher suspected that his parents were about to sell the inn and the adjoining property. He brought suit for a restraining order to prevent them from doing so, claiming breach of contract and unjust enrichment, among other claims. In October 1998, the parents notified Schumacher that his employment at the inn and his right to possess the adjoining property were terminated. The parents moved for summary judgment. The trial court held that Schumacher’s oral contract claim was invalid because the contract needed to be in writing under applicable Minnesota law. However, does Schumacher have a valid claim for unjust enrichment?
Click here for the solution: In 1994, Schumacher and his wife and their two daughters moved to Finland, Minnesota, to operate a bar and restaurant called the Trestle Inn
Click here for the solution: In 1994, Schumacher and his wife and their two daughters moved to Finland, Minnesota, to operate a bar and restaurant called the Trestle Inn
Pernal owned a parcel of real estate adjacent to property owned by St. Nicholas Greek Orthodox Church
Pernal owned a parcel of real estate adjacent to property owned by St. Nicholas Greek Orthodox Church. Pernal sent a letter to the church indicating that he was offering it for sale for “$825,000 cash/mortgage ‘as is,’ with no conditions, no contingencies related to zoning and 120 days post closing occupancy for the present tenants.” This offer was dated June 3, 2003, and expressly provided that it would remain open for a two-week period. On the same day, Pernal also sent the same offer to sell the property on the same terms to another prospective purchaser, White Chapel Memorial Association Park Perpetual Care Trust. On June 4, the church sent a letter indicating that it accepted the terms of the offer that Pernal had set forth in his letter. However, the church’s letter also referenced an attached purchase agreement. The purchase agreement agreed with Pernal’s purchase price and the close occupancy period, but contrary to the offer, it contained additional terms. The church’s president signed this attached purchase agreement, but defendant did not sign it. The offer by letter dated June 3, 2003, did not reference other potential purchasers. On June 10, White Chapel, by letter, offered to pay $900,000 cash for the property, with no conditions or contingencies related to zoning and 180 days post closing occupancy rent free. On that same date (June 10), Pernal sent a letter to both potential purchasers. This letter indicated that “amended offers” had been received. The letter further provided that the offer would remain open for two weeks’ time as provided in the initial offering letter. On June 13, the church sent a letter to Pernal, stating that the offer had been accepted on June 4, and that an enforceable contract was formed. The church sued Pernal for breach of contract. Will it win?
Click here for the solution: Pernal owned a parcel of real estate adjacent to property owned by St. Nicholas Greek Orthodox Church
Click here for the solution: Pernal owned a parcel of real estate adjacent to property owned by St. Nicholas Greek Orthodox Church
Cantu was hired as a special education teacher by the San Benito Consolidated Independent School District under a one-year contract for the 1990–91 school year
Cantu was hired as a special education teacher by the San Benito Consolidated Independent School District under a one-year contract for the 1990–91 school year. On August 18, 1990, shortly before the start of the school year, Cantu hand-delivered to her supervisor a letter of resignation, effective August 17, 1990. In this letter, Cantu requested that her final paycheck be forwarded to an address in McAllen, Texas, some 50 miles from the San Benito office where she tendered the resignation. The San Benito superintendent of schools, the only official authorized to accept resignations on behalf of the school district, received Cantu’s resignation on Monday, August 20. The superintendent wrote a letter accepting Cantu’s resignation the same day and deposited the letter, properly stamped and addressed, in the mail at approximately 5:15 PM that afternoon. At about 8:00 AM the next morning, August 21, Cantu hand-delivered to the superintendent’s office a letter withdrawing her resignation. This letter contained a San Benito return address. In response, the superintendent hand-delivered that same day a copy of his letter mailed the previous day to inform Cantu that her resignation had been accepted and could not be withdrawn. The dispute was taken to the state commissioner of education, who concluded that the school district’s refusal to honor Cantu’s contract was lawful, because the school district’s acceptance of Cantu’s resignation was effective when mailed, which resulted in the formation of an agreement to rescind Cantu’s employment contract. Cantu argued that the mailbox rule should not apply because her offer was made in person and the superintendent was not authorized to accept by using mail. Is this a good argument?
Click here for the solution: Cantu was hired as a special education teacher by the San Benito Consolidated Independent School District under a one-year contract for the 1990–91 school year
Click here for the solution: Cantu was hired as a special education teacher by the San Benito Consolidated Independent School District under a one-year contract for the 1990–91 school year
Tinker Construction had a contract with Scroge to build a factory addition for Scroge by a particular date
Tinker Construction had a contract with Scroge to build a factory addition for Scroge by a particular date. The contract contained a penalty clause exacting daily penalties for late performance, and Tinker was working hard to complete the building on time. Because prompt completion of the addition was so important to Scroge, however, Scroge offered Tinker a bonus if it completed the factory addition on time. Scroge also learned that the supplier of parts for machinery that he had contracted for had called and said that it could not deliver the parts on Scroge’s schedule for the price it had agreed to. Because there was no other supplier, Scroge promised to pay the requested higher price. The factory addition was completed on time and the parts arrived on time. Scroge then refused to pay both the bonus to Tinker and the higher price for the parts. Were these promises enforceable?
