# Project #94336 - Accounting/Finance

 Problem 19-7 (Part Level Submission)
Crosley Corp. sold an investment on an installment basis. The total gain of \$108,000 was reported for financial reporting purposes in the period of sale. The company qualifies to use the installment-sales method for tax purposes. The installment period is 3 years; one-third of the sale price is collected in the period of sale. The tax rate was 45% in 2014, and 30% in 2015 and 2016. The 30% tax rate was not enacted in law until 2015. The accounting and tax data for the 3 years is shown below.

 Financial Accounting Tax Return 2014 (45% tax rate) Income before temporary difference \$126,000 \$126,000 Temporary difference 108,000 36,000 Income \$234,000 \$162,000 2015 (30% tax rate) Income before temporary difference \$126,000 \$126,000 Temporary difference –0– 36,000 Income \$126,000 \$162,000 2016 (30% tax rate) Income before temporary difference \$126,000 \$126,000 Temporary difference –0– 36,000 Income \$126,000 \$162,000
 (a1)
Calculate cumulative temporary differences for years 2014-2016.

 2014 2015 2016 Cumulative temporary difference \$ \$ \$

Calculate current tax expense for years 2014-2016.

 Current tax  for 2014 \$ Current tax  for 2015 \$ Current tax  for 2016 \$

Calculate deferred tax expense for 2014-2016.

 Deferred tax  for 2014 \$ Deferred tax  for 2015 \$ Deferred tax  for 2016 \$
 (a2), (b) and (c)
(a2) Prepare the journal entries to record the income tax expense, deferred income taxes, and the income taxes payable at the end of each year. No deferred income taxes existed at the beginning of 2014. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

 Date Account Titles and Explanation Debit Credit 2014 2015 (To record the adjustment for the decrease in the enacted tax rate.) (To record income taxes.) 2016

(b) Explain how the deferred taxes will appear on the balance sheet at the end of each year.

 Crosley Corp.Balance SheetDecember 31, 2014 \$

 Crosley Corp.Balance SheetDecember 31, 2015 \$

 Crosley Corp.Balance SheetDecember 31, 2016 \$

(c) Draft the income tax expense section of the income statement for each year, beginning with “Income before income taxes.” (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

 Crosley Corp.Income Statement (Partial)Year ended December 31, 2014 \$ \$ \$

 Crosley Corp.Income Statement (Partial)Year ended December 31, 2015 \$ \$ \$

 Crosley Corp.Income Statement (Partial)Year ended December 31, 2016 \$ \$ \$

 Concepts for Analysis 19-3
The asset-liability approach for recording deferred income taxes is an integral part of generally accepted accounting principles.

Indicate whether each of the following independent situations should be treated as a temporary difference or as a permanent difference.

 (1) Estimated warranty costs (covering a 3-year warranty) are expensed for financial reporting purposes at the time of sale but deducted for income tax purposes when paid. (2) Depreciation for book and income tax purposes differs because of different bases of carrying the related property, which was acquired in a trade-in. The different bases are a result of different rules used for book and tax purposes to compute the basis of property acquired in a trade-in. (3) A company properly uses the equity method to account for its 30% investment in another company. The investee pays dividends that are about 10% of its annual earnings. (4) A company reports a gain on an involuntary conversion of a nonmonetary asset to a monetary asset. The company elects to replace the property within the statutory period using the total proceeds so the gain is not reported on the current year’s tax return.

DeJohn Company, which began operations at the beginning of 2012, produces various products on a contract basis. Each contract generates a gross profit of \$82,000. Some of DeJohn’s contracts provide for the customer to pay on an installment basis. Under these contracts, DeJohn collects one-fifth of the contract revenue in each of the following four years. For financial reporting purposes, the company recognizes gross profit in the year of completion (accrual basis). For tax purposes, DeJohn recognizes gross profit in the year cash is collected (installment basis).

Presented below is information related to DeJohn’s operations for 2014:

 1 In 2014, the company completed seven contracts that allow for the customer to pay on an installment basis. DeJohn recognized the related gross profit of \$574,000 for financial reporting purposes. It reported only \$114,800 of gross profit on installment sales on the 2014 tax return. The company expects future collections on the related installment receivables to result in taxable amounts of \$114,800 in each of the next four years. 2 In 2014, nontaxable municipal bond interest revenue was \$29,600. 3 During 2014, nondeductible fines and penalties of \$28,100 were paid. 4 Pretax financial income for 2014 amounts to \$510,000. 5 Tax rates (enacted before the end of 2014) are 50% for 2014 and 40% for 2015 and later. 6 The accounting period is the calendar year. 7 The company is expected to have taxable income in all future years. 8 The company has no deferred tax assets or liabilities at the end of 2013.
Prepare the journal entry to record income taxes for 2014. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

 Account Titles and Explanation Debit Credit
What is DeJohn’s effective tax rate? (Round answer to 2 decimal places, e.g. 52.75.)

 Effective tax rate %

 IFRS 19-7
Rode Inc. incurred a net operating loss of \$542,000 in 2014. Combined income for 2012 and 2013 was \$375,000. The tax rate for all years is 40%. Rode elects the carryback option. Prepare the journal entries to record the benefits of the loss carryback and the loss carryforward. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

 Account Titles and Explanation Debit Credit (To record benefit of loss carryback) (To record benefit of loss carryforward)

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Using Your Judgment 19-2 (Part Level Submission)
 (a)
What are the amounts of Coca-Cola’s and PepsiCo’s provision for income taxes for the year 2011? Of each company’s 2011 provision for income taxes, what portion is current expense and what portion is deferred expense? (Enter amounts in millions.)

 Coca-Cola Company PepsiCo, Inc. Current portion \$ \$ Deferred portion \$ \$ Total expense \$ \$
 (b)
What amount of cash was paid in 2011 for income taxes by Coca-Cola and by PepsiCo? (Enter amounts in millions.)

 Coca-Cola Company PepsiCo, Inc. Income tax payments \$ \$
 (c1)
What was the U.S. federal statutory tax rate in 2011? What was the effective tax rate in 2011 for Coca-Cola and PepsiCo? (Round answers to 1 decimal place, e.g. 52.5.)

 Federal statutory tax rate % Coca-Cola’s effective tax rate % PepsiCo’s effective tax rate %
 (d)
For year-end 2011, what amounts were reported by Coca-Cola and PepsiCo as (1) gross deferred tax assets and (2) gross deferred tax liabilities? (Enter amounts in millions.)

 Coca-Cola Company PepsiCo, Inc. (1) Gross deferred tax assets \$ \$ (2) Gross deferred tax liabilities \$ \$

 IFRS 20-10 (Part Level Submission)
Linda Berstler Company sponsors a defined benefit pension plan. The corporation's actuary provides the following information about the plan.

 January 1,2014 December 31,2014 Defined benefit obligation \$2,500 \$3,280 Plan assets (fair value) 1,750 2,580 Discount rate 10 % Pension asset/liability 750 ? Service cost for the year 2014 390 Contributions (funding in 2014) 700 Benefits paid in 2014 200

 (a)
Compute the actual return on the plan assets in 2014.

 Return on plan assets \$
 (b)
Compute the amount of other comprehensive income (G/L) as of December 31, 2014. (Assume the January 1, 2014, balance was zero.)

 Other comprehensive income (G/L) \$

 Problem 20-11 (Part Level Submission)
The following data relate to the operation of Kramer Co.’s pension plan in 2015.

 Service cost \$119,770 Actual return on plan assets 64,960 Amortization of prior service cost 56,840 Annual contributions 103,530 Benefits paid retirees 54,810 Average service life of all employees 25 years

The pension worksheet for 2014 is presented below.

 KRAMER COMPANYWorksheet—2014 General Journal Entries Memo Record Items Annual Pension Expense Cash OCI—Prior Service Cost OCI— Gain/Loss Pension Asset/Liability Projected Benefit Obligation Plan Assets Balance, Jan. 1, 2014 \$243,600 Cr. \$659,750 Cr. \$416,150 Dr. Service cost \$40,600 Dr. 40,600 Cr. Interest cost 52,780 Dr. 52,780 Cr. Actual return 36,540 Cr. 36,540 Dr. Unexpected loss 5,075 Cr. \$5,075 Dr. Amortization of PSC 71,050 Dr. \$71,050 Cr. Contributions \$83,230 Cr. 83,230 Dr. Benefits 30,450 Dr. 30,450 Cr. Increase in PBO 88,305 Dr. 88,305 Cr. Journal entry for 2014 \$122,815 Dr. \$83,230 Cr. 71,050 Cr. 93,380 Dr. 61,915 Cr. Accumulated OCI, Dec. 31, 2013 162,400 Dr. 0 Balance, Dec. 31, 2014 \$91,350 Dr. \$93,380 Dr. \$305,515 Cr. \$810,985 Cr. \$505,470 Dr.

For 2015, Kramer will use the same assumptions as 2014 for the expected rate of returns on plan assets. The settlement rate for 2015 is 10%.
 (a)
Prepare a pension worksheet for 2015. (Round answers to 0 decimal places, e.g. 2,500.)

 KRAMER COMPANYPension Worksheet—2015 General Journal Entries Memo Record Items Annual PensionExpense Cash OCI—PriorService Cost OCI— Gain/Loss Pension Asset/Liability Projected BenefitObligation PlanAssets Balance, Jan. 1, 2015 \$ \$ \$ \$ \$ \$ \$ Service cost Interest cost Actual return Unexpected gain Amortization of PSC Amortization of loss Contributions Benefits Journal entry for 2015 \$ \$ Accumulated OCI, Dec. 31, 2014 Balance, Dec. 31, 2015 \$ \$ \$ \$ \$

Accompanying computations and amortization of the loss, if any, in 2015 using the corridor approach. (Round answers to 0 decimal places, e.g. 2,500.)

 Amortization of the loss
 (b)
Prepare the journal entries (from the worksheet) to reflect all pension plan transactions and events at December 31. (Round answers to 0 decimal places, e.g. 2,500. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

 Date Account Titles and Explanation Debit Credit Dec. 31, 2015
 (c)
Indicate the pension amounts reported in the financial statements. (Round answers to 0 decimal places, e.g. 2,500.)

 Kramer Co.Income Statement (Partial)For the year ended December 31, 2015 \$

 Kramer Co.Comprehensive Income StatementFor the year ended December 31, 2015 \$ XXX \$ XXX

 Kramer Co.Partial Balance SheetDecember 31, 2015 \$ \$

 Using Your Judgment 20-4 (Part Level Submission)
PENCOMP's balance sheet at December 31, 2014, is as follows.

 PENCOMP, INC.BALANCE SHEETAS OF DECEMBER 31, 2014 Assets Liabilities Cash \$438 Notes payable \$1,000 Inventory 1,800 Pension liability 344 Total current assets 2,238 Total liabilities 1,344 Plant and equipment 2,000 Stockholders’ equity Accumulated depreciation (240 ) Common stock 2,000 1,760 Retained earnings 896 Total assets \$3,998 Accumulated other comprehensive income (242 ) Total stockholders' equity 2,654 Total liabilities and stockholders’ equity \$3,998

 Additional information concerning PENCOMP’s defined benefit pension plan is as follows. Projected benefit obligation at 12/31/14 \$820.5 Plan assets (fair value) at 12/31/14 476.5 Unamortized past service cost at 12/31/14 150.0 Amortization of past service cost during 2015 15.0 Service cost for 2015 42.0 Discount rate 10 % Expected rate of return on plan assets in 2015 12 % Actual return on plan assets in 2015 10.4 Contributions to pension fund in 2015 70.0 Benefits paid during 2015 40.0 Unamortized net loss due to changes in actuarial assumptionsand deferred net losses on plan assets at 12/31/14 92.0 Expected remaining service life of employees 15.0 Average period to vesting of prior service costs 10.0

 Other information about PENCOMP is as follows. Salary expense, all paid with cash during 2015 \$700.0 Sales, all for cash 3,000.0 Purchases, all for cash 2,000.0 Inventory at 12/31/15 1,800.0

Property originally cost \$2,000 and is depreciated on a straight-line basis over 25 years with no residual value.
Interest on the note payable is 10% annually and is paid in cash on 12/31 of each year.
Dividends declared and paid are \$200 in 2015.
 (a1)
Prepare an income statement for 2015. (Round answers to 1 decimal place, e.g. 52.7.)

 PENCOMP, INC.Income Statementfor the year ended Dec. 31, 2015 \$ \$ \$

 (a2)
Prepare a balance sheet as of December 31, 2015. (List Assets in order of liquidity. Round answers to 1 decimal place, e.g. 52.7.)

 PENCOMP, INC.Statement of Financial Positionat Dec. 31, 2013 Assets: \$ \$ \$ Liabilities and Stockholders' Equity \$ \$ \$

 (a3)
Prepare pension expense journal entry for the year ended December 31, 2015. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 1 decimal place, e.g. 52.7.)

 Date Account Titles and Explanation Debit Credit Dec. 31, 2015

PENCOMP's balance sheet at December 31, 2014, is as follows.

 PENCOMP, INC.BALANCE SHEETAS OF DECEMBER 31, 2014 Assets Liabilities Cash \$438 Notes payable \$1,000 Inventory 1,800 Pension liability 344 Total current assets 2,238 Total liabilities 1,344 Plant and equipment 2,000 Stockholders’ equity Accumulated depreciation (240 ) Common stock 2,000 1,760 Retained earnings 896 Total assets \$3,998 Accumulated other comprehensive income (242 ) Total stockholders' equity 2,654 Total liabilities and stockholders’ equity \$3,998

 Additional information concerning PENCOMP’s defined benefit pension plan is as follows. Projected benefit obligation at 12/31/14 \$820.5 Plan assets (fair value) at 12/31/14 476.5 Unamortized past service cost at 12/31/14 150.0 Amortization of past service cost during 2015 15.0 Service cost for 2015 42.0 Discount rate 10 % Expected rate of return on plan assets in 2015 12 % Actual return on plan assets in 2015 10.4 Contributions to pension fund in 2015 70.0 Benefits paid during 2015 40.0 Unamortized net loss due to changes in actuarial assumptionsand deferred net losses on plan assets at 12/31/14 92.0 Expected remaining service life of employees 15.0 Average period to vesting of prior service costs 10.0

 Other information about PENCOMP is as follows. Salary expense, all paid with cash during 2015 \$700.0 Sales, all for cash 3,000.0 Purchases, all for cash 2,000.0 Inventory at 12/31/15 1,800.0

Property originally cost \$2,000 and is depreciated on a straight-line basis over 25 years with no residual value.
Interest on the note payable is 10% annually and is paid in cash on 12/31 of each year.
Dividends declared and paid are \$200 in 2015.
Prepare an income statement for 2015. (Round answers to 1 decimal place, e.g. 52.7.)

 PENCOMP, INC.Income Statementfor the year ended Dec. 31, 2015 \$ \$ \$

Prepare a balance sheet as of December 31, 2015. (List Assets in order of liquidity. Round answers to 1 decimal place, e.g. 52.7.)

 PENCOMP, INC.Statement of Financial Positionat Dec. 31, 2013 Assets: \$ \$ \$ Liabilities and Stockholders' Equity \$ \$ \$

Prepare pension expense journal entry for the year ended December 31, 2015. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 1 decimal place, e.g. 52.7.)

 Date Account Titles and Explanation Debit Credit Dec. 31, 2015

 IFRS 20-10
Linda Berstler Company sponsors a defined benefit pension plan. The corporation's actuary provides the following information about the plan.

 January 1,2014 December 31,2014 Defined benefit obligation \$2,500 \$3,300 Plan assets (fair value) 1,730 2,600 Discount rate 10 % Pension asset/liability 770 ? Service cost for the year 2014 390 Contributions (funding in 2014) 700 Benefits paid in 2014 200
Compute the actual return on the plan assets in 2014.

 Return on plan assets \$
Compute the amount of other comprehensive income (G/L) as of December 31, 2014. (Assume the January 1, 2014, balance was zero.)

 Other comprehensive income (G/L) \$

 Subject Business Due By (Pacific Time) 11/20/2015 11:59 pm
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