Given below are the Statements of Financial Position and the Statement of Profit or Loss for BA107 Trading Bhd:

2020

(RM)

Sales 505,000

Cost of sales (105,000)

Gross profit 400,000   

Expenses   (252,000)

Profit before tax 148,000

Taxation (40,000)

Profit after tax   108,000

2020 2019

(RM) (RM)

Property, plant and equipment 355,000 300,000

Trade receivables 80,000 75,000

Inventory 145,000 120,000

Bank balance   24,500      15,000

604,500    510,000

Ordinary share capital 250,000 250,000

Retained profits 222,500    140,000

472,500 390,000

Other payables 87,000 90,000

Trade payable 45,000      30,000

604,500    510,000

Additional information:

(a) Dividend paid by the Company was RM25,500.

(b) The dividend declared have all been paid. Included in other payables of 2020 is an amount of current tax payable of RM20,000.

  
(c) Depreciation was RM32,000 and a non-current asset with carrying amount of RM12,500 was disposed of for a cash consideration of RM40,500 during the year. The depreciation and gain on disposal of property, plant and equipment are included in “Expenses”.

Required:

Prepare the Statement of Cash Flows for the year ended 31 December 2020 by using the direct and indirect methods.

Zekany Corporation would have had identical income before taxes on both its income tax returns and income statements for the years 2018 through 2021 except for differences in depreciation on an operational asset. The asset cost $280,000 and is depreciated for income tax purposes in the following amounts:

2018 $ 92,400

2019 123,200

2020 42,000

2021 22,400

The operational asset has a four-year life and no residual value. The straight-line method is used for financial reporting purposes. Income amounts before depreciation expense and income taxes for each of the four years were as follows. 2018 2019 2020 2021 Accounting income before taxes and depreciation $ 150,000 $ 170,000 $ 160,000 $ 160,000 Assume the average and marginal income tax rate for 2018 and 2019 was 30%; however, during 2019 tax legislation was passed to raise the tax rate to 40% beginning in 2020. The 40% rate remained in effect through the years 2020 and 2021. Both the accounting and income tax periods end December 31. Required: Prepare the journal entries to record income taxes for the years 2018 through 2021.

Notes for Journal Entries:

1) Kuechly uses periodic inventory system and LIFO

2) All credit sales discounts are recorded using the net method – customers receive a 3 percent discount if they pay within 30 days.

3) Purchase discounts are recorded using the net method

4) All depreciation is straight line.

5) 2020 is first year of operation.

June 30 2020 -  Purchased land and a building.  A $200,000 cash down payment was required and a $800,000 note was accepted by the seller for the balance (12 percent interest payable each year on June 30). The fair value of the land at the date of purchase was deemed to be 300,000 and the fair value of the building was 900,000. The building has an estimated residual value of $0 and a useful life of 30 years.

October 1 2020 - Purchased equipment for in exchange for a $30,000 non-interest bearing note due in one year. The equipment has an estimated residual value of $2,000 and a useful life of 8 years. Note: Assume an effective interest rate of 8 percent.

What Adjusting Journal Entries should be made at 12/31/2020

Company Epsilon has two retail divisions, retail division #1 and retail division #2, which reported the following results for the year end of 2019. The required rate of return set for the retail divisions is 10%.

If no investment in made for 2020, both retail divisions are expected to maintain the same net operating income and average operating assets as of 2019. However, there is an opportunity in 2020 for Company Epsilon to invest in one of the two retail division. The investment would be of $15,000,000 and would generate additional net operating income of $2,400,000 per year.

Required:

1. Which division had the higher return on investment (ROI) in 2019 and why?

2. Which division had the higher residual income (RI) in 2019 and why?

3. If the managers of the retail divisions are evaluated based on return on investment (ROI), will the managers want to invest in 2020 and why?

4. If the managers of the retail divisions are evaluated based on residual income (RI), will the managers want to invest in 2020 and why?

Sheffield Construction Company has entered into a contract beginning January 1, 2020, to build a parking complex. It has been estimated that the complex will cost $595,000 and will take 3 years to construct. The complex will be billed to the purchasing company at $903,000. The following data pertain to the construction period.

(a) Using the percentage-of-completion method, compute the estimated gross profit that would be recognized during each year of the construction period. (If answer is 0, please enter 0. Do not leave any fields blank.)

