Described below are six independent and unrelated situations involving accounting changes. Each change occurs during 2021 before any adjusting entries or closing entries were prepared. Assume the tax rate for each company is 25% in all years. Any tax effects should be adjusted through the deferred tax liability account.

1. Fleming Home Products introduced a new line of commercial awnings in 2020 that carry a one-year warranty against manufacturer’s defects. Based on industry experience, warranty costs were expected to approximate 2% of sales. Sales of the awnings in 2020 were $3,600,000. Accordingly, warranty expense and a warranty liability of $72,000 were recorded in 2020. In late 2021, the company’s claims experience was evaluated, and it was determined that claims were far fewer than expected: 1% of sales rather than 2%. Sales of the awnings in 2021 were $4,100,000, and warranty expenditures in 2021 totaled $93,275.
2. On December 30, 2017, Rival Industries acquired its office building at a cost of $1,020,000. It was depreciated on a straight-line basis assuming a useful life of 40 years and no salvage value. However, plans were finalized in 2021 to relocate the company headquarters at the end of 2025. The vacated office building will have a salvage value at that time of $710,000.
3. Hobbs-Barto Merchandising, Inc., changed inventory cost methods to LIFO from FIFO at the end of 2021 for both financial statement and income tax purposes. Under FIFO, the inventory at January 1, 2021, is $700,000.
4. At the beginning of 2018, the Hoffman Group purchased office equipment at a cost of $341,000. Its useful life was estimated to be 10 years with no salvage value. The equipment was depreciated by the sum-of-the-years’-digits method. On January 1, 2021, the company changed to the straight-line method.
5. In November 2019, the State of Minnesota filed suit against Huggins Manufacturing Company, seeking penalties for violations of clean air laws. When the financial statements were issued in 2020, Huggins had not reached a settlement with state authorities, but legal counsel advised Huggins that it was probable the company would have to pay $210,000 in penalties. Accordingly, the following entry was recorded:

Late in 2021, a settlement was reached with state authorities to pay a total of $361,000 in penalties.

6. At the beginning of 2021, Jantzen Specialties, which uses the sum-of-the-years’-digits method, changed to the straight-line method for newly acquired buildings and equipment. The change increased current year net earnings by $456,000.

1. Prepare any journal entry necessary as a direct result of the change, as well as any adjusting entry for 2021 related to the situation described. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

• Record journal entry as a direct result of the change.

Described below are six independent and unrelated situations involving accounting changes. Each change occurs during 2021 before any adjusting entries or closing entries were prepared. Assume the tax rate for each company is 25% in all years. Any tax effects should be adjusted through the deferred tax liability account.

1. Fleming Home Products introduced a new line of commercial awnings in 2020 that carry a one-year warranty against manufacturer’s defects. Based on industry experience, warranty costs were expected to approximate 3% of sales. Sales of the awnings in 2020 were $3,800,000. Accordingly, warranty expense and a warranty liability of $114,000 were recorded in 2020. In late 2021, the company’s claims experience was evaluated, and it was determined that claims were far fewer than expected: 2% of sales rather than 3%. Sales of the awnings in 2021 were $4,300,000, and warranty expenditures in 2021 totaled $97,825.
2. On December 30, 2017, Rival Industries acquired its office building at a cost of $1,060,000. It was depreciated on a straight-line basis assuming a useful life of 40 years and no salvage value. However, plans were finalized in 2021 to relocate the company headquarters at the end of 2025. The vacated office building will have a salvage value at that time of $730,000.
3. Hobbs-Barto Merchandising, Inc., changed inventory cost methods to LIFO from FIFO at the end of 2021 for both financial statement and income tax purposes. Under FIFO, the inventory at January 1, 2021, is $720,000.
4. At the beginning of 2018, the Hoffman Group purchased office equipment at a cost of $363,000. Its useful life was estimated to be 10 years with no salvage value. The equipment was depreciated by the sum-of-the-years’-digits method. On January 1, 2021, the company changed to the straight-line method.
5. In November 2019, the State of Minnesota filed suit against Huggins Manufacturing Company, seeking penalties for violations of clean air laws. When the financial statements were issued in 2020, Huggins had not reached a settlement with state authorities, but legal counsel advised Huggins that it was probable the company would have to pay $230,000 in penalties. Accordingly, the following entry was recorded:

Late in 2021, a settlement was reached with state authorities to pay a total of $383,000 in penalties.

6. At the beginning of 2021, Jantzen Specialties, which uses the sum-of-the-years’-digits method, changed to the straight-line method for newly acquired buildings and equipment. The change increased current year net earnings by $478,000.

Required:
For each situation:
1. Identify the type of change.
2. Prepare any journal entry necessary as a direct result of the change, as well as any adjusting entry for 2021 related to the situation described.

