Problem 13-1 Bank loan; accrued interest [LO13-2]

Blanton Plastics, a household plastic product manufacturer, borrowed $14 million cash on October 1, 2018, to provide working capital for year-end production. Blanton issued a four-month, 12% promissory note to L&T Bank under a prearranged short-term line of credit. Interest on the note was payable at maturity. Each firm’s fiscal period is the calendar year.
   
Required:
1. Prepare the journal entries to record (a) the issuance of the note by Blanton Plastics and (b) L&T Bank’s receivable on October 1, 2018.
2. Prepare the journal entries by both firms to record all subsequent events related to the note through January 31, 2019.
3. Suppose the face amount of the note was adjusted to include interest (a noninterest-bearing note) and 12% is the bank’s stated discount rate. (a) Prepare the journal entries to record the issuance of the noninterest-bearing note by Blanton Plastics on October 1, 2018, the adjusting entry at December 31, and payment of the note at maturity. (b) What would be the effective interest rate?

Your client, Gwendolyn R. Nichols, SSN: 113-33-3333, DOB: 05-01-1941, attends her annual appointment with you to discuss the filing of her 2018 Federal Income Tax return. Gwendolyn is a widow, her husband, Harold T. Nichols, SSN: 144-44-4444, DOB: 05-13-1939, died on December 11, 2017 of natural causes. She tells you that she paid $11,000 in funeral expenses in January of 2018. Gwendolyn cares for two of her great-grandchildren, Jordan A. Lancaster, SSN: 115-55-5555, DOB: 12-15-2009 and Rose G. Lancaster, SSN: 116-66-6666, DOB: 08-03-2013. Her great-grandchildren live with her full-time. Gwendolyn’s grand-daughter, Therese Lancaster, SSN: 117-77-7777, DOB 03-15-1990, the mother of Gwendolyn’s great-grandchildren, lived with Gwendolyn from May of 2017 through January of 2019. She had a few off and on jobs, Gwendolyn isn’t sure how much she made from work, but says that it wasn’t very much because she wasn’t employed most of the time she lived with her. Gwendolyn tells you that she decreased her hours as a clerk at the library this year and that now she only works about 10 hours each week. She has a W-2 from the library reporting $12,500 in wages. She receives social security benefits of $1,000 per month and she still receives about $10,000 each year in tax-exempt interest. She also receives $750.00 per month from her late husband’s pension. She has provided you with all of the supporting tax documents for these items of income. She owns the residence at 123 West Kansas Street, Pittsburg, Kansas 66762 and has a small mortgage on the property which she took out several years ago to pay for a new roof. She paid real estate property tax on her home of $750. She also owns a 2010 Buick LeSabre and she provides you with a copy of the property tax statement. Gwendolyn is on Medicare and most of her medical expenses are paid. However, she advises you that she paid a total of $1,000 in medical services for various doctor’s appointments, eye glasses and prescriptions for herself. Jordan and Rose have Kansas HealthWave insurance which costs Gwendolyn $100 dollars a month. She also had $500 in additional health care costs for her great-grandchildren. Gwendolyn is an active member of her local Christian church and she donated $500 to the church in the form of cash charitable contributions and she made them a quilt which she donated for a fund-raising raffle. The quilt cost her about $200 for materials and she estimates its value at $600. Gwendolyn provides you the following documents related to her 2018 tax return: W-2 from the Pittsburg Community Library 1099 SSA Social Security Statement 1099-INT from Security Investments, Inc. 1099-R from the Fireman’s Pension fund 2018 Real Estate Property Tax Receipt 2018 Personal Property Tax Receipt Charitable contributions statements 1099-G regarding State of Kansas Tax Refund for 2017 1098 Mortgage Interest Statement Tax Bill for preparation of 2017 taxes, paid Gwendolyn requests that you complete her 2018 federal income tax return. For purposes of this assignment you may assume that all persons are covered by insurance for the entire year. You do not need to complete a state income tax return. You also do not need to concern yourself with any child tax credits. Please complete all attached forms and show how you calculated tax. In addition to completing his tax return, please also answer the following questions:

3. Should she file with a standard or itemized deductions, why?

A15-11 Convertible Debt; Investor Option versus Conversion Mandatory (LO 15-3, 15-4)

AMC Ltd. issued five-year, 5% bonds for their par value of $900,000 on 1 January 20X1. Interest is paid annually. The bonds are convertible to common shares at a rate of 50 common shares for every $1,000 bond.

