Fores Construction Company reported a pretax operating loss of $210 million for financial reporting purposes in 2018. Contributing to the loss were (a) a penalty of $10 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 $90 million. No additional temporary differences originate in 2019

Foreign Currency Commitment:

U.S. Corporation entered into a contract on November 1, 2017 to sell two machines to International Company for 750,000 foreign currency units (FCU). The machines were to be delivered and the amount collected on March 1, 2018. In order to hedge its commitment, U.S. entered, on November 1, 2017 , into a forward contract to sell 750,000 FCU on March 1, 2018. The forward contract met all conditions for hedging a foreign currency commitment. Selected exchange rates for FCU at various dates were as follows:

Required: Prepare all journal entries relative to the above on the following dates:

1. November 1, 2017.

2. Year-end adjustments on December 31, 2017.

3. March 1, 2018. (Include all adjustments related to the forward contract)

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 $30 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 $ 110 million 2017 35 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.

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Baskin-Robbins is one of the world’s largest specialty ice cream shops. The company offers dozens of different flavors, from Very Berry Strawberry to lowfat Espresso ’n Cream. Assume that a local Baskin-Robbins in Raleigh, North Carolina, has the following amounts for the month of July 2018.

McWherter Instruments sold $500 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 $500,000 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).

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.

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.