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ACC 306 Entire Course (New)

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ACC 306 Week 1 Assignment E13-21, E13-22, P12-1, P12-7,P12-10, P12-14, P13-6 ACC 306 Week 1 Quiz ACC 306 Week 1 DQ 1 Equity Method ACC 306 Week 1 DQ 1 Accounting Pronouncements ACC 306 Week 1 DQ 2 Judgment Case 13-9 ACC 306 Week 2 Quiz ACC 306 Week 2 DQ 1 Ethics Case 14-8 Hunt Manufacturing Debt for equity swaps ACC 306 Week 2 DQ 2 Ethics Case 15-4 Leasehold Improvements ACC 306 Week 2 Assignment E 14-16, E 14-18, E 15-25, P14-21, P15-3 ACC 306 Week 3 Assignment E 16-24, E 16-25, E 17-10, E 17-19, P 16-7, P 17-16 ACC 306 Week 3 Quiz ACC 306 Week 3 Ethics Case 17-6 401(k) plan contributions ACC 306 Week 3 Integrating Case 16-5 accounting changes and error correction ACC 306 Week 4 Communication Case 18-10 ACC 306 Week 4 Quiz ACC 306 Week 4 Ethics Case 19-7 International Network Solutions ACC 306 Week 4 Assignment E 18-18, E 18-24, E 19-2, E 19-5, E 19-9, E 19-24, P 18-5 ACC 306 Week 5 Analysis Case 20-10 ACC 306 Week 5 Ethics Case 20-5 Softening the blow ACC 306 Week 5 Ethics Case 21-7


ACC 306 Week 5 Assignment E 20-18, P 21-11, P 21-14 ACC 306 Week 5 Final Lease Paper (2 Papers) ------------------------------------------------------------------------------------

ACC 306 Week 1 Assignment E13-21, E13-22, P12-1, P127,P12-10, P12-14, P13-6 (Ash Course)

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ACC 306 Week 1 Assignment E13-21, E13-22, P12-1, P12-7,P12-10, P12-14, P13-6 ------------------------------------------------------------------------------------

ACC 306 Week 1 DQ 1 Accounting Pronouncements

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Accounting Pronouncements. The Financial Accounting Standards Board has issued accounting pronouncements that affect how accounting transactions should be treated. These pronouncements may affect all companies or just specific industries, but no pronouncements have been issued that affect social media companies, like Zynga and Facebook. In the Forbes article, ―Social Media's Phony Accounting,‖ written by Francine McKenna, the author


discusses how these new rules are being invented. Read the article and then: a. Discuss the methods that have been invented and how management estimates can manipulate the resulting income from these transactions. Provide examples to support your opinion. b. Should these invented rules be implemented without authoritative approval? c. Should these new rules be labeled as Generally Accepted Accounting Principles (GAAP)? You must respond to at least two of your classmates’ postings by Day 7 to receive full credit. ------------------------------------------------------------------------------------

ACC 306 Week 1 DQ 1 Equity Method (Ash Course)

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P 12–13 - Miller Properties - Equity method ● LO5 LO6 On January 2, 2011, Miller Properties paid $19 million for 1 million s hares of Marlon Company’s 6 million outstanding common shares. M iller’s CEO became a member of Marlon’s board of directors during t he first quarter of 2011. The carrying amount of Marlon’s net assets was $66 million. Miller e stimated the fair value of those net assets to be the same except for a patent valued at $24 million above co st. The remaining amortization period for the patent is 10 years.


Marlon reported earnings of $12 million and paid dividends of $6 mill ion during 2011. On December 31, 2011, Marlon’s common stock wa s trading on the NYSE at $18.50 per share. Required: 1. When considering whether to account for its investment in Marlon under the equity method, what criteria should Miller’s management a pply? 2. Assume Miller accounts for its investment in Marlon using the equi ty method. Ignoring income taxes, determine the amounts related to the investment to be reported in its 2011: a. Income statement. b. Balance sheet. c. Statement of cash flows. ------------------------------------------------------------------------------------

ACC 306 Week 1 DQ 2 Judgment Case 13-9 (Ash Course)

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ACC 306 Week 1 DQ2 Judgment Case 13-9 Judgment Case 13–9 - Valleck Corporation Loss contingency and full disclosure ● LO5 LO6 In the March 2012 meeting of Valleck Corporation’s board of director s, a question arose as to the way a possible obligation should be disclo sed in the forthcoming financial statements for the year ended Decem ber 31. A veteran board member brought to the meeting a draft of a di sclosure note that had been prepared by the controller’s office for incl usion in the annual report. Here is the note:


On May 9, 2011, the United States Environmental Protection Agency (EPA) issued a Notice of Violation (NOV) to Valleck alleging violati ons of the Clean Air Act. Subsequently, in June 2011, the EPA comm enced a civil action with respect to the foregoing violation seeking civ il penalties of approximately $853,000. The EPA alleges that Valleck exceeded applicable volatile organic substance emission limits. The C ompany estimates that the cost to achieve compliance will be $190,00 0; in addition the Company expects to settle the EPA lawsuit for a civi l penalty of $205,000 which will be paid in 2014. ― Where did we get the $205,000 figure? ‖ he asked. On being inform ed that this is the amount negotiated last month by company attorneys with the EPA, the director inquires, ―Aren’t we supposed to report a l iability for that in addition to the note? ‖ Required: Explain whether Valleck should report a liability in addition to the not e. Why or why not? For full disclosure, should anything be added to t he disclosure note itself? ------------------------------------------------------------------------------------

Acc 306 Week 1 Homework (Be 13-1, Be 13-4, E 13-2, E 1310, Be 13-7, P 13-8, Be14-8, Be14-12, E14-5, E14-19, P14-3, P14-4)

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BE 13-1 BE 13-4 E 13-2


E 13-10 BE 13-7 P 13-8 BE14-8 BE14-12 E14-5 E14-19 P14-3 P14-4

BE13-1 On April 1, Lopez Sales, Inc. purchased inventory costing $458,400 using a 5-month trade note payable. The note carries an annual interest rate of 4%. Lopez has a December 31 year-end. Prepare the journal entries required. The company uses the perpetual inventory system. What is interest expense during the current year? The conceptual framework defines liabilities as "probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events." This definition includes three characteristics: 1. The entity will probably need to make a future sacrifice to satisfy the obligation (for example, disburse cash).

2. The entity has little or no option to avoid a future sacrifice.


BE 13-4 Sentinel Boutique sold $1,300 of gift cards, and received cash on May 25. On June 29, customers redeemed $650 of the gift cards, purchasing merchandise that cost Sentinel$424. The store uses a perpetual inventory system. Prepare the journal entries to record the activities related to the gift cards.

E 13-2 On May 1 of the current year, Manny Home and Casualty, Inc. collected $792,000 for three-year insurance policies. Manny has a December 31 year-end. The conceptual framework defines liabilities as "probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events." This definition includes three characteristics: 1. The entity will probably need to make a future sacrifice to satisfy the obligation (for example, disburse cash).

2. The entity has little or no option to avoid a future sacrifice. 3. The transaction or event giving rise to the obligation has already occurred. Operating liabilities are obligations arising from the firm's primary business operations, including short-term obligations such as


E 13-10 Ashly Electronics, Inc. manufactures and distributes LCD televisions. Every television manufactured by Ashly carries an assurance-type warranty covering all parts and labor to protect against defects for a two-year period. During the current year, Ashly's sales amounted to $10,008,000. Ashly estimates that the total costs of providing the assurance-type warranty will be 3% of sales. Actual repair costs for the first year after the sale were $219,000 with $151,500 for parts and $67,500 for labor (paid). During the second year, the company incurred $296,000 in total repairs with $153,500 for parts and $142,500 for labor (paid). A warranty is a company's promise or guarantee to repair or replace any defective goods for a specified period of time after the date of purchase. There are two types of warranties:

BE 13-7 Cole Products manufactures wireless routers for home use. The company reported total sales on account of $11,500,000 during the current year. The cost of the merchandise sold was $5,900,000. (Click the icon to view the warranty contract information.) Cole offers an assurance-type warranty that covers all repair costs, including parts and labor, for one year after the date of sale. The company estimates that warranty costs will amount to 4% of total


sales. In the year in which it sold the products, the company also sold 55,000 service-type warranties at a price of $95 per contract, and received cash. Cole sold the contracts at the end of the year and did not recognize any warranty revenue in the year of the sale. The service-type warranty covers all parts and labor for three years after the expiration of the assurance-type warranty. The company estimates that the service-type warranty will be used 85% in the first year of the contract, 14% in the second year, and 1% in the third year. During the year of the sale, customers made warranty claims of $291,000 against the assurance-type warranty. Of this amount, $200,000 was paid for parts and the $91,000 balance was incurred for labor (unpaid). During the following year, the company incurred $189,000 in actual warranty claims that are now only covered under the service-type warranty contract. The repair costs included $104,000 in parts and $85,000 in labor (unpaid). A warranty is a company's promise or guarantee to repair or replace any defective goods for a specified period of time after the date of purchase. There are two types of warranties: assurance-type warranties and service-type

P 13-8 Humphrey Corporation employs 44 production workers and pays them all the same salary. Humphrey employs 14 administrative staff personnel and pays them all the same salary. The following annual information is available for each employee group.(Click the icon to view the annual information for each employee group.)


Payroll taxes payable are liabilities that companies incur related to the payment of employee salary and wages. Payroll taxes include: • Social Security taxes • Unemployment taxes • Income taxes withheld Both employers and employees bear the responsibility for payroll taxes. In addition to an employee's salary, an employer is responsible for paying certain taxes, such as unemployment taxes and a portion of Social Security taxes. These payroll taxes are considered part of the company's wage expense in addition to the employee's salary. Employees also pay taxes—such as a portion of Social Security and income taxes—that the employer deducts from their gross wages and remits to the appropriate taxing jurisdictions and agencies. That is, the employer collects the tax for the government agencies imposing the tax and has an obligation to remit the amounts withheld, but does not incur an expense.

BE14-8 Fill in the missing items for each of the cases below:(Use a financial calculator or a spreadsheet application when necessary to make the appropriate calculations. Round all intermediary and final percentage calculations to the nearest hundredth percent, (X.XX%) or four decimal places .XXXX. Round all dollar values to the nearest dollar. Enter applicable discount amounts with a parentheses or a minus sign.)


BE14-12 On January 1, Modine Company issued $1,100,000 par value, 6%, 5year bonds (i.e., there were 1100$1,000 par value bonds in the issue). Interest is payable semiannually each January 1 and July 1 with the first interest payment due at the end of the period on July 1. Modine paid $3,000 in underwriting fees. Determine the issue price of the bonds, assuming that the market rate of interest is 12% and prepare the journal entry to record the bond issue under IFRS using the net method. A bond payable is a debt instrument typically issued for a period greater than a year to raise capital that requires the debtor to repay the principal balance at a specified date in the future, referred to as the maturity date. Bonds usually involve interest payments at fixed time intervals (for example, quarterly). When a company issues a bond, it becomes the debtor and the purchaser of the bond is the creditor. Bonds are offered to the public and can usually be traded in the secondary market. A company issues bonds to a large number of lenders in the market, and each lender extends credit to the corporation. This feature contrasts to a note payable, where there is one debtor and one creditor that transact directly. Corporations can issue bonds at:

E14-5 On January 1, 2016, the Yankee Road Corporation, a U.S. GAAP reporter, issued $1,300,000 par value, 7%, five-year bonds. Interest is payable semiannually each January 1 and July 1 with the first interest payment due at the end of the period on July 1, 2016. The market rate of interest on the date of the bond issue was 10%. The company's fiscal year ends on December 31. A bond payable is a debt instrument typically issued for a period greater than a year to raise capital that requires the debtor to repay the


principal balance at a specified date in the future, referred to as the maturity date. Bonds usually involve interest payments at fixed time intervals (for example, quarterly). When a company issues a bond, it becomes the debtor and the purchaser of the bond is the creditor. Bonds are offered to the public and can usually be traded in the secondary market. A company issues bonds to a large number of lenders in the market, and each lender extends credit to the corporation. This feature contrasts to a note payable, where there is one debtor and one creditor that transact directly. Corporations can issue bonds at:

E14-19 TFC Associates issued 3,100 of its $1,000, 9%, five-year par value bonds. There are no bond issue costs. Interest is paid annually. The market rate on the date of issue was 11%. The market price of TFC Associates common shares on the date the bonds are issued is $80 per share. The bonds were sold with 46,500 warrants to acquire 46,500 shares of the company's $2 par value common stock for $70 per share. That is, each bond carries 30 warrants. TFC Associates has existing bonds outstanding that trade without warrants at $910. There are other TFC Associates warrants outstanding that trade for $70 each.

