Prepare journal entries for each of the transactions and adjustments

Chapati Company started business on January 1, 2016. Some of the events that occurred in its first year of operations follow:

1.An insurance policy was purchased on February 28 for $1,800.

2.During the year, inventory costing $140,000 was purchased, all on account.

3.Sales to customers totalled $200,000. Of these, $40,000 were cash sales.

4.Payments to suppliers for inventory that had been purchased earlier totalled $110,000.

5.Collections from customers on account during the year totalled $140,000.

6.Customers paid $25,000 in advance payments for goods that will be delivered later.

7.Equipment that cost $140,000 was purchased on October 1 for $40,000 cash plus a two-year, 10% note with a principal amount of $100,000.

8.Wages totalling $44,000 were paid to employees during the year.

9.The board of directors declared dividends of $12,000 in December 2016, to be paid in January 2017.

10.A year-end review revealed that the insurance policy (in item 1) was for one year of coverage that began on March 1, 2016.

11.The equipment that was purchased (in item 7) on October 1, 2016, is to be depreciated using the straight-line method, with an estimated useful life of 10 years and an estimated residual value of $20,000.

12.No interest was paid on the note during the year.

13.A physical count at year end revealed $20,000 of unsold inventory still on hand.

14.It was determined that 80% of the goods that were paid for in advance (in item 6) had been delivered to the customers by the end of the year.

15.In addition to the wages that were paid during the year, wages of $4,000 remained unpaid at the end of the year.

In 2015, Slim Drug Company began to notice problems with its obesity drug. The company stopped selling the drug near the end of 2015. In the last six months of 2016, the company was sued by 1,000 people who had an allergic reaction to the company's obesity drug. At the end of 2016, the company's attorneys believe there is a 60% chance the company will need to make payments in the range of $1,000 to $5,000 to settle each claim. At the end of 2017, while none of the cases have been resolved, the company's attorneys now believe there is an 80% chance the company will need to make payments in the range of $2,000 to $7,000 to settle each claim. In 2018, 400 claims were settled at a total cost of $1.2 million. Based on this experience, the company believes 30% of the remaining cases will be settled for $3,000 each, 50% will be settled for $5,000 and 20% will be settled for $10,000 each.

Using IFRS what journal entries would be required in 2016?

a. There would be no entry since no claims had be made

b. There would be a debit to prepaid legal provision expense and a credit to legal provision for claims of $3,000,000.

c. There would be a debit to litigation expense and a credit to legal provision for claims of $3,000,000

d. There would be recorded as a long-term liability as the claim is possible.

Using U.S. GAAP what journal entries would be required in 2016?

a. There would be a debit to accrued legal provision expenseand a credit to legal provision for claims of $3,000,000.

b. There would be no entry since no claims had be made

c. There would be a debit to litigation expense and a credit to legal provision for claims of $2,000,000

d. There would be recorded as a long-term liability as the claim is possible.

Estimating Share Value Using the DCF Model
Following are forecasts of Target Corporation's sales, net operating profit after tax (NOPAT), and net operating assets (NOA) as of January 30, 2016

Answer the following requirements assuming a terminal period growth rate of 1%, a discount rate (WACC) of 6%, common shares outstanding of 602 million, and net nonoperating obligations (NNO) of $8,488 million.

a. Estimate the value of a share of Target common stock using the discounted cash flow (DCF) model as of January    30, 2016.

Instructions:

• Round all answers to the nearest whole number, except for discount factors and stock price per share.

• Round discount factors to 5 decimal places.
• Round stock price per share to two decimal places.
• Do not use negative signs with any of your answers.

Problem 11-4A Warranty expense and liability estimation LO P4

[The following information applies to the questions displayed below.]

On October 29, 2016, Lobo Co. began operations by purchasing razors for resale. Lobo uses the perpetual inventory method. The razors have a 90-day warranty that requires the company to replace any nonworking razor. When a razor is returned, the company discards it and mails a new one from Merchandise Inventory to the customer. The company's cost per new razor is $15 and its retail selling price is $60 in both 2016 and 2017. The manufacturer has advised the company to expect warranty costs to equal 5% of dollar sales. The following transactions and events occurred.

