Question 11
The following facts pertain to a non-cancelable lease agreement between Carla Vista Leasing Company and Tamarisk Company, a lessee.
| Commencement date | May 1, 2020 | ||
| Annual lease payment due at the beginning of | |||
| each year, beginning with May 1, 2020 | $15,138.16 | ||
| Bargain purchase option price at end of lease term | $4,000 | ||
| Lease term | 5 | years | |
| Economic life of leased equipment | 10 | years | |
| Lessor’s cost | $50,000 | ||
| Fair value of asset at May 1, 2020 | $68,000 | ||
| Lessor’s implicit rate | 8 | % | |
| Lessee’s incremental borrowing rate | 8 | % |
The collectibility of the lease payments by Carla Vista is
probable.
1. Discuss the nature of this lease to Tamarisk
a) operating b) finance c) sales type
2. Discuss the nature of this lease to Carla Vista.
a) operating b) finance c) sales type
3. Prepare the journal entries on the lessee’s books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2020 and 2021. Tamarisk’s annual accounting period ends on December 31. Reversing entries are used by Tamarisk. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 2 decimal places, e.g. 5,275.15. Record journal entries in the order presented in the problem.)
In: Accounting
In: Accounting
Splish Corp. has 150,240 shares of common stock outstanding. In 2020, the company reports income from continuing operations before income tax of $1,210,400. Additional transactions not considered in the $1,210,400 are as follows.
| 1. | In 2020, Splish Corp. sold equipment for $38,300. The machine had originally cost $83,600 and had accumulated depreciation of $31,900. The gain or loss is considered non-recurring. | |
| 2. | The company discontinued operations of one of its subsidiaries during the current year at a loss of $191,500 before taxes. Assume that this transaction meets the criteria for discontinued operations. The loss from operations of the discontinued subsidiary was $90,100 before taxes; the loss from disposal of the subsidiary was $101,400 before taxes. | |
| 3. | An internal audit discovered that amortization of intangible assets was understated by $38,400 (net of tax) in a prior period. The amount was charged against retained earnings. | |
| 4. | The company recorded a non-recurring gain of $125,400 on the condemnation of some of its property (included in the $1,210,400). |
Analyze the above information and prepare an income statement for
the year 2020, starting with income from continuing operations
before income tax. Compute earnings per share as it should be shown
on the face of the income statement. (Assume a total effective tax
rate of 19% on all items, unless otherwise indicated.)
(Round earnings per share to 2 decimal places, e.g.
1.47.)
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SPLISH CORP. |
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In: Accounting
Presented below is information that relates to Halifax Limited for 2020:
Accounts Payable 49,000
Accounts Receivable 78,000
Bond Payable 600,000
Cash dividends declared on common shares 34,000
Collections of credit sales $1,100,000
Cost of goods sold 1,100,000
Equipment 85,000
Gain from transactions in foreign currencies (pre-tax) 220,000
Inventory 120,000
Loss on sale of equipment 350,000
Loss from early debt repayment 340,000
Loss resulting from calculation error on depreciation charge in 2019 460,000
Other expenses 120,000
Other revenues 180,000
Proceeds from issue of Halifax common shares 60,000
Retained earnings, January 1, 2020 800,000
Sales 1,900,000
Selling and administrative expenses 290,000
Unrealized Gain FV-NI 20,000
Additional information to be included: On September 1, 2020, Halifax sold one of its segments (product line) to Best Industries for a gain (pre-tax) of $550,000. During the period January 1 to August 31, the discontinued segment incurred an operating loss (pre-tax) of $480,000. This loss is not included in any of the numbers shown above.
Instructions In good form, prepare a multiple-step income statement for 2020. Assume a 20% income tax rate and that 20,000 common shares were outstanding during the year. Include Earnings Per Share.
