You are the new accounting manager at the Barry Transport
Company. Your CFO has asked you to provide input on the company's
income tax position based on the following:
Pretax accounting income was $64 million and taxable income was $11 million for the year ended December 31, 2018.
The difference was due to three items:
Tax depreciation exceeds book depreciation by $50 million in 2018 for the business complex acquired that year. This amount is scheduled to be $70 million in 2019 and to reverse as ($60 million) and ($60 million) in 2020, and 2021, respectively.
Insurance of $9 million was paid in 2018 for 2019 coverage.
A $6 million loss contingency was accrued in 2018, to be paid in 2020.
No temporary differences existed at the beginning of 2018.
The tax rate is 40%.
Required:
1. Determine the amounts necessary to record
income taxes for 2018 and prepare the appropriate journal
entry.
2. Assume the enacted federal income tax law
specifies that the tax rate will change from 40% to 35% in 2020.
When scheduling the reversal of the depreciation difference, you
were uncertain as to how to deal with the fact that the difference
will continue to originate in 2019 before reversing the next two
years. Upon consulting PricewaterhouseCoopers' Comperio
database, you found:
.441 Depreciable and amortizable
assets
Only the reversals of the temporary difference at the balance
sheet date would be scheduled. Future originations are not
considered in determining the reversal pattern of temporary
differences for depreciable assets. FAS 109 [FASB ASC 740–Income
Taxes] is silent as to how the balance sheet date temporary
differences are deemed to reverse, but the FIFO pattern is
intended.
You interpret that to mean that, when future taxable amounts are
being scheduled, and a portion of a temporary difference has yet to
originate, only the reversals of the temporary difference at the
balance sheet date can be scheduled and multiplied by the tax rate
that will be in effect when the difference reverses. Future
originations (like the depreciation difference the second year) are
not considered when determining the timing of the reversal. For the
existing temporary difference, it is assumed that the difference
will reverse the first year the difference begins reversing.
Determine the amounts necessary to record income taxes for 2018 and
prepare the appropriate journal entry.
In: Accounting
As a member of an international negotiation team, you have been requested to prepare a short summary (no more than 1 page) of the cultural situation the CEO will face when s/he visits The United Kingdom. Include as many sections as you think relevant. Include sources as well. The CEO likes to be well prepared
In: Economics
Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Metlock Company. The following information relates to this agreement.
| 1. | The term of the non-cancelable lease is 3 years with no renewal option. The equipment has an estimated economic life of 5 years. | |
| 2. | The fair value of the asset at January 1, 2020, is $76,000. | |
| 3. | The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $7,000, none of which is guaranteed. | |
| 4. | The agreement requires equal annual rental payments of $24,177.00 to the lessor, beginning on January 1, 2020. | |
| 5. | The lessee’s incremental borrowing rate is 5%. The lessor’s implicit rate is 4% and is unknown to the lessee. | |
| 6. | Metlock uses the straight-line depreciation method for all equipment. |
Click here to view factor tables.
Prepare all of the journal entries for the lessee for 2020 to
record the lease agreement, the lease payments, and all expenses
related to this lease. Assume the lessee’s annual accounting period
ends on December 31. (For calculation purposes, use 5
decimal places as displayed in the factor table provided and round
answers to 2 decimal places, e.g. 5,265.25. Credit account titles
are automatically indented when the amount is entered. Do not
indent manually. Record journal entries in the order presented in
the problem.)
