On January 1, 2018, Ameen Company purchased major pieces of manufacturing equipment for a total of $36 million. Ameen uses straight-line depreciation for financial statement reporting and MACRS for income tax reporting. At December 31, 2020, the book value of the equipment was $30 million and its tax basis was $20 million. At December 31, 2021, the book value of the equipment was $28 million and its tax basis was $12 million. There were no other temporary differences and no permanent differences. Pretax accounting income for 2021 was $50 million. Required: 1. Prepare the appropriate journal entry to record Ameen’s 2021 income taxes. Assume an income tax rate of 25%. 2. What is Ameen’s 2021 net income?
> In March 2021, Price Company began developing a new software system to be used internally for managing its inventory. The software integrates customer orders with inventory on hand to automatically place orders for additional inventory when needed. The s
> Prepare the necessary adjusting entries for Johnstone Controls at the end of its December 31, 2021, fiscal yearend for each of the following situations. No adjusting entries were recorded during the year. 1. On March 31, 2021, the company lent $50,000 to
> Deferred revenues represent liabilities recorded when cash is received from customers in advance of providing a good or service. What adjusting journal entry is required at the end of a period to recognize the amount of deferred revenues that were recogn
> Compute the required annual payment in Question 5–13. Data from Question 5-13: Assume that you borrowed $500 from a friend and promised to repay the loan in five equal annual installments beginning one year from today. Your friend wants to be reimbursed
> Briefly explain the difference between the income statement approach and the balance sheet approach to estimating bad debts.
> Define the ECL model for accounts receivable. How does it differ from the CECL model?
> Define the CECL model for accounts receivable. On what does it base the estimate of the allowance for uncollectible accounts?
> The Bockner Company shipped merchandise to Laetner Corporation on December 28, 2021. Laetner received the shipment on January 3, 2022. December 31 is the fiscal year-end for both companies. The merchandise was shipped f.o.b. shipping point. Explain the d
> What is the main difference between a perpetual inventory system and a periodic inventory system? Which system is used more often by major companies?
> Is restricted cash included in the reconciliation of cash balances on a statement of cash flows? Explain.
> When is a gain or a loss from a cash flow hedge reported in earnings?
> How are derivatives reported on the balance sheet? Why?
> In February 2021, Culverson Company began developing a new software package to be sold to customers. The software allows people to enter health information and daily eating and exercise habits to track their health status. The project was completed in No
> On January 1, 2021, S&S Corporation invested in LLB Industries’ negotiable two-year, 10% notes, with interest receivable quarterly. The company classified the investment as available-for-sale. S&S entered into a two-year interes
> On January 1, 2021, LLB Industries borrowed $200,000 from Trust Bank by issuing a two-year, 10% note, with interest payable quarterly. LLB entered into a two-year interest rate swap agreement on January 1, 2021, and designated the swap as a fair value he
> Indicate (by abbreviation) the type of hedge each activity described below would represent. Hedge Type: FV. Fair value hedge CF. Cash flow hedge FC. Foreign currency hedge N. Would not qualify as a hedge Activity: 1. An options contract to hedge possible
> Classified Electronics has an unfunded retiree health care plan. Each of the company’s three employees has been with the firm since its inception at the beginning of 2020. As of the end of 2021, the actuary estimates the total net cost of providing healt
> How might your solution differ if Lacy Construction prepares its financial statements according to International Financial Reporting Standards (IFRS)? Assume the actuary’s discount rate is the rate on high quality corporate bonds. Inclu
> Lacy Construction has a noncontributory, defined benefit pension plan. At December 31, 2021, Lacy received the following information: The expected long-term rate of return on plan assets was 10%. There were no AOCI balances related to pensions on January
> Prepare a pension spreadsheet to show the relationship among the PBO, plan assets, prior service cost, the net gain, pension expense, and the net pension asset. Data from E 17-19: Beale Management has a noncontributory, defined benefit pension plan. On
