At the beginning of 2018, VHF Industries acquired a machine with a fair value of $6,074,700 by signing a four-year lease. The lease is payable in four annual payments of $2 million at the end of each year. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:
1. What is the effective rate of interest implicit in the agreement?
2-4. Prepare the lessee’s journal entries at the beginning of the lease, the first lease payment at December 31, 2018 and the second lease payment at December 31, 2019.
5. Suppose the fair value of the machine and the lessor’s implicit rate were unknown at the time of the lease, but that the lessee’s incremental borrowing rate of interest for notes of similar risk was 11%. Prepare the lessee’s entry at the beginning of the lease.

Apple reported the following pre tax income (loss) during 2010-2017

There are no temporary or permanent differences between taxable income and EBIT for ALL years

Assume Apple will elect to carryback losses to the extent possible

Also assume that at 12/31/15 Apple is reasonably confident that they will have $30,000 of taxable income in 2016

Required:

A) prepare journal entries for 2010-2017 for income tax expenses/benefit.

B) Draft the lower portion of the 2015 income statement starting with EBIT

C) Draft the lower portion of 2016 Income statement starting with EBIT

Problem 22-8AA Merchandising: Preparation of a complete master budget LO P4 Near the end of 2017, the management of Dimsdale Sports Co., a merchandising company, prepared the following estimated balance sheet for December 31, 2017. DIMSDALE SPORTS COMPANY Estimated Balance Sheet December 31, 2017 Assets Cash $ 36,500 Accounts receivable 520,000 Inventory 105,000 Total current assets $ 661,500 Equipment 552,000 Less: accumulated depreciation 69,000 Equipment, net 483,000 Total assets $ 1,144,500 Liabilities and Equity Accounts payable $ 345,000 Bank loan payable 13,000 Taxes payable (due 3/15/2018) 89,000 Total liabilities $ 447,000 Common stock 470,500 Retained earnings 227,000 Total stockholders’ equity 697,500 Total liabilities and equity $ 1,144,500 To prepare a master budget for January, February, and March of 2018, management gathers the following information. The company’s single product is purchased for $20 per unit and resold for $59 per unit. The expected inventory level of 5,250 units on December 31, 2017, is more than management’s desired level, which is 20% of the next month’s expected sales (in units). Expected sales are: January, 7,250 units; February, 8,750 units; March, 11,500 units; and April, 11,000 units. Cash sales and credit sales represent 20% and 80%, respectively, of total sales. Of the credit sales, 65% is collected in the first month after the month of sale and 35% in the second month after the month of sale. For the December 31, 2017, accounts receivable balance, $125,000 is collected in January and the remaining $395,000 is collected in February. Merchandise purchases are paid for as follows: 20% in the first month after the month of purchase and 80% in the second month after the month of purchase. For the December 31, 2017, accounts payable balance, $70,000 is paid in January and the remaining $275,000 is paid in February. Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $54,000 per year. General and administrative salaries are $144,000 per year. Maintenance expense equals $2,100 per month and is paid in cash. Equipment reported in the December 31, 2017, balance sheet was purchased in January 2017. It is being depreciated over eight years under the straight-line method with no salvage value. The following amounts for new equipment purchases are planned in the coming quarter: January, $38,400; February, $100,800; and March, $28,800. This equipment will be depreciated under the straight-line method over eight years with no salvage value. A full month’s depreciation is taken for the month in which equipment is purchased. The company plans to buy land at the end of March at a cost of $145,000, which will be paid with cash on the last day of the month. The company has a working arrangement with its bank to obtain additional loans as needed. The interest rate is 12% per year, and interest is paid at each month-end based on the beginning balance. Partial or full payments on these loans can be made on the last day of the month. The company has agreed to maintain a minimum ending cash balance of $16,000 at the end of each month. The income tax rate for the company is 35%. Income taxes on the first quarter’s income will not be paid until April 15. Required: Prepare a master budget for each of the first three months of 2018; include the following component budgets: 1. Monthly sales budgets. 2. Monthly merchandise purchases budgets. 3. Monthly selling expense budgets. 4. Monthly general and administrative expense budgets. 5. Monthly capital expenditures budgets. 6. Monthly cash budgets. 7. Budgeted income statement for the entire first quarter (not for each month). 8. Budgeted balance sheet as of March 31, 2018.

Below is a table for the present value of $1 at compound interest.

Below is a table for the present value of an annuity of $1 at compound interest.