(PV of $1, PVA of $1, and PVAD of $1.) (Use appropriate factor(s) from the tables provided.)

Required:
1. Assume that the bonds were convertible at the investor’s option and that the conversion option was valued at $73,800.

a. Provide the journal entry on issuance. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

b. Calculate interest expense for each year of the bond’s five-year life. Use an interest rate of 7% for this requirement. (Round your intermediate calculations and final answers to the nearest whole dollar.)

c. Provide the journal entry to record maturity of the bond assuming shareholders convert their bonds to common shares. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

d. Assume instead that the bonds were repaid for $940,000 after interest was paid in Year 3. Provide the journal entry for retirement, assuming $68,000 of the payment related to the option and the rest related to the bond. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate and final answers to the nearest whole dollar.)

2. Assume that the bonds were mandatorily convertible at maturity.

a. Calculate the portion of the original proceeds relating to interest and the equity portion. Use a discount rate of 6%. (Round your final answers to the nearest whole dollar. Round time value factor to 5 decimal places.)

b. Provide the journal entry on issuance. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your final answers to the nearest whole dollar. Round time value factor to 5 decimal places.)

On January 1, 2017, Pharoah Company purchased 12% bonds, having a maturity value of $320,000, for $344,260.74. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2017, and mature January 1, 2022, with interest received on January 1 of each year. Pharoah Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified as available-for-sale category. The fair value of the bonds at December 31 of each year-end is as follows. 2017 $342,000 2020 $330,700 2018 $329,700 2021 $320,000 2019 $328,700 (a) Prepare the journal entry at the date of the bond purchase. (b) Prepare the journal entries to record the interest revenue and recognition of fair value for 2017. (c) Prepare the journal entry to record the recognition of fair value for 2018.

Ethics of Selling

1. For each step of the personal selling process, explain unethical or illegal practices that a marketer must avoid.
2. Describe a situation when you have worked with a salesperson that you thought was either very ethical or very unethical. What things did this salesperson do make you feel this way?
3. The personal selling process can be used in many everyday scenarios. Think about selling your car (you personally, not a car dealer). Go through each step of the personal selling process and explain what you would do.

Walnut Systems produces two different products, Product A, which sells for $135 per unit, and Product B, which sells for $192 per unit, using three different activities: Design, which uses Engineering Hours as an activity driver; Machining, which uses machine hours as an activity driver; and Inspection, which uses number of batches as an activity driver. The cost of each activity and usage of the activity drivers are as follows:    

Walnut manufactures 10,500 units of Product A and 6,900 units of Product B per month. Each unit of Product A uses $45 of direct materials and $17 of direct labor, while each unit of Product B uses $70 of direct materials and $31 of direct labor.

Required:

a. Calculate the activity rate for design.



b. Calculate the activity rate for machining.



c. Calculate the activity rate for inspection.

           

d. Determine the indirect costs assigned to Product A.



e. Determine the indirect costs assigned to Product B.



f. Determine the manufacturing cost per unit for Product A. (Round your answer to 2 decimal places.)



g. Determine the manufacturing cost per unit for Product B. (Round your answer to 2 decimal places.)



h. Determine the gross profit per unit for Product A. (Round your intermediate calculation to 2 decimal places. Round your answer to 2 decimal places.)



i. Determine the gross profit per unit for Product B. (Round your intermediate calculation to 2 decimal places. Round your answer to 2 decimal places.)