P14-3 On January 1, 2016, Pure Products issued $800,000 par value, 10%, five-year bonds. Interest is payable semiannually at the end of the period. The market rate of interest on the date of the bond issue was 8%. A bond payable is a debt instrument typically issued for a period greater than a year to raise capital that requires the debtor to repay the principal balance at a specified date in the future, referred to as the maturity date. Bonds usually involve interest payments at fixed time


intervals (for example, quarterly). When a company issues a bond, it becomes the debtor and the purchaser of the bond is the creditor. Bonds are offered to the public and can usually be traded in the secondary market. A company issues bonds to a large number of lenders in the market, and each lender extends credit to the corporation. This feature contrasts to a note payable, where there is one debtor and one creditor that transact directly. Corporations can issue bonds at:

P14-4 Lambda Manufacturing Company issued $1,200,000 par value, 16%, five-year bonds dated January 1, 2016. The bonds pay interest semiannually each June 30 and December 31. Lambda issued the bonds on April 30, 2016, when the market rate of interest was 18%. Bond issue costs were $55,000. A bond payable is a debt instrument typically issued for a period greater than a year to raise capital that requires the debtor to repay the principal balance at a specified date in the future, referred to as the maturity date. Bonds usually involve interest payments at fixed time intervals (for example, quarterly). When a company issues a bond, it becomes the debtor and the purchaser of the bond is the creditor. Bonds are offered to the public and can usually be traded in the secondary market. A company issues bonds to a large number of lenders in the market, and each lender extends credit to the corporation. This feature contrasts to a note payable, where there is one debtor and one creditor that transact directly. ------------------------------------------------------------------------------------

ACC 306 Week 1 Quiz (2 Set)


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QUESTION 1 On January 1, 2015, Watson Corp. issued $900,000 par value, 8%, three-year bonds when the market rate of interest was 8%. Interest is payable semiannually each June 30 and December 31. Watson incurred bond issue costs of $29,000. Under IFRS, what is the journal entry when Watson issued the bonds? (Record debits first, then credits. Exclude explanations from any journal entries.)

QUESTION 2 On January 1, 2016, the Bionic Corporation issued $48,000 par value, 8%, four-year bonds that mature on December 31, 2019. Interest is payable semiannually each June 30 and December 31. The historical market rate of interest is 10%. Bionic paid $6,000 in underwriting fees. What is the journal entry to record the bond issuance? Prepare the amortization table. Prepare the journal entries for the first year of the bond issue. What is the carrying value of the bonds on December 31, 2016?

Prepare the amortization table for the bond issue, assuming that Bionic uses the effective interest rate method of amortization. (Round each calculation to the nearest whole number and then use the rounded value for each subsequent calculation in the table. Enter a "0"


for any zero amounts. Assume that any rounding differences have been adjusted for.)

QUESTIONS 3 Rundell Motors, Inc. employs 1,200 hourly employees. During the current year, employees earned 2,500 weeks of vacation, but 460 employees elected to carryover a total of 900 vacation weeks to the following year. Employees took the remaining 1,600 weeks of vacation during the current year. Rundell typically follows a policy that all accumulated vacation days are lost by the employee either upon termination or at retirement. Using an average wage rate of $850 per week, prepare the journal entries required to record Rundell's vacation accrual. (Record debits first, then credits. Exclude explanations from journal entries.)

Begin by preparing the journal entry for the compensation expense related to the 1,600 vacation weeks taken during the current year.

QUESTION 4 On July 1, year 1, Planet Corporation sold Ken Company 10-year, 8% bonds with a face amount of $500,000 for $520,000. The market rate was 6%. The bonds pay interest semiannually on June 30 and December 31. For the six months ended December 31, year 1, what amount should Planet report as bond interest expense and long-term liability in the balance sheet and income statement for Year 1?


QUESTIONS 5 In August of 2015, a customer at Oh So Yummy Restaurant slipped on a wet floor and broke a hip. The customer sued the corporation in September 2015. The company's attorneys believe that it is 99% likely that Oh So Yummy will lose this case and estimate that the loss will range between $550,000 and $1,050,000. There is no best estimate in this range of possible losses. What is the journal entry to record the contingent liability on the December

QUESTION 6 Reese Buys, Inc. offers a One-year assurance-type warranty on each television sold. The company also sells a three-year service-type warranty contract for its televisions. On January 1, 2015, Reese Buys sold $540,000 of service-type warranties and received cash. The service-type warranty contracts are effective immediately and cover the period from January 1, 2015, through December 31, 2017. Reese Buys incurred costs of $88,000 in 2016 related to the warranties, where $59,000 of this cost was for parts and the remaining $29,000 was for labor (unpaid). Provide the necessary journal entries to account for the service-type warranty contract over the January 1, 2015, through December 31, 2017, period. (Record debits first, then credits. Exclude explanations from any journal entries.)Begin by preparing the journal entry for service-type warranty contract sales for January 1, 2015.

QUESTION 7


During the fourth quarter ended December 31, year 1, Lighting Fixtures Inc. (LFI) had average outstanding revolving bank loans of $1.2 million. Assume that the quarterly interest charges associated with these loans was $7,500. If LFI makes the interest payment to the banks on January 15, year 2, what is the journal entry (if any) made by the company on December 31 to reflect the above?

QUESTION 8 Emil Associates manufactures and distributes component parts for car audio systems. Emil's assurance-type warranty covers all repair costs, including parts and labor, for two years after the date of sale. During the current year, Emil sold $4,200,000 of component parts to several manufacturers of car audio systems. The company estimates that warranty costs will be 5% of sales. Emil did not make any repairs in the year of the sale. However, during the following year, the company incurred $68,000 in warranty claims. The repair costs include $35,000 in parts and $33,000 in labor (unpaid). Emil uses the accrual-basis to account for its assurance-type warranty costs. What journal entries are necessary to record these transactions? (Record debits first, then credits. Exclude explanations from any journal entries.)

First, record the journal entry for the sale. Do not record the entry for the estimated warranty expense in the year of the sale. We will do that in the next step.


QUESTION 9 Far Out Producers is involved in two product liability lawsuits and a third lawsuit that the company brought against a competitor for patent infringement. At December 31, Year 1, the company's attorneys informed management of the following: t• It is probable that Far Out will lose one of the product liability lawsuits, although the actual settlement could be as low as $800,000 and as high as $2,000,000. • It is possible that the company could lose $1,000,000 in the second product liability lawsuit. • It is probably that Far Out will win $500,000 in the patent infringement case. What should Far Out report on its December 31, Year 1 balance sheet for these contingencies?

QUESTION 10 Assume that Alva Company issued a $176,000 face value, five-year, zero-coupon bond on January 1 of the current year. The current market interest rate is 2%. What is the bond issue price? Prepare an amortization table using the effective interest rate method. What are the journal entries to record the issuance and interest for the first year? Determine the issue price of the bond. (Use the present value and future value tables, the formula method, a financial calculator, or a spreadsheet for your calculations. If using present and future value tables or the formula method, use factor amounts rounded to five


decimal places, X.XXXXX. Round your final answers to the nearest whole dollar.)

SECOND ATTEMPT QUESTION 1 On January 1, 2016, the Ansara Corporation issued $47,000 par value, 6%, four-year bonds that mature on December 31, 2019. The market rate of interest was 10%. Ansara pays interest semiannually on June 30 and December 31. Ansara paid $4,800 in underwriting costs. Assume Ansara Corporation decides to retire the debt on December 31, 2017, for $35,100. What gain or loss should Ansara report in its 2017 financial statements? What is the journal entry to record the derecognition? Determine the gain or loss that Ansara should report in its 2017 financial statements. (Use a minus sign or parentheses for any loss amounts.)

QUESTION 2

Boyd Associates manufactures and distributes component parts for car audio systems. Boyd's assurance-type warranty covers all repair costs, including parts and labor, for two years after the date of sale. During the current year, Boyd sold $4,700,000 of component parts to several manufacturers of car audio systems. The company estimates that warranty costs will be 7%


of sales. Boyd did not make any repairs in the year of the sale. However, during the following year, the company incurred $73,000 in warranty claims. The repair costs include $40,000 in parts and $33,000 in labor (unpaid). Boyd uses the accrual-basis to account for its assurance-type warranty costs. What journal entries are necessary to record these transactions? (Record debits first, then credits. Exclude explanations from any journal entries.)

QUESTION 3

Worked Solution

QUESTION 4

Cole's Department Stores, Inc. records $135,000 in gift card sales and receives cash in year 1. Customers used 25% of the gift cards to purchase merchandise in year 2. Cost of sales is 40% of total sales. Cole's uses the perpetual inventory system. Record the sale and redemption of the gift cards in years 1 and 2, respectively. (Record debits first, then credits. Exclude explanations from any journal entries.)


QUESTION 5

Assume that Bellati Company issued a $116,000 face value, five-year, zero-coupon bond on January 1 of the current year. The current market interest rate is 2%.

What is the bond issue price? Prepare an amortization table using the effective interest rate method. What are the journal entries to record the issuance and interest for the first year?

Determine the issue price of the bond. (Use the present value and future value tables, the formula method, a financial calculator, or a spreadsheet for your calculations. If using present and future value tables or the formula method, use factor amounts rounded to five decimal places, X.XXXXX. Round your final answers to the nearest whole dollar.)

QUESTION 6

On July 1, year 1, Cobb Company issued 9% bonds in the face amount of $1,000,000 that mature in 10 years. The bonds were issued for $939,000 to yield 10%, resulting in a bond discount of $61,000. Cobb uses the effective interest method of amortizing bond discount. Interest is payable annually on June 30. At June 30, year 3, Cobb's unamortized bond discount should be:


QUESTION 7

Byrd Buys, Inc. offers a one-year assurance-type warranty on each television sold. The company also sells a three-year service-type warranty contract for its televisions. On January 1, 2015, Byrd Buys sold $420,000 of service-type warranties and received cash. The service-type warranty contracts are effective immediately and cover the period from January 1, 2015, through December 31, 2017. Byrd Buys incurred costs of $88,000 in 2016 related to the warranties, where $55,000 of this cost was for parts and the remaining $33,000 was for labor (unpaid). Provide the necessary journal entries to account for the service-type warranty contract over the January 1, 2015, through December 31, 2017, period. (Record debits first, then credits. Exclude explanations from any journal entries.)

Begin by preparing the journal entry for service-type warranty contract sales for January 1, 2015.

QUESTION 8

Salvo Company issued $792,000 par value, five-year, 2% bonds on June 1, 2016. The bonds are dated January 1, 2016, and pay interest semiannually each June 30 and December 31. The bonds are sold at par plus accrued interest because they are sold between interest dates. The company's fiscal year ends on December


31. Prepare the journal entries required to issue the bonds on June1, 2016, and record the first interest payment on June 30, 2016. (Record debits first, then credits. Exclude explanations from any journal entries.)

First, prepare the journal entry required to issue the bonds on June1, 2016.

