Accounting Questions

 

Brief Exercise 116

On April 1, 2018, West Company purchased $451,000 of 6.00% bonds for $468,790 plus accrued interest as an available-for-sale security. Interest is paid on July 1 and January 1 and the bonds mature on July 1, 2023.

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Prepare the journal entry on April 1, 2018. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

DateAccount Titles and ExplanationDebitCredit
Apr. 1, 2018

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The bonds are sold on November 1, 2019 at 103 plus accrued interest. Amortization was recorded when interest was received by the straight-line method. Prepare all entries required to properly record the sale. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.)

Account Titles and ExplanationDebitCredit
(To record amortization)
(To record interest)

 

Exercise 121

Fill in the dollar changes caused in the Investment account and Dividend Revenue or Investment Revenue account by each of the following transactions, assuming Crane Company uses (a) the fair value method and (b) the equity method for accounting for its investments in Hudson Company. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Do not leave any answer field blank. Enter 0 for amounts.)

(a) Fair Value Method(b) Equity Method
TransactionInvestment AccountDividend RevenueInvestment AccountInvestment Revenue
1.At the beginning of Year 1, Crane bought 25% of Hudson’s common stock at its book value. Total book value of all Hudson’s common stock was $880,000 on this date.
2.During Year 1, Hudson reported $56,000 of net income and paid $28,000 of dividends.
3.During Year 2, Hudson reported $30,000 of net income and paid $22,000 of dividends.
4.During Year 3, Hudson reported a net loss of $8,000 and paid $4,400 of dividends.
5.Indicate the Year 3 ending balance in the Investment account, and cumulative totals for Years 1, 2, and 3 for dividend revenue and investment revenue.

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Brief Exercise 17-11

Culver Company invests $10,300,000 in 5% fixed rate corporate bonds on January 1, 2017. All the bonds are classified as available-for-sale and are purchased at par. At year-end, market interest rates have declined, and the fair value of the bonds is now $10,790,000. Interest is paid on January 1.

Prepare journal entries for Culver Company to (a) record the transactions related to these bonds in 2017, assuming Culver does not elect the fair option; and (b) record the transactions related to these bonds in 2017, assuming that Culver Company elects the fair value option to account for these bonds. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

No.DateAccount Titles and ExplanationDebitCredit
(a)Jan. 1, 2017 Dec. 31, 2017
Jan. 1, 2017 Dec. 31, 2017
(To record interest revenue)
(To record fair value adjustment)

 

No.DateAccount Titles and ExplanationDebitCredit
(b)Jan. 1, 2017 Dec. 31, 2017
Jan. 1, 2017 Dec. 31, 2017
(To record interest revenue)

Exercise 17-12

The following are two independent situations.

Situation 1
Sheridan Cosmetics acquired 10% of the 191,000 shares of common stock of Martinez Fashion at a total cost of $14 per share on March 18, 2017. On June 30, Martinez declared and paid $80,900 cash dividend to all stockholders. On December 31, Martinez reported net income of $121,000 for the year. At December 31, the market price of Martinez Fashion was $15 per share.

Situation 2
Skysong, Inc. obtained significant influence over Seles Corporation by buying 30% of Seles’s 29,700 outstanding shares of common stock at a total cost of $10 per share on January 1, 2017. On June 15, Seles declared and paid cash dividends of $33,000. On December 31, Seles reported a net income of $79,200 for the year.

Prepare all necessary journal entries in 2017 for both situations. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

DateAccount Titles and ExplanationDebitCredit
Situation 1: Sheridan Cosmetics
Jan. 1, 2017 Mar. 18, 2017 June 15, 2017 June 30, 2017 Dec. 31, 2017
Jan. 1, 2017 Mar. 18, 2017 June 15, 2017 June 30, 2017 Dec. 31, 2017
Jan. 1, 2017 Mar. 18, 2017 June 15, 2017 June 30, 2017 Dec. 31, 2017
Situation 2: Skysong, Inc
Jan. 1, 2017 Mar. 18, 2017 June 15, 2017 June 30, 2017 Dec. 31, 2017
Jan. 1, 2017 Mar. 18, 2017 June 15, 2017 June 30, 2017 Dec. 31, 2017
Jan. 1, 2017 Mar. 18, 2017 June 15, 2017 June 30, 2017 Dec. 31, 2017

 

Exercise 17-27

On August 15, 2016, Flint Co. invested idle cash by purchasing a call option on Counting Crows Inc. common shares for $810. The notional value of the call option is 900 shares, and the option price is $90. The option expires on January 31, 2017. The following data are available with respect to the call option.

