Fores Construction Company reported a pretax operating loss of $220 million for financial reporting purposes in 2018. Contributing to the loss were (a) a penalty of $15 million assessed by the Environmental Protection Agency for violation of a federal law and paid in 2018 and (b) an estimated loss of $20 million from accruing a loss contingency. The loss will be tax deductible when paid in 2019. The enacted tax rate is 40%. There were no temporary differences at the beginning of the year and none originating in 2018 other than those described above. Taxable income in Fores’s two previous years of operation was as follows: 2016 $ 115 million 2017 60 million Required: 1. Prepare the journal entry to recognize the income tax benefit of the net operating loss in 2018. Fores elects the carryback option. 2. What is the net operating loss reported in 2018 income statement? 3. Prepare the journal entry to record income taxes in 2019 assuming pretax accounting income is $95 million. No additional temporary differences originate in 2019.

Financial Software Inc. (FSI) provides ERP software to large corporations. Big Corporation signs a contract with FSI on January 1, 2018. FSI will provide the ERP, including installation and testing, consulting services to integrate the software with all of Big Corp’s other systems, and training services. Another firm could provide the consulting services and/or training services, but FSI requires that they perform the installation and testing. The training will be provided for 3 years. The total price of the contract is $2,300,000. FSI would charge $1,750,000 for the software (including installation and testing) and the estimated Fair value of the consulting services is $500,000. The total fair value of the training is $150,000 over three years. FSI completes the installation and testing during 2018. The consulting services are 50% complete in 2018 and fully completed in 2019. Approximately 50% of the training services are provided in 2018 and then 25% and 25% in 2019 and 2020, respectively.

Determine how to recognize revenue in 2018, 2019 and 2020. Please explain your recommendation.

On April 30, 2017, Tilton Products purchased machinery for $88,000. The useful life of this machinery is estimated at 8 years, with an $8,000 residual value.

1. In the year 2023, Tilton Products sells this machinery for $4,500. At the date of sale, the machinery had been depreciated by Tilton Products to its estimated residual value of $8,000. This sale results in:

No gain or loss in either the financial statements or the income tax return.

A $3,500 loss in the financial statements, but no gain or loss in the income tax return.

A $3,500 loss in the financial statements; a $3,500 gain in the income tax return.

A $3,500 loss in both the company's financial statements and its income tax return.

2. Assume that in its financial statements, Tilton Products uses straight-line depreciation and the half-year convention. Depreciation expense recognized on this machinery in 2017 and 2018 will be:

$6,000 in 2017 and $12,000 in 2018.

$5,500 in 2017 and $11,000 in 2018.

$7,500 in 2017 and $11,000 in 2018.

$5,000 in 2017 and $10,000 in 2018.

McWherter Instruments sold $650 million of 8% bonds, dated January 1, on January 1, 2018. The bonds mature on December 31, 2037 (20 years). For bonds of similar risk and maturity, the market yield was 10%. Interest is paid semiannually on June 30 and December 31. Blanton Technologies, Inc., purchased $650,000 of the bonds as a long-term investment. (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. Determine the price of the bonds issued on January 1, 2018.
2. Prepare the journal entries to record (a) their issuance by McWherter and (b) Blanton's investment on January 1, 2018.
3. Prepare the journal entries by (a) McWherter and (b) Blanton to record interest on June 30, 2018 (at the effective rate).
4. Prepare the journal entries by (a) McWherter and (b) Blanton to record interest on December 31, 2018 (at the effective rate).

Original Warranty Review Problem
While attending a trade show in August 2018, Savy Tech, Inc. sold tablets and laptops totaling $40,000. Each product sold came with a 1-year manufacturer’s warranty.
Warranty costs related to the manufacturer’s warranty were estimated to be 5% of sales. As of December 31, 2018 (Savy Tech’s year-end), Savy Tech had paid out $800 in cash
to fix or replace broken products. The Company paid out an additional $1,500 in cash during the first quarter of 2019 to satisfy more warranty claims.

