The Pyramid Company has used the LIFO method of accounting for inventory during its first two years of operation, 2016 and 2017. At the beginning of 2018, Pyramid decided to change to the average cost method for both tax and financial reporting purposes. The following table presents information concerning the change for 2016–2018. The income tax rate for all years is 40%. Income before Income Tax Average Cost Method LIFO Method Difference Income Tax Effect Difference after Tax 2016 $ 92,400 $ 61,600 $ 30,800 $ 12,320 $ 18,480 2017 47,000 37,600 9,400 3,760 5,640 Total $ 139,400 $ 99,200 $ 40,200 $ 16,080 $ 24,120 2018 $ 51,800 $ 46,400 $ 5,400 $ 2,160 $ 3,240 Pyramid issued 57,000 $1 par, common shares for $250,000 when the business began, and there have been no changes in paid-in capital since then. Dividends were not paid the first year, but $11,000 cash dividends were paid in both 2017 and 2018. Required: 1. Prepare the journal entry to record the change in accounting principle. 2. Prepare the 2018–2017 comparative income statements beginning with income before income taxes. 3. Prepare the 2018–2017 comparative statements of shareholders’ equity. (Hint: The 2016 statements reported retained earnings of $36,960. This is $61,600 – [$61,600 × 40%]).

Herbert, Inc., acquired all of Rambis Company’s outstanding stock on January 1, 2017, for $595,000 in cash. Annual excess amortization of $16,000 results from this transaction. On the date of the takeover, Herbert reported retained earnings of $402,000, and Rambis reported a $229,000 balance. Herbert reported internal net income of $51,000 in 2017 and $64,500 in 2018 and declared $10,000 in dividends each year. Rambis reported net income of $24,500 in 2017 and $38,000 in 2018 and declared $5,000 in dividends each year.

a. Assume that Herbert’s internal net income figures above do not include any income from the subsidiary.

• If the parent uses the equity method, what is the amount reported as consolidated retained earnings on December 31, 2018?
• What would be the amount of consolidated retained earnings on December 31, 2018, if the parent had applied either the initial value or partial equity method for internal accounting purposes?

b. Under each of the following situations, what is the Investment in Rambis account balance on Herbert’s books on January 1, 2018?

• The parent uses the equity method.
• The parent uses the partial equity method.
• The parent uses the initial value method.

c. Under each of the following situations, what is Entry *C on a 2018 consolidation worksheet?

• The parent uses the equity method.
• The parent uses the partial equity method.
• The parent uses the initial value method.

Item 11

Item 11

Nu Company reported the following pretax data for its first year of operations.

What is Nu's gross profit ratio if it elects LIFO?-----

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Item 12

Item 12

Udon Inc. adopted dollar-value LIFO (DVL) as of January 1, 2018, when it had an inventory of $710,000. Its inventory as of December 31, 2018, was $802,500 at year-end costs and the cost index was 1.07. What was DVL inventory on December 31, 2018?

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Bond Company adopted the dollar-value LIFO inventory method on January 1, 2018. In applying the LIFO method, Bond uses internal cost indexes and the multiple-pools approach. The following data were available for Inventory Pool No. 3 for the two years following the adoption of LIFO:

Under the dollar-value LIFO method, the inventory at December 31, 2019, should be

The first audit of the books of Whispering Company was made for the year ended December 31, 2018. In examining the books, the auditor found that certain items had been overlooked or incorrectly handled in the last 3 years. These items are:

Prepare the journal entries necessary in 2018 to correct the books, assuming that the books have not been closed. Disregard effects of corrections on income tax.

During 2018 and 2019, Kale Co. completed the following transactions relating to its bond issue. The company’s fiscal year ends on December 31.

2018

2019

Required

When the bonds were issued, was the market rate of interest more or less than the stated rate of interest? If the bonds had sold at face value, what amount of cash would Kale Co. have received?

Prepare the liabilities section of the balance sheet at December 31, 2018 and 2019.

Determine the amount of interest expense Kale would report on the income statements for 2018 and 2019.

Determine the amount of interest Kale would pay to the bondholders in 2018 and 2019.

(1) Prepare the income statements and balance sheets for years 2017 and 2018 for Smith Company using the following information. The balance sheet numbers are at the end of year figures.

(2) Answer the following questions:

(a) How much did Smith Company spend in acquiring fixed assets in 2018?