DateMarket Price of Counting
Crows Shares
Time Value of Call
Option
September 30, 2016$108 per share$405
December 31, 2016$104 per share146
January 15, 2017$106 per share68

Prepare the journal entries for Flint for the following dates.

(a)Investment in call option on Counting Crows shares on August 15, 2016.
(b)September 30, 2016—Flint prepares financial statements.
(c)December 31, 2016—Flint prepares financial statements.
(d)January 15, 2017—Flint settles the call option on the Counting Crows shares.

(Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

No.DateAccount Titles and ExplanationDebitCredit
(a)Aug. 15, 2016 Sep. 30, 2016 Dec. 31, 2016 Jan. 15, 2017
(b)Aug. 15, 2016 Sep. 30, 2016 Dec. 31, 2016 Jan. 15, 2017
(To record the change in intrinsic value.)
(To record the time value change.)
(c)Aug. 15, 2016 Sep. 30, 2016 Dec. 31, 2016 Jan. 15, 2017
(To record the change in intrinsic value.)
(To record the time value change.)
(d)Aug. 15, 2016 Sep. 30, 2016 Dec. 31, 2016 Jan. 15, 2017
(To record the time value change.)
(To record settlement of call option.)

Brief Exercise 19-2

Kingbird Corporation began operations in 2017 and reported pretax financial income of $212,000 for the year. Kingbird’s tax depreciation exceeded its book depreciation by $33,000. Kingbird’s tax rate for 2017 and years thereafter is 30%. In its December 31, 2017, balance sheet, what amount of deferred tax liability should be reported?

Deferred tax liability to be reported$

 

Brief Exercise 19-6

At December 31, 2017, Buffalo Inc. had a deferred tax asset of $28,200. At December 31, 2018, the deferred tax asset is $55,400. The corporation’s 2018 current tax expense is $63,200.

What amount should Buffalo report as total 2018 income tax expense?

Total income tax expense for 2018$
Brief Exercise 19-11

At December 31, 2017, Windsor Corporation had a deferred tax liability of $555,000, resulting from future taxable amounts of $1,850,000 and an enacted tax rate of 30%. In May 2018, a new income tax act is signed into law that raises the tax rate to 35% for 2018 and future years.

Prepare the journal entry for Windsor to adjust the deferred tax liability. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

Account Titles and ExplanationDebitCredit
Brief Exercise 19-14

Ayayai Inc. incurred a net operating loss of $518,000 in 2017. Combined income for 2015 and 2016 was $336,000. The tax rate for all years is 30%. Ayayai elects the carryback option. Assume that it is more likely than not that the entire net operating loss carryforward will not be realized in future years.

Prepare all the journal entries necessary at the end of 2017. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

Account Titles and ExplanationDebitCredit
(To record carryback.)
(To record carryforward.)
(To record allowance.)

Exercise 19-8 (Part Level Submission)

Culver Company has the following two temporary differences between its income tax expense and income taxes payable.

201720182019
Pretax financial income$820,000$927,000$912,000
Excess depreciation expense on tax return(28,700)(42,000)(9,700)
Excess warranty expense in financial income20,10010,4007,800
Taxable income$811,400$895,400$910,100

The income tax rate for all years is 40%.

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Assuming there were no temporary differences prior to 2017, prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2017, 2018, and 2019. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

Account Titles and ExplanationDebitCredit
2017
2018
2019

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(b)(c)

 

The parts of this question must be completed in order. This part will be available when you complete the part above.

 

 

Exercise 19-17

Teal Co. establishes a $118,000,000 liability at the end of 2017 for the estimated site-cleanup costs at two of its manufacturing facilities. All related closing costs will be paid and deducted on the tax return in 2018. Also, at the end of 2017, the company has $59,000,000 of temporary differences due to excess depreciation for tax purposes, $8,260,000 of which will reverse in 2018.

