Question: Bidwell Leasing purchased a single-engine plane

> Differences between financial statement and taxable income were as follows: ________________________________($ in millions) Pretax accounting income ………………………………………………… $300 Permanent difference ………………………………………………………… (24) …………………………………………………………………………………

> Sometimes a temporary difference will produce future deductible amounts. Explain what is meant by future deductible amounts. Describe two general situations that have this effect. How are such situations recognized in the financial statements?

> VeriFone Systems is a provider of electronic card payment terminals, peripherals, network products, and software. In its 2015 annual report, the company reported deferred tax assets totaling about $398 million. The company also reported valuation allowan

> At the end of the year, the deferred tax asset account had a balance of $12 million attributable to a cumulative temporary difference of $30 million in a liability for estimated expenses. Taxable income is $35 million. No temporary differences existed at

> Refer to the situation described in BE 16–4. Suppose the deferred portion of the rent collected was $40 million at the end of 2019. Taxable income is $200 million. Prepare the appropriate journal entry to record income taxes. In BE 16–4 In 2018, Ryan Ma

> In 2018, Ryan Management collected rent revenue for 2019 tenant occupancy. For financial reporting, the rent is recorded as deferred revenue and then recognized as income in the period tenants occupy rental property, but for income tax reporting it is ta

> A company reports pretax accounting income of $10 million, but because of a single temporary difference, taxable income is $12 million. No temporary differences existed at the beginning of the year, and the tax rate is 40%. Prepare the appropriate journa

> Kara Fashions uses straight-line depreciation for financial statement reporting and MACRS for income tax reporting. Three years after its purchase, one of Kara’s buildings has a book value of $400,000 and a tax basis of $300,000. There were no other temp

> The projected benefit obligation and plan assets were $80 million and $100 million, respectively, at the beginning of the year. Due primarily to favorable stock market performance in recent years, there also was a net gain of $30 million. On average, emp

> A company reports pretax accounting income of $10 million, but because of a single temporary difference, taxable income is only $7 million. No temporary differences existed at the beginning of the year, and the tax rate is 40%. Prepare the appropriate jo

> Southeast Airlines had pretax earnings of $65 million, including a gain on disposal of a discontinued operation of $10 million. The company’s tax rate is 40%. What is the amount of income tax expense that Southeast should report in its income statement?

> Refer to the situation described in BE 18–8. By what amount will Cox’s paid-in capital—share repurchase increase if it determines the cost of treasury shares by the FIFO method? In BE 18–8 In previous years, Cox Transport reacquired 2 million treasury s

> In previous years, Cox Transport reacquired 2 million treasury shares at $20 per share and, later, 1 million treasury shares at $26 per share. By what amount will Cox’s paid-in capital—share repurchase increase if it now sells 1 million treasury shares a

> The Jennings Group reacquired 2 million of its shares at $70 per share as treasury stock. Last year, for the first time, Jennings sold 1 million treasury shares at $71 per share. By what amount will Jennings’ retained earnings decline if it now sells the

> Agee Storage issued 35 million shares of its $1 par common stock at $16 per share several years ago. Last year, for the first time, Agee reacquired 1 million shares at $14 per share. Assuming that Agee retires shares it reacquires (restores their status

> First Bank has some question as to the tax-free nature of $5 million of its municipal bond portfolio. This amount is excluded from First Bank’s taxable income of $55 million. Management has determined that there is a 65% chance that the tax-free status o

> Horton Industries’ shareholders’ equity included 100 million shares of $1 par common stock and a balance in paid-in capital—excess of par of $900 million. Assuming that Horton retires shares it reacquires (restores their status to that of authorized but

> Lewelling Company issued 100,000 shares of its $1 par common stock to the Michael Morgan law firm as compensation for 4,000 hours of legal services performed. Morgan’s usual rate is $240 per hour. By what amount should Lewelling’s paid-in capital—excess

> Penne Pharmaceuticals sold 8 million shares of its $1 par common stock to provide funds for research and development. If the issue price is $12 per share, what is the journal entry to record the sale of the shares?

