TL Company bought a $1,000,000 bond at par which trades actively on January 1, 2018. This bond’s market value was $900,000 on December 31, 2018 when TL closed its books. The CFO however expected the bond to recover its value before it matured. TL’s 2018 income was $5,000,000 before any adjustments for changes in the market value of this bond. It sold the bond on February 1, 2019 for $1,200,000.

What value would TL show the bond on its Dec 31 balance sheet and what would its 2018 income be after including the change in the bond’s value under each of the following assumptions?

Assume TL bought the bond intending to sell it at a profit during the year.

            Net book value of the bond?____   

            Net income $____                 

Assume TL bought the bond intending to hold it to maturity but would be willing to sell it.

            Net book value of the bond?____     

            Net income $____                             

Assume TL bought the bond for its interest payments and decided to hold the bond until it matured.

            Net book value of the bond?____     

            Net income $____                             

How much gain on sale would TL report under each of the assumptions above?

1. $____      
2. $ ____      
3. $____

Herbert, Inc. acquired all of Rambis Company’s outstanding stock on January 1, 2017 for $ 574,000 in cash. Annual excess amortization of $ 12,000 results from this transaction. On the date of the takeover, Herbert reported retained earnings of $ 400,000, and Rambis reported a $ 200,000 balance. Herbert reported internal income of $ 40,000 in 2017 and $ 50,000 in 2018 and paid $ 10,000 in dividends each year. Rambis reported net income of $ 20,000 in 2017 and $ 30,000 in 2018 and paid $ 5,000 in dividends each year.

Assume that Herbert’s internal income figures above do not include any income from the subsidiary. The parent uses the equity method.

A. What is the amount reported as consolidated Retained Earnings on December 31, 2017?

B. What is the amount reported as consolidated Retained Earnings on December 31, 2018?

C. What is the Investment in Rambis account balance on Herbert’s books on January 1, 2017 when the parent uses the equity method?

D. What is the Investment in Rambis account balance on Herbert’s books on January 1, 2018 when the parent uses the equity method?

            SHOW YOUR WORK IN COMPUTING THE ABOVE

At year-end 2018, total assets for Arrington Inc. were $1.5 million and accounts payable were $430,000. Sales, which in 2018 were $2.50 million, are expected to increase by 25% in 2019. Total assets and accounts payable are proportional to sales, and that relationship will be maintained; that is, they will grow at the same rate as sales. Arrington typically uses no current liabilities other than accounts payable. Common stock amounted to $400,000 in 2018, and retained earnings were $415,000. Arrington plans to sell new common stock in the amount of $60,000. The firm's profit margin on sales is 5%; 40% of earnings will be retained.

1. What were Arrington's total liabilities in 2018? Write out your answer completely. For example, 25 million should be entered as 25,000,000. Round your answer to the nearest cent.
   $  
2. 
   
3. How much new long-term debt financing will be needed in 2019? (Hint: AFN - New stock = New long-term debt.) Write out your answer completely. For example, 25 million should be entered as 25,000,000. Do not round intermediate calculations. Round your answer to the nearest cent.
   $  

On June 15, 2018, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington, D.C., for $430 million. The expected completion date is April 1, 2020, just in time for the 2020 baseball season. Costs incurred and estimated costs to complete at year-end for the life of the contract are as follows ($ in millions):

Required:
1. Compute the revenue and gross profit will Sanderson report in its 2018, 2019, and 2020 income statements related to this contract assuming Sanderson recognizes revenue over time according to percentage of completion.
2. Compute the revenue and gross profit will Sanderson report in its 2018, 2019, and 2020 income statements related to this contract assuming this project does not qualify for revenue recognition over time.
3. Suppose the estimated costs to complete at the end of 2019 are $210 million instead of $140 million. Compute the amount of revenue and gross profit or loss to be recognized in 2019 using the percentage of completion method.

The shareholders’ equity section of the balance sheet of TNL Systems Inc. included the following accounts at December 31, 2017:

Required:
1. During 2018, TNL Systems reacquired shares of its common stock and later sold shares in two separate transactions. Prepare the entries for both the purchase and subsequent resale of the shares assuming the shares are (a) retired and (b) viewed as treasury stock.

On February 5, 2018, TNL Systems purchased 6 million shares at $11 per share.

On July 9, 2018, the corporation sold 2 million shares at $13 per share.

On November 14, 2020, the corporation sold 2 million shares at $8 per share.