Click here for the solution: Tinker Construction had a contract with Scroge to build a factory addition for Scroge by a particular date
Click here for the solution: Tinker Construction had a contract with Scroge to build a factory addition for Scroge by a particular date
Saturday, July 25, 2015
Gianni Sport was a New York manufacturer and distributor of women’s clothing
Gianni Sport was a New York manufacturer and distributor of women’s clothing. Gantos was a clothing retailer headquartered in Grand Rapids, Michigan. In 1980, Gantos’s sales total was 20 times greater than Gianni Sport’s, and in this industry, buyers were “in the driver’s seat.” In June 1980, Gantos submitted to Gianni Sport a purchase order for women’s holiday clothing to be delivered on October 10, 1980. The purchase order contained the following clause:
Buyer reserves the right to terminate by notice to Seller all or any part of this Purchase Order with respect to Goods that have not actually been shipped by Seller or as to Goods which are not timely delivered for any reason whatsoever.
Gianni Sport made the goods in question especially for Gantos. This holiday order comprised 20 to 22 percent of Gianni Sport’s business. In late September 1980, before the goods were shipped, Gantos canceled the order. Was the cancellation clause unconscionable?
Click here for the solution: Gianni Sport was a New York manufacturer and distributor of women’s clothing
Buyer reserves the right to terminate by notice to Seller all or any part of this Purchase Order with respect to Goods that have not actually been shipped by Seller or as to Goods which are not timely delivered for any reason whatsoever.
Gianni Sport made the goods in question especially for Gantos. This holiday order comprised 20 to 22 percent of Gianni Sport’s business. In late September 1980, before the goods were shipped, Gantos canceled the order. Was the cancellation clause unconscionable?
Click here for the solution: Gianni Sport was a New York manufacturer and distributor of women’s clothing
Dyer purchased a used Ford from Walt Bennett Ford for $5,895
Dyer purchased a used Ford from Walt Bennett Ford for $5,895. She signed a written contract, which showed that no taxes were included in the sales price. Dyer contended, however, that the salesperson who negotiated the purchase with her told her both before and after her signing of the contract that the sales tax on the automobile had been paid. The contract Dyer signed contained the following language:
The above comprises the entire agreement pertaining to this purchase and no other agreement of any kind, verbal understanding, representation, or promise whatsoever will be recognized.
It also stated:
This contract constitutes the entire agreement between the parties and no modification hereof shall be valid in any event and Buyer expressly waives the right to rely thereon, unless made in writing, signed by Seller.
Later, when Dyer attempted to license the automobile, she discovered that the Arkansas sales tax had not been paid on it. She paid the sales tax and sued Bennett for breach of contract. What result?
Click here for the solution: Dyer purchased a used Ford from Walt Bennett Ford for $5,895
The above comprises the entire agreement pertaining to this purchase and no other agreement of any kind, verbal understanding, representation, or promise whatsoever will be recognized.
It also stated:
This contract constitutes the entire agreement between the parties and no modification hereof shall be valid in any event and Buyer expressly waives the right to rely thereon, unless made in writing, signed by Seller.
Later, when Dyer attempted to license the automobile, she discovered that the Arkansas sales tax had not been paid on it. She paid the sales tax and sued Bennett for breach of contract. What result?
Click here for the solution: Dyer purchased a used Ford from Walt Bennett Ford for $5,895
Rosenfeld, an art dealer, claimed that Jean-Michel Basquiat, an acclaimed neoexpressionist artist
Rosenfeld, an art dealer, claimed that Jean-Michel Basquiat, an acclaimed neoexpressionist artist, had agreed to sell to her three paintings entitled Separation of the “K,” Atlas, and Untitled Head. She claimed that she went to Basquiat’s apartment on October 25, 1982, and while she was there he agreed to sell her three paintings for $4,000 each, and that she picked out the three works. According to Rosenfeld, Basquiat asked for a cash deposit of 10 percent. She left his loft and later returned with $1,000 in cash, which she paid him. When she asked for a receipt, he insisted on drawing up a “contract,” and got down on the floor and wrote it out in crayon on a large piece of paper, remarking that “some day this contract will be worth money.” She identified a handwritten document listing the three paintings, bearing her signature and that of Basquiat, which stated: “$12,000—$1,000 DEPOSIT—OCT 25 82.” Is this writing sufficient to satisfy the statute of frauds?
