ACC423 Questions

Exercise 19-2

Accounting2018

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At the beginning of 2017, Marin Construction Company changed from the completed-contract method to recognizing revenue over time (percentage-of-completion) for financial reporting purposes. The company will continue to use the completed-contract method for tax purposes. For years prior to 2017, pretax income under the two methods was as follows: percentage-of-completion $128,200, and completed-contract $76,300. The tax rate is 35%. Prepare Marin’s 2017 journal entry to record the change in accounting principle. (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 Explanation

Debit

Credit

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Marin Company changed depreciation methods in 2017 from double-declining-balance to straight-line. Depreciation prior to 2017 under double-declining-balance was $88,200, whereas straight-line depreciation prior to 2017 would have been $46,500. Marin’s depreciable assets had a cost of $249,500 with a $43,700 salvage value, and an 8-year remaining useful life at the beginning of 2017. Prepare the 2017 journal entry related to Marin’s depreciable assets (Equipment). (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 Explanation

Debit

Credit

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At January 1, 2017, Pronghorn Company reported retained earnings of $2,170,000. In 2017, Pronghorn discovered that 2016 depreciation expense was understated by $428,000. In 2017, net income was $922,000 and dividends declared were $225,000. The tax rate is 35%. Prepare a 2017 retained earnings statement for Pronghorn Company.

PRONGHORN COMPANY Retained Earnings Statement

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Indicate the effect—Understate, Overstate, No Effect—that each of the following errors has on 2017 net income and 2018 net income.

		2017	2018
(a)	Equipment purchased in 2015 was expensed.	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
(b)	Wages payable were not recorded at 12/31/17.	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
(c)	Equipment purchased in 2017 was expensed.	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
(d)	2017 ending inventory was overstated.	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
(e)	Patent amortization was not recorded in 2018.	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif

Sage Company began operations on January 1, 2015, and uses the average-cost method of pricing inventory. Management is contemplating a change in inventory methods for 2018. The following information is available for the years 2015–2017.

	Net Income Computed Using
	Average-Cost Method	FIFO Method	LIFO Method
2015	$15,910	$19,060	$12,010
2016	18,170	21,170	14,110
2017	19,880	25,200	17,040

(a) Prepare the journal entry necessary to record a change from the average cost method to the FIFO method in 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.)

Account Titles and Explanation

Debit

Credit

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(b) Determine net income to be reported for 2015, 2016, and 2017, after giving effect to the change in accounting principle.

		Net Income
2015		$ https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
2016		$ https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
2017		$ https://edugen.wileyplus.com/edugen/art2/common/pixel.gif

(c) Assume Sage Company used the LIFO method instead of the average cost method during the years 2015–2017. In 2018, Sage changed to the FIFO method. Prepare the journal entry necessary to record the change in principle. (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 Explanation

Debit

Credit

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Presented below are income statements prepared on a LIFO and FIFO basis for Waterway 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. Waterway’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	$2,910	$2,910	$2,910	$2,910
Cost of goods sold	1,130	1,040	1,050	990
Operating expenses	1,050	1,050	1,050	1,050
Income before profit-sharing	730	820	810	870
Profit-sharing expense	73	82	86	82
Net income	$657	$738	$724	$788

Answer the following questions.

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Collapse question part

(a)

If comparative income statements are prepared, what net income should Waterway report in 2016 and 2017? (Round answers to 0 decimal places, e.g. 125.)

2017

2016

Net income

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Listed below are various types of accounting changes and errors. For each change or error, indicate how it would be accounted for using the following code:

1.	Change in a plant asset’s salvage value.	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
2.	Change due to overstatement of inventory.	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
3.	Change from sum-of-the-years’-digits to straight-line method of depreciation.	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
4.	Change from presenting unconsolidated to consolidated financial statements.	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
5.	Change from LIFO to FIFO inventory method.	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
6.	Change in the rate used to compute warranty costs.	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
7.	Change from an unacceptable accounting principle to an acceptable accounting principle.	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
8.	Change in a patent’s amortization period.	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
9.	Change from completed-contract to percentage-of-completion method on construction contracts.	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
10.	Change from FIFO to average-cost inventory method.	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif

Bramble Co. purchased a equipment on January 1, 2015, for $566,500. At that time, it was estimated that the equipment would have a 10-year life and no salvage value. On December 31, 2018, the firm’s accountant found that the entry for depreciation expense had been omitted in 2016. In addition, management has informed the accountant that the company plans to switch to straight-line depreciation, starting with the year 2018. At present, the company uses the sum-of-the-years’-digits method for depreciating equipment. Prepare the general journal entries that should be made at December 31, 2018, to record these events. (Ignore tax effects.) (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.)

