Reference no: EM132179100

Problem 1: Bonds

Hint: You will need to use time value of money tables to complete this problem. The present value of $1 and Present Value of an Annuity tables are presented on the previous two tabs. To ensure accuracy, round the time value of money factors to 2 decimal places only. For example, if the factor is 2.57709699, round it to 2.58.

On January 2, 20X1, the Premuroso Company, Inc., a privately held company, issued $1,000,000, 5-year, 10% term bonds, dated January 2, 20X1. The bonds provided for semiannual interest payments to be made on June 30 and December 31 of each year. Terms of the bond indenture allowed the company to call the bonds at 102 after 1 year. The bonds were issued when the market interest rate was 8%.

Premuroso, Inc. uses the effective interest method for amortizing bond discounts and premiums.

Premuroso's fiscal year end for financial reporting purposes is December 31.

The company called the bonds at 102 on June 30, 20X2.

Calculate the present values of the principal and interest cash flows related to the bonds and the resulting bond issue price. In the Compounding period(s), Interest rate, Payment amount, and Present value columns, select from the option list provided the appropriate value. Each choice may be used once, more than once, or not at all. In the Factor column, find the appropriate time value factors in the references in the exhibits and enter those values in the appropriate cell. Then, use the spreadsheet to calculate the bond issue price in the Present value column based on your entries.

Part A) Compute the price of the bonds using formulas embedded into the cells of the table below.

Part B) Prepare the journal entry for the issuance of the bonds.

Part C) Prepare a bond amortization table using the effective interest method.

Part D) Prepare the June 30, 20X4 journal entry by referencing cells in the amortization table you created in #2 above.

"Part E) In your own words, describe why the FASB prefers the effective interest method of amortizing the bond premium. Provide the FASB Codification number that supports your opinion. "

Problem 2: Leases

1. On January 1, 2013, Levin Furniture Company leases office space under a 21-year operating lease agreement. The contract calls for annual rent payments on December 31 of each year during the agreement. Possible The payments are $19,500 the first year, increasing by $425 each year. The benefits expected by the lessee  using this office space are expected to remain constant over the lease term.

Required: Record Levin's rent payment at December 31, 2017 (the 5th annual rental payment) and at December 31, 2027 2 (the 15th annual rental payment). (1 for each Journal Entry)

Account Debit Credit

2. At the beginning of 2018, Advanced Industries acquired a large, custom-made machine with a fair value of $7,331,130 by signing a three-year lease agreement. The lease is payable in three annual payments of $3.0 million at the end of each year.

Required: a. What is the effective annual interest rate implicit in the agreement?

b. Prepare the lessee's journal entries required at the inception of the lease, the first lease payment which is due 2 and paid December 31, 2018, and the second lease payment which is due and paid December 31, 2019.

Date Account Debit Credit 2

January 1, 2018:

December 31, 2018: 2

December 31, 2019:

c. Suppose the fair value of the machine and the lessor's implicit interest rate were unknown at the time of the lease, but you are able to determine that the lessee's incremental borrowing rate of interest for notes of similar "risk was 10%. Prepare the lessee's entry at the inception of the lease.

HINT: Use the Time Value of Money tables provided in previous tabs"

Total Points = 10

Account Debit Credit

Problem 3: Income Taxes

Zurich Inc. reports pretax financial income of $70,000 in 2017.

The following items cause taxable income to be different from pretax financial income:

a. Depreciation on the tax return is greater than the depreciation on the income statement by $16,000.

b. Rent collected and reported on the tax return is greater than rent recognized on the income statement by $22,000

c. Fines for pollution appear as an expense of $11,000 on the income statement.

Zurich's tax rate is 30% for all years and the company expects to report taxable income in all future years.

There are no deferred taxes at the beginning of 2017.

Required: 1. Determine the taxable income for 2017? Points Possible

2. Determine the deferred tax asset for 2017?

3. Determine the deferred tax liability for 2017?

4. Record the journal entry for income tax expense for 2017?

Problem 4: Consolidations

On January 2, Pearl borrowed $60,000 and used the proceeds to purchase 90% of the outstanding common shares of Silver. Pearl had no prior equity interest in Silver. Ten equal principal and interest payments begin on December 30. The excess of the implied fair value of Silver Over the carrying amount of its identifiable net assets should be assigned 60% to inventory and 40% to goodwill. Additionally, the fair value of the noncontrolling interest (NCI) is 10% of the implied fair value of the acquiree.

The following are the balance sheets of Pearl and Silver on January 1:

Problem 5: Earnings per Share

ABC Company had 3 million shares of common stock outstanding for the entire year. The company reported net income of $8 million. ABC has a tax rate of 40%. The average stock price for the company during the year was $12. No dividends were declared or paid during the year. The company had the following potentially dilutive securities outstanding for the entire year.

a. 10,000 bonds , $1,000 par, 8% coupon bonds issued at face value during the prior year. The bonds pay interest annually every December 31. Each bond can be converted into 24 shares of common stock.

b. 200,000 shares of $10 par value cumulative preferred stock issued at par with a dividend rate of 7%. Each share of preferred stock can be converted into one share of common stock.

c. 100,000 stock options that can be exercised in two years. Each option can be exercised for one share of common stock for $15 share.

1) Determine the basic earnings per share for the year.

Basic EPS =

2) Determine the per share effects of the potentially dilutive securities, placing them in order from the most dilutive effect to the least dilutive

3) Determine the diluted earnings per share for the year

*Please see attached file for teh remaining information.

Information related to above question is enclosed below:

Attachment:- AccountingAssignment.rar