Click here for the solution: Rosenfeld, an art dealer, claimed that Jean-Michel Basquiat, an acclaimed neoexpressionist artist
Click here for the solution: Rosenfeld, an art dealer, claimed that Jean-Michel Basquiat, an acclaimed neoexpressionist artist
GWI is a manufacturer of beauty supply products
GWI is a manufacturer of beauty supply products. Sullivan is a distributor of beauty supply products in New England and operates more than two dozen wholesale beauty supply stores in that region. In February 1998, the parties entered into a distribution agreement, pursuant to which GWI granted Sullivan the exclusive right to sell its products to professional stores in New Hampshire, Vermont, and Maine, and to sell its products to both professional stores and salons in Massachusetts. Among other things, the agreement provided that “[a]ll disputes and claims relating to or arising under or out of this Agreement shall be fully and finally settled by arbitration.” This agreement expired in 2003, but the parties continued their relationship under the same terms and conditions as had governed the relationship during the duration of the contract. In 2006, another of GWI’s regional distributors Kaleidoscope/BOA, Inc.—assigned to Sullivan all of its “right, title, and interest under the Kaleidoscope Distribution Agreement [with GWI] dated August 16, 2004, save and except the right to distribute Graham Webb Classic line products to salons in the territory.” GWI consented to this assignment. By acquiring an assignment of Kaleidoscope’s rights under its distribution agreement with GWI, Sullivan obtained the exclusive right to distribute GWI products to professional salons in Maine, New Hampshire, and Vermont (previously, it had the exclusive right to distribute GWI products only to professional stores in those states). Like the original distribution agreement between GWI and Sullivan, both the distribution agreement between Kaleidoscope and GWI (the rights under which were assigned to Sullivan) and the agreement evidencing that assignment contained arbitration provisions. Despite the fact that the Sullivan Distribution Agreement (SDA) had expired, the Assignment Agreement specifically referenced that document, describing the parties’ respective rights and obligations and noting that the SDA will have to be amended to take into account Sullivan’s newly expanded distribution rights. The parties’ reference to the SDA in the Assignment Agreement provides strong evidence that, although the SDA agreement had expired, the parties were continuing their business relationship pursuant to its terms. A little more than a year later, GWI notified Sullivan of its intention to terminate its distribution relationship with Sullivan, effective April 1, 2007. In that letter, GWI specifically invoked the termination provisions contained in both the SDA and the Kaleidoscope Distribution Agreement. When Sullivan was unable to persuade GWI to change its mind, it sued GWI for breach of contract and other claims. Sullivan asserted that the arbitration provision in the Assignment Agreement was not relevant to this dispute and that it was not bound by the arbitration provisions in the Kaleidoscope Distribution Agreement. Is this a good argument?
Click here for the solution: GWI is a manufacturer of beauty supply products
Click here for the solution: GWI is a manufacturer of beauty supply products
Ross was recruited to play basketball at Creighton University
Ross was recruited to play basketball at Creighton University. He came from an academically disadvantaged background, and at the time he enrolled, Ross was at an academic level far below that of the average Creighton student. Creighton realized Ross’s academic limitations when it admitted him, and to induce him to attend and play basketball, assured him that he would receive sufficient tutoring so that he “would receive a meaningful education while at Creighton.” Ross attended Creighton from 1978 to 1982. He maintained a D average and earned 96 of the 128 credits needed to graduate. On the advice of the athletics department, he took many of these credits in courses such as marksmanship and theory of basketball, which did not count toward a university degree. He also alleged that the university hired a secretary to read his assignments and prepare and type his papers. When he left Creighton, Ross had the overall language skills of a fourth grader and the reading skills of a seventh grader. He took remedial classes for a year at a preparatory school at Creighton’s expense, attending classes with grade school children, and then enrolled at Roosevelt University. He was forced to withdraw there for lack of funds. Ross sued Creighton for breach of contract, among other theories. Can Ross win this suit?
Click here for the solution: Ross was recruited to play basketball at Creighton University
Click here for the solution: Ross was recruited to play basketball at Creighton University
Below are transactions related to Impala Company
E10-12 (Entries for Asset Acquisition, Including Self-Construction) Below are transactions related to Impala Company.
(a) The City of Pebble Beach gives the company 5 acres of land as a plant site. The market value of this land is determined to be $81,000.
(b) 14,000 shares of common stock with a par value of $50 per share are issued in exchange for land and buildings. The property has been appraised at a fair market value of $810,000, of which $180,000 has been allocated to land and $630,000 to buildings. The stock of Impala Company is not listed on any exchange, but a block of 100 shares was sold by a stockholder 12 months ago at $65 per share, and a block of 200 shares was sold by another stockholder 18 months ago at $58 per share.
(c) No entry has been made to remove from the accounts for Materials, Direct Labor, and Overhead the amounts properly chargeable to plant asset accounts for machinery constructed during the year. The following information is given relative to costs of the machinery constructed.
Materials used $12,500
Factory supplies used 900
Direct labor incurred 16,000
Additional overhead (over regular) caused by construction of machinery, excluding factory supplies used 2,700 Fixed overhead rate applied to regular manufacturing operations 60% of direct labor cost
Cost of similar machinery if it had been purchased from outside suppliers 44,000
Prepare journal entries on the books of Impala Company to record these transactions.
Click here for the solution: Below are transactions related to Impala Company
(a) The City of Pebble Beach gives the company 5 acres of land as a plant site. The market value of this land is determined to be $81,000.
(b) 14,000 shares of common stock with a par value of $50 per share are issued in exchange for land and buildings. The property has been appraised at a fair market value of $810,000, of which $180,000 has been allocated to land and $630,000 to buildings. The stock of Impala Company is not listed on any exchange, but a block of 100 shares was sold by a stockholder 12 months ago at $65 per share, and a block of 200 shares was sold by another stockholder 18 months ago at $58 per share.
(c) No entry has been made to remove from the accounts for Materials, Direct Labor, and Overhead the amounts properly chargeable to plant asset accounts for machinery constructed during the year. The following information is given relative to costs of the machinery constructed.
