On January 1, 2021, Marshall Company acquired 100 percent of the outstanding common stock of Tucker Company. To acquire these shares, Marshall issued $310,000 in long-term liabilities and 20,000 shares of common stock having a par value of $1 per share but a fair value of $10 per share. Marshall paid $24,000 to accountants, lawyers, and brokers for assistance in the acquisition and another $9,000 in connection with stock issuance costs. Prior to these transactions, the balance sheets for the two companies were as follows: Marshall Company Book Value Tucker Company Book Value Cash $ 75,000 $ 38,800 Receivables 354,000 90,000 Inventory 380,000 229,000 Land 246,000 253,000 Buildings (net) 476,000 274,000 Equipment (net) 174,000 50,400 Accounts payable (241,000 ) (41,400 ) Long-term liabilities (480,000 ) (310,000 ) Common stock—$1 par value (110,000 ) Common stock—$20 par value (120,000 ) Additional paid-in capital (360,000 ) 0 Retained earnings, 1/1/21 (514,000 ) (463,800 ) Note: Parentheses indicate a credit balance. In Marshall’s appraisal of Tucker, it deemed three accounts to be undervalued on the subsidiary’s books: Inventory by $9,000, Land by $25,800, and Buildings by $32,200. Marshall plans to maintain Tucker’s separate legal identity and to operate Tucker as a wholly owned subsidiary. Determine the amounts that Marshall Company would report in its postacquisition balance sheet. In preparing the postacquisition balance sheet, any required adjustments to income accounts from the acquisition should be closed to Marshall’s retained earnings. Other accounts will also need to be added or adjusted to reflect the journal entries Marshall prepared in recording the acquisition. To verify the answers found in part (a), prepare a worksheet to consolidate the balance sheets of these two companies as of January 1, 2021.

Badbug makes Viral Memes which sell for $1,000 each.   The production process is fairly simple and involves tweaking components purchased from various suppliers.  Since each Viral Meme only takes one hour to assemble, there is essentially no work-in-process inventory.  

Badbug has the capacity to make 2,000 Viral Memes per year.

Costs for the Viral Meme components are:

Each meme should take one hour of direct labor to tweak.  Direct labor wages are $150 per hour.

Other manufacturing costs on a monthly basis are:

Inventory balances are as follows (Badbug uses the FIFO inventory cost flow assumption):

During 2020 (the entire year) Badbug expects to sell 1,000 viral memes.  

• What is the budgeted cost of Viral Memes manufactured for 2020?

• What is the budgeted cost of Primary GIFs purchased for 2020?

• What is the budgeted cost of Secondary GIFs purchased for 2020?

• What is the budgeted cost of JPEGs purchased for 2020?

• What is budgeted dollar value of ending Viral Meme inventory?

• What is the budgeted dollar value of ending Primary GIF inventory?

• What is the budgeted dollar value of ending Secondary GIF inventory?

• What is the budgeted dollar value of ending JPEG inventory?

• How much income does Badbug expect to make if they sell 1,000 Viral Memes in 2020 and have budgeted Selling & Administrative expenses of $600,000 (assume no income taxes)?

• How much income does Badbug expect to make if they sell 900 Viral Memes in 2020 (production is adjusted appropriately)?  Remember – individual cost-to-make will change with changes in volume.  That will change ending inventory value.

• How much income does Badbug expect to make if they sell 1,100 Viral Memes in 2020 (production is adjusted appropriately)?

• How much income does Badbug expect to make if they sell 2,000 Viral Memes in 2020 (production is adjusted appropriately)?