Date	Account Titles and Explanation	Debit	Credit
Dec. 31, 2018	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
	(To correct for the omission of depreciation expense in 2016.)
Dec. 31, 2018	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
	(To record depreciation expense for 2018.)

You have been engaged to review the financial statements of Shamrock Corporation. In the course of your examination, you conclude that the bookkeeper hired during the current year is not doing a good job. You notice a number of irregularities as follows.

1.		Year-end wages payable of $3,100 were not recorded because the bookkeeper thought that “they were immaterial.”
2.		Accrued vacation pay for the year of $30,300 was not recorded because the bookkeeper “never heard that you had to do it.”
3.		Insurance for a 12-month period purchased on November 1 of this year was charged to insurance expense in the amount of $2,424 because “the amount of the check is about the same every year.”
4.		Reported sales revenue for the year is $2,301,260. This includes all sales taxes collected for the year. The sales tax rate is 6%. Because the sales tax is forwarded to the state’s Department of Revenue, the Sales Tax Expense account is debited. The bookkeeper thought that “the sales tax is a selling expense.” At the end of the current year, the balance in the Sales Tax Expense account is $115,060.

Prepare the necessary correcting entries, assuming that Shamrock uses a calendar-year basis. The books for the current year have not been closed. (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.

Account Titles and Explanation

Debit

Credit

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(To record the sales taxes due.)

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(To correct prior entry.)

The reported net incomes for the first 2 years of Bramble Products, Inc., were as follows: 2017, $140,600; 2018, $174,900. Early in 2019, the following errors were discovered.

1.		Depreciation of equipment for 2017 was overstated $17,600.
2.		Depreciation of equipment for 2018 was understated $40,500.
3.		December 31, 2017, inventory was understated $48,400.
4.		December 31, 2018, inventory was overstated $15,300.

Prepare the correcting entry necessary when these errors are discovered. Assume that the books are closed. (Ignore income tax considerations.) (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 Explanation

Debit

Credit

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The before-tax income for Sandhill Co. for 2017 was $101,000 and $84,100 for 2018. However, the accountant noted that the following errors had been made:

1.		Sales for 2017 included amounts of $36,200 which had been received in cash during 2017, but for which the related products were delivered in 2018. Title did not pass to the purchaser until 2018.
2.		The inventory on December 31, 2017, was understated by $9,500.
3.		The bookkeeper in recording interest expense for both 2017 and 2018 on bonds payable made the following entry on an annual basis.

Interest Expense	13,800
Cash		13,800

The bonds have a face value of $230,000 and pay a stated interest rate of 6%. They were issued at a discount of $14,000 on January 1, 2017, to yield an effective-interest rate of 7%. (Assume that the effective-yield method should be used.)

Ordinary repairs to equipment had been erroneously charged to the Equipment account during 2017 and 2018. Repairs in the amount of $8,100 in 2017 and $8,500 in 2018 were so charged. The company applies a rate of 10% to the balance in the Equipment account at the end of the year in its determination of depreciation charges.

Prepare a schedule showing the determination of corrected income before taxes for 2017 and 2018. (Enter negative amounts using either a negative sign preceding the number e.g. -15,000 or parentheses e.g. (15,000). Round answers to 0 decimal places, e.g. 125.)

	2017	2018
Income Before Tax	$ https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	$ https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
Corrections:
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https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
Corrected Income Before Tax	$ https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	$ https://edugen.wileyplus.com/edugen/art2/common/pixel.gif

On January 1, 2017, Marigold Co. purchased 22,000 shares (a 10% interest) in Elton John Corp. for $1,480,000. At the time, the book value and the fair value of John’s net assets were $12,100,000. On July 1, 2018, Marigold paid $3,340,000 for 44,000 additional shares of John common stock, which represented a 20% investment in John. The fair value of John’s identifiable assets net of liabilities was equal to their carrying amount of $13,200,000. As a result of this transaction, Marigold owns 30% of John and can exercise significant influence over John’s operating and financial policies. (Any excess fair value is attributed to goodwill.) John reported the following net income and declared and paid the following dividends.

	Net Income	Dividend per Share
Year ended 12/31/17	$630,000	None
Six months ended 6/30/18	490,000	None
Six months ended 12/31/18	754,000	$1.50

Determine the ending balance that Marigold Co. should report as its investment in John Corp. at the end of 2018.

