Described below are six independent and unrelated situations involving accounting changes. Each change occurs during 2018 before any adjusting entries or closing entries were prepared. Assume the tax rate for each company is 40% in all years. Any tax effects should be adjusted through the deferred tax liability account.

A. Fleming Home Products introduced a new line of commercial awnings in 2017 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 2017 were $2,900,000. Accordingly, warranty expense and a warranty liability of $58,000 were recorded in 2017. In late 2018, 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 2018 were $3,400,000, and warranty expenditures in 2018 totaled $77,350.
B. On December 30, 2014, 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 2018 to relocate the company headquarters at the end of 2022. The vacated office building will have a salvage value at that time of $640,000.
C. Hobbs-Barto Merchandising, Inc., changed inventory cost methods to LIFO from FIFO at the end of 2018 for both financial statement and income tax purposes. Under FIFO, the inventory at January 1, 2018, is $630,000.
D. At the beginning of 2015, 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, 2018, the company changed to the straight-line method.
E. In November 2016, 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 2017, 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:

Loss—litigation 140,000
Liability—litigation 140,000

Late in 2018, a settlement was reached with state authorities to pay a total of $284,000 in penalties.

At the beginning of 2018, 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 2018 related to the situation described.

The information necessary for preparing the 2018 year-end adjusting entries for Vito’s Pizza Parlor appears below. Vito’s fiscal year-end is December 31.

1. On July 1, 2018, purchased $12,500 of IBM Corporation bonds at face value. The bonds pay interest twice a year on January 1 and July 1. The annual interest rate is 10%.
2. Vito’s depreciable equipment has a cost of $26,000, a four-year life, and no salvage value. The equipment was purchased in 2016. The straight-line depreciation method is used.
3. On November 1, 2018, the bar area was leased to Jack Donaldson for one year. Vito’s received $7,500 representing the first six months’ rent and credited deferred rent revenue.
4. On April 1, 2018, the company paid $3,000 for a two-year fire and liability insurance policy and debited insurance expense.
5. On October 1, 2018, the company borrowed $25,000 from a local bank and signed a note. Principal and interest at 10% will be paid on September 30, 2019.
6. At year-end, there is a $2,050 debit balance in the supplies (asset) account. Only $750 of supplies remain on hand.

Required:

1. Prepare the necessary adjusting journal entries at December 31, 2018.
2. Determine the amount by which net income would be misstated if Vito's failed to record these adjusting entries. (Ignore income tax expense.)

Prepare the necessary adjusting journal entries at December 31, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations.)

1. On July 1, 2018, purchased $12,500 of IBM Corporation bonds at face value. The bonds pay interest twice a year on January 1 and July 1. The annual interest rate is 10%.
2. Vito’s depreciable equipment has a cost of $26,000, a four-year life, and no salvage value. The equipment was purchased in 2016. The straight-line depreciation method is used.
3. On November 1, 2018, the bar area was leased to Jack Donaldson for one year. Vito’s received $7,500 representing the first six months’ rent and credited deferred rent revenue.
4. On April 1, 2018, the company paid $3,000 for a two-year fire and liability insurance policy and debited insurance expense.
5. On October 1, 2018, the company borrowed $25,000 from a local bank and signed a note. Principal and interest at 10% will be paid on September 30, 2019.
6. At year-end, there is a $2,050 debit balance in the supplies (asset) account. Only $750 of supplies remain on hand.

7. 	Transaction General Journal Debit Credit a.

Determine the amount by which net income would be misstated if Vito's failed to record these adjusting entries. (Ignore income tax expense.) (Amounts to be deducted should be indicated by a minus sign. Do not round intermediate calculations.)

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Question: At December 31, 2017, Cord Company's plant asset and accumulated depreciation and amortization ac...

At December 31, 2017, Cord Company's plant asset and accumulated depreciation and amortization accounts had balances as follows:

Depreciation methods and useful lives:
Buildings—150% declining balance; 25 years.
Machinery and equipment—Straight line; 10 years.
Automobiles and trucks—150% declining balance; 5 years, all acquired after 2014.
Leasehold improvements—Straight line.
Land improvements—Straight line.