Materials used $12,500
Factory supplies used 900
Direct labor incurred 16,000
Additional overhead (over regular) caused by construction of machinery, excluding factory supplies used 2,700 Fixed overhead rate applied to regular manufacturing operations 60% of direct labor cost
Cost of similar machinery if it had been purchased from outside suppliers 44,000
Prepare journal entries on the books of Impala Company to record these transactions.
Click here for the solution: Below are transactions related to Impala Company
Maddox Specialty Company, a division of Lost World Inc., manufactures three models of gear shift components for bicycles that are sold to bicycle manufacturers, retailers, and catalog outlets
P9-9 (Statement and Note Disclosure, LCM, and Purchase Commitment) Maddox Specialty Company, a division of Lost World Inc., manufactures three models of gear shift components for bicycles that are sold to bicycle manufacturers, retailers, and catalog outlets. Since beginning operations in 1978, Maddox has used normal absorption costing and has assumed a first-in, first-out cost flow in its perpetual inventory system. The balances of the inventory accounts at the end of Maddox's fiscal year, November 30, 2010, are shown below. The inventories are stated at cost before any year-end adjustments.
Finished goods $647,000
Work-in-process 112,500
Raw materials 264,000
Factory supplies 69,000
AND SO ON
a. Prepare the inventory section of Maddox's balance sheet as of November 30, 2010.
b. Without prejudice to your answer to P9-9 (a), assume that the market value of Maddox's inventories is less than cost. Explain how this decline would be presented in Maddox's income statement for the fiscal year ended November 30, 2010.
c. Assume that Maddox has a firm purchase commitment for the same type of derailleur included in the raw materials inventory as of November 30, 2010, and that the purchase commitment is at a contracted price 15% greater than the current market price. These derailleurs are to be delivered to Maddox after November 30, 2010. Discuss the impact, if any, that this purchase commitment would have on Maddox's financial statements prepared for the fiscal year ended November 30, 2010.
Click here for the solution: Maddox Specialty Company, a division of Lost World Inc., manufactures three models of gear shift components for bicycles that are sold to bicycle manufacturers, retailers, and catalog outlets
Finished goods $647,000
Work-in-process 112,500
Raw materials 264,000
Factory supplies 69,000
AND SO ON
a. Prepare the inventory section of Maddox's balance sheet as of November 30, 2010.
b. Without prejudice to your answer to P9-9 (a), assume that the market value of Maddox's inventories is less than cost. Explain how this decline would be presented in Maddox's income statement for the fiscal year ended November 30, 2010.
c. Assume that Maddox has a firm purchase commitment for the same type of derailleur included in the raw materials inventory as of November 30, 2010, and that the purchase commitment is at a contracted price 15% greater than the current market price. These derailleurs are to be delivered to Maddox after November 30, 2010. Discuss the impact, if any, that this purchase commitment would have on Maddox's financial statements prepared for the fiscal year ended November 30, 2010.
Click here for the solution: Maddox Specialty Company, a division of Lost World Inc., manufactures three models of gear shift components for bicycles that are sold to bicycle manufacturers, retailers, and catalog outlets
On January 1, 2010, Blair Corporation purchased for $500,000 a tract of land (site number 101) with a building
P10-5 (Classification of Costs and Interest Capitalization) On January 1, 2010, Blair Corporation purchased for $500,000 a tract of land (site number 101) with a building. Blair paid a real estate broker's commission of $36,000, legal fees of $6,000, and title guarantee insurance of $18,000. The closing statement indicated that the land value was $500,000 and the building value was $100,000. Shortly after acquisition, the building was razed at a cost of $54,000. Blair entered into a $3,000,000 fixed-price contract with Slatkin Builders, Inc. on March 1, 2010, for the construction of an office building on land site number 101. The building was completed and occupied on September 30, 2011. Additional construction costs were incurred as follows.
Plans, specifications, and blueprints $21,000
Architects' fees for design and supervision 82,000
The building is estimated to have a 40-year life from date of completion and will be depreciated using the 150% declining balance method.
To finance construction costs, Blair borrowed $3,000,000 on March 1, 2010. The loan is payable in 10 annual installments of $300,000 plus interest at the rate of 10%. Blair's weighted-average amounts of accumulated building construction expenditures were as follows.
For the period March 1 to December 31, 2010 $1,300,000
For the period January 1 to September 30, 2011 1,700,000
Instructions
a) Prepare a schedule that discloses the individual costs making up the balance in the land account in respect of land site number 101 as of September 30, 2011.
b) Prepare a schedule that discloses the individual costs that should be capitalized in the office building account as of September 30, 2011.
Click here for the solution: On January 1, 2010, Blair Corporation purchased for $500,000 a tract of land (site number 101) with a building
Plans, specifications, and blueprints $21,000
Architects' fees for design and supervision 82,000
The building is estimated to have a 40-year life from date of completion and will be depreciated using the 150% declining balance method.
To finance construction costs, Blair borrowed $3,000,000 on March 1, 2010. The loan is payable in 10 annual installments of $300,000 plus interest at the rate of 10%. Blair's weighted-average amounts of accumulated building construction expenditures were as follows.