> On January 1, 2021, Ravetch Corporation’s projected benefit obligation was $30 million. During 2021, pension benefits paid by the trustee were $4 million. Service cost for 2021 is $12 million. Pension plan assets (at fair value) increased during 2021 by
> Beale Management has a noncontributory, defined benefit pension plan. On December 31, 2021 (the end of Beale’s fiscal year), the following pension-related data were available: Required: 1. Prepare the 2021 journal entry to record pensio
> Patel Industries has a noncontributory, defined benefit pension plan. Since the inception of the plan, the actuary has used as the discount rate the rate on high-quality corporate bonds, which recently has been 7%. During 2021, changing economic conditio
> Refer to the situation described in BE 9–7. Estimate ending inventory and cost of goods sold using the conventional method and the information provided. Data from BE 9-7: Kiddie World uses a periodic inventory system and the retail inv
> Actuary and trustee reports indicate the following changes in the PBO and plan assets of Douglas Roberts Industries during 2021: Required: 1. Determine Douglas-Roberts’s pension expense for 2021, and prepare the appropriate journal entr
> 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 2019, the pensi
> Warrick Boards calculated pension expense for its underfunded pension plan as follows: Required: Which elements of Warrick’s balance sheet are affected by the components of pension expense? What are the specific changes in these account
> Hicks Cable Company has a defined benefit pension plan. Three alternative possibilities for pension-related data at January 1, 2021, are shown below: Required: 1. For each independent case, calculate any amortization of the net loss or gain that should b
> Clark Industries has a defined benefit pension plan that specifies annual, year-end retirement benefits equal to 1.2% × Service years × Final year’s salary Stanley Mills was hired by Clark at the beginning of 2002. Mills is expected to retire at the end
> Pension data for Barry Financial Services Inc., include the following: Required: 1. Determine pension expense for 2021. 2. Prepare the journal entries to record (a) pension expense, (b) gains and losses (if any), (c) funding, and (d) retiree benefits for
> Abbott and Abbott has a noncontributory, defined benefit pension plan. At December 31, 2021, Abbott and Abbott received the following information: The expected long-term rate of return on plan assets was 10%. There was no prior service cost and a negligi
> Ayres Services acquired an asset for $80 million in 2021. The asset is depreciated for financial reporting purposes over four years on a straight-line basis (no residual value). Ayers deducted 100% of the asset’s cost for income tax rep
> Ayres Services acquired an asset for $80 million in 2021. 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.
> Access the FASB Accounting Standards Codification at the FASB website (www.fasb.org). What is the specific eight-digit Codification citation (XXX-XX-XX-X) that applies to each of the following items: 1. The specific items to which income tax expense is a
> Refer to the situation described in BE 9–7. Estimate ending inventory and cost of goods sold (LIFO) using the information provided. Data from BE 9-7: Kiddie World uses a periodic inventory system and the retail inventory method to esti
> The following income statement does not reflect intraperiod tax allocation. Required: Recast the income statement to reflect intraperiod tax allocation. The company’s tax rate is 25%.
> Delta Catfish Company has taken a position in its tax return to claim a tax credit of $10 million (direct reduction in taxes payable) and has determined that its sustainability is “more likely than not,” based on its t
> As of December 31, 2021, Lange Company has the following deferred tax assets and liabilities: Deferred tax assets: Pension plans = $300,000 Inventory = 200,000 Total deferred tax assets = $500,000 Deferred tax liabilities: Property, plant and equipment
> On January 1, 2018, Ameen Company purchased major pieces of manufacturing equipment for a total of $36 million. Ameen uses straight-line depreciation for financial statement reporting and deducted 100% of the equipment’s cost for income tax reporting in
> Case Development began operations in December 2021. When property is sold on an installment basis, Case recognizes installment income for financial reporting purposes in the year of the sale. For tax purposes, installment income is reported by the instal
