E16-24 (Balance Sheet Classification)
At December 31, DePaul Corporation had a $16 million balance in its deferred tax asset account and a $68 million balance in its deferred tax liability account. The balances were due to the following cumulative temporary differences:
1. Estimated warranty expense, $15 million: expense recorded in the year of the sale; tax-deductible when paid (one-year warranty).
2. Depreciation expense, $120 million: straight-line in the income statement; MACRS on the tax return.
3. Income from installment sales of properties, $50 million: income recorded in the year of the sale; taxable when received equally over the next five years.
4. Bad debt expense, $25 million: allowance method for accounting; direct write-off for tax purposes.
Required:
Show how any deferred tax amounts should be classified and reported in the December 31 balance sheet. The tax rate is 40%.
Click here for the solution: At December 31, DePaul Corporation had a $16 million balance in its deferred tax asset account and a $68 million balance in its deferred tax liability account
Showing posts with label million. Show all posts
Showing posts with label million. Show all posts
Monday, March 21, 2016
Thursday, January 14, 2016
Sherrod, Inc., reported pretax accounting income of $76 million for 2011
P16-7 Multiple differences; calculate taxable income; balance sheet classification
Sherrod, Inc., reported pretax accounting income of $76 million for 2011. The following information relates to differences between pretax accounting income and taxable income:
Income from installment sales of properties included in pretax accounting income in 2011 exceeded that reported for tax purposes by $3 million. The installment receivable account at year-end had a balance of $4 million (representing portions of 2010 and 2011 installment sales), expected to be collected equally in 2012 and 2013.
Sherrod was assessed a penalty of $2 million by the Environmental Protection Agency for violation of a federal law in 2011. The fine is to be paid in equal amounts in 2011 and 2012. Sherrod rents its operating facilities but owns one asset acquired in 2010 at a cost of $80 million. Depreciation is reported by the straight-line method assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight-line depreciation the first two years but less than straight-line depreciation the next two years ($ in millions):
Income Statement Tax Return Difference
2010 $20 $26 ($6)
2011 20 35 (15)
2012 20 12 8
2013 20 7 13
$80 $80 $0
4. Bad debt expense of $3 million is reported using the allowance method in 2011. For tax purposes, the expense is deducted when accounts prove uncollectible (the direct write-off method): $2 million in 2011. At December 31, 2011, the allowance for uncollectible accounts was $2 million (after adjusting entries). The balance was $1 million at the end of 2010.
5. In 2011, Sherrod accrued and expense and related liability for estimated paid future absences of $7 million relating to the company’s new paid vacation program. Future compensation will be deductible on the tax return when actually paid during the next two years ($4 million 2012; $3 million in 2013).
6. During 2010, accounting income included as estimated loss of $2 million from having accrued a loss contingency. The lost is paid in 2011 at which time it is tax deductible. Balances in the deferred tax asset and deferred tax liability accounts at January 1, 2011, were $1.2 million and $2.8 million, respectively. The enacted tax rate is 40% each year.
Required:
1. Determine the amounts necessary to record income taxes for 2011 and prepare the appropriate journal entry.
2. What is the 2011 net income?
3. Show how deferred tax amounts should be classified and reported in the 2011 balance sheet.
Click here for the solution: Sherrod, Inc., reported pretax accounting income of $76 million for 2011
Sherrod, Inc., reported pretax accounting income of $76 million for 2011. The following information relates to differences between pretax accounting income and taxable income:
Income from installment sales of properties included in pretax accounting income in 2011 exceeded that reported for tax purposes by $3 million. The installment receivable account at year-end had a balance of $4 million (representing portions of 2010 and 2011 installment sales), expected to be collected equally in 2012 and 2013.
