Question: Melissa Corporation is domiciled in Germany and

> On January 1, 2017, Newyork Capital Corporation purchased 30% of the outstanding common shares of Delta Crating Corp. for $250 million and accounts for this investment under the equity method. The following information is available regarding Delta Cratin

> On December 31, 2017, Pate Corporation acquired 80% of Starmont Corporation’s common stock for $900,000 cash. Assume that the fair values of Starmont’s identifiable assets and liabilities equaled book values on the acq

> The income statement for the year ended December 31, 2017, as well as the balance sheets as of December 31, 2017, and December 31, 2016, for Lucky Lady Inc. follow. This information is taken from the financial statements of a real company whose name has

> Groupe Casino is a French multinational company that operates more than 9,000 multiformat retail stores—hypermarkets, supermarkets, discount stores, convenience stores, and restaurants— throughout the world. In January 20X5, Casino issued €600 million of

> Yachting in Paradise, Inc., was founded late in 2010 by retired Admiral Andy Willits to provide executive retreats aboard a luxury yacht with ports of call scattered around the South Pacific. Yachting in Paradise is a U.S. firm and follows U.S. GAAP. On

> Four years ago Omega Technology, Inc., acquired a machine to use in its computer chip manufacturing operations at a cost of $35,000,000. The firm expected the machine to have a seven-year useful life and a zero salvage value. The company has been using s

> Fly-by-Night is an international airline company. Its fleet includes Boeing 757s, 747s, and 737s and McDonnell Douglas MD-83s and MD-80s. Assume that Fly-by-Night made the following expenditures related to these aircraft in 2017: Required: 1. New jet en

> Hoyle Company owns a manufacturing plant with a fair value of $4,600,000, a recorded cost of $8,500,000, and accumulated depreciation of $3,650,000. Patterson Company owns a warehouse with a fair value of $4,400,000, a recorded cost of $6,900,000, and ac

> On April 23, 2017, Starlight Department Stores, Inc., acquired a 75-acre tract of land by paying $25,000,000 in cash and by issuing a six-month note payable for $5,000,000 and 1,000,000 shares of its common stock. On April 23, 2017, Starlight’s common st

> Cayman Diving, Inc., needs to acquire a new dive boat. The seller will accept a noninterest bearing note for $400,000 due in four years or $250,000 in cash. The company’s incremental cost of borrowing is 10%. Required: Which option should Cayman Diving

> On June 30, 2017, Macrosoft Company acquired a 10-acre tract of land. On the tract was a warehouse that Macrosoft intended to use as a distribution center. At the time of purchase, the land had an assessed tax value of $6,300,000, and the building had an

> On January 2, 2016, Half, Inc., purchased a manufacturing machine for $864,000. The machine has an eight-year estimated life and a $144,000 estimated salvage value. Half expects to manufacture 1,800,000 units over the machine’s life. During 2017, Half ma

> Required: 1. Which of the following qualifies as a hedged item? a. A company’s work-in-process inventory of unfinished washers, dryers, and refrigerators. b. Credit card receivables at JCPenney. c. Bushels of corn owned by the Farmers’ Cooperative. d. Sa

> On January 1, 2017, Tusk Company issued $300 million of bonds with a 6% coupon interest rate. The bonds mature in 10 years and pay interest annually on December 31 of each year. The market rate of interest on January 1, 2017, for bonds of this risk class

> Royal Dutch Shell had pretax income of $2,047 million, $28,314 million and $33,592 million in 2015, 2014, and 2013, respectively. Presented below are excerpts from the 2015 annual report of Royal Dutch Shell, a Dutch company that finds, extracts, process

> On July 1, 2017, Mirage Company issued $250 million of bonds with an 8% coupon interest rate. The bonds mature in 10 years and pay interest semiannually on June 30 and December 31 of each year. The market rate of interest on July 1, 2017, for bonds of th

> On January 1, 2016, Roland Inc. issued $125 million of 8% bonds at par. The bonds pay interest semiannually on June 30 and December 31 of each year, and they mature in 15 years. On December 31, 2017 (before the interest payment is made), the bonds are tr

> In January 2017, Vorst Company purchased a mineral mine for $2,640,000. Removable ore was estimated at 1,200,000 tons. After it has extracted all the ore, Vorst will be required by law to restore the land to its original condition. The expected present v

> Pearl, Inc., develops and markets computer software. During 2016, one of Pearl’s engineers began developing a new and very innovative software product. On July 1, 2017, a team of Pearl engineers determined that the software product was technologically fe