Depreciation is computed to the nearest month and residual values are immaterial. Transactions during 2018 and other information:

On January 6, 2018, a plant facility consisting of land and building was acquired from King Corp. in exchange for 30,000 shares of Cord's common stock. On this date, Cord's stock had a fair value of $40 a share. Current assessed values of land and building for property tax purposes are $160,000 and $640,000, respectively.

On March 25, 2018, new parking lots, streets, and sidewalks at the acquired plant facility were completed at a total cost of $222,000. These expenditures had an estimated useful life of 12 years.

The leasehold improvements were completed on December 31, 2014, and had an estimated useful life of eight years. The related lease, which would terminate on December 31, 2020, was renewable for an additional four-year term. On April 30, 2018, Cord exercised the renewal option.

On July 1, 2018, machinery and equipment were purchased at a total invoice cost of $330,000. Additional costs of $12,000 for delivery and $55,000 for installation were incurred.

On August 30, 2018, Cord purchased a new automobile for $13,000.

On September 30, 2018, a truck with a cost of $24,500 and a book value of $10,000 on date of sale was sold for $12,000. Depreciation for the nine months ended September 30, 2018, was $2,250.

On December 20, 2018, a machine with a cost of $19,500 and a book value of $3,100 at date of disposition was scrapped without cash recovery.

Required:

1. Prepare a schedule analyzing the changes in each of the plant asset accounts during 2018. Do not analyze changes in accumulated depreciation and amortization.
2. For each asset category, prepare a schedule showing depreciation or amortization expense for the year ended December 31, 2018.

I need help with the second requirement.

Exercise 22-19 A partial trial balance of Crane Corporation is as follows on December 31, 2018. Dr. Cr. Supplies $2,600 Salaries and wages payable $1,500 Interest Receivable 4,600 Prepaid Insurance 86,200 Unearned Rent 0 Interest Payable 14,100 Additional adjusting data: 1. A physical count of supplies on hand on December 31, 2018, totaled $1,100. 2. Through oversight, the Salaries and Wages Payable account was not changed during 2018. Accrued salaries and wages on December 31, 2018, amounted to $4,700. 3. The Interest Receivable account was also left unchanged during 2018. Accrued interest on investments amounts to $3,700 on December 31, 2018. 4. The unexpired portions of the insurance policies totaled $68,300 as of December 31, 2018. 5. $26,500 was received on January 1, 2018, for the rent of a building for both 2018 and 2019. The entire amount was credited to rent revenue. 6. Depreciation on equipment for the year was erroneously recorded as $5,200 rather than the correct figure of $52,000. 7. A further review of depreciation calculations of prior years revealed that equipment depreciation of $7,500 was not recorded. It was decided that this oversight should be corrected by a prior period adjustment. Assuming that the books have not been closed, what are the adjusting entries necessary at December 31, 2018? (Ignore income tax considerations.) (Credit account titles are automatically indented when 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.) No. Account Titles and Explanation Debit Credit 1. 2. 3. 4. 5. 6. 7. SHOW LIST OF ACCOUNTS Assuming that the books have been closed, what are the adjusting entries necessary at December 31, 2018? (Ignore income tax considerations.) (Credit account titles are automatically indented when 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.) No. Account Titles and Explanation Debit Credit 1. 2. 3. 4. 5. 6. 7. SHOW LIST OF ACCOUNTS Pass the necessary adjusting entries for the following taking into account income tax effects (40% tax rate) and assuming that the books have been closed. (Round answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when 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.) 1. Depreciation on equipment for the year was erroneously recorded as $5,200 rather than the correct figure of $52,000. 2. A further review of depreciation calculations of prior years revealed that equipment depreciation of $7,500 was not recorded. It was decided that this oversight should be corrected by a prior period adjustment. No. Account Titles and Explanation Debit Credit 1. 2.