Sherrod was assessed a penalty of $2 million by the Environmental Protection Agency for violation of a federal law in 2011. The fine is to be paid in equal amounts in 2011 and 2012. Sherrod rents its operating facilities but owns one asset acquired in 2010 at a cost of $80 million. Depreciation is reported by the straight-line method assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight-line depreciation the first two years but less than straight-line depreciation the next two years ($ in millions):
Income Statement Tax Return Difference
2010 $20 $26 ($6)
2011 20 35 (15)
2012 20 12 8
2013 20 7 13
$80 $80 $0
4. Bad debt expense of $3 million is reported using the allowance method in 2011. For tax purposes, the expense is deducted when accounts prove uncollectible (the direct write-off method): $2 million in 2011. At December 31, 2011, the allowance for uncollectible accounts was $2 million (after adjusting entries). The balance was $1 million at the end of 2010.
5. In 2011, Sherrod accrued and expense and related liability for estimated paid future absences of $7 million relating to the company’s new paid vacation program. Future compensation will be deductible on the tax return when actually paid during the next two years ($4 million 2012; $3 million in 2013).
6. During 2010, accounting income included as estimated loss of $2 million from having accrued a loss contingency. The lost is paid in 2011 at which time it is tax deductible. Balances in the deferred tax asset and deferred tax liability accounts at January 1, 2011, were $1.2 million and $2.8 million, respectively. The enacted tax rate is 40% each year.
Required:
1. Determine the amounts necessary to record income taxes for 2011 and prepare the appropriate journal entry.
2. What is the 2011 net income?
3. Show how deferred tax amounts should be classified and reported in the 2011 balance sheet.
Click here for the solution: Sherrod, Inc., reported pretax accounting income of $76 million for 2011
Tuesday, November 10, 2015
On January 1, 2011, VKI Corporation awarded 12 million of its $1 par common shares to key personnel, subject to forfeiture if employment is terminated within three years
E 19-2 Restricted stock award plan
On January 1, 2011, VKI Corporation awarded 12 million of its $1 par common shares to key personnel, subject to forfeiture if employment is terminated within three years. On the grant date, the shares have a market price of $2.50 per share.
Required:
1. Determine the total compensation cost pertaining to the restricted shares.
2. Prepare the appropriate journal entry to record the award of restricted shares on January 1, 2011.
3. Prepare the appropriate journal entry to record compensation expense on December 31, 2011.
4. Prepare the appropriate journal entry to record compensation expense on December 31, 2012.
5. Prepare the appropriate journal entry to record compensation expense on December 31, 2013.
6. Prepare the appropriate journal entry to record the lifting of restrictions on the shares at December 31, 2013.
Click here for the solution: On January 1, 2011, VKI Corporation awarded 12 million of its $1 par common shares to key personnel, subject to forfeiture if employment is terminated within three years
On January 1, 2011, VKI Corporation awarded 12 million of its $1 par common shares to key personnel, subject to forfeiture if employment is terminated within three years. On the grant date, the shares have a market price of $2.50 per share.
Required:
1. Determine the total compensation cost pertaining to the restricted shares.
2. Prepare the appropriate journal entry to record the award of restricted shares on January 1, 2011.
3. Prepare the appropriate journal entry to record compensation expense on December 31, 2011.
4. Prepare the appropriate journal entry to record compensation expense on December 31, 2012.
5. Prepare the appropriate journal entry to record compensation expense on December 31, 2013.
6. Prepare the appropriate journal entry to record the lifting of restrictions on the shares at December 31, 2013.
Click here for the solution: On January 1, 2011, VKI Corporation awarded 12 million of its $1 par common shares to key personnel, subject to forfeiture if employment is terminated within three years
Wednesday, October 14, 2015
On January 4, 2011, Runyan Bakery paid $324 million for 10 million shares of Lavery Labeling Company common stock
P 12-10 Fair value option; equity method investments
[This problem is a variation of Problem 12-9 focusing on the fair value option.]