QUESTION 9

Far Out Producers is involved in two product liability lawsuits and a third lawsuit that the company brought against a competitor for patent infringement. At December 31, Year 1, the company's attorneys informed management of the following: t• It is probable that Far Out will lose one of the product liability lawsuits, although the actual settlement could be as low as $800,000 and as high as $2,000,000. • It is possible that the company could lose $1,000,000 in the second product liability lawsuit. t• It is probably that Far Out will win $500,000 in the patent infringement case.


What should Far Out report on its December 31, Year 1 balance sheet for these contingencies?

QUESTION 10

During the fourth quarter ended December 31, year 1, Lighting Fixtures Inc. (LFI) had average outstanding revolving bank loans of $1.2 million. Assume that the quarterly interest charges associated with these loans was $7,500. If LFI makes the interest payment to the banks on January 15, year 2, what is the journal entry (if any) made by the company on December 31 to reflect the above? ------------------------------------------------------------------------------------

ACC 306 Week 1 Quiz

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Question 1: Which of the following may create employer liabilities in connection with their payrolls? Question 2: Current liabilities are normally recorded at the amount expected to be paid rather than at their present value. This practice can be supported by GAAP according to the concept of: Question 3: The investment category for which the investor's "positive intent and ability to hold" is important is:


Question 4: Which of the following investment securities held by Zoogle Inc. may be classified as held-to-maturity securities in its balance sheet? Question 5: Large, highly rated firms sometimes sell commercial paper: Question 6: If Pop Company exercises significant influence over Son Company and owns 40% of its common stock, then Pop Company: Question 7: A contingent loss should be reported in a footnote to the financial statements rather than being accrued if: Question 8: Assume that, on 1/1/06, Matsui Co. paid $1,200,000 for its investment in 60,000 shares of Yankee Inc. Further, assume that Yankee has 200,000 total shares of stock issued. The book value and fair value of Yankee's identifiable net assets were both $4,000,000 at 1/1/06. The following information pertains to Yankee during 2006: • Net Income$200,000 • Dividends declared and paid$60,000 • Market price of common stock on 12/31/06 • $22/share What amount would Matsui report in its year-end 2006 balance sheet for its investment in Yankee? Question 9: Other things being equal, most managers would prefer to report liabilities as noncurrent rather than current. The logic behind this preference is that the long-term classification permits the company to report: Question 10: Which of the following investment securities held by Zoogle Inc. are not reported at fair value in its balance sheet? ------------------------------------------------------------------------------------

ACC 306 Week 2 Assignment E 14-16, E 14-18, E 15-25, P14-21, P15-3

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ACC 306 Week 2 Assignment E 14-16, E 14-18, E 15-25, P14-21, P15-3 ------------------------------------------------------------------------------------

ACC 306 Week 2 DQ 1 Ethics Case 14-8 Hunt Manufacturing Debt for equity swaps

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Ethics Case 14–8 - Hunt Manufacturing - Debt for equity swaps; have your cake and eat it too ● LO5

The cloudy afternoon mirrored the mood of the conference of division managers. Claude Meyer, assistant to the controller for Hunt Manufacturing, wore one of the gloomy faces that were just emerging from the conference room. ―Wow, I knew it was bad, but not that bad,‖ Claude thought to himself. ―I don’t look forward to sharing those numbers with shareholders.‖

The numbers he discussed with himself were fourth quarter losses which more than offset the profits of the first three quarters. Everyone had known for some time that poor sales forecasts and production


delays had wreaked havoc on the bottom line, but most were caught off guard by the severity of damage.

Later that night he sat alone in his office, scanning and rescanning the preliminary financial statements on his computer monitor. Suddenly his mood brightened. ―This may work,‖ he said aloud, though no one could hear. Fifteen minutes later he congratulated himself, ―Yes!‖

The next day he eagerly explained his plan to Susan Barr, controller of Hunt for the last six years. The plan involved $300 million in convertible bonds issued three years earlier.

Meyer: By swapping stock for the bonds, we can eliminate a substantial liability from the balance sheet, wipe out most of our interest expense, and reduce our loss. In fact, the book value of the bonds is significantly more than the market value of the stock we’d issue. I think we can produce a profit.

Barr: But Claude, our bondholders are not inclined to convert the bonds

Meyer: Right. But, the bonds are callable. As of this year, we can call the bonds at a call premium of 1%. Given the choice of accepting that redemption price or converting to stock, they’ll all convert. We won’t have to pay a cent. And, since no cash will be paid, we won’t pay taxes either.

Required:


Do you perceive an ethical dilemma? What would be the impact of following up on Claude’s plan? Who would benefit? Who would be injured? ------------------------------------------------------------------------------------

ACC 306 Week 2 DQ 2 Ethics Case 15-4 Leasehold Improvements

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Ethics Case 15–4 - American Movieplex - Leasehold improvements ● LO3

American Movieplex, a large movie theater chain, leases most of its theater facilities. In conjunction with recent operating leases, the company spent $28 million for seats and carpeting. The question being discussed over break- fast on Wednesday morning was the length of the depreciation period for these leasehold improvements. The com- pany controller, Sarah Keene, was surprised by the suggestion of Larry Person, her new assistant.

Keene: Why 25 years? We’ve never depreciated leasehold improvements for such a long period.


Person: I noticed that in my review of back records. But during our expansion to the Midwest, we don’t need expenses to be any higher than necessary.

Keene: But isn’t that a pretty rosy estimate of these assets’ actual life? Trade publications show an average depreciation period of 12 years.

Required:

1. How would increasing the depreciation period affect American Movieplex’s income?

2. Does revising the estimate pose an ethical dilemma?

3. Who would be affected if Person’s suggestion is followed? ------------------------------------------------------------------------------------

ACC 306 Week 2 Homework (BE 15-12, E 15-5, E 15-19, P15-3, P15-4, BE 16-6, BE 16-12, E 16-5, P 16-5, P 16-6)

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BE 15-12 E 15-5 E 15-19 P15-3 P15-4 BE 16-6 BE 16-12 E 16-5 P 16-5 P 16-6

BE 15-12

The Scow Company declared its quarterly cash dividend on March 31st of the current year. The dividend of $0.30 per share was to be paid on May 1st to the shareholders of record as of April 18th. The company reported 135,000 shares issued with 18,000 shares held in the treasury. Prepare the journal entries required to record the cash dividend for the quarter on the dates of declaration, record, and payment. Dividends represent a return to shareholders on their investment in the corporation. Cash dividends, distributions that firms make to the shareholders in cash, are the most common type of dividend. However, there are other types of dividends, namely stock dividends, property dividends, and liquidating dividends. In this exercise, we are told that Scow declared and paid cash dividends.


E 15-5 The following shareholders’ equity section was taken from the books of the Kendra Corporation at the beginning of the current year

When a company repurchases its shares, the company can hold these shares in treasury for future use or can retire the shares. Treasury shares are a corporation's own stock that are authorized, issued, and previously outstanding that the corporation buys back. Usually, the corporation intends to reissue treasury shares for some specific purpose. Firms typically record treasury stock in a contra-stockholders' equity account and report treasury stock as a reduction of total stockholders' equity on the balance sheet. Treasury shares reduce the number of shares outstanding, do not have voting rights, and cannot receive cash dividends. However, treasury shares do split and can receive stock dividends in some states. The two methods of accounting for treasury stock are the cost method and the par value method. The cost method records the acquisition of treasury shares at the cost of the repurchased shares. The par value method records the acquisition at the par value of the repurchased shares. The cost method is the most popular method used in practice and will be used in this exercise. Requirement a. Prepare the journal entries required to record each of the following events. Kendra acquired 17,000 shares of common stock to be held in the treasury at a cost of $18 per share. When a firm repurchases shares, it debits the treasury stock account for the cost of the repurchased shares. The repurchase of shares does


not change the common stock account or the additional paid-in capital account. The repurchased shares are still considered issued, but they are no longer outstanding. Determine the cost of the repurchased shares and record the entry now. (Record debits first, then credits. Exclude explanations from any journal entries.)

E15-19

In 2015, Telcam Inc. discovered an error in its 2012 financial statements. The firm recorded $8,700,000 of depreciation expense on its equipment instead of recording $11,700,000. Telcam has a constant tax rate of 45% and reports three years of comparative income statements and two years of comparative balance sheets with its financial reports. Assume Telcam uses the same depreciation method for tax and financial reporting. Retained earnings and accumulated depreciation as of December 31, 2014, were $12,145,000 and $4,850,000, respectively. Occasionally, companies uncover errors in their financial statements. If the company discovers the error before releasing the financial statements, the correction is straightforward: The company makes the correction prior to release of the financial statements. However, if a company finds an error after releasing the financial statements, it must determine if corrections to past years' financial statements are necessary. In our exercise, a prior-period adjustment is necessary. In order to make a prior-period adjustment a company follows these steps:

P15-4


Skyline, Inc. reported the following shareholders' equity section as of the beginning of the current year:

During the current year, Skyline engaged in the following transactions affecting the stockholders' equity section of its current balance sheet. Requirement a. Prepare all journal entries required to record the transactions. 1. Issued 350,000 shares of its $1 par value common stock at $27 per share. The underwriter charged a 4% fee for issuing the shares. The stock issue costs are not capitalized. When issuing stock for cash, firms allocate the total proceeds between the par or stated value and the additional paid-in capital (that is, the amount paid in excess of par or stated value). If the shares have no par or stated value, firms record the total proceeds in the common stock account. BE 16-6

On January 1, Brodie Company acquired 30% of the outstanding voting shares of Gravais Corporation at a cost of $1,792,800 by acquiring 24,900 of the total 83,000 outstanding shares at a cost of $72 per share. During the year, Gravais reported $880,000 in net income and declared and paid $6.00 per share dividends. At acquisition, Gravais's market value equaled the book value of its net assets. Prepare the journal entries required to record the above events assuming that Brodie uses the equity method to account for its investment in Gravais. When an investor has significant influence over the investee, but does not have control, companies use the equity method of accounting for


the investment. Significant influence is the power to participate in the financial and operating decisions of the company but not control those policies. An investor is generally presumed to have significant influence at 20% or more ownership, unless it can be clearly demonstrated that this is not the case. Under the equity method, the investor recognizes the increases and decreases in the economic resources of the investee. The investor initially reports the investment account at cost and thereafter reports any events that affect the book value of the investee's stockholder's

E16-5

Poehling Capital Partners, Ltd. acquired the following equity investments at the beginning of year 1 to be held in a trading portfolio.

Debt securities are investments in the notes or bonds payable issued by another company. A bond, or promissory note, is a form of borrowing by which a company raises capital today in exchange for a contractual obligation to pay bondholders (the lenders) back in the future. Corporations invest in bonds in order to receive periodic interest payments and a final payment of the face value. Firms usually issue bonds with a face value (also referred to as par value) indicating the amount that the issuer will pay the bondholder at maturity. Bonds also typically have a stated interest rate, which determines the amount of interest that bondholders will receive as cash, and a specified maturity date. Bonds can be purchased at their par value, at a discount (a price below par), or at a premium (a price above par). In all cases, bonds are priced such that their yield will be the same as the market rate of interest, which is also called the effective interest rate, for a similar amount of risk. Yield is the actual return that the investors will receive.


Equity securities are an investment in the common or preferred shares of another company. The investor may receive returns in the form of dividends, which are distributions (often cash) that the investee pays to the investor. In addition, the investor could eventually sell the investment for an amount greater than its purchase price and earn a gain on disposal. Accounting for debt and certain equity securities depends on management's reason for purchasing the securities. For all debt securities and equity securities over which a company does not exert significant influence, management classifies the securities into one of three portfolio categories at acquisition

P16-5

J&H Potato Chip Company, a U.S. GAAP reporter, provides you with the following information regarding its investments in equity securities during the current year.