|
Date |
Account Titles and Explanation |
Debit |
Credit |
|---|---|---|---|
|
1/1/2012/31/20 |
enter an account title To record the lease on January 1 2020 |
enter a debit amount |
enter a credit amount |
|
enter an account title To record the lease on January 1 2020 |
enter a debit amount |
enter a credit amount |
|
|
(To record the lease) |
|||
|
1/1/2012/31/20 |
enter an account title To record lease liability on January 1 2020 |
enter a debit amount |
enter a credit amount |
|
enter an account title To record lease liability on January 1 2020 |
enter a debit amount |
enter a credit amount |
|
|
(To record lease liability) |
|||
|
1/1/2012/31/20 |
enter an account title for the journal entry on December 31 2020 |
enter a debit amount |
enter a credit amount |
|
enter an account title for the journal entry on December 31 2020 |
enter a debit amount |
enter a credit amount |
|
|
enter an account title for the journal entry on December 31 2020 |
enter a debit amount |
enter a credit amount |
In: Accounting
uestion 8
0.71/1
View Policies
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Current Attempt in Progress
Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Concord Company. The following information relates to this agreement.
| 1. | The term of the non-cancelable lease is 3 years with no renewal option. The equipment has an estimated economic life of 5 years. | |
| 2. | The fair value of the asset at January 1, 2020, is $75,000. | |
| 3. | The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $8,000, none of which is guaranteed. | |
| 4. | The agreement requires equal annual rental payments of $23,522.48 to the lessor, beginning on January 1, 2020. | |
| 5. | The lessee’s incremental borrowing rate is 5%. The lessor’s implicit rate is 4% and is unknown to the lessee. | |
| 6. | Concord uses the straight-line depreciation method for all equipment. |
Click here to view factor tables.
Prepare all of the journal entries for the lessee for 2020 to
record the lease agreement, the lease payments, and all expenses
related to this lease. Assume the lessee’s annual accounting period
ends on December 31. (For calculation purposes, use 5
decimal places as displayed in the factor table provided and round
answers to 2 decimal places, e.g. 5,265.25. Credit account titles
are automatically indented when the amount is entered. Do not
indent manually. Record journal entries in the order presented in
the problem.)
|
Date |
Account Titles and Explanation |
Debit |
Credit |
|---|---|---|---|
|
1/1/2012/31/20 |
enter an account title To record the lease on January 1 2020 |
enter a debit amount |
enter a credit amount |
|
enter an account title To record the lease on January 1 2020 |
enter a debit amount |
enter a credit amount |
|
|
(To record the lease) |
|||
|
1/1/2012/31/20 |
enter an account title To record lease liability on January 1 2020 |
enter a debit amount |
enter a credit amount |
|
enter an account title To record lease liability on January 1 2020 |
enter a debit amount |
enter a credit amount |
|
|
(To record lease liability) |
|||
|
1/1/2012/31/20 |
enter an account title for the journal entry on December 31 2020 |
enter a debit amount |
enter a credit amount |
|
enter an account title for the journal entry on December 31 2020 |
enter a debit amount |
enter a credit amount |
|
|
enter an account title for the journal entry on December 31 2020 |
enter a debit amount |
enter a credit amount |
eTextbook and Media
List of Accounts
In: Accounting
Recording Purchase of Equipment through Debt and Equity On January 1, 2020, Sidelines Company purchases equipment with an estimated 6-year useful life by making a $28,000 cash payment and issuing a noninterset-bearing note for $96,000 due in two years. The fair value of the the equipment is unknown. An 11% annual interest rate is typical of this transaction. The company uses the effective interest method to amortize interest expense and the straight-line method to estimate depreciation expense. a. Prepare the entry to record the purchase on January 1, 2020. b. Prepare the entry on December 31, 2020, to record (1) interest expense and (2) depreciation expense. c. Indicate the balance sheet presentation related to this transaction as of December 31, 2020. d. Prepare the entry on December 31, 2021, to record (1) interest expense and payment of the note and (2) depreciation expense. e. Assume instead that Sidelines exchanged 2,000 shares of its own $10 par value common stock along with $28,000 cash for the equipment. At the date of the exchange, the stock was trading on the market at $40 per share. Prepare the entry to record the purchase of equipment. Purchase of Equipment with Debt Purchase of Equipment through Equity a. Prepare the entry to record the purchase on January 1, 2020. Date Account Name Dr. Cr. Jan. 1, 2020 Equipment Answer Answer Answer Answer Answer Cash Answer Answer Answer Answer Answer b. Prepare the entry on December 31, 2020, to record (1) interest expense and (2) depreciation expense. Date Account Name Dr. Cr. Dec. 31, 2020 Answer Answer Answer Answer Answer Answer To record interest. Dec. 31, 2020 Answer Answer Answer Answer Answer Answer To record depreciation. c. Indicate the balance sheet presentation related to this transaction as of December 31, 2020. Balance Sheet, Dec 31 2020 Assets: Equipment, net Answer Liabilities: Note payable, net Answer d. Prepare the entry on December 31, 2021, to record (1) interest expense and payment of the note and (2) depreciation expense. Date Account Name Dr. Cr. Dec. 31, 2021 Answer Answer Answer Answer Answer Answer To record interest. Dec. 31, 2021 Answer Answer Answer Answer Answer Answer To record payment on note. Dec. 31, 2021 Answer Answer Answer Answer Answer Answer To record depreciation.