Sherrod, Inc., reported pretax accounting income of $68 million for 2018. The following information relates to differences between pretax accounting income and taxable income:

Income from installment sales of properties included in pretax accounting income in 2018 exceeded that reported for tax purposes by $6 million. The installment receivable account at year-end had a balance of $8 million (representing portions of 2017 and 2018 installment sales), expected to be collected equally in 2019 and 2020.
Sherrod was assessed a penalty of $4 million by the Environmental Protection Agency for violation of a federal law in 2018. The fine is to be paid in equal amounts in 2018 and 2019.
Sherrod rents its operating facilities but owns one asset acquired in 2017 at a cost of $56 million. Depreciation is reported by the straight-line method assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight-line depreciation the first two years but less than straight-line depreciation the next two years ($ in millions):

Income Statement Tax Return Difference
2017 $ 14 $ 18 $ (4 )
2018 14 22 (8 )
2019 14 8 6
2020 14 8 6
$ 56 $ 56 $ 0

Warranty expense of $5 million is reported in 2018. For tax purposes, the expense is deducted when costs are incurred, $4 million in 2018. At December 31, 2018, the warranty liability was $4 million (after adjusting entries). The balance was $3 million at the end of 2017.
In 2018, Sherrod accrued an expense and related liability for estimated paid future absences of $14 million relating to the company’s new paid vacation program. Future compensation will be deductible on the tax return when actually paid during the next two years ($8 million in 2019; $6 million in 2020).
During 2017, accounting income included an estimated loss of $2 million from having accrued a loss contingency. The loss is paid in 2018 at which time it is tax deductible.

Balances in the deferred tax asset and deferred tax liability accounts at January 1, 2018, were $2.0 million and $2.4 million, respectively. The enacted tax rate is 40% each year.

Required:
1. Determine the amounts necessary to record income taxes for 2018 and prepare the appropriate journal entry.
2. What is the 2018 net income?
3. Show how any deferred tax amounts should be classified and reported in the 2018 balance sheet.

Sherrod, Inc., reported pretax accounting income of $60 million for 2018. The following information relates to differences between pretax accounting income and taxable income:

1. Income from installment sales of properties included in pretax accounting income in 2018 exceeded that reported for tax purposes by $5 million. The installment receivable account at year-end had a balance of $6 million (representing portions of 2017 and 2018 installment sales), expected to be collected equally in 2019 and 2020.
2. Sherrod was assessed a penalty of $3 million by the Environmental Protection Agency for violation of a federal law in 2018. The fine is to be paid in equal amounts in 2018 and 2019.
3. Sherrod rents its operating facilities but owns one asset acquired in 2017 at a cost of $40 million. Depreciation is reported by the straight-line method assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight-line depreciation the first two years but less than straight-line depreciation the next two years ($ in millions):

4. Warranty expense of $4 million is reported in 2018. For tax purposes, the expense is deducted when costs are incurred, $3 million in 2018. At December 31, 2018, the warranty liability was $3 million (after adjusting entries). The balance was $2 million at the end of 2017.
5. In 2018, Sherrod accrued an expense and related liability for estimated paid future absences of $5 million relating to the company’s new paid vacation program. Future compensation will be deductible on the tax return when actually paid during the next two years ($3 million in 2019; $2 million in 2020).
6. During 2017, accounting income included an estimated loss of $4 million from having accrued a loss contingency. The loss is paid in 2018 at which time it is tax deductible.

Balances in the deferred tax asset and deferred tax liability accounts at January 1, 2018, were $2.4 million and $1.6 million, respectively. The enacted tax rate is 40% each year.

Required:
1. Determine the amounts necessary to record income taxes for 2018 and prepare the appropriate journal entry.
2. What is the 2018 net income?
3. Show how any deferred tax amounts should be classified and reported in the 2018 balance sheet.