Using the tables above, if an investment is made now for $20,000 that will generate a cash inflow of $7,000 a year for the next 4 years, what would be the present value of the investment cash inflows, assuming an earnings rate of 12%?

Use the following comparative Balance Sheets, Income Statement, and additional information to prepare the 2018 Statement of Cash Flows for United Brands Corporation.

Required:

Prepare an entire Statement of Cash Flows (all three sections) using the indirect method for the Operating Activities section.

Prepare the Operating Activities section using the direct method.

United Brands Corporation

Balance Sheets

December 31, 2018 and 2017

($ in millions)

2018 2017 Incr (Decr)

ASSETS

Current Assets:

Cash $41 $20 $21

Accounts receivable 32 30 2

Inventory 46 50 (4)

Prepaid insurance 3 6 (3)

Property, Plant, & Equipment:

Land 80 60 20

Equipment 81 75 6

Less: Accumulated depreciation (16) (20) (4)

Total Assets $267 $221

LIABILITIES

Current Liabilities:

Accounts payable $26 $20 $6

Salaries payable 3 1 2

Income tax payable 6 8 (2)

Notes payable, current 34 47 (13)

Long-term Liabilities:

Notes payable, long-term 20 0 20

EQUITY

Common stock, $10 par, 50 million

shares authorized, 13 million issued in 2018,

10 million issued in 2017 $130 $100 $30

Paid-in capital in excess of par-common stock 29 20 9

Retained Earnings 19 25 (6)

Total Liabilities and Equity $267 $221

United Brands Corporation

Income Statement

for the year ended December 31, 2018

($ in millions)

Sales revenue $100

Cost of goods sold (60)

Gross profit $40

Operating expenses:

Salaries expense (13)

Depreciation expense (3)

Insurance expense (7)

Income from operations $17

Other income and expenses:

Interest expense (2)

Gain on sale of land 8

Loss on sale of equipment (2)

Income before income tax $21

Income tax expense (9)

Net income $12

Additional information for 2018 transactions:

All inventory is purchased on account, and the Accounts Payable account is used exclusively for inventory purchases.

A portion of the company land was sold for $18 million in cash. This land was originally purchased in a previous year for $10 million.

Land was purchased for $30 million cash for use as a parking lot.

Equipment was sold in 2018 that had an Accumulated Depreciation balance of $7 million on the date of sale. The equipment originally cost $14 million and was sold at a loss for cash. (HINT: You must determine the amount of cash received.)

In 2018, new equipment was acquired by issuing a 12%, five-year, $20 million note payable to the seller.

During 2018, $55 million of short-term (current) notes payable were paid in cash and $42 million of cash was borrowed in the form of short-term debt (current notes payable).

The increase in the common stock account is attributed to two transactions:

Issuance of a 10% stock dividend (1 million shares) when the market price was $13 per share.

Issuance of 2 million shares for cash when the market price was $13 per share.

Cash dividends were declared and paid to shareholders. (HINT: You must determine the amount of cash dividends paid.)

Overhead is budgeted and applied using direct-labor hours in a standard costing system. Standard cost and annual budget information are as follows:

Required:

Compute the following cost variances from the available data. (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance). Do not round intermediate calculations.)

The following list includes selected permanent accounts and all of the temporary accounts from the December 31, 2017, unadjusted trial balance of Emiko Co.. Emiko Co. uses a perpetual inventory system. Debit Credit Merchandise inventory $ 39,500 Prepaid selling expenses 7,500 Dividends 52,000 Sales $ 605,000 Sales returns and allowances 21,300 Sales discounts 6,900 Cost of goods sold 250,000 Sales salaries expense 67,000 Utilities expense 24,500 Selling expenses 45,500 Administrative expenses 124,000 Additional Information Accrued sales salaries amount to $1,700. Prepaid selling expenses of $2,800 have expired. A physical count of year-end merchandise inventory shows $34,400 of goods still available. (a) Use the above account balances along with the additional information, prepare the adjusting entries. (b) Use the above account balances along with the additional information, prepare the closing entries.

