Axel Heckman is the engagement partner for the financial report audit of Sturfolks Equipment Ltd for
the year ended 30 June 2018. The following material events or transactions have come to Axel’s
attention before he is scheduled to issue his report on 31 August 2018:


(a) On 14 July 2018, Sturfolks Equipment settled and paid a personal injury claim of a former
employee as a result of an accident that occurred in March 2017. The company has not
previously recorded a liability for the claim.


(b) On 17 July 2018, Sturfolks Equipment agreed to purchase for cash the outstanding shares of
Recreational Equipment Ltd. This acquisition is likely to double the sales volume of Sturfolks
Equipment.


(c) On 20 July 2018, the directors became aware of broken glass found in their pre-packaged
sandpits. This product had only been on sale for two weeks and had been purchased directly
from the manufacturer, NSWPIT Ltd, an unrelated company in Thailand, one week prior to
being introduced to the public.


(d) On 3 August 2018, a plant owned by Sturfolks Equipment was damaged in a flood, resulting in an uninsured loss of inventory.

For each of the above events or transactions, identify audit procedures that should have brought the
item to the auditor’s attention, and determine the treatment required in the financial report for the
year ended 30 June 2018.

1. Charlotte, Inc. began business on January 1, 2017. Its pretax financial income for the first two year was as follows:

The following Items cased the only differences between pretax financial income and taxable income.

i. In 2017, the company collected $105,000 of rent; of this amount, $35,000 was earned in 2017; the other $70,000 will be earned equally over the 2018-19 period. The full $105,000 was included in the taxable income in 2017.

ii. In 2017, the company reported depreciation expense in its financial statements of $80,000. Depreciation expense for tax purposes was 110,000. The difference will revere evenly over the next three years (2018-2020).

The tax rate in 2017 is 30% and no tax rate changes are enacted during the three year period.

Required:

a. Determine taxable income for 2017 and 2018.

b. Determine the deferred income taxes at the end of 2017, and prepare the journal entry to record income taxes for 2017.

c. Determine the deferred income taxes at the end of 2018, and prepare the journal entry to record income taxes for 2018.

d. Prepare the Income Tax section of the income statement, starting with Pretax Net Income and ending with Net Income after Taxes for both 2017 and 2018.

On May 1, 2018, Delta Airlines buys 100 SkyFlight Food Service, Inc. bonds for $1,015 each. Delta classifies this investment as available for sale. This is the first available for sale investment Delta has recorded and the only item that affects comprehensive income during this time period. During 2018, SkyFlight pays all bondholders $42 interest per bond. At the end of 2018, the bonds of Skyflight are trading for $1,020 each. During 2019, Skyflight pays all bondholders interest of $75 per bond. At the end of 2019, the bonds of Skyflight are trading for $1,014 per bond. On May 1, 2020, Delta Airlines sells all of its Skyflight bonds for $1,010 per bond. No interest was paid by Skyflight in 2020. Net income before anything to do with Skyflight (even the interest is not included) for Delta was $20 million in 2018, $16 million in 2019 and $18 million in 2020 after taxes. The tax rate is 20% for all years.

Requirements:

a. Show all the needed journal entries for the Skyflight stock from purchase to sale.

b. Show the statement of comprehensive income for 2018, 2019 and 2020.

c. If accumulated other comprehensive income is $500,000 at the beginning of 2018, what is the accumulated other comprehensive income at the end of 2018, 2019 and 2020

On January 1, 2018, Wright Transport sold four school buses to the Elmira School District. In exchange for the buses, Wright received a note requiring payment of $526,000 by Elmira on December 31, 2020. The effective interest rate is 7%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.):

Required:

1. How much sales revenue would Wright recognize on January 1, 2018, for this transaction?
2. Prepare journal entries to record the sale of merchandise on January 1, 2018 (omit any entry that might be required for the cost of the goods sold), the December 31, 2018, interest accrual, the December 31, 2019, interest accrual, and receipt of payment of the note on December 31, 2020.

Required 1: How much sales revenue would Wright recognize on January 1, 2018, for this transaction? (Round your final answer to nearest whole number.)  

Required 2: - Record the sale of goods on January 1, 2018 in exchange for the long term note.

- Record the interest accrual on December 31, 2018.

- Record the interest accrual on December 31, 2019.

- Record the interest revenue in 2020 and collection of the note.

On January 1, 2016, Sunland Corporation acquired equipment costing $73,280. It was estimated at that time that the equipment would have a useful life of eight years and no residual value. The company uses the straight-line method of depreciation for its equipment, and its year end is December 31.

1. Calculate the equipment’s accumulated depreciation and carrying amount at the beginning of 2018.

---Equipment’s accumulated depreciation =

----Carrying amount=

2.What is the amount of the gain or loss that would arise when a quarter of the equipment was sold on January 1, 2018, for cash proceeds of $19,760?

gain / loss ? from sale of equipment =?

3. What is the depreciation expense for January 1, 2018, to October 31, 2018? Depreciation expense=

4.On November 1, 2018, the company purchased additional equipment for $9,600 that also had a useful life of eight years and no residual value. What is the depreciation for the two months ending December 31, 2018? Total depreciation for 2 months=

5. On December 31, 2018, the company sold some equipment for a loss of $3,020. After recording the sale, the balances in the Equipment account and Accumulated Depreciation account were $52,760 and $14,418, respectively. Based on this information, what were the proceeds received when this equipment was sold?