Described below are six independent and unrelated situations involving accounting changes. Each change occurs during 2021 before any adjusting entries or closing entries were prepared. Assume the tax rate for each company is 25% in all years. Any tax effects should be adjusted through the deferred tax liability account.

1. Fleming Home Products introduced a new line of commercial awnings in 2020 that carry a one-year warranty against manufacturer’s defects. Based on industry experience, warranty costs were expected to approximate 2% of sales. Sales of the awnings in 2020 were $2,900,000. Accordingly, warranty expense and a warranty liability of $58,000 were recorded in 2020. In late 2021, the company’s claims experience was evaluated, and it was determined that claims were far fewer than expected: 1% of sales rather than 2%. Sales of the awnings in 2021 were $3,400,000, and warranty expenditures in 2021 totaled $77,350.
2. On December 30, 2017, Rival Industries acquired its office building at a cost of $880,000. It was depreciated on a straight-line basis assuming a useful life of 40 years and no salvage value. However, plans were finalized in 2021 to relocate the company headquarters at the end of 2025. The vacated office building will have a salvage value at that time of $640,000.
3. Hobbs-Barto Merchandising, Inc., changed inventory cost methods to LIFO from FIFO at the end of 2021 for both financial statement and income tax purposes. Under FIFO, the inventory at January 1, 2021, is $630,000.
4. At the beginning of 2018, the Hoffman Group purchased office equipment at a cost of $264,000. Its useful life was estimated to be 10 years with no salvage value. The equipment was depreciated by the sum-of-the-years’-digits method. On January 1, 2021, the company changed to the straight-line method.
5. In November 2019, the State of Minnesota filed suit against Huggins Manufacturing Company, seeking penalties for violations of clean air laws. When the financial statements were issued in 2020, Huggins had not reached a settlement with state authorities, but legal counsel advised Huggins that it was probable the company would have to pay $140,000 in penalties. Accordingly, the following entry was recorded:

Late in 2021, a settlement was reached with state authorities to pay a total of $284,000 in penalties.

6. At the beginning of 2021, Jantzen Specialties, which uses the sum-of-the-years’-digits method, changed to the straight-line method for newly acquired buildings and equipment. The change increased current year net earnings by $379,000.

Required:
For each situation:
1. Identify the type of change.
2. Prepare any journal entry necessary as a direct result of the change, as well as any adjusting entry for 2021 related to the situation described.

Can a corporation's annual profit be predicted from information about the company's CEO? Forbes (May 1999) presented data (shown in TABLE 2) on company profit (y) in (millions of dollars), CEO's annual income (x1) (in thousands of dollars) and percentage of the company's stock owned by the CEO (x2). Use the data in the TABLE below and answer the following questions.

(a) Fit a multiple regression model of y on x1 and x2 (MODEL 1). Fit two simple linear regressions: (I) y on x1 (MODEL2); (II) y on x2 (MODEL 3). Discuss results on statistical significance of explanatory variables in each model. Compare the results of fitting the three models to the data using various measures of goodness of fit and model selection criteria discussed in class. Rank the models in terms of usefulness and briefly comment on their performance.

(b) Do you find any signs of multicollinearity?

(c) Use the printout to test the following hypotheses using a significance level of 5%: (I) increasing the CEO's annual income (other things constant) will increase the company profit; (II) increasing the percentage of company stock owned by the CEO will increase the company profit.

TABLE: Company profit (y), CEO's annual income (x1), and the company stock owned by the CEO (x2)

On September 1, 2020, Peter Corporation acquired Darcy Enterprises for a cash payment of $ 850,000. At the time of purchase, Darcy’s statement of financial position showed assets of $ 890,000, liabilities of $ 450,000, and owner’s equity of $ 440,000. The fair value of Darcy’s assets is estimated to be $ 1,150,000. Assume that Peter is a public company and the goodwill was allocated entirely to one cash-generating unit (CGU). Two years later, the CGU’s carrying amount is $ 3,450,000; its value in use is $ 3,380,000; the fair value less costs to sell is $ 2,980,000.

1. Determine if goodwill is impaired, and calculate the goodwill impairment loss.
2. Record the journal entry for the impairment, if necessary. If not necessary, state that no journal entry is necessary.
3. Explain the concept of a ‘cash generating unit’.

The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2021. The company buys debt securities, not intending to profit from short-term differences in price and not necessarily to hold debt securities to maturity, but to have them available for sale in years when circumstances warrant. Ornamental’s fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2020.

(Hint: Interest must be accrued.)

