Northwest Paperboard Company, a paper and allied products manufacturer, was seeking to gain a foothold in Canada. Toward that end, the company bought 40% of the outstanding common shares of Vancouver Timber and Milling, Inc., on January 2, 2016, for $560 million. At the date of purchase, the book value of Vancouver's net assets was $855 million. The book values and fair values for all balance sheet items were the same except for inventory and plant facilities. The fair value exceeded book value by $5 million for the inventory and by $30 million for the plant facilities. The estimated useful life of the plant facilities is 15 years. All inventory acquired was sold during 2016. Vancouver reported net income of $180 million for the year ended December 31, 2016. Vancouver paid a cash dividend of $20 million.
Required: 1. Prepare all appropriate journal entries related to the investment during 2016. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 1 decimal place, (i.e., 5,500,000 should be entered as 5.5).)
2. What amount should Northwest report as its income from its investment in Vancouver for the year ended December 31, 2016? (Enter your answer in millions rounded to 1 decimal place, (i.e., 5,500,000 should be entered as 5.5).)
3. What amount should Northwest report in its balance sheet as its investment in Vancouver? (Enter your answer in millions rounded to 1 decimal place, (i.e., 5,500,000 should be entered as 5.5).)
4. What should Northwest report in its statement of cash flows regarding its investment in Vancouver? (Enter your answers in millions. (i.e., 10,000,000 should be entered as 10).)
In: Accounting
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Selected information about income statement accounts for the Reed Company is presented below (the company's fiscal year ends on December 31): |
| 2016 | 2015 | |||
| Sales | $ | 5,200,000 | $ | 4,300,000 |
| Cost of goods sold | 3,020,000 | 2,160,000 | ||
| Administrative expenses | 960,000 | 835,000 | ||
| Selling expenses | 520,000 | 472,000 | ||
| Interest revenue | 166,000 | 156,000 | ||
| Interest expense | 232,000 | 232,000 | ||
| Loss on sale of assets of discontinued component | 114,000 | — | ||
|
On July 1, 2016, the company adopted a plan to discontinue a division that qualifies as a component of an entity as defined by GAAP. The assets of the component were sold on September 30, 2016, for $114,000 less than their book value. Results of operations for the component (included in the above account balances) were as follows: |
| 1/1/16-9/30/16 | 2015 | ||||||
| Sales | $ | 560,000 | $ | 660,000 | |||
| Cost of goods sold | (370,000 | ) | (416,000 | ) | |||
| Administrative expenses | (66,000 | ) | (56,000 | ) | |||
| Selling expenses | (36,000 | ) | (46,000 | ) | |||
| Operating income before taxes | $ | 88,000 | $ | 142,000 | |||
|
In addition to the account balances above, several events occurred during 2016 that have not yet been reflected in the above accounts: |
|
| 1. |
A fire caused $66,000 in uninsured damages to the main office building. The fire was considered to be an infrequent but not unusual event. |
| 2. |
Inventory that had cost $56,000 had become obsolete because a competitor introduced a better product. The inventory was sold as scrap for $7,000. |
| 3. | Income taxes have not yet been recorded. |
| Required: |
|
Prepare a multiple-step income statement for the Reed Company for 2016, showing 2015 information in comparative format, including income taxes computed at 40% and EPS disclosures assuming 500,000 shares of common stock. (Amounts to be deducted should be indicated with a minus sign. Round EPS answers to 2 decimal places.) |
In: Accounting
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Selected information about income statement accounts for the Reed Company is presented below (the company's fiscal year ends on December 31): |
| 2016 | 2015 | |||
| Sales | $ | 4,700,000 | $ | 3,800,000 |
| Cost of goods sold | 2,920,000 | 2,060,000 | ||
| Administrative expenses | 860,000 | 735,000 | ||
| Selling expenses | 420,000 | 372,000 | ||
| Interest revenue | 156,000 | 146,000 | ||
| Interest expense | 212,000 | 212,000 | ||
| Loss on sale of assets of discontinued component | 74,000 | — | ||
|
On July 1, 2016, the company adopted a plan to discontinue a division that qualifies as a component of an entity as defined by GAAP. The assets of the component were sold on September 30, 2016, for $74,000 less than their book value. Results of operations for the component (included in the above account balances) were as follows: |
| 1/1/16-9/30/16 | 2015 | ||||||
| Sales | $ | 460,000 | $ | 560,000 | |||
| Cost of goods sold | (320,000 | ) | (356,000 | ) | |||
| Administrative expenses | (56,000 | ) | (46,000 | ) | |||
| Selling expenses | (26,000 | ) | (36,000 | ) | |||
| Operating income before taxes | $ | 58,000 | $ | 122,000 | |||
|
In addition to the account balances above, several events occurred during 2016 that have not yet been reflected in the above accounts: |
