On February 1, 2018, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,000,000. During 2018, costs of $2,000,000 were incurred with estimated costs of $4,000,000 yet to be incurred. Billings of $2,500,000 were sent, and cash collected was $2,250,000.

In 2019, costs incurred were $2,500,000 with remaining costs estimated to be $3,600,000. 2019 billings were $2,750,000, and $2,475,000 cash was collected. The project was completed in 2020 after additional costs of $3,800,000 were incurred. The company’s fiscal year-end is December 31. Arrow recognizes revenue over time according to percentage of completion.

Required:
1. Compute the amount of revenue and gross profit or loss to be recognized in 2018, 2019, and 2020 using the percentage of completion method?
2a. Prepare journal entries for 2018 to record the transactions described (credit "various accounts" for construction costs incurred).
2b. Prepare journal entries for 2019 to record the transactions described (credit "various accounts" for construction costs incurred).
3a. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2018.
3b. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2019

On June 30, 2018, Georgia-Atlantic, Inc., leased a warehouse facility from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $677,829 over a four-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2018. Georgia-Atlantic’s incremental borrowing rate is 10%, the same rate IC uses to calculate lease payment amounts. Depreciation is recorded on a straight-line basis at the end of each fiscal year. The fair value of the warehouse is $4.6. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:
1. Determine the present value of the lease payments at June 30, 2018 that Georgia-Atlantic uses to record the right-of-use asset and lease liability.
2. What pretax amounts related to the lease would Georgia-Atlantic report in its balance sheet at December 31, 2018?
3. What pretax amounts related to the lease would Georgia-Atlantic report in its income statement for the year ended December 31, 2018?

American Food Services, Inc., leased a packaging machine from Barton and Barton Corporation. Barton and Barton completed construction of the machine on January 1, 2018. The lease agreement for the $4.7 million (fair value and present value of the lease payments) machine specified four equal payments at the end of each year. The useful life of the machine was expected to be five years with no residual value. Barton and Barton’s implicit interest rate was 8%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:
1. Prepare the journal entry for American Food Services at the beginning of the lease on January 1, 2018.
2. Prepare an amortization schedule for the four-year term of the lease.
3. & 4. Prepare the appropriate entries related to the lease on December 31, 2018 and 2020.

a.Record the lease payment and interest expense for American Food Services (2018)

b. Record the amortization of right-of-use asset for American Food Services (2018)

c. Record the lease payment and interest expense for American Food Services. (2020)

d. Record the amortization of right-of-use asset for American Food Services (2020)

Brady Construction Company contracted to build an apartment complex for a price of $5,700,000. Construction began in 2018 and was completed in 2020. The following is a series of independent situations, numbered 1 through 6, involving differing costs for the project. All costs are stated in thousands of dollars.

Complete the following table. (Do not round intermediate calculations. Enter answers in dollars. Round your final answers to the nearest whole dollar. Negative amounts should be indicated by a minus sign.)

Described below are three independent and unrelated situations involving accounting changes. Each change occurs during 2018 before any adjusting entries or closing entries are prepared. On December 30, 2014, Rival Industries acquired its office building at a cost of $11,400,000. It has been depreciated on a straight-line basis assuming a useful life of 40 years and no residual value. Early in 2018, the estimate of useful life was revised to 28 years in total with no change in residual value. At the beginning of 2014, the Hoffman Group purchased office equipment at a cost of $612,000. Its useful life was estimated to be 8 years with no residual value. The equipment has been depreciated by the sum-of-the-years’-digits method. On January 1, 2018, the company changed to the straight-line method. 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 income by $585,000. Required: 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. (Ignore income tax effects.)

Question 3

On 1 January 2018, Aro Limited issued bonds with a face value of $600,000 for cash.

The bond will mature after 5 years with a stated interest rate of 8% per year. Interest is paid annually on 31 December with the first payment on 31 December 2018.

Bond investors require an effective interest rate of 9% per year.

Aro Limited accounts for the bond using the effective-interest method.

