Glaus Leasing Company agrees to lease equipment to Jensen Corporation on January 1, 2020. The following information relates to the lease agreement.
| 1. | The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. | |
| 2. | The cost of the machinery is $525,000, and the fair value of the asset on January 1, 2020, is $700,000. | |
| 3. | At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $50,000. Jensen estimates that the expected residual value at the end of the lease term will be 50,000. Jensen amortizes all of its leased equipment on a straight-line basis. | |
| 4. | The lease agreement requires equal annual rental payments, beginning on January 1, 2020. | |
| 5. | The collectibility of the lease payments is probable. | |
| 6. | Glaus desires a 5% rate of return on its investments. Jensen’s incremental borrowing rate is 6%, and the lessor’s implicit rate is unknown. |
b. Calculation for annual rental payment
| c) | Calculation of present value of minimum lease payment | |||
d. Prepare the journal entries Jensen would make in 2020 and 2021 related to the lease arrangement
e. Prepare the journal entries Glaus would make in 2020 and 2021
In: Accounting
The Cecil-Booker Vending Company changed its method of valuing
inventory from the average cost method to the FIFO cost method at
the beginning of 2021. At December 31, 2020, inventories were
$111,000 (average cost basis) and were $115,000 a year earlier.
Cecil-Booker’s accountants determined that the inventories would
have totaled $137,000 at December 31, 2020, and $142,000 at
December 31, 2019, if determined on a FIFO basis. A tax rate of 25%
is in effect for all years.
One hundred thousand common shares were outstanding each year.
Income from continuing operations was $310,000 in 2020 and $435,000
in 2021. There were no discontinued operations either year.
Required:
1. Prepare the journal entry at January 1, 2021,
to record the change in accounting principle. (All tax effects
should be reflected in the deferred tax liability account.)
2. Prepare the 2021–2020 comparative income
statements beginning with income from continuing operations
(adjusted for any revisions). Include per share amounts.
| COMPARATIVE INCOME STATEMENTS | ||
| 2021 | 2020 | |
| not attempted | not attempted | not attempted |
| not attempted | not attempted | not attempted |
| not attempted | $0 | $0 |
| Earnings per common share | not attempted | |
In: Accounting
The adjusted balances at December 31, 2020, for Derlak
Enterprises are shown in alphabetical order below:
| 2020 | 2019 | |||||
| Accounts payable | $ | 63,800 | $ | 11,000 | ||
| Accumulated amortization, franchise | 20,600 | 12,600 | ||||
| Accumulated amortization, patent | 4,000 | 2,800 | ||||
| Accumulated depreciation, equipment | 79,800 | 66,500 | ||||
| Accumulated depreciation, tools | 49,000 | 49,400 | ||||
| Accumulated depreciation, vehicles | 110,200 | 108,800 | ||||
| Cash | 16,000 | 30,200 | ||||
| Equipment | 198,000 | 100,000 | ||||
| Franchise | 55,600 | 55,600 | ||||
| Lee Derlak, capital* | 210,320 | 45,620 | ||||
| Lee Derlak, withdrawals | 46,000 | 38,400 | ||||
| Notes payable, due in 2023 | 163,000 | 148,600 | ||||
| Office supplies | 3,800 | 3,720 | ||||
| Operating expenses | 782,200 | 572,600 | ||||
| Patent | 30,000 | 30,000 | ||||
| Prepaid rent | 35,000 | 48,000 | ||||
| Salaries payable | 36,300 | 23,700 | ||||
| Service revenue | 844,500 | 775,700 | ||||
| Tools | 150,920 | 102,200 | ||||
| Vehicles | 264,000 | 264,000 | ||||
*The owner, Lee Derlak, made no additional investments during
the year.
Required:
Prepare a comparative classified balance sheet at December 31,
2020. (Record the accounts in the given order. Enter all
amounts as positive values.)
Analysis Component:
Are Derlak's assets financed mainly by debt or equity in 2019? in
2020? Is the change in how assets were financed from 2019 to 2020
favourable or unfavourable?
