South Carolina Corporation has one temporary difference at the end of 2008 that will reverse and cause taxable amounts

E19-1 (One Temporary difference, Future Taxable Amounts, One Rate, No Beginning Deferred Taxes) South Carolina Corporation has one temporary difference at the end of 2008 that will reverse and cause taxable amounts of  $55,000 in 2009, $60,000 in 2010, and $65,000 in 2011. South Carolina's pretax financial income for 2008 is $300,000 and the tax rate us 30% for all years. There are no deferred taxes at the beginning of 2008.

Instructions
a.) Compute taxable income and income taxes payable for 20008.
b.) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2008.
c.) Prepare the income tax expense section of the income statement for 2008, beginning with the line "Income before income taxes"

Click here for the solution: South Carolina Corporation has one temporary difference at the end of 2008 that will reverse and cause taxable amounts

Consider a firm that has decided to make, but has not yet announced, a large “bonus” cash dividend amounting in the aggregate to $5 million

B3. (Cash dividend versus share repurchase) Consider a firm that has decided to make, but has not yet announced, a large “bonus” cash dividend amounting in the aggregate to $5 million. The firm has 1 million shares outstanding that sell for $20 each. The firm has no debt; there are no taxes; and all transactions take place in a perfect capital market. Using calculations like those in the illustration of dividend irrelevance in a perfect capital market, show that shareholders will be indifferent between whether the firm pays out the “bonus” as a dividend or uses the money to buy back $5 million of its shares.


Click here for the solution: Consider a firm that has decided to make, but has not yet announced

Utah Utensil has developed a new kitchen utensil

Utah Utensil has developed a new kitchen utensil. The firm has conducted significant market research and estimated the following pattern for sales of the new product:

Year Expected Volume Expected Price per Unit
1 48,000 units $19
2 48,000 units 20
3 90,000 units 16
4 40,000 units 12

If the firm desires to net $3.50 per unit in profit over the life of the product, and selling and administrative expenses are expected to average $50,000 per year, what is the target cost to produce the new utensil?


Click here for the solution: Utah Utensil has developed a new kitchen utensil

For the year ended 2010, Jocelyn Morris, CPA, has been engaged to audit Rogers, Inc., which is a continuing client

Problem 15-40 For the year ended 2010, Jocelyn Morris, CPA, has been engaged to audit Rogers, Inc., which is a continuing client. Jocelyn has assessed the control risk for the company at the maximum for all financial statement assertions involving investments. Consequently, the ICFR audit report will indicate material weaknesses and rather than relying on ICFR during the financial statement audit, all audit evidence will come from substantive procedures. Jocelyn determines that Rogers is unable to exercise significant influence over any investee and there are no related parties.

Morris receives an investment analysis from Rogers’s management revealing the following:
• There is a notation indicating that all securities either are in the treasurer’s safe or held by an independent bank custodian.
• Investments are classified as current or non-current.
• The beginning and ending balances are shown at cost and market.
• Unamortized premiums or discounts are associated with bonds.
• The face amount of bonds or number of shares of stock are given for the beginning and ending of the year.
• Accrued investment income for each investment at the beginning and ending of the year is presented.
• Investment income earned and collected is presented.
• Valuation allowances at the beginning and ending of the year are shown.
• Any sales or additions to portfolios for the year include date, number of shares, face amount of bonds, proceeds, cost, and realized gain/loss.

Required: Explain the audit objective for each of the listed management financial statement assertions relative to investments.

Assertion Audit Objective
1. Existence
2. Completeness
3. Rights
4. Valuation/allocation
Presentation and Disclosure


Click here for the solution: For the year ended 2010, Jocelyn Morris, CPA, has been engaged to audit Rogers, Inc., which is a continuing client

A new bank has vault cash of $1 million and $5 million in deposits held at its Federal Reserve District Bank

P4-1 A new bank has vault cash of $1 million and $5 million in deposits held at its Federal Reserve District Bank.
a. If the required reserves ratio is 8 percent, what dollar amount of deposits can the bank have?
b. If the bank holds $65 million in deposits and currently holds bank reserves such that excess reserves are zero, what required reserves ratio is implied?

Click here for the solution: A new bank has vault cash of $1 million and $5 million in deposits held at its Federal Reserve District Bank

Assume a bank has $5 million in deposits and $1 million in vault cash

P4-2 Assume a bank has $5 million in deposits and $1 million in vault cash. If the bank holds $1 million in excess reserves and the required reserves ratio is 8 percent, what level of deposits are being held?

Click here for the solution: Assume a bank has $5 million in deposits and $1 million in vault cash

A bank has $110 million in deposits and holds $10 million in vault cash

P4-3 A bank has $110 million in deposits and holds $10 million in vault cash.
a. If the required reserves ratio is 10 percent, what dollar amount of reserves must be held at the Federal Reserve Bank?
b. How would your answer in Part (a) change if the required reserves ratio was increased to 12 percent?

Click here for the solution: A bank has $110 million in deposits and holds $10 million in vault cash

ABBIX has a complex financial system with the following relationships

P5-11 (Challenge Problem) ABBIX has a complex financial system with the following relationships:

The ratio of required reserves to total deposits is 15 percent, and the ratio of noncheckable deposits to checkable deposits is 40 percent. In addition, currency held by the nonbank public amounts to 20 percent of checkable deposits. The ratio of government deposits to checkable deposits is 8 percent. Initial excess reserves are $900 million.

a. Determine the M1 multiplier and the maximum dollar amount of checkable deposits.
b. Determine the size of the M1 money supply.
c. What will happen to ABBIX’s money multiplier if the reserve requirement decreases to 10 percent while the ratio of noncheckable deposits to checkable deposits falls to 30 percent? Assume the other ratios remain as originally stated.
d. Based on the information in (c), estimate the maximum dollar amount of checkable deposits, as well as the size of the M1 money supply.
e. Assume that ABBIX has a target M1 money supply of $2.8 billion. The only variable that you have direct control over is the required reserves ratio. What would the required reserves ratio have to be to reach the target M1 money supply amount? Assume the other original ratio relationships hold.
f. Now assume that currency held by the nonbank public drops to 15 percent of checkable deposits and that ABBIX’s target money supply is changed to $3.0 billion. What would the required reserves ratio have to be to reach the new target M1 money supply amount? Assume the other original ratio relationships hold.

Click here for the solution: ABBIX has a complex financial system with the following relationships

Iridium Corp. has spent $3.5 billion over the past decade developing a satellite, based telecommunication system

Iridium Corp. has spent $3.5 billion over the past decade developing a satellite, based telecommunication system. It is currently trying to decide whether to spend an additional $350 million on the project. The firm expects that this outlay will finish the project and will generate cash flow of $15 million per year over the next 5 years. The competitor has offered $450 million for the satellites already in orbit. Classify the firm’s outlays as sunk costs or opportunity costs, and specify the relevant cash flows.

Click here for the solution: Iridium Corp. has spent $3.5 billion over the past decade developing a satellite, based telecommunication system