> Additional disclosures are required pertaining to deferred tax amounts reported on the balance sheet. What are the needed disclosures?

> Schaeffer Corporation reports $50 million accumulated other comprehensive income in its balance sheet as a component of shareholders’ equity. In a related statement reporting comprehensive income for the year, the company reveals net income of $400 milli

> Refer to the situation described in BE 18–13, but assume a 2-for-1 stock split instead of the 5% stock dividend. Prepare the journal entry to record the stock split if it is to be effected in the form of a 100% stock dividend. What is the par per share a

> On June 13, the board of directors of Siewert Inc. declared a 5% stock dividend on its 60 million, $1 par, common shares, to be distributed on July 1. The market price of Siewert common stock was $25 on June 13. Prepare the journal entry to record the st

> Adams Moving and Storage, a family-owned corporation, declared a property dividend of 1,000 shares of GE common stock that Adams had purchased in February for $37,000 as an investment. GE’s shares had a market value of $35 per share on the declaration da

> The shareholders’ equity of MLS Enterprises includes $200 million of no par common stock and $400 million of 6% cumulative preferred stock. The board of directors of MLS declared cash dividends of $50 million in 2018 after paying $20 million cash dividen

> Following is a recent Microsoft press release: REDMOND, Wash.—March 16, 2016 —Microsoft today announced that its board of directors have declared a quarterly dividend of $0.36 per share. The dividend will be payable on June 9, 2016, to shareholders of re

> What is comprehensive income? How does comprehensive income differ from net income? Where do companies report it in a balance sheet?

> AirParts Corporation reported a net operating loss of $25 million for financial reporting and tax purposes. Taxable income last year and the previous year, respectively, was $20 million and $15 million. The enacted tax rate each year is 40%. Prepare the

> A deferred tax liability (or asset) is described as the tax effect of the temporary difference between the financial statement carrying amount (book value) of an asset or liability and its tax basis. Explain this tax effect of the temporary difference. H

> The par value of shares historically indicated the real value of shares and all shares were issued at that price. The concept has changed with time. Describe the meaning of par value as it has evolved to today.

> The pension plan was amended last year, creating a prior service cost of $20 million. Service cost and interest cost for the year were $10 million and $4 million, respectively. At the end of the year, there was a negligible balance in the net gain–pensio

> Most preferred shares are cumulative. Explain what this means.

> Terminology varies in the way companies differentiate among share types. But many corporations designate shares as common or preferred. What are the two special rights usually given to preferred shareholders?

> What is meant by a shareholder’s preemptive right?

> The owners of a corporation are its shareholders. If a corporation has only one class of shares, they typically are labeled common shares. Indicate the ownership rights held by common shareholders, unless specifically withheld by agreement.

> Distinguish between publicly held and privately (or closely) held corporations.

> Corporations offer the advantage of limited liability. Explain what is meant by that statement.

> Identify the three common forms of business organization and the primary difference between the way they are accounted for.

> A quasi reorganization is sometimes employed by a firm undergoing financial difficulties but with favorable future prospects. What are two objectives of this procedure? Briefly describe the procedural steps.

> Suppose you own 80 shares of Facebook common stock when the company declares a 4% stock dividend. What will you receive as a result?

> During its first year of operations, Nile.com reported a net operating loss of $15 million for financial reporting and tax purposes. The enacted tax rate is 40%. Prepare the journal entry to recognize the income tax benefit of the net operating loss.

> The projected benefit obligation was $80 million at the beginning of the year. Service cost for the year was $10 million. At the end of the year, pension benefits paid by the trustee were $6 million and there were no pension-related other comprehensive i

> How are deferred tax assets and deferred tax liabilities reported in a classified balance sheet?

