Reference no: EM131406459

Q1. Coronado Corporation began operations in 2017 and reported pretax financial income of $213,000 for the year. Coronado's tax depreciation exceeded its book depreciation by $43,000. Coronado's tax rate for 2017 and years thereafter is 30%. In its December 31, 2017, balance sheet, what amount of deferred tax liability should be reported?

Q2. At December 31, 2017, Bridgeport Inc. had a deferred tax asset of $29,200. At December 31, 2018, the deferred tax asset is $55,300. The corporation's 2018 current tax expense is $57,900.

What amount should Bridgeport report as total 2018 income tax expense?

Q3. At December 31, 2017, Carla Corporation had a deferred tax liability of $912,600, resulting from future taxable amounts of $2,340,000 and an enacted tax rate of 39%. In May 2018, a new income tax act is signed into law that raises the tax rate to 46% for 2018 and future years.

Prepare the journal entry for Carla to adjust the deferred tax liability.

Q4. Sandhill Inc. incurred a net operating loss of $547,000 in 2017. Combined income for 2015 and 2016 was $341,000. The tax rate for all years is 40%. Sandhill elects the carry back option. Assume that it is more likely than not that the entire net operating loss carry forward will not be realized in future years.

Prepare all the journal entries necessary at the end of 2017.

Q6. Grouper Company has the following two temporary differences between its income tax expense and income taxes payable.

	2017	2018	2019
Pretax financial income	$828,000	$887,000	$901,000
Excess depreciation expense on tax return	(30,500)	(40,200)	(10,1000)
Excess warranty expense in financial income	20,700	10,500	8,100
Taxable income	$818,200	$875,300	$899,000

The income tax rate for all years is 40%.

(a) Assuming there were no temporary differences prior to 2017, prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2017, 2018, and 2019.

(b) The parts of this question must be completed in order. This part will be available when you complete the part above.

(c) The parts of this question must be completed in order. This part will be available when you complete the part above.

Q7. Riverbed Co. establishes a $144,000,000 liability at the end of 2017 for the estimated site-cleanup costs at two of its manufacturing facilities. All related closing costs will be paid and deducted on the tax return in 2018. Also, at the end of 2017, the company has $72,000,000 of temporary differences due to excess depreciation for tax purposes, $10,080,000 of which will reverse in 2018.

The enacted tax rate for all years is 40%, and the company pays taxes of $92,160,000 on $230,400,000 of taxable income in 2017. Riverbed expects to have taxable income in 2018.

Determine the deferred taxes to be reported at the end of 2017.

Indicate how the deferred taxes computed above are to be reported on the balance sheet.

Assuming that the only deferred tax account at the beginning of 2017 was a deferred tax liability of $14,400,000, draft the income tax expense portion of the income statement for 2017, beginning with the line "Income before income taxes." (Hint: You must first compute (1) the amount of temporary difference underlying the beginning $14,400,000 deferred tax liability, then (2) the amount of temporary differences originating or reversing during the year, and then (3) the amount of pretax financial income.)

Q8. The difference between the book basis and tax basis of the assets and liabilities of Novak Corporation at the end of 2016 are presented below.

	Book Basis	Tax Basis
Accounts receivable	$52,700	$0
Litigation liability	30,300	0

It is estimated that the litigation liability will be settled in 2017. The difference in accounts receivable will result in taxable amounts of $30,000 in 2017 and $22,700 in 2018. The company has taxable income of $361,000 in 2016 and is expected to have taxable income in each of the following 2 years. Its enacted tax rate is 34% for all years. This is the company's first year of operations. The operating cycle of the business is 2 years.

(a) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2016.

(b) The parts of this question must be completed in order. This part will available when you complete the part above.

Q9. Sweet Inc. reports the following pretax income (loss) for both book and tax purposes. (Assume the carryback provision is used where possible for a net operating loss.)

Year	Pretax Income (Loss)	Tax Rate
2015	$130,000	40%
2016	94,000	40%
2017	(307,000)	45%
2018	112,000	45%

The tax rates listed were all enacted by the beginning of 2015.