> Case Development began operations in December 2021. When property is sold on an installment basis, Case recognizes installment income for financial reporting purposes in the year of the sale. For tax purposes, installment income is reported by the instal
> At December 31, DePaul Corporation had the following cumulative temporary differences associated with its operations: 1. Estimated warranty expense, $16 million temporary difference: expense recorded in the year of the sale; tax-deductible when paid (one
> Wynn Farms reported a net operating loss of $160,000 for financial reporting and tax purposes in 2021. The enacted tax rate is 25%. Taxable income, tax rates, and income taxes paid in Wynn’s first four years of operation were as follows
> Wynn Farms reported a net operating loss of $100,000 for financial reporting and tax purposes in 2021. The enacted tax rate is 25%. Taxable income, tax rates, and income taxes paid in Wynn’s first four years of operation were as follows
> During 2021, its first year of operations, Baginski Steel Corporation reported a net operating loss of $360,000 for financial reporting and tax purposes. The enacted tax rate is 25%. Required: 1. Prepare the journal entry to recognize the income tax bene
> Kiddie World uses a periodic inventory system and the retail inventory method to estimate ending inventory and cost of goods sold. The following data are available for the quarter ending September 30, 2021: Estimate ending inventory and cost of goods sol
> The information that follows pertains to Richards Refrigeration, Inc.: a. At December 31, 2021, temporary differences existed between the financial statement book values and the tax bases of the following ($ in millions): b. No temporary differences exis
> The information that follows pertains to Esther Food Products: a. At December 31, 2021, temporary differences were associated with the following future taxable (deductible) amounts: Depreciation $60,000 Prepaid expenses 17,000 Warranty expenses (12,000)
> Shwonson Industries reported a deferred tax asset of $5 million for the year ended December 31, 2020, related to a temporary difference of $20 million. The tax rate was 25%. The temporary difference is expected to reverse in 2022, at which time the defer
> Bronson Industries reported a deferred tax liability of $5 million for the year ended December 31, 2020, related to a temporary difference of $20 million. The tax rate was 25%. The temporary difference is expected to reverse in 2022, at which time the de
> Arnold Industries has pretax accounting income of $32 million for the year ended December 31, 2021. The tax rate is 25%. The only difference between accounting income and taxable income relates to an operating lease in which Arnold is the lessee. The inc
> Allmond Corporation, organized on January 3, 2021, had pretax accounting income of $14 million and taxable income of $20 million for the year ended December 31, 2021. The 2021 tax rate is 25%. The only difference between accounting income and taxable inc
> For the year ended December 31, 2021, Fidelity Engineering reported pretax accounting income of $978,000. Selected information for 2021 from Fidelity’s records follows: Interest income on municipal governmental bonds: $32,000 Depreciation claimed on the
> Southern Atlantic Distributors began operations in January 2021 and purchased a delivery truck for $40,000. Southern Atlantic plans to use straight-line depreciation over a four-year expected useful life for financial reporting purposes. For tax purposes
> When a company records a deferred tax asset, it may need to also report a valuation allowance if it is “more likely than not” that some portion or all of the deferred tax asset will not be realized. Required: 1. Access the FASB Accounting Standards Codif
> Refer to the situation described in BE 9–15. What steps would be taken to report the error in the 2021 financial statements? Data from BE 9-15: In 2021, Winslow International, Inc.’s controller discovered that ending inventories for 2019 and 2020 were o
> At the end of 2020, Payne Industries had a deferred tax asset account with a balance of $25 million attributable to a temporary book-tax difference of $100 million in a liability for estimated expenses. At the end of 2021, the temporary difference is $64
> At the end of 2020, Payne Industries had a deferred tax asset account with a balance of $25 million attributable to a temporary book-tax difference of $100 million in a liability for estimated expenses. At the end of 2021, the temporary difference is $64
> Each of the three independent situations below describes a finance lease in which annual lease payments are payable at the beginning of each year. The lessee is aware of the lessor’s implicit rate of return. Required: For each situation