Investment in Elton John Corp.

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On September 1, 2017, Hyde Corp., a newly formed company, had the following stock issued and outstanding: • Common stock, no par, $1 stated value, 5,000 shares originally issued at $15 per share. • Preferred stock, $10 par value, 1,500 shares originally issued for $25 per share. Hyde's September 1, 2017 statement of stockholders' equity should report

Common stock

Preferred stock

Additional Paid-in capital

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$5,000

$37,500

$70,000

$75,000

$37,000

$75,000

$15,000

$22,500

$5,000

$15,000

$92,500

Beck Corp. issued 200,000 shares of common stock when it began operations in year 1 and issued an additional 100,000 shares in year 2. Beck also issued preferred stock convertible to 100,000 shares of common stock. In year 3, Beck purchased 75,000 shares of its common stock and held it in Treasury. At December 31, year 3, how many shares of Beck's common stock were outstanding?

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300,000

325,000

225,000

400,000

Jones Co. had 50,000 shares of $5 par value common stock outstanding at January 1. On August 1, Jones declared a 5% stock dividend followed by a two-for-one stock split on September 1. What amount should Jones report as common shares outstanding at December 31?

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52,500

50,000

105,000

100,000

Teal Corp. had $100,000 of 7%, $20 par value preferred stock and 12,000 shares of $25 par value common stock outstanding throughout 2017.

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Assuming that total dividends declared in 2017 were $64,000, and that the preferred stock is not cumulative but is fully participating, common stockholders should receive 2017 dividends of what amount?

Common stockholders should receive

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Assuming that total dividends declared in 2017 were $64,000, and that the preferred stock is fully participating and cumulative with preferred dividends in arrears for 2016, preferred stockholders should receive 2017 dividends totaling what amount?

Preferred stockholders should receive

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Assuming that total dividends declared in 2017 were $30,000, that the preferred stock is cumulative, nonparticipating, and was issued on January 1, 2016, and that $5,000 of preferred dividends were declared and paid in 2016, the common stockholders should receive 2017 dividends totaling what amount?

Common stockholders should receive

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Whispering Corporation issued 316 shares of $10 par value common stock and 139 shares of $50 par value preferred stock for a lump sum of $18,198. The common stock has a market price of $20 per share, and the preferred stock has a market price of $100 per share. Prepare the journal entry to record the issuance. (Round intermediate calculations to 6 decimal places, e.g. 0.546872 and final answers to 0 decimal places, e.g., 1,520. 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 Explanation

Debit

Credit

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Tamarisk Corporation issued 180 shares of $12 par value common stock for $3,240. Prepare Tamarisk’s journal entry. (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 Explanation

Debit

Credit

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A restricted stock award was granted at the beginning of 2015 calling for 3,000 shares of stock to be awarded to executives at the beginning of 2019. The fair value of one option was $20 at grant date. During 2017, 100 shares were forfeited because an executive left the firm. What amount of compensation expense is recognized for 2017?

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$14,000

$15,000

$13,500

$14,500

A company had the following outstanding shares as of January 1, year 2:

Preferred stock, $60 par, 4%, cumulative	10,000 shares
Common stock, $3 par	50,000 shares

On April 1, year 2, the company sold 8,000 shares of previously unissued common stock. No dividends were in arrears on January 1, year 2, and no dividends were declared or paid during year 2. Net income for year 2 totaled $236,000. What amount is basic earnings per share for the year ended December 31, year 2?

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$4.07

$4.21

$3.66

$3.79

Novak Corporation has outstanding 1,700 $1,000 bonds, each convertible into 70 shares of $10 par value common stock. The bonds are converted on December 31, 2017, when the unamortized discount is $26,900 and the market price of the stock is $21 per share. Record the conversion using the book value approach. (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 Explanation

Debit

Credit

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On January 1, 2017, Culver Corporation granted 1,900 shares of restricted $5 par value common stock to executives. The market price (fair value) of the stock is $63 per share on the date of grant. The period of benefit is 2 years. Prepare Culver’s journal entries for January 1, 2017, and December 31, 2017 and 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.)

Date

Account Titles and Explanation

Debit

Credit

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Monty Company purchased, on January 1, 2017, as a held-to-maturity investment, $78,000 of the 9%, 5-year bonds of Chester Corporation for $72,234, which provides an 11% return. Prepare Monty’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. (Round answers to 0 decimal places, e.g. 1,225. 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.

