For the year ended December 31, 2018, Southern Atlantic Distributors reported pretax accounting income of $975,000. Selected information for 2018 from Southern Atlantic Distributors’ records follows:

Interest income on municipal bonds (tax-free income) $35,000

Insurance expense representing 25% of a $180,000, $45,000 4-year insurance policy that was deducted for tax purposes in 2018 when it was purchased. The policy expires at the end of 2021.

Rental revenue reported in the income statement, which $75,000 does not include an additional $25,000 of advance payment for 2019 rent. Advance payments must be included in taxable income in the year received.

Southern Atlantic’s income tax rate is 40%. At January 1, 2018, Southern Atlantic’s records indicated balances of $5,000 and $14,000 in its deferred tax asset and deferred tax liability accounts, respectively. Prepare the journal entry to record Southern Atlantic’s income taxes for 2018.

19. This company’s operating profit margin (as a percent rounded to 1 decimal place) in 2017 was ________.

20. The total asset turnover ratio for this company in 2017 = _______.

21. ROE for 2018 is _____%.

22. Cash flow from operating activities in 2018 is $ _______.

23. Cash flow from investing activities in 2018 is $ _________.

24. Cash flow from financing activities in 2018 is $ _________.

Part 4: Lessee-Lessor Entries: Sales-Type Lease On January 1, 2018, Capital Corp. leased equipment to Hinton Corporation. The following information pertains to this lease. The term of the noncancelable lease is 12 years, with no renewal option. The equipment reverts to the lessor at the termination of the lease. Equal rental payments are due on January 1 of each year, beginning in 2018. The fair value of the equipment on January 1, 2018, is $247,500, and its cost is $198,000. The equipment has an economic life of 16 years. Hinton depreciates all of its equipment on a straight-line basis. Capital set the annual rental to ensure a 6% rate of return. Hinton’s incremental borrowing rate is 4%, and the implicit rate of the lessor is unknown. Collectability of lease payments is reasonably predictable, and no important uncertainties surround the amount of costs yet to be incurred by the lessor.

Prepare all the necessary journal entries for Hinton for 2018.

Prepare all the necessary journal entries for Capital for 2018.

Chapter 16-prob. 8

The DeVille Company reported pretax accounting income on its income statement as follows:

2018                       $370,000

2019                       290,000

2020                       360,000

2021                       400,000

Included in the income of 2018 was an installment sale of property in the amount of $36,000. However, for tax purposes, DeVille reported the income in the year cash was collected. Cash collected on the installment sale was $14,400 in 2019, $18,000 in 2020, and $3,600 in 2021.

Included in the 2020 income was $13,000 interest from investments in municipal bonds.

The enacted tax rate for 2018 and 2019 was 30%, but during 2019 new tax legislation was passed reducing the tax rate to 25% for the years 2020 and beyond.

Required:   Prepare the year-end journal entries to record taxes for the years 2018-2021. (If no entry is required for a transaction/event, write “No journal entry required” in the first account field.)

On January 1, 2018, Baddour, Inc., issued 12% bonds with a face amount of $170 million. The bonds were priced at $149.0 million to yield 14%. Interest is paid semiannually on June 30 and December 31. Baddour’s fiscal year ends September 30.

Required:
1. What amount(s) related to the bonds would Baddour report in its balance sheet at September 30, 2018?
2. What amount(s) related to the bonds would Baddour report in its income statement for the year ended September 30, 2018?
3. What amount(s) related to the bonds would Baddour report in its statement of cash flows for the year ended September 30, 2018? In which section(s) should the amount(s) appear?

Machinery purchased for $56,000 by Eggo Corp. on January 1, 2013, was originally estimated to have an eight-year useful life with a residual value of $4,000. Depreciation has been entered for five years on this basis. In 2018, it is determined that the total estimated useful life (including 2018) should have been 10 years, with a residual value of $4,500 at the end of that time. Assume straight-line depreciation and that Eggo Corp. uses IFRS for financial statement purposes.

Required

1. Prepare the entry that is required to correct the prior years’ depreciation, if any.

2. Prepare the entry to record depreciation for 2018.

3. Repeat part (1) assuming Eggo Corp. uses ASPE and the machinery is originally estimated to have a physical life of 8.5 years and a salvage value of $0. In 2018 it is determined that the total estimated physical life (including 2018) should have been 11 years, with a residual value of $100 at the end of that time. Round to the nearest dollar.

The Square Foot Grill, Inc. issued $187,000 of 10-year, 5 percent bonds on January 1, 2018, at 102. interest is payable in cash annually on December 31. The straight-line method is used for amortization.

Required

1. Use a financial statements model like the one shown below to demonstrate how (1) the January 1, 2018, bond issue and (2) the December 31, 2018, recognition of interest expense, including the amortization of the premium and the cash payment, affects the company’s financial statements. Use + for increase, − for decrease, and if there is no effect, leave the cell blank.

2. Determine the carrying value (face value less discount or plus premium) of the bond liability as of December 31, 2018.

3. Determine the amount of interest expense reported on the 2018 income statement.

4. Determine the carrying value of the bond liability as of December 31, 2019.

5. Determine the amount of interest expense reported on the 2019 income statement.

FKG Inc. carries the following debt investments on its books at December 31, 2017, and December 31, 2018. All securities were purchased during 2017. Trading Securities: Company Cost Value, Dec. 31, 2017 Value, Dec. 31, 2018 A Company $25,000 $13,000 $20,000 B Company $13,000 $20,000 $20,000 C Company $35,000 $30,000 $25,000 Available for Sale Securities: Company Cost Value, Dec. 31, 2017 Value, Dec. 31, 2018 X Company $210,000 $130,000 $50,000 Y Company $ 50,000 $ 60,000 $70,000

Required:

(1.) Prepare the necessary journal entries for FKG on December 31, 2017, and December 31, 2018.

(2.) What net effect would the valuation of these debt investments have on 2017 net income?

(3.) What net effect would the valuation of these debt investments have on 2018 net income?

1. Cheyenne Corp. had $120,000 of 8%, $20 par value preferred stock and 15,000 shares of $5 par value common stock outstanding throughout 2018.  No dividends were paid in 2016 or 2017. Determine the dividend amount that should go to common and preferred shareholders for the following scenarios.

1. Assuming that total dividends declared in 2018 were $70,000, and that the preferred stock is not cumulative and is not participating.
   Common Shareholders’ Dividends
   Preferred Shareholders’ Dividends
   
2. Assuming that total dividends declared in 2018 were $70,000, and that the preferred stock is cumulative and is not participating.
   Common Shareholders’ Dividends
   Preferred Shareholders’ Dividends
   
3. Assuming that total dividends declared in 2018 were $70,000, and that the preferred stock is not cumulative and is fully participating.
   Common Shareholders’ Dividends
   Preferred Shareholders’ Dividends
   

d. Assuming that total dividends declared in 2018 were $70,000, and that the preferred stock is cumulative and is fully participating.
Common Shareholders’ Dividends
Preferred Shareholders’ Dividends