Blanchard Inc. acquired a packaging machine from CCC Corporation. CCC Corporation completed construction of the machine on January 1, 2020. In payment for the $5 million machine, Blanchard Inc. issued a three-year installment note to be paid in three equal payments at the end of each year. The payments include interest at the rate of 8%.
1. Prepare the journal entry for Blanchard’s purchase of the machine on January 1, 2020.
|
January 1, 2020: |
||
2. Prepare the partial amortization schedule for the first two years of the 3-year installment note.
|
Amount of loan |
|
|
÷ Present value of an ordinary annuity (PVA) of $1 |
|
|
Installment payment (rounded up to the nearest integer) |
|
Date |
Cash |
Effective |
Decrease in Balance |
Outstanding |
|
1/1/2020 |
||||
|
12/31/2020 |
||||
|
12/31/2021 |
||||
|
12/31/2022 |
Not required |
Not required |
Not required |
Not required |
3. Prepare the journal entry for the installment payments on December 31, 2020 and December 31, 2021.
|
December 31, 2020: |
||
|
December 31, 2021: |
||
In: Accounting
Assume Southern Coper Corporation (SCCO) acquired mining equipment for $100,000 cash on January 1,2016. The equipment had an expected useful life of four years and zero salvage value. SCCO calculates depreciation using the SL method over the remaining expected useful life in all cases. On dec.31, 2016 after recognizing deprecation for the year, SCCO learns that new equipment now offered on market makes the purchased equipment partially obsolete. The market value of the equipment on Dec.31, 2016, reflecting this obsolescence, is $60,000. The expected useful life does not change. On Dec,31, 2017, the market value of the equipment is $48,0000. SCCO sells the equipment on Jan. 1, 2019 for 26,000
Required:
Assume for this part that SCCO accounts for the
equipment using Historical cost adjusted for depreciation and
impairment losses. Using the analytical framework discussed,
indicate the effects of the following events on BS and
IS.
Acquisition of the equipment foe cash on
Jan.1,2016.
Depreciation for 2016
Impairment loss for 2016
Depreciation 2017
Depreciation 2018
Sale of equipment on January 1,2019.
Assume that SCCO accounts for the equipment using
current fair market values adjusted for depreciation and impairment
losses (with changes in fair values recognized in net income).
Using the analytical framework discussed, indicate the effects of
the following events on BS and IS
1. Acquisition of the equipment foe cash on Jan.1,2016.
2. Depreciation for 2016
3. Impairment loss for 2016
4. Depreciation 2017
5. Recognition of unrealized holding gain or loss for 2017
6. Depreciation 2018
7. Recognition of unrealized holding gain or loss for 2018
8.
Sale of equipment on January 1, 2019.
C. After the equipment is sold, why is retained earning on Jan. 1, 2019, equal to negative
$74,000 in both cases despite having shown a different pattern of expenses, gains,
and losses over
time?
Question Number 2
Effect of Valuation Method for Monetary Asset on Balance Sheet and Income
Statement.
Assume Walmart acquires a tract of land on Jan.1, 2016, for $100,000 cash. On Dec. 31, 2016, the current market value of the land is $150,000. On Dec. 31,2017, the current market value of land is 120,000 The firm sells the land on Dec.31, 2018, for $180,000 cash.
Assume that Walmart has accounted for the value of the
land at acquisition cost and sells land on Dec. 31, 2018, for a two
year note receivable with present value of $180,000 instead of for
cash, the note bears interest at 8% and requires cash payments of
$100,939 on Dec. 31, 2019 and 2010. Interest rates for notes of
this risk level increase to 10% on Dec.31, 2019, resulting in a
market value for the note date of $ 91,762.
Required
Ignore income taxes. Indicate the effect on BS and IS of the preceding information for 2018, 2019, and 2020 under each of the following valuation methods.
Valuation of the note at the present value of future
cash flows using the historical market interest rate of 8%
(Approach 1):
Valuation of the note at the present value of future
cash flows, adjusting the note to fair
value upon changes in market interest rates and including
unrealized gains and losses in net
income (Approach 2).
Why is retained earning on Dec.31, 2020, equal to
$101,878 in both cases despite the reporting of different amounts
of net income each year?
In: Accounting
The following are the financial statements of Novak
Corp..
|
Novak Corp. |
||||||
|
Assets |
2020 |
2019 |
||||
| Cash |
$36,300 |
$19,300 |
||||
| Accounts receivable |
32,200 |
20,000 |
||||
| Inventory |
30,300 |
20,400 |
||||
| Equipment |
59,600 |
77,900 |
||||
| Accumulated depreciation—equipment |
(29,800 |
) |
(23,400 |
) |
||
| Total |
$128,600 |
$114,200 |
||||
|
Liabilities and Stockholders’ Equity |
||||||
| Accounts payable |
$28,200 |
$16,700 |
||||
| Income taxes payable |
7,500 |
8,400 |
||||
| Bonds payable |
26,300 |
33,200 |
||||
| Common stock |
17,200 |
14,200 |
||||
| Retained earnings |
49,400 |
41,700 |
||||
| Total |
$128,600 |
$114,200 |
||||
|
Novak Corp. |
||
| Sales revenue |
$241,700 |
|
| Cost of goods sold |
175,300 |
|
| Gross profit |
66,400 |
|
| Operating expenses |
24,600 |
|
| Income from operations |
41,800 |
|
| Interest expense |
2,000 |
|
| Income before income taxes |
39,800 |
|
| Income tax expense |
7,700 |
|
| Net income |
$32,100 |
|
Additional data:
| 1. | Dividends declared and paid were $24,400. | |
| 2. | During the year, equipment was sold for $9,800 cash. This equipment cost $18,300 originally and had a book value of $9,800 at the time of sale. | |
| 3. | All depreciation expense, $14,900, is in the operating expenses. | |
| 4. |
All sales and purchases are on account. |
Compute free cash flow.