(a) Prepare the journal entries for years 2015-2018 to record income tax expense (benefit) and income taxes payable (refundable), and the tax effects of the loss carryback and loss carryforward, assuming that based on the weight of available evidence, it is more likely than not that one-half of the benefits of the loss carryforward will not be realized.

(b) The parts of this question must be completed in order. This part will be available when you complete the part above.

(c) The parts of this question must be completed in order. This part will be available when you complete the part above.

Q10. Given the following items and amounts, compute the actual return on plan assets: fair value of plan assets at the beginning of the period $9,450,000; benefits paid during the period $1,430,000; contributions made during the period $1,040,000; and fair value of the plan assets at the end of the period $10,090,000.

Q11. AMR Corporation (parent company of American Airlines) reported the following (in millions).

Service cost	$366
Interest on P.B.O.	737
Return on plan assets	593
Amortization of prior service cost	13
Amortization of net loss	154

Compute AMR Corporation's pension expense.

Q12. Sandhill Corporation amended its pension plan on January 1, 2017, and granted $153,520 of prior service costs to its employees. The employees are expected to provide 2,020 service years in the future, with 340 service years in 2017.

Compute prior service cost amortization for 2017.

Q13. At December 31, 2017, Pronghorn Corporation had a projected benefit obligation of $560,200, plan assets of $342,100, and prior service cost of $136,700 in accumulated other comprehensive income.

Determine the pension asset/liability at December 31, 2017. (Enter liability using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Q14. Waterway Corporation has the following balances at December 31, 2017.

Projected benefit obligation - $2,523,000

Plan assets at fair value - 1,968,000

Accumulated OCI (PSC) - 1,186,000

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

Q15. Waterway Corp. has three defined benefit pension plans as follows.

	Pension Assets (at Fair Value)	Projected Benefit Obligation
Plan X	$642,000	$480,000
Plan Y	869,000	652,000
Plan Z	602,000	645,000

How will Waterway report these multiple plans in its financial statements?

Q16. Novak Corporation has the following information available concerning its postretirement benefit plan for 2017.

Service cost - $39,500

Interest cost - 47,200

Actual and expected return on plan assets - 26,200

Compute Novak's 2017 postretirement expense.

Q17. Bridgeport Company provides the following information about Its defined benefit pension plan for the year 2017.

Service cost - $90,300

Contribution to the plan - 106,800

Prior service cost amortization - 9,600

Actual and expected return on plan assets - 63,800

Benefits paid - 39,700

Plan assets at January 1, 2017 - 629,900

Projected benefit obligation at January 1, 2017 - 706,100

Accumulated OCI (PSC) at January 1, 2017 - 150,800

Interest/discount (settlement) rate - 10 %

(a) Prepare a pension worksheet inserting January 1, 2017, balances, showing December 31, 2017.

(b) The parts of this question must be completed in order. This part will be available when you complete the part above.

Q18. Headland Company sponsors a defined benefit pension plan for its employees. The following data relate to the operation of the plan for the year 2017 in which no benefits were paid.

1. The actuarial present value of future benefits earned by employees for services rendered in 2017 amounted to $56,100.

2. The company's funding policy requires a contribution to the pension trustee amounting to $144,590 for 2017.

3. As of January 1, 2017, the company had a projected benefit obligation of $901,000, an accumulated benefit obligation of $807,400, and a debit balance of $397,700 in accumulated OCI (PSC). The fair value of pension plan assets amounted to $605,700 at the beginning of the year. The actual and expected return on plan assets was $53,900. The settlement rate was 9%. No gains or losses occurred in 2017 and no benefits were paid.

4. Amortization of prior service cost was $50,500 in 2017. Amortization of net gain or loss was not required in 2017.

(a) Determine the amounts of the components of pension expense that should be recognized by the company in 2017.

(b) The parts of this question must be completed in order. This part will be available when you complete the part above.

(c) The parts of this question must be completed in order. This part will be available when you complete the part above.

