The Pyramid Company has used the LIFO method of accounting for inventory during its first two years of operation, 2019 and 2020. At the beginning of 2021, Pyramid decided to change to the average cost method for both tax and financial reporting purposes. The following table presents information concerning the change for 2019–2021. The income tax rate for all years is 25%.

Pyramid issued 50,000 $1 par, common shares for $230,000 when the business began, and there have been no changes in paid-in capital since then. Dividends were not paid the first year, but $10,000 cash dividends were paid in both 2020 and 2021.

Required:
1. Prepare the journal entry at January 1, 2021, to record the change in accounting principle.
2. Prepare the 2021–2020 comparative income statements beginning with income before income taxes.
3. Prepare the 2021–2020 comparative statements of shareholders’ equity. [Hint: The 2019 statements reported retained earnings of $45,000. This is $60,000 − ($60,000 × 25%).]

• Record the change in accounting principle.
• Prepare the 2021–2020 comparative income statements beginning with income before income taxes. (Round EPS answers to 2 decimal places.)
• Prepare the 2021–2020 comparative statements of shareholders’ equity. [Hint: The 2019 statements reported retained earnings of $45,000. This is $60,000 − ($60,000 × 25%).] (Deductions should be indicated by a minus sign.)

On 1 November 2018, ACP imported a new multi-colour printing machine (No-10) for $68,300 cash. In addition, ACP paid $6,500 of import duties and $1,200 of transport costs for the machine on 3 November 2018. The useful life of the machine and the residual value were estimated to be 8 years and $7,000 respectively. ACP decides to depreciate the machine using a straight-line basis. The company’s financial year-end is 30 June.

On 30 June 2019, Auckland City Printers revalued the machine to $73,000 following a review by an independent valuer.

On 1 July 2019, due to the changes in technology caused the company to revise the estimated useful life of the printing machine from 8 years to 6 years. On the same day, it was also determined that the residual value of the machine is nil.

On 30 June 2020, the printing machine has been revalued at a fair value of $55,200.

On 30 September 2020, the accountant believes that the value of the printing machine has declined substantially. The value in use is nil, but it is estimated that the company may be able to sell the printing machine for $35,000 to a purchaser and the costs associated with making the sale would be $2,000.

On 1 October 2020, Auckland City Printers sold the printing machine for $32,000 cash.

Required:

(a)   Prepare relevant journal entries to record the depreciation expense for the year ended 30 June 2019 and revaluation entries on 30 June 2019.

(b)   Prepare relevant journal entries to record the depreciation the year ended 30 June 2020 and revaluation entries on 30 June 2020.

(c) Explain the accounting treatment for the transaction on 30 September 2020 in respect of the printing machine with reference to the relevant accounting standards. Prepare the journal entry required.  

(d) Prepare the journal entry required on 1 October 2020 to reflect the disposal of the printing machine. Show all workings.  

Instant Brake Inc.’s comparative balance sheet information at December 31, 2020 and 2019, and its income statement for the year ended December 31, 2020, are as follows:

During 2020, the following transactions occurred:

1. Purchased equipment for $20,700 cash.
2. Sold the investment on January 1, 2020, for $43,800, resulting in investment income of $19,020.
3. Sold equipment for $7,470 cash that had originally cost $39,720 and had $20,140 of accumulated depreciation.
4. Issued $19,000 of bonds payable at face value.

Required:
1. How much cash was paid in dividends?

2. Prepare a statement of cash flows for Instant Brake for the year ended December 31, 2020, using the indirect method. (List any deduction in cash and cash outflows as negative amounts.)

The Unadjusted pre-closing 12/31/2020 account balances for the Mahoney Company are listed below:

During your audit, you discover the following four items that have yet to be recorded:

1) No depreciation on the building has been recorded for 2020. Depreciation on the building is based on Double-Declining Balance. It was purchased on 1/1/18 and has an estimated useful life of 40 years. The estimated salvage value is $1,000,000.

2) Mahoney exhanged a machine for a similar machine on 12/31/2020. The origianl machine cost $3,429,000 and has a book value of $2,134,000. The new machine had a fair value of $1,823,000; Mahoney also received $511,000 in cash. The exchange lacked commercial substance.