> In 2017, Ball Labs incurred the following costs: Direct costs of doing contract research and development…….……$400,000 work for the government to be reimbursed by a governmental unit Research and development costs not included above were: Depreciation ……

> Akers Company sold bonds on July 1, 2017, with a face value of $100,000. These bonds are due in 10 years. The stated annual interest rate is 6% per year, payable semiannually on June 30 and December 31. These bonds were sold to yield 8%. Required: How m

> On January 2, 2014, Lava, Inc., purchased a patent for a new consumer product for $90,000. At the time of purchase, the patent was valid for 15 years; however, its useful life was estimated to be only 10 years due to the product’s competitive nature. On

> On January 1, 2013 Vick Company purchased a trademark for $400,000, which had an estimated useful life of 16 years. In January 2017, Vick paid $60,000 for legal fees in a successful defense of the trademark. Required: How much should Vick record as trad

> McClelland Corporation agreed to purchase some landscaping equipment from Agri-Products for a cash price of $500,000. Before accepting delivery of the equipment, McClelland learned that the same equipment could be purchased from another dealer for $460,0

> Weir Company uses straight-line depreciation for its property, plant, and equipment, which, stated at cost, consisted of the following: Weir’s depreciation expense for 2017 and 2016 was $55,000 and $50,000, respectively. Required: W

> Diamond Offshore Drilling, Inc. (DOD), is an international company that provides contract drilling services to the energy industry. In its 2015 Form 10-K, it reports the following information related to Property and equipment. 2. Asset Impairments 2015 I

> Kobe Company began constructing a building for its own use in February 2017. During 2017, Kobe incurred interest of $70,000 on specific construction debt and $15,000 on other borrowings. Interest computed on the weighted-average amount of accumulated exp

> Clay Company started construction on a new office building on January 1, 2017, and it moved into the finished building on July 1, 2018. Of the building’s $2,500,000 total cost, $2,000,000 was incurred in 2017 evenly throughout the year. Clay’s incrementa

> For $20 million, Ross Adams Mining acquired a tract of land containing a large deposit of anthracite coal. Ross Adams believes the most economical way to extract the coal is to stripmine the site. The company is required by environmental regulations to r

> On January 1, 2017, Hardy, Inc., purchased certain plant assets under a deferred payment contract. The agreement called for making annual payments of $10,000 for five years. The first payment is due on January 1, 2017, and the remaining payments are due

> Samson Manufacturing Company, a calendar year company, purchased a machine for $65,000 on January 1, 2015 At the date of purchase, Samson incurred the following additional costs: Loss on sale of old machinery………………………………... $1,000 Freight-in ……………………………

> The Williamsport Crosscutters baseball team had a player contract with Clemens (a promising young catcher) that was recorded in its accounting records at $500,000. The Reading Phillies had a player contract with Ruiz (a veteran outfielder) that was recor

> Apex Company purchased a tooling machine on January 3, 2007, for $30,000. The machine was being depreciated on the straight-line method over an estimated useful life of 20 years, with no salvage value. At the beginning of 2017, when the machine had been

> On April 1, 2017, Mills Company acquired equipment for $125,000. The estimated useful life is six years, and the estimated residual value is $5,000. Mills estimates that the equipment can produce 25,000 units of product. During 2017 and 2018, respectivel

> Gonzo Co. owns a building in Georgia. The building’s historical cost is $970,000, and $440,000 of accumulated depreciation has been recorded to date. During 2017, Gonzo incurred the following expenses related to the building: Repainted the building …………

> Union Company acquired machinery on January 2, 2017, for $315,000. The machinery’s estimated useful life is 10 years, and the estimated residual value is $15,000. Union estimates that the machine will produce 15,000 units of product and that 20,000 direc

> Diamond Offshore Drilling, Inc. (DOD), is an international company that provides contract drilling services to the energy industry. In its 2015 Form 10-K, it reports the following information related to its interest expense and interest capitalization. A

> Phoenix Co. acquired a large piece of specialized machinery used in its manufacturing process. The following costs were incurred in connection with the acquisition: Finder’s fee ………………………………………….….….……. $ 2,000 List price ……………………………………………….….……… 230,000

> Black Company, organized on January 2, 2017, had pre-tax accounting income of $500,000 and taxable income of $800,000 for the year ended December 31, 2017. The only temporary difference is accrued product warranty costs, which are expected to be paid as

