Financial Accounting 17th edition chapter 5 5PSA step by step solution

Next Job, Inc., provides employment consulting services. The company adjusts its accounts monthly but performs closing entries annually on December 31. The firm’s unadjusted trial balance dated December 31, current year, is shown as follows.

Other Data

Accrued but unrecorded and uncollected consulting fees earned total $25,000 at December 31, current year.

The company determined that $15,000 of previously unearned consulting services fees had been earned at December 31, current year.

Office supplies on hand at December 31 total $300.

The company purchased all of its equipment when it first began business. At that time, the estimated useful life of the equipment was six years (72 months).

The company prepaid its nine-month rent agreement on June 1, current year.

The company prepaid its six-month insurance policy on December 1, current year.

Accrued but unpaid salaries total $12,000 at December 31, current year.

On September 1, current year, the company borrowed $60,000 by signing an 8-month, 4 percent note payable. The entire amount, plus interest, is due on March 1, next year.

The company’s accounting firm estimates that income taxes expense for the entire year is $50,000. The unpaid portion of this amount is due early in the next year.

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NEXT JOB, INC.

UNADJUSTED TRIAL BALANCE

DECEMBER 31, CURRENT YEAR

Cash $276,500

Accounts receivable 90,000

Office supplies 800

Prepaid rent 3,600

Unexpired insurance 1,500

Office equipment 72,000

Accumulated depreciation: office equipment $?24,000

Accounts payable 4,000

Notes payable (due 3/1/16) 60,000

Interest payable 600

Income taxes payable 9,000

Dividends payable 3,000

Unearned consulting fees 22,000

Capital stock 200,000

Retained earnings 40,000

Dividends 3,000

Consulting fees earned 500,000

Rent expense 14,700

Insurance expense 2,200

Office supplies expense 4,500

Depreciation expense: office equipment 11,000

Salaries expense 330,000

Utilities expense 4,800

Interest expense 3,000

Income taxes expense 45,000 ???????

Totals $862,600 $862,600

Instructions

Prepare the necessary adjusting journal entries on December 31, current year. Also prepare an adjusted trial balance dated December 31, current year.

From the adjusted trial balance prepared in part a, prepare an income statement and statement of retained earnings for the year ended December 31, current year. Also prepare the company’s balance sheet dated December 31, current year.

Prepare the necessary year-end closing entries.

Prepare an after-closing trial balance.

Which of the following affect the weighted average cost of capital?

Select one:

A. Interest on bank loans

B. Dividends expected by investors

C. Expected increases in the value of stock in the company

D. Bond interest payments

E. All of the above

Audit Sampling

• Why you do substantive testing
• Why you test control
• What is the characteristics  of sampling
• what is the objective choosing a sample
• TER = how to control
• Relation with ARIA, TER , EPER
• Definition of risk of material misstatement  and how to handle in various situations
• Job of credit manager = how it affects your audit work
• Definition of what is an error

The following data has been provided by Moretta Corporation, a company that produces forklift trucks:

Budgeted production                          3400 trucks

Standard machine-hours per truck    2.9 machine-hours

Standard supplies cost                          $1.50 per machine hour

Actual production                                   3800 trucks

Actual machine-hours                            10930 machine-hours

Actual supplies cost (total)                     $17496

Supplies cost is an element of variable manufacturing overhead. The variable overhead efficiency variance for supplies cost is:

A) $135 U

B) $135 F

C) $966 U

D) $966 F

Multiple Choice Question 147

Swifty Corporation issues 2600, 10-year, 6%, $1000 bonds dated January 1, 2018, at 99. The journal entry to record the issuance will show a:

A. debit to Cash of $2600000.

B. debit to Cash for $2574000.

C. credit to Discount on Bonds Payable for $26000

D. credit to Bonds Payable for $2626000

ABC Company issues bonds on January 1, Year 1. The bonds have a par value of $10,000,000, a coupon rate of 10% with interest paid semi-annually on every June 30 and December 31 for 10 years, and the yield on the date of issuance is 8%. Calculate the following:

a. The issuance price on January 1, Year1.

b. The impact on the income statement in Year 1. (Expense or revenue and the amount.)

c. The impact on the statement of cash flows in Year 1. (Section of the statement of cash flows, amount, inflow or outlfow.)

d. The amount of total interest expense over the life of the bonds (hint: you can calculate this without generating an amortization chart.)

e. The carrying value of the bonds on the balance sheet at December 31, Year 1.