Johnsn and Hill formed a company, and 2018 was their first year of operation.

a) To establish Johnson & Hill each contributed a total of $55,000 in exchange for common stock.

b) Johnson & Hillt specializes in high-end parties. The first year they conducted 96 events and revenue for the first year amounted to $480,000, of which 95% was to be paid by the date of the event and the remainder due within 30 days of the event

c) Clients owe $16,000 at the end of the year from the services provided in December.

d) At the beginning of the year, a storage building was rented, signing a two-year lease for $15,000 per year and making a $4,000 refundable security deposit. The first year’s lease payment and the security deposit were paid at the beginning of the year.

e) At the beginning of the year, the company purchased a computerized stage and lighting for $120,000 expected to be useful for twelve years. The company paid 20% down in cash and signed a four-year note at the bank for the remainder (with 10% interest-only to be paid annually until maturity). They also purchased a flatbed trailer to haul it with, for $8,000, also with an expected 15 year life. Johnson & Hill must lease a large truck to haul the trailer for each event, which costs $1,000 per day.

f) Other operating expenses, including wages, deprecation on other equipment, utilities, and rent on the storage building noted in (d) and (e) above, totaled $136,000 for the first year. No expenses were accrued or unpaid at the end of the year.

g) Johson & Hill purchased other equipment (tables & carts, ice machine, food heating trays and bags, helium tanks, music system, etc) for $10000 with an estimated life of 10 years and no salvage value. Salaries and wages for the year total $109467 including payroll taxes.

h) The company declared and paid a $50,000 cash dividend at the end of the first year.

i) Johnson & Hill is in the 35% corporate tax bracket.

1. Prepare a balance sheet as of the end of the first year.

2. Prepare a statement of retained earnings as of the end of the first year.

3. Prepare a statement of cash flows for the first year using the direct method in the Operating Activities section.

4. Complete a vertical analysis of the Income statement.

5. Did the company generate more or less cash flow from operations than it earned in net income? Explain why there is a difference.

6. Compute, explain & analyze the following ratios:

a) Gross Profit

b) Operating Leverage ratio

c) Return on common equity

d) Current ratio

e) Operating Cash flow to current liabilities

f) Long-term debt to assets

g) Interest coverage

What are some of the consequences to a company that makes a poor decision in selecting a new AIS?

The general ledger of Zips Storage at January 1, 2021, includes the following account balances:

The following is a summary of the transactions for the year:

2. Record each of the summary transactions listed above. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

Prepare an unadjusted trial balance, as well.

On January 1, 2018, the general ledger of Grand Finale Fireworks includes the following account balances:

The following information is available on January 31, 2018.

1. Unpaid utilities for the month of January are $8,200.
2. Supplies at the end of January total $7,100.
3. Depreciation on the equipment for the month of January is calculated using the straight-line method. At the time the equipment was purchased, the company estimated a service life of three years and a residual value of $12,000.
4. Accrued income taxes at the end of January are $3,100.

Enter your Return on Equity value to one decimal place and earnings per share value to 2 decimal places.

Only do the analysis part and balance sheet part.

Adjust Trial Balance:

Brothers Harry and Herman Hausyerday began operations of their machine shop (H & H Tool, Inc.) on January 1, 2016. The annual reporting period ends December 31. The trial balance on January 1, 2018, follows (the amounts are rounded to thousands of dollars to simplify):

Transactions and events during 2018 (summarized in thousands of dollars) follow:

1. Borrowed $11 cash on March 1 using a short-term note.
2. Purchased land on March 2 for future building site; paid cash, $8.
3. Issued additional shares of common stock on April 3 for $30.
4. Purchased software on July 4, $11 cash.
5. Purchased supplies on account on October 5 for future use, $19.
6. Paid accounts payable on November 6, $12.
7. Signed a $20 service contract on November 7 to start February 1, 2019.
8. Recorded revenues of $174 on December 8, including $47 on credit and $127 collected in cash.
9. Recognized salaries and wages expense on December 9, $92 paid in cash.
10. Collected accounts receivable on December 10, $31.

Data for adjusting journal entries as of December 31:

11. Unrecorded amortization for the year on software, $7.
12. Supplies counted on December 31, 2018, $12.
13. Depreciation for the year on the equipment, $5.
14. Interest of $1 to accrue on notes payable.
15. Salaries and wages earned but not yet paid or recorded, $13.
16. Income tax for the year was $7. It will be paid in 2019.

1. 1, 3, 5 and 8. Set up T-accounts for the accounts on the trial balance. Enter beginning balances and post the transactions (a)-(j), adjusting entries (k)-(p), and closing entry. (Enter your answers in thousands of dollars.)

Here are comparative balance sheets for Velo Company.

Additional information:

Prepare a statement of cash flows for 2017 using the indirect method.

Discuss the applicability of the first and third general standards of GAAS to accounting and auditing research.