Reporting Earnings per Share Disclosures

Siera Inc. had 350,000 shares of no par common stock outstanding throughout 2020 that declared and paid dividends of $75,000 in 2020. The company also had 45,000 shares of preferred stock that paid dividends of $7,500 in 2020 (declared in 2020). The company reported the following amounts in its income statement for the year ended December 31, 2020 (pretax).

Required

a. Prepare the earnings per share section of the income statement for the year ended December 31, 2020, assuming a tax rate of 25%.

• Use a negative sign to indicate a loss.
• Round the per share amounts to two decimal places.

Required

b. Repeat requirement of part a except now assume that the company reported income from discontinued operations of $52,500.

• Use a negative sign to indicate a loss.
• Round the per share amounts to two decimal places.

Translation and Remeasurement of Account Balances

U.S. Industries has a subsidiary in Switzerland. The subsidiary’s financial statements are maintained in Swiss francs (CHF). Exchange rates ($/CHF) for selected dates are as follows:

The following items appear in the subsidiary’s trial balance at December 31, 2020:

1. Cash in bank, CHF4,000,000.

2. Inventory, CHF3,000,000. The inventory was acquired on November 30, 2020.

3. Machinery and equipment, CHF11,000,000. A review of the records indicates that the company bought equipment costing CHF5,000,000 in January 2018 (20 percent of this was sold in January 2020) and additional equipment costing CHF7,000,000 in January 2019. Ignore accumulated depreciation.

4. Depreciation expense on machinery and equipment, CHF1,100,000 (depreciated over ten years, straight-line basis).

Required

Calculate the dollar amount for each of the above items, assuming the functional currency of the Swiss subsidiary is

(a) the U.S. dollar and

(b) the Swiss franc.

Enter answers using all zeros (do not abbreviate to millions or thousands).

Bonobo’s Balloons Inc. purchased the $60,000 par value bonds of Gnomes R Us on January 1, 2020. The coupon rate is 8% and the bonds mature in 5 years. The market rate of interest is 12%. The bonds pay interest semi-annually every June 30 and December 31. The bonds were purchased for $51,167.90 and were classified as available-for-sale. Bonobo’s Balloons uses the effective-interest rate method to amortize bond discounts and premiums. At December 31, 2020, the market value of the bonds was $65,000. Bonobo’s Balloons sold the bonds on January 1, 2021, for $65,000.

Instructions

1. Compute the carrying value of the investment at December 31, 2020.

2. Compute the amount of interest revenue earned on this investment at June 30, 2020.

3. Compute the amount of unrealized gain or loss recognized on December 31, 2020. In which financial statement should this amount be reported?

4. Compute the amount of gain or loss recognized on the sale of the investment at January 1, 2021. In which financial statement should this amount be reported?

5. If this investment was instead classified as held-to-maturity, how would this have affected the amount of unrealized gain or loss on December 31, 2020, and how would this have affected its reporting?

Tamarisk Inc. reports the following pretax income (loss) for both financial reporting purposes and tax purposes.

The tax rates listed were all enacted by the beginning of 2018.

a) Prepare the journal entries for the years 2018–2021 to record income tax expense (benefit) and income taxes payable (refundable) and the tax effects of the loss carryforward, assuming that at the end of 2020 the benefits of the loss carryforward are judged more likely than not to be realized in the future.

b) Assuming that at the end of 2020 the benefits of the loss carryforward are judged more likely than not to be realized in the future, prepare the income tax section of the 2020 income statement, beginning with the line “Operating loss before income taxes.”

c) Prepare the journal entries for 2020 and 2021, assuming that based on the weight of available evidence, it is more likely than not that one-fourth of the benefits of the loss carryforward will not be realized.

d) Assuming that based on the weight of available evidence, it is more likely than not that one-fourth of the benefits of the loss carryforward will not be realized, prepare the income tax section of the 2020 income statement, beginning with the line “Operating loss before income taxes.”

Splish Inc. reports the following pretax income (loss) for both financial reporting purposes and tax purposes.

The tax rates listed were all enacted by the beginning of 2018.

1. Prepare the journal entries for the years 2018–2021 to record income tax expense (benefit) and income taxes payable (refundable) and the tax effects of the loss carryforward, assuming that at the end of 2020 the benefits of the loss carryforward are judged more likely than not to be realized in the future

2. Assuming that at the end of 2020 the benefits of the loss carryforward are judged more likely than not to be realized in the future, prepare the income tax section of the 2020 income statement, beginning with the line “Operating loss before income taxes.”

3. Prepare the journal entries for 2020 and 2021, assuming that based on the weight of available evidence, it is more likely than not that one-fourth of the benefits of the loss carryforward will not be realized.

4. Assuming that based on the weight of available evidence, it is more likely than not that one-fourth of the benefits of the loss carryforward will not be realized, prepare the income tax section of the 2020 income statement, beginning with the line “Operating loss before income taxes.”