Account Titles and Explanation

Debit

Credit

(a)

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(b)

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The following information relates to Bramble Co. for the year ended December 31, 2017: net income 1,263 million; unrealized holding loss of $11.6 million related to available-for-sale debt securities during the year; accumulated other comprehensive income of $58.1 million on December 31, 2016. Assuming no other changes in accumulated other comprehensive income. Determine (a) other comprehensive income for 2017, (b) comprehensive income for 2017, and (c) accumulated other comprehensive income at December 31, 2017. (Enter answers in millions to 1 decimal place, e.g. 25.5. Enter loss using either a negative sign preceding the number e.g. -45.2 or parentheses e.g. (45.2).)

(a)

Other comprehensive income(loss) for 2017

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million

(b)

Comprehensive income for 2017

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million

(c)

Accumulated other comprehensive income

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million

Presented below are two independent cases related to available-for-sale debt investments.

	Case 1	Case 2
Amortized cost	$36,310	$105,500
Fair value	27,230	114,530
Expected credit losses	22,700	98,260

For each case, determine the amount of impairment loss, if any. (If no loss, please enter 0. Do not leave any fields blank.)

Case 1

Impairment Loss

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Case 2

Impairment Loss

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On January 1, 2017, Flounder Company purchased 12% bonds having a maturity value of $270,000, for $290,470.00. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2017, and mature January 1, 2022, with interest receivable January 1 of each year. Flounder Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified in the held-to-maturity category.

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Prepare the journal entry at the date of the bond purchase. (Enter answers to 2 decimal places, e.g. 2,525.25. 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.)

Date	Account Titles and Explanation	Debit	Credit
Jan. 1, 2017	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif

SHOW LIST OF ACCOUNTS

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Prepare a bond amortization schedule. (Round answers to 2 decimal places, e.g. 2,525.25.)

Schedule of Interest Revenue and Bond Premium Amortization Effective-Interest Method
Date	Cash Received	Interest Revenue	Premium Amortized	Carrying Amount of Bonds
1/1/17	$ https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	$ https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	$ https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	$ https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
1/1/18	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
1/1/19	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
1/1/20	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
1/1/21	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
1/1/22	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif

SHOW LIST OF ACCOUNTS

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Prepare the journal entry to record the interest revenue and the amortization at December 31, 2017. (Round answers to 2 decimal places, e.g. 2,525.25. 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.)

Date

Account Titles and Explanation

Debit

Credit

Dec. 31, 2017

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SHOW LIST OF ACCOUNTS

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Prepare the journal entry to record the interest revenue and the amortization at December 31, 2018. (Round answers to 2 decimal places, e.g. 2,525.25. 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.)

Date

Account Titles and Explanation

Debit

Credit

Dec. 31, 2018

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At December 31, 2017, the available-for-sale debt portfolio for Splish, Inc. is as follows.

Security	Cost	Fair Value	Unrealized Gain (Loss)
A	$210,875	$180,750	$(30,125	)
B	150,625	168,700	18,075
C	277,150	307,275	30,125
Total	$638,650	$656,725	18,075
Previous fair value adjustment balance—Dr.	4,820
Fair value adjustment—Dr.	$13,255

On January 20, 2018, Splish, Inc. sold security A for $181,955. The sale proceeds are net of brokerage fees. SplishInc. reports net income in 2017 of $1,446,000 and in 2018 of $1,687,000. Total holding gains (including any realized holding gain or loss) equal $482,000 in 2018.

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Prepare a statement of comprehensive income for 2017, starting with net income.

SPLISH, INC Statement of Comprehensive Income For the Year Ended December 31, 2017
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Prepare a statement of comprehensive income for 2018, starting with net income.

SPLISH, INC Statement of Comprehensive Income For the Year Ended December 31, 2018
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https://edugen.wileyplus.com/edugen/art2/common/pixel.gif : https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
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Nash financial income for Lake Inc. is $310,000, and its taxable income is $100,000 for 2018. Its only temporary difference at the end of the period relates to a $60,000 difference due to excess depreciation for tax purposes. If the tax rate is 42% for all periods, compute the amount of income tax expense to report in 2018. No deferred income taxes existed at the beginning of the year.

Income tax expense

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Concord Corporation began operations in 2017 and reported pretax financial income of $234,000 for the year. Concord’s tax depreciation exceeded its book depreciation by $32,000. Concord’s tax rate for 2017 and years thereafter is 40%. Assume this is the only difference between Concord’s pretax financial income and taxable income. Prepare the journal entry to record the income tax expense, deferred income taxes, and income taxes payable. (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 Explanation

Debit

Credit

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Show how the deferred tax liability will be classified on the December 31, 2017, balance sheet.