Described below are six independent and unrelated situations involving accounting changes. Each change occurs during 2018 before any adjusting entries or closing entries were prepared. Assume the tax rate for each company is 40% 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 2017 that carry a one-year warranty against manufacturer’s defects. Based on industry experience, warranty costs were expected to approximate 4% of sales. Sales of the awnings in 2017 were $4,300,000. Accordingly, warranty expense and a warranty liability of $172,000 were recorded in 2017. In late 2018, the company’s claims experience was evaluated and it was determined that claims were far fewer than expected: 3% of sales rather than 4%. Sales of the awnings in 2018 were $4,800,000, and warranty expenditures in 2018 totaled $109,200.
2. On December 30, 2014, Rival Industries acquired its office building at a cost of $1,160,000. It was depreciated on a straight-line basis assuming a useful life of 40 years and no salvage value. However, plans were finalized in 2018 to relocate the company headquarters at the end of 2022. The vacated office building will have a salvage value at that time of $780,000.
3. Hobbs-Barto Merchandising, Inc., changed inventory cost methods to LIFO from FIFO at the end of 2018 for both financial statement and income tax purposes. Under FIFO, the inventory at January 1, 2018, is $770,000.
4. At the beginning of 2015, the Hoffman Group purchased office equipment at a cost of $418,000. 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, 2018, the company changed to the straight-line method.
5. In November 2016, 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 2017, Huggins had not reached a settlement with state authorities, but legal counsel advised Huggins that it was probable the company would have to pay $280,000 in penalties. Accordingly, the following entry was recorded:

Late in 2018, a settlement was reached with state authorities to pay a total of $438,000 in penalties.

6. At the beginning of 2018, 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 $533,000.

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 2018 related to the situation described.

Financial statement disclosures

You are the financial accountant for Superstore Ltd, and are in the process of preparing its financial statements for the year ended 30 June 2018. Whilst preparing the financial statements, you become aware of the following situations:
On 1 July 2017, the directors made a decision, using information obtained over the last couple of years, to revise the useful life of an item of manufacturing equipment. The equipment was acquired on 1 July 2015 for $800,000, and has been depreciated on a straight-line basis, based on an estimated useful life of 10 years and residual value of nil. Superstore Ltd uses the cost model for manufacturing equipment. The directors estimate that as at 1 July 2017, the equipment has a remaining useful life of 6 years and a residual value of nil. No depreciation has been recorded as yet for the year ended 30 June 2018 as the directors were unsure how to account for the change in the 2018 financial statements, and unsure whether the 2016 and 2017 financial statements will need to be revised as a result of the change.
In June 2018, the accounts payable officer discovered that an invoice for repairs to equipment, with an amount due of $20,000, incurred in June 2017, had not been paid or provided for in the 2017 financial statements. The invoice was paid on 12 July 2018. The repairs are deductible for tax purposes. The accountant responsible for preparing the company’s income tax returns will amend the 2017 tax return, and the company will receive a tax refund of $6,000 as a result (30% x $20,000). No journal entries have been done as yet in the accounting records of Superstore Ltd, as the directors are unsure how to account for this situation, and what period adjustments need to be made in.
Superstore Ltd holds shares in a listed public company, ABC Ltd, which are valued in the draft financial statements on 30 June 2018 at their market value on that date - $600,000. A major fall in the stock market occurred on 10 July 2018, and the value of Superstore’s shares in ABC Ltd declined to $250,000.
On 21 July 2018, you discovered a cheque dated 20 April 2018 of $32,000 authorised by the company’s previous accountant, Max. The payment was for the purchase of a swimming pool at Max’s house. The payment had been recorded in the accounting system as an advertising expense. You advise the directors of this fraudulent activity, and they will investigate.
Assume that each event is material.

Required:

i) State the appropriate accounting treatment for each situation. Provide explanations and references to relevant paragraphs in the accounting standards to support your answers. Where adjustments to Superstore Ltd’s financial statements are required, explain which financial statements need to be adjusted (ie. 2016, 2017, 2018 or 2019).

ii) Prepare any note disclosures and adjusting journal entries that are needed in the 2018 financial statements for each situation.