In: Accounting
Presented below is information that relates to Halifax Limited for 2020:
Accounts Payable ........................................................................................................ 49,000
Accounts Receivable .................................................................................................... 78,000
Bond Payable....................................................................................................... ..... 600,000
Cash dividends declared on common shares.................................................................... 34,000
Collections of credit sales....................................................................................... $1,100,000
Cost of goods sold.................................................................................................... 1,100,000
Equipment ................................................................................................................... 85,000
Gain from transactions in foreign currencies (pre-tax)................................................... 220,000
Inventory.................................................................................................................... 120,000
Loss on sale of equipment .......................................................................................... 350,000
Loss from early debt repayment .................................................................................. 340,000
Loss resulting from calculation error on depreciation charge in 2019.............................. 460,000
Other expenses........................................................................................................... 120,000
Other revenues............................................................................................................ 180,000
Proceeds from issue of Halifax common shares............................................................... 60,000
Retained earnings, January 1, 2020.............................................................................. 800,000
Sales........................................................................................................................ 1,900,000
Selling and administrative expenses............................................................................. 290,000
Unrealized Gain FV-NI ........................................................................................ 20,000
Additional information to be included:
On September 1, 2020, Halifax sold one of its segments (product line) to Best Industries for a gain (pre-tax) of $550,000. During the period January 1 to August 31, the discontinued segment incurred an operating loss (pre-tax) of $480,000. This loss is not included in any of the numbers shown above.
Instructions
In good form, prepare a multiple-step income statement for 2020. Assume a 20% income tax rate and that 20,000 common shares were outstanding during the year. Include Earnings Per Share.
In: Accounting
Presented below is information that relates to Halifax Limited for 2020:
Accounts Payable ........................................................................................................ 49,000
Accounts Receivable .................................................................................................... 78,000
Bond Payable....................................................................................................... ..... 600,000
Cash dividends declared on common shares.................................................................... 34,000
Collections of credit sales....................................................................................... $1,100,000
Cost of goods sold.................................................................................................... 1,100,000
Equipment ................................................................................................................... 85,000
Gain from transactions in foreign currencies (pre-tax)................................................... 220,000
Inventory.................................................................................................................... 120,000
Loss on sale of equipment .......................................................................................... 350,000
Loss from early debt repayment .................................................................................. 340,000
Loss resulting from calculation error on depreciation charge in 2019.............................. 460,000
Other expenses........................................................................................................... 120,000
Other revenues............................................................................................................ 180,000
Proceeds from issue of Halifax common shares............................................................... 60,000
Retained earnings, January 1, 2020.............................................................................. 800,000
Sales........................................................................................................................ 1,900,000
Selling and administrative expenses............................................................................. 290,000
Unrealized Gain FV-NI ........................................................................................ 20,000
Additional information to be included:
On September 1, 2020, Halifax sold one of its segments (product line) to Best Industries for a gain (pre-tax) of $550,000. During the period January 1 to August 31, the discontinued segment incurred an operating loss (pre-tax) of $480,000. This loss is not included in any of the numbers shown above.
Instructions
In good form, prepare a multiple-step income statement for 2020. Assume a 20% income tax rate and that 20,000 common shares were outstanding during the year. Include Earnings Per Share.
In: Accounting
Matthews Co. acquired all of the common stock of Jackson Co. on January 1, 2020. As of that date, Jackson had the following trial balance:
| Debit | Credit | ||||
| Accounts payable | $ | 60,000 | |||
| Accounts receivable | $ | 50,000 | |||
| Additional paid-in capital | 60,000 | ||||
| Buildings (net) (20-year life) | 140,000 | ||||
| Cash and short-term investments | 70,000 | ||||
| Common stock | 300,000 | ||||
| Equipment (net) (8-year life) | 240,000 | ||||
| Intangible assets (indefinite life) | 110,000 | ||||
| Land | 90,000 | ||||
| Long-term liabilities (mature 12/31/22) | 180,000 | ||||
| Retained earnings, 1/1/20 | 120,000 | ||||
| Supplies | 20,000 | ||||
| Totals | $ | 720,000 | $ | 720,000 | |
During 2020, Jackson reported net income of $96,000 while paying dividends of $12,000. During 2021, Jackson reported net income of $132,000 while paying dividends of $36,000. Assume that Matthews Co. acquired the common stock of Jackson Co. for $588,000 in cash. As of January 1, 2020, Jackson's land had a fair value of $102,000, its buildings were valued at $188,000, and its equipment was appraised at $216,000. Any excess of consideration transferred over fair value of assets and liabilities acquired is due to an unamortized patent to be amortized over 10 years.