Deferred tax liability should be classified as a

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on the December 31, 2017, balance sheet.

Indigo Corporation had the following tax information.

Year	Taxable Income		Tax Rate	Taxes Paid
2015		$303,000		32%	$96,960
2016		323,000		27%	87,210
2017		402,000		27%	108,540

In 2018, Indigo suffered a net operating loss of $475,000, which it elected to carry back. The 2018 enacted tax rate is 26%. Prepare Indigo’s entry to record the effect of the loss carryback. (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 Explanation

Debit

Credit

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Stellar Company Balance Sheet (Partial)

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$

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$

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The following information is available for Splish Corporation for 2016 (its first year of operations).

1.		Excess of tax depreciation over book depreciation, $36,800. This $36,800 difference will reverse equally over the years 2017–2020.
2.		Deferral, for book purposes, of $20,300 of rent received in advance. The rent will be recognized in 2017.
3.		Pretax financial income, $322,400.
4.		Tax rate for all years, 40%.

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Compute taxable income for 2016.

Taxable income

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SHOW LIST OF ACCOUNTS

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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 Explanation

Debit

Credit

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SHOW LIST OF ACCOUNTS

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Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2017, assuming taxable income of $320,100. (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 Explanation

Debit

Credit

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Brass Co. reported income before income tax expense of $60,000 for 2017. Brass had no permanent or temporary timing differences for tax purposes. Brass has an effective tax rate of 30% and a $40,000 net operating loss carry-forward from 2016. What is the maximum income tax benefit that Brass can realize from the loss carry-forward for 2017?

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$20,000

$12,000

$18,000

$40,000

Fern Co. has net income, before taxes, of $200,000, including $20,000 interest revenue from municipal bonds and $10,000 paid for officers' life insurance premiums where the company is the beneficiary. The tax rate for the current year is 30%. What is Fern's effective tax rate?

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31.5%

28.5%

27.0%

30.0%

Wildhorse Corporation has the following balances at December 31, 2017.

Projected benefit obligation		$2,820,000
Plan assets at fair value		2,161,000
Accumulated OCI (PSC)		1,034,000

What is the amount for pension liability that should be reported on Wildhorse's balance sheet at December 31, 2017?

Pension liability balance at December 31, 2017

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The following information is available for the pension plan of Metlock Company for the year 2017.

Actual and expected return on plan assets	$ 14,100
Benefits paid to retirees	41,400
Contributions (funding)	90,300
Interest/discount rate	10	%
Prior service cost amortization	8,000
Projected benefit obligation, January 1, 2017	523,000
Service cost	54,600

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Compute pension expense for the year 2017.

Pension expense for 2017

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SHOW LIST OF ACCOUNTS

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Prepare the journal entry to record pension expense and the employer’s contribution to the pension plan in 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 Explanation

Debit

Credit

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Waterway 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 $89,280. Compute the amount of prior service cost amortization for the years 2017 through 2022 using the years-of-service method, setting up appropriate schedules.

Year		Annual Amortization
2017		$ https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
2018		https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
2019		https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
2020		https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
2021		https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
2022		https://edugen.wileyplus.com/edugen/art2/common/pixel.gif

Stellar 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	$1,490,000	$1,517,000
Market-related and fair value of plan assets	793,000	1,124,300
Accumulated benefit obligation	1,614,000	1,736,100
Accumulated OCI (G/L)—Net gain	0	(199,000	)

The service cost component of pension expense for employee services rendered in the current year amounted to $77,000 and the amortization of prior service cost was $122,100. The company’s actual funding (contributions) of the plan in 2017 amounted to $252,000. 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 $1,221,000 on January 1, 2017. Assume no benefits paid in 2017.

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Determine the amounts of the components of pension expense that should be recognized by the company in 2017. (Enter amounts that reduce pension expense with either a negative sign preceding the number e.g. -45 or parenthesis e.g. (45).)

Components of Pension Expense

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SHOW LIST OF ACCOUNTS

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Account Titles and Explanation

Debit

Credit

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(To record pension expense and employer’s contribution)

SHOW LIST OF ACCOUNTS

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Indicate the pension-related amounts that would be reported on the income statement and the balance sheet for Stellar Company for the year 2017.

