8/20 Flashcards
Taft corp uses the equity method to account for its 25% investment in Flame Inc. During the year taft recieved dividends of 30,000 and recorded 180,000 as its equity earnings of Flame. Additional info
All undistributed earnings will be future dividends
All dividends are eligible for the 65% received deduction
There are no temporary differences
income tax rate is 21% for current and future periods
What amount should Taft report as deferred income tax liability?
11,025
180,000 total earnings - 30,000 already received = 150,000
150,000 x (1-.65) = 52,500
52,500 x .21 = 11,025
In FS prepared on the income-tax basis, how should the nondeductible portion of expenses such as meals and entertainment be reported?
Included in expenses.
nondeductible items are included on the FS but excluded on the return.
The schedule of actuarially determined contributions required in supplementary info should be presented for
to the extent available
minimum 10 years but if less than 10 just report what is available
On Jan 2, yr 1 Kine Co. granted its president compensatory stock options of 1,000 $10 par. The options call for a price of $20 per share and are exercisable for three years following the grant date. The president exercised the options on Dec 31. The market price of the stock was $45 on Jan 2, yr 1 and $70 on Dec 31, yr 1. The options have a FV of 30,000 on grant date. What amount should stockholder’s equity increase as a result of the grant and exercise of the options?
20,000
Jan 1 Dr Compensation Exp 30,000 Cr APIC-stock options 30,000
Dec 31 Dr Cash recieved 20,000 Dr APIC-stock options 30,000
Cr Common Stock @ par 10,000 Cr APIC-excess of par 40,000 (plug)
Changes in equity Jan 1 -30,000 from expenses +30,000 in APIC;
Dec 31 -30,000 change in APIC + 10,000 CS + 40,000 APIC
Net change 20,000
Davis County has a Dec 31 year end and typically bills and collects occupational license fees for regulated businesses in its jurisdiction before the license is valid. In Oct yr 1, Davis billed for yr 2 fees in the amount of 250. The county had fully collected the fees by Dec 31, yr 1. In its yr 1 FS Davis would record.
250 in Deferred inflows of resources
P Co purchased term bonds at a premium on the open market. These bonds represented 20 percent of the outstanding bonds issued at a discount by S Co., P’s wholly owned subsidiary. P intends to hold the bonds to maturity. In a consolidated BS, the difference between the bond carrying amounts would be
Included in retained earnings
Which of the following funds do interfund transfers affect the results of operations in their fund FS?
Governmental funds
Proprietary funds
Both
other financing sources for Gov. Funds
interfund transfers for Proprietary funds
A 15 year bond was issued in yr 1 at a discount. During yr 11, a 10 year bond was issued at face amount. The net effect of the year 11 bond transactions was to increase LT liabilities by the excess of the 10 year bond’s face amount over the 15 year bond’s
Carrying amount
The 15 year bond will be amortized over its life, reducing the discount. The 10 year bond was issued at face. New LT liab. will be the 10yr bond face + 15yr bond carrying amount.
Rune’s checkbook balance on Dec 31 was 10. On that date Rune held the following
4 check payable to Rune, postdated Jan 3, not included in checkbook balance
1 check payable to Rune, deposited Dec 15 and included in checkbook bal. But returned Dec 30 stamped NSF.
What should Rune report as cash balance Dec 31?
9
10 balance less the 1 NSF check included
An entity upon initial recognition of an asset retirement obligation, should NOT take which of the following actions?
- allocate asset retirement cost to expense over the useful life of the related asset.
- measure the asset retirement cost at fair value
- capitalize the asset retirement cost by increasing the carrying amount of the related asset.
- capitalize the asset retirement cost at its undiscounted cash flow value.
capitalize the asset retirement cost at its undiscounted cash flow value.