Matthews decided to use the equity method for this investment.
Required:
Using Excel
(A.) Prepare consolidation worksheet entries for December 31, 2020.
(B.) Prepare consolidation worksheet entries for December 31, 2021.
In: Accounting
Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Sheridan Company. The following information relates to this agreement.
1. The term of the non-cancelable lease is 3 years with no renewal option. The equipment has an estimated economic life of 5 years.
2. The fair value of the asset at January 1, 2020, is $77,000.
3. The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $9,000, none of which is guaranteed.
4. The agreement requires equal annual rental payments of $23,907.43 to the lessor, beginning on January 1, 2020.
5. The lessee’s incremental borrowing rate is 5%. The lessor’s implicit rate is 4% and is unknown to the lessee.
6. Sheridan uses the straight-line depreciation method for all equipment.
Prepare all of the journal entries for the lessee for 2020 to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee’s annual accounting period ends on December 31. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round answers to 2 decimal places, e.g. 5,265.25. Credit account titles are automatically indented when the amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.)
Date Account Titles and Explanation Debit Credit enter an account title
(to record the lease)
(to record lease liability)
(to record expenses)
In: Accounting
| Sofie Company buys stock in Nut Corporation in cash on January 1, 2020, and reports the investment as having no significant influence. | |||||||||
| The percentage of investment | 15% | Amount paid | $6,000,000 | ||||||
| On January 1, 2022 Sofie Company makes the following additional investment in Nut Corporation and changes to the equity method of reporting for this investment: | |||||||||
| The additional percentage of investment | 25% | Additional amount paid | $15,000,000 | ||||||
| December 31, 2020 | December 31, 2021 | ||||||||
| Fair value of the 15% investment is as follows: | $6,200,000 | $6,450,000 | |||||||
| Nut Corporation reported the following amounts for the years: | |||||||||
| 2020 | 2021 | 2022 | |||||||
| Net Income | $150,000 | $200,000 | $250,000 | ||||||
| Cash dividends (Paid at year-end) | $50,000 | $80,000 | $100,000 | ||||||
| Additional information: Nut Corporation reported no comprehensive income and any basis difference is attributed to goodwill. | |||||||||
| Required: You should use cell references in providing a number or preparing a calculations by referencing the data above. Prepare you answer in the solution area provided. | |||||||||
| A. Prepare all the journal entries that Sofie Company would record for the investment in Nut Corporation for 2020, 2021, and 2022. Journal entries should be set up in good form. | |||||||||
| You need to provide dates, use appropriate account titles, and include an explanation below each journal entry. | |||||||||
| B. Develop a table showing the calculation of what the amount Sofie Corporation will report on the balance sheet for the investment in Nut Corporation on December 31, 2022. | |||||||||
| Solution: | |||||||||
In: Accounting
On January 1, 2020, Parent Company purchased 80% of the common stock of Subsidiary Company for $320,000.
The following trial balances of the two companies are prepared on December 31, 2020.
|
Parent |
Subsidiary |
|
|
Investment in Sub |
352,000 |
|
|
Current Assets |
132,000 |
180,000 |
|
Inventory |
60,000 |
40,000 |
|
Equipment |
350,000 |
300,000 |
|
Accumulated Depreciation |
(120,000) |
(50,000) |
|
Goodwill |
||
|
Bond Payable |
(134,000) |
(80,000) |
|
CS-Par |
(100,000) |
|
|
PIC-Par |
(200,000) |
|
|
RE-Par |
(200,000) |
|
|
CS-Sub |
(40,000) |
|
|
PIC-Sub |
(120,000) |
|
|
RE-Sub |
(190,000) |
|
|
Sales |
(550,000) |
(400,000) |
|
Expense |
450,000 |
350,000 |
|
Depreciation Expense |
||
|
Sub Income |
(40,000) |
|
|
Dividend Declared - Sub |
10,000 |
|
|
Totals |
0 |
0 |
Required:
d. Prepare the consolidated worksheet.
e. Prepare the 2020 consolidated income statement and balance sheet.
In: Accounting