Multiple Choice Question 91

Meyer & Smith is a full-service technology company. They provide equipment, installation services as well as training. Customers can purchase any product or service separately or as a bundled package. Blossom Corporation purchased computer equipment, installation and training for a total cost of $179010 on March 15, 2018. Estimated standalone fair values of the equipment, installation and training are $94500, $74400 and $30000 respectively. The journal entry to record the transaction on March 15, 2018 will include a

Multiple Choice Question 102

Wildhorse Construction is constructing an office building under contract for Cannon Company and uses the percentage-of-completion method. The contract calls for progress billings and payments of $1600000 each quarter. The total contract price is $19194000 and Wildhorse estimates total costs of $18200000. Wildhorse estimates that the building will take 3 years to complete, and commences construction on January 2, 2018.

At December 31, 2019, Wildhorse Construction estimates that it is 70% complete with the building; however, the estimate of total costs to be incurred has risen to $18450000 due to unanticipated price increases. What is reported in the balance sheet at December 31, 2019 for Wildhorse as the difference between the Construction in Process and the Billings on Construction in Process accounts, and is it a debit or a credit?

Multiple Choice Question 106

Ivanhoe Construction Corporation contracted to construct a building for $7540000. Construction began in 2018 and was completed in 2019. Data relating to the contract are summarized below:

Ivanhoe uses the percentage-of-completion method as the basis for income recognition. For the years ended December 31, 2018, and 2019, respectively, Ivanhoe should report gross profit of

Multiple Choice Question 111

Wildhorse, Inc. began work in 2018 on contract #3814, which provided for a contract price of $21225000. Other details follow:

Assume that Wildhorse uses the percentage-of-completion method of accounting. The portion of the total gross profit to be recognized as income in 2018 is

Pitino acquired 90 percent of Brey's outstanding shares on January 1, 2016, in exchange for $540,000 in cash. The subsidiary's stockholders' equity accounts totaled $524,000 and the noncontrolling interest had a fair value of $60,000 on that day. However, a building (with a ten-year remaining life) in Brey's accounting records was undervalued by $32,000. Pitino assigned the rest of the excess fair value over book value to Brey's patented technology (four-year remaining life).

Brey reported net income from its own operations of $86,000 in 2016 and $102,000 in 2017. Brey declared dividends of $30,000 in 2016 and $34,000 in 2017.

At December 31, 2018, Pitino owes Brey $38,000 for inventory acquired during the period.

The following separate account balances are for these two companies for December 31, 2018, and the year then ended.

Note: Parentheses indicate a credit balance.

1. What was the annual amortization resulting from the acquisition-date fair-value allocations?

2. Were the intra-entity transfers upstream or downstream?

3. What intra-entity gross profit in inventory existed as of January 1, 2018?

4. What intra-entity gross profit in inventory existed as of December 31, 2018?

5. What amounts make up the $120,195 Equity Earnings of Brey account balance for 2018?

6. What is the net income attributable to the noncontrolling interest for 2018?

7. What amounts make up the $667,260 Investment in Brey account balance as of December 31, 2018?

8. Prepare the 2018 worksheet entry to eliminate the subsidiary’s beginning owners’ equity balances.

9. Without preparing a worksheet or consolidation entries, determine the consolidation balances for these two companies.

Pastina Company sells various types of pasta to grocery chains as private label brands. The company's fiscal year-end is December 31. The unadjusted trial balance as of December 31, 2018, appears below.

Information necessary to prepare the year-end adjusting entries appears below.

Depreciation on the office equipment for the year is $11,750.

Employee salaries and wages are paid twice a month, on the 22nd for salaries and wages earned from the 1st through the 15th, and on the 7th of the following month for salaries and wages earned from the 16th through the end of the month. Salaries and wages earned from December 16 through December 31, 2018, were $1,650.

On October 1, 2018, Pastina borrowed $71,400 from a local bank and signed a note. The note requires interest to be paid annually on September 30 at 12%. The principal is due in 10 years.

On March 1, 2018, the company lent a supplier $29,400 and a note was signed requiring principal and interest at 8% to be paid on February 28, 2019.

On April 1, 2018, the company paid an insurance company $6,200 for a two-year fire insurance policy. The entire $6,200 was debited to insurance expense.

$980 of supplies remained on hand at December 31, 2018.

A customer paid Pastina $1,920 in December for 1,600 pounds of spaghetti to be delivered in January 2019. Pastina credited sales revenue.

On December 1, 2018, $2,700 rent was paid to the owner of the building. The payment represented rent for December 2018 and January 2019, at $1,350 per month.

For requirement 4, Assume that no common stock was issued during the year and that $3,600 in cash dividends were paid to shareholders during the year.

4. Prepare the income statement, statement of shareholders' equity and classified balance sheet for the year ended December 31, 2018.

Tom used to run his own business, a small café. Last year, due to water damage from a flash flood, not only did he lose a substantial part of his inventory; but his café also sustained damages. In order to carry on the business, he sold the café to his friend, Bill, who invested money to replace/repair damaged shop fixtures and machines, and to purchase new inventory. The small café offers coffee and tea, and light food snacks bought from outside suppliers. The snacks are heated up in the café and served. There is only one other worker, a waiter. Tom is now the manager. Between the two of them, they make drinks, serve customers, and clean up.

