Adams, Inc., acquires Clay Corporation on January 1, 2017, in exchange for $510,000 cash. Immediately after the acquisition, the two companies have the following account balances. Clay’s equipment (with a five-year remaining life) is actually worth $440,000. Credit balances are indicated by parentheses. Adams Clay Current assets $ 300,000 $ 220,000 Investment in Clay 510,000 0 Equipment 600,000 390,000 Liabilities (200,000) (160,000) Common stock (350,000) (150,000) Retained earnings, 1/1/17 (860,000) (300,000) In 2017, Clay earns a net income of $55,000 and declares and pays a $5,000 cash dividend. In 2017, Adams reports net income from its own operations (exclusive of any income from Clay) of $125,000 and declares no dividends. At the end of 2018, selected account balances for the two companies are as follows: Adams Clay Revenues $ (400,000 ) $ (240,000 ) Expenses 290,000 180,000 Investment income Not given 0 Retained earnings, 1/1/18 Not given (350,000 ) Dividends declared 0 8,000 Common stock (350,000 ) (150,000 ) Current assets 580,000 262,000 Investment in Clay Not given 0 Equipment 520,000 420,000 Liabilities (152,000 ) (130,000 ) What are the December 31, 2018, Investment Income and Investment in Clay account balances assuming Adams uses the: Equity method. Initial value method. How does the parent’s internal investment accounting method choice affect the amount reported for expenses in its December 31, 2018, consolidated income statement? How does the parent’s internal investment accounting method choice affect the amount reported for equipment in its December 31, 2018, consolidated balance sheet? What is Adams’s January 1, 2018, Retained Earnings account balance assuming Adams accounts for its investment in Clay using the: Equity value method. Initial value method. What worksheet adjustment to Adams’s January 1, 2018, Retained Earnings account balance is required if Adams accounts for its investment in Clay using the initial value method? Prepare the worksheet entry to eliminate Clay’s stockholders’ equity. What is consolidated net income for 2018?

Q3. Jamil Berhad prepares financial statements for the year ended 31 December 2018. The financial statements are expected to be authorised for issue on 20 April 2019. The following events have taken place:

(i) A health and safety investigation of an incident which occurred in 2018 was concluded in February 2019, resulting in RM2.5 million fine for Jamil Berhad. A provision for RM0.5 million had been recognised in Jamil Berhad’s financial statements for the year ended 31 December 2018.

(ii) Jamil Berhad’s professional fees for the year ended 31 December 2018 are still under negotiation. Jamil Berhad paid RM15,000 for audit fees and RM1,200 for secretarial fees in the preceding years.

(iii) During the year 2018, the company unintentionally released poisonous gases into the atmosphere which resulted in serious complaints from local residents. Some have claimed become very ill. A law firm representing the affected residents has submitted a compensation claim to Jamil for pain and suffering of between RM100,000 to RM500,000 for each affected resident. There were in total of 16 residents reported being affected by this poisonous gas. The court hearing is scheduled on May 2019. The company does not believe that they will be required to make any payments to claimants, as this was an accident and noone has been seriously harmed as a result.

(iv) The accountant notes that an electricity invoice for the last six months' usage has not been received.

(v) Inventory reported on the statement of financial position includes goods costing RM30,000 that were shop soiled and could only be sold for RM21,000 after reconditioning them at a cost of RM3,000. This was detected on 31 December 2018.

(vi) An outstanding court case at 31 December 2018 relating to faulty goods supplied by Jamil Berhad. Legal advice states that there is a small chance that they will have to pay out RM4 million, but the most likely outcome is believed to be a payout of RM6 million. Either way, Jamil Berhad will have to pay legal fees amounting RM0.1 million. Jamil Berhad believes the fault lies with the supplier, and is pursuing a counter-claim. Legal advice states that it is possible, but not likely, that this action will succeed. Required: Explain the most correct approach of accounting treatments for all the above. Your answer shall make reference to relevant MFRS Standards.

