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:
| 1. | At the beginning of 2016, the company purchased a machine for $483,000 (salvage value of $48,300) that had a useful life of 6 years. The bookkeeper used straight-line depreciation but failed to deduct the salvage value in computing the depreciation base for the 3 years. | |
| 2. | At the end of 2017, the company failed to accrue sales salaries of $43,000 which was paid in 2018 and was debited to Salaries and Wages Expense. | |
| 3. | A tax lawsuit that involved the year 2016 was settled late in 2018. It was determined that the company owed an additional $89,000 in taxes related to 2016. The company did not record a liability in 2016 or 2017 because the possibility of loss was considered remote, and charged the $89,000 to a loss account in 2018. | |
| 4. | Whispering Company purchased a copyright from another company early in 2016 for $46,000. Whispering had not amortized the copyright because its value had not diminished. The copyright has a useful life at purchase of 20 years. | |
| 5. | In 2018, the company wrote off $86,000 of inventory considered to be obsolete; this loss was charged directly to Retained Earnings. |
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.
In: Accounting
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
| Mar. | 1 | Issued $350,000 of 10 year, 6 percent bonds for $341,000. The semiannual cash payment for interest is due on March 1 and September 1, beginning September 2018. | |
| Sept. | 1 | Recognized interest expense including the amortization of the discount and made the semiannual cash payment for interest. | |
| Dec. | 31 | Recognized accrued interest expense including the amortization of the discount. |
2019
| Mar. | 1 | Recognized interest expense including the amortization of the discount and made the semiannual cash payment for interest. | |
| Sept. | 1 | Recognized interest expense including the amortization of the discount and made the semiannual cash payment for interest. | |
| Dec. | 31 | Recognized accrued interest expense including the amortization of the discount. |
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.
In: Accounting
(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.
|
Item |
2017 |
2018 |
|
Accounts Payable |
150.0 |
180.0 |
|
Accounts Receivable |
150.0 |
180.0 |
|
Accumulated Depreciation |
270.0 |
300.0 |
|
Cash & Cash Equivalents |
10.0 |
12.0 |
|
Common Stock |
50.0 |
50.0 |
|
Cost of Goods Sold |
550.0 |
650.0 |
|
Depreciation |
25.0 |
30.0 |
|
Interest Expense |
20.2 |
21.7 |
|
Inventory |
200.0 |
180.0 |
|
Long-term Debt |
150.0 |
150.0 |
|
Gross Plant & Equipment |
520.0 |
600.0 |
|
Retained Earnings |
208.5 |
225.0 |
|
Sales |
1,000.0 |
1,200.0 |
|
SG&A Expenses |
300.0 |
370.0 |
|
Notes Payable |
51.5 |
67.0 |
|
Tax Rate |
40% |
40% |
(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.
In: Finance
| 2017 | 2018 | ||
| Sales | $ 2,050 | $ 2,200 | |
| Depreciation | 295 | 295 | |
| Cost of goods sold | 705 | 801 | |
| Other expenses | 170 | 140 | |
| Interest | 137 | 158 | |
| Cash | 1,075 | 1,099 | |
| Accounts receivable | 1,423 | 1,603 | |
| Short-term notes payable | 208 | 195 | |
| Long-term debt | 3,600 | 4,200 | |
| Net fixed assets | 9,015 | 9,230 | |
| Accounts payable | 1,129 | 1,095 | |
| Inventory | 2,530 | 2,600 | |
| Dividends | 250 | ? | |
| Common Shares | 1,000 | ||
| Tax rate | 40% | 40% | |
| 2017 | 2018 | ||
| Sales | $ 2,050 | $ 2,200 | |
| Depreciation | 295 | 295 | |
| Cost of goods sold | 705 | 801 | |
| Other expenses | 170 | 140 | |
| Interest | 137 | 158 | |
| Cash | 1,075 | 1,099 | |
| Accounts receivable | 1,423 | 1,603 | |
| Short-term notes payable | 208 | 195 | |
| Long-term debt | 3,600 | 4,200 | |
| Net fixed assets | 9,015 | 9,230 | |
| Accounts payable | 1,129 | 1,095 | |
| Inventory | 2,530 | 2,600 | |
| Dividends | 250 | ? | |
| Common Shares | 1,000 | ||
| Tax rate | 40% | 40% |
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.
In: Accounting
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?
In: Accounting
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.
In: Accounting
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.
In: Accounting
At the beginning of 2018, Blue Dragon, a small private company, acquired a mine for $1,925,000. Of this amount, $190,000 was allocated to the land value and the remaining portion to the minerals in the mine. Surveys conducted by geologists found that approximately 18 million units of ore appear to be in the mine. Blue Dragon had $175,000 of development costs for this mine before any extraction of minerals. It also determined that the fair value of its obligation to prepare the land for an alternative use when all of the minerals have been removed was $70,000. During 2018, 3.0 million units of ore were extracted and 2.10 million of these units were sold.
Calculate the depletion cost per unit for 2018.
(Round answer to 3 decimal places, e.g.
52.751.)
Depletion Cost Per Unit: $________
Prepare the required journal entry, if any, for the total amount
of depletion for 2018. (Credit account titles are
automatically indented when the amount is entered. Do not indent
manually. If no entry is required, select "No Entry" for the
account titles and enter 0 for the
amounts.)
Account Debit Credit
________
________
Prepare the required journal entry, if any, for the total amount that is charged as an expense for 2018 for the cost of minerals sold during 2018. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.)
Account Debit Credit
______
______
In: Accounting
Comparative Earnings per Share
Lucas Company reports net income of $5,125 for the year ended December 31, 2016, its first year of operations. On January 4, 2016, Lucas issued 9,000 shares of common stock. On August 2, 2016, it issued an additional 3,000 shares of stock, resulting in 12,000 shares outstanding at year-end.
During 2017, Lucas earned net income of $16,400. It issued 2,000 additional shares of stock on March 3, 2017, and declared and issued a 2-for-1 stock split on November 3, 2017, resulting in 28,000 shares outstanding at year-end.
During 2018, Lucas earned net income of $23,520. The only common stock transaction during 2018 was a 20% stock dividend issued on July 2, 2018.
If required, round your final answers to two decimal places.
Required:
In: Accounting
Comparative Earnings per Share
Lucas Company reports net income of $5,125 for the year ended December 31, 2016, its first year of operations. On January 4, 2016, Lucas issued 9,000 shares of common stock. On August 2, 2016, it issued an additional 3,000 shares of stock, resulting in 12,000 shares outstanding at year-end.
During 2017, Lucas earned net income of $16,400. It issued 2,000 additional shares of stock on March 3, 2017, and declared and issued a 2-for-1 stock split on November 3, 2017, resulting in 28,000 shares outstanding at year-end.
During 2018, Lucas earned net income of $23,520. The only common stock transaction during 2018 was a 20% stock dividend issued on July 2, 2018.
If required, round your final answers to two decimal places.
Required:
In: Accounting