(b) How much dividend did Smith Company pay out during 2018?

(c) Using the end of year numbers, did the short-term liquidity improve or deteriorate from 2017 to 2018? Answer this question using at least two short-term liquidity financial ratios.

(d) Using the end of year numbers, did the asset management efficiency improve or deteriorate from 2017 to 2018? Answer this question using at least two asset management financial ratios.

worksheet #26 is for practice. For worksheet #26, try to put together 2 sets of Income Statements (for the years 2017 and 2018), and 2 Balance Sheets (as at 2017 and 2018). If you are feeling ambitious, try to put together a Statement of Retained Earnings (for 2018 only). Note, for 2018, the dividends are not given to you, so you may have to work backwards to this amount.

On January 1, 2018, Foley Company (as lessor) entered into a noncancelable lease agreement with Pinkley Company for machinery which was carried on the accounting records of Foley at $9,060,000 and had a fair value of $9,600,000. Minimum lease payments under the lease agreement which expires on December 31, 2027, total $14,200,000. Payments of $1,420,000 are due each January 1. The first payment was made on January 1, 2018 when the lease agreement was finalized. The interest rate of 10% which was stipulated in the lease agreement is the implicit rate set by the lessor. The effective interest method of amortization is being used. Pinkley expects the machine to have a ten-year life with no salvage value, and be depreciated on a straight-line basis. Collectibility of the payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. Instructions (a) From the lessee's viewpoint, what kind of lease is the above agreement? From the lessor's viewpoint, what kind of lease is the above agreement? (b) What should be the income before income taxes derived by Foley from the lease for the year ended December 31, 2018? (c) Ignoring income taxes, what should be the expenses incurred by Pinkley from this lease for the year ended December 31, 2018? (d) What journal entries should be recorded by Pinkley Company on January 1, 2018? (e) What journal entries should be recorded by Foley Company on January 1, 2018?

Herbert, Inc., acquired all of Rambis Company’s outstanding stock on January 1, 2017, for $589,000 in cash. Annual excess amortization of $16,700 results from this transaction. On the date of the takeover, Herbert reported retained earnings of $473,000, and Rambis reported a $240,000 balance. Herbert reported internal net income of $46,500 in 2017 and $58,500 in 2018 and declared $10,000 in dividends each year. Rambis reported net income of $27,400 in 2017 and $39,400 in 2018 and declared $5,000 in dividends each year.

a. Assume that Herbert’s internal net income figures above do not include any income from the subsidiary.

If the parent uses the equity method, what is the amount reported as consolidated retained earnings on December 31, 2018?

What would be the amount of consolidated retained earnings on December 31, 2018, if the parent had applied either the initial value or partial equity method for internal accounting purposes?

b. Under each of the following situations, what is the Investment in Rambis account balance on Herbert’s books on January 1, 2018?

The parent uses the equity method.

The parent uses the partial equity method.

The parent uses the initial value method.

c. Under each of the following situations, what is Entry *C on a 2018 consolidation worksheet?

The parent uses the equity method.

The parent uses the partial equity method.

The parent uses the initial value method.

Herbert, Inc., acquired all of Rambis Company’s outstanding stock on January 1, 2017, for $574,000 in cash. Annual excess amortization of $12,000 results from this transaction. On the date of the takeover, Herbert reported retained earnings of $400,000, and Rambis reported a $200,000 balance. Herbert reported internal net income of $40,000 in 2017 and $50,000 in 2018 and declared $10,000 in dividends each year. Rambis reported net income of $20,000 in 2017 and $30,000 in 2018 and declared $5,000 in dividends each year.

a. Assume that Herbert’s internal net income figures above do not include any income from the subsidiary.

If the parent uses the equity method, what is the amount reported as consolidated retained earnings on December 31, 2018?

What would be the amount of consolidated retained earnings on December 31, 2018, if the parent had applied either the initial value or partial equity method for internal accounting purposes?

b. Under each of the following situations, what is the Investment in Rambis account balance on Herbert’s books on January 1, 2018?

The parent uses the equity method.

The parent uses the partial equity method.

The parent uses the initial value method.

c. Under each of the following situations, what is Entry *C on a 2018 consolidation worksheet?

The parent uses the equity method.

The parent uses the partial equity method.

The parent uses the initial value method.