Question

Post adjusting journal entries

13 ABC Corporation prepares an aging schedule on 12/31/14 that estimates total uncollectible accounts at $25,000. Assuming that the allowance method is used, prepare the entry to record bad debt expense.

14 On 1/1/14, ABC Corporation signed a 5-year noncancelable lease for a delivery vehicle. The terms of the lease called for ABC to Corporation to make annual payments of $10,503 at the beginning of each year, starting January 1, 2014. The delivery vehicle has an estimated useful life of 6 years and a $7,000 unguaranteed residual value. The delivery vehicle reverts back to the lessor at the end of the lease term. ABC Corporation uses the straight-line method of depreciation for the delivery vehicle. ABC Corporation's incremental borrowing rate is 10%, and the Lessor's implicit rate is unknown. No entries have yet been made concerning this lease arrangement. After determining the type of lease arrangement (capital or operating), prepare the necessary multiple-part journal entry for 2014 for ABC Corporation. (Hints: You will need to compute the present value of the minimum lease payments and 4 separate sub-entries for this lease transaction. Also, for Statement of Cash Flow purposes, the principal portion of lease payments are correctly categorized as a financing activity.)

15 ABC Corporation provides a defined benefit pension plan for its employees. A combination adjusting entry should be made to correctly account for this type of pension plan given the following items of information for the 2014 plan year, including the recording of pension expense and the employer's contribution to the pension plan in 2014. Note: Use the summary entry method as demonstrated and discussed in the chapter lectures on pension accounting to prepare the adjusting entry. Pension asset/liability (January 1) $0 Actual return on plan assets $40,000 Expected return on plan assets $20,000 Contributions (funding) in 2014 $37,000 Fair value of plan assets (December 31) $75,000 Settlement rate 10% Projected benefit obligation (January 1) $0 Service cost $60,000 Benefits paid in 2014 $0 *For purposes of financial statement presentation, consider Pension Expense as an operating item and any resulting Pension Asset/Liability as long-term in nature.

16 On December 31, 2014, ABC Corporation issued 1,000 shares of restricted stock to its Chief Financial Officer. ABC stock had a fair value (closing market price) of $10 per share on December 31, 2014. Additional information is as follows: a. The service period related to the restricted stock is 2 years. b. Vesting occurs if the CFO stays with the company for a two-year period. c. The par value of the common stock is $3 per share. Make the appropriate accounting entry as of the grant date, 12/31/14. Note: use the alternative method as described in your textbook for deferred compensation. Do this step after preparing the Income Statement except for the Income taxes line: (You need to calculate Income Before Income Taxes in order to calcualte total Income Tax Expense) 17 Corporate taxes are due in four estimated quarterly payments on April 15, June 15, September 15, and December 15. However, for the purposes of this ABC illustration, we will assume that estimates are not paid, and that the tax is paid in full on the return's March 15, 2015 due date. ABC's income tax rate is 40%. The entire year's income tax expense was estimated at the beginning of 2014 to be $69,600, so January through November income tax expense recognized amounts to $63,800 (11/12 months). Since we are assuming estimates are not made during the year, the balance in Income taxes payable represents tax accrued for January through November. Assume no deferred tax assets or deferred tax liabilities. Based on the income before income taxes figure from the income statement, record December's income tax expense so that the entire year's total tax expense is correct.

Answer 1

Answer to 13
Date	Accounts title and explaination	Debit	Credit
31-12-14	Dr. Bad Debt Expense	$   25,000.00
	Cr. Allowance for doubtful accounts		$ 25,000.00
	(Unlike direct write off method, we do not credit accounts receivables at this stage because it is actually a control account of many individual debtors account and we do not yet not know which particular debtor will make a default. We only know the estimated amount of receivables which are likely to end up uncollected. Therefore a provision account called allowance for doubtful accounts is credited in the adjusting entry)
Answer to 16
Date	Accounts title and explaination	Debit	Credit
31-12-14	Dr. Employee compensation expense account (Recorded at fair value)	$   10,000.00
	Employee stock option outstanding account		$ 10,000.00
	(To record the stock options)
Answer to 14
It is capital lease and should be capitalized as leased asset.
Because, the lease qualifies for capital lease accounting by the lessee because the lease term 5 years is more than 75% of estimated life of asset (6years)
Present value of future lease payments :
Annual interest rate =10%
Number of lease years = 5years
Lease installments = $10503
Cost of leased equipment = $43796.10
Journal entries :
Date	Accounts title and explaination	Debit	Credit
Jan-01	Dr. Lease equipment	$   43,796.10
	Cr. Lease liability		$ 43,796.10
	(To record lease at inception)
Jan-01	Dr. Lease liability	$   10,503.00
	Cr. Cash		$ 10,503.00
	(To record first lease instalment)
Dec.31	Dr.Depreciation	$     7,359.22		(43796.10-7000)/5years
	Cr.Accumulated depreciation		$ 7,359.22
	(TO record depreciation for 2014)
Answer to 15
Date	Accounts title and explaination	Debit	Credit
	Dr.Pension expense	$   40,000.00
	Dr.Pension-related asset	$   10,000.00
	Cr.Accumulated other comprehensive income		$ 15,000.00	[FMV-service sot = 75000-60000]
	Cr.Cash		$ 35,000.00
Working :
Computation of FMV of pension assets :
	Particulars	amount
	Pension asset -opening	-
	Employer contribution	$   35,000.00
	Actual return on plan asset	$   40,000.00
	Less : Benefits paid
		$ 75,000.00