Condensed financial data of Fairfield Company for 2010 and 2009 are presented below:
|Comparative Balance Sheet
as at December 31, 2010 and 2009
|Long-term investments (Held-to-Maturity)||1,300||1,470|
For the year ended December 31, 2010
|Cost of goods sold||5,700|
|Selling and administrative expense||880|
|Income from operations||1,420|
|Gain on sale of investments||80|
|Income before tax||1,500|
|Income tax expense||600|
Additional information: During the year common stock was issued for cash. No plant assets were sold in 2010. Cash dividends were $200.
(a) Prepare a statement of cash flows for 2010 using the indirect method.
(b) Using the direct method, prepare the Operating Activities section of the statement of cash flows for 2010.
Shamrock Company is involved in five separate industries. The following information is available for each of the five industries:
|Operating Segment||Total Revenue||Operating Profit (Loss)||Identifiable Assets|
Required:Determine which of the operating segments are reportable based on the:
a.) Revenue test.
b.) Operating profit (loss) test.
c.) Identifiable assets test.
d.) What are the benefits of disclosing financial results based on segments?
e.) Shamrock is a US-based large accelerated filer who uses US GAAP. It also has non-affiliate-held equity securities valued at $3 billion. What year was Shamrock required to begin filing their financial statements with the SEC using XBRL?
Question 3 – Week 1
(a) Company sells a machine for $6,500 under a 12-month warranty agreement that requires the company to replace all defective parts and to provide the repair labor at no cost to the customers. With sales being made evenly throughout the year, the company sells 600 machines in 2010 (warranty expense is incurred 30% in 2010, 20% in 2011 and 50% in 2012). As a result of product testing, the company estimates that the warranty cost is $400 per machine ($250 parts and $150 labor).
Assuming that actual warranty costs are incurred exactly as estimated, prepare the journal entries that would be made under application of the expense warranty accrual methodfor the following:
i. Warranty costs incurred in 2010.
ii. Warranty costs incurred in 2011.
(b) Yellow Cab Co. began operations on January 2, 2010. It employs 15 drivers who work 8-hour days. Each employee earns 10 paid vacation days annually. Vacation days may be taken after January 10 of the year following the year in which they are earned. The average hourly wage rate was $28.00 in 2010 and $20.00 in 2011. The average vacation days used by each driver in 2011 was 8. Yellow Cab Co. accrues the cost of compensated absences at rates of pay in effect when earned.
Prepare journal entries to record the transactions related to paid vacation days during 2010 and 2011.
XYZ Company is building a new baseball stadium at a cost of $5,000,000. It received a down payment of $3,000,000 from local businesses to support the project, and now needs to borrow $2,000,000 to complete the project. It therefore decides to issue $2,000,000 of 8%, 10-year bonds. These bonds were issued on January 1, 2010, and pay interest semi-annually on each January 1 and July 1, beginning 2010. The bonds yield 10%.
a) Prepare the journal entry to record the issuance of the bonds on January 1, 2010.
b) Prepare a bond amortization schedule up to and including January 1, 2015, using the effective-interest method.
c) Assume that on July 2, 2014, XYZ Company retires all of the bonds at a cost of $1,900,000. Prepare the journal entry to record this retirement.
Roman Company had the following stockholders’ equity as of January 1, 2010.
Common Stock, $5 par value, 20,000 shares issued $100,000
Paid-in capital in excess of par $300,000
Retained earnings $320,000
Total stockholder’s equity $720,000
During 2010, the following transactions occurred:
· Jan 31 Roman issued 5,000 shares of common stock at $10 per share.
· Feb 25 Roman repurchased 2,000 shares of treasury stock at a price of $19 per share.
· Mar 2 1,300 shares of treasury stock repurchased above were reissued at $20 per share.
· Apr 22 600 shares of treasury stock repurchased above were reissued at $18 per share.