1/ On January 1, 2018, Badger Inc. adopted the dollar-value LIFO method. The inventory cost on this date was $100,300. The ending inventory, valued at year-end costs, and the relative cost index for each of the next three years is below:

In determining the inventory balance should Badger report in its 12/31/2019 balance sheet:

Multiple Choice

• An additional layer of $23,330 is added to the 1/1/2019 balance.

• An additional layer of $22,330 is added to the 1/1/2019 balance.

• An additional layer of $11,330 is added to the 1/1/2019 balance.

• None of these answer choices are correct.

2/ Northwest Fur Co. started 2018 with $104,000 of merchandise inventory on hand. During 2018, $590,000 in merchandise was purchased on account with credit terms of 3/15, n/45. All discounts were taken. Purchases were all made f.o.b. shipping point. Northwest paid freight charges of $7,900. Merchandise with an invoice amount of $3,300 was returned for credit. Cost of goods sold for the year was $372,000. Northwest uses a perpetual inventory system.

Assuming Northwest uses the gross method to record purchases, what is the cost of goods available for sale?

Multiple Choice

• $680,999.

• $680,900.

• $703,800.

• $698,600

3/ Fulbright Corp. uses the periodic inventory system. During its first year of operations, Fulbright made the following purchases (listed in chronological order of acquisition):

• 42 units at $97
• 72 units at $76
• 171 units at $53

Sales for the year totaled 269 units, leaving 16 units on hand at the end of the year.

Ending inventory using the LIFO method is:

Multiple Choice

• $1,552.

• $898.

• $1,045.

• $848.

4/ Linguini Inc. adopted dollar-value LIFO (DVL) as of January 1, 2018, when it had an inventory of $862,000. Its inventory as of December 31, 2018, was $897,000 at year-end costs and the cost index was 1.15. What was DVL inventory on December 31, 2018?

Multiple Choice

• 780,000.

• 862,000.

• 897,000.

• 991,300.

The net changes in the balance sheet accounts of Eusey, Inc. for the year 2018 are shown below:

Prepare a statement of cash flows (indirect method). Ignore tax effects. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Blue Corporation is preparing the comparative financial statements for the annual report to its shareholders for fiscal years ended May 31, 2017, and May 31, 2018. The income from operations for the fiscal year ended May 31, 2017, was $1,791,000 and income from continuing operations for the fiscal year ended May 31, 2018, was $2,378,000. In both years, the company incurred a 10% interest expense on $2,345,000 of debt, an obligation that requires interest-only payments for 5 years. The company experienced a loss from discontinued operations of $594,000 on February 2018. The company uses a 40% effective tax rate for income taxes. The capital structure of Blue Corporation on June 1, 2016, consisted of 973,000 shares of common stock outstanding and 19,800 shares of $50 par value, 6%, cumulative preferred stock. There were no preferred dividends in arrears, and the company had not issued any convertible securities, options, or warrants. On October 1, 2016, Blue sold an additional 494,000 shares of the common stock at $20 per share. Blue distributed a 20% stock dividend on the common shares outstanding on January 1, 2017. On December 1, 2017, Blue was able to sell an additional 805,000 shares of the common stock at $22 per share. These were the only common stock transactions that occurred during the two fiscal years. Identify whether the capital structure at Blue Corporation is a simple or complex capital structure. Determine the weighted-average number of shares that Blue Corporation would use in calculating earnings per share for the fiscal year ended: Weighted-average number of shares (1) May 31, 2017 (2) May 31, 2018 Prepare, in good form, a comparative income statement, beginning with income from operations, for Blue Corporation for the fiscal years ended May 31, 2017, and May 31, 2018. This statement will be included in Blue’s annual report and should display the appropriate earnings per share presentations. (Round earnings per share to 2 decimal places, e.g. $1.55.) BLUE CORPORATION Comparative Income Statement For Fiscal Years Ended May 31, 2017 and 2018 2017 2018 $ $ $ $ Earnings per share: $ $ $ $

Problem 10-5A Computing and revising depreciation; selling plant assets LO C2, P1, P2

Yoshi Company completed the following transactions and events involving its delivery trucks.