2016

2017

3. How much warranty expense is reported for January 2017?
  

4. What is the balance of the Estimated Warranty Liability account as of December 31, 2016?

5. What is the balance of the Estimated Warranty Liability account as of January 31, 2017?

Problem 1:

Kingdom Leasing Inc. agrees to lease jousting equipment to Knight Inc. on Jan 1, 2016. They agree on the following terms: 1) The normal selling price of the jousting equipment is $410000 and the cost of the asset to Kingdom Leasing Inc. was $250000. 2) Knight will pay all maintenance, insurance, and tax costs directly and annual payments of $60000 on Jan 1 each year. 3) The lease begins on Jan 1, 2016 and payments will be in equal annual installments. 4) The lease is noncancelable with no renewal option. The lease term is 10 years (the same as the estimated economic life). 5) At the end of the lease, the jousting ring will revert to Kingdom Leasing Inc. and have an unguaranteed residual value of $30000. Their implicit interest rate is 10%. 6) Kingdom Leasing, Inc. incurred costs of $6500 in negotiating and closing the lease. There are no uncertainties regarding additional costs yet to be incurred and the collectability of the lease payments is reasonably predictable. Required: a) Determine what type of lease this would be for Kingdom Leasing Inc. and calculate the following: (Show all work.) Lease Receivable Sales Price Cost of Sales b) Prepare Kingdom's amortization schedule for the lease terms. c) Prepare all the journal entries for Kingdom for 2016. Assume a calendar year fiscal year.

  Problem 2:

Use the data given in Problem #1 and answer the required questions to record the lease in the Knight Inc.’s books. Required: a) Determine what type of lease this would be for the lessee and calculate the initial obligation. b) Prepare Knight Inc.'s amortization schedule for the lease terms. c) Prepare all the journal entries for Knight Inc. for 2016. Assume a calendar year fiscal year.

Capital Expenditures, Depreciation, and Disposal

Merton Company purchased a building on January 1, 2015, at a cost of $367,000. Merton estimated that its life would be 25 years and its residual value would be $11,000.

On January 1, 2016, the company made several expenditures related to the building. The entire building was painted and floors were refinished at a cost of $19,000. A federal agency required Merton to install additional pollution control devices in the building at a cost of $48,000. With the new devices, Merton believed it was possible to extend the life of the building by six years.

In 2017, Merton altered its corporate strategy dramatically. The company sold the building on April 1, 2017, for $396,000 in cash and relocated all operations to another state.

Required:

1. Determine the depreciation that should be on the income statement for 2015 and 2016.
Indicate the effect on financial statement items by selecting "–" for decrease (or negative effect), "+" for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement.

2. Explain why the cost of the pollution control equipment was not expensed in 2016.

1. The asset was capitalized because it provided a current year tax advantage.
2. Since the pollution control equipment has an unknown life, the asset was capitalized.
3. Since the pollution control equipment extended the life of the asset, the asset was capitalized.
4. Extending the life of the asset makes no difference on whether to expense or capitalize, so the company chose to capitalize it for lower taxes in the current year.

3. What amount of gain or loss did Merton record when it sold the building? Do not round intermediate calculations.

What amount of gain or loss would have been reported if the pollution control equipment had been expensed in 2016?

The Stockholders’ Equity section of the Balance Sheet of Carpenter Corporation on December 31, 2015, showed Cumulative Preferred 9% Stock, $45 par (1,303 shares authorized, 550 shares issued); Common Stock, $23 par (28,910 shares authorized, 14,910 shares issued); and Retained Earnings of $1,074. The Notes to the Financial Statements in the Annual Corporate Report for 2015 indicate that the market values of the stock are $40 per share (Cumulative Preferred) and $17 per share (Common). Forecasts in the Annual Report also indicate that investments in future growth in 2016 are expected to result in sustained increased profits. In consideration of these matters, the Board of Directors has secured approval from the Securities and Exchange Commission for a bond issuance. The Board of Directors has also decided to forego paying dividends in 2015, and to repurchase shares of the corporation’s common stock at par, with a view to reselling the stock when market rates rise with increased profitability. On January 2, 2016, $213,463 in 10 year, 7% bonds with a market interest rate of 9%, and interest payable semiannually, were issued for $188,430. On January 3, the corporation purchased 2,002 shares of its common stock at par. Profits soared during 2016, and on May 1, the corporation resold 1,517 shares of treasury stock, at $8 above par. On June 30, bond interest was paid. On December 31, the corporation showed an after tax Net Income of $53,800. On December 31, bond interest was paid; and dividends were declared and paid. Common shareholders received $2.33 per share. What is the Earnings per Share on December 31, 2016?

Rapid Delivery, Inc., is considering the purchase of an additional delivery vehicle for $24,000 on January 1, 2016. The truck is expected to have a five-year life with an expected residual value of $6,000 at the end of five years. The expected additional revenues from the added delivery capacity are anticipated to be $51,000 per year for each of the next five years. A driver will cost $37,000 in 2016, with an expected annual salary increase of $3,000 for each year thereafter. The annual operating costs for the truck are estimated to be $2,000 per year.