P16-6

Boots Borden Company has the following securities in its availablefor-sale portfolio on December 31 of year 1. All securities are purchased during year 1:

Debt securities are investments in the notes or bonds payable issued by another company. A bond, or promissory note, is a form of borrowing by which a company raises capital today in exchange for a


contractual obligation to pay bondholders (the lenders) back in the future. Corporations invest in bonds in order to receive periodic interest payments and a final payment of the face value. Firms usually issue bonds with a face value (also referred to as par value) indicating the amount that the issuer will pay the bondholder at maturity. Bonds also typically have a stated interest rate, which determines the amount of interest that bondholders ------------------------------------------------------------------------------------

ACC 306 Week 2 Quiz (2 Set)

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WEEK 2 QUIZ QUESTION 1 ITG Corporation issued 410,000 shares of $6 par value stock. The book value of ITG's common stockholders' equity is equal to $123 million. ITG implements a two-for-one stock split. What is the total number of shares outstanding after the stock split? What is the par value per share after the split? What is the book value of equity after the split?

QUESTION 2


On February 16, Vicky Home Goods, Incorporated (VHG) acquires 6,000 shares of its own shares at a cost of $39 per share. On April 29, VHG sells 2,400 of the 6,000 shares of its treasury stock for $49 per share. On June 4, VHG sells the remaining 3,600 shares of treasury stock for $14 per share. What are the necessary journal entries to record these transactions? (Record debits first, then credits. Exclude explanations from any journal entries.)

On February 16, Vicky Home Goods, Incorporated (VHG) acquires 6,000 shares of its own shares at a cost of $39 per share.

QUESTION 3 On January 1, 2012, Dover Company issued 1,800 shares of 4%, $90 par value, preferred stock for $201,000. The board of directors declared dividends on December 30, 2012. Dover paid the dividends on January 30, 2013. What journal entries are necessary to record these transactions?

Prepare all the necessary journal entries to record the transactions. (Record debits first, then credits. Exclude explanations from any journal entries.)


First, prepare the journal entry to record the issuance of the preferred stock.

QUESTION 4 Merlin Enterprises sold the following equity investment on September 30, year 2:

What is the amount of the realized gain or loss on Merlin's year 2 income statement, assuming that the investment in Beard Inc. is classified as a trading security?

QUESTION 5 Marmol Corporation purchased an equity investment in Inder Zu, Ltd. on December 15 for $105,000 and sold it the following June 22 for $124,000. Inder Zu, Ltd's equity is not actively traded and it does not have a readily determinable fair value. What are journal entries required to record these transactions?

Prepare the journal entry to record the purchase at cost as on December 15 of the current year. Do not record the entry for sale of investment. We will do that in the next step. (Record debits first, then credits. Exclude explanations from any journal entries. If no entry is required select "No Entry Required" on the first line of the journal entry table and leave all remaining cells in the table blank.)


QUESTION 6 Boone Corporation's outstanding capital stock at December 15 consisted of the following: 30,000 shares of 5% cumulative preferred stock, par value $10 per share, fully participating as to dividends. No dividends were in arrears. 200,000 shares of common stock, par value $1 per share. On December 15, Boone declared dividends of $100,000. What was the amount of dividends payable to Boone's common stockholders?

QUESTION 7 On January 1, 2016, the Precor Corporation purchased $440,000 par value 6% bonds that mature on December 31, 2019. The market rate of interest was 4% when Precor purchased the bonds. Coley receives interest on the bonds semiannually each June 30 and December 31.

QUESTION 8 On May 2 of the current year, Mystic Associates acquired an equity investment in a start-up company, Wember Enterprises, for $230,000. Mystic elected to report its investment in Wember using the fair value option. Due to Wember Enterprises' tremendous growth opportunities and the efforts it put into development activities, the fair value of Mystic's investment at the end of the year increased to $500,000.


Prepare the journal entry to record the investment using the fair value option.

Begin by recording the journal entry for acquisition of the investment in Wember Enterprises as on May 2. Do not record the entry for fair value adjustment. We will do that in the next step. (Record debits first, then credits. Exclude explanations from any journal entries.)

QUESTION 9 Deutsch Imports has three securities in its available-for-sale investment portfolio. Information about these securities is as follows:

QUESTION 10 At its date of incorporation, The McCarty Company issued 100,000 shares of its $10 par common stock at $11 per share. During the current year, The McCarty Company acquired 30,000 shares of its common stock at a price of $16 per share and accounted for them by the cost method. Subsequently, these shares were reissued at a price of $12 per share. There have been no other issuances or acquisitions of its own common stock. What effect does the reissuance of the stock have on the following accounts?


2ND ATTEMPT QUESTION 1 On January 1, 2016, the Platnum Corporation purchased $500,000 par value 6% bonds that mature on December 31, 2019. The market rate of interest was 4% when Platnum purchased the bonds. Coley receives interest on the bonds semiannually each June 30 and December 31.

QUESTION 2 Eunice, Inc. declared a cash dividend of $4,000 on June 1, 2014. It sets the record date as June 17, 2014, the ex-dividend date as June 15, 2014, and the payment date as July 7, 2014. What journal entries are necessary to record this dividend? The timeline related to the cash dividend declaration and payment is presented below. Date of Declaration6-1-2014Legal liability IncurredEx-dividend Date6-15-2014If buy stock on thisdate or later, will notreceive the dividendDate of Record6-17-2014Ownership determinedat the close of businessPayment Date7-7-2014Liability paid What journal entries are necessary to record this dividend? (Record debits first, then credits. Exclude explanations from any journal entries. If no entry is required, select "No Entry Required" on the first line of the journal entry table and leave all remaining cells in the table blank.) June 1, 2014: Date of declaration of the cash dividend.


QUESTION 3 Cleves Rainbow Company provides the following information regarding its most recent balance sheet.

Cleves Rainbow acquired 22,000 shares of common stock in the open market at a price of $19 per share and retired the shares. What is the journal entry to record this transaction? (Record debits first, then credits. Exclude explanations from any journal entries.)

QUESTION 5 incorrect, MC16-2 (similar to) The following data pertains to Tyne Co.'s investments in marketable equity securities: What amount should Tyne report as net unrealized loss on availablefor-sale marketable equity securities at December 31, year 2, in accumulated other comprehensive income on the balance sheet?

QUESTION 6 Grand Company holds a debt investment at amortized cost of $140,000. At December 31, 2014, the fair value of the investment (the


current market price) is $87,000 and the present value of the future cash flows from the debt investment is $92,300. Grand did not intend to sell the investment, but it now deems it more likely than not that it will have to sell it before the market recovers. Does an impairment exist? If so, is it other than temporary? What amount of loss, if any, will Grand report in net income if the loss is other than temporary? What amount of loss will Grand report in other comprehensive income? Prepare the journal entry for the impairment loss, if needed.

Does an impairment exist? If so, is it other than temporary? (If impairment does not exist, leave the second column blank.)

QUESTION 8 Kerns Corporation purchased an equity investment in Zentric Zu, Ltd. on December 15 for $106,000 and sold it the following June 22 for $148,000. Zentric Zu, Ltd's equity is not actively traded and it does not have a readily determinable fair value. What are journal entries required to record these transactions?

Prepare the journal entry to record the purchase at cost as on December 15 of the current year. Do not record the entry for sale of investment. We will do that in the next step. (Record debits first, then credits. Exclude explanations from any journal entries. If no entry is required select "No Entry Required" on the first line of the journal entry table and leave all remaining cells in the table blank.)


QUESTION 9 ITG Corporation issued 330,000 shares of $6 par value stock. The book value of ITG's common stockholders' equity is equal to $99 million. ITG implements a two-for-one stock split. What is the total number of shares outstanding after the stock split? What is the par value per share after the split? What is the book value of equity after the split?

QUESTION 10 $370,000, 10% note from Fonda Products on January 1, 2015, and lends money to Fonda. TR will receive periodic, equal payments every six months, beginning June 30. The loan matures in three years (on December 31, 2017) and the interest rate equals the market rate of 10%. TR is a calendar-year firm and prepares financial statements annually. Prepare the amortization table and the journal entries for the first year. ------------------------------------------------------------------------------------

ACC 306 Week 2 Quiz

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Question 1: The method used to pay interest depends on whether the bonds are:

Question 2: Bond X and bond Y are both issued by the same company. Each of the bonds has a maturity value of $100,000 and each matures in 10 years. Bond X pays 8% interest while bond Y pays 9% interest. The current market rate of interest is 8%. Which of the following is correct?

Question 3: Which of the following statements characterizes a leveraged lease?

Question 4: If the lessee and lessor use different interest rates to account for a capital lease, then:

Question 5: Of the four criteria for a capital lease, which two are not applied if the lease begins during the final quarter of the asset's useful life?

Question 6: Griggs Co. failed to amortize the premium on an outstanding five-year bond issue. What is the resulting effect on interest expense and the bond carrying value, respectively?

Question 7: When the interest payment dates are March 1 and September 1, and the notes are issued on July 1, the amount of interest expense to be accrued at December 31 of the year of issue would:


Question 8: When bonds are retired prior to their maturity date:

Question 9: Which of the following statements characterizes an operating lease?

Question 10: The four criteria provided in FASB Statement No. 13 for distinguishing a capital lease from an operating lease do not include: ------------------------------------------------------------------------------------

ACC 306 Week 3 Assignment E 16-24, E 16-25, E 17-10, E 17-19, P 16-7, P 17-16 (Ash Course)

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ACC 306 Week 3 Assignment E 16-24, E 16-25, E 17-10, E 17-19, P 16-7, P 17-16 ------------------------------------------------------------------------------------

ACC 306 Week 3 Ethics Case 17-6 401(k) plan contributions

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Ethics Case 17–6 - VXI International - 401(k) plan contributions ● LO1

You are in your third year as internal auditor with VXI International, manufacturer of parts and supplies for jet air- craft. VXI began a defined contribution pension plan three years ago. The plan is a socalled 401(k) plan (named after the Tax Code section that specifies the conditions for the favorable tax treatment of these plans) that permits voluntary contributions by employees. Employees’ contributions are matched with one dollar of employer contribution for every two dollars of employee contribution. Approximately $500,000 of contributions is deducted from employee paychecks each month for investment in one of three employer-sponsored mutual funds.

While performing some preliminary audit tests, you happen to notice that employee contributions to these plans usually do not show up on mutual fund statements for up to two months following the end of pay periods from which the deductions are drawn. On further investigation, you discover that when the plan was first begun, contributions were invested within one week of receipt of the funds. When you question the firm’s investment manager about the apparent change in the timing of investments, you are told, ―Last year Mr. Maxwell (the CFO) directed me to initially deposit the contributions in the corporate investment account. At the close of each quarter, we add the employer matching contribution and deposit the combined amount in specific employee mutual funds.‖

Required:


1. What is Mr. Maxwell’s apparent motivation for the change in the way contributions are handled?

2. Do you perceive an ethical dilemma? ------------------------------------------------------------------------------------

ACC 306 Week 3 Homework (BE 17-17, BE 17-22, E17-17, E17-21, P17-1, P17-6, BE18-5, BE18-6, E18-4, E18-10, P182, P18-6)

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BE 17-17 BE 17-22 E17-17 E17-21 P17-1 P17-6 BE18-5


BE18-6 E18-4 E18-10 P18-2 P18-6

BE 17-17 Bigger Shoes Company recorded book income of $105,000 in 2014. It does not have any permanent differences and the only temporary difference relates to a $50,000 installment sale that it recorded for book purposes. Bigger Shoes anticipates collecting the installment sales equally over the following two years. The current enacted tax rate is 40%. The substantively enacted tax rates for the following three years are 42%, 45%, and 45%, respectively. What deferred tax amount should Bigger Shoes record for this temporary difference under U.S. GAAP?