2016

2017

2018

Required:

1-a. Calculate depreciation for year 2017.
1-b. Calculate book value and gain (loss) for sale of Truck on December, 2018.
1-c. Prepare journal entries to record these transactions and events.

Required 1A

Required 1B

Required 1C

Calculate depreciation for year 2017.

Required 1B

Required 1C

Calculate book value and gain (loss) for sale of Truck on December, 2018.

Journal entry worksheet

Record the year-end adjusting entry for the depreciation expense of the delivery truck.

Journal entry worksheet

Record the year-end adjusting entry for the depreciation expense of the delivery truck.

Journal entry worksheet

Record the sale of the delivery truck for $5,500 cash.

Pitino acquired 90 percent of Brey's outstanding shares on January 1, 2016, in exchange for $405,000 in cash. The subsidiary's stockholders' equity accounts totaled $389,000 and the noncontrolling interest had a fair value of $45,000 on that day. However, a building (with a nine-year remaining life) in Brey's accounting records was undervalued by $27,000. Pitino assigned the rest of the excess fair value over book value to Brey's patented technology (four-year remaining life).

Brey reported net income from its own operations of $71,000 in 2016 and $87,000 in 2017. Brey declared dividends of $22,500 in 2016 and $26,500 in 2017.

At December 31, 2018, Pitino owes Brey $23,000 for inventory acquired during the period.

The following separate account balances are for these two companies for December 31, 2018, and the year then ended.

Note: Parentheses indicate a credit balance.

1. What amounts make up the $85,320 Equity Earnings of Brey account balance for 2018?

2. What is the net income attributable to the noncontrolling interest for 2018?

3. What amounts make up the $528,300 Investment in Brey account balance as of December 31, 2018?

4. Prepare the 2018 worksheet entry to eliminate the subsidiary’s beginning owners’ equity balances.

5. Without preparing a worksheet or consolidation entries, determine the consolidation balances for these two companies.

Devon Bishop, age 45, is single. He lives at 1507 Rose Lane, Albuquerque, NM 87131. His Social Security number is 111-11-1112. Devon does not want $3 to go to the Presidential Election Campaign Fund.

Devon's wife, Ariane, passed away in 2014. Devon's son, Tom, who is age 18, resides with Devon. Tom's Social Security number is 123-45-6788.

Devon owns a sole proprietorship for which he uses the accrual method of accounting and maintains no inventory. His revenues and expenses for 2018 are as follows:

*New office equipment ($21,000); Devon uses the immediate expense election.

** $18,000 for employees and $8,000 for Devon.

Other income received by Devon includes the following:

During the year, Devon and his sole proprietorship had the following property transactions:

1. Sold Blue, Inc. stock for $45,000 on March 12, 2018. He had purchased the stock on September 5, 2015, for $50,000.
2. Received an inheritance of $300,000 from his uncle, Henry. Devon used $200,000 to purchase Green, Inc. stock on May 15, 2018, and invested $100,000 in Gold, Inc. stock on May 30, 2018.
3. Received Orange, Inc. stock worth $9,500 as a gift from his aunt, Jane, on June 17, 2018. Her adjusted basis for the stock was $5,000. No gift taxes were paid on the transfer. Jane had purchased the stock on April 1, 2012. Devon sold the stock on July 1, 2018, for $22,000.
4. On July 15, 2018, Devon sold one-half of the Green, Inc. stock for $40,000.
5. Devon was notified on August 1, 2018, that Yellow, Inc. stock he purchased from a colleague on September 1, 2017, for $52,500 had become worthless. While he perceived that the investment was risky, he did not anticipate that the corporation would declare bankruptcy.
6. On August 15, 2018, Devon received a parcel of land in Phoenix worth $220,000 in exchange for a parcel of land he owned in Tucson. Because the Tucson parcel was worth $245,000, he also received $25,000 cash. Devon's adjusted basis for the Tucson parcel was $210,000. He originally purchased it on September 18, 2015.
7. On December 1, 2018, Devon sold the condominium in which he had been living for the past 20 years (1844 Lighthouse Lane, Albuquerque, NM 87131) and moved into a rented townhouse. The sales price was $480,000, selling expenses were $28,500, and repair expenses related to the sale were $9,400. Devon purchased the condominium for $180,000.

