On May 1, 2020, Johnson Corporation issued $300,000, ten-year, 12% bonds which were priced to yield 14%. The bonds were dated March 1, 2020, and pay interest semiannually on March 1 and September 1. Johnson is a calendar year corporation. Determine the issue price of the bonds and prepare the September 1, 2020 journal entry for Johnson Corporation.

During 2020, Harris Inc. reported revenues of $237,000 and expenses of $130,000, and declared cash dividends of $65,000. Retained Earnings on December 31, 2019 was $165,000. Required: Prepare closing journal entries as at December 31, 2020; show your journal entries. Calculate the balance in Retained Earnings on December 31, 2020. Please show your work.

(use appendix to solve)

On 1 July 2020, Brooklyn Ltd (lessor) leased Equipment to New Ltd (lessee).

The lease agreement contained the following:

What would be the journal entries on 1 July 2020 for the lessor (Brooklyn Ltd)?

Tia is married and is employed by Carrera Auto Parts. In 2019, established high-deductible health insurance for all its employees. The plan has a $2,700 deductible for married taxpayers. Carrera also contributes 5% of each employee’s salary to a Health Savings Account. Tia’s salary is $43,000 in 2019 and $45,000 in 2020. Tia makes the maximum allowable contribution to her HSA in 2019 and 2020. She received $600 from the HSA for her 2019 medical expenses. In 2020, she spends $2,000 on medical expenses from her HSA. The MSA earns $30 in 2019 and $48 in 2020.

Round intermediate computations and final tax liability to the nearest dollar.

a. What is the effect of the HSA transactions on Tia's adjusted gross income?

The maximum aggregate contribution to an HSA for a family in 2019 is $______. The earnings of an HSA, as well as medical reimbursements, are (excludable/included). Based on Carrera's contribution, in 2019, Tia (can/cannot deduct) for AGI $_______

b. What is the balance in Tia's HSA account at the end of 2020?

Tia has $_________ in her HSA account at the end of 2020.

Questions #2 Basic and diluted earnings per share

The following data are presented by Quentin Corp. for calendar 2020

Net income                                                                                                                                                                               $ 4,500,000

Common shares outstanding, 1,000,000 shares

10%, cumulative preferred shares, convertible into 120,000 common shares                             $ 1,600,000

8% convertible bonds; convertible into 105,000 common shares                                                        $ 7,500,000

360,000 call options exercisable at $ 25 per share

Additional information

1.       The common and preferred shares and the convertible bonds were outstanding from the beginning of the year.

2.       In 2020, a $ 500,000 dividend was declared and distributed; however, no dividends were declared in 2019.

3.       The average market price of the common shares in 2020 was $ 30. The stock price was $ 27 on January 1, 2020, and $ 35 on December 31, 2020.

4.       The convertible bonds were sold at par.

5.       The income tax rate for 2020 is 30%.

Instructions

a)      Calculate basic EPS.

b)      Calculate diluted EPS.

c)      Briefly discuss the usefulness of the EPS measure in general. What is the additional importance of reporting diluted EPS?

2. On January 1, 2020, Firm Lessor leased a building to Firm Lessee. The relevant information related to the lease is as follows.

1) The lease arrangement is for 2 years.

2) Equal rental payments are due on January 1 of each year, beginning in 2020.

3) The building’s fair value at commencement of the lease is $100,000. The building is depreciated on a straight-line basis. Its estimated economic life is 4 years with salvage value of $25,000 at the end of the lease and $0 at the end of the economic life.

4) The lease contains no renewal options. The building reverts to Firm Lessor at the termination of the lease.

5) Both firms use the discount factor of 10%. 6) Both the lessor and the lessee are on a calendar-year basis.

(a) Discuss whether this is an operating lease.

(b) Prepare the journal entries that Firm Lessee should make in 2020

For the dates 1/1/2020, 1/1/2020, 1/1/2021 & Include Lease Payment, Interest, Reduction of Lease Liability, Lease Liability

(c) Prepare the journal entries that Firm Lessor should make in 2020.

Cullumber Ltd. ended its first fiscal year on December 31, 2020, reporting a pretax income for accounting purposes of $1,320,000. All of Cullumber’s products were sold with a two-year warranty included. Cullumber recorded $268,000 of warranty expense for accounting purposes in 2020, including $158,000 of actual warranty costs incurred during the year plus $110,000 in estimated warranty liability for the remainder of the warranty period. Estimated liabilities are not deductable for tax purposes. Cullumber was subject to a 33% income tax rate and follows IFRS.

Calculate Cullumber Ltd.’s taxable income and income tax payable for 2020.

Taxable income for 2020 $

Income taxes payable for 2020 $

Prepare the journal entries to record the 2020 current and deferred income taxes. (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 Titles and Explanation Debit Credit

(To record current tax expense.)

(To record deferred tax expense.)

On January 1, 2020, a machine was purchased for $900,000 by Young Co. The machine is expected to have an 8-year life with no salvage value. It is to be depreciated on a straight-line basis. The machine was leased to St. Leger Inc. for 3 years on January 1, 2020, with annual rent payments of $150,955 due at the beginning of each year, starting January 1, 2020. The machine is expected to have a residual value at the end of the lease term of $562,500, though this amount is unguaranteed.

a. How much should Young report as income before income tax on this lease for 2020?

b. Record the journal entries St. Leger would record for 2020 on this lease, assuming its incremental borrowing rate is 6% and the rate implicit in the lease is unknown.

c. Suppose the lease was only for one year (only one payment of the same amount at commencement of the lease), with a renewal option at market rates at the end of the lease, and St. Leger elects to use the short-term lease exception. Record the journal entries St. Leger would record for 2020 on this lease.

On July 1, 2020, Altuve Inc. purchased 6,000 shares of the outstanding common stock of Trout Corp at a cost of $140,000. Trout had 30,000 shares of outstanding common stock. The total book value and total fair value of Trout's individual net assets on July 1, 2020, are both $700,000. The total fair value of the 30,000 shares of Trout's common stock on December 31, 2020, is $760,000. Both companies have a January through December fiscal year. The following data pertains to Trout Corporation during 2020:

Required:

1. Prepare the necessary entries for 2020 under the equity method (other than for the purchase).
2. Prepare any necessary entries for 2020 (other than for the purchase) that would be required if the securities are classified as available for sale.