Overall Planning Materiality

Based on the information provided below.

a. Explain why ABC's auditor chose Sales as a Measurement Benchmark in planning Wesly Co. Audit for the year 2018.

b. Explain why ABC's auditor chose Total Assets as a Measurement Benchmark in planning Wesly Co. Audit for the year 2018.

c. Explain why ABC's auditor chose Gross Profit as a Measurement Benchmark in planning Wesly Co. Audit for the year 2018.

P9-3A. Depreciation Methods On January 2, 2018, Skyler, Inc. Purchased a laser cutting machine to be used in the fabrication of a part of its key products. The machine cost $12,000, and its estimated useful life was four years or 920,000 cuttings, after which it could be sold for $5,000.

Required

a. Calculate each year's depreciation expense for the period 2018-2021 under each of the following depreciation methods:

1. Straight line.

2. Double-declining balance.

3. Units-of-production. Assume annual production in cutting of $200,000; 350,000; 260,000; and 110,000.

b. Assume that the machine was purchased on July 1, 2018. Calculate each year's depreciation expense for the period 2018-2022 under each of the following depreciation methods:

1. straight-line

2. Double declining balance.

Question 9

P Company acquired 75 percent of S Company on January 1, 2018 at book value. During 2018, S purchased inventory for $40,000 and sold it to P for $60,000. Of this amount, P reported $12,000 in ending inventory in 2018 and later sold it in 2019. In 2019, P sold inventory it had purchased for $35,000 to S for $50,000. S sold $45,000 of this inventory in 2019. In 2019, P reported stand-alone income of $870,000 and S reported total net income of $218,000.

1) Prepare the consolidation entries that related to intercompany sale of inventory for 2018.

2) Prepare the consolidation entries that related to intercompany sale of inventory for 2019.

3) Calculated consolidated net income AND income assigned to controlling shareholders in 2019.

Juggernaut acquired a passive partnership activity in January of 2015. His at-risk basis at the beginning of 2018 was $65,000. Juggernaut also owns a rental property that generated income of $23,000 in 2018 and $19,000 in 2019. Juggernaut’s share of income and loss from the partnership activity is: 2018 <$79,000>
2019 32,000

Complete the following tables.

(apply both at risk and passive rules together) (3 points)

FOR 2018

Deductible under at-risk provisions                             ____________________

Adjusted basis at 12/31/18                                          ____________________

Suspended under at-risk provisions                             ____________________

Deductible under passive loss provisions                     ____________________

Suspended under passive loss provisions                     ____________________

FOR 2019

Deductible under at-risk provisions                             ____________________

Adjusted basis at 12/31/19                                          ____________________

Suspended under at-risk provisions                             ____________________

Deductible under passive loss provisions                     ____________________

Suspended under passive loss provisions                     ____________________

Dan and Katlyn are married and operate a pizza restaurant as an S corporation. In 2018, the store has qualified business income of $300,000. Their itemized deductions are $22,000 and they have other income from interest and dividends of $9,000.

What is their QBI deduction for 2018?

What is their taxable income?

a. Assume the same facts as above, except that Dan and Katlyn are lawyers and jointly operate their law firm as a partnership. The income that flows to them from the partnership is $380,000. In addition, they have capital gains of $5,000.

What is their QBI deduction for 2018?

What is taxable income?

b. Assume the facts of the original problem except that their itemized deductions are $32,000, the QBI from the business is $500,000, it has W-2 wages of $160,000, and unadjusted depreciable property of $180,000.

What is their QBI deduction for 2018?

What is taxable income?

On December 31, 2017, Dow Steel Corporation had 660,000 shares of common stock and 36,000 shares of 10%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 5% common stock dividend on May 15 and paid cash dividends of $460,000 and $75,000 to common and preferred shareholders, respectively, on December 15, 2018.

On February 28, 2018, Dow sold 56,000 common shares. In keeping with its long-term share repurchase plan, 2,000 shares were retired on July 1. Dow's net income for the year ended December 31, 2018, was $2,400,000. The income tax rate is 40%.
  
Required:
Compute Dow's earnings per share for the year ended December 31, 2018. (Do not round intermediate calculations. Enter your answers in thousands.)

At the end of its first year of operations on December 31, 2018, the Skyway Company reported taxable income of $30,000 and a pretax financial loss of $40,000. Differences between taxable income and pretax financial income included:Environmental fine from the EPA = $20,000Warranty costs expensed for accounting purposes in excess of cash paid for warranty costs = $50,000(Those warranty costs are expected to be paid in 2019.) The enacted tax rates for 2018 and 2019 are 30% and 34%, respectively.REQUIRED:(a) Prepare the income tax journal entry for the Skyway Company on December 31, 2018, assuming that it is more likely than not the deferred tax asset will be realized.(b) Prepare the income tax journal entry for the Skyway Company on December 31, 2018, assuming that it is more likely than not that 40% of the deferred tax asset will not be realized.

The Manda Panda Company uses the allowance method to account for bad debts. At the beginning of 2018, the allowance account had a credit balance of $75,000. Credit sales for 2018 totaled $2,400,000 and the year-end accounts receivable balance was $490,000. During this year, $73,000 in receivables were determined to be uncollectible. Manda Panda anticipates that 3% of all credit sales will ultimately become uncollectible. The fiscal year ends on December 31.

Required:
1. Does this situation describe a loss contingency?
2. What is the bad debt expense that Manda Panda should report in its 2018 income statement?
3. Prepare the appropriate journal entry to record the contingency.
4. Complete the table below to calculate the net realizable value Manda Panda should report in its 2018 balance sheet.

Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $110 million of 10% bonds, dated January 1, on January 1, 2018. Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the market yield was 12%. The price paid for the bonds was $94 million. Interest is received semiannually on June 30 and December 31. Due to changing market conditions, the fair value of the bonds at December 31, 2018, was $100 million. Required: 1. to 3. Prepare the relevant journal entries on the respective dates (record the interest at the effective rate). 4. At what amount will Fuzzy Monkey report its investment in the December 31, 2018, balance sheet? 5. How would Fuzzy Monkey's 2018 statement of cash flows be affected by this investment?

The Manda Panda Company uses the allowance method to account for bad debts. At the beginning of 2018, the allowance account had a credit balance of $75,000. Credit sales for 2018 totaled $2,400,000 and the year-end accounts receivable balance was $490,000. During this year, $73,000 in receivables were determined to be uncollectible. Manda Panda anticipates that 3% of all credit sales will ultimately become uncollectible. The fiscal year ends on December 31.

Required:
1. Does this situation describe a loss contingency?
2. What is the bad debt expense that Manda Panda should report in its 2018 income statement?
3. Prepare the appropriate journal entry to record the contingency.
4. Complete the table below to calculate the net realizable value Manda Panda should report in its 2018 balance sheet.