In: Accounting
Laura Leasing Company signs an agreement on January 1, 2020, to
lease equipment to Kingbird Company. The following information
relates to this agreement.
| 1. | The term of the non-cancelable lease is 3 years with no renewal option. The equipment has an estimated economic life of 5 years. | |
| 2. | The fair value of the asset at January 1, 2020, is $75,000. | |
| 3. | The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $8,000, none of which is guaranteed. | |
| 4. | The agreement requires equal annual rental payments of $23,522.48 to the lessor, beginning on January 1, 2020. | |
| 5. | The lessee’s incremental borrowing rate is 5%. The lessor’s implicit rate is 4% and is unknown to the lessee. | |
| 6. | Kingbird uses the straight-line depreciation method for all equipment. |
Click here to view factor tables.
Prepare all of the journal entries for the lessee for 2020 to
record the lease agreement, the lease payments, and all expenses
related to this lease. Assume the lessee’s annual accounting period
ends on December 31. (For calculation purposes, use 5
decimal places as displayed in the factor table provided and round
answers to 2 decimal places, e.g. 5,265.25. Credit account titles
are automatically indented when the amount is entered. Do not
indent manually. Record journal entries in the order presented in
the problem.)
|
Date |
Account Titles and Explanation |
Debit |
Credit |
|---|---|---|---|
|
1/1/2012/31/20 |
enter an account title To record the lease on January 1 2020 |
enter a debit amount |
enter a credit amount |
|
enter an account title To record the lease on January 1 2020 |
enter a debit amount |
enter a credit amount |
|
|
(To record the lease) |
|||
|
1/1/2012/31/20 |
enter an account title To record lease liability on January 1 2020 |
enter a debit amount |
enter a credit amount |
|
enter an account title To record lease liability on January 1 2020 |
enter a debit amount |
enter a credit amount |
|
|
(To record lease liability) |
|||
|
1/1/2012/31/20 |
enter an account title for the journal entry on December 31 2020 |
enter a debit amount |
enter a credit amount |
|
enter an account title for the journal entry on December 31 2020 |
enter a debit amount |
enter a credit amount |
|
|
enter an account title for the journal entry on December 31 2020 |
enter a debit amount |
enter a credit amount |
In: Accounting
the accountant's Company
Income Statement
For the Year Ended December 31, 2018
Sales $8,500,000
Manufacturing Expenses
Variable $3,250,000
Fixed overhead 640,000 3,890,000
Gross Margin $4,610,000
Selling and administrative expenses
Commissions $580,000
Fixed marketing expenses 300,000
Fixed admin expenses 450,000 1,330,000
Net Operating Income $3,280,000
Fixed Interest expenses 230,000
Income before Taxes $3,050,000
Income Taxes (21%) 640,500
Net Income $2,409,500
Your company is considering out-sourcing the sales and marketing to an agency specializing in these types of sales. The outsourcing would remove the commissions, reduce the marketing by $270,000, and reduce the fixed administrative expenses by $35,000. The out-sourcing firm, Jangler Marketing, will charge a fee of 14% of sales. Jangler requires a 3-year contract. Jangler believes that it can increase sales by 10% for 2019 and 13% each year after (2020 and 2021). The company believes that with its current sales and marketing staff, sales will increase by 8% for 2019 and 9% in each year after (2020 and 2021).