· Apr 24 A 5% stock dividend was declared (the market price of the stock was $15)
· Apr 25 The 5% stock dividend was distributed ( market price of the stock was still $15)
(a) Prepare the journal entries to record the stock transactions in 2010, assuming Roman uses the cost method to account for treasury stock.
(b) How many shares of common stock were outstanding as of April 30, 2010?
Minal Hair Products, a New York-based corporation is preparing financial statements for its financial year ended June 30, 2010. The equity capital on July 1, 2009 consisted of 1 million shares of common stock outstanding and 20,000 shares of $50 par value, 6%, convertible preferred stock. Each preferred stock was convertible into 20 shares of common stock. There were no preferred dividends in arrears. The debt capital consisted of $900,000 worth of 5%, $1,000 convertible bonds. Each bond was convertible into 50 shares of common stock. Assume a Tax Rate of 40%.
The net income for the financial year ended June 30, 2010 was $200,000.
On October 1, 2009, Minal required some funds for expansion into New Jersey and sold an additional 600,000 shares of the common stock at $20 per share. On April 1, 2010, Minal also had a 10 for 1 stock split of its common shares. These were the only stock transactions that occurred during the financial year.
For the financial year ended June 30, 2010, determine the:
(a) Basic EPS
(b) Diluted EPS
(Assume that the stock transactions which took place on October 1, 2009 and April 1, 2010 would still have occurred with conversion)
(a) Presented below is information taken from a bond investment amortization schedule with related fair values provided. These bonds are classified as available-for-sale.
i. Indicate, with a reason, whether the bonds were purchased at a discount or a premium.
ii. Prepare the adjusting entry to record the bonds at fair value at December 31, 2010. The Securities Fair Value Adjustment account has a debit balance of $3,000 prior to adjustment.
iii. Prepare the adjusting entry to record the bonds at fair value at December 31, 2011.
(b) At the end of Tanya Corporation’s first year of business, it had the following equity investments which were all reported as Trading Securities:
|Chambers Education Inc.||$280,000||$306,000|
On May 1, 2011, Tanya sold the investment in Nandini Airways for $300,000 and then on May 31, 2011 bought a 15% equity stake in Jet Air for $85,000. The Fair Values of Deyan, Chambers and Jet Air at December 31, 2011 were $200,000, $287,000 and $205,000 respectively.
i. Prepare the adjusting entry to record the investments at fair value at 12/31/10
ii. Prepare the entry to record the sale on Nandini on May 1, 2011
iii. Prepare the adjusting entry to record the investments at fair value at 12/31/11
On March 1, 2010, Lancelot Company entered into a contract to build an apartment building. It is estimated that the building will cost $2,200,000 and will take 3 years to complete. The contract price was $2,700,000. The following information pertains to the construction period:
|Costs incurred to date||$800,000||$1,700,000||$2,300,000|
|Estimated costs to complete||1,400,000||500,000||0|
|Yearly Progress billings||900,000||800,000||1,000,000|
|Yearly Cash collected||880,000||720,000||1,100,000|
Required:(Round percentages to exclude decimal points and round dollar amounts to excludecents)
Assuming the percentage-of-completion revenue recognition method is used.
(a) Compute the amount of revenue and gross profit to be recognized each year
(b) Prepare all necessary journal entries for 2012.
(a) Harvard Rental Company reports pre-tax financial income of $100,000 for 2010. The following items cause taxable income to be different than pre-tax financial income:
Harvard’s tax rate is 40% for all years, and the company expects to report taxable income in all future years. There are no deferred taxes at the beginning of 2010.
i. Compute taxable income and income taxes payable for 2010.
ii. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2010.