For the period March 1 to December 31, 2010 $1,300,000
For the period January 1 to September 30, 2011 1,700,000
Instructions
a) Prepare a schedule that discloses the individual costs making up the balance in the land account in respect of land site number 101 as of September 30, 2011.
b) Prepare a schedule that discloses the individual costs that should be capitalized in the office building account as of September 30, 2011.
Click here for the solution: On January 1, 2010, Blair Corporation purchased for $500,000 a tract of land (site number 101) with a building
The Friendly National Bank holds $50 million in reserves at its Federal Reserve District Bank
P4-5 The Friendly National Bank holds $50 million in reserves at its Federal Reserve District Bank. The required reserves ratio is 12 percent.
a. If the bank has $600 million in deposits, what amount of vault cash would be needed for the bank to be in compliance with the required reserves ratio?
b. If the bank holds $10 million in vault cash, determine the required reserves ratio that would be needed for the bank to avoid a reserves deficit.
c. If the Friendly National Bank experiences a required reserves deficit, what actions can it take to be in compliance with the existing required reserves ratio?
Click here for the solution: The Friendly National Bank holds $50 million in reserves at its Federal Reserve District Bank
a. If the bank has $600 million in deposits, what amount of vault cash would be needed for the bank to be in compliance with the required reserves ratio?
b. If the bank holds $10 million in vault cash, determine the required reserves ratio that would be needed for the bank to avoid a reserves deficit.
c. If the Friendly National Bank experiences a required reserves deficit, what actions can it take to be in compliance with the existing required reserves ratio?
Click here for the solution: The Friendly National Bank holds $50 million in reserves at its Federal Reserve District Bank
Springsteen Co. had the following activity in its most recent year of operations
E23-1 (Classification of Transactions) Springsteen Co. had the following activity in its most recent year of operations.
(a) Pension expense exceeds amount funded. (e) Exchange of equipment for furniture.
(b) Redemption of bonds payable. (f) Issuance of capital stock.
(c) Sale of building at book value. (g) Amortization of intangible assets.
(d) Depreciation. (h) Purchase of treasury stock. (i) Issuance of bonds for land. (k) Increase in interest receivable on notes receivable. (j) Payment of dividends. (l) Purchase of equipment.
Instructions
Classify the items as (1) operating—add to net income; (2) operating—deduct from net income; (3) investing; (4) financing; or (5) significant noncash investing and financing activities. Use the indirect method.
Click here for the solution: Springsteen Co. had the following activity in its most recent year of operations
(a) Pension expense exceeds amount funded. (e) Exchange of equipment for furniture.
(b) Redemption of bonds payable. (f) Issuance of capital stock.
(c) Sale of building at book value. (g) Amortization of intangible assets.
(d) Depreciation. (h) Purchase of treasury stock. (i) Issuance of bonds for land. (k) Increase in interest receivable on notes receivable. (j) Payment of dividends. (l) Purchase of equipment.
Instructions
Classify the items as (1) operating—add to net income; (2) operating—deduct from net income; (3) investing; (4) financing; or (5) significant noncash investing and financing activities. Use the indirect method.
Click here for the solution: Springsteen Co. had the following activity in its most recent year of operations
Data for the Rodriquez Company are presented in E23-3
E23-4 (Preparation of Operating Activities Section—Direct Method) Data for the Rodriquez Company are presented in E23-3.
Instructions
Prepare the operating activities section of the statement of cash flows using the direct method.
Click here for the solution: Data for the Rodriquez Company are presented in E23-3
Instructions
Prepare the operating activities section of the statement of cash flows using the direct method.
Click here for the solution: Data for the Rodriquez Company are presented in E23-3
Legal Beagals Inc. is a legal services firm that files incorporation papers for small businesses
Legal Beagals Inc. is a legal services firm that files incorporation papers for small businesses. They charge $1,000 per application. This year's income statement shows the following:
Sales $1,440,000
Variable Expenses $1,008,000
Contribution margin $432,000
Fixed costs $250,000
Profit $182,000.
Required:
(a) Compute the break-even point in units.
(b) Compute the contribution margin ratio.
(c) Compute the current margin of safety.
(d) How many applications must the company sell to make a profit of $350,000?
Click here for the solution: Legal Beagals Inc. is a legal services firm that files incorporation papers for small businesses
Sales $1,440,000
Variable Expenses $1,008,000
Contribution margin $432,000
Fixed costs $250,000
Profit $182,000.
Required:
(a) Compute the break-even point in units.
(b) Compute the contribution margin ratio.
(c) Compute the current margin of safety.
(d) How many applications must the company sell to make a profit of $350,000?
Click here for the solution: Legal Beagals Inc. is a legal services firm that files incorporation papers for small businesses
Joanie Corp sells it products on both credit and cash basis
Joanie Corp sells it products on both credit and cash basis. Monthly sales are sold 10% for cash, 90% for credit. Credit sales are collected 40% in the month of sale and 60% the following month. Sales for the first quarter are as follows:
January $100,000
February $150,000
March $125,000
Compute cash collections for February.
Click here for the solution: Joanie Corp sells it products on both credit and cash basis
January $100,000
February $150,000
March $125,000
Compute cash collections for February.