Cash proceeds from sale =

Parent Company owns a controlling share of Subsidiary company's common stock. During 2017 and 2018, Parent sold inventory to Subsidiary company. The sales and cost of sales information are detailed below. There were no intercompany sales prior to 2017. In both 2017 and 2018, Subsidiary sold 80% of the intercompany inventory purchased in that year. In 2018, all the beginning inventory was sold first.

Ownership Percentage 75%

2017 intercompany sales $550,000

2018 intercompany sales $470,000

2017 Cost of Goods Sold $350,000

2018 Cost of Goods Sold $310,000

A) Record all 2017 elimination entries necessary due to the inventory transactions.

B) Record all 2018 elimination entries necessary due to the inventory transactions.

I think I know the entries so far, but getting the numbers is what is tripping me up.

For 2017 entries:

Debit Sales, Credit COGS then Debit COGS Credit Inventory - Bal Sheet

And for 2018.... Debit Beg R/E and Credit COGS (and then Debit Sales Credit COGS and Debit COGS and Credit Inventory???)

A little confused here... I think because the wording is different than the questions my professor went over in the powerpoint. Any help is appreciated. Thanks in advance!

Oriole Ltd. purchased a new machine on April 4, 2014, at a cost of $ 184,000. The company estimated that the machine would have a residual value of $ 16,000. The machine is expected to be used for 10,500 working hours during its four-year life. Actual machine usage was1,500 hours in 2014; 2,400 hours in 2015; 2,500 hours in 2016; 2,100 hours in 2017; and 2,000 hours in 2018. Oriole has a December 31 year end.

Calculate depreciation for the machine under each of the following methods:

Straight-line for 2014 through to 2018.

Diminishing-balance using double the straight-line rate for 2014 through to 2018.

(3) Units-of-production for 2014 through to 2018.

Jamdown & Associates Ltd produces two products, Glam120 and Glam220. The following table provides information on budgeted production for 2018:

                                                     Production Forecast

Notes:

It is the company’s policy to have stock on hand at the end of each quarter equaling to 10% of production for the next quarter.

Budgeted production for the first quarter of 2019 were: Glam120, 7,000 units and Glam220, 5,800 units.

During 2018, the company plans to sell one unit of Glam120 for $600 and one unit of Glam220 for $700.       

Management has forecasted that variable overhead cost per unit for Glam120 and Glam200 would be $100 and $120 respectively during 2018, while fixed overheads for the same period were estimated to be $2,400,000 and would be incurred in equal amounts quarterly.

Required:

Calculate the number of units to be sold for both products during each quarter of 2018.

Prepare the sales budget for 2018.

Prepare the overhead cost budget for the four quarters in 2018.

Explain what is meant by a limiting budget factor.

Describe two limiting factors that could influence the achievement of Jamdown & Associates profit objectives for 2018.

Jamdown & Associates Ltd produces two products, Glam120 and Glam220. The following table provides information on budgeted production for 2018:

                                                     Production Forecast

Notes:

It is the company’s policy to have stock on hand at the end of each quarter equaling to 10% of production for the next quarter.

Budgeted production for the first quarter of 2019 were: Glam120, 7,000 units and Glam220, 5,800 units.

During 2018, the company plans to sell one unit of Glam120 for $600 and one unit of Glam220 for $700.       

Management has forecasted that variable overhead cost per unit for Glam120 and Glam200 would be $100 and $120 respectively during 2018, while fixed overheads for the same period were estimated to be $2,400,000 and would be incurred in equal amounts quarterly.

Required:

Calculate the number of units to be sold for both products during each quarter of 2018.

Prepare the sales budget for 2018.

Prepare the overhead cost budget for the four quarters in 2018.

Explain what is meant by a limiting budget factor.

Describe two limiting factors that could influence the achievement of Jamdown & Associates profit objectives for 2018.

WellmanWellman

Insurance purchased

$50,000

of

8​%

KLP

bonds on January​ 1,

2018​,

at a price of

92

when the market rate of interest was

10​%.

WellmanWellman

intends to hold the bonds until their maturity date of January​ 1,

2023.

The bonds pay interest semiannually on each January 1 and July 1.

Wellman

recorded the following journal entries on January​ 1,

2018

and July​ 1,

2018​:

Make the adjusting entries that

WellmanWellman

Insurance would need to make on December​ 31,

20182018​,

related to the investment in

KLP

bonds. ​(Record debits​ first, then credits. Exclude explanations from any journal​ entries.)​First, record the entry for the interest receivable at December​ 31,

2018.

Now record the entry for the amortization of bond discount at December​ 31,

2018.

How would the bonds be reported on

WellmanWellman

​Insurance's balance sheet as of December​ 31,

2018​?

​(Abbreviation used: AFSS​ = available-for-sale​ security)

What amount of interest revenue would be reported on

WellmanWellman

​Insurance's income statement for the year ended December​ 31,

2018​,

related to the

KLP

​bonds?