> A member of the board of directors is concerned that the company’s income statement reports income tax expense of $12.3 million, but the income tax obligation to the government for the year is only $7.9 million. How might the corporate controller explain

> On January 1, 2018, NRC Credit Corporation leased equipment to Brand Services under a finance/sales-type lease designed to earn NRC a 12% rate of return for providing long-term financing. The lease agreement specified: a. Ten annual payments of $55,000 b

> Universal Leasing leases electronic equipment to a variety of businesses. The company’s primary service is providing alternate financing by acquiring equipment and leasing it to customers under long-term sales-type leases. Universal earns interest under

> Federated Fabrications leased a tooling machine on January 1, 2018, for a three-year period ending December 31, 2020. The lease agreement specified annual payments of $36,000 beginning with the first payment at the beginning of the lease, and each Decemb

> For each of the three independent situations below determine the amount of the annual lease payments. Each describes a finance lease in which annual lease payments are payable at the beginning of each year. Each lease agreement contains an option that pe

> On January 1, 2018, Maywood Hydraulics leased drilling equipment from Aqua Leasing for a four-year period ending December 31, 2021, at which time possession of the leased asset will revert back to Aqua. The equipment cost Aqua $412,184 and has an expecte

> Each of the four independent situations below describes a sales-type lease in which annual lease payments of $100,000 are payable at the beginning of each year. Each is a finance lease for the lessee. Determine the following amounts at the beginning of t

> Each of the three independent situations below describes a finance lease in which annual lease payments are payable at the beginning of each year. The lessee is aware of the lessor’s implicit rate of return. Required: For each situati

> Terms of a lease agreement and related facts were: a. Incremental costs of commissions for brokering the lease and consummating the completed lease transaction incurred by the lessor were $4,242. b. The retail cash selling price of the leased asset was $

> The 2018 annual report of MLS Corporation included the following disclosure note: Note 10: Borrowings (in part) Convertible Debt On June 15, 2018, we issued $125 million of zero coupon convertible unsecured debt due on June 15, 2020 in a private placemen

> Both convertible bonds and bonds issued with detachable warrants have features of both debt and equity. How does the accounting treatment differ for the two hybrid securities? Why is the accounting treatment different?

> At January 1, 2018, Café Med leased restaurant equipment from Crescent Corporation under a nine-year lease agreement. The lease agreement specifies annual payments of $25,000 beginning January 1, 2018, the beginning of the lease, and at each December 31

> In a financing lease, “front loading” of lease expense and lease revenue occurs. What does this mean, and how is it avoided in an operating lease?

> Each of the four independent situations below describes a finance lease in which annual lease payments are payable at the beginning of each year. The lessee is aware of the lessor’s implicit rate of return. Required: For each situatio

> Bradley-Link’s December 31, 2018, balance sheet included the following items: Long-Term Liabilities _________________________________ ($ in millions) 9.6% convertible bonds, callable at 101 beginning in 2019, due 2022 (net of unamortized discount of $2)

> On January 1, 2018, Rick’s Pawn Shop leased a truck from Corey Motors for a six-year period with an option to extend the lease for three years. Rick’s had no significant economic incentive as of the beginning of the lease to exercise the 3-year extension

> On January 1, 2018, Taco King leased retail space from Fogelman Properties. The 10-year finance lease requires quarterly variable lease payments equal to 3% of Taco King’s sales revenue, with a quarterly sales minimum of $400,000. Payments at the beginni

> AI Tool and Dye issued 8% bonds with a face amount of $160 million on January 1, 2018. The bonds sold for $150 million. For bonds of similar risk and maturity the market yield was 9%. Upon issuance, AI elected the option to report these bonds at their fa

> On January 1, 2018, QuickStream Communications leased telephone equipment from Digium, Inc. Digium’s cash selling price for the equipment is $1,306,578. The lease agreement specifies six annual payments of $300,000 beginning December 31, 2018, and at eac

