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?
| Tax Rate % | Tax $ | Recorded as: | ||||
| Pretax accounting income | $520,000 | |||||
| Permanent difference | ||||||
| Income subject to taxation | 520,000 | x | ||||
| Temporary difference | x | = | ||||
| Income taxable in current year | $520,000 | x | = |
In: Accounting
Question: Computing the debt to equity ratio
Jackson Corporation has the following amounts as of December 31, 2018.
Total assets $ 55,250
Total liabilities 22,750
Total equity 32,500
Compute the debt to equity ratio on December 31, 2018.
In: Accounting
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:
| Activity Cost Pool | Activity Measure | Total Activity | |
| Removing asbestos | Thousands of square metres | 500,000 | m2 |
| Estimating and job setup | Number of jobs | 260 | jobs* |
| Working on non-routine jobs | Number of non-routine jobs | 25 | non-routine jobs |
| Other (costs of idle capacity and organization-sustaining costs) | Not applicable; these costs are not allocated to jobs. | ||
* 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.
| Wages and salaries | $ | 270,000 | |
| Disposal fees | 705,000 | ||
| Equipment depreciation | 101,000 | ||
| On-site supplies | 74,000 | ||
| Office expenses | 246,000 | ||
| Licensing and insurance | 454,000 | ||
| Total cost | $ | 1,850,000 | |
|
Distribution of Resource Consumption across Activity Cost Pools |
|||||||||||||||
|
Removing Asbestos |
Estimating and Job Setup |
Working on Non-routine Jobs | Other | Total | |||||||||||
| Wages and salaries | 45 | % | 10 | % | 30 | % | 15 | % | 100 | % | |||||
| Disposal fees | 70 | % | 0 | % | 30 | % | 0 | % | 100 | % | |||||
| Equipment depreciation | 40 | % | 0 | % | 35 | % | 25 | % | 100 | % | |||||
| On-site supplies | 55 | % | 15 | % | 25 | % | 5 | % | 100 | % | |||||
| Office expenses | 10 | % | 40 | % | 35 | % | 15 | % | 100 | % | |||||
| Licensing and insurance | 50 | % | 0 | % | 40 | % | 10 | % | 100 | % | |||||
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.)
| Removing asbestos | estimating and job set up | working on non-job routines | others | totals | |
| wages and salaries | |||||
|
disposla fees |
|||||
| equipement depreciation | |||||
| On-site supplies | |||||
| office expenses | |||||
| licensing and insurance |
2. Compute the activity rates for the activity cost pools. (Round your answers to 2 decimal places.)
| Acitivity cost pool | Activity rate |
| Removing abestos | number (per thousand sqaure meters ) |
| estimating and job set up | number (per job) |
| working on non job routines | number (per non-job routine) |
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
In: Accounting
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
In: Accounting
The following financial information isfor Chesapeake Corporation are for the fiscal years ending 2018 & 2017 (all balances are normal):
Item/Account | 2018 | 2017 |
Cash | 25,000 | $24,000 |
Accounts Receivable | 55,000 | 52,000 |
Inventory | 44,000 | 48,000 |
Current Liabilities | 85,000 | 42,000 |
Net Sales (all credit) | 550,000 | 485,000 |
Cost of Goods Sold | 288,000 | 265,000 |
Use this information to determine the number of current ratio as of December 31, 2018: (Round & enter your answers to one decimal place and enter the value.)
In: Accounting
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
In: Economics
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.
|
Period |
Income |
|
January 1 through March 15 (74 days) |
$100,000 |
|
March 16 through December 31 (291 days) |
345,500 |
|
January 1 through December 31, 2018 (365 days) |
$445,500 |
In: Accounting
Nichols, Inc. had the following balances and transactions during 2018:
|
Beginning Merchandise Inventory as of January 1, 2018 |
300 units at $80 |
|
March 10 |
Sold
60 units |
|
June 10 |
Purchased
600 units at $85 |
|
October 30 |
Sold
360 units |
What would be reported for Ending Merchandise Inventory on the balance sheet at December 31, 2018 if the perpetual inventory system and the
first−in, first−out inventory costing method are used?
A. 40,800
B. 51,000
C. 24,000
D. 4,800
In: Accounting
Inventory Turnover and Days’ Sales in Inventory The Southern Corporation installed a new in-
ventory management system at the beginning of 2018. Shown below are data from the company’s
accounting records as reported by the new system:
2018 2019
Sales revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $19,000,000 $20,000,000
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,600,000 9,200,000
Beginning inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500,000 2,530,000
Ending inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,530,000 2,600,00
Calculate the company’s (a) inventory turnover (round to three decimal places) and (b) days’ sales in
inventory for 2018 and 2019. Comment on your results
explain he results :
In: Accounting
On January 1, 2018,
the Brunswick Hat Company adopted the dollar-value LIFO retail
method. The following data are available for 2018:
| Cost | Retail | |||
| Beginning inventory | $ | 84,600 | $ | 141,000 |
| Net purchases | 129,500 | 264,000 | ||
| Net markups | 5,000 | |||
| Net markdowns | 10,000 | |||
| Net sales | 229,000 | |||
| Retail price index, 12/31/18 | 1.20 | |||
Required:
Calculate the estimated ending inventory and cost of goods sold for
2018.
| 171000 |
|
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In: Accounting