Questions I need help with
1. The records for Bosch Co. show this data for 2013:
- Gross profit on installment sales recorded on the books was $360,000. Gross profit from collections of installment receivables was $240,000.
- Life insurance on officers was $3,800.
- Machinery was acquired in January for $300,000. Straight-line depreciation over a ten-year life (no salvage value) is used. For tax purposes, MACRS depreciation is used and Bosch may deduct 14% for 2013.
- Interest received on tax exempt Iowa State bonds was $9,000.
- The estimated warranty liability related to 2013 sales was $21,600. Repair costs under warranties during 2013 were $13,600. The remainder will be incurred in 2014.
- Pretax financial income is $600,000. The tax rate is 30%.
Instructions
(a) Prepare a schedule starting with pretax financial income and compute taxable income.
(b) Prepare the journal entry to record income taxes for 2013.
2. Emmett Company has a deferred tax asset of $1,000,000 at December 31, 2011. This amount arises from the recording of the company's liability for postretirement benefits other than pensions. The company's CPA has asked management whether a valuation allowance should be recorded to reduce the deferred tax asset to zero
Required:
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1.
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Why would Emmett not want to report a valuation allowance?
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2.
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What evidence might the company offer to argue against recording a valuation allowance?
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3.
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Assume that the company determines that a valuation allowance of $400,000 is required. How would the company have arrived at this determination, and what effect will it have on net income for fiscal 2011?
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Presented below is information related to Jones Department Stores, Inc. pension plan for 2013.
Accumulated benefit obligation (at year-end) $600,000
Service cost 520,000
Funding contribution for 2013 480,000
Settlement rate used in actuarial computation 10%
Expected return on plan assets 9%
Amortization of PSC (due to benefit increase) 100,000
Amortization of net gains 48,000
Projected benefit obligation (at beginning of period) 450,000
Fair value of plan assets (at beginning of period) 360,000
Instructions
(a) Compute the amount of pension expense to be reported for 2013. (Show computations.)
(b) Prepare the journal entry to record pension expense and the employer's contribution for 2013.
3. On January 2, 2011, the Wilcox Studios leased six computers for use in the engineering department. The lease period is for 13 years and the estimated economic life of the leased property is 15 years. The lease does not contain automatic title transfer or a bargain purchase option. Lease payments are $9,000 per year, payable each December 31. The incremental borrowing rate for Wilcox is 12 percent and the implicit interest rate (known by Wilcox) is 10 percent. The company uses straight-line depreciation for this type of equipment.
Provide the necessary journal entries to record the transactions for Wilcox for the period January 2, 2011 through December 31, 2012.
4. Henri Retail Stores is negotiating three leases for store locations. Henri's incremental borrowing rate is 12 percent. Each store will have an economic useful life of 30 years. Lease payments will be made at the end of each year. Based on the data below, properly classify each of the leases as an operating lease or a capital lease. The purchase price for each property is listed as an alternative to leasing.
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Location Lease Term
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Lease Payment
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Purchase Price
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Location A
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26 years
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$1,500,000
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$12,000,000
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Location B
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20 years
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1,300,000
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10,000,000
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Location C
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20 years
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1,400,000
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15,000,000
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Determine whether each of the leases should be classified by Henri as an operating lease or a capital lease. Show computations and reasons to support your answers.
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(1)
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Location A
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(2)
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Location B
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(3)
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Location C
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5. In reviewing the books of Meyers Retailers Inc., the auditor discovered certain errors that had occurred during 2010 and 2011. No errors were corrected during 2010. The errors are summarized below:
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(a)
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Beginning merchandise inventory (January 1, 2010) was understated by $8,640.
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(b)
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Merchandise costing $2,400 was sold for $4,000 to B.J. Taylor on December 29, 2010, but the sale was recorded in 2011. The merchandise was shipped F.O.B. shipping point and was not included in ending inventory. Meyers uses a periodic inventory system.
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(c)
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A two-year fire insurance policy was purchased on May 1, 2010, for $5,760. The entire amount was debited to Prepaid Insurance. No adjusting entry was made in 2010 or 2011.
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(d)
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A one-year note receivable of $9,600 was held by Meyers beginning October 1, 2010. Payment of the 10 percent note and accrued interest was received upon maturity. No adjusting entry was made on December 31, 2010.
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(e)
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Equipment with a ten-year life was purchased on January 1, 2010, for $39,200. No depreciation expense was recorded during 2010 or 2011. Assume that the equipment has no salvage value and that Meyers uses the straight-line method for recording depreciation.
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6. Financial information for Roberts Company at December 31, 2011, and for the year then ended, are presented below:
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Balance Sheet
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December 31,
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2011
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2010
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Cash
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$ 31,000
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$ 15,000
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Accounts receivable
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28,500
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30,000
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Allowance for doubtful accounts
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(2,000)
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(1,500)
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Inventory
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15,000
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10,000
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Prepaid insurance
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1,400
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2,400
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Property, plant, and equipment
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81,000
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80,000
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Accumulated depreciation
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(16,000)
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(20,000)
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Land
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81,100
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40,100
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Total assets
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$ 220,000
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$ 156,000
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Accounts payable
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$ 11,000
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$ 10,000
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Wages payable
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1,000
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2,000
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Interest payable
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1,000
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-
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Notes payable, long-term
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46,000
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20,000
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Common stock, nopar
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136,000
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100,000
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Retained earnings
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25,000
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24,000
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Total liabilities and
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stockholders' equity
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$ 220,000
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$ 156,000
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Income Statement
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Sales revenue
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$ 80,000
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Cost of goods sold
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(35,000)
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Depreciation expense
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(5,000)
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Bad debt expense
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(1,000)
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Insurance expense
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(1,000)
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Interest expense
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(2,000)
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Salaries and wages expense
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(12,000)
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Income tax expense
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(3,000)
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Remaining expenses
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(13,000)
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Loss on sale of operational assets
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(2,000)
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Net income
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$ 6,000
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Additional information:
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1.
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Wrote off $500 accounts receivable as uncollectible.
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2.
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Sold an operational asset for $4,000 cash (cost, $15,000, accumulated depreciation, $9,000).
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3.
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Issued common stock for $5,000 cash.
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4.
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Declared and paid a cash dividend of $5,000.
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5.
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Purchased land for $20,000 cash.
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6.
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Acquired land for $21,000, and issued common stock as payment in full.
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7.
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Acquired operational assets, cost $16,000; issued a $16,000, three-year, interest-bearing note payable.
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8.
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Paid a $10,000 long-term note installment by issuing common stock to the creditor.
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9.
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Borrowed cash on a long-term note, $20,000.
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Required:
Prepare the statement of cash flows using the indirect method.
The following information pertains to Wamser Company:
Cash $ 40,000
Accounts receivable 125,000
Inventory 75,000
Plant assets (net) 360,000
Total assets $600,000
Accounts payable $ 75,000
Accrued taxes and expenses payable 25,000
Long-term debt 100,000
Common stock ($10 par) 160,000
Paid-in capital in excess of par 40,000
Retained earnings 200,000
Total equities $600,000
Net sales (all on credit) $1,000,000
Cost of goods sold 750,000
Net income 90,000
Instructions
Compute the following: (It is not necessary to use averages for any balance sheet figures involved.)
(a) Current ratio
(b) Inventory turnover
(c) Receivables turnover
(d) Book value per share
(e) Earnings per share
(f) Debt to total assets
(g) Profit margin on sales
(h) Return on common stock equity