Savings-Mart (a chain of discount department stores) sells patio and lawn furniture. Sales are seasonal, with higher sales during the spring and summer quarters and lower sales during the fall and winter quarters. The company developed the following quarterly sales forecasting model:

Yˆt=7.50+1.100t−2.75D1t+0.25D2t+3.5D3t

where

Forecast Savings-Mart's sales of patio and lawn furniture for each quarter of 2020.

Selected ledger account balances for Business Solutions follow.

Required:
1. Assume that Business Solutions does not acquire additional office equipment or computer equipment in 2020. Compute amounts for the year ended December 31, 2020, for Depreciation expense—Office equipment and for Depreciation expense—Computer equipment (assume use of the straight-line method).
2. Given the assumptions in part 1, what is the book value of both the office equipment and the computer equipment as of December 31, 2020?
3. Compute the three-month total asset turnover for Business Solutions as of March 31, 2020.

Required 1: Depreciation Expense for:

Office Equipment-

Computer Equipment-

Required 2: Book value for:

Office equipment-

computer equipment-

Required 3:

Total asset turnover-

In this assignment, assume that the Sec. 179 and bonus depreciation tax apply to the 2020 tax year where applicable.

1. For a-d, determine the total depreciation amount for 2020 assuming the taxpayer opted out of Sec. 179 and bonus if they were available in the year of purchase. In addition, assume all taxpayers use a calendar year tax period and that the property mentioned was the only property purchased in the year of acquisition.
   
   

The following facts pertain to a non-cancelable lease agreement between Metlock Leasing Company and Ivanhoe Company, a lessee.

The collectibility of the lease payments by Metlock is probable.

1.Compute the amount of the lease receivable at commencement of the lease.

2.Prepare a lease amortization schedule for Metlock for the 5-year lease term.

3.Prepare the journal entries to reflect the signing of the lease agreement and to record the receipts and income related to this lease for the years 2020 and 2021. The lessor’s accounting period ends on December 31. Reversing entries are not used by Metlock.

4.Suppose the collectibility of the lease payments was not probable for Metlock. Prepare all necessary journal entries for the company in 2020

On January 1, 2020, Mays Leasing Company leases equipment to Brick Co. The lease term is five years, with 5 equal annual payments of $160,000 each, beginning on 1/1/2020. The equipment has an estimated economic life of 8 years and the fair value on 1/1/2020 is $800,000. Brick agrees to guarantee $150,000 residual value at the end of the lease term. The expected value of the residual value is $50,000. At the termination of the lease, the equipment reverts to the lessor. Brick’s incremental borrowing rate is 10% and Brick knows that Mays’ implicit interest rate is 8%.

Present value factors:                        Ordinary Annuity         Annuity Due        A Single Sum

5 periods 8%                                3.99271                     4.31213                 0.68058

5 periods 10%                              3.79079                     4.16986                 0.62092

1. Use lease classification tests to determine the type of lease that Brick Co. has entered into.
2. Construct the lease amortization schedule for the first two payments made by Brick Co.
3. Prepare Brick’s journal entries that relate to the lease agreement for the following three dates: January 1, 2020, December 31, 2020, and January 1, 2021.

Grape Inc. had the following balance sheet at December 31, 2019:

Grape INC. BALANCE SHEET DECEMBER 31, 2019

Cash $ 31,000

Accounts payable $ 61,000

Accounts receivable 56,800

Notes payable (long-term) 76,000

Investments 86,000

Common stock 200,000

Plant assets (net) 138,500

Retained earnings 41,300

Land 66,000

Total assets and Total Liabilities and Stockholders' Equity $378,300 $378,300

During 2020, the following occurred:

1. Grape liquidated its available-for-sale investment portfolio at a gain of $15,000.

2. A tract of land was purchased for $61,000 cash.

3. An additional $15,200 in common stock was issued at par.

4. Dividends totaling $41,000 were declared and paid to stockholders.

5. Net income for 2020 was $46,000, including $8,000 in depreciation expense.

6. Land was purchased through the issuance of $195,000 in additional notes payable.

7. At December 31, 2020, Cash was $68,000, Accounts Receivable was $84,000, and Accounts Payable was $72,000.

Instructions (a) Prepare the balance sheet as it would appear at December 31, 2020 (b) Prepare a statement of cash flows for the year 2020 for Grape

On January 1, 2020, Cage Company contracts to lease equipment for 5 years, agreeing to make a payment of $120,987 at the beginning of each year, starting January 1, 2020. The leased equipment is to be capitalized at $550,000. The asset is to be amortized on a double-declining-balance basis, and the obligation is to be reduced on an effective-interest basis. Cage’s incremental borrowing rate is 6%, and the implicit rate in the lease is 5%, which is known by Cage. Title to the equipment transfers to Cage at the end of the lease. The asset has an estimated useful life of 5 years and no residual value.

a/ Prepare the journal entries that Cage should record on January 1, 2020.

b/ Prepare the journal entries to record amortization of the leased asset and interest expense for the year 2020.

c/ Prepare the journal entry to record the lease payment of January 1, 2021, assuming reversing entries are not made

d/ What amounts will appear on the lessee’s December 31, 2020, balance sheet relative to the lease contract?

e/ How would the value of the lease liability in part b change if Cage also agreed to pay the fixed annual insurance on the equipment of $2,000 at the same time as the rental payments?

On June 15, 2018, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington, D.C., for $430 million. The expected completion date is April 1, 2020, just in time for the 2020 baseball season. Costs incurred and estimated costs to complete at year-end for the life of the contract are as follows ($ in millions):

Required:
1. Compute the revenue and gross profit will Sanderson report in its 2018, 2019, and 2020 income statements related to this contract assuming Sanderson recognizes revenue over time according to percentage of completion.
2. Compute the revenue and gross profit will Sanderson report in its 2018, 2019, and 2020 income statements related to this contract assuming this project does not qualify for revenue recognition over time.
3. Suppose the estimated costs to complete at the end of 2019 are $210 million instead of $140 million. Compute the amount of revenue and gross profit or loss to be recognized in 2019 using the percentage of completion method.

On January 31, 2020, the manufacturing facility of a medium-sized company was severely damaged by an accidental fire. As a result, the company's direct materials, work in process, and finished goods inventories were destroyed. The company did have access to certain incomplete accounting records, which revealed the following:1.Beginning inventories, January 1, 2020:

2.Key ratios for the month of January 2020:

Gross profit = 20% of sales

Prime costs = 70% of manufacturing costs

Factory overhead = 40% of conversion costs

Ending work in process is always 10% of the monthly manufacturing costs.

3.All costs are incurred evenly in the manufacturing process.

4.Actual operations data for the month of January 2020:

Instructions

a.  From the above data, reconstruct a cost of goods manufactured schedule.

CGM $788,000

b.  Calculate the total cost of inventory lost, and identify each category where possible (direct materials, work in process, and finished goods), at January 31, 2020.

Total $330,000

Reporting on Discontinued Operations—Disposal in Current Year

On August 1, 2020, Fischer Inc. decided to discontinue the operations of its Services Division, which qualifies as a business component. An agreement was formalized to sell this component for $436,800 cash. The book value of the assets of the Services Division was $504,000. The disposal date was August 1, 2020. The income tax rate is 25%, and the accounting year-end is December 31. On December 31, 2020, the pretax income from all operations, including an operating loss of $56,000 incurred by the Services Division prior to August 1, 2020, was $1,120,000. There were 150,000 weighted average common shares outstanding during 2020.

Required

Prepare a partial income statement beginning with income from continuing operations. Include the earnings per share disclosures.

• Use a negative sign to indicate a loss.
• Round the per share amounts to two decimal places.

Answer