BE 17-22 Butler Toy Company uses an acceptable tax method that provided a $26,000 tax deduction for the current year. GAAP and taxable income before considering this tax deduction are equal to $270,000 (i.e., there are no book-tax differences). Butler is subject to a 35% income tax rate. Tax authorities have challenged this type of tax deduction in the past and Butler is now concerned about the realizability of this tax deduction in the future. However, management believes that it is more likely than not that the firm will sustain the tax benefits upon examination by tax authorities. Butler provides the following analysis regarding the probabilities of sustaining the tax deduction: ]


E17-17 Freeman Imported Provisions, Inc. reported pretax accounting income equal to its taxable income, as presented below: All tax changes are enacted into law as of the beginning of the year. All tax rate changes are not known until the year of change. Freeman elects the carryback/ carryforward option for all net operating losses. For the losses noted above, management concluded that it is more likely than not that the benefits of the net operating losses will be fully realizable in the future. Requirement a. Prepare the journal entries necessary to record the tax provisions for years 4 through 8. Begin by preparing the entry, if needed, to record the portion of the year 4 NOL carried back. Under the U.S. tax law, companies with NOLs can elect to carryback or carryforward the tax loss. The carryback allows a company to offset the current tax loss against prior years' taxable income and claim a refund for taxes previously paid on the amount offset. The carryforward permits a company to offset the current tax loss against future taxable income, thereby reducing future taxable income and lowering the amount of tax due in the year of the offset. E17-21 Corker Enterprises provided the following information regarding book-tax differences for its first year of operations: Installment sales are a normal part of Corker's operations and so any deferred taxes related to them would be classified as current. The depreciation expense is related to a building costing $1,500,000. Income before including any of the book-tax differences above is $890,000. The firm expects to fully realize all deferred tax assets, so no allowance account is needed. Corker is subject to a 34% income tax rate. Assume the sales relating to the warranty liability occurred at year end.


Computing income tax expense and income taxes payable is straightforward when book income and taxable income are identical. When book and taxable income are the same, the basis, or carrying values, of assets and liabilities, as well as the income of the entity, are the same for book and tax reporting. That is, the amount a company records as income tax expense will equal the income taxes payable to the government. In this problem, Corker Enterprises has several transactions for which the book and tax treatment differs.

P17-1 Ruthersford Manufacturing uses long-term installment contracts to market its building products. Ruthersford uses the accrual basis for financial reporting and the cash basis for tax purposes. The company also sells several products without offering installment contracts. We present the results of operations for the last five years. Requirements a. Determine the balance of the deferred tax account at the end of each of the five years. b. Prepare the journal entries to record the tax for the five years presented above. Show the effective tax rate for each year. c. How should Ruthersford Manufacturing classify the deferred tax account on the balance sheet? Computing income tax expense and income taxes payable is straightforward when book income and taxable income are identical. When book and taxable income are the same, the basis, or carrying values, of assets and liabilities, as well as the income of the entity, are the same for book and tax reporting. That is, the amount a company records as income tax expense will equal the income taxes payable to the government. When there are differences between book and taxable income, the accounting for these items become more complex. These differences fall into two categories: permanent differences and temporary differences. We will discuss temporary differences in this exercise.


Temporary differences occur when the book treatment and the tax treatment for a given transaction are different in a given year, but will be the same over the life of the firm. Specifically, the tax basis of an asset or liability differs from the book basis of that asset or liability, resulting in taxable or deductible amounts in future years. Temporary differences occur due to events that have been recognized in the financial statements and will result in taxable or deductible amounts in future years or events that are taxable or deductible before they will be recognized in the financial statements.

P17-6

Michael, Inc. provides DJ services for corporate parties. Michael reported a net operating loss of $700,000 on its 2016 tax return. During the three preceding years, Michael had taxable income and paid taxes at various tax rates, as noted below:

BE18-5 Sting Iron Works signed a lease on January 1 with Jets Bank for an iron-stamping machine. The lease has a 10-year term with no purchase option or transfer of ownership. Under the terms of the contract, Sting must pay $3,800 at the beginning of each year. Jets Bank's implicit rate is 9%. The iron-stamping machine has an economic life of 40 years and a fair value of $43,000. If Sting borrowed at Jets Bank, the loan would have carried an interest rate of 11%. The lessee knows the implicit rate. The present value of the payments due under the lease is $26,582, and the lease agreement is classified as an operating lease. Prepare the journal entries for the lessor and the lessee at the inception of the lease. A lease is a contract that gives the lessee the right to use an asset, legally owned by the lessor, for a specified period of time in return for


periodic payments or rentals made by the lessee. The owner of the asset is called the lessor. The party acquiring the use of the asset is the lessee. The lease contract only conveys the right to use the asset—it typically does not result in ownership of the asset. This property right has economic value to the lessee and, in substance, represents the purchase of an asset with a corresponding obligation. Determining how to account for a lease depends on the company's evaluation of whether the risks and rewards of ownership have been transferred from the lessor to the lessee. A capital lease is a lease that results in the lessee reporting the asset and the liability on the balance sheet and reporting the related interest and depreciation as expenses on the income statement. If the lease agreement does not transfer substantially all of the risks and rewards of ownership to the lessee, the lease is accounted for as a simple operating lease.

BE18-6 Karras Manufacturing Company leased a piece of machinery for use in its operations from Signage Leasing on January 1. The 14-year, non-cancellable lease requires lease payments of $3,500 due at the beginning of each year. The machinery is estimated to have a 14-year life, is depreciated on the straight-line method, and will have no residual value at the end of the lease term. The present value of the minimum lease payments using 11.2% and the asset's fair value on the date the lease is signed are both equal to $26,889. Signage paid fair value to acquire the equipment. The lessor's implicit rate of 11.2% is known to Karras. Signage has no material uncertainties as to future costs to be incurred and collectability is reasonably assured. Prepare Karras Manufacturing's journal entries at the inception of the lease and at the end of the first year. A lease is a contract that gives the lessee the right to use an asset, legally owned by the lessor, for a specified period of time in return for periodic payments or rentals made by the lessee. The owner of the asset is called the lessor. The party acquiring the use of the asset is the lessee. The lease contract only conveys the right to use the asset—it


typically does not result in ownership of the asset. This property right has economic value to the lessee and, in substance, represents the purchase of an asset with a corresponding obligation. Determining how to account for a lease depends on the company's evaluation of whether the risks and rewards of ownership have been transferred from the lessor to the lessee. Classification of lease agreement as an operating or a capital lease. A capital lease is a lease that results in the lessee reporting the asset and the liability on the balance sheet and reporting the related interest and depreciation as expenses on the income statement. If the lease agreement does not transfer substantially all of the risks and rewards of ownership to the lessee, the lease is accounted for as a simple operating lease. Under an operating lease, the lessee reports rent expense on the income statement and does not recognize an asset or liability on the balance sheet. Lessees classify leases that meet any one of the four following criteria as a capital lease. Otherwise, the lease is an operating lease.

E18-4 On January 1, 2016, Adden Leasing Company (Upper AALC) acquired a fleet of cars to be leased to Reuben River Company. Upper AALC paid $272,270 to acquire the vehicles, which is also the fair value of the fleet. The lease terms are listed below:

E18-10 Deporte Jewelers Incorporated signed a lease agreement on July 1, 2018, to lease diamond-polishing equipment from Overton Industries. The following information is relevant to the lease agreement.The term of the non-cancellable lease is seven years with no renewal option. Payments of $44,400 are due on July 1 each year (at the beginning of each period). P18-2


On January 1, 2016, the ADL Company leases a fleet of delivery vehicles from Nolt Motors, Inc. Under the terms of the lease, ADL must pay $60,000 on January 1 of each year, beginning on January 1, 2016, over a four-year term. The delivery vehicles have a useful life of six years and ADL depreciates similar vehicles owned using the straight-line method. ADL's incremental borrowing rate is 6% and the 5% implicit rate in the lease is known to the lessee. The vehicles cost Nolt Motors $200,000 and have a fair value of $223,395. Nolt has no uncertainties as to future costs and collection. The lease terms do not contain a transfer of ownership and there is no bargain purchase option. There is also no residual value specified in the contract. Assume that there are no executory costs related to the lease agreement. A lease is a contract that gives the lessee the right to use an asset, legally owned by the lessor, for a specified period of time in return for periodic payments or rentals made by the lessee. The owner of the asset is called the lessor. The party acquiring the use of the asset is the lessee. The lease contract only conveys the right to use the asset—it typically does not result in ownership of the asset. This property right has economic value to the lessee and, in substance, represents the purchase of an asset with a corresponding obligation. Determining how to account for a lease depends on the company's evaluation of whether the risks and rewards of ownership have been transferred from the lessor to the lessee.

P18-6 On January 1, 2016, McClellan Finance Company agreed to lease a piece of machinery to Hagen Construction Products, Inc. McClellan paid $1,623,269 to acquire the machine from the manufacturer and carries it at this amount in its financial statements. The fair value (current selling price) of the machine is $1,623,269. The relevant lease terms are listed below. ------------------------------------------------------------------------------------

ACC 306 Week 3 Integrating Case 16-5 accounting changes and error correction


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Integrating Case 16–5 - Williams-Santana, Inc. - Tax effects of accounting changes and error correction; six situations � LO1 LO2 LO8

Williams-Santana, Inc. is a manufacturer of high-tech industrial parts that was started in 1997 by two talented engineers with little business training. In 2011, the company was acquired by one of its major customers. As part of an internal audit, the following facts were discovered. The audit occurred during 2011 before any adjusting entries or closing entries were prepared. The income tax rate is 40% for all years.

a. A five-year casualty insurance policy was purchased at the beginning of 2009 for $35,000. The full amount was debited to insurance expense at the time.

b. On December 31, 2010, merchandise inventory was overstated by $25,000 due to a mistake in the physical inventory count using the periodic inventory system.

c. The company changed inventory cost methods to FIFO from LIFO at the end of 2011 for both financial statement and income tax


purposes. The change will cause a $960,000 increase in the beginning inventory at January 1, 2010.

d. At the end of 2010, the company failed to accrue $15,500 of sales commissions earned by employees during 2010. The expense was recorded when the commissions were paid in early 2011.

e. At the beginning of 2009, the company purchased a machine at a cost of $720,000. Its useful life was estimated to be 10 years with no salvage value. The machine has been depreciated by the double declining- balance method. Its carrying amount on December 31, 2010, was $460,800. On January 1, 2011, the company changed to the straight-line method. ------------------------------------------------------------------------------------

ACC 306 Week 3 Quiz New

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QUESTION 1 On January 1, 2015, Dillon Manufacturing leased another piece of machinery for use in its North American operations from Evans Bank. The nine-year, non-cancellable lease requires annual lease payments of $16,000, beginning January 1, 2015, and at each December 31 thereafter through 2022.


The lease agreement does not transfer ownership of the machinery, nor does it contain a bargain purchase option. The machinery has a fair value of $99,630 and an estimated life of 10 years. Dillon depreciates its leased equipment using the straight-line method with no residual value. Evans Bank's implicit rate of 11% is known to Dillon. Before completing the requirements, identify the present value of the lease payments. (Use the present value and future value tables, the formula method, a financial calculator, or a spreadsheet for your calculation. If using present and future value tables or the formula method, use factor amounts rounded to five decimal places, X.XXXXX. Round your final answer to the nearest whole dollar.)

The present value (PV) of the payments due under the lease is $ 98,338 . Analyze the four criteria to determine whether the lease is an operating or capital lease. Begin by identifying any of the capital lease criteria that Dillon meets. (Select any and all that apply.) 1.The lease transfers ownership of the property to the lessee at the end of the lease term. 2.The lease contains a bargain purchase option. 3.The lease term is greater than or equal to 75% of the estimated economic life of the property. Your answer is correct. 4.The present value of the minimum lease payments is greater than or equal to 90% of the fair market value of the property at the inception of the lease. Your answer is correct. This is a(n)

lease for the lessee (Dillon) because


of the capital criteria is(are) met. Provide the journal entries for Dillon for 2015. (Record debits first, then credits. Exclude explanations from any journal entries. Round amounts to the nearest whole dollar. If no entry is required select "No Entry Required" on the first line of the journal entry table and leave all remaining cells in the table blank.) Begin by preparing the entry for Dillon at the inception of the lease on January 1, 2015. Exclude the first annual lease payment from this entry. We will record that payment in the next step.