3) Mahoney uses the Income Statement approach to record Bad Debts. Bad Debts in 2020 are estimate to be 4% of Sales.

4) Ending Inventory is to be estimated using the Gross Profit Method. The historic Gross Profit percentage is 20%.

Required

A) Record journal entries for items #1-3 above; show supporting computations. In addition, compute ending inventory per #4 above; show supporting computations. Assume adjusting/closing entries to adjust inventory, closing Purchases, and Record Cost of Goods Sold were properly made.

B) Draft the 2020 Condensed Income Statement and the 12/31/2020 Balance Sheet. Assume no Taxes. Do not include Earnings Per Share.

On January 2, 2019, Whistler Company purchased land for $450,000, from which it is estimated that 350,000 tons of ore could be extracted. It estimates that the present value of the cost necessary to restore the land is $59,000, after which it could be sold for $21,000.

During 2019, Whistler mined 73,000 tons and sold 51,000 tons. During 2020, Whistler mined 95,000 tons and sold 103,000 tons. At the beginning of 2021, Whistler spent an additional $90,000, which increased the reserves by 57,000 tons. In 2021, Whistler mined 131,000 tons and sold 124,000 tons. Whistler uses a FIFO cost flow assumption.

Required:

If required, round the depletion rate to the nearest cent and round the final answers to the nearest dollar.

1. Calculate the depletion included in the income statement and ending inventory for 2019, 2020, and 2021.

2. Complete the natural resources section of the balance sheet on December 31, 2019, 2020, and 2021, assuming that an accumulated depletion account is used.

3. Assume Whistler's discount rate was 9%. What is the balance in the asset retirement obligation at 2019, 2020, and 2021?

Mr Ahmed Kumar runs a snack distribution business located in the Light Industrial area in Lusaka. The following list of balances was extracted from his ledger as at 31 March, 2020; the end of his most recent financial year.

K

Capital                                                                                                83,887

Sales                                                                                                  259,870

Trade accounts payable                                                                 19,840

Returns outwards                                                                             13,407

Allowance for doubtful debts                                                          512

Discounts allowed                                                                            2,306

Discounts received                                                                          1,750

Purchases                                                                                         135,680

Returns inwards                                                                               5,624

Carriage outwards                                                                           4,562

Drawings                                                                                           18,440

Carriage inwards                                                                              11,830

Rent, rates and insurance                                                              25,973

Heating and lighting                                                                         11,010

Postage, stationery and telephone                                               2,410

Advertising                                                                                        5,980

Salaries and wages                                                                         38,521

Bad debts                                                                                          2,008

Cash in hand                                                                                    534

Cash at bank                                                                                    4,440

Inventory as at 1^st April 2019                                                         15,654

Trade accounts receivable                                                             24,500

Fixtures and fittings - at cost                                                          120,740

Prov. for depreciation on fixtures and fittings – 31/03/2020     63,020

Depreciation                                                                                     12,074

The following additional information as at 31^st March, 2020 is available:

(a) Inventory at the close of business was valued at K17,750

(b) Insurances have been prepaid by K1,120

(c) Heating and lighting is accrued by K1,360

(d) Rates have been prepaid by K5,435

(e) The allowance for doubtful debts is to be adjusted so that it is 3% of trade accounts receivable.

Required:

For the year 2020, prepare Mr Kumar’s:

Unadjusted Trial Balance as at 31^st March, 2020.

                                                                                                                              [10 Marks]

General Journal recording the adjustments highlighted above.

                                                                                                                              [10 Marks]

Trading, Profit or Loss statement for the year ended 31^st March, 2020.

[10 Marks]

Statement of financial position as at 31^st March, 2020.

                                                                                                                              [10 Marks]

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Marin Inc. has an executive stock option plan, details of which follow:

Marin uses an option-pricing model to value the stock options. When granted, the options are estimated to have a fair value of $8.50 each. This estimate remains unchanged during the vesting period.

Assuming that Marin has a December 31 year end, prepare the required journal entries as at the following dates. (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.)

Assuming that Marin has a December 31 year end, prepare the required journal entries as at the following dates. (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.)

The Unadjusted pre-closing 12/31/2020 account balances for the Mahoney Company are listed below:

During your audit, you discover the following four items that have yet to be recorded:

1) No depreciation on the building has been recorded for 2020. Depreciation on the building is based on Double-Declining Balance. It was purchased on 1/1/18 and has an estimated useful life of 40 years. The estimated salvage value is $1,000.