Present value of 1 at 8% for 5 years = 0.68058

Present value of 1 at 9% for 5 years = 0.64993

Present value of an ordinary annuity of 1 at 8% for 5 years = 3.99271

Present value of an ordinary annuity of 1 at 9% for 5 years = 3.88965

Required:

Round to integers.

a. Determine the present value of the bonds on 1 January 2018.

b. Prepare the journal entry to record the issuance of bonds on 1 January 2018.

c. Prepare the bond amortisation table for Aro Limited, indicating the amount of interest payment, interest expense, amortisation, and carrying amount of the bonds at each 31 December for the first three years up to 31 December 2020.

d. Prepare the journal entry to record the first interest payment on 31 December 2018

On February 1, 2018, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,540,000. During 2018, costs of $2,180,000 were incurred with estimated costs of $4,180,000 yet to be incurred. Billings of $2,680,000 were sent, and cash collected was $2,430,000. In 2019, costs incurred were $2,680,000 with remaining costs estimated to be $3,870,000. 2019 billings were $2,930,000 and $2,655,000 cash was collected. The project was completed in 2020 after additional costs of $3,980,000 were incurred. The company’s fiscal year-end is December 31. Arrow recognizes revenue over time according to percentage of completion. Required: 1. Compute the amount of revenue and gross profit or loss to be recognized in 2018, 2019, and 2020 using the percentage of completion method? 2a. Prepare journal entries for 2018 to record the transactions described (credit "various accounts" for construction costs incurred). 2b. Prepare journal entries for 2019 to record the transactions described (credit "various accounts" for construction costs incurred). 3a. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2018. 3b. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2019.

On December 31, 2017, Berclair Inc. had 520 million shares of common stock and 3 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2018, Berclair purchased 24 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2018. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2018, was $850 million. The income tax rate is 40%.

Also outstanding at December 31 were incentive stock options granted to key executives on September 13, 2013. The options are exercisable as of September 13, 2017, for 30 million common shares at an exercise price of $56 per share. During 2018, the market price of the common shares averaged $70 per share.

In 2014, $62.5 million of 8% bonds, convertible into 6 million common shares, were issued at face value.

Required:

Compute Berclair’s basic and diluted earnings per share for the year ended December 31, 2018. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

On June 30, 2018, Georgia-Atlantic, Inc., leased a warehouse facility from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $486,269 over a four-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2018. Georgia-Atlantic’s incremental borrowing rate is 10%, the same rate IC uses to calculate lease payment amounts. Depreciation is recorded on a straight-line basis at the end of each fiscal year. The fair value of the warehouse is $3.3. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Determine the present value of the lease payments at June 30, 2018 that Georgia-Atlantic uses to record the right-of-use asset and lease liability. 2. What pretax amounts related to the lease would Georgia-Atlantic report in its balance sheet at December 31, 2018? 3. What pretax amounts related to the lease would Georgia-Atlantic report in its income statement for the year ended December 31, 2018?

Some recent financial statements for Smolira Golf Corp. follow. SMOLIRA GOLF CORP. 2017 and 2018 Balance Sheets Assets Liabilities and Owners’ Equity 2017 2018 2017 2018 Current assets Current liabilities Cash $ 34,885 $ 38,296 Accounts payable $ 37,472 $ 42,832 Accounts receivable 18,051 28,216 Notes payable 19,508 16,575 Inventory 3,760 42,832 Other 20,314 25,034 Total $ 56,696 $ 109,344 Total $ 77,294 $ 84,441 Long-term debt $ 117,500 $ 180,650 Owners’ equity Common stock and paid-in surplus $ 55,500 $ 55,500 Accumulated retained earnings 271,182 309,136 Fixed assets Net plant and equipment $ 464,780 $ 520,383 Total $ 326,682 $ 364,636 Total assets $ 521,476 $ 629,727 Total liabilities and owners’ equity $ 521,476 $ 629,727 SMOLIRA GOLF CORP. 2018 Income Statement Sales $ 508,954 Cost of goods sold 361,078 Depreciation 45,088 Earnings before interest and taxes $ 102,788 Interest paid 20,183 Taxable income $ 82,605 Taxes (25%) 20,651 Net income $ 61,954 Dividends $ 24,000 Retained earnings 37,954 Prepare the 2018 statement of cash flows for Smolira Golf Corp. (Negative answers should be indicated by a minus sign.) Loading...