Problem 13-6 Various contingencies [LO13-5, 13-6]

Eastern Manufacturing is involved with several situations that possibly involve contingencies. Each is described below. Eastern’s fiscal year ends December 31, and the 2018 financial statements are issued on March 15, 2019.

1. Eastern is involved in a lawsuit resulting from a dispute with a supplier. On February 3, 2019, judgment was rendered against Eastern in the amount of $107 million plus interest, a total of $122 million. Eastern plans to appeal the judgment and is unable to predict its outcome though it is not expected to have a material adverse effect on the company.
2. In November 2017, the State of Nevada filed suit against Eastern, seeking civil penalties and injunctive relief for violations of environmental laws regulating hazardous waste. On January 12, 2019, Eastern reached a settlement with state authorities. Based upon discussions with legal counsel, the Company feels it is probable that $140 million will be required to cover the cost of violations. Eastern believes that the ultimate settlement of this claim will not have a material adverse effect on the company.
3. Eastern is the plaintiff in a $200 million lawsuit filed against United Steel for damages due to lost profits from rejected contracts and for unpaid receivables. The case is in final appeal and legal counsel advises that it is probable that Eastern will prevail and be awarded $100 million.
4. At March 15, 2019, Eastern knows a competitor has threatened litigation due to patent infringement. The competitor has not yet filed a lawsuit. Management believes a lawsuit is reasonably possible, and if a lawsuit is filed, management believes damages of up to $33 million are reasonably possible.

   
Required:
1. Determine the appropriate means of reporting each situation.
2. Prepare the appropriate journal entries for these situations.
  

Allocating Joint Costs Using the Net Realizable Value Method A company manufactures three products, L-Ten, Triol, and Pioze, from a joint process. Each production run costs $12,600. None of the products can be sold at split-off, but must be processed further. Information on one batch of the three products is as follows: Product Gallons Further Processing Cost per Gallon Eventual Market Price per Gallon L-Ten 3,500 $0.60 $2.60 Triol 4,000 0.90 5.10 Pioze 2,000 1.40 6.00 Required: 1. Allocate the joint cost to L-Ten, Triol, and Pioze using the net realizable value method. Round your allocation percentages to four decimal places and round the allocated costs to the nearest dollar. Joint Cost Grades Allocation L-Ten $ Triol Pioze Total $ 2. What if it cost $1.90 to process each gallon of Triol beyond the split-off point? How would that affect the allocation of joint cost to the three products? Round your allocation percentages to four decimal places and round the allocated costs to the nearest dollar. Joint Cost Grades Allocation L-Ten $ Triol Pioze Total $

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?