March 1. 2016: borrowed $400,000 from Coconut creek bank. The eight-year 5% note requires payments due annually on March 1. Each payment consists of $50,000 Principal plus one year’s interest. December 1. 2016: Mortgaged the warehouse for $150,000 cash with Saban Bank. The mortgage requires monthly payments of $6,000. The interest rate on the note is 6% and accrues monthly. The first payment is due on January 1, 2017. December 31, 2016: Recorded interest accrued on the Saban Bank note. December 31, 2016: recorded interest accrued on the Coconut Creek Bank note. Jan. 1, 2017: Paid Saban Bank monthly mortgage payment. Feb 1, 2017: Paid Saban Bank monthly mortgage payment. March 1, 2017: Paid Saban Bank monthly mortgage payment. March 1, 2017: Paid first installment on note due to Coconut Creek Bank. Prepare the liabilities section of the balance sheet for Green Pharmacies on March 1, 2017 after all the journal entries are recorded. First, prepare an amortization schedule for the Saban Bank mortgage to March 1, 2018. Prepare the schedule for the first three payments, then the remaining months one at a time. (Round your answers to the nearest whole dollar.) Review the related journal entries you prepared in Requirement 1 Beginning Principal Interest Total Ending Balance Payment Expense Payment Balance 12/01/2016 1/01/2017 2/01/2017 3/01/2017 4/01/2017 5/01/2017 6/01/2017 07/01/2017 08/01/2017 9/01/2017 10/01/2017 11/01/2017 12/01/2017 1/01/2018 2/01/2018 3/01/2018 Now prepare the liabilities section of the balance sheet for Green Pharmacies on March 1, 2017. (If a box is not used in the table leave the box empty; do not enter a zero.) Review the amortization schedule you prepared above. Green Pharmacies Balance Sheet (Partial) March 1, 2017 Liabilities.

This problem consists of two parts. Part I A portion of the Stockholders’ Equity section of Hatten Corporation’s balance sheet as of December 31, 2016, appears below. Dividends have not been paid for the years 2014 and 2015. There has been no change in the number of shares of stock issued and outstanding during these years. Assume that the board of directors of Hatten Corporation declares a dividend of $28,650 after completing operations for the year 2016. Stockholders’ Equity Preferred Stock (10% cumulative, $50 par value, 2,000 shares authorized) At Par Value (1,600 shares issued) $ 80,000 Common Stock (no-par value, with stated value of $25, 20,000 shares authorized) At Stated Value (15,000 shares issued) 375,000 ________________________________________ 1. Compute the amount of the dividend distributed to preferred stockholders in 2014, 2015 & 2016. 2. Compute the amount of the dividend to be paid on each share of preferred stock. (Round your "per share" value to 2 decimal places.) 3. Compute the total amount of the dividend available to be distributed to common stockholders. 4. Compute the amount of the dividend to be paid on each share of common stock. (Round your "per share" value to 2 decimal places.) 5. Compute the amount of dividends in arrears (if any) that preferred stockholders may expect from future declarations of dividends. Part II Use the information given in Part I to solve this part of the problem. Assume that the board of directors of Hatten Corporation has declared a dividend of $117,000 instead of $28,650 after operations for 2016 are completed. 1. Compute the amount of the dividend distributed to preferred stockholders in 2014, 2015 & 2016. 2. Compute the amount of the dividend to be paid on each share of preferred stock. (Round your "per share" value to 2 decimal places.) 3. Compute the total amount of the dividend available to be distributed to common stockholders. 4. Compute the amount of the dividend to be paid on each share of common stock. (Round your "per share" value to 2 decimal places.) 5. Compute the amount of dividends in arrears (if any) that preferred stockholders may expect from future declarations of dividends. Analyze: Assume only Part 1 has transpired. If, in 2015, the board of directors declared a dividend of $51,000, what amount would be paid to preferred stockholders?

Reformulating Allowance for Doubtful Accounts and Bad Debt Expense

Merck & Company reported the following from its 2016 financial statements.

$ millions 2013 2014 2015 2016

Accounts receivable, net $7,185 $6,627 $6,485 $7,017

Allowance for doubtful accounts 153 160 172 201

a. Compute accounts receivable gross for each year.

$ millions 2013 2014 2015 2016

Accounts receivable, gross $Answer 7,338 $Answer 6,787 $Answer 6,657 $Answer 7,218

b. Determine the percentage of allowance to gross account receivables for each year.

Round answers to two decimal places (ex: 0.02345 = 2.35%).

2013 2014 2015 2016

% allowance Answer 2.09 % Answer 2.36 % Answer 2.58 % Answer 2.78 %

c. Assume that we want to reformulate the balance sheet and income statement to reflect a constant percentage of allowance to gross accounts receivables for each year.