Described below are six independent and unrelated situations involving accounting changes. Each change occurs during 2018 before any adjusting entries or closing entries were prepared. Assume the tax rate for each company is 40% in all years. Any tax effects should be adjusted through the deferred tax liability account.

A) Fleming Home Products introduced a new line of commercial awnings in 2017 that carry a one-year warranty against manufacturer’s defects. Based on industry experience, warranty costs were expected to approximate 4% of sales. Sales of the awnings in 2017 were $4,000,000. Accordingly, warranty expense and a warranty liability of $160,000 were recorded in 2017. In late 2018, the company’s claims experience was evaluated and it was determined that claims were far fewer than expected: 3% of sales rather than 4%. Sales of the awnings in 2018 were $4,500,000, and warranty expenditures in 2018 totaled $102,375.

B) On December 30, 2014, Rival Industries acquired its office building at a cost of $1,100,000. It was depreciated on a straight-line basis assuming a useful life of 40 years and no salvage value. However, plans were finalized in 2018 to relocate the company headquarters at the end of 2022. The vacated office building will have a salvage value at that time of $750,000.

C) Hobbs-Barto Merchandising, Inc., changed inventory cost methods to LIFO from FIFO at the end of 2018 for both financial statement and income tax purposes. Under FIFO, the inventory at January 1, 2018, is $740,000.

D)At the beginning of 2015, the Hoffman Group purchased office equipment at a cost of $385,000. 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, 2018, the company changed to the straight-line method.

E) In November 2016, 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 2017, Huggins had not reached a settlement with state authorities, but legal counsel advised Huggins that it was probable the company would have to pay $250,000 in penalties. Accordingly, the following entry was recorded:

Loss—litigation 250,000 Liability—litigation 250,000 Late in 2018, a settlement was reached with state authorities to pay a total of $405,000 in penalties.

F) At the beginning of 2018, 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 $500,000.

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 2018 related to the situation described.

1. On January 1, 2018, Dreamworld Co. began construction of a new warehouse. The building was finished and ready for use on September 30, 2019. Expenditures on the project were as follows:

   January 1, 2018	$	300,000
   September 1, 2018	$	450,000
   December 31, 2018	$	450,000
   March 31, 2019	$	450,000

   Dreamworld had the following debt obligations outstanding during both years:

   Construction loan, 10%             $500,000

                Long-term note, 12%                      $2,500,000

   Required: What would Dreamworld's capitalized interest be in 2018?

   		$45,000
   		$134,000
   		$52,500
   		$50,000
   		None of the above

4 points   

QUESTION 25

1. Data below for the year ended December 31, 2018, relates to Houdini Inc., which began operations on January 1, 2018. The retail price index at the end of 2018 was 1.10.

   	Cost					Retail
   Beginning inventory	$	66,000					$	104,000
   Net purchases		280,000						420,000
   Net markups								20,000
   Net markdowns								40,000
   Net sales								375,000

   Required: Calculate estimated ending inventory at cost assuming Houdini uses the Dollar-Value LIFO retail method.

   		$75,112
   		$75,291
   		$76,220
   		$83,500
   		$82,091

4 points   

QUESTION 26

1. Which of the following statements about Asset retirement obligations (AROs) is false:

   		AROs are liabilities associated with the retirement or disposal of a long-term asset
   		AROs are offset with an increase the balance in the related asset account
   		AROs are valued at the present value of an annuity
   		AROs are measured at fair value in the balance sheet
   		None of the above answers are false

4 points   

QUESTION 27

1. The changes in fair value for which type of investment securities is reported in Other Comprehensive Income?

   		Securities reported under the equity method
   		Available-for-sale securities
   		Trading securities
   		Held-to-maturity securities

4 points   

QUESTION 28

1. Cumulative Question:

   Cashmere Soap Corporation had the following items listed in its trial balance at 12/31/2018:

   Currency and coins	$	650
   Balance in checking account		2,600
   Customer checks waiting to be deposited		1,200
   Treasury bills, purchased on 11/1/2018, mature on 5/13/2019		3,000
   Marketable equity securities		10,200
   Commercial paper, purchased on 11/1/2018, mature on 1/30/2019		5,000

   What amount will Cashmere Soap include in its year-end balance sheet as cash and cash equivalents?

