Solved by verified expert :Week One – Homework Exercises E16-3, E16-5, E16-10, and E16-22E16-3 Ayres Services acquired an asset for $80 million in 2013. The asset is depreciated for financial reporting purposes over four years on a straight-line basis (no residual value). For tax purposes the asset’s cost is depreciated by MACRS. The enacted tax rate is 40%. Amounts for pretax accounting income, depreciation, and taxable income in 2013, 2014, 2015, and 2016 are as follows:2013 2014 2015 2016Pretax accounting income $330 $350 $365 $400Depreciation on the income statement 20 20 20 20Depreciation on the tax return (25) (33) (15) (7)Taxable income $325 $337 $370 $413Required: For December 31 of each year, determine (a) the temporary book–tax difference for the depreciable asset and (b) the balance to be reported in the deferred tax liability account.E16-5 Lance Lawn Services reports warranty expense by estimating the amount that eventually will be paid to satisfy warranties on its product sales. For tax purposes, the expense is deducted when the cost is incurred. At December 31, 2013, Lance has a warranty liability of $1 million and taxable income of $75 million. At December 31, 2012, Lance reported a deferred tax asset of $435,000 related to this difference in reporting warranties, its only temporary difference. The enacted tax rate is 40% each year.Required: Prepare the appropriate journal entry to record Lance’s income tax provision for 2013.E16-10 At the end of 2012, Payne Industries had a deferred tax asset account with a balance of $30 million attributable to a temporary book–tax difference of $75 million in a liability for estimated expenses. At the end of 2013, the temporary difference is $70 million. Payne has no other temporary differences and no valuation allowance for the deferred tax asset. Taxable income for 2013 is $180 million and the tax rate is 40%.Required: 1. Prepare the journal entry(s) to record Payne’s income taxes for 2013, assuming it is more likely than not that the deferred tax asset will be realized.2. Prepare the journal entry(s) to record Payne’s income taxes for 2013, assuming it is more likely than not that one-half of the deferred tax asset will ultimately be realized.E16-22 “(This exercise is based on the situation described in E 16–21, modified to include a carryforward in addition to a carryback.)Wynn Sheet Metal reported an operating loss of $160,000 for financial reporting and tax purposes in 2013. The enacted tax rate is 40%. Taxable income, tax rates, and income taxes paid in Wynn‘s first four years of operation were as follows:”Taxable Income Tax Rates Income Taxes Paid2009 $60,000 30% $18,0002010 70,000 30 21,0002011 80,000 40 32,0002012 60,000 45 27,000Required: 1. Prepare the journal entry to recognize the income tax benefit of the operating loss. Wynn elects the carryback option.2. Show the lower portion of the 2013 income statement that reports the income tax benefit of the operating loss.********************************Week Two – Homework Exercises E17-5, E17-7, E17-10, E17-12, and E17-15E17-5 The following data relate to Voltaire Company’s defined benefit pension plan:($ in millions)Plan assets at fair value, January 1 $600Expected return on plan assets 60Actual return on plan assets 48Contributions to the pension fund (end of year) 100Amortization of net loss 10Pension benefits paid (end of year) 11Pension expense 72Required: Determine the amount of pension plan assets at fair value on December 31.E17-7 Pension data for Fahy Transportation Inc. include the following:($ in millions)Discount rate, 7%Expected return on plan assets, 10%Actual return on plan assets, 11%Projected benefit obligation, January 1 730Plan assets (fair value), January 1 700Plan assets (fair value), December 31 750Benefit payments to retirees, December 31 66Required: Assuming cash contributions were made at the end of the year, what was the amount of those contributions?E17-10 Abbott and Abbott has a noncontributory, defined benefit pension plan. At December 31, 2013, Abbott and Abbott received the following information:Projected Benefit Obligation ($ in millions)Balance, January 1 $120Service cost 20Interest cost 12Benefit paid (9)Balance, December 31 $143Plan AssetsBalance, January 1 $80Actual return on plan assets 9Contributions 2013 20Benefits paid (9)Balance, December 31 $100The expected long-term rate of return on plan assets was 10%.There was no prior service cost and a negligible net loss-AOCI on January 1, 2013.Required: 1. Determine Abbott and Abbott’s pension expense for 2013.2. Prepare the journal entries to record Abbott and Abbott’s pension expense, funding, and payment for 2013.E17-12 “Clark Industries has a defined benefit pension plan that specifies annual retirement benefits equal