Q19. Oriole Co. provides the following information about its postretirement benefit plan for the year 2017.

Service cost - $ 48,100   

Contribution to the plan - 9,000

Actual and expected return on plan assets - 11,100         

Benefits paid - 19,800    

Plan assets at January 1, 2017 - 99,200   

Accumulated postretirement benefit obligation at January 1, 2017 - 300,000       

Discount rate - 10 %

Compute the postretirement benefit expense for 2017.

Q20. Concord Inc. provides the following information related to its postretirement benefits for the year 2017.

Accumulated postretirement benefit obligation at January 1, 2017 - $779,000

Actual and expected return on plan assets - 34,000

Prior service cost amortization - 21,000

Discount rate - 11%

Service cost - 80,600

Compute postretirement benefit expense for 2017.

Q21. Metlock Co. provides the following Information about its postretirement benefit plan for the year 2017.

Service cost - $ 85,500

Prior service cost amortization - 2,800

Contribution to the plan - 56,200

Actual and expected return on plan assets - 58,600

Benefits paid - 36,700

Plan assets at January 1, 2017 - 702,400

Accumulated postretirement benefit obligation at January 1, 2017 - 769,700

Accumulated OCI (PSC) at January 1, 2017 - 102,000 Dr.

Discount rate - 9 %

Prepare a worksheet Inserting January 1, 2017, balances, showing December 31, 2017, balances, and the Journal entry recording postretirement benefit expense.

Q22. At the beginning of 2017, Martinez Construction Company changed from the completed-contract method to recognizing revenue over time (percentage-of-completion) for financial reporting purposes. The company will continue to use the completed-contract method for tax purposes. For years prior to 2017, pretax income under the two methods was as follows: percentage-of-completion $114,600 and completed-contract $84,000, The tax rate is 40%.

Prepare Martinez's 2017 journal entry to record the change in accounting principle.

Q23. Bramble Company changed depreciation methods in 2017 from double-declining-balance to straight-line. Depreciation prior to 2017 under double-declining-balance was $82,800, whereas straight-line depreciation prior to 2017 would have been $49,700. Bramble's depreciable assets had a cost of $248,000 with a $42,000 salvage value, and an 8-year remaining useful life at the beginning of 2017.

Prepare the 2017 journal entry related to Bramble's depreciable assets (Equipment).

Q24. At January 1, 2017, Marin Company reported retained earnings of $2,139,000. In 2017, Marin discovered that 2016 depreciation expense was understated by $361,000. In 2017, net income was $815,000 and dividends declared were $275,000. The tax rate is 35%.

Prepare a 2017 retained earnings statement for Marin Company.

Q25.  Concord Company began operations on January 1, 2015, and uses the average-cost method of pricing inventory. Management is contemplating a change in inventory methods for 2018. The following information is available for the years 2015-2017.

Net Income Computed Using
	Average-Cost Method	FIFO Method	LIFO Method
2015	$16,080	$18,950	$12,100
2016	17,970	21,210	14,110
2017	20,030	25,200	17,160

(a) Prepare the journal entry necessary to record a change from the average cost method to the FIFO method in 2018.

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

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

Q26. Presented below are income statements prepared on a LIFO and FIFO basis for Pharoah Company, which started operations on January 1, 2016. The company presently uses the LIFO method of pricing its inventory and has decided to switch to the FIFO method in 2017. The FIFO income statement is computed in accordance with the requirements of GAAP. Pharoah's profit-sharing agreement with its employees indicates that the company will pay employees 10% of income before profit-sharing. Income taxes are ignored.

	LIFO Basis		FIFO Basis
	2017	2016	2017	2016
Sales	$3,000	$3,000	$3,000	$3,000
Cost of goods sold	1,150	1,030	1,130	950
Operating expenses	1,030	1,030	1,030	1,030
Income before profit-sharing	820	940	840	1,020
Profit-shirting expense	82	94	92	94
Net income	$738	$846	$748	$926

Answer the following questions:

(a) If comparative income statements are prepared, what net income should Pharoah report in 2016 and 2017?