On January 4, 2011, Runyan Bakery paid $324 million for 10 million shares of Lavery Labeling Company common stock. The investment represents a 30% interest in the net assets of Lavery and gave Runyan the ability to exercise significant influence over Lavery's operations. Runyan chose the fair value option to account for this investment. Runyan received dividends of $2.00 per share on December 15, 2011, and Lavery reported net income of $160 million for the year ended December 31, 2011. The market value of Lavery's common stock at December 31, 2011, was $31 per share. On the purchase date, the book value of Lavery's net assets was $800 million and:
a. The fair value of Lavery's depreciable assets, with an average remaining useful life of six years, exceeded their book value by $80 million.
b. The remainder of the excess of the cost of the investment over the book value of net assets purchased was attributable to goodwill.
Required:
1. Prepare all appropriate journal entries related to the investment during 2011, assuming Runyan accounts for this investment under the fair value option and accounts for the Lavery investment in a manner similar to what they would use for trading securities.
2. What would be the effect of this investment on Runyan's 2011 net income?
Click here for the solution: On January 4, 2011, Runyan Bakery paid $324 million for 10 million shares of Lavery Labeling Company common stock
[This problem is a variation of Problem 12-9 focusing on the fair value option.]
On January 4, 2011, Runyan Bakery paid $324 million for 10 million shares of Lavery Labeling Company common stock. The investment represents a 30% interest in the net assets of Lavery and gave Runyan the ability to exercise significant influence over Lavery's operations. Runyan chose the fair value option to account for this investment. Runyan received dividends of $2.00 per share on December 15, 2011, and Lavery reported net income of $160 million for the year ended December 31, 2011. The market value of Lavery's common stock at December 31, 2011, was $31 per share. On the purchase date, the book value of Lavery's net assets was $800 million and:
a. The fair value of Lavery's depreciable assets, with an average remaining useful life of six years, exceeded their book value by $80 million.
b. The remainder of the excess of the cost of the investment over the book value of net assets purchased was attributable to goodwill.
Required:
1. Prepare all appropriate journal entries related to the investment during 2011, assuming Runyan accounts for this investment under the fair value option and accounts for the Lavery investment in a manner similar to what they would use for trading securities.
2. What would be the effect of this investment on Runyan's 2011 net income?
Click here for the solution: On January 4, 2011, Runyan Bakery paid $324 million for 10 million shares of Lavery Labeling Company common stock
Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2011
P 12-1 Securities held-to-maturity; bond investment; effective interest
Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2011. Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the market yield was 10%. The price paid for the bonds was $66 million. Interest is received semiannually on June 30 and December 31. Due to changing market conditions, the fair value of the bonds at December 31, 2011, was $70 million.
Required:
1. Prepare the journal entry to record Fuzzy Monkey's investment on January 1, 2011.
2. Prepare the journal entry by Fuzzy Monkey to record interest on June 30, 2011 (at the effective rate).
3. Prepare the journal entries by Fuzzy Monkey to record interest on December 31, 2011 (at the effective rate).
4. At what amount will Fuzzy Monkey report its investment in the December 31, 2011, balance sheet? Why?
5. How would Fuzzy Monkey's 2011 statement of cash flows be affected by this investment?
Click here for the solution: Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2011
Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2011. Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the market yield was 10%. The price paid for the bonds was $66 million. Interest is received semiannually on June 30 and December 31. Due to changing market conditions, the fair value of the bonds at December 31, 2011, was $70 million.
Required:
1. Prepare the journal entry to record Fuzzy Monkey's investment on January 1, 2011.
2. Prepare the journal entry by Fuzzy Monkey to record interest on June 30, 2011 (at the effective rate).
3. Prepare the journal entries by Fuzzy Monkey to record interest on December 31, 2011 (at the effective rate).
4. At what amount will Fuzzy Monkey report its investment in the December 31, 2011, balance sheet? Why?
5. How would Fuzzy Monkey's 2011 statement of cash flows be affected by this investment?
Click here for the solution: Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2011
Thursday, September 10, 2015
The Baker Independent School District passed an appropriations ordinance for the General Fund for a certain fiscal year in the amount of $50 million
3–5. The Baker Independent School District passed an appropriations ordinance for the General Fund for a certain fiscal year in the amount of $50 million. Revenues were anticipated from sources other than the property tax in the amount of $24 million. The total assessed value of property in the school district amounts to $600 million. Owners of property have filed for and received household, old age, and other exemptions in the amount of $80 million. It is anticipated that 2 percent of the assessed taxes will not be collected.
