Exercise 19-04 Wildhorse Company reports pretax financial income of $76,100 for 2020. The following items cause taxable income to be different than pretax financial income.
1. Depreciation on the tax return is greater than depreciation on the income statement by $16,700.
2. Rent collected on the tax return is greater than rent recognized on the income statement by $22,700.
3. Fines for pollution appear as an expense of $11,100 on the income statement. Wildhorse’s tax rate is 30% for all years, and the company expects to report taxable income in all future years. There are no deferred taxes at the beginning of 2020.
1. Compute taxable income and income taxes payable for 2020.
2. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
3. Prepare the income tax expense section of the income statement
for 2020, beginning with the line “Income before income taxes.”
(Enter negative amounts using either a negative sign
preceding the number e.g. -45 or parentheses e.g.
(45).)
4. Compute the effective income tax rate for 2020.
(Round answer to 1 decimal places, e.g.
25.5%.)
In: Accounting
3. (LESSOR ENTRIES FOR FINANCING LEASE WITH A GUARANTEED RESIDUAL)
The following facts pertain to a non-cancelable lease agreement between Ace Leasing Company and King Company, a lessee.
Commencement of Lease Date January 1, 2020
Annual lease payment due at the beginning of the year beginning with January 1, 2020 $137,171
Residual value of equipment at end of lease term, guaranteed by lessee $54,000
Book Value of Lease Equipment on LESSOR books $500,000
Lease term 6 years
Economic life of leased equipment 7 years
Fair Value of asset at January 1, 2020 $659,000
Lessor’s Implicit Rate 12% Lessee’s incremental borrowing rate 12%
The asset will revert to the lessor at the end of the lease term. You examined this lease from the Lessee prospective in problem #1. Based on the tests you found it was a financing lease. In this problem you will complete the LESSOR entries. You do not need to redo the tests – it is still a financing lease with a guaranteed residual
A. Prepare the entry on the Lessor’s book to record this Lease on 1/1/2020. You will need to compute the Lease Receivable debit, the CGS debit, the Equipment credit and the Sale Revenue credit to complete the entry.
B. Complete the entry to receive the first rental payment on 1/1/2020.
C. Prepare the interest revenue amortization schedule for the first two years and prepare the interest revenue entry for 12/31/2020.
In: Accounting
The bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, 2022. The bonds yield 12%. Give entries through December 31, 2020.
Prepare all the relevant journal entries from March 1, 2019 until March 1, 2020. (The company closes its books on December 31).
In: Accounting
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In: Accounting
On January 1, 2020, Bristol Corporation issued one 3-year, 10% (stated rate), $20,000 bond at a price which would yield the purchaser an 9% return. Payment of interest is made on December 31. The year end is December 31. The company uses the ‘effective interest’ method to account for bond interest.
In: Accounting
Exercise 21-10 (Part Level Submission)
The following facts pertain to a non-cancelable lease agreement
between Sandhill Leasing Company and Teal Mountain Company, a
lessee.
| Commencement date | May 1, 2020 | ||
| Annual lease payment due at the beginning of | |||
| each year, beginning with May 1, 2020 | $19,656.69 | ||
| Bargain purchase option price at end of lease term | $7,000 | ||
| Lease term | 5 | years | |
| Economic life of leased equipment | 10 | years | |
| Lessor’s cost | $65,000 | ||
| Fair value of asset at May 1, 2020 | $93,000 | ||
| Lessor’s implicit rate | 6 | % | |
| Lessee’s incremental borrowing rate | 6 | % |
The collectibility of the lease payments by Sandhill is
probable.
c. Prepare a lease amortization schedule for Rode for the 5-year lease term.
d. Prepare the journal entries on the lessee's books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2020 and 2021. Rode's annual accounting period ends on December 31. Reversing entries are used by Rode.
In: Accounting
On January 1, 2020, Flounder Company purchased 11% bonds, having
a maturity value of $320,000 for $344,893.28. The bonds provide the
bondholders with a 9% yield. They are dated January 1, 2020, and
mature January 1, 2025, with interest received on January 1 of each
year. Flounder 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.
|
2020 |
$342,600 |
2023 |
$330,400 | |||
|---|---|---|---|---|---|---|
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2021 |
$329,200 |
2024 |
$320,000 | |||
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2022 |
$328,300 |
| (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 2020. | |
| (c) | Prepare the journal entry to record the recognition of fair value for 2021. |
(Round answers to 2 decimal places, e.g. 2,525.25.
Credit account titles are automatically indented when amount is
entered. Do not indent manually. If no entry is required, select
"No Entry" for the account titles and enter 0 for the
amounts.)
In: Accounting
Teal Construction Company has entered into a contract beginning
January 1, 2020, to build a parking complex. It has been estimated
that the complex will cost $597,000 and will take 3 years to
construct. The complex will be billed to the purchasing company at
$908,000. The following data pertain to the construction
period.
|
2020 |
2021 |
2022 |
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| Costs to date | $286,560 | $453,720 | $609,000 | |||
| Estimated costs to complete | 310,440 | 143,280 | –0– | |||
| Progress billings to date | 273,000 | 548,000 | 908,000 | |||
| Cash collected to date | 243,000 | 498,000 | 908,000 |
(a) Using the percentage-of-completion method, compute the estimated gross profit that would be recognized during each year of the construction period.
| Gross profit recognized in 2020 |
| Gross profit recognized in 2021 |
Gross profit recognized in 2022
(b) Using the completed-contract method, compute the estimated gross profit that would be recognized during each year of the construction period
| Gross profit recognized in 2020 |
Gross profit recognized in 2021
Gross profit recognized in 2022
In: Accounting
Presented below is an income statement for Crane Company for the
year ended December 31, 2020.
| Crane
Company Income Statement For the Year Ended December 31, 2020 |
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| Net sales | $786,000 | ||
| Costs and expenses: | |||
| Cost of goods sold | 555,000 | ||
| Selling, general, and administrative expenses | 77,000 | ||
| Other, net | 30,000 | ||
| Total costs and expenses | 662,000 | ||
| Income before income taxes | 124,000 | ||
| Income taxes | 37,200 | ||
| Net income | $86,800 | ||
Additional information:
| 1. | "Selling, general, and administrative expenses" included a usual but infrequent charge of $8,000 due to a loss on the sale of investments. | ||
| 2. | "Other, net" consisted of interest expense, $10,000, and a discontinued operations loss of $20,000 before taxes. If the discontinued operations loss had not occurred, income taxes for 2020 would have been $43,200 instead of $37,200. | ||
| 3. | Crane had 20,000 shares of common stock outstanding during 2020. |
Using the single-step format, prepare a corrected income statement,
including the appropriate per share disclosures.
In: Accounting
How do we calculate goodwill under U.S. GAAP?
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It is the reported RE on the subsidiary's balance sheet. |
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It is the sum of all assets and shares of stock used to purchase the subsidiary. |
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It is the difference between the amount paid and the net assets of the subsidiary. |
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None of these are the correct way to calculate the value of goodwill under U.S. GAAP. |
When can companies capitalize most of their R&D (research and development) costs?
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When the company can show the research will lead to a feasible product. |
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When the R&D costs become sufficiently material to warrant capitalization. |
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When the company begins consulting a lawyer to develop a patent or copyright. |
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When the company determines that R&D costs are a significant part of its mission. |
In: Accounting