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Homework answers / question archive / Homework Assignment 6: Chapter 19 Due: March 13, 2021 before midnight Instructions: I will not accept any typed solution and your answer must be in hand writing
Homework Assignment 6: Chapter 19
Due: March 13, 2021 before midnight
Instructions:
Question 1
Murphy Company purchased equipment for $450,000 on January 2, 2020, its first day of operations. For book purposes, the equipment will be depreciated using the straight-line method over three years with no salvage value. Pretax financial income and taxable income are as follows:
2020 2021 2022
Pretax financial income $224,000 $260,000 $300,000
Taxable income 184,000 260,000 340,000
The temporary difference between pretax financial income and taxable income is due to the use of accelerated depreciation for tax purposes.
Instructions
(a) Prepare the journal entries to record income taxes for all three years (expense, deferrals, and liabilities) assuming that the enacted tax rate applicable to all three years is 20%.
(b) Prepare the journal entries to record income taxes for all three years (expense, deferrals, and liabilities) assuming that the enacted tax rate as of 2020 is 20% but that in the middle of 2021, Congress raises the income tax rate to 25% retroactive to the beginning of 2021.
Question 2
The following differences enter into the reconciliation of financial income and taxable income of Abbott Company for the year ended December 31, 2020, its first year of operations. The enacted income tax rate is 20% for all years.
Pretax accounting income $800,000
Excess tax depreciation (480,000)
Litigation accrual 70,000
Unearned rent revenue deferred on the books but appropriately
recognized in taxable income 60,000
Interest income from New York municipal bonds (20,000)
Taxable income $430,000
1. Excess tax depreciation will reverse equally over a four-year period, 2021-2024.
2. It is estimated that the litigation liability will be paid in 2024.
3. Rent revenue will be recognized during the last year of the lease, 2024.
4. Interest revenue from the New York bonds is expected to be $20,000 each year until their maturity at the end of 2024.
Homework Assignment 5: Chapter 18
Due: March 6, 2021 before midnight
Instructions:
Question 1
On July 1, 2021, Ellsbury Inc. entered into a contract to deliver one of its specialty machines to Kickapoo Landscaping Co. The contract requires Kickapoo to pay the contract price of $3,000 in advance on July 15, 2021. Kickapoo pays Ellsbury on July 15, 2021, and Ellsbury delivers the machine (with cost of $1,900) on July 31, 2021.
Instructions
(a) Prepare the journal entry on July 1, 2021, for Ellsbury.
(b) Prepare the journal entry on July 15, 2021, for Ellsbury.
(c) Prepare the journal entry on July 31, 2021, for Ellsbury.
Question 2
Dalton Construction Co. contracted to build a bridge for $10,000,000. Construction began in 2021 and was completed in 2022. Data relating to the construction are:
2021 2022
Costs incurred during the year $3,300,000 $2,750,000
Estimated costs to complete 2,700,000 —
Dalton uses the percentage-of-completion method.
Instructions
(a) How much revenue should be reported for 2021? Show your computation.
(b) Make the entry to record progress billings of $4,100,000 during 2021.
(c) Make the entry to record the revenue and gross profit for 2021.
(d) How much gross profit should be reported for 2022? Show your computation.
(e) Compute the gross profit recognized in 2021 and 2022 if the company uses the completed contract method.
Homework Assignment 4: Chapter 17
Due: February 20 before midnight
Instructions:
Question 1:
Kind Company has the following securities in its portfolio of equity securities on December 31, 2021:
Cost Fair Value
5,000 shares of Tim Corp., Common $151,000 $139,000
10,000 shares of Great, Common 184,000 190,000
$335,000 $329,000
All of the securities had been purchased in 2021. In 2022, Kind completed the following securities transactions:
March 1 Sold 5,000 shares of Tim Corp., Common @ $32 less fees of $1,500.
April 1 Bought 600 shares of Fair Stores, Common @ $45 plus fees of $550.
The Kind Company portfolio of equity securities appeared as follows on December 31, 2022:
Cost Fair Value
10,000 shares of Great, Common $184,000 $195,500
600 shares of Fair Stores, Common 27,550 25,500
$211,550 $221,000
Instructions
Prepare the general journal entries for Kind Company for:
(a) the 2021 adjusting entry.
(b) the sale of the Tim Corp. stock.
(c) the purchase of the Fair Stores' stock.
(d) the 2022 adjusting entry.
Question 2:
Rich, Inc. acquired 40% of Doane Corporation's voting stock on January 1, 2021 for $1,200,000. During 2021, Doane earned $400,000 and paid dividends of $250,000. Rich's 30% interest in Doane gives Rich the ability to exercise significant influence over Doane's operating and financial policies. During 2022, Doane earned $600,000 and paid cash dividends of $200,000 on April 1 and $150,000 on October 1. On July 1, 2022, Rich sold half of its stock in Doane for $660,000 cash.
Homework Assignment 3: Chapter 16
Due: February 13 before midnight
Instructions:
Question 1:
For each of the unrelated transactions described below, present the entry(ies) required to record the bond transactions.
1. On August 1, 2021, Love Corporation called its 10% convertible bonds for conversion. The $8,000,000 par bonds were converted into 320,000 shares of $20 par common stock. On August 1, there was $800,000 of unamortized premium applicable to the bonds. The fair value of the common stock was $20 per share. Ignore all interest payments.
2. Fair, Inc. decides to issue convertible bonds instead of common stock. The company issues 10% convertible bonds, par $4,000,000, at 97. The investment banker indicates that if the bonds had not been convertible they would have sold at 94.
3. Equity Company issues $9,000,000 of bonds with a coupon rate of 8%. To help the sale, detachable stock warrants are issued at the rate of ten warrants for each $1,000 bond sold. It is estimated that the value of the bonds without the warrants is $8,883,000 and the value of the warrants is $567,000. The bonds with the warrants sold at 101.
Question 2:
Honest Corp. had $800,000 net income in 2021. On January 1, 2021 there were 200,000 shares of common stock outstanding. On April 1, 20,000 shares were issued and on September 1, Honest bought 30,000 shares of treasury stock. There are 30,000 options to buy common stock at $40 a share outstanding. The market price of the common stock averaged $50 during 2021. The tax rate is 40%.
During 2021, there were 40,000 shares of convertible preferred stock outstanding. The preferred is $100 par, pays $3.50 a year dividend, and is convertible into three shares of common stock.
Honest issued $2,000,000 of 8% convertible bonds at face value during 2020. Each $1,000 bond is convertible into 30 shares of common stock.
Required:
Compute basic and diluted earnings per share for 2021. Complete the schedule and show all computations.
Net Adjust- Adjusted Adjust- Adjusted
Security Income ment Net Income Shares ment Shares EPS
Homework Assignment 2: Chapter 15
Due: January 30 before midnight
Instructions:
Fair, Inc., has $800,000 of 4% preferred stock and $1,200,000 of common stock outstanding, each having a par value of $10 per share. No dividends have been paid or declared during 2019 and 2020. As of December 31, 2021, it is desired to distribute $270,000 in dividends.
Required:
How much will the preferred and common stockholders receive under each of the following assumptions:
(a) The preferred is noncumulative and nonparticipating.
(b) The preferred is cumulative and nonparticipating.
(c) The preferred is cumulative and fully participating.
(d) The preferred is cumulative and participating to 7% total.