Record the ARO - Dr Asset Retirement Cost Cr Asset Retirement Obligation
Record the Accretion Expense Dr Accretion Expense Cr ARO
accretion expense to amortize the liability from PV to full
Record the depreciation expense Dr Depreciation Exp Cr Accum Dep.
dep exp to reduce the asset retirement cost ARC to zero when the retirement comes due
Dallas Inc acquired 80% of Style’s common stock for 120,000. On that date Style’s assets and liabilities approximated their FV. During yr 1 Style paid 5,000 cash dividends to its stockholders.
Dallas Investment in Style 132,000 Other Assets 138,000
CS 50,000 APIC 80,250 RE 139,750
Style’s RE was BB 36,000 EB 51,000
What amount of stockholder’s eq should Dallas report on Dec 31 consolidated BS
303,000
CS 50,000 + APIC 80,250 + RE 139,750 + non controlling interest 33,000 = 303,000
non controlling interest = BB 30,000 + NCI share of income 4,000 - NCI dividends paid 1,000 = 33,000
BB = 120,000/.8 = 150,000 x .2 = 30,000
NCI share of income Style’s RE EB 51,000 + 5,000 dividend paid - 36,000 BB = 20,000 x .2 = 4,000
NCI share of dividends 5,000 x .2 = 1,000
On Jan 1, yr 1 Pepper Co acquired 30% of Salt’s common stock at $60 per share. Pepper was able to exercise significant influence. Salt had 50,000 common shares outstanding. On July 1, yr 1 pepper sold all but 500 shares of its investment in Salt. Pepper held the remaining shares through YE. Salt declared and paid a $1 per share stock dividend on March 31 and a $1.50 per share cash dividend on Sept 30. Salt’s income was 50,000 per quarter.
What amount would Pepper record for revenue from this investment?
30,750
Would use the equity method for the first half of the year and fair value method for the second half of the year.
50,000x2=100,000*.3=30,000 income during equity method
500x1.5=750 dividend income during FV method
Charm Co owns a delivery truck with an original cost of 10,000 and acc depr 7,000. Charm acquired a new truck by exchanging the old truck and paying 2,000 cash. The new truck’s FV was 5,000 at the time of the exchange. What amount of gain or loss should Charm recognize?
3000 loss
2000 loss
2000 gain
0
0
This transaction lacks commercial substance because the exchange does not substantially change cash flows of either party.
Because this lacks commercial substance and the boot is greater than 25% both companies will record as a monetary exchange.
Charm gave up 3,000 BV old truck and 2,000 cash for new truck of 5,000. These net to zero so no gain or loss recognized.
Link Paid 50,000 and gave land with a carrying amount of 320,000 and FV of 450,000 in an exchange that lacks commercial substance. The FV of the land from Link was 500,000 BV 350,000.
How much should Link record on its books
How much should Club record on its books
Link 370,000
Club 315,000
Because the exchange lacks commercial substance the asset will be recorded as NBV surrendered plus boot paid or gain recognized minus boot received or loss recognized.
Link because paid Club boot then all of Links realized gain 450-320 is deferred. So the land on Links books is NBV 320+cash paid 50 = 370
Club received cash and in an exchange that lacks commercial substance. So Club will recognize a gain equal in proportion to the cash received and the total FV received. cash received 50,000/(450,000+50,000)=10%
Clubs gain 500,000-350,000=150,000 x .1 = 15,000
Dr Cash 50 Dr New Land 315 plug Cr old land 350,000 Cr gain 15,000
Sherman incurred the following transactions pertaining to the land for the new warehouse
Purchase price 325,000
Demolition of existing structures 120,000
Proceeds from sale of scrap from old building 65,000
Costs incurred to grade and pave driveways and parking lots 40,000
Lawn and garden sprinkler systems for the property
Legal fees incurred to purchase property 24,000
Calculate the capitalized cost of the land
404,000
+Purchase price 325 + demo 120 - proceeds 65 +legal fees 24
Parking lots and sprinkler are not included as they are depreciable assets.