The enacted tax rate for all years is 40%, and the company pays taxes of $75,520,000 on $188,800,000 of taxable income in 2017. Teal expects to have taxable income in 2018.

Determine the deferred taxes to be reported at the end of 2017.

Deferred tax assets$
Deferred tax liabilities$

 

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Indicate how the deferred taxes computed above are to be reported on the balance sheet.

Teal Co.Balance SheetDecember 31, 2017 For the Year Ended December 31, 2017 For the Quarter Ended December 31, 2017
Current Assets Current Liabilities Intangible Assets Long-term Investments Non-current Asset Non-current Liabilities Property, Plant and Equipment Stockholders’ Equity Total Assets Total Current Assets Total Current Liabilities Total Intangible Assets Total Liabilities Total Liabilities and Stockholders’ Equity Total Long-term Investments Total Long-term Liabilities Total Property, Plant and Equipment Total Stockholders’ Equity
$

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Assuming that the only deferred tax account at the beginning of 2017 was a deferred tax liability of $11,800,000, draft the income tax expense portion of the income statement for 2017, beginning with the line “Income before income taxes.” (Hint: You must first compute (1) the amount of temporary difference underlying the beginning $11,800,000 deferred tax liability, then (2) the amount of temporary differences originating or reversing during the year, and then (3) the amount of pretax financial income.)

Teal Co.Income Statement (Partial)December 31, 2017 For the Year Ended December 31, 2017 For the Quarter Ended December 31, 2017
Current Deferred Dividends Expenses Income before Income Taxes Income Tax Expense Net Income / (Loss) Retained Earnings, January 1 Retained Earnings, December 31 Revenues Total Expenses Total Revenues$
Current Deferred Dividends Expenses Income before Income Taxes Income Tax Expense Net Income / (Loss) Retained Earnings, January 1 Retained Earnings, December 31 Revenues Total Expenses Total Revenues
Current Deferred Dividends Expenses Income before Income Taxes Income Tax Expense Net Income / (Loss) Retained Earnings, January 1 Retained Earnings, December 31 Revenues Total Expenses Total Revenues$
Current Deferred Dividends Expenses Income before Income Taxes Income Tax Expense Net Income / (Loss) Retained Earnings, January 1 Retained Earnings, December 31 Revenues Total Expenses Total Revenues
Current Deferred Dividends Expenses Income before Income Taxes Income Tax Expense Net Income / (Loss) Retained Earnings, January 1 Retained Earnings, December 31 Revenues Total Expenses Total Revenues$

 

Exercise 19-20 (Part Level Submission)

The differences between the book basis and tax basis of the assets and liabilities of Indigo Corporation at the end of 2016 are presented below.

Book BasisTax Basis
Accounts receivable$48,500$0
Litigation liability29,4000

It is estimated that the litigation liability will be settled in 2017. The difference in accounts receivable will result in taxable amounts of $31,800 in 2017 and $16,700 in 2018. The company has taxable income of $334,000 in 2016 and is expected to have taxable income in each of the following 2 years. Its enacted tax rate is 34% for all years. This is the company’s first year of operations. The operating cycle of the business is 2 years.

(a)

Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2016. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

Account Titles and ExplanationDebitCredit
(b)

 

The parts of this question must be completed in order. This part will be available when you complete the part above.

Exercise 19-24 (Part Level Submission)

Monty Inc. reports the following pretax income (loss) for both book and tax purposes. (Assume the carryback provision is used where possible for a net operating loss.)

YearPretax
Income (Loss)
Tax Rate
2015$121,00040%
201693,00040%
2017(287,000)45%
2018129,00045%

The tax rates listed were all enacted by the beginning of 2015.

(a)

Prepare the journal entries for years 2015–2018 to record income tax expense (benefit) and income taxes payable (refundable), and the tax effects of the loss carryback and loss carryforward, assuming that based on the weight of available evidence, it is more likely than not that one-half of the benefits of the loss carryforward will not be realized. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

DateAccount Titles and ExplanationDebitCredit
2015
2016
2017
(To record refund.)
(To record allowance.)
2018
(To record income taxes.)
(b)

 

The parts of this question must be completed in order. This part will be available when you complete the part above.

 

 

(c)

 

The parts of this question must be completed in order. This part will be available when you complete the part above.

 

Last Updated on February 11, 2019