When he was running his own business, Tom did not receive a salary. Now he is paid $2,500 per month. The waiter is paid $1,000 a month. They both work from 9 am to 8 pm, six days a week. Tom is also in charge of purchasing for the café. In the past, he bought inventory in bulk to get a lower price. However, as the inventory is perishable, it often spoils and at the end of each quarter about 30% is thrown away. This spoilage cost has been factored into the cost of ingredients per set. The café sells drink & snacks in a set. The average ingredient costs for each set is $2.20 and it is sold at $4 per set. Rent and utilities average $2,500 per month. The business uses the number of sets as an allocation base for its overhead costs.

The budgeted sales for the next five quarters for the café are stated below:

Required:

(a) Apply normal costing and compute the product cost for a typical set (hint: fixed costs should be allocated using an appropriate predetermined overhead rate).

(b) If Tom is evaluated based on budgeted profit for the café, explain how Bill should rate Tom’s performance for the first two quarters of 2018 if the actual sales for the café are as follows (assume there are differences in the budgeted and actual costs per set of meal and selling price per set of meal).

(c) The café pays for purchases of ingredients one quarter later. All other expenses are paid for in cash in the same quarter. Assuming the café has a cash balance of $28,400 and no outstanding ingredients payments at the beginning of 2018 from purchases in Quarter 4 of 2017, construct the cash budget for Quarter 2 and Quarter 3 of 2018.

Williams-Santana, Inc., is a manufacturer of high-tech industrial parts that was started in 2006 by two talented engineers with little business training. In 2018, the company was acquired by one of its major customers. As part of an internal audit, the following facts were discovered. The audit occurred during 2018 before any adjusting entries or closing entries were prepared. The income tax rate is 40% for all years.

A five-year casualty insurance policy was purchased at the beginning of 2016 for $35,000. The full amount was debited to insurance expense at the time.

Effective January 1, 2018, the company changed the salvage values used in calculating depreciation for its office building. The building cost $600,000 on December 29, 2007, and has been depreciated on a straigh-tline basis assuming a useful life of 40 years and a salvage value of $100,000. Declining real estate values in the area indicate that the salvage value will be no more than $25,000.

On December 31, 2017, merchandise inventory was overstated by $25,000 due to a mistake in the physical inventory count using the periodic inventory system.

The company changed inventory cost methods to FIFO from LIFO at the end of 2018 for both financial statement and income tax purposes. The change will cause a $960,000 increase in the beginning inventory at January 1, 2019.

At the end of 2017, the company failed to accrue $15,500 of sales commissions earned by employees during 2017. The expense was recorded when the commissions were paid in early 2018.

At the beginning of 2016, the company purchased a machine at a cost of $720,000. Its useful life was estimated to be ten years with no salvage value. The machine has been depreciated by the double-declining balance method. Its book value on December 31, 2017, was $460,800. On January 1, 2018, the company changed to the straight-line method.

Warranty expense is determined each year as 1% of sales. Actual payment experience of recent years indicates that 0.75% is a better indication of the actual cost. Management effects the change in 2018. Credit sales for 2018 are $4,000,000; in 2017 they were $3,700,000.

Required:
For each situation:
1. Identify whether it represents an accounting change or an error. If an accounting change, identify the type of change. For accounting errors, choose "Not applicable".
2. Prepare any journal entry necessary as a direct result of the change or error correction as well as any adjusting entry for 2018 related to the situation described. Any tax effects should be adjusted for through Income tax payable or Refund income tax.
  

Pitino acquired 90 percent of Brey's outstanding shares on January 1, 2016, in exchange for $342,000 in cash. The subsidiary's stockholders' equity accounts totaled $326,000 and the noncontrolling interest had a fair value of $38,000 on that day. However, a building (with a nine-year remaining life) in Brey's accounting records was undervalued by $18,000. Pitino assigned the rest of the excess fair value over book value to Brey's patented technology (six-year remaining life).

Brey reported net income from its own operations of $64,000 in 2016 and $80,000 in 2017. Brey declared dividends of $19,000 in 2016 and $23,000 in 2017.

Brey sells inventory to Pitino as follows:

At December 31, 2018, Pitino owes Brey $16,000 for inventory acquired during the period.

The following separate account balances are for these two companies for December 31, 2018, and the year then ended.

Note: Parentheses indicate a credit balance.

What was the annual amortization resulting from the acquisition-date fair-value allocations?

Were the intra-entity transfers upstream or downstream?

What intra-entity gross profit in inventory existed as of January 1, 2018?

What intra-entity gross profit in inventory existed as of December 31, 2018?

What amounts make up the $68,400 equity earnings of Brey account balance for 2018?

What is the net income attributable to the noncontrolling interest for 2018?

What amounts make up the $450,000 Investment in Brey account balance as of December 31, 2018?

Prepare the 2018 worksheet entry to eliminate the subsidiary’s beginning owners’ equity balances.

