Problem 18-10

On March 1, 2017, Bridgeport Construction Company contracted to construct a factory building for Fabrik Manufacturing Inc. for a total contract price of $8,340,000. The building was completed by October 31, 2019. The annual contract costs incurred, estimated costs to complete the contract, and accumulated billings to Fabrik for 2017, 2018, and 2019 are given below:

(a) Using the percentage-of-completion method, prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2017, 2018, and 2019. (Ignore income taxes.)

(b) Using the completed-contract method, prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2017, 2018, and 2019. (Ignore income taxes.)

The comparative balance sheets for 2018 and 2017 are given below for Surmise Company. Net income for 2018 was $74 million.

SURMISE COMPANY
Comparative Balance Sheets
December 31, 2018 and 2017
($ in millions)
2018 2017
Assets
Cash $ 27 $ 35
Accounts receivable 86 100
Less: Allowance for uncollectible accounts (19 ) (2 )
Prepaid expenses 15 13
Inventory 129 110
Long-term investment 116 80
Land 92 92
Buildings and equipment 377 255
Less: Accumulated depreciation (128 ) (102 )
Patent 22 23
$ 717 $ 604
Liabilities
Accounts payable $ 16 $ 36
Accrued liabilities 2 17
Notes payable 42 0
Lease liability 113 0
Bonds payable 61 123
Shareholders’ Equity
Common stock 66 50
Paid-in capital—excess of par 255 205
Retained earnings 162 173
$ 717 $ 604

Required:
Prepare the statement of cash flows of Surmise Company for the year ended December 31, 2018. Use the indirect method to present cash flows from operating activities because you do not have sufficient information to use the direct method. You will need to make reasonable assumptions concerning the reasons for changes in some account balances. A spreadsheet or T-account analysis will be helpful. (Hint: The right to use a building was acquired with a seven-year lease agreement. Annual lease payments of $9 million are paid at January 1 of each year starting in 2018.) (Enter your answers in millions (i.e., 10,000,000 should be entered as 10). Amounts to be deducted should be indicated with a minus sign.)

Simon Company’s year-end balance sheets follow.

The company’s income statements for the years ended December 31, 2018 and 2017, follow.

Additional information about the company follows.

  
To help evaluate the company's profitability, compute the following ratios for 2018 and 2017:

1. Return on common stockholders' equity.
2. Price-earnings ratio on December 31.
3. Dividend yield.

McGuire Corporation began operations in 2018. The company purchases computer equipment from manufacturers and then sells to retail stores. During 2018, the bookkeeper used a check register to record all cash receipts and cash disbursements. No other journals were used. The following is a recap of the cash receipts and disbursements made during the year.

You are called in to prepare financial statements at December 31, 2018. The following additional information was provided to you:

1. Customers owed the company $19,000 at year-end.
2. At year-end, $29,400 was still due to suppliers of merchandise purchased on credit.
3. At year-end, merchandise inventory costing $46,400 still remained on hand.
4. Salaries and wages owed to employees at year-end amounted to $5,100.
5. On December 1, $3,150 in rent was paid to the owner of the building used by McGuire. This represented rent for the months of December through February.
6. The office equipment, which has a 10-year life and no salvage value, was purchased on January 1, 2018. Straight-line depreciation is used.

Prepare an income statement for 2018 and a balance sheet as of December 31, 2018. (For Balance Sheet only, items to be deducted must be indicated with a negative amount.)

#3: Now, it is end of 2018, Ron has been investing with Bloom mutual fund for 4 years now. This morning, Ron was reviewing his investment statements and show the following information (Please ignore any fund expenses info. in solving this question)

(please notice that the dividends received at the end of each year have been used to purchase new shares at the beginning of the following year)

A. what is HPR of Ron in 2015?

1. 6.67%
2. 10%
3. 6.25%
4. 8.9%

B. What is the HPR of Ron during his entire investment horizon 2015-2018 (Please notice that Ron has been reinvesting his entire proceeds from dividends during years 2015,2016, and 2017 in the fund once they are received)?

1. 28%
2. 41.4%
3. 39.9%
4. 59.3%

C. What is the arithmetic average annual return of Ron during the period 2015-2018?

1. 8.54%
2. 5.53%
3. 6.52%
4. 9.63%

D. What is the Geometric average annual return of Ron during the period 2015-2018?

1. 2.8%
2. 8.76%
3. -8.77%
4. 8.52%

E. What is the dollar weighted average return of Ron during the period 215-2018?

1. 7.58%
2. 8.76%
3. 10.38%
4. 11.53%

F. Assuming that the dollar weighted return is Ron’s nominal rate of return, what is Ron’s real rate of return if the annual rate of inflation during the investment period is 3%?

1. 5.59%
2. 11.76%
3. 10.76%
4. 1.92%

1. Gonsalo runs a business doing car repairs, writes up his taxes on the cash basis, and on the calendar year.

Gonsalo paid $ 27,000 to his landlord on 12-1-2018 for a required advance rent payment on an 18 month lease covering the months 12-1-2018 through 5-31-2020.

Gonsalo paid $ 12,000 on 7-1-2018 for a one year insurance policy covering the months of 7-1-2018 through 6-30-2019. A payment of $ 16,000 was made on 7-1-2019 for a one year policy covering the period of 7-1-2019 to 6-30-2020.

Gonsalo has a business use only credit card, used to purchase supplies.    A purchase was charged on 12-30-2018 for supplies of $ 4,000, buying in bulk to receive a quantity discount, and another $6,000 purchase of supplies was charged on 8-1-2019 to fill up the stocks for 2019, and for the early months of 2020. Gonsalo paid the interest on the credit card in the amount of $ 2,500 during 2019 and has paid the principal balance on the credit card down by $ 8,000 so far by the end of 2019.

