Question: On February 1, 2015, Davis Corporation issued

> 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

> Melissa Corporation is domiciled in Germany and is listed on both the Frankfurt and New York Stock Exchanges. Melissa has chosen to prepare consolidated financial statements in accordance with U.S. GAAP for filing with the U.S. Securities and Exchange Co

> 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 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

> Over the past two years, Madison Corporation has accumulated operating loss carryforwards of $66,000. This year, 2017, Madison’s pre-tax book income is $101,500. The company is subject to a 35% corporate tax rate. The following items ar

> Bryan Trucking Corporation began business on January 1, 2017, and consists of the parent entity, domiciled and operating in Country X, and a subsidiary operating in Country Y. Bryan is required, as a listed company in Country X, to prepare financial stat

> Delta Air Lines provides scheduled air transportation for passengers and cargo throughout the United States and globally a fleet of more than 900 aircraft. Information from its 2015 annual report follows. NOTE 7. LEASE OBLIGATIONS We lease aircraft, a

> On January 1, 2011, the Dolan Company purchased a new office building in Las Vegas, for $6,100,000, which it holds for rentals and capital appreciation. Dolan estimated the building would have a useful life of 25 years and a residual value of $1,100,000.

> Metge Corporation’s worksheet for calculating taxable income for 2017 follows: The enacted tax rate for 2017 is 35%, but it is scheduled to increase to 40% in 2018 and subsequent years. All temporary differences are originating differ

> Nelson Inc. purchased machinery at the beginning of 2017 for $90,000. Management used the straight-line method to depreciate the cost for financial reporting purposes and the sum-of the- years’ digits method to depreciate the cost for tax purposes. The l

> For financial statement reporting, Lexington Corporation recognizes royalty income according to GAAP. However, royalties are taxed when collected. At December 31, 2016, deferred royalty income of $400,000 was included in Lexington’s balance sheet. All of

> The following information pertains to Ramesh Company for the current year: Book income before income taxes ……………….………………. $106,000 Income tax expense ……………….……………….……………….45,500 Income taxes due for this year ……………….……………….28,000 Statutory income tax ra

> Boers Corporation and Bernstein, Inc., both project pre-tax income of $100 million in 2017. Both also expect there to be no change in their cumulative temporary differences during the year. However, the two companies are in very different deferred tax po

> In the current year, 2017, Reality Corporation reported $200,000 of pre-tax earnings on its income statement. The corporate tax rate is 35% in the current year and next year, and it is scheduled to remain at this level for the foreseeable future. Additio

> Flower Company started doing business on January 1, 2016. For the year ended December 31, 2017, it reported $450,000 pre-tax book income on its income statement. Flower is subject to a 35% corporate tax rate for this year and the foreseeable future. Addi

> In 2017, MB Inc. is subject to a 35% tax rate. For book purposes, it expenses $1,500 of expenditures. MB intends to deduct these expenditures on its 2017 tax return despite tax law precedent that makes it less than 50% probable that the deduction will be

> In 2017, Phillips Company reported $10,000 of pre-tax book income and also had $10,000 of taxable income. It incurred a $1,000 book expense that it deducted on its tax return. Assuming a 35% tax rate, this deduction results in a $350 tax benefit. The tax

> Southwest Airlines Co. is a major airline that operates in the United States. Refer to the following information from Southwest Airlines’ 2015 3rd quarter 10-Q. 3. FINANCIAL DERIVATIVE INSTRUMENTS Fuel contracts Airline operators a

> Mozart Inc.’s $98,000 taxable income for 2017 will be taxed at the 35% corporate tax rate. For tax purposes, its depreciation expense exceeded the depreciation used for financial reporting purposes by $27,000. Mozart has $45,000 of purchased goodwill on

> On July 1, 2017, Burgundy Studios leases camera equipment from Corningstone Corporation. The lease covers eight years and requires lease payments of $42,000, beginning on July 1, 2017. The unguaranteed residual value is $90,000. On July 1, 2017, the equi

> Kingston Corporation adopted ASU 2016-02 on January 1, 2017. On December 31, 2017, Thomas Henley, financial vice president of Kingston Corporation, signed a noncancelable three-year lease for a excavator. The lease calls for annual payments of $41,635 pe

> Using the data in P12–6, prepare the journal entries required by Coleman Inc. on January 1, 2017, assuming that (a) Task does not guarantee the residual value and (b) Task does guarantee it. Coleman paid $500,000 to acquire the office equipment several

> On January 1, 2017, Task Co. signs an agreement to lease office equipment from Coleman Inc. for three years with payments of $193,357 beginning December 31, 2017. The equipment’s fair value is $500,000 with an expected useful life of four years. At the e

> On January 1, 2017, Bare Trees Company signed a three-year noncancelable lease with Dreams Inc. The lease calls for three payments of $62,258.09 to be made at each year-end. The lease payments include $3,000 of executory costs related to service. The lea

> On January 1, 2017, Bill Inc. leases manufacturing equipment from Beatrix Corporation. The lease covers seven years and requires annual lease payments of $51,000, beginning on January 1, 2017. The unguaranteed residual value at the end of seven years is

> On January 1, 2017, Seven Wonders Inc. signed a five-year noncancelable lease with Moss Company. The lease calls for five payments of $277,409.44 to be made at the end of each year. The leased asset has a fair value of $1,200,000 on January 1, 2017. Seve

> Lessor Company has a machine with a cost and fair value of $100,000 that it leases for a 10-year period to Lessee Company. The machine has a 12-year expected economic life. Payments are received at the beginning of each year. The machine is expected to h

> In its 2012 Annual Report, Singapore Airlines, which primarily complies with IFRS, reported the following expected future minimum lease payments (in $ million). In its 2012 Annual Report filed under U.S. GAAP, United Continental Holdings, which owns Un

> The cereal division of Kellogg Company intends to test market next year an organic corn based cereal to be called NutriFlakesTR. The business plan calls for production to begin in late May 2015, with retail store delivery starting in early June. Annie Gl

> On January 1, 2017, Dwyer Company leases space for a donut shop. The lease is for five years with payments to be made at the beginning of each year. The lease calls for Dwyer to pay $10,000 on January 1, 2017, $11,000 on January 1, 2018, $12,500 on Janua

> This problem is designed to allow you to see how different lease durations and interest rates affect the relationship between the capitalized lease asset and lease liability. Of course, these same asset–liability relationships apply if you wish to constr

> On January 1, 2017, Merchant Co. sold a tractor to Swanson Inc. and simultaneously leased it back for five years. The tractor’s fair value is $250,000, but its carrying value on Merchant’s books prior to the transaction was $200,000. The tractor has a si

> As a loan officer for First Bank, you’re evaluating Newton Co.’s financial statements. Your evaluation reveals that Newton has no capital leases recorded on its financial statements. To effectively evaluate Newton&acir