> On January 1, 2018, Wetick Optometrists leased diagnostic equipment from Southern Corp., which had purchased the equipment at a cost of $1,437,237. The lease agreement specifies six annual payments of $300,000 beginning January 1, 2018, the beginning of

> Bidwell Leasing purchased a single-engine plane for its fair value of $645,526 and leased it to Red Baron Flying Club on January 1, 2018. Terms of the lease agreement and related facts were: a. Eight annual payments of $110,000 beginning January 1, 2018,

> Manufacturers Southern leased high-tech electronic equipment from International Machines on January 1, 2018. International Machines manufactured the equipment at a cost of $85,000. Manufacturers Southern’s fiscal year ends December 31. Related Informatio

> Natick Industries leased high-tech instruments from Framingham Leasing on January 1, 2018. Natick has the option to renew the lease at the end of two years for an additional three years. Natick is subject to a $45,000 penalty after two years if it fails

> Chance Enterprises leased equipment from Third Bank Leasing on January 1, 2018. Chance purchased the equipment at a cost of $1,000,000. Chance elected the short-term lease option. Appropriate adjusting entries are made annually. Related Information: Leas

> On January 1, 2018, Nath-Langstrom Services, Inc. a computer software training firm, leased several computers under a two-year operating lease agreement from ComputerWorld Leasing, which routinely finances equipment for other firms at an annual interest

> Grichuk Power leased high-tech electronic equipment from Kolten Leasing on January 1, 2018. Kolten purchased the equipment from Wong Machines at a cost of $250,000, its fair value. Related Information: Lease term ……………………………………… 2 years (8 quarterly peri

> Briefly describe the conceptual basis for asset and liability recognition under the right-of-use approach used by the lessee in a lease transaction.

> The long-term liability section of Eastern Post Corporation’s balance sheet as of December 31, 2017, included 10% bonds having a face amount of $40 million and a remaining premium of $6 million. On January 1, 2018, Eastern Post retired some of the bonds

> King Company leased equipment from Mann Industries. The lease agreement qualifies as a finance lease and requires annual lease payments of $52,538 over a six-year lease term (also the asset’s useful life), with the first payment at January 1, the beginni

> At January 1, 2018, Café Med leased restaurant equipment from Crescent Corporation under a nine-year lease agreement. The lease agreement specifies annual payments of $25,000 beginning January 1, 2018, the beginning of the lease, and at each December 31

> At January 1, 2018, Café Med leased restaurant equipment from Crescent Corporation under a nine-year lease agreement. The lease agreement specifies annual payments of $25,000 beginning January 1, 2018, the beginning of the lease, and at each December 31

> King Cones leased ice cream-making equipment from Ace Leasing. Ace earns interest under such arrangements at a 6% annual rate. The lease term is eight months with monthly payments of $10,000 due at the end of each month. King Cones elected the short-term

> Edison Leasing leased high-tech electronic equipment to Manufacturers Southern on January 1, 2018. Edison purchased the equipment from International Machines at a cost of $112,080. Related Information: Lease term …………………………………………… 2 years (8 quarterly pe

> Appling Enterprises issued 8% bonds with a face amount of $400,000 on January 1, 2018. The bonds sold for $331,364 and mature in 2037 (20 years). For bonds of similar risk and maturity the market yield was 10%. Interest is paid semiannually on June 30 an

> Early extinguishment of debt often produces a gain or a loss. How is the gain or loss determined?

> At the beginning of its fiscal year, Lakeside Inc. leased office space to LTT Corporation under a seven-year operating lease agreement. The contract calls for quarterly rent payments of $25,000 each. The office building was acquired by Lakeside at a cost

> At the beginning of its fiscal year, Lakeside Inc. leased office space to LTT Corporation under a seven-year operating lease agreement. The contract calls for quarterly rent payments of $25,000 each. The office building was acquired by Lakeside at a cost

> A lease agreement that qualifies as a finance lease calls for annual lease payments of $26,269 over a six-year lease term (also the asset’s useful life), with the first payment at January 1, the beginning of the lease. The interest rate is 5%. The lessor

> A lease agreement that qualifies as a finance lease calls for annual lease payments of $26,269 over a six-year lease term (also the asset’s useful life), with the first payment at January 1, the beginning of the lease. The interest rate is 5%. If the les

> A lease agreement that qualifies as a finance lease calls for annual lease payments of $26,269 over a six-year lease term (also the asset’s useful life), with the first payment at January 1, the beginning of the lease. The interest rate is 5%. If the les

> When bonds are issued at a premium the debt declines each period. Explain.