Stellar Company Income Statement (Partial)

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Stellar Company Comprehensive Income Statement https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
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https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
		https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
https://edugen.wileyplus.com/edugen/art2/common/pixel.gif		$XXXX

During 2017, Orca Corp. decided to change from the FIFO method of inventory valuation to the weighted-average method. Inventory balances under each method were as follows:

	FIFO	Weighted-average
January 1, 2017	$71,000	$77,000
December 31, 2017	$79,000	$83,000

Orca's income tax rate is 30%. In its 2017 financial statements, what amount should Orca report as the cumulative effect of this accounting change?

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$4,000

$4,200

$2,800

$6,000

A partial trial balance of Bonita Corporation is as follows on December 31, 2018.

	Dr.	Cr.
Supplies	$2,400
Salaries and wages payable		$1,400
Interest Receivable	4,600
Prepaid Insurance	89,900
Unearned Rent		0
Interest Payable		16,000

Additional adjusting data:

1.		A physical count of supplies on hand on December 31, 2018, totaled $1,000.
2.		Through oversight, the Salaries and Wages Payable account was not changed during 2018. Accrued salaries and wages on December 31, 2018, amounted to $4,200.
3.		The Interest Receivable account was also left unchanged during 2018. Accrued interest on investments amounts to $4,100 on December 31, 2018.
4.		The unexpired portions of the insurance policies totaled $63,700 as of December 31, 2018.
5.		$30,000 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 $5,300 rather than the correct figure of $53,000.
7.		A further review of depreciation calculations of prior years revealed that equipment depreciation of $7,100 was not recorded. It was decided that this oversight should be corrected by a prior period adjustment.

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Assuming that the books have not been closed, what are the adjusting entries necessary at December 31, 2018? (Ignore income tax considerations.) (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.

Account Titles and Explanation

Debit

Credit

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SHOW LIST OF ACCOUNTS

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Assuming that the books have been closed, what are the adjusting entries necessary at December 31, 2018? (Ignore income tax considerations.) (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.

Account Titles and Explanation

Debit

Credit

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SHOW LIST OF ACCOUNTS

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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. (Round answers to 0 decimal places, e.g. 5,275. 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.)

1.		Depreciation on equipment for the year was erroneously recorded as $5,300 rather than the correct figure of $53,000.
2.		A further review of depreciation calculations of prior years revealed that equipment depreciation of $7,100 was not recorded. It was decided that this oversight should be corrected by a prior period adjustment.

No.

Account Titles and Explanation

Debit

Credit

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Kingbird Tool Company’s December 31 year-end financial statements contained the following errors.

	December 31, 2017	December 31, 2018
Ending inventory	$9,600 understated	$7,600 overstated
Depreciation expense	$2,100 understated	—

An insurance premium of $62,100 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 $16,300 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.

Total effect of errors on net income

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(b) Compute the total effect of the errors on the amount of Kingbird’s working capital at December 31, 2018.

Total effect on working capital

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(c) Compute the total effect of the errors on the balance of Kingbird’s retained earnings at December 31, 2018.

Total effect on retained earnings

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Presented below are income statements prepared on a LIFO and FIFO basis for Sheffield 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. Sheffield’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	$3,010	$3,010	$3,010	$3,010
Cost of goods sold	1,150	980	1,060	950
Operating expenses	980	980	980	980
Income before profit-sharing	880	1,050	970	1,080
Profit-sharing expense	88	105	100	105
Net income	$792	$945	$870	$975

Answer the following questions.

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If comparative income statements are prepared, what net income should Sheffield report in 2016 and 2017? (Round answers to 0 decimal places, e.g. 125.)

2017

2016

Net income

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Assume that Sheffield has a beginning balance of retained earnings at January 1, 2017, of $945 using the LIFO method. The company declared and paid dividends of $490 in 2017. Prepare the retained earnings statement for 2017, assuming that Sheffield has switched to the FIFO method. (Round answers to 0 decimal places, e.g. 125.)

SHEFFIELD COMPANY Retained Earnings Statement

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In January 2017, installation costs of $4,700 on new machinery were charged to Maintenance and Repairs Expense. Other costs of this machinery of $23,500 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. (Credit account titles are automatically indented when the 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.)

Date	Account Titles and Explanation	Debit	Credit
Dec. 31	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
	(To correct for the error of expensing installation costs on machinery acquired in January, 2017)
	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif	https://edugen.wileyplus.com/edugen/art2/common/pixel.gif
	(To record depreciation on machinery for 2018 based on a 20-year useful life)