a. Compute the amount to be raised from property taxes.
b. Compute the gross levy required to raise revenue in the amount you computed for requirement (a). Round the computation to the nearest dollar.
c. Compute the property tax rate per $100 net assessed valuation.
d. Compute the property tax rate per $1,000 net assessed valuation (this rate is often called the millage). Round fractional cents to the next higher whole cent.
e. You own a home with an assessed valuation of $60,000. You are eligible for a homestead exemption of $2,000; deduct this amount from the gross assessed valuation to determine the net assessed valuation (NAV) of your house. Multiply the NAV in thousands of dollars by the property tax rate computed in part (d) of this problem to determine the property tax payable
on your house.
Click here for the solution: The Baker Independent School District passed an appropriations ordinance for the General Fund for a certain fiscal year in the amount of $50 million
a. Compute the amount to be raised from property taxes.
b. Compute the gross levy required to raise revenue in the amount you computed for requirement (a). Round the computation to the nearest dollar.
c. Compute the property tax rate per $100 net assessed valuation.
d. Compute the property tax rate per $1,000 net assessed valuation (this rate is often called the millage). Round fractional cents to the next higher whole cent.
e. You own a home with an assessed valuation of $60,000. You are eligible for a homestead exemption of $2,000; deduct this amount from the gross assessed valuation to determine the net assessed valuation (NAV) of your house. Multiply the NAV in thousands of dollars by the property tax rate computed in part (d) of this problem to determine the property tax payable
on your house.
Click here for the solution: The Baker Independent School District passed an appropriations ordinance for the General Fund for a certain fiscal year in the amount of $50 million
Tuesday, September 8, 2015
On January 1, 2011, Adams-Meneke Corporation granted 25 million incentive stock options to division managers
E 19-6 Stock options; forfeiture of options
On January 1, 2011, Adams-Meneke Corporation granted 25 million incentive stock options to division managers, each permitting holders to purchase one share of the company's $1 par common shares within the next six years, but not before December 31, 2013 (the vesting date). The exercise price is the market price of the shares on the date of grant, currently $10 per share. The fair value of the options, estimated by an appropriate option pricing model, is $3 per option.
Required:
1. Determine the total compensation cost pertaining to the options on January 1, 2011.
2. Prepare the appropriate journal entry to record compensation expense on December 31, 2011.
3. Unexpected turnover during 2012 caused the forfeiture of 6% of the stock options. Determine the adjusted compensation cost, and prepare the appropriate journal entry(s) on December 31, 2012 and 2013.
Click here for the solution: On January 1, 2011, Adams-Meneke Corporation granted 25 million incentive stock options to division managers
On January 1, 2011, Adams-Meneke Corporation granted 25 million incentive stock options to division managers, each permitting holders to purchase one share of the company's $1 par common shares within the next six years, but not before December 31, 2013 (the vesting date). The exercise price is the market price of the shares on the date of grant, currently $10 per share. The fair value of the options, estimated by an appropriate option pricing model, is $3 per option.
Required:
1. Determine the total compensation cost pertaining to the options on January 1, 2011.
2. Prepare the appropriate journal entry to record compensation expense on December 31, 2011.
3. Unexpected turnover during 2012 caused the forfeiture of 6% of the stock options. Determine the adjusted compensation cost, and prepare the appropriate journal entry(s) on December 31, 2012 and 2013.
Click here for the solution: On January 1, 2011, Adams-Meneke Corporation granted 25 million incentive stock options to division managers
Sunday, September 6, 2015
A government opts to set aside $10 million of general fund resources to finance a new city hall
1. A government opts to set aside $10 million of general fund resources to finance a new city hall. Construction is expected to begin in several years, when the city has been able to accumulate additional resources.
