QUESTION 4 The information given below was extracted from the accounting records of Salmon Traders, a partnership business with Sally and Monty as partners. The financial year ends on the last day of February each year REQUIRED Prepare the following accounts in the General ledger of Salmon Traders: 4.1 Current a/c: Monty (Balance the account.] 4.2 Appropriation account (Close off the account.) PARTNERSHIPS (20) (13) INFORMATION Balances in the ledger on 28 February 2017 Capital: Sally Capital: Monty Current afe: Sally (01 March 2016) Current a/c: Monty (01 March 2016) Drawings: Sally Drawings: Monty 400 000 200 000 20 000 (DR) 33 000 (CR 200 000 180 000 The following must be taken into account la) The net profit according to the Profit and Loss account amounted to R500 000 on 28 February 2017 b) The partnership agreement makes provision for the following Interest on capital must be provided at 15% per annum on the balances in the capital accounts. Note. Sally increased his capital by R100 000 on 01 September 2016. Monty decreased his capital by R100 000 on the same date. The capital changes have been recorded * The partners are entitled to the following salaries: SALLY R12 000 and MONTY R13 000 NOTE: The partners salaries increased by 10% with effect from 01 December 2016 * Sally and Monty share the remaining profits or losses in the ratio of their capital balances as at the beginning of the financial year

a) Liala Ltd acquired all the issued shares of Jordan Ltd on 1 January 2015. The following transactions occurred between the two entities:

 On 1 June 2016, Liala Ltd sold inventory to Jordan Ltd for $12,000, this inventory previously costed Liala Ltd $10,000. By 30 June 2016, Jordan Ltd had sold 20% of this inventory to other entities for $3,000. The other 80% was all sold to external entities by 30 June 2017 for $13,000.

 During the 2016–17 period, Jordan Ltd sold inventory to Liala Ltd for $6,000, this being at cost plus 20% mark-up. Of this inventory, 20 % remained on hand in Liala Ltd at 30 June 2017. The tax rate is 30%.

Required:

(i) Prepare the consolidation worksheet entries for Liala Ltd at 30 June 2017 in relation to the intragroup transfers of inventory.

(ii) Compute the amount of cost of goods sold to be reported in the consolidated income statement for 2017 relating to the relevant intra-group sales.

b) On 1 July 2016, Liala ltd sold an item of plant to Jordan Ltd Ltd for $150,000 when its carrying value in Liala Ltd book was $200,000 (costs $300,000, accumulated depreciation $100,000). This plant has a remaining useful life of five (5) years form the date of sale. The group measures its property plants and equipment using a costs model. Tax rate is 30 percent. Required:

Prepare the necessary journal entries in 30 June 2017 to eliminate the intra-group transfer of equipment.

Colter Company prepares monthly cash budgets. Relevant data from operating budgets for 2017 are as follows:

All sales are on account. Collections are expected to be 50% in the month of sale, 30% in the first month following the sale, and 20% in the second month following the sale. Sixty percent (60%) of direct materials purchases are paid in cash in the month of purchase, and the balance due is paid in the month following the purchase. All other items above are paid in the month incurred except for selling and administrative expenses that include $ 1,182 of depreciation per month.

Other data:

The company’s cash balance on January 1, 2017, is expected to be $ 70,920. The company wants to maintain a minimum cash balance of $ 59,100.

1*Prepare schedules for (1) expected collections from customers and (2) expected payments for direct materials purchases for January and February.

2*Prepare a cash budget for January and February in columnar form.

Assume Abbee Industries (AI) starts the current year, 2016, with a deferred tax asset balance of $2,000 and a deferred tax liability balance of $4,000. The current statutory tax rate, which is projected to be in effect when temporary differences reverse, is 30%. The reported pre-tax accounting income is $250,000. Analyze the following items to determine taxable income and income taxes payable, the change in deferred taxes payable (future taxable and deductible amounts), and tax expense for 2016. Assume there is no need for a valuation allowance (provision) for deferred tax assets

1. AI's book income includes an $7,000 deduction for premiums paid on executive life insurance in which the company is named the beneficiary.
2. AI collected $24,000 of rent for a warehouse it leases to a local fabricator. Of this amount, $6,000 is unearned and will be recognized as revenue (for book purposes) in 2017.
3. Bad debts written off in the current period totaled $12,000 and provision (expense) for bad debts (under the allowance method) for book purposes amounted to $9,000. AI uses the direct write-off method for tax and the "allowance method" for book purposes.
4. AI's straight-line depreciation for book purposes is $80,000 in the current year and $150,000 is deductible for tax purposes under the MACRS method.
5. AI accrued $7,000 for estimated future warranty costs in 2016 and paid $4,000 in the current period for warranty defects.
6. AI's book income included $5,000 of interest revenue from municipal bonds.