> Manufacturers Southern leased high-tech electronic equipment from International Machines on January 1, 2021. International Machines manufactured the equipment at a cost of $85,000. Manufacturers Southern’s fiscal year ends December 31. Related Informatio
> Edison Leasing leased high-tech electronic equipment to Manufacturers Southern on January 1, 2021. Edison purchased the equipment from International Machines at a cost of $112,080. Related Information: Lease term 2 years (8 quarterly periods) Quarterly r
> Manufacturers Southern leased high-tech electronic equipment from Edison Leasing on January 1, 2021. Edison purchased the equipment from International Machines at a cost of $112,080. Related Information: Lease term 2 years (8 quarterly periods) Quarterly
> On June 30, 2021, Georgia-Atlantic, Inc. leased warehouse equipment from Builders, Inc. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $562,907 over a three-year lease term (also the asset’s useful life), payable each
> To raise operating funds, National Distribution Center sold its office building to an insurance company on January 1, 2021, for $800,000 and immediately leased the building back. The operating lease is for the final 12 years of the building’s estimated 2
> To raise operating funds, Signal Aviation sold an airplane on January 1, 2021, to a finance company for $770,000. Signal immediately leased the plane back for a 13-year period, at which time ownership of the airplane will transfer to Signal. The airplane
> On June 30, 2021, Georgia-Atlantic, Inc. leased warehouse equipment from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $562,907 over a three-year lease term (also the asset’s useful life), pay
> In 2021, Winslow International, Inc.’s controller discovered that ending inventories for 2019 and 2020 were overstated by $200,000 and $500,000, respectively. Determine the effect of the errors on retained earnings at January 1, 2021. (Ignore income taxe
> The following relate to an operating lease agreement: a. The lease term is 3 years, beginning January 1, 2021. b. The leased asset cost the lessor $800,000 and had a useful life of eight years with no residual value. The lessor uses straight-line depreci
> The lease agreement and related facts indicate the following: a. Leased equipment had a retail cash selling price of $300,000. Its useful life was five years with no residual value. b. The lease term was five years and the lessor paid $265,000 to acquire
> Terms of a lease agreement and related facts were as follows: a. Incremental costs of commissions for brokering the lease and consummating the completed lease transaction incurred by the lessor were $4,242. b. The retail cash selling price of the leased
> On January 1, 2021, NRC Credit Corporation leased equipment to Brand Services under a finance/sales-type lease designed to earn NRC a 12% rate of return for providing long-term financing. The lease agreement specified the following: a. Ten annual payment
> Warren Marina owns a large marina that contains numerous boat slips of various sizes. Warren contracts with boat owners to provide slips to house the customers’ boats. Lucky Fisherman Fleet contracted with Warren to provide space for four of its fishing
> Warren Marina owns a large marina that contains numerous boat slips of various sizes. Warren contracts with boat owners to provide slips to house the customers’ boats. Lucky Fisherman Fleet contracted with Warren to provide space for four of its fishing
> Universal Leasing leases electronic equipment to a variety of businesses. The company’s primary service is providing alternate financing by acquiring equipment and leasing it to customers under long-term sales-type leases. Universal earns interest under
> On June 30, 2021, Georgia-Atlantic, Inc. leased warehouse equipment from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $562,907 over a three-year lease term, payable each June 30 and December
> Federated Fabrications leased a tooling machine on January 1, 2021, for a three-year period ending December 31, 2023. The lease agreement specified annual payments of $36,000 beginning with the first payment at the beginning of the lease, and each Decemb
> For each of the three independent situations below determine the amount of the annual lease payments. Each describes a finance lease in which annual lease payments are payable at the beginning of each year. Each lease agreement contains an option that pe
> In 2021, Wade Window and Glass changed its inventory method from FIFO to LIFO. Inventory at the end of 2020 is $150,000. Describe the steps Wade Window and Glass should take to report this change.