Click here for the solution: Joanie Corp sells it products on both credit and cash basis
Jackson Industries has borrowed $125,000 under a line-of-credit agreement
E16–4 Jackson Industries has borrowed $125,000 under a line-of-credit agreement. While the company normally maintains a checking account balance of $15,000 in the lending bank, this credit line requires a 20% compensating balance. The stated interest rate on the borrowed funds is 10%. What is the effective annual rate of interest on the line of credit?
Click here for the solution: Jackson Industries has borrowed $125,000 under a line-of-credit agreement
Click here for the solution: Jackson Industries has borrowed $125,000 under a line-of-credit agreement
Horizon Telecom sold $300,000 worth of 120-day commercial paper for $298,000
E16–5 Horizon Telecom sold $300,000 worth of 120-day commercial paper
for $298,000. What is the dollar amount of interest paid on the
commercial paper? What is the effective 120-day rate on the paper?
Click here for the solution: Horizon Telecom sold $300,000 worth of 120-day commercial paper for $298,000
Click here for the solution: Horizon Telecom sold $300,000 worth of 120-day commercial paper for $298,000
Sunday, July 19, 2015
Jasmine Scents has been given two competing offers for short-term financing
E16–3 Jasmine Scents has been given two competing offers for short-term financing. Both offers are for borrowing $15,000 for 1 year. The first offer is a discount loan at 8%; the second offer is for interest to be paid at maturity at a stated interest rate of 9%. Calculate the effective annual rates for each loan and indicate which loan offers the better terms.
Click here for the solution: Jasmine Scents has been given two competing offers for short-term financing
Click here for the solution: Jasmine Scents has been given two competing offers for short-term financing
Cleaner’s, Inc., is switching to paying employees every 2 weeks rather than weekly and will therefore “skip” 1 week’s pay
E16–2 Cleaner’s, Inc., is switching to paying employees every 2 weeks rather than weekly and will therefore “skip” 1 week’s pay. The firm has 25 employees who work a 60-hour week and earn an average wage of $12.50 per hour. Using a 10% rate of interest, how much will this change save the firm annually?
Click here for the solution: Cleaner’s, Inc., is switching to paying employees every 2 weeks rather than weekly and will therefore “skip” 1 week’s pay
Click here for the solution: Cleaner’s, Inc., is switching to paying employees every 2 weeks rather than weekly and will therefore “skip” 1 week’s pay
The condensed financial statements of Miller Company for the years 2007-2008 are presented below
The condensed financial statements of Miller Company for the years 2007-2008 are presented below:
Miller Company
Comparative Balance Sheets
As of December 31, 2008 and 2007
2008 2007
Cash $ 420,000 $ 120,000
Receivables (net) 460,000 300,000
Inventories 380,000 340,000
Plant and equipment 1,700,000 1,112,000
Accumulated depreciation (260,000) (192,000)
$2,700,000 $1,680,000
Accounts payable $ 240,000 $ 160,000
Dividends payable -0- 40,000
Bonds payable 400,000 -0-
Common stock ($10 par) 1,520,000 1,200,000
Retained earnings 540,000 280,000
$2,700,000 $1,680,000
Additional data:
Market value of stock at 12/31/08 is $80 per share.
Miller sold 32,000 shares of common stock at par on July 1, 2008.
Miller
Condensed Income Statement
For the Year Ended December 31, 2008
Sales $2,400,000
Cost of goods sold 1,600,000
Gross profit 800,000
Administrative and selling expense 500,000
Net income $ 300,000
Instructions
Compute the following financial ratios by placing the proper amounts in the parentheses provided for numerators and denominators.
Click here for the solution: The condensed financial statements of Miller Company for the years 2007-2008 are presented below
Miller Company
Comparative Balance Sheets
As of December 31, 2008 and 2007
2008 2007
Cash $ 420,000 $ 120,000
Receivables (net) 460,000 300,000
Inventories 380,000 340,000
Plant and equipment 1,700,000 1,112,000
Accumulated depreciation (260,000) (192,000)
$2,700,000 $1,680,000
Accounts payable $ 240,000 $ 160,000
Dividends payable -0- 40,000
Bonds payable 400,000 -0-
Common stock ($10 par) 1,520,000 1,200,000
Retained earnings 540,000 280,000
$2,700,000 $1,680,000
Additional data:
Market value of stock at 12/31/08 is $80 per share.
Miller sold 32,000 shares of common stock at par on July 1, 2008.
Miller
Condensed Income Statement
For the Year Ended December 31, 2008
Sales $2,400,000
Cost of goods sold 1,600,000
Gross profit 800,000
Administrative and selling expense 500,000
Net income $ 300,000
Instructions
Compute the following financial ratios by placing the proper amounts in the parentheses provided for numerators and denominators.
Click here for the solution: The condensed financial statements of Miller Company for the years 2007-2008 are presented below
Smith Construction Company was awarded a contract to construct an interchange at the junction of Interstate 5 and US Highway 27 at a total contract price of $8,000,000
Smith Construction Company was awarded a contract to construct an interchange at the junction of Interstate 5 and US Highway 27 at a total contract price of $8,000,000. The estimated total costs to complete the project were $6,000,000.
