Concord Inc. reports the following incomes (losses) for both book and tax purposes (assume the carryback provision is used where possible):

The tax rates listed were all enacted by the beginning of 2014.

1- Prepare the journal entries for each of the years 2014 to 2017 to record income taxes, assuming at December 31, 2016, that it was more likely than not that the company would not be able to benefit from the remaining losses available to carryforward. (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.)

2014 (2 entries only)

2015 (2 entries only)

2016 (2 entries only)

2017 (2 entries only)

2- Prepare the income tax section of the income statements for each of the years 2014 to 2017, beginning with the line “Income (loss) before income tax.”. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Do not leave any answer field blank. Enter 0 for amounts.)

   Concord Inc.

(Partial) Income Statements

(2014)

(2015)

(2016)

(2017)

Objective: Knowledge of the FASB Codification and to practice communicating the results of the research in “clear, complete and professional” manner.

Scenario: You have been examining the books of a new client. Included on their previously unaudited financial statements was a balance of $299,032 for a long-term Patent as of 12/31/2016. When examining the ledger, you found these entries, in addition to the “acquisition” entry of $274,982:

• Legal costs incurred in the preparation of the application for the patent: $6,450 during 2016

• Leal costs incurred in successfully defending the validity of the patent: $17,600 during 2017

There have been no amortization expenses reported for the patent. In discussions with the president of the firm, you learned that this patent was developed by an employee specifically hired to work on the development of the president’s initial concept for the product. After 3 years of work, the patent was granted at the end of 2016. The patented product has resulted in a 50% increase in sales from 12/31/2016 to 12/31/2018. The president expects the product to continue being very marketable over the company’s 3 year strategic plan from 2017 through 2020.

Instructions: As the outside auditor for the company, prepare a memo as of 12/31/2018 to the president of the company discussing: 1. The GAAP rules governing the accounting of patents, using appropriate citations from the codification. (Provide the appropriate references to the FASB Codification. Do NOT copy and paste the codification sections.) 2. The previous mistakes in accounting for the patent. Suggest correcting journal entries, if appropriate.

On July 1, 2016, Killearn Company acquired 103,000 of the outstanding shares of Shaun Company for $21 per share. This acquisition gave Killearn a 40 percent ownership of Shaun and allowed Killearn to significantly influence the investee's decisions. As of July 1, 2016, the investee had assets with a book value of $6 million and liabilities of $1,468,500. At the time, Shaun held equipment appraised at $140,000 above book value; it was considered to have a seven-year remaining life with no salvage value. Shaun also held a copyright with a five-year remaining life on its books that was undervalued by $562,500. Any remaining excess cost was attributable to goodwill. Depreciation and amortization are computed using the straight-line method. Killearn applies the equity method for its investment in Shaun. Shaun's policy is to declare and pay a $1 per share cash dividend every April 1 and October 1. Shaun's income, earned evenly throughout each year, was $580,000 in 2016, $606,600 in 2017, and $649,200 in 2018. In addition, Killearn sold inventory costing $93,000 to Shaun for $155,000 during 2017. Shaun resold $97,500 of this inventory during 2017 and the remaining $57,500 during 2018.

a.Determine the equity income to be recognized by Killearn during each of these years.

b.Compute Killearn's investment in Shaun Company's balance as of December 31, 2018.

A. Equity income 2016

Equity income 2017

Equity income 2018

B. Investment in Shaun

The accountant for Becker Company wants to develop a balance sheet as of December 31, 2016. A review of the asset records has revealed the following information:

Required:

Dowell Company produces a single product. Its income statements under absorption costing for its first two years of operation follow. 2016 2017 Sales ($46 per unit) $ 1,150,000 $ 2,070,000 Cost of goods sold ($31 per unit) 775,000 1,395,000 Gross margin 375,000 675,000 Selling and administrative expenses 288,750 323,750 Net income $ 86,250 $ 351,250 Additional Information Sales and production data for these first two years follow. 2016 2017 Units produced 35,000 35,000 Units sold 25,000 45,000 Variable cost per unit and total fixed costs are unchanged during 2016 and 2017. The company's $31 per unit product cost consists of the following. Direct materials $ 5 Direct labor 8 Variable overhead 8 Fixed overhead ($350,000/35,000 units) 10 Total product cost per unit $ 31 Selling and administrative expenses consist of the following. 2016 2017 Variable selling and administrative expenses ($1.75 per unit) $ 43,750 $ 78,750 Fixed selling and administrative expenses 245,000 245,000 Total selling and administrative expenses $ 288,750 $ 323,750 1. Complete income statements for the company for each of its first two years under variable costing. (Loss amounts should be entered with a minus sign.)

Required information

[The following information applies to the questions displayed below.]

Dowell Company produces a single product. Its income statements under absorption costing for its first two years of operation follow.

Additional Information

1. Sales and production data for these first two years follow.

2. Variable cost per unit and total fixed costs are unchanged during 2016 and 2017. The company's $31 per unit product cost consists of the following.

3. Selling and administrative expenses consist of the following.

2. What are the differences between the absorption costing income and the variable costing income for these two years? (Loss amounts should be entered with a minus sign.)

Assume that on December 31, 2016, Kimberly-Clark Corp. signs a 10-year, non-cancelable lease agreement to lease a storage building from Sheffield Storage Company. The following information pertains to this lease agreement: 1. The agreement requires equal rental payments of $66,999 beginning on December 31, 2016. 2. The fair value of the building on December 31, 2016 is $490,629. 3. The building has an estimated economic life of 12 years, a guaranteed residual value of $11,000, and an expected residual value of $8,100. Kimberly-Clark depreciates similar buildings on the straight-line method. 4. The lease is nonrenewable. At the termination of the lease, the building reverts to the lessor. 5. Kimberly-Clark’s incremental borrowing rate is 8% per year. The lessor’s implicit rate is not known by Kimberly-Clark. Click here to view the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Collapse question part (a) Prepare the journal entries on the lessee’s books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2016, 2017, and 2018. Kimberly-Clark’s fiscal year-end is December 31. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 5,275.)

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%]).

Dowell Company produces a single product. Its income statements under absorption costing for its first two years of operation follow. 2016 2017 Sales ($48 per unit) $ 960,000 $ 1,920,000 Cost of goods sold ($33 per unit) 660,000 1,320,000 Gross margin 300,000 600,000 Selling and administrative expenses 280,000 320,000 Net income $ 20,000 $ 280,000 Additional Information Sales and production data for these first two years follow. 2016 2017 Units produced 30,000 30,000 Units sold 20,000 40,000 Variable cost per unit and total fixed costs are unchanged during 2016 and 2017. The company's $33 per unit product cost consists of the following. Direct materials $ 6 Direct labor 9 Variable overhead 8 Fixed overhead ($300,000/30,000 units) 10 Total product cost per unit $ 33 Selling and administrative expenses consist of the following. 2016 2017 Variable selling and administrative expenses ($2 per unit) $ 40,000 $ 80,000 Fixed selling and administrative expenses 240,000 240,000 Total selling and administrative expenses $ 280,000 $ 320,000 1. Complete income statements for the company for each of its first two years under variable costing. (Loss amounts should be entered with a minus sign.)