to:1.2% × Service years × Final year’s salaryStanley Mills was hired by Clark at the beginning of 1994. Mills is expected to retire at the end of 2038 after 45 years of service. His retirement is expected to span 15 years. At the end of 2013, 20 years after being hired, his salary is $80,000. The company’s actuary projects Mills’s salary to be $270,000 at retirement. The actuary’s discount rate is 7%.”Required: 1. Estimate the amount of Stanley Mills’s annual retirement payments for the 15 retirement years earned as of the end of 2013.2. Suppose Clark’s pension plan permits a lump-sum payment at retirement in lieu of annuity payments. Determine the lump-sum equivalent as the present value as of the retirement date of annuity payments during the retirement period.3. What is the company’s projected benefit obligation at the end of 2013 with respect to Stanley Mills?4. Even though pension accounting centers on the PBO calculation, the ABO still must be disclosed in the pension disclosure note. What is the company’s accumulated benefit obligation at the end of 2013 with respect to Stanley Mills?5. If we assume no estimates change in the meantime, what is the company’s projected benefit obligation at the end of 2014 with respect to Stanley Mills?6. What portion of the 2014 increase in the PBO is attributable to 2014 service (the service cost component of pension expense) and to accrued interest (the interest cost component of pension expense)?E17-15 A partially completed pension spreadsheet showing the relationships among the elements that comprise the defined benefit pension plan of Universal Products is given below. The actuary’s discount rate is 5%. At the end of 2011, the pension formula was amended, creating a prior service cost of $120,000. The expected rate of return on assets was 8%, and the average remaining service life of the active employee group is 20 years in the current year as well as the previous two years.Required: Copy the incomplete spreadsheet and fill in the missing amounts.********************************Week Three – Homework Exercises E18-5, E18-11, E18-13, and E18-19E18-5 During its first year of operations, Eastern Data Links Corporation entered into the following transactions relating to shareholders’ equity. The articles of incorporation authorized the issue of 8 million common shares, $1 par per share, and 1 million preferred shares, $50 par per share.Required: Prepare the appropriate journal entries to record each transaction.Feb. 12 Sold 2 million common shares, for $9 per share.13 Issued 40,000 common shares to attorneys in exchange for legal services.13 Sold 80,000 of its common shares and 4,000 preferred shares for a total of $945,000. Nov. 15 Issued 380,000 of its common shares in exchange for equipment for which the cash price was known to be $3,688,000.E18-11 Borner Communications’ articles of incorporation authorized the issuance of 130 million common shares. The transactions described below effected changes in Borner’s outstanding shares. Prior to the transactions, Borner’s shareholders’ equity included the following:Shareholders’ Equity ($ in millions)Common stock, 100 million shares at $1 par $100Paid-in capital—-excess of par 300Retained earnings 210Required: Assuming that Borner Communications retires shares it reacquires (restores their status to that of authorized but unissued shares), record the appropriate journal entry for each of the following transactions:1. On January 7, 2013, Borner reacquired 2 million shares at $5.00 per share.2. On August 23, 2013, Borner reacquired 4 million shares at $3.50 per share.3. On July 25, 2014, Borner sold 3 million common shares at $6 per share.E18-13 In 2013, Western Transport Company entered into the treasury stock transactions described below. In 2011, Western Transport had issued 140 million shares of its $1 par common stock at $17 per share.Cash (140 million x $17) 2,380Common stock (140 million x $16) 140PIC in excess of par-C/S (140 million x $16) 2,240Required: Prepare the appropriate journal entry for each of the following transactions:1. On January 23, 2013, Western Transport reacquired 10 million shares at $20 per share.2. On September 3, 2013, Western Transport sold 1 million treasury shares at $21 per share.3. On November 4, 2013, Western Transport sold 1 million treasury shares at $18 per share.E18-19 The shareholders’ equity of Core Technologies Company on June 30, 2012, included the following:Common stock , $1 par; authorized, 8 million shares;issued and outstanding, 3 million sharesPaid-in capital—excess of parRetained earningsOn April 1, 2013, the board of directors of Core Technologies declared a 10% stock dividendon common shares, to be distributed on June 1. The market price of Core Technologies’common stock was $30 on April 1, 2013, and $40 on June 1, 2013.Required: Prepare the journal entry to record the distribution of the stock dividend on the declaration date.