Devon's potential itemized deductions, exclusive of the aforementioned information, are as follows:

During the year, Devon makes estimated Federal income tax payments of $35,000.

Required:

Compute Devon's lowest net tax payable or refund due for 2018 by providing the information requested for Forms 1040, 4562, 8824, and 8949 as well as Schedules A, B, D, SE. Assume that he makes any available elections that will reduce the tax.

Q.2 (Max Marks:90)
Bombera Ltd operates at capacity and makes glass-topped dining tables and wooden chairs, which are then typically sold as sets of four chairs with one table. However, some customers purchase replacement or extra chairs, and others buy some chairs or a table only, so the sales mix is not exactly 4:1. Bombera Ltd is planning its annual budget for the financial year 2018. Information for 2018 follows:

Input prices   Direct materials Wood $5.30 per board metre Glass $11.5 per sheet Direct manufacturing labour $14 per direct manufacturing labour-hour

Input quantities per unit of output


Chairs Tables    Direct materials   Wood 1.2 board metres 1.7 board metres Glass — 2 sheets Direct manufacturing labour 3 hours 6 hours Machine-hours (MH) 2 MH 5 MH

Inventory information, direct materials


Wood Glass    Beginning inventory 27 200 board metres 8 700 sheets Target ending inventory 29 360 board metres 9 500 sheets   

ACT501 Semester 2, 2018 Page 4

Sales and inventory information, finished goods

Chairs Tables    Expected sales in units 172 000 45 000 Selling price $70 $900 Target ending inventory in units 8 400 2 050 Beginning inventory in units 7 500 2 150    Chairs are manufactured in batches of 500 and tables are manufactured in batches of 50. It takes three hours to set up for a batch of chairs and two hours to set up for a batch of tables. Bombera Ltd uses activity-based costing and has classified all overhead costs as shown in the table below:

Cost type
Budgeted variable
Budgeted fixed Cost driver/allocation base Manufacturing:    Materials handling $342 840 $600 000 Number of board metres used Set-up 97 000 300 740 Set-up hours Processing 789 250 5 900 000 Machine-hours Nonmanufacturing:    Marketing 2 011 200 4 500 000 Sales revenue Distribution 54 000 380 000 Number of deliveries

Delivery trucks transport units sold in delivery sizes of 500 chairs or 500 tables.
Required For the year 2018:


5. Prepare the direct materials usage budget and the direct materials purchases budget. 6. Use the direct materials usage budget to find the budgeted allocation rate for materials-handling costs. (2.5 marks) 7. Prepare the direct manufacturing labour cost budget. (1.5 marks) 8. Prepare the manufacturing overhead cost budget for materials handling, set-up and processing. (1.5 marks) 9. Prepare the budgeted unit cost of finished good (16.5 marks) and ending inventories budget. (4.5 marks) 10. Prepare the cost of goods sold budget. 11. Prepare the non-manufacturing overhead costs budget for marketing and distribution. (1 mark) 12. Prepare a budgeted income statement (ignore income taxes). 13. Compare the budgeted unit cost of a chair to its budgeted selling price. Why might Bombera Ltd continue to sell the chairs for only $70?