|
| 1. |
A fire caused $56,000 in uninsured damages to the main office building. The fire was considered to be an infrequent but not unusual event. |
| 2. |
Inventory that had cost $46,000 had become obsolete because a competitor introduced a better product. The inventory was sold as scrap for $6,000. |
| 3. | Income taxes have not yet been recorded. |
| Required: |
|
Prepare a multiple-step income statement for the Reed Company for 2016, showing 2015 information in comparative format, including income taxes computed at 20% and EPS disclosures assuming 500,000 shares of common stock. (Amounts to be deducted should be indicated with a minus sign. Round EPS answers to 2 decimal places.) |
In: Accounting
Problem 12-09
Financing Deficit
Garlington Technologies Inc.'s 2016 financial statements are shown below:
Balance Sheet as of December 31, 2016
| Cash | $ 180,000 | Accounts payable | $ 360,000 | |
| Receivables | 360,000 | Notes payable | 156,000 | |
| Inventories | 720,000 | Line of credit | 0 | |
| Total current assets | $1,260,000 | Accruals | 180,000 | |
| Fixed assets | 1,440,000 | Total current liabilities | $ 696,000 | |
| Common stock | 1,800,000 | |||
| Retained earnings | 204,000 | |||
| Total assets | $2,700,000 | Total liabilities and equity | $2,700,000 |
Income Statement for December 31, 2016
| Sales | $3,600,000 |
| Operating costs | 3,279,720 |
| EBIT | $ 320,280 |
| Interest | 18,280 |
| Pre-tax earnings | $ 302,000 |
| Taxes (40%) | 120,800 |
| Net income | 181,200 |
| Dividends | $ 108,000 |
Suppose that in 2017 sales increase by 15% over 2016 sales and that 2017 dividends will increase to $202,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2016. Use an interest rate of 13%, and assume that any new debt will be added at the end of the year (so forecast the interest expense based on the debt balance at the beginning of the year). Cash does not earn any interest income. Assume that the all new-debt will be in the form of a line of credit. Round your answers to the nearest dollar. Do not round intermediate calculations.
| Garlington Technologies Inc. Pro Forma Income Statement December 31, 2017 |
|||
| Sales | $ | ||
| Operating costs | $ | ||
| EBIT | $ | ||
| Interest | $ | ||
| Pre-tax earnings | $ | ||
| Taxes (40%) | $ | ||
| Net income | $ | ||
| Dividends: | $ | ||
| Addition to RE: | $ | ||
| Garlington Technologies Inc. Pro Forma Balance Statement December 31, 2017 |
|||
| Cash | $ | ||
| Receivables | $ | ||
| Inventories | $ | ||
| Total current assets | $ | ||
| Fixed assets | $ | ||
| Total assets | $ | ||
| Accounts payable | $ | ||
| Notes payable | $ | ||
| Accruals | $ | ||
| Total current liabilities | $ | ||
| Common stock | $ | ||
| Retained earnings | $ | ||
| Total liabilities and equity | $ | ||
In: Finance
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Financing Deficit Garlington Technologies Inc.'s 2016 financial statements are shown below: Balance Sheet as of December 31, 2016
Income Statement for December 31, 2016
Suppose that in 2017 sales increase by 5% over 2016 sales and that 2017 dividends will increase to $144,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2016. Use an interest rate of 8%, and assume that any new debt will be added at the end of the year (so forecast the interest expense based on the debt balance at the beginning of the year). Cash does not earn any interest income. Assume that the all new-debt will be in the form of a line of credit. Round your answers to the nearest dollar. Do not round intermediate calculations.
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In: Finance
inancing Deficit
Garlington Technologies Inc.'s 2016 financial statements are shown below:
Balance Sheet as of December 31, 2016
| Cash | $ 180,000 | Accounts payable | $ 360,000 | |
| Receivables | 360,000 | Notes payable | 156,000 | |
| Inventories | 720,000 | Line of credit | 0 | |
| Total current assets | $1,260,000 | Accruals | 180,000 | |
| Fixed assets | 1,440,000 | Total current liabilities | $ 696,000 | |
| Common stock | 1,800,000 | |||
| Retained earnings | 204,000 | |||
| Total assets | $2,700,000 | Total liabilities and equity | $2,700,000 |
Income Statement for December 31, 2016
| Sales | $3,600,000 |
| Operating costs | 3,279,720 |
| EBIT | $ 320,280 |
| Interest | 18,280 |
| Pre-tax earnings | $ 302,000 |
| Taxes (40%) | 120,800 |
| Net income | 181,200 |
| Dividends | $ 108,000 |
Suppose that in 2017 sales increase by 20% over 2016 sales and that 2017 dividends will increase to $200,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2016. Use an interest rate of 8%, and assume that any new debt will be added at the end of the year (so forecast the interest expense based on the debt balance at the beginning of the year). Cash does not earn any interest income. Assume that the all new-debt will be in the form of a line of credit. Round your answers to the nearest dollar. Do not round intermediate calculations.