Sendelbach Corporation is a U.S.-based organization with operations throughout the world. One of its subsidiaries is headquartered in Toronto. Although this wholly owned company operates primarily in Canada, it engages in some transactions through a branch in Mexico. Therefore, the subsidiary maintains a ledger denominated in Mexican pesos (Ps) and a general ledger in Canadian dollars (C$). As of December 31, 2017, the subsidiary is preparing financial statements in anticipation of consolidation with the U.S. parent corporation. Both ledgers for the subsidiary are as follows:

• The Canadian subsidiary’s functional currency is the Canadian dollar, and Sendelbach’s reporting currency is the U.S. dollar. The Canadian and Mexican operations are not viewed as separate accounting entities.

• The building and equipment used in the Mexican operation were acquired in 2007 when the currency exchange rate was C$0.20 = Ps 1.

• Purchases of inventory were made evenly throughout the fiscal year.

• Beginning inventory was acquired evenly throughout 2016; ending inventory was acquired evenly throughout 2017.

• The Main Office account on the Mexican records should be considered an equity account. This balance was remeasured into C$7,680 on December 31, 2017.

• Currency exchange rates for 1 Ps applicable to the Mexican operation follow:

• The December 31, 2016, consolidated balance sheet reported a cumulative translation adjustment with a $52,950 credit (positive) balance.

• The subsidiary’s common stock was issued in 2004 when the exchange rate was $0.45 = C$1.

• The subsidiary’s December 31, 2016, retained earnings balance was C$151,590, an amount that has been translated into U.S.$69,663.

• The applicable currency exchange rates for 1 C$ for translation purposes are as follows:

1. Remeasure the Mexican operation’s account balances into Canadian dollars. (Note: Back into the beginning net monetary asset or liability position.)

2. Prepare financial statements (income statement, statement of retained earnings, and balance sheet) for the Canadian subsidiary in its functional currency, Canadian dollars.

3. Translate the Canadian dollar functional currency financial statements into U.S. dollars so that Sendelbach can prepare consolidated financial statements.

4. SENDELBACH CORPORATION Financial Statements For the Year Ended December 31, 2017 Canadian Dollar U.S. Dollar Income Statement: Sales C$ Cost of goods sold Gross profit C$ 0 $0.00 Salary expense Utility expense Depreciation expense Gain on sale of equipment Remeasurement loss Net income C$ 0 $0.00 Statement of Retained Earnings: Retained earnings, 1/1/15 C$ Net income Retained earnings, 12/31/15 C$ 0 $0.00 Balance Sheet: Assets: Cash C$ Buildings and equipment Receivables Inventory Total C$ 0 $0.00 Liabilities and Equities: Common stock C$ Cumulative translation adjustment Retained earnings Total C$ 0 $0.00

Vaughn Corp. is a medium-sized corporation specializing in quarrying stone for building construction. The company has long dominated the market, at one time achieving a 70% market penetration. During prosperous years, the company’s profits, coupled with a conservative dividend policy, resulted in funds available for outside investment. Over the years, Vaughn has had a policy of investing idle cash in equity securities. In particular, Vaughn has made periodic investments in the company’s principal supplier, Norton Industries. Although the firm currently owns 12% of the outstanding common stock of Norton Industries, Vaughn does not have significant influence over the operations of Norton Industries.

Cheryl Thomas has recently joined Vaughn as assistant controller, and her first assignment is to prepare the 2020 year-end adjusting entries for the accounts that are valued by the “fair value” rule for financial reporting purposes. Thomas has gathered the following information about Vaughn’ pertinent accounts.

Morgan Company’s balance sheet at December 31, 2019, is presented below.

During January 2020, the following transactions occurred. (Morgan Company uses the perpetual inventory system.)

Adjustment data:

Can you please help me find these answers. Thank you!!

A)Prepare journal entries for the transactions listed above and the adjusting entries.

B)Prepare an adjusted trial balance at January 31, 2020.

C)Prepare an income statement.

D)Prepare an owner’s equity statement for the month ending January 31, 2020.

E)Prepare a classified balance sheet as of January 31, 2020

Big Ink is a chain of tattoo parlors that follows IFRS. The following data is for 2020:

Golf club dues were $30,000.

Automated tattoo machinery was acquired on January 1, 2019, for $200,000. Straight‐line depreciation is over a 10‐year life with a $20,000 residual value. For taxes, the 30% rate class is used, and Big Ink applied the CRA half year rule in 2019.

On December 31, 2020, Big Ink accrued a provision for legal expense of $40,000. The estimated legal liability of $40,000 relates to four pending lawsuits. In addition to the $40,000, legal costs paid out in cash during 2020 were $60,000. These related to lawsuits started and settled during 2020. Big Ink believes that the new automated equipment will reduce the number of lawsuits.

Pretax accounting income for 2020 is $880,000. The income tax rate is 25%.

Instructions

1. WRITE a schedule (starting with pretax accounting income) to calculate taxable income. On your schedule, indicate a subtotal for accounting income after permanent differences.
2. Prepare the journal entries to record income taxes for 2020.