Below is the net income of Blue Instrument Co., a private corporation, computed under the three inventory methods using a periodic system.

(Ignore tax considerations.)

(a) Assume that in 2021 Blue decided to change from the FIFO method to the average-cost method of pricing inventories. Prepare the journal entry necessary for the change that took place during 2021, and show net income reported for 2018, 2019, 2020, and 2021.

(b) Assume that in 2021 Blue, which had been using the LIFO method since incorporation in 2018, changed to the FIFO method of pricing inventories. Prepare the journal entry necessary to record the change in 2021 and show net income reported for 2018, 2019, 2020, and 2021.

Grier & Associates maintains its records on the accrual basis. You have been engaged to convert its income statement to the cash basis. The accrual basis income statement, along with additional information, follows:

Grier & Associates

Income Statement (Accrual Basis)

For the Year Ended December 31, 2020

Sales Revenue $425,000

Expenses:

Salaries and wages $170,000

Income taxes 65,000

Insurance 40,000

Depreciation 15,000

Interest                                  25,000           315,000

Net income   $110,000

Additional information:

       Balances at 12/31                 

     2020                          2019        

Accounts receivable $50,000                     $30,000

Salaries and wages payable 10,000                       20,000

Income taxes payable 24,000                       19,000

Prepaid insurance 8,000                         4,000

Accumulated depreciation 95,000                       80,000

Interest payable 3,000                         9,000

No plant assets were sold during 2020.

What is cash basis net income? $__________

Vaughn Magazine sold 9,480 annual subscriptions on August 1, 2020, for $13 each. Prepare Vaughn’s August 1, 2020, journal entry and the December 31, 2020, annual adjusting entry, assuming the magazines are published and delivered monthly. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.) Date Account Titles and Explanation Debit Credit choose a transaction date enter an account title enter a debit amount enter a credit amount enter an account title enter a debit amount enter a credit amount choose a transaction date enter an account title enter a debit amount enter a credit amount enter an account title enter a debit amount enter a credit amount

Question 2

(a)    Identify and discuss the three elements of control in determining whether to prepare consolidated financial statements.  

(b)    Dingo Ltd owns all of the shares of Bilby Ltd. On 1 May 2020, Bilby Ltd sold inventory costing $300 to Dingo Ltd for $360 on credit. On 30 June 2020, only half of these goods had been sold by Dingo Ltd, but Dingo Ltd had paid $280 back to Bilby Ltd. The tax rate is 30%. The adjusting consolidation entries at 30 June 2020 were:

         Sales revenue                                                   Dr             360

                   Cost of sales                                            Cr                                      330

                   Inventory                                                Cr                                        30

         Deferred tax asset                                            Dr                 9

                   Income tax expense                               Cr                                          9

         Accounts payable                                             Dr               80

                   Accounts receivable                               Cr                                        80

Required:

Explain the rationale behind the adjustments to each of the accounts.

Concord Inc. charges an initial franchise fee of $69,000. Upon the signing of the agreement (which covers 3 years), a payment of $27,600 is due. Thereafter, 3 annual payments of $13,800 are required. The credit rating of the franchisee is such that it would have to pay interest at 10% to borrow money. The franchise agreement is signed on May 1, 2020, and the franchise commences operation on July 1, 2020. Click here to view factor table. Prepare the journal entries in 2020 for the franchisor under the following assumptions.

(a) No future services are required by the franchisor once the franchise starts operations.

(b) The franchisor has substantial services to perform, once the franchise begins operations, to maintain the value of the franchise.

(c) The total franchise fee includes training services (with a value of $1,700) for the period leading up to the franchise opening and for 2 months following opening.

On March 31st, 2020, Adtech Inc. issued $200,000, 9%, 10-year bonds. The bonds pay interest semi-annually, on September 30 and March 31. The first interest payment is on September 30, 2020. The bonds are issued at a price of 114 1/4 (i.e., $228,500). The issuance price implies an effective interest rate of 7%. Bond issue costs are $10,000, which are amortized using the straight-line method. Adtech's fiscal year-end is on December 31.

1. Prepare all necessary journal entries in relation to these bonds between March 30, 2020 and April 1st, 2021. Make sure you indent your credit and clearly mark the date for each journal entry.

2. What is the amount of the liability that Adtech has to the bondholders on September 30, 2021, after the interest payment on that date?

Pension data for Freddie Johns Company include the following for 2020:

Settlement rate 8%

Expected return on plan assets: 12%

Actual return on plan assets: $170,000

Service cost: $300,000

Est. remaining service life of employees 10 years

As of January 1, 2020:

PBO $1,500,000

Plan assets $1,700,000

AOCI – PSC $200,000

AOCI – Actuarial (G)/L $60,000

During 2020:

Amortization of prior service cost $25,000

Cash contributions to pension fund $240,000

Benefit payments to retirees $260,000

Prepare all journal entries necessary related to this pension for the year. You may use individual journal entries or a combined journal entry, but be sure to clearly support your answer with all necessary calculations and/or T-accounts. Also, you may choose to use the pension worksheet to support your answer, but the pension worksheet is not required.