2. Prepare the shareholders’ equity section of TNL Systems’ balance sheet at December 31, 2020, comparing the two approaches. Assume all net income earned in 2018–2020 was distributed to shareholders as cash dividends.

C&S Marketing (CSM) recently hired a new marketing director, Jeff Otos, for its downtown Minneapolis office. As part of the arrangement, CSM agreed on February 28, 2018, to advance Jeff $70,000 on a one-year, 8 percent note, with interest to be paid at maturity on February 28, 2019. CSM prepares financial statements on June 30 and December 31.

Prepare the journal entry CSM will make when the note is established, accrue interest on June 30 and December 31, and the interest and principal payments on February 28, 2019. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Do not round intermediate calculations. Round your final answers to whole dollar amount.)

1. Record the receipt of a note on February 28, 2018 for a $70,000 loan to an employee.

2. Record the interest accrued on the note as of June 30, 2018.

3. Record the interest accrued on the note as of December 31, 2018.

4. Record the receipt of the payment for interest for the period ending February 28, 2019.

5. Record the receipt of the payment for the principal on the note’s maturity date.

Metlock Company has the following investments as of December 31, 2017: Investments in common stock of Laser Company $1,500,000 Investment in debt securities of FourSquare Company $3,140,000 In both investments, the carrying value and the fair value of these two investments are the same at December 31, 2017. Metlock’s stock investments does not result in significant influence on the operations of Laser Company. Metlock’s debt investment is considered held-to-maturity. At December 31, 2018, the shares in Laser Company are valued at $1,010,000; the debt investment securities of FourSquare are valued at $2,410,000. Assume that these investments are considered impaired. a)Prepare the journal entries for these two securities at December 31, 2018, assuming that they are permanently impaired b)Assuming the fair value of the Laser shares is $1,500,000 and the value of its debt investment is $2,900,000, what entries, if any, should be recorded in 2019 related to impairment? c)Prepare the journal entries at December 31, 2018, assuming these securities are not permanently impaired. (Ignore interest revenue entries. d)Assume that the debt investment in FourSquare Company was available-for-sale and the expected credit loss was $820,000. Prepare the journal entry to record this impairment on December 31, 2018.
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On February 1, 2018, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,425,000. During 2018, costs of $2,170,000 were incurred, with estimated costs of $4,170,000 yet to be incurred. Billings of $2,704,000 were sent, and cash collected was $2,420,000.

In 2019, costs incurred were $2,704,000 with remaining costs estimated to be $3,855,000. 2019 billings were $2,954,000, and $2,645,000 cash was collected. The project was completed in 2020 after additional costs of $3,970,000 were incurred. The company’s fiscal year-end is December 31. This project does not qualify for revenue recognition over time.

Required:
1. Calculate the amount of revenue and gross profit or loss to be recognized in each of the three years.
2a. Prepare journal entries for 2018 to record the transactions described (credit "various accounts" for construction costs incurred).
2b. Prepare journal entries for 2019 to record the transactions described (credit "various accounts" for construction costs incurred).
3a. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2018.
3b. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2019.

On February 1, 2018, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,400,000. During 2018, costs of $2,160,000 were incurred, with estimated costs of $4,160,000 yet to be incurred. Billings of $2,692,000 were sent, and cash collected was $2,410,000. In 2019, costs incurred were $2,692,000 with remaining costs estimated to be $3,840,000. 2019 billings were $2,942,000, and $2,635,000 cash was collected. The project was completed in 2020 after additional costs of $3,960,000 were incurred. The company’s fiscal year-end is December 31. This project does not qualify for revenue recognition over time. Required: 1. Calculate the amount of revenue and gross profit or loss to be recognized in each of the three years. 2a. Prepare journal entries for 2018 to record the transactions described (credit "various accounts" for construction costs incurred). 2b. Prepare journal entries for 2019 to record the transactions described (credit "various accounts" for construction costs incurred). 3a. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2018. 3b. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2019.

On June 30, 2018, Georgia-Atlantic, Inc., leased warehouse equipment from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $779,224 over a three-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2018. Georgia-Atlantic’s incremental borrowing rate is 9%, the same rate IC used to calculate lease payment amounts. IC purchased the warehouse from Builders, Inc.. at a cost of $4.2 million. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required:

1. What pretax amounts related to the lease would IC report in its balance sheet at December 31, 2018?

2. What pretax amounts related to the lease would IC report in its income statement for the year ended December 31, 2018? (For all requirements, enter your answers in whole dollars and not in millions. Round your final answers to nearest whole dollar.)