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intermediate accounting volume 2

Questions and Answers of Intermediate Accounting Volume 2

Baltimore Inc. reported pretax GAAP income of \(\$ 45,000\) in 2020 . In analyzing differences between GAAP income and taxable income, the company determined that it had deducted \(\$ 5,000\) in
Refer to information in Brief Exercise 18-33. Prepare a reconciliation between Baltimore Inc.'s effective and statutory tax rates.Exercise 18-33Baltimore Inc. reported pretax GAAP income of \(\$
Lake Company has pretax GAAP income of \(\$ 100,000\) in 2020, its first year of operations. Lake Company has depreciation expense in 2020 for GAAP purposes that is \(\$ 60,000\) less than the amount
Evergreen Company's 2020 reconciliation between pretax GAAP income and taxable income is as follows. Pretax GAAP income.. Depreciation adjustment. Permanent difference. Taxable income.. $ 200,000
The company had one temporary difference due to the GAAP basis of equipment exceeding the tax basis of the equipment. Record the income tax journal entry for 2020, assuming an enacted tax rate of
In 2020, Explorers Inc. completed installment sales of \(\$ 80,000\), recorded in full as accounts receivable and as revenue. For tax purposes, it recognizes income when cash is received. Cash
The Jets Company recorded a deferred tax liability in the amount of \(\$ 18,750\) in December 2020, due to the book value of equipment exceeding the tax basis of equipment by \(\$ 75,000\). The
In 2020, Lambeau Inc. suffered a loss of \(\$ 100,000\). The enacted tax rate is \(25 \%\). Prepare Lambeau's entry for the loss carryforward on December 31, 2020, assuming that management determined
In 2020, Cardinals Company operated at a tax loss, totaling \(\$ 88,000\) during its first year of business. Assuming a tax rate of \(25 \%\), and that income is expected in 2021 , record the entry
Springs Inc. has taken a tax position in 2020 that it believes is based on fairly clear tax law for the payment of \(\$ 80,000\) in salaries and benefits to employees. There are no limits on
Kate Club Inc. has determined that there are four temporary differences between the tax basis and the GAAP book value of assets and liabilities that resulted in the following deferred taxes: (a)
The following information was obtained from recent annual reports on \(10-\mathrm{K}\) for American Eagle Outfitters, Inc. Compute the debt-to-equity ratio (a) including deferred tax liabilities as
Staples Corporation would have had identical income before taxes on both its income tax returns and its income statements for the years 2020 through 2023 except for a depreciable asset that cost \(\$
Repeat the requirements of Exercise 18-44, but now assume that the asset was \(100 \%\) expensed for tax purposes in 2020.Exercise 18-44Staples Corporation would have had identical income before
For 2020, Trendy Inc. calculated taxable income of \(\$ 30,000\) after taking into account one temporary difference: prepaid insurance expense on a GAAP basis exceeds prepaid insurance on a tax basis
On December 31, 2020, for GAAP purposes, Clubs Inc. reported a balance of \(\$ 70,000\) in Prepaid Maintenance Expense for services to be received over the following year. For tax purposes, however,
On December 31, 2020, for GAAP purposes, Clubs Inc. reported a balance of \(\$ 40,000\) in a warranty liability for anticipated costs to satisfy future warranty claims. No claims were paid in 2020.