The city of Miami has received a proposal to build a new multipurpose outdoor sports stadium. The expected life of the stadium is 20 years. It will be financed by a 20-year industrial development bond that will require a payment of 8 percent interest annually. The stadium’s primary tenant will be the city’s Triple-A baseball team, the Mudhawks.

The plan’s backers anticipate that the new facility will also be used for rock concerts and college and high school sports events. The city does not pay any taxes. The city’s cost of capital is 8 percent. The costs and estimated revenues generated from the facility are presented as follows:

Required:

1) Enos Printing Corp. uses a job order cost system. The following data summarize the operations related to the first quarter's production.

1. Materials purchased on account $197,600, and factory wages incurred $92500.

2) Materials requisitioned and factory labor used by job:

Job Number Materials Factory Labor

A20 $37,940 $18,100

A21 44,220 24,100

A22 37,200 16,300

A23 41,470 26,600

General factory use 5,270 7,400

= $166,100 $92,500

3. Manufacturing overhead costs incurred on account $50,500.

4. Depreciation of factory equipment $16,650.

5. Depreciation on the company's office building was $14,500.

6. Manufacturing overhead rate is 87% of direct labor cost.

7. Jobs completed during the quarter: A20, A21, and A23.

Prepare entries to record the operations summarized above.

Three different companies each purchased trucks on January 1, 2018, for $74,000. Each truck was expected to last four years or 250,000 miles. Salvage value was estimated to be $5,000. All three trucks were driven 80,000 miles in 2018, 60,000 miles in 2019, 45,000 miles in 2020, and 70,000 miles in 2021. Each of the three companies earned $63,000 of cash revenue during each of the four years. Company A uses straight-line depreciation, company B uses double-declining-balance depreciation, and company C uses units-of-production depreciation.

Answer each of the following questions. Ignore the effects of income taxes.

5. Which company will report the lowest amount of cash flow from operating activities on the 2020 statement of cash flows?

Please describe generally how the federal gift and estate tax operates, and discuss how individuals use the planning process to minimize its cost. I need approximately 2 paragraphs. Thanks!

On January 1, 2018, Nath-Langstrom Services, Inc., a computer software training firm, leased several computers under a two-year operating lease agreement from ComputerWorld Leasing, which routinely finances equipment for other firms at an annual interest rate of 6%. The contract calls for four rent payments of $12,000 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $94,000 and were expected to have a useful life of Five years with no residual value. Both firms record amortization and depreciation semi-annually.

Prepare the appropriate enteries for both the lessee and the lessor from the beginning of the lease through the end of 2018

1. Jan 1 2018 Record the beginning of the lease for Nath-Langstorm Services

2. June 30 2018 Record the lease payment and interest expense for Nath-Langstrom Services

3. June 30 2018 Record the amortization expense for Nath-Langstrom Services

4. December 31 2018 Record the lease payment and interest expense for Nath-Langstrom Services

5. December 31 2018 Record the amortization expense for Nath-Langstrom Services

6. June 30 2018 Record the lease revenue received by ComputerWorld Leasing

7. June 30 2018 Record the Depreciation expense for ComputerWorld Leasing

8. December 31 2018 Record the lease revenue received by ComputerWorld Leasing

9. December 31 2018 Record the Depreciatino for ComputerWorld Leasing

Piedmont Company segments its business into two regions—North and South. The company prepared the contribution format segmented income statement as shown:

Required:

1. Compute the companywide break-even point in dollar sales.

2. Compute the break-even point in dollar sales for the North region.

3. Compute the break-even point in dollar sales for the South region.

(For all requirements, round your intermediate calculations to 2 decimal places. Round your final answers to the nearest dollar.)

