Blooming Flower Company was started in Year 1 when it acquired $60,700 cash from the issue of common stock. The following data summarize the company’s first three years’ operating activities. Assume that all transactions were cash transactions.

Required
Prepare an income statement (use multistep format) and balance sheet for each fiscal year. (Hint: Record the transaction data for each accounting period in T-accounts before preparing the statements for that year.)
  

Walton Manufacturing Company (WMC) was started when it acquired $95,000 by issuing common stock. During the first year of operations, the company incurred specifically identifiable product costs (materials, labor, and overhead) amounting to $55,200. WMC also incurred $78,200 of engineering design and planning costs. There was a debate regarding how the design and planning costs should be classified. Advocates of Option 1 believe that the costs should be classified as general, selling, and administrative costs. Advocates of Option 2 believe it is more appropriate to classify the design and planning costs as product costs. During the year, WMC made 4,600 units of product and sold 4,000 units at a price of $35.00 each. All transactions were cash transactions.

Required

1. a-1. Prepare a GAAP-based income statement and balance sheet under option 1.

2. a-2. Prepare a GAAP-based income statement and balance sheet under option 2.

3. b. Identify the option that results in financial statements that are more likely to leave a favorable impression on investors and creditors.

4. c. Assume that WMC provides an incentive bonus to the company president equal to 14 percent of net income. Compute the amount of the bonus under each of the two options. Identify the option that provides the president with the higher bonus.

5. d. Assume a 35 percent income tax rate. Determine the amount of income tax expense under each of the two options. Identify the option that minimizes the amount of the company’s income tax expense.

Depreciation Methods

Clearcopy, a printing company, acquired a new press on January 1, 2019. The press cost $171,600 and had an expected life of 8 years or 4,500,000 pages and an expected residual value of $15,000. Clearcopy printed 691,900 pages in 2019. Do not round intermediate calculations. If required, round your answers to the nearest whole dollar.

Required:

1. Compute 2019 depreciation expense using the:

2. What is the book value of the machine at the end of 2019 under each method?

Rooney Manufacturing Company (CMC) was started when it acquired $97,000 by issuing common stock. During the first year of operations, the company incurred specifically identifiable product costs (materials, labor, and overhead) amounting to $58,500. CMC also incurred $67,500 of engineering design and planning costs. There was a debate regarding how the design and planning costs should be classified. Advocates of Option 1 believe that the costs should be classified as general, selling, and administrative costs. Advocates of Option 2 believe it is more appropriate to classify the design and planning costs as product costs. During the year, CMC made 4,500 units of product and sold 3,900 units at a price of $38.00 each. All transactions were cash transactions.

Required

a-1. Prepare a GAAP-based income statement and balance sheet under option 1.

a-2. Prepare a GAAP-based income statement and balance sheet under option 2.

b. Identify the option that results in financial statements that are more likely to leave a favorable impression on investors and creditors.

c. Assume that CMC provides an incentive bonus to the company president equal to 11 percent of net income. Compute the amount of the bonus under each of the two options. Identify the option that provides the president with the higher bonus.

d. Assume a 40 percent income tax rate. Determine the amount of income tax expense under each of the two options. Identify the option that minimizes the amount of the company’s income tax expense.

Each of the following problems is an independent situation:

Protrade Corporation acquired 80 percent of the outstanding voting stock of Seacraft Company on January 1, 2014, for $448,000 in cash and other consideration. At the acquisition date, Protrade assessed Seacraft’s identifiable assets and liabilities at a collective net fair value of $635,000 and the fair value of the 20 percent noncontrolling interest was $112,000. No excess fair value over book value amortization accompanied the acquisition. The following selected account balances are from the individual financial records of these two companies as of December 31, 2015:

Each of the following problems is an independent situation:

a. Assume that Protrade sells Seacraft inventory at a markup equal to 60 percent of cost. Intra-entity transfers were $101,000 in 2014 and $121,000 in 2015. Of this inventory, Seacraft retained and then sold $39,000 of the 2014 transfers in 2015 and held $53,000 of the 2015 transfers until 2016. Determine balances for the following items that would appear on consolidated financial statements for 2015:

b. Assume that Seacraft sells inventory to Protrade at a markup equal to 60 percent of cost. Intra-entity transfers were $61,000 in 2014 and $91,000 in 2015. Of this inventory, $32,000 of the 2014 transfers were retained and then sold by Protrade in 2015, whereas $46,000 of the 2015 transfers were held until 2016. Determine balances for the following items that would appear on consolidated financial statements for 2015:

c. Protrade sells Seacraft a building on January 1, 2014, for $102,000, although its book value was only $61,000 on this date. The building had a five-year remaining life and was to be depreciated using the straight-line method with no salvage value. Determine balances for the following items that would appear on consolidated financial statements for 2015:

On January 1, 2017, Corgan Company acquired 80 percent of the outstanding voting stock of Smashing, Inc., for a total of $1,560,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $900,000, retained earnings of $450,000, and a noncontrolling interest fair value of $390,000. Corgan attributed the excess of fair value over Smashing's book value to various covenants with a 20-year remaining life. Corgan uses the equity method to account for its investment in Smashing.

During the next two years, Smashing reported the following:

Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2017 and 2018, 40 percent of the current year purchases remain in Smashing's inventory.

1. Compute the equity method balance in Corgan's Investment in Smashing, Inc., account as of December 31, 2018.
2. Prepare the worksheet adjustments for the December 31, 2018, consolidation of Corgan and Smashing.

B.

Prepare entry *G

Prepare entry S

Prepare entry A

Prepare entry I

Prepare entry D

Prepare entry E

Prepare entry TI

Prepare entry G

Mill Corporation acquired 100 percent ownership of Roller Company on January 1, 20X8, for $125,000. At that date, the fair value of Roller’s buildings and equipment was $19,000 more than the book value. Buildings and equipment are depreciated on a 5-year basis. Although goodwill is not amortized, Mill’s management concluded at December 31, 20X8, that goodwill involved in its acquisition of Roller shares had been impaired and the correct carrying value was $2,600.

Month of April

Counted the supplies inventory on hand $55.

Required: -

a. Record the transactions for the month of April in a general journal.

b. Open general ledger accounts using the T-accounts provided and post the general journal entries to the ledger.

c. Record and post the appropriate adjusting entries.

d. Prepare an adjusted trial balance.

e. Prepare an income statement, statement of retained earnings, and a balance sheet for April.