| Garlington Technologies Inc. Pro Forma Income Statement December 31, 2017 |
|||
| Sales | $ | ||
| Operating costs | $ | ||
| EBIT | $ | ||
| Interest | $ | ||
| Pre-tax earnings | $ | ||
| Taxes (40%) | $ | ||
| Net income | $ | ||
| Dividends: | $ | ||
| Addition to RE: | $ | ||
| Garlington Technologies Inc. Pro Forma Balance Statement December 31, 2017 |
|||
| Cash | $ | ||
| Receivables | $ | ||
| Inventories | $ | ||
| Total current assets | $ | ||
| Fixed assets | $ | ||
| Total assets | $ | ||
| Accounts payable | $ | ||
| Notes payable | $ | ||
| Accruals | $ | ||
| Total current liabilities | $ | ||
| Common stock | $ | ||
| Retained earnings | $ | ||
| Total liabilities and equity | $ | ||
In: Finance
Problem 12-09
Financing Deficit
Garlington Technologies Inc.'s 2016 financial statements are shown below:
Balance Sheet as of December 31, 2016
| Cash | $ 180,000 | Accounts payable | $ 360,000 | |
| Receivables | 360,000 | Notes payable | 156,000 | |
| Inventories | 720,000 | Line of credit | 0 | |
| Total current assets | $1,260,000 | Accruals | 180,000 | |
| Fixed assets | 1,440,000 | Total current liabilities | $ 696,000 | |
| Common stock | 1,800,000 | |||
| Retained earnings | 204,000 | |||
| Total assets | $2,700,000 | Total liabilities and equity | $2,700,000 |
Income Statement for December 31, 2016
| Sales | $3,600,000 |
| Operating costs | 3,279,720 |
| EBIT | $ 320,280 |
| Interest | 18,280 |
| Pre-tax earnings | $ 302,000 |
| Taxes (40%) | 120,800 |
| Net income | 181,200 |
| Dividends | $ 108,000 |
Suppose that in 2017 sales increase by 15% over 2016 sales and that 2017 dividends will increase to $128,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2016. Use an interest rate of 12%, and assume that any new debt will be added at the end of the year (so forecast the interest expense based on the debt balance at the beginning of the year). Cash does not earn any interest income. Assume that the all new-debt will be in the form of a line of credit. Round your answers to the nearest dollar. Do not round intermediate calculations.
| Garlington Technologies Inc. Pro Forma Income Statement December 31, 2017 |
|||
| Sales | $ | ||
| Operating costs | $ | ||
| EBIT | $ | ||
| Interest | $ | ||
| Pre-tax earnings | $ | ||
| Taxes (40%) | $ | ||
| Net income | $ | ||
| Dividends: | $ | ||
| Addition to RE: | $ | ||
| Garlington Technologies Inc. Pro Forma Balance Statement December 31, 2017 |
|||
| Cash | $ | ||
| Receivables | $ | ||
| Inventories | $ | ||
| Total current assets | $ | ||
| Fixed assets | $ | ||
| Total assets | $ | ||
| Accounts payable | $ | ||
| Notes payable | $ | ||
| Accruals | $ | ||
| Total current liabilities | $ | ||
| Common stock | $ | ||
| Retained earnings | $ | ||
| Total liabilities and equity | $ | ||
In: Finance
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Problem 12-09 Garlington Technologies Inc.'s 2016 financial statements are shown below: Balance Sheet as of December 31, 2016
Income Statement for December 31, 2016
Suppose that in 2017 sales increase by 15% over 2016 sales and that 2017 dividends will increase to $162,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2016. Use an interest rate of 13%, and assume that any new debt will be added at the end of the year (so forecast the interest expense based on the debt balance at the beginning of the year). Cash does not earn any interest income. Assume that the all new-debt will be in the form of a line of credit. Round your answers to the nearest dollar. Do not round intermediate calculations.