(b) The parts of this question must be completed in order. This part will be available when you complete the part above.

Q27. Martinez Co. purchased a equipment on January 1, 2015, for $566,500. At that time, it was estimated that the equipment would have a 10-year life and no salvage value. On December 31, 2018, the firm's accountant found that the entry for depreciation expense had been omitted in 2016. In addition, management has informed the accountant that the company plans to switch to straight-line depreciation, starting with the year 2018. At present, the company uses the sum-of-the-years'-digits method for depreciating equipment.

Prepare the general journal entries that should be made at December 31, 2018, to record these events. (Ignore tax effects.)

Q28. You have been engaged to review the financial statements of Ayayai Corporation. In the course of your examination, you conclude that the bookkeeper hired during the current year is not doing a good job. You notice a number of irregularities as follows.

1. Year-end wages payable of $3,200 were not recorded because the bookkeeper thought that "they were immaterial."

2. Accrued vacation pay for the year of $34,000 was not recorded because the bookkeeper "never heard that you had to do it."

3. Insurance for a 12-month period purchased on November 1 of this year was charged to insurance expense in the amount of $2,388 because "the amount of the check is about the same every year."

4. Reported sales revenue for the year is $2,073,360. This includes all sales taxes collected for the year. The sales tax rate is 6%. Because the sales tax is forwarded to the state's Department of Revenue, the Sales Tax Expense account is debited. The bookkeeper thought that "the sales tax is a selling expense." At the end of the current year, the balance in the Sales Tax Expense account is $101,660.

Prepare the necessary correcting entries, assuming that Ayayai uses a calendar-year basis.

Q29. The reported net incomes for the first 2 years of Teal Products, Inc., were as follows: 2017, $146,800; 2018, $201,300. Early in 2019, the following errors were discovered.

1. Depreciation of equipment for 2017 was overstated $15,500.

2. Depreciation of equipment for 2018 was understated $36,200.

3. December 31, 2017, inventory was understated $45,400.

4. December 31, 2018, inventory was overstated $17,200.

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

Q30. The before-tax income for Flint Co. for 2017 was $98,000 and $80,800 for 2018. However, the accountant noted that the following errors had been made:

1. Sales for 2017 included amounts of $40,700 which had been received in cash during 2017, but for which the related products were delivered in 2018. Title did not pass to the purchaser until 2018.

2. The inventory on December 31, 2017, was understated by $8,100.

3. The bookkeeper in recording interest expense for both 2017 and 2018 on bonds payable made the following entry on an annual basis.

Interest Expense - 16,800

Cash - 16,800

The bonds have a face value of $280,000 and pay a stated interest rate of 6%. They were issued at a discount of $16,000 on January 1, 2017, to yield an effective-interest rate of 7%. (Assume that the effective-yield method should be used.)

4. Ordinary repairs to equipment had been erroneously charged to the Equipment account during 2017 and 2018. Repairs in the amount of $8,900 in 2017 and $8,800 in 2018 were so charged. The company applies a rate of 10% to the balance in the Equipment account at the end of the year in its determination of depreciation charges.

Prepare a schedule showing the determination of corrected income before taxes for 2017 and 2018.

Q31. On January 1, 2017, Larkspur Co. purchased 25,000 shares (a 10% interest) in Elton John Corp. for $1,450,000. At the time, the book value and the fair value of John's net assets were $12,000,000.

On July 1, 2018, Larkspur paid $3,330,000 for 50,000 additional shares of John common stock, which represented a 20% investment in John. The fair value of John's identifiable assets net of liabilities was equal to their carrying amount of $13,100,000. As a result of this transaction, Larkspur owns 30°/o of John and can exercise significant influence over John's operating and financial policies. (Any excess fair value is attributed to goodwill.)

John reported the following net income and declared and paid the following dividends.

	Net Income	Dividend per Share
Year ended 12/31/17	$630,000	None
Six months ended 6/30/18	550,000	None
Six months ended 12/31/18	827,000	$1.55

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