2. A government should distinguish underwriting and other issue costs from bond premiums and discounts and should
3. When a government issues bonds at premiums or discounts and records the proceeds in a capital projects fund, it should
4. A city holds U.S. Treasury notes as an investment in a capital projects fund. During the year the market value of the notes increases by $50,000. Of this amount, $14,000 can be attributed to a decline in prevailing interest rates and $36,000 to interest that has been earned but not yet received. As of year-end, the city should recognize as revenue
5. Which of the following accounts is least likely to be shown on the balance sheet of a debt service fund?
6. Special assessment debt should be reported on the balance sheet of a city if the debt is to be paid from assessments on property owners and
7. In its fund statements a government should recognize revenue from special assessments
8. In the year it imposes a special assessment, a government should recognize in its government-wide statements
9. Under existing federal statutes, arbitrage as it applies to state and local governments
10. Bond refunding are most likely to result in an economic gain when
Click here for the solution: A government opts to set aside $10 million of general fund resources to finance a new city hall
2. A government should distinguish underwriting and other issue costs from bond premiums and discounts and should
3. When a government issues bonds at premiums or discounts and records the proceeds in a capital projects fund, it should
4. A city holds U.S. Treasury notes as an investment in a capital projects fund. During the year the market value of the notes increases by $50,000. Of this amount, $14,000 can be attributed to a decline in prevailing interest rates and $36,000 to interest that has been earned but not yet received. As of year-end, the city should recognize as revenue
5. Which of the following accounts is least likely to be shown on the balance sheet of a debt service fund?
6. Special assessment debt should be reported on the balance sheet of a city if the debt is to be paid from assessments on property owners and
7. In its fund statements a government should recognize revenue from special assessments
8. In the year it imposes a special assessment, a government should recognize in its government-wide statements
9. Under existing federal statutes, arbitrage as it applies to state and local governments
10. Bond refunding are most likely to result in an economic gain when
Click here for the solution: A government opts to set aside $10 million of general fund resources to finance a new city hall
In 2011, Bantham County incurred $80 million in costs to construct a new highway
P7-8 If governments do not preserve their infrastructure assets, they must depreciate them.
In 2011, Bantham County incurred $80 million in costs to construct a new highway. Engineers, estimate that the useful life of the highway is 20 years.
AND SO ON
Click here for the solution: In 2011, Bantham County incurred $80 million in costs to construct a new highway
In 2011, Bantham County incurred $80 million in costs to construct a new highway. Engineers, estimate that the useful life of the highway is 20 years.
AND SO ON
Click here for the solution: In 2011, Bantham County incurred $80 million in costs to construct a new highway
On July 1, a city issued, at par, $100 million in percent, twenty year general obligation bonds
6-7 On July 1, a city issued, at par, $100 million in percent, twenty year general obligation bonds. It established a debt service fund to account for resources set aside to pay interest rates. In the year that it issued the debt, the city engaged in the following transactions involving the debt service fund.
1. It estimated that it would make interest payments of $3 million and have interest earnings of $30,000 from investments. It would transfer from the general fund to the debt service fund$2.97 million to pay interest and $500,000 to provide for the payment of principal when the bonds mature. Further, as required by the bond indentures, it would transfer $1 million of the bond proceeds from the capital projects fund to the debt service fund to be held in reserve until the debt matures.
2. Upon issuing the bonds, the city transferred $1 million of the bond proceeds from the capital projects fund. It invested $977,254 of the funds in twenty – year, 6 percent Treasury bonds that had a face value of $1 million. The bond discount of $22,746 reflected an effective yield rate of 6.2 percent.
3. On December 31, the city received $30,000 interest on the Treasury bonds. This payment represented interest for six months. Correspondingly, the market value of the bonds increased by $294, reflecting the amortization of the discount.