The records of Anderson Inc. provide the following information for the tax year 2020.- There was no beginning balance in deferred tax account(s).- Taxable income for 2020 was \(\$ 60,000\).- Tax rate
Lake Company has the following results of operations on December 31, 2020.1. Pretax GAAP income in 2020 , its first year of operations, totals \(\$ 100,000\). Taxable income is \(\$ 90,000\).2. Lake
The records of Cross Corporation provided the following reconciliation between taxable income and pretax GAAP income.- The depreciation adjustment results from a difference between the GAAP basis and
The records of TNA Corporation at the end of 2020 provided the following data related to income taxes.- Unrealized gain on the company's investment portfolio, \(\$ 50,000\); recognized in net income
The following information is available for Rapper Inc.- Taxable income in 2020: \(\$ 115,000\)- Accounts receivable on installment sales • GAAP basis: \(\$ 150,000\)• Tax basis: \(\$ 0\)- Tax
For 2020, Raleigh Corporation had taxable income of \(\$ 100,000\) and an income tax rate of \(25 \%\). Raleigh had a \(\$ 75,000\) credit balance in its Deferred Tax Liability account. This credit
Cruse Corporation started operations on January 1,2020 . Taxable income from the tax return is \(\$ 2,850,000\). Income tax rate is \(25 \%\). There were no beginning balances in deferred tax
A-1 Company had pretax GAAP income of \(\$ 50,000\) for the tax year ended December \(31,2020\).Requireda. Determine taxable income given the following separate situations.1. Excess accelerated
The income statements for Prince Inc. for two years (summarized) follow.Additional information - Environmental fines are not deductible for income tax purposes.- The amount collected in 2020 related
Listed below are ten separate situations. For each item indicates whether the difference is (1) temporary creating a deferred tax asset or a deferred tax liability or (2) permanent. Item 1. Pension
Fox Corporation purchased a machine on January 1,2020 , that cost \(\$ 40,000\). The machine had an estimated service life of five years and no residual value. Fox uses straight-line depreciation for
Allied Corp. has a deferred tax asset balance of \(\$ 50,000\) on December 31,2020 , due to a temporary difference related to a warranty expense accrual that is not deductible for tax purposes. The
Assume the same information in Exercise 18-61, except that there is a \(\$ 12,000\) beginning balance in the valuation allowance.Requireda. Record the income tax journal entries on December 31, 2020,
Wittco Company reports pretax GAAP income in 2020, its first year of operations, of \(\$ 100,000\). Temporary differences in the GAAP basis and tax basis of assets arose in 2020 from the following
On January 1 of each of the first four years of its existence, Allway Company purchases a new unit of equipment. Each unit has a four-year life and zero salvage value, costs \(\$ 100,000\), and is
The Billboard Company has a deferred tax liability in the amount of \(\$ 14,000\) at December 31, 2020, relating to a \(\$ 40,000\) installment sale receivable, \(\$ 20,000\) of which is collected in
In 2020, Adele Company accrued a legal liability of \(\$ 500,000\) for payments expected to be paid (and will be deducted when paid) as follows: 2021 : \(\$ 250,000 ; 2022\) : \(\$ 150,000\); and
A plant asset purchased by Krest Inc. for \(\$ 100,000\) late in 2018 is to be depreciated as follows.In 2020 , taxable income was \(\$ 450,000\) and the tax rate is \(25 \%\). Future enacted tax
On December 31, 2020, Colgait Inc. had an installment sale receivable balance of \(\$ 90,000\) recognized on its financial statements, while the amount was not recognized for tax purposes. Colgait
Aim Inc. had the following activity for the years 2020-2022.- Prepaid maintenance contract: \(\$ 30,000\) on January 1,2020 , for a three-year period beginning January 1 , 2020.- Deferred revenue:
Tyson Corporation reported pretax income from operations in 2020 of \(\$ 80,000\) (the first year of operations). In 2021, the corporation experienced a \(\$ 40,000\) NOL (pretax loss from
Decker Corporation experienced a loss in 2020. Additional information for Decker Corporation follows.There were no temporary differences from 2018 to 2020 other than any related to a net operating
Toner Corporation computed the following taxable income and loss: 2020 taxable income, \(\$ 10,000\) and 2021 taxable loss, \(\$ 40,000\). At the end of 2021 , Toner made the following estimates:
DNSE Inc. began operations in 2019. In its first year the company had a net operating loss of \(\$ 10,000\), which was carried forward and used to reduce income tax payable in 2020. In 2020, DNSE had