> Kent Inc.’s reconciliation between financial statement and taxable income for 2017 follows: Pre-tax financial income ……………â€&

> Dunn Company’s 2017 income statement reported $90,000 income before provision for income taxes. To aid in the computation of the provision for federal income taxes, the following 2017 data are provided: Rent received in advance ……………………………………………………… $1

> For the year ended December 31, 2017, Tyre Company reported pre-tax financial statement income of $750,000. Its taxable income was $650,000. The difference was due to the use of accelerated depreciation for income tax purposes and straight-line for finan

> Mill Company began operations on January 1, 2017, and recognized income from construction- type contracts under different methods for tax purposes and financial reporting purposes. Information concerning income recognition under each method is as follows

> In its 2017 income statement, Tow Inc. reported proceeds from an officer’s life insurance policy of $90,000 and depreciation of $250,000. Tow was the owner and beneficiary of the life insurance on its officer. Tow deducted depreciation

> Collins Company incurs a $1,000 book expense that it deducts on its tax return. The tax law is unclear whether this expense is deductible, so the deduction leads to an uncertain tax position. Assuming a 35% tax rate, the deduction results in a $350 tax b

> Millie Co. completed its first year of operations on December 31, 2017, with pre-tax financial income of $400,000. Millie accrued a contingent liability of $900,000 for financial reporting purposes; however, the $900,000 will be paid and therefore is ded

> On December 31, 2017, Toms River Rafting, Inc. (TRR), has a deferred tax asset related to a $250,000 net operating loss carryforward. The enacted tax rate (and substantively enacted tax rate) at the time was 35%. When it recognized this deferred tax asse

> Granite Construction is one of the largest heavy civil construction contractors in the United States. Granite operates nationwide, serving both public and private sector clients. Within the public sector, the company primarily concentrates on infrastruct

> (Note: Students may want to review the material on the equity method of accounting in Chapter 16 before beginning work on this exercise.) Taft Corporation uses the equity method to account for its 25% investment in Flame, Inc., which it made on January 1

> As of December 31, 2017, Colt Corporation has a loss carryforward of $180,000 available to offset future taxable income. At December 31, 2017, the company believes that realization of the tax benefit related to the loss carryforward is probable. The tax

> Dix Company reported operating income/loss before income tax in its first three years of operations as follows: 2016 ………………. $ 100,000 2017 ………………. (200,000) 2018 ……………….400,000 Dix had no permanent or temporary differences between book income and taxabl

> (Note: Students may want to review the material on the equity method of accounting in Chapter 16 before beginning work on this exercise.) Tara Corporation uses the equity method of accounting for its 40% investment in Flax’s common stock. During 2017, Fl

> On January 2, 2016, Allen Company purchased a machine for $70,000. This machine has a five-year useful life, a residual value of $10,000, and it is depreciated using the straight-line method for financial statement purposes. For tax purposes, depreciatio

> Below are three independent lease scenarios. Payments are made at the beginning of each year. Required: 1. Calculate the lease payments for the above three cases. 2. Explain whether each lease will be an operating lease or a finance lease under ASU 201

> Below are three independent lease scenarios. Payments are made at the end of each year. Required: 1. Calculate the lease payments for the above three cases. 2. Based on the relation between the lease life and economic life, the lessees will classify th

> Glade Company leases computer equipment to customers under direct financing leases. The equipment has no residual value at the end of the lease term, and the leases do not contain bargain purchase options. Glade wishes to earn 8% interest on a five-year

> Benedict Company leased equipment to Mark Inc. on January 1, 2017. The lease is for an eight-year period, expiring December 31, 2024. The first of eight equal annual payments of $600,000 was made on January 1, 2017. Benedict had purchased the equipment o

> Target Corporation operates in a single business segment that is designed to enable guests to purchase products seamlessly in stores, online or through mobile devices. Most of its operations are in the United States. Walmart is engaged in the operation o

> On January 1, 2017, Beard Company purchased a machine for $620,000. The machine is Expected to have a 10-year life, no residual value, and will be depreciated by the straight-line method. On January 1, 2017, it leased the machine to Child Company for a t

> On December 31, 2017, Ball Company leased a machine from Cook for a 10-year period, expiring December 30, 2027. Annual payments of $100,000 are due on December 31. The first payment was made on December 31, 2017, and the second payment was made on Decemb