********************************Week Four – Homework Exercises E19-2, E19-5, E19-10, and E19-17E19-2 On January 1, 2013, VKI Corporation awarded 12 million of its $1 par common shares to key personnel, subject to forfeiture if employment is terminated within three years. On the grant date, the shares have a market price of $2.50 per share.Required: 1. Determine the total compensation cost pertaining to the restricted shares.2. Prepare the appropriate journal entry to record the award of restricted shares on January 1, 2013.3. Prepare the appropriate journal entry to record compensation expense on December 31, 2013.4. Prepare the appropriate journal entry to record compensation expense on December 31, 2014.5. Prepare the appropriate journal entry to record compensation expense on December 31, 2015.6. Prepare the appropriate journal entry to record the lifting of restrictions on the shares at December 31, 2015.E19-5 American Optical Corporation provides a variety of share-based compensation plans to its employees. Under its executive stock option plan, the company granted options on January 1, 2013, that permit executives to acquire 4 million of the company’s $1 par common shares within the next five years, but not before December 31, 2014 (the vesting date). The exercise price is the market price of the shares on the date of grant, $14 per share. The fair value of the 4 million options, estimated by an appropriate option pricing model, is $3 per option. No forfeitures are anticipated. Ignore taxes.Required: 1. Determine the total compensation cost pertaining to the options.2. Prepare the appropriate journal entry to record the award of options on January 1, 2013.3. Prepare the appropriate journal entry to record compensation expense on December 31, 2013.4. Prepare the appropriate journal entry to record compensation expense on December 31, 2014.E19-10 For the year ended December 31, 2013, Norstar Industries reported net income of $655,000. At January 1, 2013, the company had 900,000 common shares outstanding. The following changes in the number of shares occurred during 2013:30-Apr Sold 60,000 shares in a public offering.24-May Declared and distributed a 5% stock dividend.1-Jun Issued 72,000 shares as part of the consideration for the purchase of assets from a subsidiaryRequired: Compute Norstar’s earnings per share for the year ended December 31, 2013.E19-17 “(Note: This is a variation of E 19–15 modified to include convertible bonds).On December 31, 2012, Berclair Inc. had 200 million shares of common stock and 3 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2013, Berclair purchased 24 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2013. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2013, was $150 million. The income tax rate is 40%.Also outstanding at December 31 were incentive stock options granted to key executives on September 13, 2008. The options are exercisable as of September 13, 2012, for 30 million common shares at an exercise price of $56 per share. During 2013, the market price of the common shares averaged $70 per share.$62.5 million of 8% bonds, convertible into 6 million common shares, were issued at face value in 2009.”Compute Berclair’s basic and diluted earnings per share for the year ended December 31, 2013.********************************Week Five – Homework Exercises E20-1, E20-10, E20-17, and E20-24E20-1 “During 2011 (its first year of operations) and 2012, Batali Foods used the FIFO inventory costing method for both financial reporting and tax purposes. At the beginning of 2013, Batali decided to change to the average method for both financial reporting and tax purposes.Income components before income tax for 2013, 2012, and 2011 were as follows ($ in millions):”2013 2012 2011Revenues $420 $390 $380Cost of goods sold (FIFO) (46) (40) (38)Cost of goods sold (average) (62) (56) (52)Operating expenses (254) (250) (242)Dividends of $20 million were paid each year. Batali’s fiscal year ends December 31.Required: 1. Prepare the journal entry at the beginning of 2013 to record the change in accounting principle. (Ignore income taxes.)2. Prepare the 2013–2012 comparative income statements.3. Determine the balance in retained earnings at January 1, 2012, as Batali reported previously using the FIFO method.4. Determine the adjustment to the January 1, 2012, balance in retained earnings that Batali would include in the 2013–2012 comparative statements of retained earnings or retained earnings column of the statements of shareholders’ equity to revise it to the amount it would have been if Batali had used the average method.E20-10 For financial reporting, Clinton