Without preparing a worksheet or consolidation entries, determine the consolidation balances for these two companies.

Pitino acquired 80 percent of Brey's outstanding shares on January 1, 2016, in exchange for $369,000 in cash. The subsidiary's stockholders' equity accounts totaled $353,000 and the noncontrolling interest had a fair value of $92,250 on that day. However, a building (with a ten-year remaining life) in Brey's accounting records was undervalued by $19,000. Pitino assigned the rest of the excess fair value over book value to Brey's patented technology (five-year remaining life).

Brey reported net income from its own operations of $67,000 in 2016 and $83,000 in 2017. Brey declared dividends of $18,000 in 2016 and $22,000 in 2017.

At December 31, 2018, Pitino owes Brey $19,000 for inventory acquired during the period.

The following separate account balances are for these two companies for December 31, 2018, and the year then ended.

Note: Parentheses indicate a credit balance.

What was the annual amortization resulting from the acquisition-date fair-value allocations?

Were the intra-entity transfers upstream or downstream?

What intra-entity gross profit in inventory existed as of January 1, 2018?

What intra-entity gross profit in inventory existed as of December 31, 2018?

What amounts make up the $59,540 Equity Earnings of Brey account balance for 2018?

What is the net income attributable to the noncontrolling interest for 2018?

What amounts make up the $456,000 Investment in Brey account balance as of December 31, 2018?

Prepare the 2018 worksheet entry to eliminate the subsidiary’s beginning owners’ equity balances.

Without preparing a worksheet or consolidation entries, determine the consolidation balances for these two companies.

Williams-Santana, Inc., is a manufacturer of high-tech industrial parts that was started in 2006 by two talented engineers with little business training. In 2018, the company was acquired by one of its major customers. As part of an internal audit, the following facts were discovered. The audit occurred during 2018 before any adjusting entries or closing entries were prepared. The income tax rate is 40% for all years.

A five-year casualty insurance policy was purchased at the beginning of 2016 for $37,500. The full amount was debited to insurance expense at the time.

Effective January 1, 2018, the company changed the salvage values used in calculating depreciation for its office building. The building cost $640,000 on December 29, 2007, and has been depreciated on a straight-line basis assuming a useful life of 40 years and a salvage value of $120,000. Declining real estate values in the area indicate that the salvage value will be no more than $30,000.

On December 31, 2017, merchandise inventory was overstated by $27,500 due to a mistake in the physical inventory count using the periodic inventory system.

The company changed inventory cost methods to FIFO from LIFO at the end of 2018 for both financial statement and income tax purposes. The change will cause a $985,000 increase in the beginning inventory at January 1, 2019.

At the end of 2017, the company failed to accrue $16,000 of sales commissions earned by employees during 2017. The expense was recorded when the commissions were paid in early 2018.

At the beginning of 2016, the company purchased a machine at a cost of $770,000. Its useful life was estimated to be ten years with no salvage value. The machine has been depreciated by the double-declining balance method. Its book value on December 31, 2017, was $492,800. On January 1, 2018, the company changed to the straight-line method.

Warranty expense is determined each year as 1% of sales. Actual payment experience of recent years indicates that 0.70% is a better indication of the actual cost. Management effects the change in 2018. Credit sales for 2018 are $4,500,000; in 2017 they were $4,200,000.

Required:
For each situation:
1. Identify whether it represents an accounting change or an error. If an accounting change, identify the type of change. For accounting errors, choose "Not applicable".
2. Prepare any journal entry necessary as a direct result of the change or error correction as well as any adjusting entry for 2018 related to the situation described. Any tax effects should be adjusted for through Income tax payable or Refund income tax.

Pitino acquired 80 percent of Brey's outstanding shares on January 1, 2016, in exchange for $369,000 in cash. The subsidiary's stockholders' equity accounts totaled $353,000 and the noncontrolling interest had a fair value of $92,250 on that day. However, a building (with a ten-year remaining life) in Brey's accounting records was undervalued by $19,000. Pitino assigned the rest of the excess fair value over book value to Brey's patented technology (five-year remaining life).

Brey reported net income from its own operations of $67,000 in 2016 and $83,000 in 2017. Brey declared dividends of $18,000 in 2016 and $22,000 in 2017.

At December 31, 2018, Pitino owes Brey $19,000 for inventory acquired during the period.

The following separate account balances are for these two companies for December 31, 2018, and the year then ended.

Note: Parentheses indicate a credit balance.

What was the annual amortization resulting from the acquisition-date fair-value allocations?

Were the intra-entity transfers upstream or downstream?

What intra-entity gross profit in inventory existed as of January 1, 2018?

What intra-entity gross profit in inventory existed as of December 31, 2018?

What amounts make up the $59,540 Equity Earnings of Brey account balance for 2018?

What is the net income attributable to the noncontrolling interest for 2018?

What amounts make up the $456,000 Investment in Brey account balance as of December 31, 2018?

Prepare the 2018 worksheet entry to eliminate the subsidiary’s beginning owners’ equity balances.

Without preparing a worksheet or consolidation entries, determine the consolidation balances for these two companies.