> East Company leased a new machine from North Company on May 1, 2017, under a lease with the following information: Lease term ……………...……….………….………….………….…………. 10 years Annual rental payable at beginning of each lease year…………. $40,000 Useful life of ma

> On January 1, 2017, Bonduris Company leases warehouse space in Oakland, CA. The lease is for six years with payments to be made at the beginning of each year. The lease calls for Bonduris to pay $15,000 on January 1, 2017. The lease calls for subsequent

> On January 1, 2017, Walker, Inc., signs a 5-year lease for two floors of a 20-floor building. The building has an expected remaining life of 20 years. The space is available immediately, and Walker agrees to make annual payments $325,000 on December 31 o

> On January 1, 2017, Draper Inc. signed a five-year noncancelable lease with Thornhill Company for custom-made equipment. The lease calls for five payments of $161,364.70 to be made at the beginning of each year. The leased asset has a fair value of $900,

> Sandra Company and Nova Inc. each signed lease agreements on January 1, 2017. Nova’s lease qualified for capital lease treatment, but Sandra’s lease did not. All other information for both companies is identical. Payme

> Mickelson reports on a calendar year basis. On January 1, 2017, Mickelson Corporation enters into a three-year lease with annual payments of $30,000. The first payment will be due on December 31, 2017. The present value of the payments at 8% is $77,313.

> On December 31, 2017, Lane, Inc., sold equipment to Nolte and simultaneously leased it back for 12 years. Pertinent information at this date is as follows: Sales price ……………………………… $480,000 Carrying amount………………………………$360,000 Estimated remaining economi

> On December 31, 2017, Roe Company leased a machine from Colt for a five-year period. Equal annual payments under the lease are $105,000 (including $5,000 annual executory costs for servicing) and are due on December 31 of each year. The first payment was

> At December 31, 2015, ExxonMobil had 4,156 million shares of outstanding common stock. The closing market price of each share of stock at December 31, 2015, was $77.95. Presented below are excerpts from the 2015 annual report of ExxonMobil Corporation. T

> On January 1, 2017, Babson, Inc., leased two automobiles for executive use. The lease requires Babson to make five annual payments of $13,000, beginning January 1, 2017. At the end of the lease term on December 31, 2021, Babson guarantees that the residu

> On October 1, 2017, Vaughn, Inc., leased a machine from Fell Leasing Company for five years. The lease requires five annual payments of $10,000 beginning September 30, 2018. Vaughn’s incremental borrowing rate is 11%, and it uses a calendar year for repo

> On December 31, 2017, Day Company leased a new machine from Parr with the following pertinent information: Lease term ……………………………………………………………………………... 5 years Annual rental payable on December 31 (beginning December 31, 2017) ……... $50,000 Useful life

> Monk Company, a dealer in machinery and equipment, leased equipment with a 10-year life to Leland Inc. on July 1, 2017. The lease is appropriately accounted for as a sale by Monk and as a purchase by Leland. The lease is for an eight-year period, expirin

> On January 1, 2017, 3Way Energy issued $200 million of 15-year, floating-rate debentures at par value. The debentures pay interest on June 30 and December 31 of each year. The floating interest rate is set equal to “LIBOR plus 6%” on January 1 of each ye

> Zero coupon bonds pay no interest—the only cash investors receive is the lump-sum principal payment at maturity. On January 1, 2017, The Ledge Inc. issued $250 million of zero coupon bonds at a market yield rate of 12%. The bonds mature in 20 years. Req

> Brower Corporation owns a manufacturing plant in the country of Oust. On December 31, 2017, the plant had a book value of $5,000,000 and an estimated fair value of $8,000,000. Oust’s government has clearly indicated that it will expropriate the plant dur

> Webb Company has outstanding a 7% annual, 10-year, $100,000 face value bond that it had issued several years ago. It originally sold the bond to yield 6% annual interest. Webb uses the effective interest rate method to amortize the bond premium. On June

> On February 1, 2015, Davis Corporation issued 12%, $1,000,000 par, 10-year bonds for $1,117,000. Davis reacquired all of these bonds at 102% of par, plus accrued interest, on May 1, 2018, and retired them. The unamortized bond premium on that date was $7

> On January 2, 2017, West Company issued 9% bonds in the amount of $500,000 that mature on December 31, 2026. The bonds were issued for $469,500 to yield 10%. Interest is payable annually on December 31. West uses the effective interest method of amortizi

> Novartis, which files under IFRS, reported the following information in its first quarter report for 2013: Impact of introducing revised accounting standard on Employee Benefits in 2013 The Group introduced the revised IFRS accounting standard IAS 19 (R)

> On January 1, 2017, when the market interest rate was 14%, Luba Corporation issued bonds in the face amount of $500,000 with interest at 12% payable semiannually. The bonds mature on December 31, 2026. Required: Calculate the bond discount at issuance.