Account January 1, 2015 Leased Machinery 98,338 Obligations under Capital Lease 98,338

Prepare the entry for the first annual lease payment made on January 1, 2015.

Account January 1, 2015 Obligations under Capital Lease 16,000 Cash 16,000

Record Dillon's entry for the depreciation expense on the leased machinery on December 31, 2015.

Account December 31, 2015 Depreciation Expense—Leased Machinery 10,926


Accumulated Depreciation—Leased Machinery 10,926

Prepare the entry to record the second annual lease payment on December 31, 2015.

Account December 31, 2015 Obligations under Capital Lease 6,943 Interest Expense 9,057 Cash 16,000

QUESTION 2 Efland Optics, a U.S. GAAP reporter, began business in 2015 and billed, but did not yet collect, $560,000 in revenue. In addition to its 2015 sales revenue, Efland Optics received $44,000 of municipal bond interest revenue. Efland Optics did not incur any expenses during the year. The company is subject to a 30% income tax rate. What journal entries are required to record the revenues and the related income tax for the year? Begin by preparing the journal entry to record the sales revenue for the year 2015. Do not record the entry for the interest revenue. We will do that in the next step. (Record debits first, then credits. Exclude explanations from any journal entries.)

QUESTION 3 QUESTION 4


The present value of $82,095 (rounded) will appear at the bottom of the box after the "=" sign or after you click "ok" in the cell you entered your formula.

QUESTION 5 Smith Inc. reported a loss in 2014 of $530,000. The company reported taxable income of $118,000 in 2012 and $231,000 in 2013. It has no permanent or temporary differences and its tax rate is 25%. What is the necessary journal entry for 2014? Smith reported taxable income of $259,000 in 2015. What is the necessary journal entry for 2015? What is the necessary journal entry for 2014? QUESTION 6 Carli Enterprises experienced an NOL of $573,000 in 2013. The company reported taxable income of $431,000 in 2011 and $325,000 in 2012. The tax rate for all years is 40%. Carli elects to carryback the NOL. What is the necessary journal entry to record the NOL carryback in the year of the loss? Prepare a partial income statement for the year of the loss. What is the necessary journal entry to record the NOL carryback in the year of the loss? QUESTION 7 Two independent situations are described below. Each involves future deductible amounts and/or future taxable amounts produced by temporary differences: QUESTION 8 Which of the following statements regarding lease accounting is/are correct?


I. A capital (finance) lease is a form of off-balance sheet financing that transfers substantially all of the benefits and risks of ownership of property to the lessee. II. It is possible for a lessee to account for a lease as an operating lease while the lessor accounts for the lease as a capital (finance) lease. III. When calculating the present value of the minimum lease payments, the lesser of the implicit rate (if known) and the lessee's incremental borrowing rate should be used.

QUESTION 9 Yawyag Company uses straight-line depreciation for financial accounting and accelerated depreciation for tax accounting. There is no salvage value used for either book or tax purposes. The company purchased equipment for $114,000 and depreciated it over four years for book purposes ($114,000/4 years = $28,500 per year). For tax purposes, the asset depreciates for three years: $49,000 the first year and $32,500 in each of the following two years. Thus, the total depreciation under both systems is $114,000. Determine the book carrying value and the tax basis of the asset over its four-year useful life.

Determine the book carrying value and the tax basis of the asset over its four-year useful life. First calculate the book carrying value of the asset over its four-year useful life. (Enter a "0" for any zero amounts.) QUESTION 10

Begin by identifying any of the capital lease criteria that Tanner meets. (Select any and all that apply.) 1.


The lease transfers ownership of the property to the lessee at the end of the lease term. 2. The lease contains a bargain purchase option. 3. The lease term is greater than or equal to 75% of the estimated economic life of the property. This is the correct answer. 4. The present value of the minimum lease payments is greater than or equal to 90% of the fair market value of the property at the inception of the lease. This is a(n) lease for the lessee (TannerTanner) because of the capital criteria is(are) met. More Less ------------------------------------------------------------------------------------

ACC 306 Week 3 Quiz

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Question 1: If a company's deferred tax asset is not reduced by a valuation allowance, the company believes it is more likely than not that:

Question 2: Which of the following statements typifies defined contribution plans?

Question 3: The annual pension expense for what type of pension plan(s) is recorded by a journal entry that includes a debit to pension expense and a credit to the pension asset or pension liability?

Question 4: Which of the following causes a temporary difference between taxable and pretax accounting income?

Question 5: The result of interperiod tax allocation is that:

Question 6: Pension gains related to plan assets occur when:

Question 7: Under SFAS 87, delayed recognition of gains and losses in earnings achieves:

Question 8: Consider the following:

I present value of vested benefits at present pay levels


II present value of nonvested benefits at present pay levels

III present value of additional benefits related to projected pay increases

Which of the above constitutes the vested benefit obligation?

Question 9: Of the following temporary differences, which one ordinarily creates a deferred tax asset?

Question 10: A gain from changing an estimate regarding the obligation for pensions and other postretirement benefit plans will: ------------------------------------------------------------------------------------

ACC 306 Week 4 Assignment E 18-18, E 18-24, E 19-2, E 19-5, E 19-9, E 19-24, P 18-5 (Ash Course)

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ACC 306 Week 4 Assignment E 18-18, E 18-24, E 19-2, E 19-5, E 19-9, E 19-24, P 18-5


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ACC 306 Week 4 Communication Case 18-10 (Ash Course)

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Communication Case 18–10 Should the present two-category distinction between liabilities and equity be retained? Group interaction. � LO1

The current conceptual distinction between liabilities and equity defines liabilities independently of assets and equity, with equity defined as a residual amount. The present proliferation of financial instruments that combine features of both debt and equity and the difficulty of drawing a distinction have led many to conclude that the present two-category distinction between liabilities and equity should be eliminated. Two opposing viewpoints are:

View 1: The distinction should be maintained.

View 2: The distinction should be eliminated and financial instruments should instead be reported in accordance with the priority of their claims to enterprise assets.


One type of security that often is mentioned in the debate is convertible bonds. Although stock in many ways, such a security also obligates the issuer to transfer assets at a specified price and redemption date. Thus it also has features of debt. In considering this question, focus on conceptual issues regarding the practicable and theoretically appropriate treatment, unconstrained by GAAP.

Required:

1. Which view do you favor? Develop a list of arguments in support of your view prior to the class session for which the case is assigned. -----------------------------------------------------------------------------

ACC 306 Week 4 Ethics Case 19-7 International Network Solutions

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Ethics Case 19–7 International Network Solutions � LO6

International Network Solutions provides products and services related to remote access networking. The company has grown rapidly during its first 10 years of operations. As its segment of the industry


has begun to mature, though, the fast growth of previous years has begun to slow. In fact, this year revenues and profits are roughly the same as last year.

One morning, nine weeks before the close of the fiscal year, Rob Mashburn, CFO, and Jessica Lane, controller, were sharing coffee and ideas in Lane’s office.

Lane: About the Board meeting Thursday. You may be right. This may be the time to suggest a share buyback program.

Mashburn: To begin this year, you mean?

Lane: Right! I know Barber will be lobbying to use the funds for our European expansion. She’s probably right about the best use of our funds, but we can always issue more notes next year. Right now, we need a quick fix for our EPS numbers.

Mashburn: Our shareholders are accustomed to increases every year.

Required:

1. How will a buyback of shares provide a ―quick fix‖ for EPS?


2. Is the proposal ethical? 3. Who would be affected if the proposal is implemented? -----------------------------------------------------------------------------

ACC 306 Week 4 Homework (BE 19-3, BE 19-11, BE 19-5, E19-6, P19-2, P19-5, BE20-5, BE20-9, E20-9, E 20-11, P201, P20-3)

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BE 19-3 BE 19-11 BE 19-5 E19-6 P19-2 P19-5 BE20-5 BE20-9 E20-9 E 20-11 P20-1 P20-3 BE 19-3 O-Boy Jeans, Inc. awarded 2,900 options to acquire 2,900 shares of its common stock. The options have a fair value of $34 each and cannot be exercised until employees complete a two-year service period. The market price and the exercise price were both equal to


$23 per share on the date of the grant. The entry on the date of the grant debited Deferred Compensation and credited Additional Paid-in Capital – Stock Options for $98,600. Prepare the journal entry required at the end of the first year after the options are granted. To account for the issuance of an equity-classified award , a company first records the fair value of the award, adjusted for the forfeiture rate , with a debit to deferred compensation (a contra-equity account) and a credit to additional paid-in capital - stock options. Because both of these accounts are equity accounts, there is no net impact on the balance sheet. Rather, this treatment allows for the disclosure of stock option plans. The company then expenses the adjusted fair value of the award on a straight-line basis over the vesting period . When recording the expense, the company also removes the associated deferred compensation. Each year's expense is justified by the fact that the allocation is designed to match compensation expense against increased employee productivity over the vesting period. BE 19-11 Oliver Company issued 120,000 shares of $3 par value, restricted stock to its top five key employees on January 1, 2015. The market value of Oliver's shares is $46 per share on the date of issue. The restricted shares require a vesting period of five years. Prepare the journal entries for the first year. Under a restricted stock plan, a company awards actual shares in the name of a specific employee, resulting in an allocation of restricted shares to the designated employee. Restricted stock plans are therefore not stock options. The restrictions attached to the awarded shares often include the following provisions: BE 19-5 Walgreen Company started a share appreciation plan on January 1, 2015, when it granted 208,000 rights to its executives. The preestablished price is $49 per share, which is the market value of the shares at January 1, 2015. The vesting period is two years. The plan expires on January 1, 2017. Madison's closing market price for the years ended December 31, 2015, and 2016 are as follows:


Employees exercise all SARs on January 1, 2017, when the market price is $66. What is the compensation expense in 2015 and in 2016? Prepare all journal entries to record the SAR plan. E19-6 Conway Company issued 54,500 shares of $3 par value, restricted stock to each of its five key executives on January 1, 2015. Each executive receives 10,900 shares. Conway's shares have a market value of $31 per share on the date of issue. The restricted shares require a vesting period of four years. Conway's year-end is December 31. Requirements a. Prepare the journal entries required for 2015 through 2018. b. Independent of a., prepare all the journal entries for 2015 through 2018 assuming that three of the executives leave the company at January 1, 2017. Under a restricted stock plan, a company awards actual shares in the name of a specific employee, resulting in an allocation of restricted shares to the designated employee. Restricted stock plans are therefore not stock options. The restrictions attached to the awarded shares often include the following provisions: P19-2 Question Help