(b) Using the completed-contract method, compute the estimated gross profit that would be recognized during each year of the construction period. (If answer is 0, please enter 0. Do not leave any fields blank.)

Chapter 16—Prob. 6

Alsup Consulting sometimes performs services for which it receives payment at the conclusion of the engagement, up to six months after services commence. Alsup recognizes service revenue for financial reporting purposes when the services are performed. For tax purposes, revenue is reported when fees are collected. Service revenue, collections, and pretax accounting income for 2017-2020 are as follows:

                          Service Revenue                 Collections                     Pretax Accounting

                                                                                                                                Income

2017                       $610,000                              $590,000                              $150,000

2018                          710,000                                720,000                             215,000

2019                      675,000                             650,000                            185,000

2020                       660,000                            685,000                            165,000

There are no differences between accounting income and taxable income other than the temporary difference described above. The enacted tax rate for each year is 40%. (Hint: You may find it helpful to prepare a schedule that shows the balances in service revenue receivable at December 31, 2017-2020,)

Required:

1. Prepare the appropriate journal entry to record Alsup’s 2018 income taxes, Alsup’s 2019 income taxes and Alsup’s 2020 income taxes. (Enter your answers in thousands. e.g. 150,000 should be entered as 150).)

Alsup Consulting sometimes performs services for which it receives payment at the conclusion of the engagement, up to six months after services commence. Alsup recognizes service revenue for financial reporting purposes when the services are performed. For tax purposes, revenue is reported when fees are collected. Service revenue, collections, and pretax accounting income for 2017–2020 are as follows:

There are no differences between accounting income and taxable income other than the temporary difference described above. The enacted tax rate for each year is 40%.

(Hint: You may find it helpful to prepare a schedule that shows the balances in service revenue receivable at December 31, 2017–2020.)

Required:
1. Prepare the appropriate journal entry to record Alsup's 2018 income taxes, Alsup’s 2019 income taxes and Alsup’s 2020 income taxes. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in thousands.)

Bella's Bone World, Inc. is a thriving bone production business! As the chief bone examiner, Bella is performing simple valuations as a starting point to determining the overall value of her bone production business. Bells uses a 9% required rate of return for operations. She used her 2019 financial statements to calculated her residual operating income as $25 million and net operating assets were $82 million at the end of 2019. Her residual operating income is expected to stay the same level for 2020 because even during the pandemic, dogs eat bones. While Bella does not expect growth, she expects to maintain her financial position in 2020.

For this question, you need to do two calculations. First, forecast Bella's operating income for 2020. Then calculate the value of operations for Bella's Bone World.

Select the answer below that most closely matches your calculations.

The format of the answer is: 2020 operating income, Value of operations

$36.2 million, $402.22 million

$32.92 million, $299.27 million

$74.02 million, $672.91 million

None of the above

$32.38 million, $359.78 million

Alsup Consulting sometimes performs services for which it receives payment at the conclusion of the engagement, up to six months after services commence. Alsup recognizes service revenue for financial reporting purposes when the services are performed. For tax purposes, revenue is reported when fees are collected. Service revenue, collections, and pretax accounting income for 2017–2020 are as follows: Service Revenue Collections Pretax Accounting Income 2017 $ 610,000 $ 590,000 $ 150,000 2018 710,000 720,000 215,000 2019 675,000 650,000 185,000 2020 660,000 685,000 165,000 There are no differences between accounting income and taxable income other than the temporary difference described above. The enacted tax rate for each year is 40%. (Hint: You may find it helpful to prepare a schedule that shows the balances in service revenue receivable at December 31, 2017–2020.) Required: 1. Prepare the appropriate journal entry to record Alsup's 2018 income taxes, Alsup’s 2019 income taxes and Alsup’s 2020 income taxes. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in thousands.)

Morrisey Technologies Inc. ‘s 2019 financial statements are shown below:

Suppose that in 2020 sales increase by 10% over 2019 sales and that 2020 DPS will increase to $1.12. Construct the projected financial statements for 2020. Use AFN to balance the pro forma balance sheet. How much additional capital (AFN) will be required (assume that it will be obtained at the end of the year, giving the interest expense for 2020 remain unchanged)? Assume the firm operated at full capacity in 2019.

Tip: Instead of using the AFN formula, you need to prepare the projected income statement first, then determine the amount of increase in R/E, and prepare a projected balance sheet with the balancing figure be the AFN (added to the notes payable).