> On January 1, 2021, Maywood Hydraulics leased drilling equipment from Aqua Leasing for a four-year period ending December 31, 2024, at which time possession of the leased asset will revert back to Aqua. The equipment cost Aqua $412,184 and has an expecte
> Each of the four independent situations below describes a sales-type lease in which annual lease payments of $100,000 are payable at the beginning of each year. Each is a finance lease for the lessee. Determine the following amounts at the beginning of t
> At January 1, 2021, Café Med leased restaurant equipment from Crescent Corporation under a nine-year lease agreement. The lease agreement specifies annual payments of $25,000 beginning January 1, 2021, the beginning of the lease, and at each December 31
> American Food Services, Inc. leased a packaging machine from Barton and Barton Corporation. Barton and Barton completed construction of the machine on January 1, 2021. The lease agreement for the $4 million (fair value and present value of the lease paym
> Natick Industries leased high-tech instruments from Framingham Leasing on January 1, 2021. Natick has the option to renew the lease at the end of two years for an additional three years. Natick is subject to a $45,000 penalty after two years if it fails
> Chance Enterprises leased equipment from Third Bank Leasing on January 1, 2021. Third Bank Leasing purchased the equipment at a cost of $1,000,000. Chance elected the short-term lease option. Related Information: Lease term 1 year (12 monthly periods) Mo
> On January 1, 2021, Nath-Langstrom Services, Inc., a computer software training firm, leased several computers under a two-year operating lease agreement from ComputerWorld Leasing, which routinely finances equipment for other firms at an annual interest
> Baillie Power leased high-tech electronic equipment from Courtney Leasing on January 1, 2021. Courtney purchased the equipment from Doane Machines at a cost of $250,000, its fair value. Related Information: Lease term 2 years (8 quarterly periods) Quarte
> Eye Deal Optometry leased vision-testing equipment from Insight Machines on January 1, 2021. Insight Machines manufactured the equipment at a cost of $200,000 and lists a cash selling price of $250,177. Appropriate adjusting entries are made quarterly. R
> When Patey Pontoons issued 6% bonds on January 1, 2021, with a face amount of $600,000, the market yield for bonds of similar risk and maturity was 7%. The bonds mature December 31, 2024 (4 years). Interest is paid semiannually on June 30 and December 31
> In 2021, Hopyard Lumber changed its inventory method from LIFO to FIFO. Inventory at the end of 2020 of $127,000 would have been $145,000 if FIFO had been used. Inventory at the end of 2021 is $162,000 using the new FIFO method but would have been $151,0
> Universal Foods sold the entire bond issue described in the previous exercise to Wang Communications. Required: 1. Prepare the journal entry to record the purchase of the bonds by Wang Communications on January 1, 2021. 2. Prepare the journal entry to re
> Universal Foods issued 10% bonds, dated January 1, with a face amount of $150 million on January 1, 2021. The bonds mature on December 31, 2035 (15 years). The market rate of interest for similar issues was 12%. Interest is paid semiannually on June 30 a
> The Gorman Group issued $900,000 of 13% bonds on June 30, 2021, for $967,707. The bonds were dated on June 30 and mature on June 30, 2041 (20 years). The market yield for bonds of similar risk and maturity is 12%. Interest is paid semiannually on Decembe
> Myriad Solutions, Inc. issued 10% bonds, dated January 1, with a face amount of $320 million on January 1, 2021, for $283,294,720. The bonds mature on December 31, 2030 (10 years). For bonds of similar risk and maturity the market yield is 12%. Interest
> The Bradford Company sold the entire bond issue described in the previous exercise to Saxton-Bose Corporation. Required: 1. Prepare the journal entry to record the purchase of the bonds by Saxton-Bose on January 1, 2021. 2. Prepare the journal entry to r
> On January 1, 2021, the general ledger of Freedom Fireworks includes the following account balances: During January 2021, the following transactions occurred: January 1: Borrowed $100,000 from Captive Credit Corporation. The installment notes bear intere
> At January 1, 2021, NCI Industries, Inc. was indebted to First Federal Bank under a $240,000, 10% unsecured note. The note was signed January 1, 2014, and was due December 31, 2022. Annual interest was last paid on December 31, 2019. NCI was experiencing
> At January 1, 2021, Brainard Industries, Inc., owed Second BancCorp $12 million under a 10% note due December 31, 2023. Interest was paid last on December 31, 2019. Brainard was experiencing severe financial difficulties and asked Second BancCorp to modi
> At January 1, 2021, Transit Developments owed First City Bank Group $600,000, under an 11% note with three years remaining to maturity. Due to financial difficulties, Transit was unable to pay the previous year’s interest. First City Bank Group agreed to
> On March 1, 2021, Brown-Ferring Corporation issued $100 million of 12% bonds, dated January 1, 2021, for $99 million (plus accrued interest). The bonds mature on December 31, 2040, and pay interest semiannually on June 30 and December 31. Brown-Ferring’s
> This exercise is a continuation of BE 9–11. During 2022, purchases at cost and retail were $168,000 and $301,000, respectively. Net markups, net markdowns, and net sales for the year were $3,000, $4,000, and $280,000, respectively. The