4. On the same day the city transferred $2.97 million from the general fund to pay interest on the bonds that it had issued. It also transferred $500,000 for the eventual repayment of principal.
5. Also on December 31, it made its first interest payment of $3 million to bondholders.
a. Prepare appropriate journal entries in the debt service fund, including budgetary and closing entries.
b. The bonds issued by the city pay interest at the rate of 6 percent. The bonds in which the city invested its reserve have an effective yield of 6.2 percent. What might the differences in rates create a potential liability for the city?
Click here for the solution: On July 1, a city issued, at par, $100 million in percent, twenty year general obligation bonds
1. It estimated that it would make interest payments of $3 million and have interest earnings of $30,000 from investments. It would transfer from the general fund to the debt service fund$2.97 million to pay interest and $500,000 to provide for the payment of principal when the bonds mature. Further, as required by the bond indentures, it would transfer $1 million of the bond proceeds from the capital projects fund to the debt service fund to be held in reserve until the debt matures.
2. Upon issuing the bonds, the city transferred $1 million of the bond proceeds from the capital projects fund. It invested $977,254 of the funds in twenty – year, 6 percent Treasury bonds that had a face value of $1 million. The bond discount of $22,746 reflected an effective yield rate of 6.2 percent.
3. On December 31, the city received $30,000 interest on the Treasury bonds. This payment represented interest for six months. Correspondingly, the market value of the bonds increased by $294, reflecting the amortization of the discount.
4. On the same day the city transferred $2.97 million from the general fund to pay interest on the bonds that it had issued. It also transferred $500,000 for the eventual repayment of principal.
5. Also on December 31, it made its first interest payment of $3 million to bondholders.
a. Prepare appropriate journal entries in the debt service fund, including budgetary and closing entries.
b. The bonds issued by the city pay interest at the rate of 6 percent. The bonds in which the city invested its reserve have an effective yield of 6.2 percent. What might the differences in rates create a potential liability for the city?
Click here for the solution: On July 1, a city issued, at par, $100 million in percent, twenty year general obligation bonds
Wednesday, September 2, 2015
Broxholme Industries has sales of $40 million, equity totaling $27.5 million, and an ROS of 12%
Broxholme Industries has sales of $40 million, equity totaling $27.5 million, and an ROS of 12%. The sustainable growth rate has been calculated at 10.9%. What dividend payout ratio was assumed in this calculation?
Click here for the solution: Broxholme Industries has sales of $40 million, equity totaling $27.5 million, and an ROS of 12%
Click here for the solution: Broxholme Industries has sales of $40 million, equity totaling $27.5 million, and an ROS of 12%
Sunday, August 23, 2015
Based on the corporate valuation model, Bernile Inc.'s value of operations is $750 million
Based on the corporate valuation model, Bernile Inc.'s value of operations is $750 million. Its balance sheet shows $50 million of short-term investments that are unrelated to operations, $100 million of accounts payable, $100 million of notes payable, $200 million of long-term debt, $40 million of common stock (par plus paid-in-capital), and $160 million of retained earnings. What is the best estimate for the firm's value of equity, in millions?
Click here for the solution: Based on the corporate valuation model, Bernile Inc.'s value of operations is $750 million
Click here for the solution: Based on the corporate valuation model, Bernile Inc.'s value of operations is $750 million
Carter Corporation's sales are expected to increase from $5 million in 2005 to $6 million in 2006, or by 20 percent
AFN equation - Carter Corporation's sales are expected to increase from $5 million in 2005 to $6 million in 2006, or by 20 percent. Its assets totaled $3 million at the end of 2005. Carter is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2005, current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. The after-tax profit margin is forecasted to be 5 percent, and the forecasted retention ratio is 30 percent. Use the AFN equation to forecast Carter's additional funds needed for the coming year.
