1)Stanhope, Inc., a C corporation, is a distributor of personal electronics and has reported a net income for each year since inception. Its taxable income has consistently resulted in an effective tax rate of 33%. (Ignore state income taxes.)

You have been assigned to compute the company's deferred portion of federal income taxes for inclusion in its financial statements for Year 2 and to provide the company's controller with a schedule that supports your computation. Your schedule should identify deductible and taxable temporary differences and components of the deferred tax computations.

The controller has provided you with the following reconciliation of Stanhope's pretax accounting income to taxable income for Year 2 and the additional information shown below.

Stanhope, Inc.

Reconciliation of Pretax Accounting Income to Taxable Income

Year ended December 31, Year 2

Pretax accounting income $678,000

Expenses recorded on books this year not deductible for tax purposes:

Meals and entertainment expenses 12,000

Credit loss expense provision 15,000 27,000

Subtotal 705,000

Income recorded on books this year not subject to tax:

Tax-exempt interest income 15,000

Unrealized gain (loss) on trading securities 8,000

Deductions on tax return not charged against book income this year:

Depreciation expense 63,000

Bad debts written off and charged against allowance account 5,000 (91,000)

Taxable income $614,000

1. The allowance for credit losses (bad debts) as of December 31, Year 1, was $11,000. During Year 2, uncollectible accounts totaling $5,000 were written off and charged against the allowance account. A provision for credit losses of $15,000 was charged to operations at the end of the year to result in an allowance for credit losses balance at December 31, Year 2, of $21,000.

2. At the end of the year, the net unrealized gains on trading securities were $8,000. No unrealized gains/losses on trading securities existed at the beginning of the year.

3. The company uses straight-line depreciation for financial reporting (GAAP) purposes and accelerated methods for income tax purposes. Balances and activity in the accumulated depreciation account for GAAP and income tax purposes are summarized below:

4. GAAP Tax Difference

Accumulated depreciation, December 31, Year 1 1,314,000 2,018,000 704,000

Year 2 depreciation expense 196,000 259,000 63,000

Accumulated depreciation, December 31, Year 2 1,510,000 2,277,000 767,000

Use the information above to prepare the deferred tax computations and supporting components by completing the following worksheet.

Enter the appropriate amounts in the designated cells below. Enter all amounts as positive values. Round all answers to the nearest whole dollar. If no entry is necessary, enter a zero (0) or leave the cell blank.

Stanhope, Inc.

Worksheet for Deferred Income Taxes

Year ended December 31, Year 2

Description of temporary differences Temporary differences Deferred tax assets Deferred tax liabilities

Allowance for credit losses X X X

Accumulated depreciation X X X

Unrealized gain (loss) on trading securities X X X

Find the X

2, Presented below are the balance sheet accounts of Kern, Inc., as of December 31, Year 2, and Year 1, and their net changes.

Year 2 Year 1 Net Change

Assets

Cash $471,000 $307,000 $164,000

Trading debt securities, at cost 150,000 250,000 (100,000)

Securities fair value adjustment (trading) (10,000) (25,000) 15,000

Accounts receivable, net 550,000 515,000 35,000

Inventories 810,000 890,000 (80,000)

Investments in Word Corp., at equity 420,000 390,000 30,000

Property, plant, and equipment 1,145,000 1,070,000 75,000

Accumulated depreciation (345,000) (280,000) (65,000)

Patent, net 109,000 118,000 (9,000)

Total assets $3,300,000 $3,235,000 $65,000

Liabilities and Shareholders' Equity

Accounts payable and accrued liabilities $845,000 $960,000 $(115,000)

Note payable, noncurrent 600,000 900,000 (300,000)

Deferred income taxes 190,000 190,000 ---

Common stock, $10 par value 850,000 650,000 200,000

Additional paid-in capital 230,000 170,000 60,000

Retained earnings 585,000 365,000 220,000

Total liabilities and stockholders' equity $3,300,000 $3,235,000 $65,000

Additional Information:

On January 2, Year 2, Kern sold equipment costing $45,000, with a carrying amount of $28,000, for $18,000 cash.

On March 31, Year 2, Kern sold one of its trading security holdings for $119,000 cash. Cash flows from purchases, sales, and maturities of Kern's trading securities are from investing activities. No other transactions involved trading securities.

On April 15, Year 2, Kern issued 20,000 shares of its common stock for cash at $13 per share.

On July 1, Year 2, Kern purchased equipment for $120,000 cash.

Kern's net income for Year 2 is $305,000. Kern paid a cash dividend of $85,000 on October 26, Year 2.

Kern acquired a 20% interest in Word Corp.'s common stock during Year 1. There was no goodwill attributable to the investment, which is appropriately accounted for by the equity method. Word reported a net income of $150,000 for the year ended December 31, Year 2. No dividend was paid on Word's common stock during Year 2.

For the following operating cash flow items, enter in the designated cells the amounts that will be reported in Kern's statement of cash flows. Indicate negative numbers by using a leading minus (-) sign.

Cash flows from operating activities: Amount

Net income $305,000

Adjustments to reconcile net income to net cash provided by operating activities:

1. Depreciation X

2. Amortization of patent X

3. Loss on sale of equipment X

4. Equity in income of Word Corp. X

5. Gain on sale of trading securities X

6. Decrease in securities fair value adjustment X

7. Increase in accounts receivable X

8. Decrease in inventories X

9. Decrease in accounts payable and accrued liabilities X

10. Net cash provided by operating activities X

Find X

3) On January 1, Year 1, Company A (the lessee) entered into an 8-year lease agreement with Company B (the lessor) for industrial equipment. Annual lease payments of $14,378 are payable at the end of each year. Company A's incremental borrowing rate is 7%, and the implicit rate in the lease is 5%, which is known to Company A. On January 1, Year 1, the fair value of the equipment is $125,000 and its estimated useful life is 15 years. Company A depreciates its long-lived assets in accordance with the straight-line depreciation method. At the lease commencement date, Company B estimates that the total residual value of the equipment at the end of the lease term will be $47,388. Company A guarantees $40,000 of the residual value of the equipment. However, due to the expected high usage of the equipment, Company A estimates that the value of the equipment at the end of the lease term will be only $30,000. Information on present value factors is as follows:

Present value of $1 at 5% for 8 periods 0.6768

Present value of $1 at 7% for 8 periods 0.5820

Present value of an annuity of $1 at 5% for 8 periods 6.4632

Present value of an annuity of $1 at 7% for 8 periods 5.9713

Enter the appropriate amounts in the designated cells. Enter all amounts as positive values. Round all amounts to the nearest whole number. If the amount is zero, enter a zero (0). Enter all percentages as a percentage, not a decimal.

For item 2, select the appropriate lease classification option by Company A from the option list provided.

Item Amount

1. The discount rate for the lease used by Company A X

2. Classification of the lease by Company A X

3. The amount at which the lease liability was recognized in X

Company A's financial statements at the lease commencement date

4. The amount of interest expense recognized by Company A in Year 1 X

5. The carrying amount of the right-of-use asset in X

Company A's December 31, Year 1, financial statements

6. The amount of Company A's lease liability on December 31, Year 1, X

after the first required payment was made

7. The amount of the current portion of the lease liability as it is presented in X

Company A's December 31, Year 1, financial statements

Find X

I have it with the word document. Thank you