Poultry Farms has used the declining-balance method of depreciation for conveyor equipment acquired at the beginning of 2010 for $2,560,000. Its useful life was estimated to be six years with a $160,000 residual value. At the beginning of 2013, Clinton decides to change to the straight-line method. The effect of this change on depreciation for each year is as follows ($ in 000s):Year Straight-Line Declining Balance Difference2010 $400 $852 $4532011 400 569 1692012 400 379 (21)$1,200 $1,801 $601Required: 1. Briefly describe the way Clinton should report this accounting change in the 2012–2013 comparative financial statements.2. Prepare any 2013 journal entry related to the change.E20-17 Wardell Company purchased a mini computer on January 1, 2011, at a cost of $40,000. The computer has been depreciated using the straight-line method over an estimated five-year useful life with an estimated residual value of $4,000. On January 1, 2013, the estimate of useful life was changed to a total of 10 years, and the estimate of residual value was changed to $900.Required: 1. Prepare the appropriate adjusting entry for depreciation in 2013 to reflect the revised estimate.2. Repeat requirement 1 assuming that the company uses the sum-of-the-years’-digits method instead of the straight-line method.E20-24 For each of the following inventory errors occurring in 2013, determine the effect of the error on 2013’s cost of goods sold, net income, and retained earnings. Assume that the error is not discovered until 2014 and that a periodic inventory system is used. Ignore income taxes.U = Understated O = Overstated NE = No effect(Example) 1. Overstatement of ending inventory2. Overstatement of purchases3. Understatement of beginning inventory4. Freight-in charges are understated5. Understatement of ending inventory6. understatement of purchases7. Overstatement of beginning inventory8. Understatement of purchases and understatement of ending inventory, by the same amount********************************Week Six – Homework Exercises E21-14, E21-21 and P21-4E21-14 In preparation for developing its statement of cash flows for the year ended December 31, 2013, Millennium Solutions, Inc., collected the following information ($ in millions):Payment for the early extingushments oflong-term notes (book value: $50 million) $54Sales of common shares 176Retirement of common shares 122Loss on sale of equipment 2Proceeds from safe of equipment 8Issuance of short-term note payable for cash 10Acquisition of building for cash 7Purchase of marketable securities (not a cash equivalent) 5Purchase of marketable securities (considered a cash equivalent) 1Cash payment for 3-year insurance policy 3Collection of note receivable with interest (principal amount, $11) 13Declaration of cash dividends 33Distribution of cash dividends declared in 2012 30Required: 1. In Millennium’s statement of cash flows, what were net cash inflows (or outflows) from investing activities for 2013?2. In Millennium’s statement of cash flows, what were net cash inflows (or outflows) from financing activities for 2013?E21-21 The income statement and a schedule reconciling cash flows from operating activities to net income are provided below ($ in 000s) for Peach Computers.PEACH COMPUTERS Reconciliation of Net IncomeIncome Statement To Net Cash Flows from Operating ActivitesFor the Year Ended December 31, 2013Sales $305 Net income $22Cost of goods sold (185) Adjustments for Noncash EffectsGross margin 120 Depreciation expense 11Salaries expense $41 Loss on sale of land 5Insurance expense 19 Changes in operating assets and liabilities:Depreciation expense 11 Decrease in accounts receivable 6Loss on sale of land 5 76 Increase in inventory (13)Income before tax 44 Decrease in accounts payable (8)Income tax expense (22) Increase in salaries payable 5Net income $22 Decrease in prepaid insurance 9Increase in income tax payable 20Net cash flows from operating activities $57Required: 1. Calculate each of the following amounts for Peach Computers:a. Cash received from customers during the reporting period.b. Cash paid to suppliers of goods during the reporting period.c. Cash paid to employees during the reporting period.d. Cash paid for insurance during the reporting period.e. Cash paid for income taxes during the reporting period.2. Prepare the cash flows from operating activities section of the statement of cash flows (direct method).P21-4 The comparative balance sheets for 2013 and 2012 and the statement of income for 2013 are given below for Dux Company. Additional information from Dux’s accounting records is provided also.DUX COMPANYComparative Balance SheetsDecember 31, 2013 and 2012($ in 000s)2013 2012AssetsCash $33 $20Accounts receivable 44 47Dividends receivable 3 2Inventory 55 50Long-term