In: Accounting
The adjusted balances at December 31, 2020, for Derlak
Enterprises are shown in alphabetical order below:
| 2020 | 2019 | |||||
| Accounts payable | $ | 63,800 | $ | 11,000 | ||
| Accumulated amortization, franchise | 20,600 | 12,600 | ||||
| Accumulated amortization, patent | 4,000 | 2,800 | ||||
| Accumulated depreciation, equipment | 79,800 | 66,500 | ||||
| Accumulated depreciation, tools | 49,000 | 49,400 | ||||
| Accumulated depreciation, vehicles | 110,200 | 108,800 | ||||
| Cash | 16,000 | 30,200 | ||||
| Equipment | 198,000 | 100,000 | ||||
| Franchise | 55,600 | 55,600 | ||||
| Lee Derlak, capital* | 210,320 | 45,620 | ||||
| Lee Derlak, withdrawals | 46,000 | 38,400 | ||||
| Notes payable, due in 2023 | 163,000 | 148,600 | ||||
| Office supplies | 3,800 | 3,720 | ||||
| Operating expenses | 782,200 | 572,600 | ||||
| Patent | 30,000 | 30,000 | ||||
| Prepaid rent | 35,000 | 48,000 | ||||
| Salaries payable | 36,300 | 23,700 | ||||
| Service revenue | 844,500 | 775,700 | ||||
| Tools | 150,920 | 102,200 | ||||
| Vehicles | 264,000 | 264,000 | ||||
*The owner, Lee Derlak, made no additional investments during
the year.
Required:
Prepare a comparative classified balance sheet at December 31,
2020. (Record the accounts in the given order. Enter all
amounts as positive values.)
Analysis Component:
Are Derlak's assets financed mainly by debt or equity in 2019? in
2020? Is the change in how assets were financed from 2019 to 2020
favourable or unfavourable?
In: Accounting
Carla Tool Company’s December 31 year-end financial statements
contained the following errors.
|
December 31, 2020 |
December 31, 2021 |
|||
|---|---|---|---|---|
|
Ending inventory |
$9,400 understated | $7,900 overstated | ||
|
Depreciation expense |
$2,200 understated | — |
An insurance premium of $64,800 was prepaid in 2020 covering the
years 2020, 2021, and 2022. The entire amount was charged to
expense in 2020. In addition, on December 31, 2021, fully
depreciated machinery was sold for $16,300 cash, but the entry was
not recorded until 2022. There were no other errors during 2020 or
2021, and no corrections have been made for any of the errors.
(Ignore income tax considerations.)
(a) Compute the total effect of the errors on 2021
net income.
| Total effect of errors on net income | $Enter the total effect of errors on net income in dollars | understatedoverstated |
(b) Compute the total effect of the errors on the
amount of Carla’s working capital at December 31, 2021.
| Total effect on working capital | $Enter the total effect on working capital in dollars | overstatedunderstated |
(c) Compute the total effect of the errors on the
balance of Carla’s retained earnings at December 31,
2021.
| Total effect on retained earnings | $Enter the total effect on retained earnings in dollars | understatedoverstated |
In: Accounting
Crane Incorporated leases a piece of machinery to Blue Company
on January 1, 2020, under the following terms.
| 1. | The lease is to be for 4 years with rental payments of $13,046 to be made at the beginning of each year. | |
| 2. | The machinery’ has a fair value of $68,934, a book value of $51,440, and an economic life of 10 years. | |
| 3. | At the end of the lease term, both parties expect the machinery to have a residual value of $25,720. To protect against a large loss, Crane requests Blue to guarantee $18,040 of the residual value, which Irving agrees to do. | |
| 4. | The lease does not transfer ownership at the end of the lease term, does not have any bargain purchase options, and the asset is not of a specialized nature. | |
| 5. | The implicit rate is 5%, which is known by Blue. | |
| 6. |
Collectibility of the payments is probable. |
|
Evaluate the criteria for classification of the lease, and describe the nature of the lease. |
Prepare the journal entries for Blue for the year 2020.
|
Suppose Blue did not guarantee any amount of the expected residual value. Prepare the journal entries for Blue for the year 2020.
Suppose Blue did not guarantee any amount of the expected residual value. Prepare the journal entries for Crane for the year 2020.