Click here for the solution: Carter Corporation's sales are expected to increase from $5 million in 2005 to $6 million in 2006, or by 20 percent
Click here for the solution: Carter Corporation's sales are expected to increase from $5 million in 2005 to $6 million in 2006, or by 20 percent
Saturday, August 22, 2015
At the beginning of 2009, Metatec Inc. acquired Ellison Technology Corporation for $600 million
P11-12 Depreciation and amortization; impairment
At the beginning of 2009, Metatec Inc. acquired Ellison Technology Corporation for $600 million. In addition to cash, receivables, and inventory, the following assets and their fair values were also acquired:
AND SO ON
The plant and equipment are depreciated over a 10-year useful life on a straight-line basis. There is no estimated residual value. The patent is estimated to have a 5-year useful life, no residual value, and is amortized using the straight-line method.
At the end of 2011, a change in business climate indicated to management that the assets of Ellison might be impaired. The following amounts have been determined:
*After first recording any impairment losses on plant and equipment and the patent.
Click here for the solution: At the beginning of 2009, Metatec Inc. acquired Ellison Technology Corporation for $600 million
At the beginning of 2009, Metatec Inc. acquired Ellison Technology Corporation for $600 million. In addition to cash, receivables, and inventory, the following assets and their fair values were also acquired:
AND SO ON
The plant and equipment are depreciated over a 10-year useful life on a straight-line basis. There is no estimated residual value. The patent is estimated to have a 5-year useful life, no residual value, and is amortized using the straight-line method.
At the end of 2011, a change in business climate indicated to management that the assets of Ellison might be impaired. The following amounts have been determined:
*After first recording any impairment losses on plant and equipment and the patent.
Click here for the solution: At the beginning of 2009, Metatec Inc. acquired Ellison Technology Corporation for $600 million
Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2011
E 12-19 Fair value option; held-to-maturity investments
[This is a variation of Exercise 12-1 focusing on the fair value option.]
Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2011. Company management has the positive intent and ability to hold the bonds until maturity, but when the bonds were acquired Tanner-UNF decided to elect the fair value option for accounting for its investment. The market interest rate (yield) was 8% for bonds of similar risk and maturity. Tanner-UNF paid $200 million for the bonds. The company will receive interest semiannually on June 30 and December 31. As a result of changing market conditions, the fair value of the bonds at December 31, 2011, was $210 million.
Required:
1. Would this investment be classified on Tanner-UNF's balance sheet as held-to-maturity securities, trading securities, available-for-sale securities, significant-influence investments, or other? Explain.
2. Prepare the journal entry to record Tanner-UNF's investment in the bonds on July 1, 2011.
3. Prepare the journal entries by Tanner-UNF to record interest on December 31, 2011, at the effective (market) rate.
4. Prepare any journal entry necessary to recognize fair value changes as of December 31, 2011.
5. At what amount will Tanner-UNF report its investment in the December 31, 2011, balance sheet? Why?
6. Suppose Moody's bond rating agency downgraded the risk rating of the bonds motivating Tanner-UNF to sell the investment on January 2, 2012, for $190 million. Prepare the journal entry to record the sale.
Click here for the solution: Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2011
[This is a variation of Exercise 12-1 focusing on the fair value option.]
Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2011. Company management has the positive intent and ability to hold the bonds until maturity, but when the bonds were acquired Tanner-UNF decided to elect the fair value option for accounting for its investment. The market interest rate (yield) was 8% for bonds of similar risk and maturity. Tanner-UNF paid $200 million for the bonds. The company will receive interest semiannually on June 30 and December 31. As a result of changing market conditions, the fair value of the bonds at December 31, 2011, was $210 million.
Required:
1. Would this investment be classified on Tanner-UNF's balance sheet as held-to-maturity securities, trading securities, available-for-sale securities, significant-influence investments, or other? Explain.
