Solved by verified expert :I.
Zurich Co. reports pretax
financial income of $70,000 for 20×1.
The following items cause taxable income to be different than pretax
financial income:
1.
Depreciation on the tax return
is greater than depreciation on the income statement by $16,000.
2.
Rent collected on the tax
return is greater than rent earned on the income statement by $22,000.
3.
Fines for pollution appear as
an expense of $11,000 on the income statement.
Zurich’s tax rate is 30% for all years and the company expects to report
taxable income in all future years.
a)
Compute taxable income.
b) Prepare the journal entry
to record income tax expense, deferred income tax, and income tax payable for
20×1
c) Prepare the income tax
expense section of the income statement for 20×1, beginning with the line “Income
before income taxes.”
II. Marie Leasing signs an agreement on
January 1, 20×1 to lease equipment to Metro Company. The following information relates to this
agreement.
The lease term is 6 years.
The equipment has an estimated economic life of 6 years.The cost of the asset to the lessor is $245,000. The fair value at January 1, 20×1 is
also $245,000.The asset will revert to the lessor at the end of the lease
term at which time the asset is expected to have a residual value of $43,622
(guaranteed by lessee).The agreement requires equal annual payments (each January 1),
beginning on January 1, 20×1.Collectibility of the lease payment s is reasonably
assured. There are no important
uncertainties surrounding the amount of costs yet to be incurred by the
lessor.
a) Assuming the lessor
desires a 10% rate of return on its investment, calculate the amount of the
annual lease payment required.
b) Prepare an amortization
schedule for the lease term using the Excel.
c) Prepare all of the journal
entries for the lessor for 20×1 and 20×2.
Assume the lessor’s annual accounting period ends on December 31.
III.
Castle Leasing signs a lease agreement on January 1, 20×1 to lease
equipment to Perry Company. The lease
term is 2 years and payments are required at the end of each year. The following information relates to this
agreement.
–
Perry Company has the option to
purchase the equipment for $8,000 upon the termination of the lease.
–
The equipment has a cost and
fair value of $160,000 to Castle; the useful economic life is 2 years.
–
Perry Company is required to
pay $5,000 each year (on 12/31) to the lessor for executory costs.
–
Castle Leasing desires to earn
a return of 10% on its investment (Perry’s incremental borrowing rate is also
10%).
a) What type of lease is this
for the lessee? Explain.
b) Calculate the annual lease
payment.
c) Prepare a lease
amortization schedule (use the Excel).
d) Prepare the journal
entries for the lessee for 20×1 and 20×2.