In: Accounting
Indigo Tool Company’s December 31 year-end financial statements
contained the following errors.
|
December 31, 2020 |
December 31, 2021 |
|||
|---|---|---|---|---|
|
Ending inventory |
$10,300 understated | $7,300 overstated | ||
|
Depreciation expense |
$2,500 understated | — |
An insurance premium of $63,300 was prepaid in 2020 covering the
years 2020, 2021, and 2022. The entire amount was charged to
expense in 2020. In addition, on December 31, 2021, fully
depreciated machinery was sold for $14,800 cash, but the entry was
not recorded until 2022. There were no other errors during 2020 or
2021, and no corrections have been made for any of the errors.
(Ignore income tax considerations.)
(a) Compute the total effect of the errors on 2021
net income.
| Total effect of errors on net income | $Enter the total effect of errors on net income in dollars | understatedoverstated |
(b) Compute the total effect of the errors on the
amount of Indigo’s working capital at December 31, 2021.
| Total effect on working capital | $Enter the total effect on working capital in dollars | overstatedunderstated |
(c) Compute the total effect of the errors on the
balance of Indigo’s retained earnings at December 31,
2021.
| Total effect on retained earnings | $Enter the total effect on retained earnings in dollars | overstatedunderstated |
In: Accounting
2. (LESSEE ENTRIES FOR AN OPERATING LEASE).
Assume that Ace Leasing Company and King Company, a lessee, agreed to the lease shown below instead on the one shown in problem 1.
Commencement of Lease Date January 1, 2020
Annual lease payment due at the beginning of the year beginning with January 1, 2020 $137,171
Lease term 6 years
Economic life of leased equipment 10 years
Fair Value of asset at January 1, 2020 $950,000
Lessor’s Implicit Rate 12% Lessee’s incremental borrowing rate 12%
The asset will revert to the lessor at the end of the lease term. The lessee uses straight-line amortization for all leased equipment.
A. Is this an operating or financing lease to the Lessee? Explain.
B. Compute the Lease Liability to be recorded by the Lessee at inception of the lease and compute the ROU Asset to be recorded by the Lessee at inception. Based on those complete the two Lessee entries 1/1/2020.
C. Compute the yearly Lease Expense on King Company financial statements.
D. Compute the Interest Expense for the first two years.
E. Compute the ROU Asset Amortization for the first two years.
F. Prepare the remaining entries for December 31, 2020 (the end of the first year).
In: Accounting
Nash Company began operations on January 1, 2018, and uses the average-cost method of pricing inventory. Management is contemplating a change in inventory methods for 2021. The following information is available for the years 2018–2020. Net Income Computed Using Average-Cost Method FIFO Method LIFO Method
2018 $15,980 $19,140 $12,070
2019 18,090 21,090 14,040
2020 20,130 24,990 16,940
(a) Prepare the journal entry necessary to record a change from the average cost method to the FIFO method in 2021. Account Titles and Explanation Debit Credit Enter an account title Enter a debit amount Enter a credit amount Enter an account title Enter a debit amount Enter a credit amount
(b) Determine net income to be reported for 2018, 2019, and 2020, after giving effect to the change in accounting principle. Net Income 2018 $Enter a dollar amount 2019 $Enter a dollar amount 2020 $Enter a dollar amount
(c) Assume Nash Company used the LIFO method instead of the average cost method during the years 2018–2020. In 2021, Nash changed to the FIFO method. Prepare the journal entry necessary to record the change in principle.
In: Accounting
On January 1, 2018, Surreal Manufacturing issued 600 bonds, each with a face value of $1,000, a stated interest rate of 3 percent paid annually on December 31, and a maturity date of December 31, 2020. On the issue date, the market interest rate was 4 percent, so the total proceeds from the bond issue were $583,352. Surreal uses the simplified effective-interest bond amortization method and adjusts for any rounding errors when recording interest in the final year.
Required:
1. Prepare a bond amortization schedule
2-5. Prepare the journal entries to record the bond issue, the interest payments on December 31, 2018 and 2019, the interest and face value payment on December 31, 2020 and the bond retirement. Assume the bonds are retired on January 1, 2020, at a price of 101.
In: Accounting