Instructions
(a) Make the entry to record construction costs of $3,600,000, on construction in process to date.
(b) Make the entry to record progress billings of $2,000,000.
(c) Make the entry to recognize the profit that can be recognized to date, on a percentage-of-completion basis.
Click here for the solution: Smith Construction Company was awarded a contract to construct an interchange at the junction of Interstate 5 and US Highway 27 at a total contract price of $8,000,000
Instructions
(a) Make the entry to record construction costs of $3,600,000, on construction in process to date.
(b) Make the entry to record progress billings of $2,000,000.
(c) Make the entry to recognize the profit that can be recognized to date, on a percentage-of-completion basis.
Click here for the solution: Smith Construction Company was awarded a contract to construct an interchange at the junction of Interstate 5 and US Highway 27 at a total contract price of $8,000,000
The following data has been taken from Air-Tite Company in its first year of business
The following data has been taken from Air-Tite Company in its first year of business.
Units produced 100,000
Units sold 60,000
Units in ending inventory 40,000
Fixed manufacturing overhead $500,000
(a) Compute the amount of fixed manufacturing overhead that would be expensed in the current year if full absorption costing is used.
(b) Compute the amount of fixed manufacturing overhead that would be expensed in the current year if variable costing is used.
(c) Compute the amount of fixed manufacturing overhead that would be included in ending inventory under full absorption costing.
Click here for the solution: The following data has been taken from Air-Tite Company in its first year of business
Units produced 100,000
Units sold 60,000
Units in ending inventory 40,000
Fixed manufacturing overhead $500,000
(a) Compute the amount of fixed manufacturing overhead that would be expensed in the current year if full absorption costing is used.
(b) Compute the amount of fixed manufacturing overhead that would be expensed in the current year if variable costing is used.
(c) Compute the amount of fixed manufacturing overhead that would be included in ending inventory under full absorption costing.
Click here for the solution: The following data has been taken from Air-Tite Company in its first year of business
An investment of $185,575 is expected to generate returns of $65,000 per year for each of the next four years
An investment of $185,575 is expected to generate returns of $65,000 per year for each of the next four years. What is the investment's internal rate of return?
Click here for the solution: An investment of $185,575 is expected to generate returns of $65,000 per year for each of the next four years
Click here for the solution: An investment of $185,575 is expected to generate returns of $65,000 per year for each of the next four years
Coyote Trading uses a predetermined manufacturing overhead rate of $12 per machine hour
Coyote Trading uses a predetermined manufacturing overhead rate of $12 per machine hour. Last year the company had actual overhead of $898,000 and 75,000 machine hours.
(a) Compute the amount of manufacturing overhead applied.
(b) Compute the amount of over/underapplied overhead.
(c) What is the disposition of the over/under applied overhead?
Click here for the solution: Coyote Trading uses a predetermined manufacturing overhead rate of $12 per machine hour
(a) Compute the amount of manufacturing overhead applied.
(b) Compute the amount of over/underapplied overhead.
(c) What is the disposition of the over/under applied overhead?
Click here for the solution: Coyote Trading uses a predetermined manufacturing overhead rate of $12 per machine hour
Pacific Airlines has three service departments; ticketing, baggage handling, and aircraft maintenance
Pacific Airlines has three service departments; ticketing, baggage handling, and aircraft maintenance. Costs of these departments are allocated to two revenue producing departments, domestic and international flights. Costs for the service departments are not separated into fixed and variable and the totals are as follows:
Ticketing $4,000,000
Baggage handling $2,000,000
Aircraft maintenance $6,000,000
Air miles are as follows: Domestic 5,000,000
International 20,000,000
(a) Allocate the service department costs based on air miles.
(b) Evaluate World Airlines use of air miles as a basis for allocation. Do you think the cause-and-effect relationship is strong?
(c) Suggest alternative methods to allocate the service department costs.
Click here for the solution: Pacific Airlines has three service departments; ticketing, baggage handling, and aircraft maintenance
Ticketing $4,000,000
Baggage handling $2,000,000
Aircraft maintenance $6,000,000
Air miles are as follows: Domestic 5,000,000
International 20,000,000
(a) Allocate the service department costs based on air miles.
(b) Evaluate World Airlines use of air miles as a basis for allocation. Do you think the cause-and-effect relationship is strong?
(c) Suggest alternative methods to allocate the service department costs.
Click here for the solution: Pacific Airlines has three service departments; ticketing, baggage handling, and aircraft maintenance
Dakota Trucking Company (DTC) is evaluating a potential lease for a truck with a 4-year life that costs $40,000 and falls into the MACRS 3-year class
Dakota Trucking Company (DTC) is evaluating a potential lease for a truck with a 4-year life that costs $40,000 and falls into the MACRS 3-year class. If the firm borrows and buys the truck, the loan rate would be 10%, and the loan would be amortized over the truck's 4-year life. The loan payments would be made at the end of each year. The truck will be used for 4 years, at the end of which time it will be sold at an estimated residual value of $10,000. If DTC buys the truck, its after tax cash flows would be the following: (Year 1) - 6,339; (Year 2) -4,764; (Year 3)-9,943; (Year 4) -5,640; all occurring at the end of respective years. The lease terms, call for a $10,000 lease payment (4 payments total) at the beginning of each year. DTC's tax rate is 40%. Should the firm lease or buy?