| Free cash flow |
$ |
In: Accounting
A wholesale business with December 31 year-end purchased new equipment on November 25, 2018, for 40,000. Before 2018, the business owned no other equipment.
Required:
1. Complete the table below to show the tax consequences. If the business sells the equipment in 2020 for (a)$15000 (b) $23000 (c) $46000.
2018 purchase:
2018 CCA:
2018 UCC:
2019 CCA:
2019 UCC:
SITUATION A:
Less: Disposal Proceeds:
Interim UCC:
Terminal Loss/ Recapture:
Ending UCC:
Situation B
Less: Disposal Proceeds:
Interim UCC:
Terminal Loss/ Recapture
Ending UCC:
Situation C
Less: Disposal proceeds:
Interim UCC balance
Terminal Loss/ Recapture
Ending UCC:
Capital Gain:
Taxable Capital Gain:
2) How would your answer change if on December 31, 2020. the business acquired new equipment costing $1000? ( Enter minus sign when the amount is reducing the CCA
SITUATION A:
Less: Disposal Proceeds:
Interim UCC:
Terminal Loss/ Recapture:
Ending UCC:
Situation B
Less: Disposal Proceeds:
Interim UCC:
Terminal Loss/ Recapture
Ending UCC:
Situation C
Less: Disposal proceeds:
Interim UCC balance
Terminal Loss/ Recapture
Ending UCC:
Capital Gain:
Taxable Capital Gain:
In: Accounting
Portions of the financial statements for Parnell Company are provided below.
| PARNELL COMPANY | ||||||
| Income Statement | ||||||
| For the Year Ended December 31, 2021 | ||||||
| ($ in thousands) | ||||||
| Revenues and gains: | ||||||
| Sales | $ | 740 | ||||
| Gain on sale of building | 12 | $ | 752 | |||
| Expenses and loss: | ||||||
| Cost of goods sold | $ | 270 | ||||
| Salaries | 114 | |||||
| Insurance | 34 | |||||
| Depreciation | 117 | |||||
| Interest expense | 44 | |||||
| Loss on sale of equipment | 11 | 590 | ||||
| Income before tax | 162 | |||||
| Income tax expense | 81 | |||||
| Net income | $ | 81 | ||||
| PARNELL COMPANY | |||||||||
| Selected Accounts from Comparative Balance Sheets | |||||||||
| December 31, 2021 and 2020 | |||||||||
| ($ in thousands) | |||||||||
| Year | |||||||||
| 2021 | 2020 | Change | |||||||
| Cash | $ | 128 | $ | 106 | $ | 22 | |||
| Accounts receivable | 318 | 222 | 96 | ||||||
| Inventory | 327 | 419 | (92 | ) | |||||
| Prepaid insurance | 67 | 82 | (15 | ) | |||||
| Accounts payable | 204 | 123 | 81 | ||||||
| Salaries payable | 114 | 99 | 15 | ||||||
| Deferred tax liability | 72 | 58 | 14 | ||||||
| Bond discount | 178 | 206 | (28 | ) | |||||
Required:
1. Prepare the cash flows from operating activities section of the statement of cash flows for Parnell Company using the direct method. (Enter your answers in thousands (i.e., 10,000 should be entered as 10). Amounts to be deducted should be indicated with a minus sign.)
In: Accounting
On 1 July 2017, Ukulele Ltd acquired 40% of the shares of Bongo Ltd for $99,500. At this date, all the identifiable assets and liabilities of Bongo Ltd were recorded at amounts equal to fair value except for inventory which had a fair value $9,900 greater than the carrying amount. All inventory was sold by 30 June 2018. The tax rate is 30%. Bongo Ltd was classified as an associate of Ukulele Ltd.
The profits and losses recorded by Bongo Ltd from the next 6 years were as follows:
|
2017–18 |
$29,900 |
|
2018–19 |
5,000 |
|
2019–20 |
(249,900) |
|
2020–21 |
(50,000) |
|
2021–22 |
15,000 |
|
2022–23 |
19,900 |
Required
Prepare the journal entries for the consolidation worksheet of
Ukulele Ltd for the equity accounting of Bongo Ltd in each of the
years from 2017–23. Do we deduct tax rate before sharing of profit
and losses?