Compute the four-year average and then reformulate the balance sheet and income statements for each of the four years. Follow the process shown in Analyst Adjustments 5.2 and assume a tax rate of 35%. Four- year average of percentage of allowance to gross accounts receivables.

Round answer to two decimal places (ex: 0.02345 = 2.35%) Answer 2.45 %

Reformulate the balance sheet and income statements. Use rounded answer above for computations, then round answers to one decimal place. Use negative signs with answers to indicate the adjustment decreases an account.

2013 2014 2015 2016

Adjusted allowance for doubtful accts. $Answer 179.8 $Answer 166.3 $Answer 163.1 $Answer 176.8

Balance Sheets

Adjustments Allowance for doubtful accounts Answer 26.8 Answer Answer Answer

Accounts receivable, net Answer (26.8) Answer 0 Answer 0 Answer 0 Deferred tax liabilities Answer

Retained Earnings Answer (17.4) Answer 0 Answer 0 Answer 0

Income Statements Adjustments

Bad debts expense Answer 26.8 Answer 0 Answer 0 Answer 0

Income tax expense at 35% Answer (9.4) Answer 0 Answer 0 Answer 0

Net Income Answer 17.4 Answer 0 Answer 0 Answer 0

Gray, Stone, and Lawson open an accounting practice on January 1, 2016, in San Diego, California, to be operated as a partnership. Gray and Stone will serve as the senior partners because of their years of experience. To establish the business, Gray, Stone, and Lawson contribute cash and other properties valued at $250,000, $220,000, and $110,000, respectively. An articles of partnership agreement is drawn up. It has the following stipulations:

• Personal drawings are allowed annually up to an amount equal to 10 percent of the beginning capital balance for the year.
• Profits and losses are allocated according to the following plan:

1. A salary allowance is credited to each partner in an amount equal to $8 per billable hour worked by that individual during the year.
2. Interest is credited to the partners’ capital accounts at the rate of 12 percent of the average monthly balance for the year (computed without regard for current income or drawings).
3. An annual bonus is to be credited to Gray and Stone. Each bonus is to be 10 percent of net income after subtracting the bonus, the salary allowance, and the interest. Also included in the agreement is the provision that there will be no bonus if there is a net loss or if salary and interest result in a negative remainder of net income to be distributed.
4. Any remaining partnership profit or loss is to be divided evenly among all partners.

Because of financial shortfalls encountered in getting the business started, Gray invests an additional $9,600 on May 1, 2016. On January 1, 2017, the partners allow Monet to buy into the partnership. Monet contributes cash directly to the business in an amount equal to a 20 percent interest in the book value of the partnership property subsequent to this contribution. The partnership agreement as to splitting profits and losses is not altered upon Monet’s entrance into the firm; the general provisions continue to be applicable.

The billable hours for the partners during the first three years of operation follow:

The partnership reports net income for 2016 through 2018 as follows:

Each partner withdraws the maximum allowable amount each year.

1. Determine the allocation of income for each of these three years.

2. Prepare in appropriate form a statement of partners’ capital for the year ending December 31, 2018.

Gray, Stone, and Lawson open an accounting practice on January 1, 2016, in San Diego, California, to be operated as a partnership. Gray and Stone will serve as the senior partners because of their years of experience. To establish the business, Gray, Stone, and Lawson contribute cash and other properties valued at $390,000, $360,000, and $180,000, respectively. An articles of partnership agreement is drawn up. It has the following stipulations: - Personal drawings are allowed annually up to an amount equal to 10 percent of the beginning capital balance for the year. - Profits and losses are allocated according to the following plan: 1. A salary allowance is credited to each partner in an amount equal to $7 per billable hour worked by that individual during the year. 2. Interest is credited to the partners’ capital accounts at the rate of 12 percent of the average monthly balance for the year (computed without regard for current income or drawings). 3. An annual bonus is to be credited to Gray and Stone. Each bonus is to be 10 percent of net income after subtracting the bonus, the salary allowance, and the interest. Also included in the agreement is the provision that there will be no bonus if there is a net loss or if salary and interest result in a negative remainder of net income to be distributed. 4. Any remaining partnership profit or loss is to be divided evenly among all partners. Because of financial shortfalls encountered in getting the business started, Gray invests an additional $8,600 on May 1, 2016. On January 1, 2017, the partners allow Monet to buy into the partnership. Monet contributes cash directly to the business in an amount equal to a 20 percent interest in the book value of the partnership property subsequent to this contribution. The partnership agreement as to splitting profits and losses is not altered upon Monet’s entrance into the firm; the general provisions continue to be applicable. The billable hours for the partners during the first three years of operation follow: 2016 2017 2018 Gray 1,890 3,600 2,060 Stone 1,620 2,100 1,800 Lawson 3,100 1,560 1,490 Monet 0 1,370 1,760 The partnership reports net income for 2016 through 2018 as follows: 2016 $ 101,000 2017 (38,400) 2018 243,000 Each partner withdraws the maximum allowable amount each year. A. Determine the allocation of income for each of these three years. B. Prepare in appropriate form a statement of partners’ capital for the year ending December 31, 2018.