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In: Finance
Chelsea Inc. reports tax revenues (income) using the installment method (cash basis), but reports book revenues on an accrual basis. As a result, it has a book-tax difference in that it is recording book revenues prior to recording tax revenues (income). Assume the tax rate is 40%
Chelsea INC. GAAP Reporting
| 2014 | 2015 | 2016 | Total | |
| Revenues | 130000 | 130000 | 130000 | |
| Expenses | 60000 | 60000 | 60000 | |
| Pretax Financial Income | 70000 | 70000 | 70000 | 210000 |
| Income Tax Expense (40%) | 28000 | 28000 | 28000 | 84000 |
Chelsea INC. Tax Reporting
| 2014 | 2015 | 2016 | Total | |
| Revenues | 100000 | 150000 | 140000 | |
| Expenses | 60000 | 60000 | 60000 | |
| Taxable Income | 40000 | 90000 | 80000 | 210000 |
| Income Taxes Payable (40%) | 16000 | 36000 | 32000 | 84000 |
Based on the information provided, complete the following charts and answer the related questions:
GAAP versus Tax Reporting
| GAAP Versus Tax Reporting | ||||
| 2014 | 2015 | 2016 | Total | |
|
GAAP Revenues |
||||
| Tax Revenues | ||||
| Book-Tax Difference |
| Income | Expense and | Income Tax | Payable Reporting | |
| 2014 | 2015 | 2016 | Total | |
| Income Tax Expense | ||||
| Income Tax Payable | ||||
| Book-Tax Difference |
A) In this situation, do GAAP Revenues and Tax Revenues in 2014 reverse out in future years? YES / NO
B) In this situation, the differences result in a deferred tax liability. Which of the following statements below best describes why?
a. The difference is temporary and results in a future tax obligation
b. The difference is temporary and results in a future tax benefit
c. The difference is permanent and results in a future tax obligation
d. The difference is permanent and results in a future tax benefit
C) How much will be reported for the deferred tax liability at the end of each of the following three years:
2014: ___________________
2015: ___________________
2016: ___________________
In: Accounting
| Presented below are the 2016 income statement and comparative balance sheets for Santana Industries. |
| SANTANA INDUSTRIES Income Statement For the Year Ended December 31, 2016 ($ in thousands) |
||||
| Sales revenue | $ | 16,250 | ||
| Service revenue | 5,400 | |||
| Total revenue | $ | 21,650 | ||
| Operating expenses: | ||||
| Cost of goods sold | 8,200 | |||
| Selling | 3,400 | |||
| General and administrative | 2,500 | |||
| Total operating expenses | 14,100 | |||
| Operating income | 7,550 | |||
| Interest expense | 300 | |||
| Income before income taxes | 7,250 | |||
| Income tax expense | 3,500 | |||
| Net income | $ | 3,750 | ||
| Balance Sheet Information ($ in thousands) | Dec. 31, 2016 |
Dec. 31, 2015 |
||||
| Assets: | ||||||
| Cash | $ | 8,350 | $ | 3,100 | ||
| Accounts receivable | 4,500 | 3,200 | ||||
| Inventory | 6,000 | 4,000 | ||||
| Prepaid rent | 250 | 500 | ||||
| Plant and equipment | 16,500 | 14,000 | ||||
| Less: Accumulated depreciation | (6,100 | ) | (5,500 | ) | ||
| Total assets | $ | 29,500 | $ | 19,300 | ||
| Liabilities and Shareholders’ Equity: | ||||||
| Accounts payable | $ | 3,400 | $ | 2,100 | ||
| Interest payable | 200 | 0 | ||||
| Deferred service revenue | 1,000 | 700 | ||||
| Income taxes payable | 650 | 1,000 | ||||
| Loan payable (due 12/31/2015) | 7,000 | 0 | ||||
| Common stock | 11,000 | 11,000 | ||||
| Retained earnings | 6,250 | 4,500 | ||||
| Total liabilities and shareholders' equity | $ | 29,500 | $ | 19,300 | ||
| Additional information for the 2016 fiscal year ($ in thousands): | |
| 1. | Cash dividends of $2,000 were declared and paid. |
| 2. | Equipment costing $6,000 was purchased with cash. |
| 3. |
Equipment with a book value of $1,500 (cost of $3,500 less accumulated depreciation of $2,000) was sold for $1,500. |
| 4. | Depreciation of $2,600 is included in operating expenses. |
| Required: |
|
Prepare Santana Industries' 2016 statement of cash flows, using the indirect method to present cash flows from operating activities. (Amounts to be deducted should be indicated with a minus sign. Enter your answers in thousands.) |
In: Finance