Ans:
|
Date |
Account Titles and Explanation |
Debit |
Credit |
|
30/06/2018 |
|||
|
30/06/2019 |
|||
| (1/7/18) | |||
|
30/06/2020 |
|||
| (1/7/19) | |||
|
30/06/2021 |
|||
| (1/7/20) | |||
|
30/06/2022 |
(1/7/21) | ||
|
30/06/2023 |
(1/7/22) | ||
In: Accounting
Keystone Development (KD) began operations in October, 2019 and adopted ASPE-future tax method.
When property is sold on an instalment basis, KD recognizes instalment income for accounting purposes in the year of the sale. For tax purposes, instalment income is recognized as cash collections relating to the properties are made. Gross profit from instalment sales for 2019 was $600,000 and will result in taxable revenue as collections are made over the next three years (with the respective tax rates) as follows:
2020 $150,000 30%
2021 $250,000 40%
2022 $200,000 40%
KD also had product warranty expenses for accounting purposes in 2019 of $80,000 of which only $20,000 was paid in cash (tax deductibility is only for cash payments) with the balance to be paid over the next three years as follows:
2020 $20,000
2021 $25,000
2022 $15,000
Pretax accounting income for 2019 was $810,000 which included dividend revenue from taxable Canadian corporations of $10,000 which is not taxable. The tax rate in 2019 is 30%.
Required:
In: Accounting
Tiger Limited has profit before tax of R250 000 for the year ended 31 December 2019. When calculating this figure, the following information was correctly accounted for:
Ø Telephone payment of R5 000 is due for 2019 but has not yet been paid (deductible for tax purposes in the current year).
Ø Unearned sales income of R18 000 received in advance in respect of 2020 (taxable in the current year).
Ø Interest income of R7 000 is receivable (taxable in the current year).
Ø The rent for the first month in 2020 of R10 000 has already been paid (deductible for tax purposes in the current year).
Ø Dividend income of R12 000 was earned during 2019 (not taxable).
Ø A donation of R6 000 was paid during 2019 (not deductible for tax purposes).
Ø Depreciation of R40 000 was expensed during the year. The tax authority has calculated wear and tear to be R25 000.
The applicable tax rate is 30% on taxable profits. There are no other permanent or temporary differences other than those apparent from the above information. No dividends were declared during the year.
Calculate the current tax and show the related journal entries.
EXPLAIN HOW YOU TREATED EACH INFORMATION PROVIDED.
In: Accounting
The following information applies to the questions displayed
below.]
Portions of the financial statements for Parnell Company are
provided below.
| PARNELL COMPANY | ||||||
| Income Statement | ||||||
| For the Year Ended December 31, 2021 | ||||||
| ($ in thousands) | ||||||
| Revenues and gains: | ||||||
| Sales | $ | 760 | ||||
| Gain on sale of building | 10 | $ | 770 | |||
| Expenses and loss: | ||||||
| Cost of goods sold | $ | 280 | ||||
| Salaries | 116 | |||||
| Insurance | 36 | |||||
| Depreciation | 119 | |||||
| Interest expense | 46 | |||||
| Loss on sale of equipment | 13 | 610 | ||||
| Income before tax | 160 | |||||
| Income tax expense | 80 | |||||
| Net income | $ | 80 | ||||
| PARNELL COMPANY | |||||||||
| Selected Accounts from Comparative Balance Sheets | |||||||||
| December 31, 2021 and 2020 | |||||||||
| ($ in thousands) | |||||||||
| Year | |||||||||
| 2021 | 2020 | Change | |||||||
| Cash | $ | 130 | $ | 104 | $ | 26 | |||
| Accounts receivable | 320 | 220 | 100 | ||||||
| Inventory | 325 | 421 | (96 | ) | |||||
| Prepaid insurance | 70 | 84 | (14 | ) | |||||
| Accounts payable | 206 | 121 | 85 | ||||||
| Salaries payable | 110 | 97 | 13 | ||||||
| Deferred tax liability | 68 | 56 | 12 | ||||||
| Bond discount | 182 | 204 | (22 | ) | |||||
Required:
1. Prepare the cash flows from operating
activities section of the statement of cash flows for Parnell
Company using the direct method. (Enter your answers in
thousands (i.e., 10,000 should be entered as 10). Amounts to be
deducted should be indicated with a minus sign.)
In: Accounting
Keystone Development (KD) began operations in October 2019 and adopted ASPE-future tax method.
When property is sold on an instalment basis, KD recognizes instalment income for accounting purposes in the year of the sale. For tax purposes, instalment income is recognized as cash collections relating to the properties are made. Gross profit from instalment sales for 2019 was $600,000 and will result in taxable revenue as collections are made over the next three years (with the respective tax rates) as follows:
2020 $150,000 30%
2021 $250,000 40%
2022 $200,000 40%
KD also had product warranty expenses for accounting purposes in 2019 of $80,000 of which only $20,000 was paid in cash (tax deductibility is only for cash payments) with the balance to be paid over the next three years as follows:
2020 $20,000
2021 $25,000
2022 $15,000
Pretax accounting income for 2019 was $810,000 which included dividend revenue from taxable Canadian corporations of $10,000 which is not taxable. The tax rate in 2019 is 30%.
Required
In: Accounting