2. Prepare the journal entry to record Tanner-UNF's investment in the bonds on July 1, 2011.
3. Prepare the journal entries by Tanner-UNF to record interest on December 31, 2011, at the effective (market) rate.
4. Prepare any journal entry necessary to recognize fair value changes as of December 31, 2011.
5. At what amount will Tanner-UNF report its investment in the December 31, 2011, balance sheet? Why?
6. Suppose Moody's bond rating agency downgraded the risk rating of the bonds motivating Tanner-UNF to sell the investment on January 2, 2012, for $190 million. Prepare the journal entry to record the sale.
Click here for the solution: Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2011
Friday, August 14, 2015
Assume that a country estimates its M1 money supply at $20 million
8. Assume that a country estimates its M1 money supply at $20 million. A broader measure of the money supply, M2, is $50 million. The country’s gross domestic product is $100 million. Production or real output for the country is 500,000 units or products.
a. Determine the velocity of money based on the M1 money supply.
b. Determine the velocity of money based on the M2 money supply.
c. Determine the average price for the real output.
Click here for the solution: Assume that a country estimates its M1 money supply at $20 million
a. Determine the velocity of money based on the M1 money supply.
b. Determine the velocity of money based on the M2 money supply.
c. Determine the average price for the real output.
Click here for the solution: Assume that a country estimates its M1 money supply at $20 million
Thursday, August 13, 2015
At the beginning of 2009, the Healthy Life Food Company purchased equipment for $42 million to be used in the manufacture of a new line of gourmet frozen foods
Ethics Case 11-10; Asset impairment
At the beginning of 2009, the Healthy Life Food Company purchased equipment for $42 million to be used in the manufacture of a new line of gourmet frozen foods. The equipment was estimated to have a 10-year service life and no residual value. The straight-line depreciation method was used to measure depreciation for 2009 and 2010.
Late in 2011, it became apparent that sales of the new frozen food line were significantly below expectations. The company decided to continue production for two more years (2012 and 2013) and then discontinue the line. At that time, the equipment will be sold for minimal scrap values.
The controller, Heather Meyer, was asked by Harvey Dent, the company's chief executive officer (CEO), to determine the appropriate treatment of the change in service life of the equipment. Heather determined that there has been impairment of valued requiring an immediate write-down of the equipment of $12,900,000. The remaining book value would then be depreciate over the equipment's revised service life.
The CEO does not like Heather's conclusion because of the effect it would have on 2011 income. "Looks like a simple revision in service life from 10 years to 5 years." Dent concluded. "let's go with it that way, Heather."
Required:
1. What is the difference in before-tax income between the CEO's and Heather's treatment of the situation?
2. Discuss Heather Meyer's ethical dilemma.
Click here for the solution: At the beginning of 2009, the Healthy Life Food Company purchased equipment for $42 million to be used in the manufacture of a new line of gourmet frozen foods
At the beginning of 2009, the Healthy Life Food Company purchased equipment for $42 million to be used in the manufacture of a new line of gourmet frozen foods. The equipment was estimated to have a 10-year service life and no residual value. The straight-line depreciation method was used to measure depreciation for 2009 and 2010.
Late in 2011, it became apparent that sales of the new frozen food line were significantly below expectations. The company decided to continue production for two more years (2012 and 2013) and then discontinue the line. At that time, the equipment will be sold for minimal scrap values.
The controller, Heather Meyer, was asked by Harvey Dent, the company's chief executive officer (CEO), to determine the appropriate treatment of the change in service life of the equipment. Heather determined that there has been impairment of valued requiring an immediate write-down of the equipment of $12,900,000. The remaining book value would then be depreciate over the equipment's revised service life.
The CEO does not like Heather's conclusion because of the effect it would have on 2011 income. "Looks like a simple revision in service life from 10 years to 5 years." Dent concluded. "let's go with it that way, Heather."
Required:
1. What is the difference in before-tax income between the CEO's and Heather's treatment of the situation?
2. Discuss Heather Meyer's ethical dilemma.
Click here for the solution: At the beginning of 2009, the Healthy Life Food Company purchased equipment for $42 million to be used in the manufacture of a new line of gourmet frozen foods
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
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
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
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
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