4. In 2016, its first year of operations, Banks Corp. reported pretax income of $200,000 and paid $60,000 of taxes. In 2017, Banks Corp. reported pretax income of $150,000 and paid $45,000 of taxes.

In 2018, Banks incurred a $400,000 net operating loss.

For all years the tax rate is 30% and there were no differences between taxable income and pretax financial statement income. Also, assume the current tax law (under the TCJA of 2017 that does not allow loss carrybacks).

Instructions

1. Record the entries in 2018 to record income tax considerations. (Assume at the end of 2018 management has deemed that it is more likely than not that 10% of the carryforward benefit will not be realized.)

2. In 2019, Banks reported pretax income of $550,000. Record the entries in 2019 to reflect all income tax considerations.

3. What is the net tax expense that Banks should report on the 2019 income statement?

4. Without showing calculations, explain how the entry for 2018 (part a.) would have been different under previous tax law.

Question 1 Part A and B

A. Nanki Corporation purchased equipment on January 1, 2016, for $630,000. In 2016 and 2017, Nanki depreciated the asset on a straight-line basis with an estimated useful life of eight years and a $6,000 residual value. In 2018, due to changes in technology, Nanki revised the useful life to a total of 6 years with no residual value. What depreciation would Nanki record for the year 2018 on this equipment? (Round your answer to the nearest dollar amount.)

Multiple Choice

• $104,000.

• $103,183.

• $118,500.

• None of these answer choices are correct.

B. Broadway Ltd. purchased equipment on January 1, 2016, for $420,000, estimating a 7-year useful life and no residual value. In 2016 and 2017, Broadway depreciated the asset using the straight-line method. In 2018, Broadway changed to sum-of-years'-digits depreciation for this equipment. What depreciation would Broadway record for the year 2018 on this equipment? (Do not round your depreciation rate.)

Multiple Choice

• $50,000.

• $60,000.

• $120,000.

• $100,000.

On November 1, 2017, Bernard Company (a U.S.-based company) sold merchandise to a foreign customer for 250,000 FCUs with payment to be received on April 30, 2018. At the date of sale, Bernard entered into a six-month forward contract to sell 250,000 FCUs. The company properly designates the forward contract as a cash flow hedge of a foreign currency receivable. The following exchange rates apply: Date Spot Rate Forward Rate (to April 30, 2018) November 1, 2017 $ 0.36 $ 0.35 December 31, 2017 0.34 0.32 April 30, 2018 0.33 N/A Bernard's incremental borrowing rate is 12 percent. The present value factor for four months at an annual interest rate of 12 percent (1 percent per month) is 0.9610. Prepare all journal entries, including December 31 adjusting entries, to record the sale and forward contract. What is the impact on net income in 2017? What is the impact on net income in 2018

Pirate Corporation purchased 80% of shares of Stanley, Inc. for $500,000 cash on January 1, 2016. The fair value of the noncontrolling interest was $70,000 on the acquisition-date. On January 1, 2016, Stanley’s net assets had a total carrying amount of $480,000. Equipment (six-year remaining life) was undervalued on the financial statements by $60,000. Any remining excess fair value over book value was attributed to a patent (four-year remaining life), but not recorded on its books. Stanley recorded net income of $90,000 in 2016 and $70,000 in 2017. Each year since the acquisition, Stanley has declared a $10,000 dividend. On January 1, 2018, Pirate’s Retained Earnings show a $300,000 balance. Selected account balances for the two companies from their separate operations were as follows:

                         Pirate      Stanley

2018 Revenues 500,000    300,000

2018 Expenses 300,000    150,000

a. Calculate the total Fair Value for the total acquisition

b. Calculate the annual amortization

c. What is the total consolidated net income for 2018?

n 2017​, McGrath ​& Sons, a small​ environmental-testing firm, performed 10 comma 800 radon tests for $ 280 each and 15 comma 600 lead tests for $ 180 each. Because newer homes are being built with​ lead-free pipes,​ lead-testing volume is expected to decrease by 13​% next year.​ However, awareness of​ radon-related health hazards is expected to result in a 4​% increase in​ radon-test volume each year in the near future. Jim McGrath feels that if he lowers his price for lead testing to $ 170 per​ test, he will have to face only a 7​% decline in​ lead-test sales in 2018.

1. Prepare a 2018 sales budget for Sons assuming that McGrath holds prices at 2017 levels.

2. Prepare a 2018 sales budget for McGrath assuming McGrath lowers the price of a lead test to $170. Should McGrath lower the price of a lead test in 2018 if the company's goal is to maximize sales revenue?

At the beginning of 2018, Advanced Industries acquired a large, custom-made machine with a fair value of $7,331,130 by signing a three-year lease agreement. The lease is payable in three annual payments of $3.0 million at the end of each year.

Required:

a. What is the effective annual interest rate implicit in the agreement?

b. Prepare the lessee's journal entries required at the inception of the lease, the first lease payment which is due and paid December 31, 2018, and the second lease payment which is due and paid December 31, 2019.

Date Account Debit Credit

January 1, 2018:

December 31, 2018:

December 31, 2019:

c. Suppose the fair value of the machine and the lessor's implicit interest rate were unknown at the time of the lease, but you are able to determine that the lessee's incremental borrowing rate of interest for notes of similar "risk was 10%. Prepare the lessee's entry at the inception of the lease.

HINT: Use the Time Value of Money tables provided in previous tabs" Account Debit Credit

On June 30, 2018, Rundle Company’s total current assets were $500,500 and its total current liabilities were $272,500. On July 1, 2018, Rundle issued a short-term note to a bank for $40,400 cash.

Required

Compute Rundle’s working capital before and after issuing the note.

Compute Rundle’s current ratio before and after issuing the note. (Round your answers to 2 decimal places.)

On January 1, 2018, Swifty Incorporated sold services to a Canadian supply company and accepted a three-year note in the amount of 10,100 Canadian dollars. Assume that exchange rates between the U.S. dollar and the Canadian dollar are as follows:

Provide the journal entries (in U.S. dollars) prepared by Swifty to record the receipt of the note and the exchange gains/losses recognized on December 31, 2018, and December 31, 2019. Ignore any interest on the note. (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.)

At December 31, 2018, the trial balance of Hossam Company contained the following amounts before adjustments: Accounts Receivable $200,000 Allowance for Doubtful Accounts 1,500 Sales $400,000 Instructions: 1. Prepare the adjusting entry at December 31, 2018, to record bad debt expense if the company estimates that 6% of accounts receivable will be uncollectible. 2. Prepare the adjusting entry at December 31, 2018, to record bad debt expense if the company estimates that 3% of sales will be uncollectible. 3. Show the balance sheet presentation of accounts receivable at December 31, 2018 under assumption (1) above. 4. On January, 2019, a $1000 account receivable is written off as uncollectible. Prepare the journal entry to record the write-off. 5. On March 30, 2019, a $750 of the account that was written off on January, was collected. Prepare the journal entries to record that recovery. 6. Repeat part (4) above assuming that the company uses the direct write-off method instead of the allowance method in accounting for uncollectible

The following company has sales of $30 million and a cost of goods sold of $18 million. The balance sheet for period ending 31 December 2018 for this company appears below

a. Calculate the company’s net working capital in 2018.                                     

b. Calculate the company’s cash cycle for 2018.

c. The industry average for accounts receivable is 28 days. What would this company’s cash cycle have been in 2018 if it had matched this industry average for accounts receivable? Comment on this new cash cycle outcome against b. above.