1.Prepare contribution format projected income statements for 2019, 2020 & 202a assuming the company hires Jangler Marketing.
2.Prepare contribution format projected income statements assuming the outsourcing is rejected.
In: Accounting
Ethics Case
What should he do?
Tobias Ivanov, a senior accountant, has just completed his third year at a large accounting firm. During this time, Tobias has been consistently evaluated as an above average performer and a “team player.” Lately Tobias has been concerned about the heavy work load in this firm and has decided to enroll in an MBA program. He recently applied for admission to several of the nation's top business schools. The school in which Tobias is most interested had an October 1 deadline for a trial financial aid package, designed to attract top candidates, which covers all costs and pays $10,000 per year. This is the first year for the program and there is no guarantee that the program will be available in future years. Based on his conversations with university officials, Tobias is quite optimistic about being admitted and receiving the funding, even though a final decision will not be made until February. Tobias plans to enter an MBA program, even without the special funding, beginning in August of the following years, but he has told no one at the firm of his plans.
Janice Conrad, a partner in charge of training and development for the local office, has just received information from the national office of the firm related to a five-month accounting internship-exchange program the firm has arranged with offices in Europe, Australia, and Russia. Applicants must have three to five years with the firm, be above-average performers, have long-term career potential with the firm, and be fluent in the host country’s language. Janice immediately thinks of Tobias, who is a first-generation American with strong family connections in Russia. Janice arranges to have lunch with Tobias the next day.
At lunch Janice confirms that Tobias is fluent in Russian and then presents to him the information on the five-month internship in the Moscow office, from January through May of the following year. Tobias and Janice talk with excitement about the personal and professional benefits of five other relatives who live in Russia. The firm would benefit by having someone with experience in the Moscow office. Janice thinks Tobias has an excellent chance of being selected for the program and offers to write a recommendation letter for him. She gives Tobias an application and encourages him to complete it immediately, since it is now mid-October and the application deadline is November 1.
That night, Tobias sits down to consider his career plans. Although he is very excited about the opportunity to go to Moscow, he is also convinced that he would love to enroll in a full-time MBA program in the fall. He realizes that it is possible to intern in the Moscow office from January through May, return to his current office for June and July, and then begin the MBA program in August. Tobias wonders if he should talk to Janice about his MBA plans, but he hesitates. He knows that firm policy requires only a two-week notice prior to leaving the firm. Tobias decides that there is no harm in applying, but he questions his long-term intentions with the firm and wonders what to do.
Address the following Questions using complete sentences/paragraphs. Your write up should be a minimum of 1.5 pages, and could be more.
In: Accounting
As companies grow in size, it is inevitable for the shareholders to hire management to run the operations of the business. The entire team of management, starting from the CEO and other top-level management, all the way to the middle and bottom level management are expected to perform towards the growth of the business. Since the shareholders of large companies are scattered across geographies, they appoint certain members as representatives who are elected to represent them on the company board. The board of directors of a company, along with the Chairman, are expected to keep the actions of the management in check. Explain the above in context of agency theory and corporate governance. What can companies do to ensure adequate corporate governance?
In: Finance
As companies grow in size, it is inevitable for the shareholders to hire management to run the operations of the business. The entire team of management, starting from the CEO and other top-level management, all the way to the middle and bottom level management are expected to perform towards the growth of the business. Since the shareholders of large companies are scattered across geographies, they appoint certain members as representatives who are elected to represent them on the company board. The board of directors of a company, along with the Chairman, are expected to keep the actions of the management in check. Explain the above in context of agency theory and corporate governance. What can companies do to ensure adequate corporate governance?
In: Finance