> By July 1, 2018, the market yield on the Akers Company bonds described in E11–1 had risen to 10%. Required: What was the bonds’ market price on July 1, 2018?

> Lufthansa Group operates an international airline based in Germany. Lufthansa files its annual reports under International Financial Reporting Standards (IFRS). In its 2012 Annual Report to shareholders, Lufthansa presented the following information in a

> Under Armour, a maker of athletic sportswear, had a tax provision of about $134 million in 2014. Following is the 2014 note disclosure for Under Armour’s uncertain tax positions. Provision for Income Taxes (Excerpt) As of December 31, 2014 and 2013, the

> The following partial income statement and income tax note excerpts were taken from Sirius XM Inc.’s 2012 Form 10-K. During 2012, Sirius XM eliminated most of the valuation allowance it had built up, reducing it to $9.8 million at Dec

> Excerpts from Starbucks Corporation’s tax note from the company’s Form 10-K for the year ended September 27, 2015, follow. Required: 1. Provide a journal entry to record the aggregate income tax expense for the yea

> ABC Inc. is in the business of airframe maintenance, modification and retrofit services, avionics and aircraft interior installations, the overhaul and repair of aircraft engines, and other related services. The following are excerpted from its income st

> lululemon athletica and Under Armour are both in the athletic apparel business. But the two companies’ depreciation methods differ. The following explanations were excerpted from the two companies’ fiscal 2014 financia

> Edited excerpts from Alphabet Inc.’s (parent of Google) 2015 tax note follow: Required: 1. Prepare the book journal entry for income tax expense for 2015 (combine U.S., foreign, and state income taxes). Clearly indicate both the acco

> The following tables were excerpted from Pepsico’s 2015 Form 10-K. All amounts are in millions of dollars and the deferred tax asset and liability amounts are as of December 31 of the respective year. Required: 1. Provide journal en

> Refer to the 2014 General Electric Retiree Health and Life Benefits disclosure appearing in Exhibit 14.6. 1. Reconstruct the journal entries that GE would have made in 2014 to record the effects of its retiree health and life benefits plans. As was the c

> Walgreens Boots Alliance, Inc. is a global pharmacy-led health and well-being enterprise. It has 13,100 stores in 11 countries. Walgreens Boots Alliance was incorporated in 2014 and is the successor to Walgreen Co., which was originally incorporated in 1

> Refer to the Delta Air Lines financial statement information contained in C12-1. 1. Explain how the financial statements and disclosures would change if Delta were using IAS 17 instead of FASB ASC 840. Be as specific as possible. 2. Explain how the finan

> During 2017, Orr Company incurred the following costs: Research and development services performed by Key Corporation for Orr ……… $150,000 Design, construction, and testing of preproduction prototypes and models …………. 200,000 Testing in search for new

> In Figland Company’s first year of operations (2017), the company had pre-tax book income of $500,000 and taxable income of $800,000. Figland’s only temporary difference is for accrued product warranty costs, which are expected to be paid as follows: 20

> The following graph depicts three depreciation expense patterns over time. Pattern I, of course, is straight-line depreciation. Which depreciation expense pattern corresponds to the sum-of-the-years’ digits method and which correspo

> Quinn Company reported a net deferred tax asset of $10,500 in its December 31, 2016, balance sheet. For 2017, Quinn reported pre-tax financial statement income of $300,000. Temporary differences of $100,000 resulted in taxable income of $200,000 for 2017

> West Corporation leased a building and received the $36,000 annual rental payment on July 15, 2017. The beginning of the lease period was August 1, 2017. Rental income is taxable when received. West had no other permanent or temporary differences. West’s

> Moss Inc. follows GAAP for financial reporting purposes and appropriately uses the installment method of accounting for income tax purposes. It reported $250,000 of pre-tax income under GAAP, but it will report the corresponding taxable income in the fol

> For its third year of operations, 2017, Delilah Corp. is reporting pre-tax book income of $223,000. The following items are relevant to Delilah’s deferred tax computations: Required: 1. In 2017, Delilah had a $55,000 unrealized holding gain on its tradi