Click here for the solution: Dakota Trucking Company (DTC) is evaluating a potential lease for a truck with a 4-year life that costs $40,000 and falls into the MACRS 3-year class
Click here for the solution: Dakota Trucking Company (DTC) is evaluating a potential lease for a truck with a 4-year life that costs $40,000 and falls into the MACRS 3-year class
Green Co. has signed a long-contract to build a new sports arena
Green Co. has signed a long-contract to build a new sports arena. The total revenue related to the contract is $520 million. Estimated costs for the building the arena are $180 million in the first year and $130 million in both the second and third year. The costs cannot be reasonably estimated. How much revenue should Green Co. report in their first year under iGAAP.
Click here for the solution: Green Co. has signed a long-contract to build a new sports arena
Click here for the solution: Green Co. has signed a long-contract to build a new sports arena
In its 2010 income statement, Cohen Corp. reported depreciation of $1,110,000 and interest revenue on municipal obligations of $210,000
In its 2010 income statement, Cohen Corp. reported depreciation of $1,110,000 and interest revenue on municipal obligations of $210,000. Cohen reported depreciation of $1,650,000 on its 2010 income tax return. The difference in depreciation is the only temporary difference, and it will reverse equally over the next three years. Cohen's enacted income tax rates are 35% for 2010, 30% for 2011, and 25% for 2012 and 2013. What amount should be included in the deferred income tax liability in Hertz's December 31, 2010 balance sheet?
Click here for the solution: In its 2010 income statement, Cohen Corp. reported depreciation of $1,110,000 and interest revenue on municipal obligations of $210,000
Click here for the solution: In its 2010 income statement, Cohen Corp. reported depreciation of $1,110,000 and interest revenue on municipal obligations of $210,000
Briefly describe at least two similarities and two differences between U.S. GAAP and iGAAP with respect to income tax accounting
Briefly describe at least two similarities and two differences between U.S. GAAP and iGAAP with respect to income tax accounting.
Click here for the solution: Briefly describe at least two similarities and two differences between U.S. GAAP and iGAAP with respect to income tax accounting
Click here for the solution: Briefly describe at least two similarities and two differences between U.S. GAAP and iGAAP with respect to income tax accounting
A few years ago, Brown Corp. purchased equipment for $20,000,000
A few years ago, Brown Corp. purchased equipment for $20,000,000. Western uses straight-line depreciation for financial reporting and MACRS for tax purposes. At December 31, 2008, the carrying value of the equipment was $18,000,000 and its tax basis was $15,000,000. At December 31, 2009, the carrying value of the equipment was $16,000,000 and the tax basis was $11,000,000. There were no other temporary differences and no permanent differences. Pretax accounting income for the current year was $25,000,000. A tax rate of 35% applies to all years.
Required:
Prepare one journal entry to record Brown's income tax expense for the current year. Show well-labeled computations for the income tax payable and the change in the deferred tax account.
Click here for the solution: A few years ago, Brown Corp. purchased equipment for $20,000,000
Required:
Prepare one journal entry to record Brown's income tax expense for the current year. Show well-labeled computations for the income tax payable and the change in the deferred tax account.
Click here for the solution: A few years ago, Brown Corp. purchased equipment for $20,000,000
Briefly describe some of the similarities and differences between U.S. GAAP and iGAAP related to the accounting for pensions
1. Briefly describe some of the similarities and differences between U.S. GAAP and iGAAP related to the accounting for pensions.
2. At the beginning of the year of adoption of Statement of Financial Accounting Standards No. 106, a transition amount is computed as the excess of the
expected postretirement benefit obligation over the fair value of plan assets or vice versa.
accumulated postretirement benefit obligation over the fair value of plan assets or vice versa.
expected postretirement benefit obligation over the fair value of plan assets, but not vice versa.
accumulated postretirement benefit obligation over the fair value of plan assets, but not vice versa.
Click here for the solution: Briefly describe some of the similarities and differences between U.S. GAAP and iGAAP related to the accounting for pensions
2. At the beginning of the year of adoption of Statement of Financial Accounting Standards No. 106, a transition amount is computed as the excess of the
expected postretirement benefit obligation over the fair value of plan assets or vice versa.
accumulated postretirement benefit obligation over the fair value of plan assets or vice versa.
expected postretirement benefit obligation over the fair value of plan assets, but not vice versa.
accumulated postretirement benefit obligation over the fair value of plan assets, but not vice versa.
Click here for the solution: Briefly describe some of the similarities and differences between U.S. GAAP and iGAAP related to the accounting for pensions
We record and report most changes in accounting principle retrospectively, but sometimes report the changes prospectively
We record and report most changes in accounting principle retrospectively, but sometimes report the changes prospectively. Explain when it is appropriate to report the changes prospectively. Provide examples.
Click here for the solution: We record and report most changes in accounting principle retrospectively, but sometimes report the changes prospectively
Click here for the solution: We record and report most changes in accounting principle retrospectively, but sometimes report the changes prospectively
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