The financial statements of Gibson Corporation for the first two years of operations reflected the following amounts.Assume a tax rate of \(25 \%\) for 2020 and 2021.Estimates of future earnings at
ABC Inc. reported taxable income for the years 2019-2023 as follows.The enacted tax rate is \(25 \%\). There are no differences between taxable income/loss and GAAP income/loss. Management believes
Randolph Inc. considered the probability of a recent tax position taken related to the exclusion of certain revenues of \(\$ 10,000\) from taxable revenue. Randolph determined that this position is
In 2020, Rafting Inc, had pretax GAAP income of \(\$ 100,000\) and the federal statutory tax rate is \(25 \%\). Rafting Inc. has no temporary differences, and so there is no deferred tax component to
The following items create deferred tax assets and deferred tax liabilities at December 31, 2020.1. Prepaid operating expenses of \(\$ 25,000\) are tax deductible when paid.2. Excess tax depreciation
On January 1, 2020. Keefe Corporation purchased equipment at a cost of \(\$ 100,000\). The equipment has a fiveyear life and no salvage value. The depreciation schedule for tax and accounting
Refer to the data and information given in Problem 18-79 for Keefe Corporation. Assume that the tax rate for 2020 through 2022 is known to be \(25 \%\), but that a new law is passed in 2020 that will
Whirlpools Corporation provided the following information: taxable income based on its 2020 tax return, \(\$ 47,600\); income tax rate, \(25 \%\). There were two temporary differences.- December 31,
Terms frequently used in accounting for income tax along with descriptions of the terms are included in the following two lists.Terms- 1. Deferred tax asset _ 2. Taxable temporary difference- 3.
What are the advantages of leasing from the lessee's perspective?
What is meant by capitalization of a lease from the viewpoint of the lessee?
What types of leases are capitalized by a lessee? Under what condition would a lessee not capitalize a lease?
From a lessee's standpoint, leases are classified as finance or operating leases. What criteria are used to identify a finance lease?
What lease payments are used in determining whether the present value of lease payments is greater than or equal to substantially all of the fair value of the underlying asset?
How is a lease liability calculated?
How is a right-of-use asset calculated?
How does a lessee determine what interest rate is appropriate to discount the lease liability?
How does an unguaranteed residual value in a sales-type lease affect the lessor's accounting in recording the entries at the date of inception of the lease?
How is a guaranteed residual value treated differently by the lessee when determining the classification of leases as compared to the recording of a lease liability?
Define initial direct costs.
How does a lessee derecognize a right-of-use asset and lease liability over the term of an operating lease?
How does a lessee derecognize a right-of-use asset and lease liability over the term of a finance lease?
If a lessee records a right-of-use asset related to a finance lease, over what period would the lessee recognize amortization expense? What conditions impact your answer?
How does a lessor account for an operating lease?
How does a lessor account for a sales-type lease?
If a lessor determines that payments from a lessee pertaining to a sales-type lease are not probable, how would the lessor account for the lease?
What qualifies as a short-term lease and how would a lessee account for a short-term lease?
What determines whether a lease modification results in a separate lease or in a modification of an existing lease?
What types of qualitative information should be disclosed about a company's leases?
On January 1, 2020, Lessee Company leases equipment with a fair value of \(\$ 2,000\) from Lessor Company for 3 years, with no renewal options. The estimated life of the equipment is 5 years and
On January 1, 2020, Lessee Company leases a vehicle with a fair value of \(\$ 30,000\) from Lessor Company for 3 years, with no renewal options. The estimated life of the vehicle is 6 years and
A lessee is evaluating whether a lease term is a major part of the remaining life of an asset in order to determine the proper lease classification. The lessee leases office space through a lease
For each of the following four separate finance lease scenarios, determine the lease payment that the lessee should use to determine the appropriate lease classification.a. Lease payments are \(\$
For each of the following four separate finance lease scenarios, determine the lease payment that the lessee should use to determine the appropriate lease classification.a. An annual lease payment
Pier10 Inc. entered into a 5-year lease and recorded a right-of-use asset and lease liability of \(\$ 88,000\) on January 1, 2020. Pier10 Inc. was aware of the lessor's implicit rate of interest of