   		$17,650
   		$9,450
   		None of the above
   		$10,450
   		$7,450

5 points   

QUESTION 29

1. Lake Incorporated purchased all of the outstanding stock of Huron Company paying $950,000 cash. Lake assumed all of the liabilities of Huron. Book values and fair values of acquired assets and liabilities were:

   	Book Value				Fair Value
   Current assets (net)	$	130,000			$	125,000
   Property, plant, equip. (net)		600,000				750,000
   Liabilities		150,000				175,000

   Lake would record goodwill of:

   		$250,000
   		$75,000
   		$0
   		None of the above
   		$445,000

Described below are six independent and unrelated situations involving accounting changes. Each change occurs during 2018 before any adjusting entries or closing entries were prepared. Assume the tax rate for each company is 40% in all years. Any tax effects should be adjusted through the deferred tax liability account. Fleming Home Products introduced a new line of commercial awnings in 2017 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 2017 were $3,300,000. Accordingly, warranty expense and a warranty liability of $99,000 were recorded in 2017. In late 2018, 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 2018 were $3,800,000, and warranty expenditures in 2018 totaled $86,450. On December 30, 2014, Rival Industries acquired its office building at a cost of $960,000. It was depreciated on a straight-line basis assuming a useful life of 40 years and no salvage value. However, plans were finalized in 2018 to relocate the company headquarters at the end of 2022. The vacated office building will have a salvage value at that time of $680,000. Hobbs-Barto Merchandising, Inc., changed inventory cost methods to LIFO from FIFO at the end of 2018 for both financial statement and income tax purposes. Under FIFO, the inventory at January 1, 2018, is $670,000. At the beginning of 2015, the Hoffman Group purchased office equipment at a cost of $308,000. 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, 2018, the company changed to the straight-line method. In November 2016, 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 2017, Huggins had not reached a settlement with state authorities, but legal counsel advised Huggins that it was probable the company would have to pay $180,000 in penalties. Accordingly, the following entry was recorded: Loss—litigation 180,000 Liability—litigation 180,000 Late in 2018, a settlement was reached with state authorities to pay a total of $328,000 in penalties. At the beginning of 2018, 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 $423,000.

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 2018 related to the situation described.

Described below are six independent and unrelated situations involving accounting changes. Each change occurs during 2018 before any adjusting entries or closing entries were prepared. Assume the tax rate for each company is 40% in all years. Any tax effects should be adjusted through the deferred tax liability account.

Fleming Home Products introduced a new line of commercial awnings in 2017 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 2017 were $3,300,000. Accordingly, warranty expense and a warranty liability of $99,000 were recorded in 2017. In late 2018, 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 2018 were $3,800,000, and warranty expenditures in 2018 totaled $86,450.

On December 30, 2014, Rival Industries acquired its office building at a cost of $960,000. It was depreciated on a straight-line basis assuming a useful life of 40 years and no salvage value. However, plans were finalized in 2018 to relocate the company headquarters at the end of 2022. The vacated office building will have a salvage value at that time of $680,000.

Hobbs-Barto Merchandising, Inc., changed inventory cost methods to LIFO from FIFO at the end of 2018 for both financial statement and income tax purposes. Under FIFO, the inventory at January 1, 2018, is $670,000.

At the beginning of 2015, the Hoffman Group purchased office equipment at a cost of $308,000. 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, 2018, the company changed to the straight-line method.

In November 2016, 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 2017, Huggins had not reached a settlement with state authorities, but legal counsel advised Huggins that it was probable the company would have to pay $180,000 in penalties. Accordingly, the following entry was recorded:

Late in 2018, a settlement was reached with state authorities to pay a total of $328,000 in penalties.

At the beginning of 2018, 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 $423,000.

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 2018 related to the situation described.