investment 15 10Land 70 40Buildings and equipment 225 250Less: Accumulated depreciation (25) (50)$420 $369LiabilitiesAccounts payable $13 $20Salaries payable 2 5Interest payable 4 2Income tax payable 7 8Notes payable 30 0Bonds payable 95 70Less: Discount on bonds (2) (3)Shareholders’ EquityCommon stock 210 200Paid-in capital—excess of par 24 20Retained earnings 45 47Less: Treasury stock (8) 0$420 $369RevenuesSales revenue $200Dividend revenue 3 $203ExpensesCost of goods sold 120Salaries expense 25Depreciation expense 5Interest expense 8Loss on sale of building 3Income tax expense 17 178Net income $25Additional information from the accounting records:a. A building that originally cost $40,000, and which was three-fourths depreciated, was sold for $7,000.b. The common stock of Byrd Corporation was purchased for $5,000 as a long-term investment.c. Property was acquired by issuing a 13%, seven-year, $30,000 note payable to the seller.d. New equipment was purchased for $15,000 cash.e. On January 1, 2013, bonds were sold at their $25,000 face value.f. On January 19, Dux issued a 5% stock dividend (1,000 shares). The market price of the $10 par value common stock was $14 per share at that time.g. Cash dividends of $13,000 were paid to shareholders.h. On November 12, 500 shares of common stock were repurchased as treasury stock at a cost of $8,000.Required: Prepare the statement of cash flows of Dux Company for the year ended December 31, 2013. Present cash flows from operating activities by the direct method. (You may omit the schedule to reconcile net income to cash flows from operating activities.)********************************Week Seven – Homework Exercises P21-5 and P21-6P21-5 Comparative balance sheets for 2013 and 2012 and a statement of income for 2013 are given below for Metagrobolize Industries. Additional information from the accounting records of Metagrobolize also is provided.METAGROBOLIZE INDUSTRIESComparative Balance SheetsDecember 31, 2013 and 2012($ in 000s)2013 2012AssetsCash $600 $375Accounts receivable 600 450Inventory 900 525Land 675 600Building 900 900Less: Accumulated depreciation (300) (270)Equipment 2,850 2,250Less: Accumulated depreciation (525) (480)Patent 1,200 1,500$6,900 $5,850LiabilitiesAccounts payable $750 $450Accrued expenses payable 300 225Lease liability–land 150 0Shareholders’ EquityCommon stock 3,150 3000Paid-in capital—excess of par 750 675Retained earnings 1,800 1,500RevenuesSales revenue $2,645Gain on sale of land 90 $2,735ExpensesCost of goods sold $600Depreciation expense–building 30Depreciation expense–equipment 315Loss on sale of equipment 15Amortization of patent 300Operating expenses 500 1,760Net income $975Additional information from the accounting records:a. During 2013, equipment with a cost of $300,000 (90% depreciated) was sold.b. The statement of shareholders’ equity reveals reductions of $225,000 and $450,000 for stock dividends and cash dividends, respectively.Required: Prepare the statement of cash flows of Metagrobolize for the year ended December 31, 2013. Present cash flows from operating activities by the direct method. (You may omit the schedule to reconcile net income to cash flows from operating activities.)P21-6 The income statement and a schedule reconciling cash flows from operating activities to net income are provided below ($ in millions) for Mike Roe Computers.PEACH COMPUTERS Reconciliation of Net IncomeIncome Statement To Net Cash Flows from Operating ActivitesFor the Year Ended December 31, 2013Sales $150 Net income $13Cost of goods sold (90) Adjustments for noncash effects:Gross margin 60 Decrease in accounts receivable 5Salaries expense $20 Gain on sales of equipment (12)Insurance expense 12 Increase in inventory (6)Depreciation expense 5 Increase in accounts payable 9Interest expense 6 (43) Increase in salaries payable 3Gain and losses: Depreciation expense 5Gain on sale of equipment 12 Decrease in bond discount 3Loss on sale of land (3) Decrease in prepaid insurance 2Income before tax 26 Loss on sale of land 3Income tax expense (13) Increase in income tax payable 6Net income $13Net cash flows from operating activities $31Required: 1. Calculate each of the following amounts for Mike Roe Computers:a. Cash received from customers during the reporting period.b. Cash paid to suppliers of goods during the reporting period.c. Cash paid to employees during the reporting period.d. Cash paid for interest during the reporting period.e. Cash paid for insurance during the reporting period.f. Cash paid for income taxes during the reporting period.2. Prepare the cash flows from operating activities section of the statement of cash flows (direct method).
Expert answer:DeVry ACC 312 All Homework Exercises Week 1-7 (201
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