Question

1) Papaya Inc. has 100,000 common shares outstanding and has a policy of paying a $1.30 annual dividend for each of these shares. Papaya has an income tax rate of 35%, and its retained earnings statement for 2020 reported a closing balance of $1,452,000. Assuming an opening retained earnings balance of zero, dividend payments according to its usual policy, and no other adjustments, Papaya's 2020 net income was

$1,582,000.

$1,452,000.

$2,364,846.

$1,536,500.

2) For Pear Limited, events and transactions during 2018-2020 included the following. The tax rate for all items is 30%.

1. Depreciation for 2019 was found to be understated by $30,000.
2. A 2020 strike by the employees of a supplier resulted in a loss of $20,000.
3. The inventory at December 31, 2018 was overstated by $40,000.
4. A 2020 flood destroyed a building that had a book value of $400,000. Floods are very uncommon in that area.

The effect of these events and transactions on the balance of retained earnings at January 1, 2020 would be

$21,000.

$294,000.

$14,000.

$343,000.

3)

eg Inc. incurred the following infrequent losses during 2020:

A $135,000 write down of equipment leased to others (net of tax)
A $60,000 adjustment of accruals on long-term contracts (net of tax)
A $90,000 write off of obsolete inventory (net of tax)

Of those losses, what amount should be included in Meg’s 2020 income from continuing operations?

$285,000

$150,000

$195,000

$225,000

4)

On January 1, 2020, Reggae Ltd. sold land that cost $180,000 for $240,000, receiving a note bearing interest at 10 percent. The note will be paid in three annual instalments of $96,510 starting December 31, 2020. Assuming that collection of the note is very uncertain, how much revenue from this sale should Reggae recognize in 2020?

$96,510

$0

$18,000

$24,000

Answer 1

Ans 1
Beginning balance-Dividend payment+net Income= ending Reatined earnings balance
$0+x-(100000*1.3)=14520000
x=1452000+130000	$1,582,000
Option A $1582000
Ans 2
Depreciation	($30,000)
Strike	-20000
Inventory overstated	-40000
due to flood	-400000
Total	($490,000)
Income tax rate 30%	$147,000.0
Balance of Retauned Earnings	($343,000.0)
Option D $343000
ans 3
Items to be included in income from continuing operations
write down of equipment leased to others	$135,000
adjustment of accruals on long-term contracts	60000
write off of obsolete inventory	90000
	$285,000
Option C $285000
ans 4
As the collection of note is uncertain and assuming the installment is not received hence $0 revenue will
be recognized
In case first installment was received than the revenue recognized
is 240000*10%=$24000
If any doubt please comment