ginocera Inc. is a designer, manufacturer, and distributor of low-cost, high-quality stainless steel kitchen knives. A new kitchen knife series called the Kitchen Ninja was released for production in early 2016. In January, the company spent $600,000 to develop a late-night advertising infomercial for the new product. During 2016, the company spent $1,402,000 promoting the product through these infomercials, and $819,000 in legal costs. The knives were ready for manufacture on January 1, 2016. Ginocera uses a job order cost system to accumulate costs associated with the kitchen knife. The unit direct materials cost for the knife is:

Hardened steel blanks (used for knife shaft and blade) $3.85 Wood (for handle) 1.40 Packaging 0.40 The production process is straightforward. First, the hardened steel blanks, which are purchased directly from a raw material supplier, are stamped into a single piece of metal that includes both the blade and the shaft. The stamping machine requires one hour per 250 knives.

After the knife shafts are stamped, they are brought to an assembly area where an employee attaches the handle to the shaft and packs the knife into a decorative box. The direct labor cost is $0.45 per unit. The knives are sold to stores. Each store is given promotional materials, such as posters and aisle displays. Promotional materials cost $60 per store. In addition, shipping costs average $0.15 per knife.

Total completed production was 1,200,000 units during the year. Other information is as follows:

Number of customers (stores) 58,500

Number of knives sold 1,128,000

Wholesale price (to store) per knife $17

Factory overhead cost is applied to jobs at the rate of $650 per stamping machine hour after the knife blanks are stamped. There were an additional 28,000 stamped knives, handles, and cases waiting to be assembled on December 31, 2016. Required:

A. Prepare an annual income statement for the Kitchen Ninja knife series, including supporting calculations, from the information provided. Refer to the list of Amount Descriptions for exact wording of the answer choices for text entries.

* B. Determine the balances in the work in process and finished goods inventories for the Kitchen Ninja knife series on December 31, 2016.* * In your computations, if required, round interim per-unit costs to two decimal places.

Gray, Stone, and Lawson open an accounting practice on January 1, 2016, in San Diego, California, to be operated as a partnership. Gray and Stone will serve as the senior partners because of their years of experience. To establish the business, Gray, Stone, and Lawson contribute cash and other properties valued at $330,000, $300,000, and $160,000, respectively. An articles of partnership agreement is drawn up. It has the following stipulations:

Personal drawings are allowed annually up to an amount equal to 10 percent of the beginning capital balance for the year.

Profits and losses are allocated according to the following plan:

A salary allowance is credited to each partner in an amount equal to $8 per billable hour worked by that individual during the year.

Interest is credited to the partners’ capital accounts at the rate of 12 percent of the average monthly balance for the year (computed without regard for current income or drawings).

An annual bonus is to be credited to Gray and Stone. Each bonus is to be 10 percent of net income after subtracting the bonus, the salary allowance, and the interest. Also included in the agreement is the provision that there will be no bonus if there is a net loss or if salary and interest result in a negative remainder of net income to be distributed.

Any remaining partnership profit or loss is to be divided evenly among all partners.

Because of financial shortfalls encountered in getting the business started, Gray invests an additional $9,200 on May 1, 2016. On January 1, 2017, the partners allow Monet to buy into the partnership. Monet contributes cash directly to the business in an amount equal to a 20 percent interest in the book value of the partnership property subsequent to this contribution. The partnership agreement as to splitting profits and losses is not altered upon Monet’s entrance into the firm; the general provisions continue to be applicable.

The billable hours for the partners during the first three years of operation follow:

The partnership reports net income for 2016 through 2018 as follows:

Each partner withdraws the maximum allowable amount each year.

Determine the allocation of income for each of these three years.

Prepare in appropriate form a statement of partners’ capital for the year ending December 31, 2018.