Grichuk Power leased high-tech electronic equipment from Kolten Leasing on January 1, 2018. Kolten purchased the equipment from Wong Machines at a cost of $250,000, its fair value. (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.) Related Information: Lease term 2 years (8 quarterly periods) Quarterly lease payments $15,000 at Jan. 1, 2018, and at Mar. 31, June 30, Sept. 30, and Dec. 31 thereafter. Economic life of asset 5 years Interest rate charged by the lessor 8% Required: Prepare a lease amortization schedule and appropriate entries for Grichuk Power from the commencement of the lease through December 31, 2018. December 31 is the fiscal year end for each company. Appropriate adjusting entries are recorded at the end of each quarter.

Amort Schedule

General Journal

Prepare a lease amortization schedule for the term of the lease for Grichuk Power from the commencement of the lease through December 31, 2018. December 31 is the fiscal year end for each company. (Round your intermediate calculations to the nearest whole dollar amount. Enter all amounts as positive values.)

journal entries:

1 )Record the beginning of the lease for Grichuk Power.

2)Record the quarterly rental paid by Grichuk Power.

3)Record the quarterly rental and interest paid by Grichuk Power.

4 ) Record the amortization of Right-of-use equipment for Grichuk Power.

1. Multiple Choice ( 20 Marks)

Define a “Section 1231 Asset”? Why would the disposition of a Section 1231 be considered the “best of both worlds” for a taxpayer?

19. Matching: Place the number below next to the corresponding business entity being described:

ECI _____

FDAP ______

FIRPTA _____

Portfolio Interest_____

Branch Profits Tax _____

1. Exception from FDAP withholding on interest income from certain portfolio debt investments.

2. 30% withholding tax on passive-type income (interest, dividends, etc..).

3. 30% tax imposed on a foreign corporation based on a deemed distribution of US branch operations.

4. Imposed on 1980 by the Foreign Investment in Real Property Tax Act.

5. A withholding tax on income that is effectively connected with a United States trade or business.

13. Alice owns an apartment complex with an adjusted basis of $305,000. A flood occurs on a property, and the insurance policy reimburses Alice $500,000 for the loss. The transaction may be taxable as follows (circle as many as apply – more than one is correct):

A. Gain of $195,000 on the sale of the asset.

B. No taxable gain if $900,000 is reinvested into other commercial property owned within two years after the insurance is received.

C. No taxable gain if $305,000 is reinvested into other commercial property owned within two years after the insurance is received.

D No taxable gain if $700,000 is reinvested into another apartment complex within two years after the insurance is received.

E No taxable gain if $305,000 is reinvested to repair the existing apartment complex

15. An installment sale:

A. Can defer the recognition of a loss on the sale of real estate.
B. Applies only when a payment is received after the close of the tax year in which the sale occurs.

C. Must be applied in all situations when a payment is received after year end.
D. Can only be used for new construction.

E. All of the above.

What is the importance of having an effective compliance and ethics program with respect to the FCPA? What is the role of confidential reporting and internal investigations in the compliance program?

12. Indicate below whether the installment sale method of accounting can apply to each of these transactions (answer “yes” = installment method possible or “no” = installment method not allowed):

_____ Sale of 12-acre tract of land held as inventory by a real estate developer where payment will be received in 2 years.
_____ Sale of business equipment where payment is due after year end.
_____ Sale of commercial building subject to seller note (where payment is to be received in future years).

_____ Sale of single parcel of land held as an investment where a taxable loss resulted.

_____ Sale of building subject to a contingent sales price that may not be ultimately received.

1. Match the following definitions/terms by placing the Number that identifies the best definition in Answer Column. Note: 15 Definitions – Second page.

Marcus Simmons caught the flu and needed to see the doctor. Simmons called to set up an appointment and was told to come in at 1:00 P.M. Simmons arrived at the doctor's office promptly at 1:00 P.M. The waiting room had 5 other people in it. Patients were admitted from the waiting room in FIFO (first-in, first-out) order at a rate of 5 minutes per patient. After waiting until his turn, a nurse finally invited Simmons to an examining room. Once in the examining room, Simmons waited another 5 minutes before a nurse arrived to take some basic readings (temperature, blood pressure). The nurse needed 10 minutes to collect this clinical information. After the nurse left, Simmons waited 30 additional minutes before the doctor arrived. The doctor diagnosed the flu and provided a prescription for antibiotics, which took 5 minutes. Before leaving the doctor's office, Simmons waited 10 minutes at the business office to pay for the office visit.

Simmons spent 5 minutes walking next door to fill the prescription at the pharmacy. There were four people in front of Simmons, each person requiring 5 minutes to fill and purchase a prescription. Simmons arrived home 15 minutes after paying for his prescription.

a. What time does Simmons arrive home?
3:10 p.m.

b. How much of the total elapsed time from 1:00 P.M. until when Simmons arrived home was non-value-added time?

c. What is the value-added ratio? Round your percent to one decimal place.
%

d. Which of the following statement is correct?
All of the above.