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 Sheet
December 31, 2014
           
       
$
 

Crosley Corp.
Balance Sheet
December 31, 2015
           
       
$
 

Crosley Corp.
Balance Sheet
December 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.    
 
 
 
Using Your Judgment 19-4
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)
   
 
 
 
System warning WileyPLUS user has reported a possible issue with this question. The WileyPLUS Team is currently evaluating the reported issue, and we hope to resolve it shortly. You may wish to contact your instructor before submitting any work for this question and ask if you should attempt the question anyway.

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 COMPANY
Worksheet—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 COMPANY
Pension Worksheet—2015
   
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, 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 Statement
For the year ended December 31, 2015
     
$ XXX
       
 
   
 
   
 
   
       
     
$ XXX

Kramer Co.
Partial Balance Sheet
December 31, 2015
           
   
$
     
           
   
$
     
   
     
 
 
 
Using Your Judgment 20-4 (Part Level Submission)
PENCOMP's balance sheet at December 31, 2014, is as follows.

PENCOMP, INC.
BALANCE SHEET
AS 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 assumptions
and 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 Statement
for 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 Position
at 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
 
 
 
 
 
 
 
Using Your Judgment 20-4
PENCOMP's balance sheet at December 31, 2014, is as follows.

PENCOMP, INC.
BALANCE SHEET
AS 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 assumptions
and 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 Statement
for 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 Position
at 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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