Exercise 1 -
Skysong Corporation has outstanding 1,900 $1,000 bonds, each convertible into 60 shares of $10 par value common stock. The bonds are converted on December 31, 2017, when the unamortized discount is $37,000 and the market price of the stock is $21 per share.
Record the conversion using the book value approach.
Brief Exercise 16-7 -
On January 1, 2017, Grouper Corporation granted 2,000 shares of restricted $5 par value common stock to executives. The market price (fair value) of the stock is $65 per share on the date of grant. The period of benefit is 2 years.
Prepare Grouper's journal entries for January 1, 2017, and December 31, 2017 and 2018.
Exercise 2 -
Bonita Company purchased, on January 1, 2017, as a held-to-maturity investment, $69,000 of the 8%, 5-year bonds of Chester Corporation for $63,768, which provides an 10% return.
Prepare Bonita's journal entries for (a) the purchase of the investment, and (b) the receipt of annual interest and discount amortization. Assume effective-interest amortization is used.
Exercise 3 -
On January 1, 2017, Pina Company purchased 10% bonds having a maturity value of $220,000, for $237,567.22. The bonds provide the bondholders with a 8% yield. They are dated January 1, 2017, and mature January 1, 2022, with interest receivable January 1 of each year. Pina Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified in the held-to-maturity category.
Prepare the journal entry at the date of the bond purchase.
Prepare a bond amortization schedule.
Prepare the journal entry to record the interest revenue and the amortization at December 31, 2017.
Prepare the journal entry to record the interest revenue and the amortization at December 31, 2018.
Exercise 4 -
At December 31, 2017, the available-for-sale debt portfolio for Indigo, Inc. is as follows.
|
Security
|
Cost
|
Fair Value
|
Unrealized
Gain (Loss)
|
|
A
|
$219,625
|
$188,250
|
$(31,375)
|
|
B
|
156,875
|
175,700
|
18,825
|
|
C
|
288,650
|
320,025
|
31,375
|
|
Total
|
$665,150
|
$683,975
|
18,825
|
|
Previous fair value adjustment balance-Dr.
|
5,020
|
|
Fair value adjustment-Dr.
|
$13,805
|
On January 20, 2018, Indigo, Inc. sold security A for $189,505. The sale proceeds are net of brokerage fees.
IndigoInc. reports net income in 2017 of $1,506,000 and in 2018 of $1,757,000. Total holding gains (including any realized holding gain or loss) equal $502,000 in 2018.
Prepare a statement of comprehensive income for 2017, starting with net income.
Prepare a statement of comprehensive income for 2018, starting with net income.
Exercise 5 -
Martinez Corporation began operations in 2017 and reported pretax financial income of $213,000 for the year. Martinez's tax depreciation exceeded its book depreciation by $43,000. Martinez's tax rate for 2017 and years thereafter is 30%. Assume this is the only difference between Martinez's pretax financial income and taxable income.
Prepare the journal entry to record the income tax expense, deferred income taxes, and income taxes payable.
Show how the deferred tax liability will be classified on the December 31, 2017, balance sheet.
Exercise 6 -
Indigo Corporation had the following tax information.
|
Year
|
Taxable Income
|
Tax Rate
|
Taxes Paid
|
|
2015
|
$294,000
|
35%
|
$102,900
|
|
2016
|
332,000
|
30%
|
99,600
|
|
2017
|
399,000
|
30%
|
119,700
|
In 2018, Indigo suffered a net operating loss of $476,000, which it elected to carry back. The 2018 enacted tax rate is 29%.
Prepare Indigo's entry to record the effect of the loss carryback.
Exercise 7 -
The following information is available for Blossom Corporation for 2016 (its first year of operations).
1. Excess of tax depreciation over book depreciation, $38,000. This $38,000 difference will reverse equally over the years 2017-2020.
2. Deferral, for book purposes, of $19,800 of rent received in advance. The rent will be recognized in 2017.
3. Pretax financial income, $276,800.
4. Tax rate for all years, 30%.
Compute taxable income for 2016.
Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2016.
Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2017, assuming taxable income of $348,600.
Brief Exercise 8 -
Indigo Corporation has the following balances at December 31, 2017.
Projected benefit obligation - $2,654,000
Plan assets at fair value - 2,045,000
Accumulated OCI (PSC) - 1,110,000
What is the amount for pension liability that should be reported on Indigo's balance sheet at December 31, 2017?
Exercise 9 -
The following information is available for the pension plan of Sandhill Company for the year 2017.
|
Actual and expected return on plan assets
|
$ 14,000
|
|
Benefits paid to retirees
|
41,500
|
|
Contributions (funding)
|
94,400
|
|
Interest/discount rate
|
10%
|
|
Prior service cost amortization
|
7,800
|
|
Projected benefit obligation, January 1, 2017
|
479,000
|
|
Service cost
|
62,500
|
Compute pension expense for the year 2017.
Prepare the journal entry to record pension expense and the employer's contribution to the pension plan in 2017.
Exercise 10 -
Sheridan Company has five employees participating in its defined benefit pension plan. Expected years of future service for these employees at the beginning of 2017 are as follows.
|
Employee
|
Future Years of Service
|
|
Jim
|
3
|
|
Paul
|
4
|
|
Nancy
|
5
|
|
Dave
|
6
|
|
Kathy
|
6
|
On January 1, 2017, the company amended its pension plan, increasing its projected benefit obligation by $83,520.
Compute the amount of prior service cost amortization for the years 2017 through 2022 using the years-of-service method, setting up appropriate schedules.
Exercise 11 -
Teal Company received the following selected information from its pension plan trustee concerning the operation of the company's defined benefit pension plan for the year ended December 31, 2017.
|
January 1, 2017
|
December 31, 2017
|
|
Projected benefit obligation
|
$1,515,000
|
$1,541,000
|
|
Market-related and fair value of plan assets
|
816,000
|
1,152,600
|
|
Accumulated benefit obligation
|
1,631,000
|
1,751,000
|
|
Accumulated OCI (G/L)-Net gain
|
0
|
(201,500)
|
The service cost component of pension expense for employee services rendered in the current year amounted to $76,000 and the amortization of prior service cost was $120,000. The company's actual funding (contributions) of the plan in 2017 amounted to $255,000. The expected return on plan assets and the actual rate were both 10%; the interest/discount (settlement) rate was 10%. Accumulated other comprehensive income (PSC) had a balance of $1,200,000 on January 1, 2017. Assume no benefits paid in 2017.
Determine the amounts of the components of pension expense that should be recognized by the company in 2017.
Exercise 12 -
A partial trial balance of Larkspur Corporation is as follows on December 31, 2018.
|
Dr.
|
Cr.
|
|
Supplies
|
$2,900
|
|
|
Salaries and wages payable
|
|
$1,500
|
|
Interest Receivable
|
4,900
|
|
|
Prepaid Insurance
|
93,200
|
|
|
Unearned Rent
|
|
0
|
|
Interest Payable
|
|
15,300
|
Additional adjusting data:
1. A physical count of supplies on hand on December 31, 2018, totaled $1,200.
2. Through oversight, the Salaries and Wages Payable account was not changed during 2018. Accrued salaries and wages on December 31, 2018, amounted to $4,400.
3. The Interest Receivable account was also left unchanged during 2018. Accrued interest on investments amounts to $4,000 on December 31, 2018.
4. The unexpired portions of the insurance policies totaled $63,400 as of December 31, 2018.
5. $28,100 was received on January 1, 2018, for the rent of a building for both 2018 and 2019. The entire amount was credited to rent revenue.
6. Depreciation on equipment for the year was erroneously recorded as $5,400 rather than the correct figure of $54,000.
7. A further review of depreciation calculations of prior years revealed that equipment depreciation of $6,400 was not recorded. It was decided that this oversight should be corrected by a prior period adjustment.
