Tanner-UNF Corporation acquired as a long-term investment $300 million of 10% bonds, dated July 1, on July 1, 2018. The market interest rate (yield) was 7% for bonds of similar risk and maturity. Tanner-UNF paid $364 million for the bonds. The company will receive interest semiannually on June 30 and December 31. Company management is holding the bonds in its trading portfolio. As a result of changing market conditions, the fair value of the bonds at December 31, 2018, was $375 million.

Required:

1. & 2. Prepare the journal entry to record Tanner-UNF’s investment in the bonds on July 1, 2018 and interest on December 31, 2018, at the effective (market) rate.

3. Prepare any additional journal entry necessary for Tanner-UNF to report its investment in the December 31, 2018, balance sheet.

4. Suppose Moody’s bond rating agency downgraded the risk rating of the bonds motivating TannerUNF to sell the investment on January 2, 2019, for $360 million. Prepare the journal entries to record the sale.

Focus on Trading Securities

Tanner-UNF Corporation acquired as a long-term investment $240 million of 7% bonds, dated July 1, on July 1, 2018. The market interest rate (yield) was 9% for bonds of similar risk and maturity. Tanner-UNF paid $200 million for the bonds. The company will receive interest semiannually on June 30 and December 31. Company management has classified the bonds as available-for-sale investments. As a result of changing market conditions, the fair value of the bonds at December 31, 2018, was $210 million.

1. & 2. Prepare the journal entry to record Tanner-UNF’s investment in the bonds on July 1, 2018, and interest on December 31, 2018, at the effective (market) rate.
3. Prepare any additional journal entry necessary for Tanner-UNF to report its investment in the December 31, 2018, balance sheet.
4. Suppose Moody’s bond rating agency downgraded the risk rating of the bonds motivating Tanner-UNF to sell the investment on January 2, 2019, for $190 million. Prepare the journal entries necessary to record the sale

Mills Corporation acquired as a long-term investment $300 million of 7% bonds, dated July 1, on July 1, 2018. Mills determined that it should account for the bonds as an available-for-sale investment. The market interest rate (yield) was 5% for bonds of similar risk and maturity. Mills paid $340 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 $320 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 $352 million. Prepare the journal entries to record the sale. Record any reclassification adjustment. Record the sale of the investment by Mills.

Exercise 16-13 Multiple differences; calculate taxable income [LO16-1, 16-4, 16-6]

Southern Atlantic Distributors began operations in January 2018 and purchased a delivery truck for $120,000. Southern Atlantic plans to use straight-line depreciation over a four-year expected useful life for financial reporting purposes. For tax purposes, the deduction is 50% of cost in 2018, 30% in 2019, and 20% in 2020. Pretax accounting income for 2018 was $520,000, which includes interest revenue of $60,000 from municipal bonds. The enacted tax rate is 40%.

Assuming no differences between accounting income and taxable income other than those described above:

Required:
1. Complete the following table given below and prepare the journal entry to record income taxes in 2018.
2. What is Southern Atlantic’s 2018 net income?

Vance Asbestos Removal Company removes potentially toxic asbestos insulation and related products from buildings. The company’s estimator has been involved in a long-simmering dispute with the on-site work supervisors. The on-site supervisors claim that the estimator does not adequately distinguish between routine work, such as removal of asbestos insulation around heating pipes in older homes, and non-routine work, such as removing asbestos-contaminated ceiling plaster in industrial buildings. The on-site supervisors believe that non-routine work is far more expensive than routine work and should bear higher customer charges. The estimator sums up his position in this way: “My job is to measure the area to be cleared of asbestos. As directed by top management, I simply multiply the square metres by $4,700 per thousand square metres to determine the bid price. Since our average cost is only $3,700 per thousand square metres, that leaves enough cushion to take care of the additional costs of non-routine work that shows up. Besides, it is difficult to know what is routine or not routine until you actually start tearing things apart.”

To shed light on this controversy, the company initiated an ABC study of all of its costs. Data from the ABC system follow:

* The total number of jobs includes non-routine jobs as well as routine jobs. Non-routine jobs as well as routine jobs require estimating and setup work.

Required:

1. Perform the first-stage allocation of costs to the activity cost pools. (Do not leave any empty spaces; input a 0 wherever it is required.)

2. Compute the activity rates for the activity cost pools. (Round your answers to 2 decimal places.)

3. Using the activity rates you have computed, determine the total cost and the average cost per thousand square metres of each of the following jobs according to the ABC system:

a. A routine 1,000-square-metre asbestos removal job. (Round your answers to 2 decimal places.)

total costs of jobs

average cost per thousand square meters

b. A routine 2,000-square-metre asbestos removal job. (Round your answers to 2 decimal places.)

total cost of jobs

cost per thousand square meters

c. A non-routine 1,000-square-metre asbestos removal job. (Round your answers to 2 decimal places.)

total cost of jobs

cost per thousand square meters

On January 1, 2018, The Partial had bonds with a face value of $ 1,000,000, a coupon rate of 12% and an unpaid balance (book value) of $ 966,130. The contract specified a call price of $ 981,000.

The bonds were previously issued with a market yield of 14% and interest is paid semi-annually, every June 30 and December 31. The company retired the bonds early on July 1, 2018. What is the book value of July 1, 2018?

a) $ 966,130

b) $ 973,759

c) $ 981,000

d) $ 958,501

e) None of the above

Find out the consumer price index(CPI) and the inflation rate for the information given below:
Base year is 2016
Basket of goods in 2016 costs 3550 DHS
Basket of goods IN 2017 costs 3850 DHS
Basket of goods IN 2018 costs 4550 DHS

Find out:
CPI for 2016
CPI FOR 2017
CPI for 2018

Using these information above find out the following
(i) price increase inflation rate between 2016 and 2017
(ii) price increase inflation rate between 2017 and 2018

Winkin, Blinkin, and Nod are equal shareholders in SleepEZ, an S corporation. On March 15, 2018, Blinkin sells his shares to Nod. How much income should Blinkin report from SleepEZ for 2018 under the daily allocation? Refer to the following table for the timing of SleepEZ’s income.