Exam 25: Appendix

On December 31, 2014, Hill Company, which sells only one product, adopted the periodic last-in, first-out method of inventory valuation. The inventory was valued at $40,000 on the December 31, 2014 balance sheet. The number of items in its inventory remained constant during 2015. The December 31, 2015 inventory valuation would be

Why are inventories included in the computation of net income?

Use the following data for questions 10 through 17. Each question is independent of the other questions. Sawyer Corporation has a machine (Machine A) that it acquired on 1/1/14 for $540,000. On 12/31/14 such machines have a selling price and fair value of $621,000. When used in production, such machines have an estimated useful life of 10 years with no salvage value. Use the straight-line method. Brown Corporation has a machine (Machine B) that it acquired on 1/1/14 for $729,000. On 12/31/14 such machines have a selling price and fair value of $540,000. When used in production, such machines have an estimated useful life of 10 years with no salvage value. Use the straight-line method. On 12/31/14 Brown gave Machine B plus $81,000 cash to Sawyer in return for Machine A. -Assignment of Costs.Match the following cost items with these appropriate accounts:1. Interest cost incurred during building construction.2. Back taxes on purchased plot of land to be used for building site.3. Assessment by city for drainage system.4. Building permits.5. Landscaping shrubs planted after building has been constructed.6. Demolition costs of building on land bought for plant site.7. Interest cost incurred after completion of building construction.8. Recording fees for land.9. Architect's fees.10. Grading and filling building site.11. Parking lots.12. Fences. a. Land b. Buildings c. Land Improvements d. Other

Use the following data for questions 10 through 17. Each question is independent of the other questions. Sawyer Corporation has a machine (Machine A) that it acquired on 1/1/14 for $540,000. On 12/31/14 such machines have a selling price and fair value of $621,000. When used in production, such machines have an estimated useful life of 10 years with no salvage value. Use the straight-line method. Brown Corporation has a machine (Machine B) that it acquired on 1/1/14 for $729,000. On 12/31/14 such machines have a selling price and fair value of $540,000. When used in production, such machines have an estimated useful life of 10 years with no salvage value. Use the straight-line method. On 12/31/14 Brown gave Machine B plus $81,000 cash to Sawyer in return for Machine A. -As generally used in accounting, what is depreciation?

Use the following data for questions 10 through 17. Each question is independent of the other questions. Sawyer Corporation has a machine (Machine A) that it acquired on 1/1/14 for $540,000. On 12/31/14 such machines have a selling price and fair value of $621,000. When used in production, such machines have an estimated useful life of 10 years with no salvage value. Use the straight-line method. Brown Corporation has a machine (Machine B) that it acquired on 1/1/14 for $729,000. On 12/31/14 such machines have a selling price and fair value of $540,000. When used in production, such machines have an estimated useful life of 10 years with no salvage value. Use the straight-line method. On 12/31/14 Brown gave Machine B plus $81,000 cash to Sawyer in return for Machine A. -Assume that both Sawyer and Brown are new machine dealers and that the machines are still new. Also assume that the exchange lacks commercial substance. At what amount will Machine A be recorded on Brown's books?

When the sum-of-the-years'-digits method is used, depreciation expense for a given asset will

On January 7, 2013, Yoder Corporation acquired machinery at a cost of $2,100,000. Yoder adopted the sum-of-the-years'-digits method of depreciation for this machine and had been recording depreciation over an estimated life of five years, with no residual value. At the beginning of 2015, a decision was made to change to the straight-line method of depreciation for this machine. Assuming a 30% tax rate, the cumulative effect of this accounting change, net of tax, is

Long-Term Contracts.Edwards Company contracted on 4/1/14 to construct a building for $2,400,000. The project was completed in 2016. Additional data follow: Instructions (a) Calculate the income recognized by Edwards under the percentage-of-completion method of accounting in each of the years 2014, 2015, and 2016. (b) Prepare all necessary entries for the year 2015. (c) Present the balance sheet disclosures at December 31, 2015. Proper headings or subheadings must be indicated.

Deferred Income Taxes.In 2015, the initial year of its existence, Dexter Company's accountant, in preparing both the income statement and the tax return, developed the following list of items causing differences between accounting and taxable income:1. The company sells its merchandise on an installment contract basis. In 2015, Dexter elected, for tax purposes, to report the gross profit from these sales in the years the receivables are collected. However, for financial statement purposes, the company recognized all the gross profit in 2015. These procedures created a $500,000 difference between book and taxable incomes. The future collection of the installment contracts receivables are expected to result in taxable amounts of $250,000 in each of the next two years. (Note: the company treats installment contracts receivable as a current asset on its balance sheet.)2. The company has also chosen to depreciate all of its depreciable assets on an accelerated basis for tax purposes but on a straight-line basis for accounting purposes. These procedures resulted in $60,000 excess depreciation for tax purposes over accounting depreciation. The temporary difference due to excess tax depreciation will reverse equally over the three year period from 2016-2018.3. Dexter leased some of its property to Baker Company on July 1, 2015. The lease was to expire on July 1, 2017 and the monthly rentals were to be $60,000. Baker, however, paid the first year's rent in advance and Dexter reported this entire amount on its tax return. These procedures resulted in a $360,000 difference between book and taxable incomes. (Note: this lease was an operating lease and Dexter classified the unearned rent as a current liability on its balance sheet.)4. Dexter owns $200,000 of bonds issued by the State of Oregon upon which 5% interest is paid annually. In 2015, Dexter showed $10,000 of income from the bonds on its income statement but did not show any of this amount on its tax return. (Note: these bonds are classified as long-term investments on Dexter's balance sheet.)"5. In 2015, Dexter insured the lives of its chief executives. The premiums paid amounted to $12,000 and this amount was shown as an expense on the income statement. However, this amount was not deducted on the tax return. The company is the beneficiary. InstructionsAssuming that the income statement of Dexter Company showed ""Income before income taxes"" of $1,500,000; that the enacted tax rates are 30% for all years; and that no other differences between book and taxable incomes existed, except for those mentioned above: (a) Compute the income taxes payable. (b) Prepare a schedule of future taxable and (deductible) amounts at the end of 2015. (c) Prepare a schedule of deferred tax (asset) and liability at the end of 2015.(d) Compute the net deferred tax expense (benefit) for 2015.(e) Make the journal entry recording income tax expense, income taxes payable, and deferred income taxes for 2015.(f) Indicate how income tax expense and any deferred income taxes should be disclosed on the financial statements under generally accepted accounting principles. Show the amounts for these items and indicate specifically where they would be disclosed."