2) Mahoney exhanged a machine for a similar machine on 12/31/2020. The origianl machine cost $3,429 and has a book value of $2,134. The new machine had a fair value of $1,823; Mahoney also received $511 in cash. The exchange lacked commercial substance.

3) Mahoney uses the Income Statement approach to record Bad Debts. Bad Debts in 2020 are estimate to be 4% of Sales.

4) Ending Inventory is to be estimated using the Gross Profit Method. The historic Gross Profit percentage is 20%.

Required

A) Record journal entries for items #1-3 above; show supporting computations. In addition, compute ending inventory per #4 above; show supporting computations. Assume adjusting/closing entries to adjust inventory, closing Purchases, and Record Cost of Goods Sold were properly made.

B) Draft the 2020 Condensed Income Statement and the 12/31/2020 Balance Sheet. Assume no Taxes. Do not include Earnings Per Share.

On 1 November 2018, Auckland City Printers (ACP) imported a new multi-colour printing machine (No-10) for $68,300 cash. In addition, ACP paid $6,500 of import duties and $1,200 of transport costs for the machine on 3 November 2018. The useful life of the machine and the residual value were estimated to be 8 years and $7,000 respectively. ACP decides to depreciate the machine using straight-line basis. The company’s financial year-end is 30 June.

On 30 June 2019, Auckland City Printers revalued the machine to $73,000 following a review by an independent valuer. On 1 July 2019, due to the changes in technology caused the company to revise the estimated useful life of the printing machine from 8 years to 6 years. On the same day, it was also determined that the residual value of the machine is nil.

On 30 June 2020, the printing machine has been revalued at a fair value of $55,200.

On 30 September 2020, the accountant believes that the value of the printing machine has declined substantially. The value in use is nil, but it is estimated that the company may be able to sell the printing machine for $35,000 to a purchaser and the costs associated with making the sale would be $2,000.

On 1 October 2020, Auckland City Printers sold the printing machine for $32,000 cash.

Required:

(a)Prepare relevant journal entries to record the depreciation expense for the year ended 30 June 2019 and revaluation entries on 30 June 2019.

(b)Prepare relevant journal entries to record the depreciation the year ended 30 June 2020 and revaluation entries on 30 June 2020.

(c) Explain the accounting treatment for the transaction on 30 September 2020 in respect of the printing machine with reference to the relevant accounting standards. Prepare the journal entry required.

(d) Prepare the journal entry required on 1 October 2020 to reflect the disposal of the printing machine. Show all workings.

On 1 November 2018, Auckland City Printers (ACP) imported a new multi-colour printing machine (No-10) for $68,300 cash. In addition, ACP paid $6,500 of import duties and $1,200 of transport costs for the machine on 3 November 2018. The useful life of the machine and the residual value were estimated to be 8 years and $7,000 respectively. ACP decides to depreciate the machine using straight-line basis. The company’s financial year-end is 30 June.

On 30 June 2019, Auckland City Printers revalued the machine to $73,000 following a review by an independent valuer.

On 1 July 2019, due to the changes in technology caused the company to revise the estimated useful life of the printing machine from 8 years to 6 years. On the same day, it was also determined that the residual value of the machine is nil. On 30 June 2020, the printing machine has been revalued at a fair value of $55,200.

On 30 September 2020, the accountant believes that the value of the printing machine has declined substantially. The value in use is nil, but it is estimated that the company may be able to sell the printing machine for $35,000 to a purchaser and the costs associated with making the sale would be $2,000.

On 1 October 2020, Auckland City Printers sold the printing machine for $32,000 cash.

Required: (a)Prepare relevant journal entries to record the depreciation expense for the year ended 30 June 2019 and revaluation entries on 30 June 2019.

(b)Prepare relevant journal entries to record the depreciation the year ended 30 June 2020 and revaluation entries on 30 June 2020.

(c) Explain the accounting treatment for the transaction on 30 September 2020 in respect of the printing machine with reference to the relevant accounting standards. Prepare the journal entry required.

(d) Prepare the journal entry required on 1 October 2020 to reflect the disposal of the printing machine. Show all workings.