2. What are the three steps to goodwill impairment test and are they optional?

Learning Objectives 4, 5, 6: Analyze the impact of business transactions on accounts; record (journalize and post) transactions in the books; construct and use a trial balance) During the first month of operation of Gordon Construction, Inc., completed the following transactions: June 2 Gordon received $55,000 cash and issued common stock to the stockholders. 3 Purchased supplies, $3,000, and equipment, $5,200, on account. 4 Performed services for a client and received cash, $6,300. 7 Paid cash to acquire land, $37,000. 11 Performed services for a customer and billed the customer, $1,200. Johnson expects to collect within one month. 16 Paid partial for the equipment purchased June 3 on account $2,800. 17 Paid the telephone bill, $230. 18 Received partial payment from customer on account, $700. 22 Paid the water and electricity bills, $400. 29 Received $5,000 cash for repairing the pipes of a customer. 30 Paid employee salary, $4,300. 30 Declared and paid dividends of $3,000. ▸Requirements • 1. Record each transaction in the journal. Key each transaction by date. Explanations are not required. • 2. Post the transactions to the T-accounts, using transaction dates as posting references. • 3. Prepare the trial balance of Gordon Construction, Inc., at June 30, 20xx. • 4. The manager asks you how much in total resources the business has to work with and, how much it owes. Case Study 1 (Part B) Requirement 2 (Learning Objectives 3, 4: Adjust the accounts; construct the financial statements) Record the following month end adjusting entries for Gordon Construction, Inc. at June 30, 20xx Month end accruals at June 30, 20xx: • a. Accrued advertising revenue at June 30, $3,100. • b. Supplies used during June, $2,300. • c. Accrued salary expense at June 30 for Monday, Tuesday, and Wednesday. The five-day weekly payroll is $6,100 and will be paid on Friday. Requirement 2 Prepare adjusted trial balance for Gordon Construction at June 30, 20xx. How much are the total resources? How much does the business owe? How much profit was made in June?

The following are independent situations for which you will recommend an appropriate audit report: 1. Subsequent to the date of the financial statements as part of his post-balance sheet date audit procedures, a CPA learned that a recent fire caused heavy damage to one of a client’s two plants; the loss will not be reimbursed by insurance. The newspapers described the event in detail. The financial statements and footnotes as prepared by the client did not disclose the loss caused by the fire. 2. During the course of his audit of the financial statements of a corporation for the purpose of expressing an opinion on the statements, a CPA is refused permission to inspect the minutes of board of directors’ meetings that document significant decisions of the board. The corporation secretary instead offers to give the CPA a certified copy of all resolutions and actions involving accounting matters. 3. A CPA is engaged in the audit of the financial statements of a large manufacturing company with branch offices in many widely separated cities. The CPA was not able to count the substantial undeposited cash receipts at the close of business on the last day of the fiscal year at all branch offices. As an alternative to this auditing procedure used to verify the accurate cutoff of cash receipts, the CPA observed that deposits in transit as shown on the year-end bank reconciliation appeared as credits on the bank statement on the first business day of the new year. He was satisfied as to the cutoff of cash receipts by the use of the alternative procedure. 4. On January 2, 2020, the Retail Auto Parts Company received a notice from its primary supplier that effective immediately, all wholesale prices will be increased by 10 percent. On the basis of the notice, Retail Auto Parts revalued its December 31, 2019, inventory to reflect the higher costs. The inventory constituted a material proportion of total assets; however, the effect of the revaluation was material to current assets but not to total assets or net income. The increase in valuation is adequately disclosed in the footnotes. 5. A CPA has completed her audit of the financial statements of a bus company for the year ended December 31, 2019. Prior to 2019, the company depreciated its buses over a 10-year period. During 2019, the company determined that a more realistic estimated life for its buses was 12 years and computed the 2019 depreciation on the basis of the revised estimate. The CPA has satisfied herself that the 12-year life is reasonable.The company has adequately disclosed the change in estimated useful lives of its buses and the effect of the change on 2019 income in a note to the financial statements. 6. E-Lotions.com, Inc., is an online retailer of body lotions and other bath and body supplies. The company records revenues at the time customer orders are placed on the website, rather than when the goods are shipped, which is usually two days after the order is placed. The auditor determined that the amount of orders placed but not shipped as of the balance sheet date is not material.

b. State the level of materiality as immaterial, material, or highly material. If you cannot decide the level of materiality, state the additional information needed to make a decision.