(b) For both GAAP and tax purposes, Raymond Incorporated reported the following pre-tax income (loss) for each of the years:
Year Pre-tax income Tax Rate
2008 $180,000 30%
2009 120,000 30%
2010 (200,000) 25%
2011 100,000 25%
Assuming that the carry back provision is used, prepare all the necessary journal entries for each year 2008-2011 to record income tax expense (benefit) and income tax payable (refundable), and the tax effects of the loss carry back and loss carry forward. (Assume that no valuation allowance is required)
a) Water Inc. has the following balances at 1/1/10 that relate to its defined-benefit pension plan:
|Net Pension Asset||100,000|
|Accumulated OCI (PSC)||120,000|
During 2010, the following additional data is available:
|Service Cost for 2010||$75,000|
|Expected return on plan assets in 2010||70,000|
|Amortization of prior service cost||10,000|
|Actual return on plan assets||60,000|
|Unexpected gain from change in projected benefit obligation, due to change in actuarial predictions||65,000|
|Contributions in 2010||90,000|
|Benefits paid to retirees in 2010||75,000|
Compute pension expense for the year 2010 .
b) George Incorporated has the following balances as of the beginning of each year:
Year PBO Net Pension Asset (Liability)
2010 $1,700,000 $(200,000)
2011 2,300,000 100,000
In 2010 there is also a $250,000 opening balance in Accumulated OCI for unrecognized loss. The average remaining service life per employee in 2010 is 10 years, and in 2011 it is 12 years. The net gain or loss that occurred during each year is as follows:
Year Gain (Loss)
Compute the net gain/loss that is amortized in each of the 2 years above.
Truck Leasing Company (TLC) buys trucks for leasing to various delivery companies. On April 1, 2010, TLC leases a truck to Showman Delivery Company. The cost of the truck of $289,875 and its fair value were the same. The lease payments stipulated in the lease are $40,000 per year in advance for the 10-year period of the lease. The expected economic life of the equipment is also 10 years. The title to the equipment remains in the hands of TLC at the end of the lease term, although only nominal residual value is expected at that time. Showman incremental borrowing rate is 5%, and it uses the straight-line method of depreciation on all owned equipment. Both Showman and TLC have fiscal year ending March 31, while lease payments are made on April 1 each year.
(a) Determine the rate implicit in the lease
(b) Determine the present value of the minimum lease payments for the lessee.
(c) Prepare the entries to record the lease and the first lease payment on the books of the lessor and lessee, assuming the lease meets the criteria of a direct financing lease for the lessor and a capital lease for the lessee.
(d) Describe the criteria for a Lease to be classified as a Capital Lease by the lessee.
(e) Apart from your responses to (d) above, describe the additional criteria for a Lease to be classified as a Capital Lease by the lessor.
On December 31, 2010, before the books were closed, the management and accountants of Baker Inc made the following determinations about 2 of its depreciable assets:
1. Depreciable asset A was purchased January 1, 2006. It originally cost $630,000 and, for depreciation purposes, the straight-line method was originally chosen. The asset was originally expected to be useful for 20 years and have a zero salvage value. In 2010 the decision was made to change the depreciation method from straight-line to sum-of-the-years’-digits, and the estimates relating to useful life and salvage value remained unchanged.
2. Depreciable asset B was purchased January 1, 2006. It originally cost $120,000 and was depreciated on the straight-line method basis. The asset was originally expected to be useful for 15 years and have a zero salvage value. In 2010, the decision was made to shorten the total life of this asset to 8 years and to estimate the salvage value at $8,000.
· Income in 2010 before depreciation expense amounted to $390,000
· Depreciation expense on assets other than A and B totaled $50,000 in 2010.
· Income in 2009 was reported at $350,000
· Ignore all income tax effects.
· 200,000 shares of common stock were outstanding in 2009 and 2010.
a) Prepare all necessary journal entries in 2010 for the above determinations.
b) Prepare comparative retained earnings statements for Baker Inc for 2009 and 2010. The company had retained earnings of $100,000 at December 31, 2008.
a) Distinguish between a change in an Accounting Estimate and a change in an Accounting Principle.
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