On January 1 of the current year, Jessie Upper J Fashions granted 300,000 stock options to its division managers. The options are equity-classified awards. The plan permits the division managers to acquire the shares at an exercise price of $13 per share. Each option permits the purchase of one share of the company's $2 par value common stock. The options vest in two years and they expire if they are unexercised at the end of five years. On the grant date, the fair


value of the options, estimated by an accepted option-pricing model, is equal to $46 each. P19-5 The Ronnie Joy Restaurants, Inc., provided the following information related to its defined-benefit plan for the current year: There are two main types of pension arrangements: definedcontribution and defined-benefit . This problem will illustrate the accounting for a defined-benefit plan. Three primary accounts are involved in accounting for defined-benefit plans: pension plan assets, pension plan obligations, and pension expense. Companies utilize an account for pension plan assets because the sponsor company invests funds into the pension plan. A defined-benefit pension plan results in a projected benefit obligation liability. Companies report the difference between the pension plan asset account and the projected benefit obligation (PBO) on the balance sheet as either a net pension asset or a net pension liability. This amount is called the funded status of the plan. If the plan assets exceed the PBO, the plan is overfunded; if the plan assets are less than the PBO, the plan is underfunded. BE20-5 ryan Excavation Consultants began the current year with 33,600 common shares outstanding. It issued additional shares of 18,000 and 20,400 on February 1 and September 1, respectively. The company also purchased 4,800 shares of treasury stock on November 1. The firm's year end is December 31. Based on this information, determine the weighted-average number of common shares outstanding for the year. Basic earnings per share (EPS) is a measure of the earnings per share available to common shareholders that does not consider the potentially dilutive effects of convertible securities and employee options. Basic EPS equals Start Fraction Net Income minus Preferred Dividend Requirement Over Weighted minus Average Number of Common Shares Outstanding End FractionBasic EPS = Net Income −


Preferred Dividend RequirementWeighted−Average Number of Common Shares Outstanding

BE20-9 Patrick Pet Food Suppliers reported $6,700,000 net income for the current year. The company indicated that it has $6,700,000, 6% convertible debt issued at par and $600,000 par value, 5% nonconvertible, cumulative preferred shares outstanding. The firm did not declare dividends for the current year. It issued the bonds on May 31 and the preferred shares were outstanding for the entire year. Based on this information, determine the numerator of the earnings per share fraction for both basic earnings per share and diluted earnings per share. Assume that all financial instruments described above are dilutive. The tax rate is 35%. E20-9 You are computing annual earnings per share and required disclosures for Tolson Fencing based on company-provided information. Net income is $4,600,000. The weighted-average number of shares is 2,760,000 shares. The year-end balance of outstanding shares is also 2,760,000 shares. There are options outstanding all year to acquire 2,145,000 shares of common stock at $18 per share. The average price of the company's common stock is $39 per share. The firm has 97,000 shares of $47 par value nonconvertible, noncumulative preferred stock outstanding as of the beginning of the year. The dividend rate is $1.11 per share. The board of directors declared the annual dividend. The company is subject to a 30% tax rate. Requirement a. Based on this information, compute basic and diluted earnings per share (EPS) for the current year. We'll begin with the basic EPS computations. E 20-11


Below we present Utica Incorporated's current-year partial income statement. Utica is subject to a 40% income tax rate. Requirement a. Based on the information provided, compute basic and diluted earnings per share (EPS) for the current year. Include all computations related to the application of antidilution sequencing, if needed. Basic earnings per share (EPS) is a measure of the earnings per share available to common shareholders that does not consider the potentially dilutive effects of convertible securities and employee options. Basic EPS equals Start Fraction Net Income minus Preferred Dividend Requirement Over Weighted minus Average Number of Common Shares Outstanding End Fraction Basic EPS = Net Income − Preferred Dividend Requirement Weighted−Average Number of Common Shares Outstanding P20-1 Panda Paws, Ltd. began the current year with 280,000 common shares outstanding and issued an additional 150,000 shares on August 1. The firm has $7,500,000, 4% convertible bonds outstanding at the beginning of the year (i.e., $300,000 coupon interest per year), which are convertible into 180,000 shares of common stock. The firm issued the bonds at their par value and converted them on March 1. Panda Paws also has $930,000 par value, 2% convertible, noncumulative preferred stock outstanding. The preferred shares can convert into 10,000 shares of common stock and were outstanding for a full year. The firm declared dividends for the current year. There were no actual conversions of the preferred stock during the year. Panda is subject to a 40% effective tax rate, and net income is $2,600,000. Assume that all convertible securities are dilutive P20-3 Dizroyal reported income from continuing operations of $ 1,200,000 reported income from continuing operations of $1,200,000 and a $550,000 loss from discontinued operations, net of tax. The company is subject to a 40% tax rate. Dizroyal has $1,000,000, 6% convertible


debt outstanding as of the beginning of the year. The debt was issued at par. Each $1,000 par value bond converts into 40 shares of the company's common stock. The company's shareholders' equity section indicates that the firm also holds $90,000 par value, 2% convertible preferred shares outstanding for the current year. The board of directors declared the annual dividend. The preferred shares can convert into 40,000 shares of common stock. There were no actual exercises or conversions during the year. Requirement a. Compute basic and diluted earnings per share (EPS) for both income from continuing operations and net income. Show all computations. ------------------------------------------------------------------------------------

ACC 306 Week 4 Quiz New

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QUESTION 1 On January 1, Year 1, Sweeney Company granted an employee options to purchase 100 shares of Sweeney's common stock at $40 per share. The options became exercisable on December 31, Year 1, after the employee had completed one year of service, and were exercised on that date. Market prices of the stock and fair values of the options were as follows: QUESTION 2 January 1, Year 1 that give him rights to purchase shares of the company for $40 per share on December 31, Year 2. At the time the options were granted, the fair value of the options totaled $20,000. At December 31, Year 1 the company's stock sold for $45 per share and


at December 31, Year 2 the selling price of the stock was $55 per share. In its Year 2 financial statements, Gregory's on Ormond would recognize compensation expense relative to the options of: QUESTION 3 The Burken Co. has one class of common stock outstanding and no other securities that are potentially convertible into common stock. During year 10, 100,000 shares of common stock were outstanding. In year 11, two distributions of additional common shares occurred: On April 1, 20,000 shares of treasury stock were sold, and on July 1, a 2for-1 stock split was issued. Net income was $410,000 in year 11 and $350,000 in year 10. What amounts should Burken report as earnings per share in its year 11 and year 10 comparative income statements?

QUESTION 4 LORLOR Bookstores amends its defined-benefit pension plan, resulting in prior service costs of $42,000. The company will amortize the prior service costs on a straight-line basis over three years. What is the journal entry

QUESTION 5 Grina Group reported net income of $9,700,000 for the current year. There are 5,300,000 common shares outstanding for the entire year and the average market price per common share for the year is $54. In addition, Grina has 1,822,500 options outstanding all year. The exercise price is now $80 per share. Compute basic and diluted EPS for Grina Group. Each option can be used to purchase one share of common stock

QUESTION 6 Herkimer Enterprises, Inc. granted employee stock options on January 2, 2015, to acquire 62,000 shares of $1.70 par value common stock with an exercise price of $5.80 per share. The market price on January 2, 2015, was also $5.80


per share, so there is no intrinsic value on the date of the grant. Employees must complete a two-year service (vesting) period in order to exercise the options. The options will expire after a five-year period (total option period). The estimated fair value of the options using the Black-Scholes option-pricing model is $8.70 per share for a total of $539,400 (62,000 shares Ă— $8.70 per share). The company estimates that there will not be any forfeiture of the options. The options are equityclassified awards. Determine the amount and allocation of the stockbased compensation expense for the years 2015 and 2016, preparing the necessary journal entries. Determine the amount and allocation of the stock-based compensation expense for the years 2015 and 2016. (Enter a "0"for any zero amounts.) QUESTION 7 Sandberg Crafters reported $180,000 in interest expense for convertible bonds issued several years ago. The company is subject to a 40% effective tax rate. There were no actual conversions during the year. What adjustment is needed to the company's diluted EPS numerator? (Abbreviations Used: EPS = Earning per share.)

QUESTION 8 Katus Motor Company initiated a share-appreciation rights plan on January 1, 2015, by granting 41,000 rights to its key executives. Under the terms of the plan, Katus's executives will receive a cash payment equal to the difference between the pre-established price of $21 per share and the market price of the company's common stock on the date of exercise.However, there is a three-year vesting period, and the SARs cannot be exercised before January 1, 2018. The plan also expires on January 1, 2019. The closing market prices of Katus common stock for the years ended December 31, 2015, through 2017 are presented in the following table. Date Closing Market Price December 31, 2015 $33


December 31, 2016 37 December 31, 2017 27 The SARs are all exercised on January 1, 2018, when the market price is $27. Prepare the journal entries necessary to record the SAR plan. QUESTION 8 DCV Company has 29,000 common shares outstanding with no preferred shares in its capital structure. DCV has outstanding in-themoney options that will result in 19,000 incremental shares. The current income statement indicates the following: Loss from continuing operations $(1,131,000) Income from discontinued operations (net of tax) 957,000 QUESTION 10 Hutchins Company had 200,000 shares of common stock, 50,000 shares of convertible preferred stock, and $2,000,000 of 10% convertible bonds outstanding during the current year. The preferred stock was convertible into 40,000 shares of common stock. During the current year, Hutchins paid dividends of $1.00 per share on the common stock and $2.00 per share on the preferred stock. Each $1,000 bond was convertible into 50 shares of common stock. The net income for the year was $1,000,000 and the income tax rate was 30%. Diluted earnings per share for the current year was (rounded to the nearest penny):

QUESTION 1 QWE Company has 22,000 common shares outstanding with no preferred shares in its capital structure. QWE has outstanding in-themoney options that will result in 19,000 incremental shares. The current income statement indicates the following:

QUESTION 2 Anson Company had 8,000,000 shares of common stock outstanding on December 31, year 11. An additional 1,200,000 shares of common


stock were issued on April 1, year 12 and 1,000,000 more on July 1, year 12. On October 1, year 12, Anson issued 50,000 $1,000 face value 4% convertible bonds. Each bond is convertible into 20 shares of common stock. No bonds were converted into common stock in year 12. What is the number of shares to be used in computing basic earnings per share and diluted earnings per share, respectively, in year 12? QUESTION 3 Alvarado Company had the following common stock balances and transactions during the current year: QUESTION 4 CPK Enterprises, Inc. granted employee stock options on January 2, 2015, for 160,000 shares of $1.00 par value common stock with an exercise price of $22.00 per share. The market price on January 2, 2015, was also $22.00 per share, so there is no intrinsic value on the date of the grant. Employees must complete a two-year service (vesting) period in order to exercise the options. The options will expire after a five-year period (total option period). The estimated fair value of the options using the Black-Scholes option-pricing model is $34 per share or $5,440,000 in total. The employees have the right to sell the shares back to CPK within three months of the exercise. The company estimates that there will not be any forfeitures of the options. What journal entry does CPK make for compensation expense in 2015 and 2016? (Record debits first, then credits. Exclude explanations from any journal entries.) QUESTION 5 Dunbar Emporium, Inc. began the year with 20,000 common shares outstanding. The firm issued an additional 7,560 shares on March 1 and another 1,680 shares on November 1. In addition, it implemented a two-for-one stock split on June 1. The firm's year-end is December 31. What are the weightedaverage number of common shares outstanding for the year?


QUESTION 6 Lurch Aeronautics has 460,000 shares of common stock and 158,000 shares of noncumulative, convertible preferred stock outstanding throughout the year. Lurch declared $120,000 in dividends on the preferred shares. The preferred stock is convertible into common stock at a rate of one share of preferred stock for each share of common stock. Lurch's net income for the year was $780,000. What are basic and diluted EPS for Lurch Aeronautics? ------------------------------------------------------------------------------------

ACC 306 Week 4 Quiz

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Question 1: Which of the following will require a recalculation of weighted-average shares outstanding for all years presented?

Question 2: Which of the following statements is true when dividends are not declared or paid on cumulative preferred stock?

Question 3: When treasury shares are sold at a price above cost:

Question 4: When a property dividend is declared, the reduction in retained earnings is for:


Question 5: When preferred stock is purchased by the issuing corporation at a price below the original issue price and the stock is retired, the transaction:

Question 6: When stock is issued in exchange for property, the best evidence of market value might be any of the following except:

Question 7: When treasury stock is purchased for an amount greater than its par value, what is the effect on total shareholders' equity?