1. Record any necessary journal entries that Savy Tech would need to make in 2018.

2. What amount of warranty liability should Savy Tech report on its December 31, 2018 balance sheet (assuming the company began with a zero balance in this
account in 2018)?

3. Prepare the journal entry Savy Tech would make to record the payment of warranty costs during the first quarter of 2019.

Fores Construction Company reported a pretax operating loss of $260 million for financial reporting purposes in 2018. Contributing to the loss were (a) a penalty of $15 million assessed by the Environmental Protection Agency for violation of a federal law and paid in 2018 and (b) an estimated loss of $20 million from accruing a loss contingency. The loss will be tax deductible when paid in 2019.

The enacted tax rate is 40%. There were no temporary differences at the beginning of the year and none originating in 2018 other than those described above. Taxable income in Fores’s two previous years of operation was as follows:

Required:
1. Prepare the journal entry to recognize the income tax benefit of the net operating loss in 2018. Fores elects the carryback option.
2. What is the net operating loss reported in 2018 income statement?
3. Prepare the journal entry to record income taxes in 2019 assuming pretax accounting income is $120 million. No additional temporary differences originate in 2019.

Mills Corporation acquired as a long-term investment $300 million of 6% bonds, dated July 1, on July 1, 2018. Company management is holding the bonds in its trading portfolio. The market interest rate (yield) was 4% for bonds of similar risk and maturity. Mills paid $350 million for the bonds. The company will receive interest semiannually on June 30 and December 31. As a result of changing market conditions, the fair value of the bonds at December 31, 2018, was $325 million.

Required:
1. & 2. Prepare the journal entry to record Mills’ investment in the bonds on July 1, 2018 and interest on December 31, 2018, at the effective (market) rate.
3. At what amount will Mills report its investment in the December 31, 2018, balance sheet?
4. Suppose Moody’s bond rating agency upgraded the risk rating of the bonds, and Mills decided to sell the investment on January 2, 2019, for $360 million. Prepare the journal entries to record the sale.

Broussard Skateboard's sales are expected to increase by 20% from $8.0 million in 2018 to $9.60 million in 2019. Its assets totaled $5 million at the end of 2018.
Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2018, current liabilities were $1.4 million, consisting of $450,000 of accounts payable, $500,000 of notes payable, and $450,000 of accruals. The after-tax profit margin is forecasted to be 3%, and the forecasted payout ratio is 60%. What would be the additional funds needed? Do not round intermediate calculations. Round your answer to the nearest dollar.
$

Assume that the company's year-end 2018 assets had been $6 million. Is the company's "capital intensity" ratio the same or different?

The capital intensity ratio is measured as A0*/S0. Broussard's current capital intensity ratio is .......... that of the firm with $6 million year-end 2018 assets; therefore, Broussard is............... capital intensive - it would require............... increase in total assets to support the increase in sales.

McWherter Instruments sold $620 million of 10% bonds, dated January 1, on January 1, 2018. The bonds mature on December 31, 2037 (20 years). For bonds of similar risk and maturity, the market yield was 12%. Interest is paid semiannually on June 30 and December 31. Blanton Technologies, Inc., purchased $620,000 of the bonds as a long-term investment. (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. Determine the price of the bonds issued on January 1, 2018. 2. Prepare the journal entries to record (a) their issuance by McWherter and (b) Blanton's investment on January 1, 2018. 3. Prepare the journal entries by (a) McWherter and (b) Blanton to record interest on June 30, 2018 (at the effective rate). 4. Prepare the journal entries by (a) McWherter and (b) Blanton to record interest on December 31, 2018 (at the effective rate).

On January 1, 2018, Baddour, Inc., issued 10% bonds with a face amount of $162 million. The bonds were priced at $141.8 million to yield 12%. 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?
(For all requirements, Enter your answers in whole dollars.)

Net Bonds Payable?

Interest Payable?

Interest Expense for Fiscal 2018?

Sale of Bonds?

Cash Interest Paid?

Thanks.