> Air France–KLM (AF), a Franco-Dutch company, prepares its financial statements according to International Financial Reporting Standards. AF’s financial statements and disclosure notes for the year ended December 31, 2015, are available in Connect. This m

> A finance lease agreement calls for quarterly lease payments of $5,376 over a 10-year lease term, with the first payment on July 1, the beginning of the lease. The annual interest rate is 8%. Both the present value of the lease payments and the cost of t

> Manufacturers Southern leased high-tech electronic equipment from Edison Leasing on January 1, 2018. Edison purchased the equipment from International Machines at a cost of $112,080. Related Information: Lease term………………………………………….…..... 2 years (8 quart

> Corinth Co. leased nonspecialized equipment to Athens Corporation for an eight-year period, at which time possession of the equipment will revert back to Corinth. The equipment cost Corinth $16 million and has an expected useful life of 12 years. Its nor

> On December 31, 2018, Yard Art Landscaping leased a delivery truck from Branch Motors. Branch paid $40,000 for the truck. Its retail value is $45,114. The lease agreement specified annual payments of $11,000 beginning December 31, 2018, the beginning of

> On January 1, 2018, Jasperse Corporation leased equipment under a finance lease designed to earn the lessor a 12% rate of return for providing long-term financing. The lease agreement specified ten annual payments of $75,000 beginning January 1, and each

> Bryant leased equipment that had a retail cash selling price of $600,000 and a useful life of five years with no residual value. The lessor paid $530,000 to acquire the equipment and used an implicit rate of 8% when calculating annual lease payments of $

> On January 1, Garcia Supply leased a truck for a four-year period, at which time possession of the truck will revert back to the lessor. Annual lease payments are $10,000 due on December 31 of each year, calculated by the lessor using a 5% discount rate.

> Hoffman Corporation issued $60 million of 5%, 20-year bonds at 102. Each of the 60,000 bonds was issued with 10 detachable stock warrants, each of which entitled the bondholder to purchase, for $20, one share of $1 par common stock. At the time of sale,

> On January 1, James Industries leased equipment to a customer for a four-year period, at which time possession of the leased asset will revert back to James. The equipment cost James $700,000 and has an expected useful life of six years. Its normal sales

> Ace Leasing acquires equipment and leases it to customers under long-term sales-type leases. Ace earns interest under these arrangements at a 6% annual rate. Ace leased a machine it purchased for $600,000 under an arrangement that specified annual paymen

> On January 1, Espinoza Moving and Storage leased a truck for a four-year period, at which time possession of the truck will revert back to the lessor. Annual lease payments are $10,000 due on December 31 of each year, calculated by the lessor using a 5%

> Cupola Fan Corporation issued 10%, $400,000, 10-year bonds for $385,000 on June 30, 2018. Debt issue costs were $1,500. Interest is paid semiannually on December 31 and June 30. One year from the issue date (July 1, 2019), the corporation exercised its c

> On June 30, 2018, Georgia-Atlantic, Inc. leased warehouse equipment from Builders, Inc. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $562,907 over a three-year lease term, payable each June 30 and December 31, with

> In accounting for an operating lease, how are the lessee’s and lessor’s income statements affected?

> Target Corporation prepares its financial statements according to U.S. GAAP. Target’s financial statements and disclosure notes for the year ended January 30, 2016, are available in Connect. This material is also available under the Investor Relations li