Assuming that the books have not been closed, what are the adjusting entries necessary at December 31, 2018?
Assuming that the books have been closed, what are the adjusting entries necessary at December 31, 2018?
Pass the necessary adjusting entries for the following taking into account income tax effects (40% tax rate) and assuming that the books have been closed.
1. Depreciation on equipment for the year was erroneously recorded as $5,400 rather than the correct figure of $54,000.
2. A further review of depreciation calculations of prior years revealed that equipment depreciation of $6,400 was not recorded. It was decided that this oversight should be corrected by a prior period adjustment.
Exercise 13 -
Sage Tool Company's December 31 year-end financial statements contained the following errors.
|
December 31, 2017
|
December 31, 2018
|
|
Ending inventory
|
$9,100 understated
|
$7,800 overstated
|
|
Depreciation expense
|
$2,300 understated
|
-
|
An insurance premium of $67,200 was prepaid in 2017 covering the years 2017, 2018, and 2019. The entire amount was charged to expense in 2017. In addition, on December 31, 2018, fully depreciated machinery was sold for $13,700 cash, but the entry was not recorded until 2019. There were no other errors during 2017 or 2018, and no corrections have been made for any of the errors. (Ignore income tax considerations.) (Enter negative amounts using either a negative sign preceding the number e.g. -15,000 or parentheses e.g. (15,000).)
(a) Compute the total effect of the errors on 2018 net income.
(b) Compute the total effect of the errors on the amount of Sage's working capital at December 31, 2018.
(c) Compute the total effect of the errors on the balance of Sage's retained earnings at December 31, 2018.
Exercise 14 -
Presented below are income statements prepared on a LIFO and FIFO basis for Crane Company, which started operations on January 1, 2016. The company presently uses the LIFO method of pricing its inventory and has decided to switch to the FIFO method in 2017. The FIFO income statement is computed in accordance with the requirements of GAAP. Crane's profit-sharing agreement with its employees indicates that the company will pay employees 10% of income before profit-sharing. Income taxes are ignored.
|
LIFO Basis
|
FIFO Basis
|
|
2017
|
2016
|
2017
|
2016
|
|
Sales
|
$3,040
|
$3,040
|
$3,040
|
$3,040
|
|
Cost of goods sold
|
1,070
|
1,000
|
1,050
|
920
|
|
Operating expenses
|
970
|
970
|
970
|
970
|
|
Income before profit-sharing
|
1,000
|
1,070
|
1,020
|
1,150
|
|
Profit-sharing expense
|
100
|
107
|
110
|
107
|
|
Net income
|
$900
|
$963
|
$910
|
$1,043
|
Answer the following questions.
If comparative income statements are prepared, what net income should Crane report in 2016 and 2017?
Assume that Crane has a beginning balance of retained earnings at January 1, 2017, of $950 using the LIFO method. The company declared and paid dividends of $480 in 2017. Prepare the retained earnings statement for 2017, assuming that Crane has switched to the FIFO method.
Exercise 15 -
In January 2017, installation costs of $4,500 on new machinery were charged to Maintenance and Repairs Expense. Other costs of this machinery of $22,500 were correctly recorded and have been depreciated using the straight-line method with an estimated life of 10 years and no salvage value. At December 31, 2018, it is decided that the machinery has a remaining useful life of 20 years, starting with January 1, 2018. What entries should be made in 2018 to correctly record transactions related to machinery, assuming the machinery has no salvage value? The books have not been closed for 2018 and depreciation expense has not yet been recorded for 2018.
Exercise 16 -
Your answer is partially correct. Try again.
At January 1, 2017, Stellar Company reported retained earnings of $2,094,000. In 2017, Stellar discovered that 2016 depreciation expense was understated by $437,000. In 2017, net income was $847,000 and dividends declared were $250,000. The tax rate is 35%.
Prepare a 2017 retained earnings statement for Stellar Company.
Attachment:- Assignment File.rar