Referring to the information in Brief Exercise 17-26, show the balance sheet presentation on December 31, 2020, and the income statement presentation for the year ended December 31, 2020.Exercise
Lessee Company enters into a 6-year finance lease of non-specialized equipment with Lessor Company on January 1,2020 . Lessee has agreed to pay \(\$ 28,000\) annually beginning immediately on January
Referring to the information in Brief Exercise 17-28, assume the same information except that the lessee guaranteed the residual value for \(\$ 5,000\) at the end of the lease term. Compute the value
Lessee Company enters into a 6-year finance lease of non-specialized equipment with Lessor Company on January 1,2020 . Lessee has agreed to pay \(\$ 28,000\) annually beginning immediately on January
Smith, the lessee, signs an 8-year lease agreement of a floor of a building on December 31, 2020 that requires annual payments of \(\$ 70,000\), beginning immediately. The residual value is
Frontier Inc. enters into an 8 -year lease contract to lease equipment with a useful life of 8 years. Annual lease payments are due with the first payment made immediately on January 1, 2020, the
Franklin Co. leased its manufactured equipment to Parker Inc. for a 4-year term. Franklin Co. reported a book value of \(\$ 55,000\) for the equipment in its inventory account. The lease commenced on
Referring to the information in Brief Exercise 17-33, record Franklin's required journal entry to record interest revenue on December 31, 2020.Exercise 17-33Franklin Co. leased its manufactured
Referring to the information in Brief Exercise 17-33, record Franklin's required journal entry at the commencement of the lease, assuming that the collectibility of payments is not probable.Exercise
Kelly Inc. leased equipment, originally reported in inventory, to General Engines Inc. for a 4-year lease term and recorded the lease as a sales-type lease. At the expiration of the lease, the
Referring to the information in Brief Exercise 17-31, record the lessor's journal entries on December 31, 2020, assuming that the lease is properly classified as a sales-type lease. The carrying
A lessor, Ace Corp. enters into an equipment lease with a lessee, Spades Inc. The terms of the lease require annual lease payments of \(\$ 48,000\) over a 10 -year period, with the first payment due
Hearts Inc. (Lessor) enters into a 10-year lease of equipment with Spades Inc. (Lessee) on January 1, 2020. Hearts Inc. sells and leases the equipment, which is not specialized in nature and is
Konverse Inc. is negotiating an agreement to lease equipment to a lessee for 6 years. The fair value of the equipment is \(\$ 50,000\) and the lessor expects a rate of return of \(7 \%\) on the lease
Armstrong Inc. is negotiating an agreement to lease equipment to a lessee for 5 years. The fair value of the equipment is \(\$ 150,000\) and the lessor expects a rate of return of \(6 \%\) on the
Marshall Inc. is negotiating an agreement to lease equipment to a lessee for 5 years. The equipment has a useful life of 8 years. The fair value of the equipment is \(\$ 80,000\) and the lessor
Quest Inc. is negotiating an agreement to lease equipment to a lessee for 8 years. The equipment has a useful life of 10 years. The fair value of the equipment is \(\$ 40,000\) and the lessor expects
Solutions Inc. signs a 10-year lease for a building owned by Property Inc. that is appropriately classified as an operating lease by both the lessee and lessor. Lease payments are \(\$ 150,000\) per
Gomez Inc. leases a vehicle from CareMax Inc. on January 1, 2020, for a three-year period, appropriately classified by Gomez Inc. as an operating lease. Gomez agrees to make \(\$ 6,000\) annual
Lessor Co. enters into an operating lease of property with Lessee Co. on January 1, 2020, for a five-year term at an annual fixed lease payment of \(\$ 10,000\) (beginning of period payments).
Kulver's Inc. leases equipment from Equip Inc. on January 1, 2020, under a 3-year operating lease. Kulver's agrees to pay Equip Inc. \(\$ 15,000\) annually with the first payment due on January 1,
Referring to the information in Brief Exercise 17-44, and assuming that the building has a fair value of \(\$ 2,000,000\) at the commencement of the lease, what amount would Property Inc. recognize
Referring to the information in Brief Exercise 17-45, prepare the journal entries in 2020 for CareMax Inc. assuming that the fair value of the vehicle is \(\$ 28,000\) and it has a useful life of 6
Universal Inc. signed a contract to lease equipment for a 4-year term on January 1,2020 , for \(\$ 20,000\) annually beginning immediately. The lease included a purchase option at the end of the

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