Problem 16-7 Multiple differences; calculate taxable income; balance sheet classification [LO16-4, 16-6, 16-8] Sherrod, Inc., reported pretax accounting income of $74 million for 2018. The following information relates to differences between pretax accounting income and taxable income: Income from installment sales of properties included in pretax accounting income in 2018 exceeded that reported for tax purposes by $7 million. The installment receivable account at year-end had a balance of $8 million (representing portions of 2017 and 2018 installment sales), expected to be collected equally in 2019 and 2020. Sherrod was assessed a penalty of $3 million by the Environmental Protection Agency for violation of a federal law in 2018. The fine is to be paid in equal amounts in 2018 and 2019. Sherrod rents its operating facilities but owns one asset acquired in 2017 at a cost of $68 million. Depreciation is reported by the straight-line method assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight-line depreciation the first two years but less than straight-line depreciation the next two years ($ in millions): Income Statement Tax Return Difference 2017 $ 17 $ 22 $ (5 ) 2018 17 29 (12 ) 2019 17 10 7 2020 17 7 10 $ 68 $ 68 $ 0 Warranty expense of $3 million is reported in 2018. For tax purposes, the expense is deducted when costs are incurred, $2 million in 2018. At December 31, 2018, the warranty liability was $2 million (after adjusting entries). The balance was $1 million at the end of 2017. In 2018, Sherrod accrued an expense and related liability for estimated paid future absences of $14 million relating to the company’s new paid vacation program. Future compensation will be deductible on the tax return when actually paid during the next two years ($8 million in 2019; $6 million in 2020). During 2017, accounting income included an estimated loss of $2 million from having accrued a loss contingency. The loss is paid in 2018 at which time it is tax deductible. Balances in the deferred tax asset and deferred tax liability accounts at January 1, 2018, were $1.2 million and $2.4 million, respectively. The enacted tax rate is 40% each year. Required: 1. Determine the amounts necessary to record income taxes for 2018 and prepare the appropriate journal entry. 2. What is the 2018 net income? 3. Show how any deferred tax amounts should be classified and reported in the 2018 balance sheet.

Sherrod, Inc., reported pretax accounting income of $60 million for 2018. The following information relates to differences between pretax accounting income and taxable income:

1. Income from installment sales of properties included in pretax accounting income in 2018 exceeded that reported for tax purposes by $5 million. The installment receivable account at year-end had a balance of $6 million (representing portions of 2017 and 2018 installment sales), expected to be collected equally in 2019 and 2020.
2. Sherrod was assessed a penalty of $3 million by the Environmental Protection Agency for violation of a federal law in 2018. The fine is to be paid in equal amounts in 2018 and 2019.
3. Sherrod rents its operating facilities but owns one asset acquired in 2017 at a cost of $40 million. Depreciation is reported by the straight-line method assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight-line depreciation the first two years but less than straight-line depreciation the next two years ($ in millions):

4. Warranty expense of $4 million is reported in 2018. For tax purposes, the expense is deducted when costs are incurred, $3 million in 2018. At December 31, 2018, the warranty liability was $3 million (after adjusting entries). The balance was $2 million at the end of 2017.
5. In 2018, Sherrod accrued an expense and related liability for estimated paid future absences of $5 million relating to the company’s new paid vacation program. Future compensation will be deductible on the tax return when actually paid during the next two years ($3 million in 2019; $2 million in 2020).
6. During 2017, accounting income included an estimated loss of $4 million from having accrued a loss contingency. The loss is paid in 2018 at which time it is tax deductible.

Balances in the deferred tax asset and deferred tax liability accounts at January 1, 2018, were $2.4 million and $1.6 million, respectively. The enacted tax rate is 40% each year.

Required:
1. Determine the amounts necessary to record income taxes for 2018 and prepare the appropriate journal entry.
2. What is the 2018 net income?
3. Show how any deferred tax amounts should be classified and reported in the 2018 balance sheet.

Sherrod, Inc., reported pretax accounting income of $100 million for 2016. The following information relates to differences between pretax accounting income and taxable income:

Income from installment sales of properties included in pretax accounting income in 2018 exceeded that reported for tax purposes by $8 million. The installment receivable account at year-end had a balance of $10 million (representing portions of 2017 and 2018 installment sales), expected to be collected equally in 2019 and 2020.

Sherrod was assessed a penalty of $4 million by the Environmental Protection Agency for violation of a federal law in 2018. The fine is to be paid in equal amounts in 2018 and 2019.