On December 31, 2019, Sumner Company held Wall Company bonds in its portfolio of trading securities. The bonds have a par value of $40,000, carry a 10% annual interest rate, mature in 2026, and had originally been purchased at par. The market value of the bonds on December 31, 2019 was $38,000.

On January 1, 2020, Sumner acquired bonds of Doherty Company with a par value of $30,000 for $30,200. The Doherty Company bonds carry an annual interest rate of 12% and mature on December 31, 2024. Additionally, on the same date, Sumner acquired Maggio Company bonds with a face value of $20,000 for $19,500. The Maggio Company bonds carry an 8% annual interest rate and mature on December 31, 2029. At the end of 2020, the respective market values of the bonds were: Wall, $39,000; Doherty, $31,000; and Maggio, $21,000. Sumner classifies all of the debt securities as trading. Assume that Sumner uses the straight-line method to amortize any discounts or premiums.

Required:

Complete the following worksheet for Appliance Repair for the year ended 30 June 2020.

Additional information to complete the worksheet:

1. The equipment of $67,500 was purchased on 1 March 2020. The straight-line depreciation method is used with a useful life of 3 years and a scrap value of $2,700. No depreciation is ever recorded.
2. The $75,000 bank loan was borrowed on 1 May 2020. It is an interest only loan. The interest rate is 0.8% per month. No interest is ever paid or recorded.
3. The supplies on hand at 30 June 2020 were $650.
4. The prepaid insurance balance represents the annual premium paid on 1 April 2020.
5. $2,500 of unearned revenue has been earned by 30 June 2020.

   	trial balance (unadjusted)		adjustments		trial balance(adjusted)		Incomestatement
   account title	debit	credit	debit	credit	debit	credit	debit	credit
   cash at bank	37,500
   account payable	127,500
   prepaid insurance	1,800
   suppliers	900
   equipment	67,500
   accumulated depreciation -equipmeny
   accounts payable		2,700
   unearned revenue		3,150
   interest payable
   bank loan (due in 2028)		75,000
   capital		49,950
   service revenue		157,500
   wages expense	52,500
   supplies expense	600
   depreciation expense - equipment
   insurance expense
   interest expense
   	288,300	288,300

Presented below are three independent situations.

1. Ivanhoe Stamp Company records stamp service revenue and provides for the cost of redemptions in the year stamps are sold to licensees. Ivanhoe’s past experience indicates that only 80% of the stamps sold to licensees will be redeemed. Ivanhoe’s liability for stamp redemptions was $13,180,300 at December 31, 2019. Additional information for 2020 is as follows.

If all the stamps sold in 2020 were presented for redemption in 2021, the redemption cost would be $5,191,300. What amount should Ivanhoe report as a liability for stamp redemptions at December 31, 2020?

2. In packages of its products, Shamrock Inc. includes coupons that may be presented at retail stores to obtain discounts on other Shamrock products. Retailers are reimbursed for the face amount of coupons redeemed plus 10% of that amount for handling costs. Shamrock honors requests for coupon redemption by retailers up to 3 months after the consumer expiration date. Shamrock estimates that 60% of all coupons issued will ultimately be redeemed. Information relating to coupons issued by Shamrock during 2020 is as follows.

What amount should Shamrock report as a liability for unredeemed coupons at December 31, 2020?

3. Bridgeport Company sold 692,300 boxes of pie mix under a new sales promotional program. Each box contains one coupon, which submitted with $4.50, entitles the customer to a baking pan. Bridgeport pays $6.50 per pan and $1.00 for handling and shipping. Bridgeport estimates that 70% of the coupons will be redeemed, even though only 244,200 coupons had been processed during 2020. What amount should Bridgeport report as a liability for unredeemed coupons at December 31, 2020?

DeZurik Corp. had the following stockholders’ equity section in its June 30, 2020, balance sheet (in thousands, except share and per share amounts):

The transactions affecting the stockholders’ equity accounts of DeZurik Corp. for the year ended June 30, 2020, are summarized here:

160,000 shares of common stock were issued at $21.25 per share.

40,000 shares of treasury (common) stock were sold for $21 per share.

Net income for the year was $1,480 (in thousands).

The fiscal 2020 preferred dividends were paid in full. Assume that all 64,000 shares were outstanding throughout the year ended June 30, 2020.

A cash dividend of $0.30 per share was declared and paid to common stockholders. Assume that transactions 1 and 2 occurred before the dividend was declared.

The preferred stock was split 2 for 1 on June 30, 2020. (Note: This transaction had no effect on transaction 4.)

Required:

a-1. Record the effect of transactions 1–6 in journal entry format.

a-2. Calculate the dollar amounts that DeZurik Corp. would report for each stockholders’ equity caption on its June 30, 2020, balance sheet, after recording the effects of transactions 1–6. Also the treasury stock was purchased at $21.

b. Indicate how the stockholders’ equity caption details for DeZurik Corp. would change for the June 30, 2020, balance sheet, as compared to the disclosures for the 2019 balance sheet.

c. What was the average issue price of common stock shown on the June 30, 2020, balance sheet?