Question 8: Preferred shares that are participating may:

Question 9: Stock options do not affect the calculation of:

Question 10: Preferred dividends are subtracted from earnings when computing earnings per share whether or not the dividends are declared or paid if the preferred stock is: ------------------------------------------------------------------------------------

ACC 306 Week 5 Analysis Case 20-10 (Ash Course)

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Analysis Case 20–10 - DRS Corporation - Various changes ● LO1 through LO4

DRS Corporation changed the way it depreciates its computers from the sum-of-the-year’s-digits method to the straight-line method beginning January 1, 2011. DRS also changed its estimated residual value used in computing depreciation for its office building. At the end of 2011, DRS changed the specific subsidiaries constituting the group of companies for which its consolidated financial statements are prepared.

Required:

1. For each accounting change DRS undertook, indicate the type of change and how DRS should report the change. Be specific.

3. Why should companies disclose changes in accounting principles? -----------------------------------------------------------------------------

ACC 306 Week 5 Assignment E 20-18, P 21-11, P 21-14 (Ash Course)

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ACC 306 Week 5 Assignment E 20-18, P 21-11, P 21-14 ------------------------------------------------------------------------------------

ACC 306 Week 5 Ethics Case 20-5 Softening the blow

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Ethics Case 20–5 Softening the blow ● LO1 LO2 LO3

Late one Thursday afternoon, Joy Martin, a veteran audit manager with a regional CPA firm, was reviewing documents for a long-time client of the firm, AMT Transport. The year-end audit was scheduled to begin Monday.

For three months, the economy had been in a down cycle and the transportation industry was particularly hard hit. As a result, Joy expected AMT’s financial results would not be pleasant news to shareholders. However, what Joy saw in the preliminary statements made her sigh aloud. Results were much worse than she feared.


―Larry (the company president) already is in the doghouse with shareholders,‖ Joy thought to herself. ―When they see these numbers, they’ll hang him out to dry.‖

―I wonder if he’s considered some strategic accounting changes,‖ she thought, after reflecting on the situation. ―The bad news could be softened quite a bit by changing inventory methods from LIFO to FIFO or reconsidering some of the estimates used in other areas.‖

Required:

1. How would the actions contemplated contribute toward ―softening‖ the bad news?

2. Do you perceive an ethical dilemma? What would be the likely impact of following up on Joy’s thoughts? Who would benefit? Who would be injured? ------------------------------------------------------------------------------------

ACC 306 Week 5 Ethics Case 21-7

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Ethics Case 21–7 - Ben Naegle - Where’s the cash? ● LO1 LO3


After graduating near the top of his class, Ben Naegle was hired by the local office of a Big 4 CPA firm in his hometown. Two years later, impressed with his technical skills and experience, Park Electronics, a large regional consumer electronics chain, hired Ben as assistant controller. This was last week. Now Ben’s initial excitement has turned to distress.

The cause of Ben’s distress is the set of financial statements he’s stared at for the last four hours. For some time prior to his recruitment, he had been aware of the long trend of moderate profitability of his new employer. The reports on his desk confirm the slight, but steady, improvements in net income in recent years. The trend he was just now becoming aware of, though, was the decline in cash flows from operations.

Ben had sketched out the following comparison ($ in millions):

Profits? Yes. Increasing profits? Yes. The cause of his distress? The ominous trend in cash flow which is con sistently lower than net income.

Upon closer review, Ben noticed three events in the last two years that, unfortunately, seemed related:

a. Park’s credit policy had been loosened; credit terms were relaxed and payment periods were lengthened.


b. Accounts receivable balances had increased dramatically.

c. Several of the company’s compensation arrangements, including that of the controller and the company president, were based on reported net income.

Required:

1. What is so ominous about the combination of events Ben sees?

2. What course of action, if any, should Ben take? ------------------------------------------------------------------------------------

ACC 306 Week 5 Final Lease Paper (2 Papers)

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This Tutorial contains 2 Papers of this Assignment ACC 306 Week 5 Final Paper (Lease) What is a lease and how is it used as a financing vehicle? How are leases accounted for within the firm’s financial reports? What is the difference between a capital lease and an operating lease? What is


residual value? What are executory costs? What considerations are relevant in a lease or sell decision? Provide a discussion of all potential scenarios and the relevant accounting requirements. Your paper must: 1. Identify the main issues in the chosen area and accurately respond to each of the questions from the chosen area. 2. Build upon class activities by referencing new learning that has occurred. 3. Present specific current and/or future applications and relevance to the typical workplace. Guidelines for Writing the Final Paper      

Paper must be seven to ten (7-10) double-spaced pages in length, exclusive of Appendix, References, Exhibits, etc. Formatted according to APA style as outlined in the approved APA style guide (including title page and reference list). Must include an introductory paragraph with a succinct thesis statement. Must address the topic of the paper with critical thought. Must conclude with a restatement of the thesis and a conclusion paragraph. Must include at least three other appropriately documented, related articles drawn from the University’s library (excluding your textbook). -----------------------------------------------------------------------------

ACC 306 Week 5 Homework (BE 21-7, BE 21-10, E 21-2, E 21-2, P21-1, BE 22-6, E 22-1)

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BE 21-7 BE 21-10 E 21-2 E 21-2 P21-1 BE 22-6 E 22-1 ------------------------------------------------------------------------------------

ACC 306 Week 5 Quiz (2 Set)

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QUESTION 1 On August 31 of the current year, Harvey Co. decided to change from the FIFO periodic inventory system to the weighted-average periodic inventory system. Harvey uses U.S. GAAP, is on a calendar year basis, and does not present comparative financial statements. The cumulative effect of the change is determined:

QUESTION 2 Scherer Designs, Incorporated incorrectly recorded a $440,000 note issued by Kloth Bank, NA in 2013 by debiting cash but crediting accounts payable. The note is due in five years with no principal payments due until maturity. Interest accruals are recorded correctly. Scherer Designs' auditors discovered the error in 2015.


QUESTION 3

Randy Corporation sold equipment with a net book value of $6,000 for $12,100. The equipment had an original cost of $55,000 and accumulated depreciation as of the date of sale was $49,000. Randy reported a $6,100 gain ($6,000). Randy also purchased debt securities for $7,800. Net income for the year was $16,000. There were no other transactions conducted during the period. Using the indirect method, what are the operating and investing cash flows for Randy? First, determine Randy's net cash provided (used) by operating activities using the indirect method. (Use a minus sign or parentheses for any numbers to be subtracted and/or net cash used by operating activities. If a box is not used in the statement, leave the box empty; do not select a label or enter a zero.)

QUESTION 4 Which of the following items would not be included in the operating activities section of an entity's statement of cash flows under U.S. GAAP?

QUESTION 5 Gordon Industries reported net income in the current year of $150,800. The company reported interest expense of $21,000. The balances of all accounts related to its bonds are reported below.


Compute the cash paid for interest if Gordon presented its cash flow statement using the direct method. Prepare the operating activities section of the cash flow statement using the indirect method.

QUESTION 6 Barrett Manufacturing Company acquired a plant asset for $2,000 on January 1, 2011, and depreciated the equipment using the straight-line basis over a 8-year period, with no scrap value. On January 1, 2015, after using the asset for four full years, Barrett's management believes that the asset will be productive for an additional eight years (as opposed to four years). The increase in useful life results from an improved maintenance program initiated two years ago. How should Barrett report this change in estimate? QUESTION 7 Rollins Direct, Inc. presented the following income statement and selected balance sheet accounts. Rollins Direct, Inc. Income Statement Sales Revenue $1,347,000

QUESTION 8 Big Dollars Corporation's comparative financial statements included the following amounts for the current year: Net income $650,000 Depreciation expense $93,000 Equity in earnings of unconsolidated affiliate $61,000 Gain on sale of fixed assets $4,000 Increase in accounts receivable $25,000 Decrease in inventory $(57,000) Decrease in fixed assets $38,000 Increase in accounts payable $42,000 Decrease in notes payable $(75,000)


On its current year statement of cash flows, what is Big Dollars' net cash provided by operating activities?

QUESTION 9 The proper accounting treatment to account for a change in inventory valuation from FIFO to LIFO under U.S. GAAP is:

QUESTION 10 Raphael Direct, Inc. presented the following income statement and selected balance sheet accounts. Raphael Direct, Inc. Income Statement

QUESTION 1 On August 31 of the current year, Harvey Co. decided to change from the FIFO periodic inventory system to the weighted-average periodic inventory system. Harvey uses U.S. GAAP,

QUESTION 2 Raphael Direct, Inc. presented the following income statement and selected balance sheet accounts. Raphael Direct, Inc. Income Statement Prepare the operating cash flows section of the cash flow statement using the direct method. Assume accrued liabilities pertain to General and Administrative Expenses. (Use a minus sign or parentheses for


any numbers to be subtracted. If a box is not used in the statement, leave the box empty; do not select a label or enter a zero.)

QUESTION 3 Big Dollars Corporation's comparative financial statements included the following amounts for the current year: On its current year statement of cash flows, what is Big Dollars' net cash provided by operating activities?

QUESTION 4 Gonzales Company purchased a machine on January 1, year 1, for $600,000. On the date of acquisition, the machine had an estimated useful life of six years with no salvage value. The machine was being depreciated on a straight-line basis. On January 1, year 4, Gonzales determined that the machine had an estimated life of eight years from the date of acquisition. An accounting change was made in year 4. What is the amount of the depreciation expense that should be recorded for the year ended year 4?

QUESTION 5 The proper accounting treatment to account for a change in inventory valuation from FIFO to LIFO under U.S. GAAP is:

QUESTION 6 Heller Manufacturing Company acquired a plant asset for $5,000 on January 1, 2011, and depreciated the equipment using the straight-line basis over a 10-year period, with no scrap value. On January 1, 2017, after using the asset for six full years, Heller's management believes that the asset will be productive for an additional eight years (as opposed to four


years). The increase in useful life results from an improved maintenance program initiated two years ago. How should Heller report this change in estimate? QUESTION 7 Which of the following items would not be included in the operating activities section of an entity's statement of cash flows under U.S. GAAP?

QUESTION 8 Bernie Computer Company acquired a circuit board stamping machine for $760,000 on December 31, 2013. The general accountant incorrectly coded the invoice as repair expense. The equipment would normally be depreciated straight-line over 5 years with no salvage value. Bernie discovered the error on December 31, 2016, before closing the books for 2016. Prepare the correcting entry for this transaction, ignoring income taxes. (Record debits first, then credits. Exclude explanations from any journal entries.)

QUESTION 9 Which of the following statements is correct? I. A main difference between the income statement and the statement of cash flows is that the income statement is based on the accrual method of accounting and the statement of cash flows is based on the cash basis of accounting. II. Depreciation is added back to net income in a direct method statement of cash flows because it is a source of cash. III. Investing and financing activities that do not affect cash do not require disclosure in the financial statements. IV. If a vendor allows a company to buy on credit, it is a use of cash to the buying company.


QUESTION 10 Bezco, Inc. issued 1,400 shares of common stock for $90 each and 570 shares of preferred stock for $76 each. The company issued bonds at their face value of $250,000 and, in addition, the company retired bonds at a cost of $154,600. Bezco distributed cash dividends to its shareholders totaling $6,300. Prepare the financing section of Bezco's cash flow statement. (Use a minus sign or parentheses for any cash outflows and/or net cash used by financing activities. If a box is not used in the statement, leave the box empty; do not select a label or enter a zero.) =============================================================

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ACC 306  Keep Learning/newtonhelp.com  

For more course tutorials visit www.newtonhelp.com ACC 306 Week 1 Assignment E13-21, E13-22, P12-1, P12-7,P12-10, P12-14, P13-6 ACC 306 We...

ACC 306  Keep Learning/newtonhelp.com  

For more course tutorials visit www.newtonhelp.com ACC 306 Week 1 Assignment E13-21, E13-22, P12-1, P12-7,P12-10, P12-14, P13-6 ACC 306 We...

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