AI's effective tax rate for 2016 is:

30.5%

45.6%

30.2%

31.0%

37.7%

Exercise 23-10 Following are selected balance sheet accounts of Whispering Bros. Corp. at December 31, 2017 and 2016, and the increases or decreases in each account from 2016 to 2017. Also presented is selected income statement information for the year ended December 31, 2017, and additional information. Selected balance sheet accounts Assets 2017 2016 Increase (Decrease) Accounts receivable $34,300 $23,800 $10,500 Property, plant, and equipment 275,600 245,400 30,200 Accumulated depreciation—plant assets (177,300 ) (166,200 ) (11,100 ) Liabilities and stockholders’ equity 2017 2016 Increase Bonds payable $ 48,500 $46,400 $2,100 Dividends payable 8,100 4,900 3,200 Common stock, $1 par 21,900 18,800 3,100 Additional paid-in capital 9,000 3,000 6,000 Retained earnings 103,900 91,900 12,000 Selected income statement information for the year ended December 31, 2017: Sales revenue $156,300 Depreciation 38,000 Gain on sale of equipment 14,500 Net income 31,300 Additional information: 1. During 2017, equipment costing $45,000 was sold for cash. 2. Accounts receivable relate to sales of merchandise. 3. During 2017, $20,200 of bonds payable were issued in exchange for property, plant, and equipment. There was no amortization of bond discount or premium. Determine the category (operating, investing, or financing) and the amount that should be reported in the statement of cash flows for the following items. Activity (a) Payments for purchase of property, plant, and equipment. $ (b) Proceeds from the sale of equipment. $ (c) Cash dividends paid. $ (d) Redemption of bonds payable.

Maria Martinez organized Manhattan Transport Company in January 2015. The corporation

immediately issued at $8 per share one-half of its 200,000 authorized shares of $2 par value common

stock. On January 2, 2016, the corporation sold at par value the entire 5,000 authorized shares

of 8 percent, $100 par value cumulative preferred stock. On January 2, 2017, the company again

Problem Set A 513

needed capital and issued 5,000 shares of an authorized 10,000 shares of no-par cumulative preferred

stock for a total of $512,000. The no-par shares have a stated dividend of $9 per share.

The company declared no dividends in 2015 and 2016. At the end of 2016, its retained earnings

were $170,000. During 2017 and 2018 combined, the company earned a total of $890,000. Dividends

of 50 cents per share in 2017 and $1.60 per share in 2018 were paid on the common stock.

Instructions

a. Prepare the stockholders’ equity section of the balance sheet at December 31, 2018. Include a

supporting schedule showing your computation of retained earnings at the balance sheet date.

(Hint: Income increases retained earnings, whereas dividends decrease retained earnings.)

b. Assume that on January 2, 2016, the corporation could have borrowed $500,000 at 8 percent

interest on a long-term basis instead of issuing the 5,000 shares of the $100 par value cumulative

preferred stock. Identify two reasons a corporation may choose to issue cumulative preferred

stock rather than finance operations with long-term debt

At year-end 2015, Wallace Landscaping’s total assets were $1.7 million and its accounts payable were $370,000. Sales, which in 2015 were $2.8 million, are expected to increase by 30% in 2016. Total assets and accounts payable are proportional to sales, and that relationship will be maintained. Wallace typically uses no current liabilities other than accounts payable. Common stock amounted to $395,000 in 2015, and retained earnings were $330,000. Wallace has arranged to sell $160,000 of new common stock in 2016 to meet some of its financing needs. The remainder of its financing needs will be met by issuing new long-term debt at the end of 2016. (Because the debt is added at the end of the year, there will be no additional interest expense due to the new debt.) Its net profit margin on sales is 6%, and 60% of earnings will be paid out as dividends. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Open spreadsheet What was Wallace's total long-term debt in 2015? Round your answer to the nearest dollar. $ What were Wallace's total liabilities in 2015? Do not round intermediate calculations. Round your answer to the nearest dollar. $ How much new long-term debt financing will be needed in 2016? (Hint: AFN - New stock = New long-term debt.) Do not round intermediate calculations. Round your answer to the nearest dollar

On July 31, 2016, the end of the first month of operations, Rhys Company prepared the following income statement, based on the absorption costing concept:

B. Reconcile the absorption costing income from operations of $1,489,250 with the variable costing income from operations previously determined.

Issued $300,000 face value bonds at 102.2.

Record the payment of semiannual bond interest for the bond issued on April 1

Record the amortization of the premium for the bond issued on April 1.

Recorded the adjusting entry for accrued interest and amortization of the bond premium for three months.

Closed the Bond Interest Expense account to the Income Summary account.

Reversed the adjusting entry made on December 31, 2016.

Record the entry for interest expenses paid on bonds, if the reversing entry was not recorded.

Coyote Ltd, a private company reporting under ASPE, reported the following for the years ended May 31, 2017, and 2016

Coyote Ltd.

Balance sheet May 31

Additional information

1. Profit for 2017 was $108,000

2. common shares were issued for $50,000

3. Land with a cost of $50,000 was sold at a loss of $20,000

4. Purchased land with a cost of $100,000 with a $55,000 down payment and financed the remainder with a mortgage note payable.

5. No equipment was sold during 2017

Instruction:

1. Prepare a cash flow statement for the year using the indirect method.

2. Is it unfavorable for a company to have a net cash outflow from financing activities?

3. Using horizontal analysis, calculate the percentage change between 2016 and 2017.

4. Using vertical analysis, calculate the percentage of the base amount for each year.

5. Based on your calculation in part (3) and (4), identify any significant changes from 2016 to 2017.