Sherrod rents its operating facilities but owns one asset acquired in 2017 at a cost of $120 million. Depreciation is reported by the straight-line method assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight-line depreciation the first two years but less than straight-line depreciation the next two years ($ in millions):

Warranty expense of $7 million is reported in 2018. For tax purposes, the expense is deducted when costs are incurred, $4 million in 2018. At December 31, 2018, the warranty liability was $4 million (after adjusting entries). The balance was $1 million at the end of 2017.

In 2018, Sherrod accrued an expense and related liability for estimated paid future absences of $14 million relating to the company’s new paid vacation program. Future compensation will be deductible on the tax return when actually paid during the next two years ($9 million in 2019; $5 million in 2020).

During 2017, accounting income included an estimated loss of $4 million from having accrued a loss contingency. The loss is paid in 2018 at which time it is tax deductible.

Balances in the deferred tax asset and deferred tax liability accounts at January 1, 2018, were $2.0 million and $4.4 million, respectively. The enacted tax rate is 40% each year.

Required:
1. Determine the amounts necessary to record income taxes for 2018 and prepare the appropriate journal entry.
2. What is the 2018 net income?
3. Show how any deferred tax amounts should be classified and reported in the 2018 balance sheet.

Note: I nned help with number 3

Problem 16-7 Multiple differences; calculate taxable income; balance sheet classification [LO16-4, 16-6, 16-8]

Sherrod, Inc., reported pretax accounting income of $90 million for 2018. The following information relates to differences between pretax accounting income and taxable income:

1. Income from installment sales of properties included in pretax accounting income in 2018 exceeded that reported for tax purposes by $3 million. The installment receivable account at year-end had a balance of $4 million (representing portions of 2017 and 2018 installment sales), expected to be collected equally in 2019 and 2020.
2. Sherrod was assessed a penalty of $2 million by the Environmental Protection Agency for violation of a federal law in 2018. The fine is to be paid in equal amounts in 2018 and 2019.
3. Sherrod rents its operating facilities but owns one asset acquired in 2017 at a cost of $100 million. Depreciation is reported by the straight-line method assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight-line depreciation the first two years but less than straight-line depreciation the next two years ($ in millions):

4. Warranty expense of $5 million is reported in 2018. For tax purposes, the expense is deducted when costs are incurred, $3 million in 2018. At December 31, 2018, the warranty liability was $3 million (after adjusting entries). The balance was $1 million at the end of 2017.
5. In 2018, Sherrod accrued an expense and related liability for estimated paid future absences of $10 million relating to the company’s new paid vacation program. Future compensation will be deductible on the tax return when actually paid during the next two years ($7 million in 2019; $3 million in 2020).
6. During 2017, accounting income included an estimated loss of $4 million from having accrued a loss contingency. The loss is paid in 2018 at which time it is tax deductible.

Balances in the deferred tax asset and deferred tax liability accounts at January 1, 2018, were $2.0 million and $3.6 million, respectively. The enacted tax rate is 40% each year.

Required:
1. Determine the amounts necessary to record income taxes for 2018 and prepare the appropriate journal entry.
2. What is the 2018 net income?
3. Show how any deferred tax amounts should be classified and reported in the 2018 balance sheet.

Jay owns a 25% interest in the capital and profits of Grey Company (a calendar year partnership). For tax year 2017, the partnership earned revenue of $800,000 and had operating expenses of $400,000. During the year, Jay withdrew from the partnership a total of $80,000. He also invested an additional $50,000 in the partnership. For 2017, Jay’s gross income from the partnership is:

____   26.   Ron, age 19, is a full-time graduate student at City University. During 2016, he received the following payments:

Ron served as a resident advisor in a dormitory and, therefore, the university waived the $3,500 charge for the room he occupied. What is Ron’s adjusted gross income for 2016?

____   27.   Jerome received a court award in a civil libel suit against Morehouse Inquirer. He received $90,000 for damages to his professional reputation, $80,000 for damages to his personal reutation, and $80,000 in punitive damages. Jerome must include in his gross income as a damage award:

____   28.   Jack’s interest and gains on investments for 2017 were as follows:

Jack’s gross income from the above is: