Reference no: EM131154491

Intermediate Accounting

1. Benny Building, Inc. won a bid for a new warehouse building contract.

Below is information from the project accountant.

Total Construction Fixed Price $25,000,000
Construction Start Date June 13, 2012
Construction Complete Date December 16, 2013
As of Dec. 31... 2012 2013
Actual cost incurred $11,500,000 $8,360,000
Estimated remaining costs $8,250,000 $-
Billed to customer $9,000,000 $16,000,000
Received from customer $7,500,000 $16,500,000

Assuming Benny Building, Inc. uses the completed contract method, what amount of gross profit would be recognized in 2013?

2. At the beginning of 2012, Barbara, Inc. has a deferred tax asset of $8,000 and deferred tax liability of $6,500. In 2012, pretax financial income was $600,000 and the tax rate was 35%.

Pretax income included:
Interest income from municipal bonds $25,000
Accrued warranty costs, estimated to be used in 2013 $74,000
Prepaid rent expense, will be used in 2013 $16,000
Installment sales revenue, to be collected in 2013 $45,000
Operating loss carryforward $36,000

What is the adjustment needed to correct the balance of deferred tax asset for 2012?

3. Presented below is pension information related to Baked Goods, Inc. for the year 2013.

Service cost $103,000
Interest on projected benefit obligation $65,000
Interest on vested benefits $12,000
Amortization of prior service cost due to increase in benefits $14,000
Expected return on plan assets $18,000
The amount of pension expense to be reported for 2013 is

4. Bunny Hopping, Inc. sponsors a defined-benefit pension plan. The following data relate to the operation of the plan for the year 2013.
Service cost $135,000

Contributions to the plan $105,000
Actual return on plan assets $120,000
Projected benefit obligation (beginning of year) $1,800,000
Fair value of plan assets (beginning of year) $1,900,000

The expected return on plan assets and the settlement rate were both 9%. The amount of pension expense reported for 2013 is

5. Bucky, Inc. leased equipment from Green Enterprises under a 5-year lease requiring equal annual payments of $43,000, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 5-year useful life and no salvage value. Bucky, Inc.'s incremental borrowing rate is 6% and the rate implicit in the lease (which is known by Pisa, Inc.) is 8%. Assuming that this lease is properly classified as a capital lease, what is the amount of interest expense recorded by Bucky, Inc. in the first year of the asset's life?

PV Annuity Due PV Ordinary Annuity
8%, 5 periods 4.31213 3.99271
6%, 5 periods 4.46511 4.21236

6. On December 31, 2013, Antique Salvage, Inc. appropriately changed its inventory valuation method from weighted-average cost to FIFO method for financial statement and income tax purposes. The change will result in a $1,700,000 increase in the beginning inventory at January 1, 2013. Assume a 30% income tax rate. The cumulative effect of this accounting change on beginning retained earnings is

7. Which of the following is not a change in accounting estimate?

8. Balancing Act, Inc. recognized net income of $367,000 including $15,600 in depreciation expense.

Additional changes from the balance sheet are as follows.

Accounts Receivable $3,400 decrease
Prepaid Expenses $18,500 decrease
Inventory $3,600 increase
Accrued Liabilities $12,000 decrease
Accounts Payable $13,500 increase
Compute the net cash from operating activities based on the above information.

9. The disclosure of accounting policies is important to the financial statements when determining

10. Adventure, Inc. is a company that operates in four different divisions. The following information relating to each segment is available for 2013.

Sales revenue Operating profit (loss) Identifiable assets

A $11,200 $- $72,800
B $630,000 $168,700 $511,000
C $75,600 $(8,400) $65,800
D $44,800 $6,510 $47,600

Required:

For which of the segments would information have to be disclosed in accordance with professional pronouncements?

1. Bentley Corporation has several divisions. All operations keep their own accounting books and have chosen the appropriate method of revenue recognition.

Buffy, Inc. qualifies to use the installment-sales method for tax purposes and sold an investment on an installment basis. The total gain of $90,000 was reported for financial reporting purposes in the period of sale. The installment period is 3 years; one third of the sale price is collected in 2012 and the rest in 2013. The tax rate was 40% in 2012, 35% in 2013, and 35% in 2014. The accounting and tax data is shown below.

Financial Accounting Tax Return

2012
Income before temporary difference $200,000 $200,000
Temporary difference $90,000 $30,000
Income $290,000 $230,000

2013
Income before temporary difference $230,000 $230,000
Temporary difference $- $30,000
Income $230,000 $260,000

2014
Income before temporary difference $195,000 $195,000
Temporary difference $- $30,000
Income $195,000 $225,000

Required:

1) Prepare the journal entries to record the income tax expense, deferred income taxes, and the income taxes payable for 2012, 2013, and 2014. No deferred income taxes existed at the beginning of 2012.

2) Explain how the deferred taxes will appear on the balance sheet at the end of each year. (Assume Installment Accounts Receivable is classified as a current asset.)

3) Show the income tax expense section of the income statement for each year, beginning with "Income before income taxes."

Bing Leasing, Inc. agrees to lease equipment to Boyd, Inc. on January 1, 2012. They agree on the following terms.

1) The normal selling price of the equipment is $300,000 and the cost of the asset to Bing Leasing, Inc. was $250,000.

2) The lease is noncancelable with no renewal option. The lease term is 10 years (the same as the estimated economic life).

3) The lease begins on January 1, 2012 and payments will be in equal annual installments.

4) At the end of the lease, the equipment will revert to Bing Leasing, Inc. and have an unguaranteed residual value of $30,000. Their implicit interest rate is 10%.

5) Boyd will pay all maintenance, insurance, and tax costs directly and annual payments of $32,000 on January 1 of each year.

6) Bing Leasing, Inc. incurred costs of $2,000 in negotiating and closing the lease. There are no uncertainties regarding additional costs yet to be incurred and the collectability of the lease payments is reasonably predictable.

Required:

1. a) Determine what type of lease this would be for the lessor and calculate the following (show all work) .

Lease Receivable
Sales Price
Cost of Sales

1. b) Prepare Bing's amortization schedule for the lease terms.

2012. c) Prepare all the journal entries for Kingdom for 2012. Assume a calendar year fiscal year.

4. Financial data of Beautiful Beadwork Company for 2013 and 2012 are presented below.

5. Selected financial ratios.

6. Changes in accounting principle include direct and indirect effects. Please discuss how the indirect effects of a change in accounting principle should be treated and disclosed.