Gray, Stone, and Lawson open an accounting practice on January 1, 2016, in San Diego, California, to be operated as a partnership. Gray and Stone will serve as the senior partners because of their years of experience. To establish the business, Gray, Stone, and Lawson contribute cash and other properties valued at $380,000, $350,000, and $175,000, respectively. An articles of partnership agreement is drawn up. It has the following stipulations:

• Personal drawings are allowed annually up to an amount equal to 10 percent of the beginning capital balance for the year.
• Profits and losses are allocated according to the following plan:

1. A salary allowance is credited to each partner in an amount equal to $8 per billable hour worked by that individual during the year.
2. Interest is credited to the partners’ capital accounts at the rate of 12 percent of the average monthly balance for the year (computed without regard for current income or drawings).
3. An annual bonus is to be credited to Gray and Stone. Each bonus is to be 10 percent of net income after subtracting the bonus, the salary allowance, and the interest. Also included in the agreement is the provision that there will be no bonus if there is a net loss or if salary and interest result in a negative remainder of net income to be distributed.
4. Any remaining partnership profit or loss is to be divided evenly among all partners.

Because of financial shortfalls encountered in getting the business started, Gray invests an additional $9,700 on May 1, 2016. On January 1, 2017, the partners allow Monet to buy into the partnership. Monet contributes cash directly to the business in an amount equal to a 20 percent interest in the book value of the partnership property subsequent to this contribution. The partnership agreement as to splitting profits and losses is not altered upon Monet’s entrance into the firm; the general provisions continue to be applicable.

The billable hours for the partners during the first three years of operation follow:

The partnership reports net income for 2016 through 2018 as follows:

Each partner withdraws the maximum allowable amount each year.

1. Prepare in appropriate form a statement of partners’ capital for the year ending December 31, 2018.

Lydell Capital, Inc., makes investments in trading securities. Selected income statement items for the years ended December 31, 2016 and 2017, plus selected items from comparative balance sheets, are shown in the income statement and balance sheet below:

There were no dividends.

Determine the missing items.

Feedback

Operating Income-2014: Do this after you have calculated requirements (Unrealized Gain (Loss)) and (Net Income). Then subtract (Unrealized Gain (Loss)) from (Net Income).

Unrealized Gain (Loss)-2014: 2014 valuation allowance minus 2013 valuation allowance. Remember when you subtract a negative number the resulting effect is to add the amount.

Net Income-2014: 2014 retained earnings minus 2013 retained earnings.

Operaing Income-2015: The result of working backwards for 2015 such that net income plus the absolute value of the loss is equal to operating income.

Learning Objective 4.

Feedback

Trading Investments, at Fair Value-Dec. 31, 2013: The result of adding trading investments plus the valuation allowance for 12/31/13.

Trading Investments, at Fair Value-Dec. 31, 2014: The result of adding trading investments plus the valuation allowance for 12/31/14.

Valuation Allowance for Trading Investments-Dec. 31, 2015: 2014 valuation allowance + 2015 unrealized loss.

Trading Investments, at Fair Value-Dec. 31, 2015: The result of adding trading investments plus valuation allowance for 12/31/15.

Retained Earnings-Dec. 31, 2015: The result of retained earnings for 12/31/14 plus net income 2015.

Learning Objective 4.

Wee Corporation began operations in 2011. It reported book income or loss of $(4,000), $5,000, and $5,000 during 2011-2013 respectively.

During 2011-2013, the difference between taxable income and book income resulted from the following items:

1) During 2011-2013, Wee accrued post-retirement healthcare costs (OPEB) of $2,000, $4,000, and $6,000 respectively. The OPEB costs are deductible for tax purposes when paid in 2018.

2) During 2013, Wee reported $3,000 of tax-exempt interest on municipal securities.

Tax rates for 2011-2014 were as follows.                 

Wee carries losses back whenever possible.

During 2014, the current year, Wee’s income statement and tax returns were as follows:

Other information:

1. Installment sales are taxed when collected, equally in 2016-2018.

2. Interest income is earned on tax-exempt securities.

3. Bad debts are deductible for taxes when the accounts are written off, equally in 2015 and 2016.

4. Depreciation expense will reverse equally in 2015 and 2016.

5. Wee determined that 60% of net operating loss carryforward would not be realized. Wee expects to earn no taxable income in 2015 and 2016.

6. On December 31, 2014, Congress enacted new tax rates, effective January 1, 2015. The new rates will be

2015 will 20%   

2016 and beyond 40%

1. Prepare a schedule of Wee’s temporary differences and carryforwards and related deferred tax assets and liabilities at December 31, 2013.

Temporary difference and Carryforwards            Rate                 DTA                DTL

Taxable / (Deductible)

2. Prepare a schedule of Wee’s temporary differences and carryforwards and related deferred tax assets and liabilities at December 31, 2014.

Temporary difference and Carryforwards            Rate                 DTA                DTL

Taxable / (Deductible)

3. Prepare Wee’s journal entries for 2014 taxes.