Finally, on 11-30-2018, Gonsalo signed and gave a note payable to a supplier for $3,000, due to be paid with accrued interest on May 30, 2019 with 6% annual interest. The note has a below market interest rate, and is worth $ 2,950. Gonsalo made the required payment when due. All of the purchased supplies had been used by May 2019.

How much of these payments qualify as tax deductible expenses for Gonsalo during 2019?

Information:

Retro Corp. began business January 1, 2018. The following transactions, impacting owners’ equity, occurred between January 1, 2018 and December 31, 2020 (the current date):

1) On January 1, 2018, Renfro received authorization to issue 100,000 shares of $1 par value common stock. During 2018, 60,000 shares were issued at $30 per share.

2) On January 1, 2018, Renfro received authorization to issue 50,000 shares of 5%, $10 par value preferred stock. During 2018, 40,000 shares were issued at $100 per share.

3) On October 31, 2019, Renfro declared a 15% common stock dividend (i.e. the dividend was payable TO common stockholders and the payment was in the form of additional shares of common stock). At the time the dividend was declared, the market price of the stock was $43.

4) On November 3, 2019, Renfro issued the stock from the dividend declared on October 31st .

5) On March 31, 2020, Renfro purchased 5,000 shares of the company’s own common stock for the treasury at $45 per share. Renfro uses the cost method to record treasury stock transactions.

6) On November 30, 2009, reissued 1,200 of the treasury shares for $42 per share.

Additionally, during the three year period, Renfro reported total net income of $950,000 and paid total cash dividends of $180,000.

REQUIRED:

1. Prepare journal entries related to transactions 1-6.

2. Prepare the December 31, 2020 Owners’ Equity section of Retro’s balance sheet IN GOOD FORM*. Use the following heading: Renfro Corp. Owners’ Equity As of 12/31/2020

Sachs Brands' defined benefit pension plan specifies annual retirement benefits equal to: 1.5% × service years × final year's salary, payable at the end of each year. Angela Davenport was hired by Sachs at the beginning of 2004 and is expected to retire at the end of 2038 after 35 years' service. Her retirement is expected to span 18 years. Davenport's salary is $98,000 at the end of 2018 and the company's actuary projects her salary to be $320,000 at retirement. The actuary's discount rate is 8%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:

1. What is the company's projected benefit obligation at the beginning of 2018 (after 14 years' service) with respect to Davenport? (Do not round intermediate calculations. Round your final answer to nearest whole dollar.)
2. Estimate by the projected benefits approach the portion of Davenport's annual retirement payments attributable to 2018 service.
3. What is the company's service cost for 2018 with respect to Davenport? (Do not round intermediate calculations. Round your final answer to nearest whole dollar.)
4. What is the company's interest cost for 2018 with respect to Davenport? (Do not round intermediate calculations. Round your final answer to nearest whole dollar.)
5. Combine your answers to requirements 1, 3, and 4 to determine the company's projected benefit obligation at the end of 2018 (after 15 years' service) with respect to Davenport. (Do not round intermediate calculations. Round your final answer to nearest whole dollar.)

Below are Lebnas Corp.’s 2019 income statement and comparative balance sheet at 12/31/2019 and 12/31/2018.  

Additional information:                                                  

1. On December 31, 2018, Lebnas acquired 25% of Island Co.’s common stock for $609,000. On that date, thecarrying value of Island’s assets and liabilities, which approximated their fair values, was $2,435,000. Islandreported income of $319,000 for the year ended December 31, 2019. No dividend income was received by Lebnas on Island’s common stock during the year 2019.

2. During 2018, Lebnas loaned $797,500 to POI Co., an unrelated company. POI made the first semi-annualprincipal repayment of $72,500, plus interest at 10%, on December 31, 2018. POI is current on the loan as of December 31, 2019.

3. On January 2, 2019, Lebnas sold equipment costing $145,000, with a carrying amount of $44,950 for cash.

4. On December 31, 2019, Lebnas entered into a finance lease for a new factory. The present value of the annual rental payments is $1,232,500, which equals the fair value of the building. Lebnas will make the firstrental payment of $174,000 on 1/2/2020.

Note:  The right of use asset is included in Property, Plant and Equipment on the balance sheet.

5. Depreciation expense of $230,550 is included in Cost of Goods Sold.

6. Lebnas declared and paid cash dividends as follows.

Required: Prepare a statement of cash flows for Lebnas Corp. for the year ended 12/31/2019, using the indirect method and good form, including footnote disclosures.

Herbert, Inc., acquired all of Rambis Company’s outstanding stock on January 1, 2017, for $599,000 in cash. Annual excess amortization of $17,000 results from this transaction. On the date of the takeover, Herbert reported retained earnings of $486,000, and Rambis reported a $220,000 balance. Herbert reported internal net income of $41,000 in 2017 and $55,600 in 2018 and declared $10,000 in dividends each year. Rambis reported net income of $27,500 in 2017 and $42,100 in 2018 and declared $5,000 in dividends each year.

a. Assume that Herbert’s internal net income figures above do not include any income from the subsidiary.

- If the parent uses the equity method, what is the amount reported as consolidated retained earnings on December 31, 2018?

- What would be the amount of consolidated retained earnings on December 31, 2018, if the parent had applied either the initial value or partial equity method for internal accounting purposes?

b. Under each of the following situations, what is the Investment in Rambis account balance on Herbert’s books on January 1, 2018?

- The parent uses the equity method.

- The parent uses the partial equity method.

- The parent uses the initial value method.

c. Under each of the following situations, what is Entry *C on a 2018 consolidation worksheet?

- The parent uses the equity method.

- The parent uses the partial equity method.

- The parent uses the initial value method.