Q1-Accounting Changes and Correction of Errors 1. If a Company changes from an inappropriate accounting principle to an appropriate accounting principle in the preparation of its latest financial statements, is this change a change in accounting principle or a correction of an accounting error? Why? 2. Provide 3 specific examples of changes in accounting principle. 3. There are two approaches acceptable under US GAAP to reporting accounting changes. When is the prospective approach to reporting an accounting change allowable? Be specific and provide an example requiring the use of the prospective approach to reporting an accounting change. 4. The Robinson Company purchased a piece of equipment on January 1, 2018 for The accountant improperly expensed this purchase as operating expenses during 2018. The equipment has no salvage value and a useful life of (in years).. Robinson Company has a corporate average effective income tax rate of . Robinson Company operates and reports its financial statements on a calendar year. $75,000 10 35% After the 2018 financial statements are issued and after Robinson Company has closed its books for 2018, the Company discovered the above error. a) Prepare the first journal entry Robinson Company would record during 2019 on its books to correct this error? b) How much depreciation expense would Robinson Company record during 2019 for this piece of equipment? c) Would Robinson Company report this correction of an error on a retrospective or a prospective basis? Why? 5. If there has been a change in the Reporting Entity, how are these changes reported under US GAAP-on a Retrospective or a Prospective Basis? Q2-Accounting for Income Taxes 1. Explain in detail the two alternative methods a company may use to report a net operating loss (reports a Loss Be Be specific and detailed in your answer. 2. The Williams Corporation, which operates on a calendar year, started its operations on January 1, 2017. Williams pay corporate income taxes at th 35% Williams Corporation has no permanent or timing differences (no differences between reported accounting profits a Below is Williams Corporation GAAP (Accounting) Income Before Taxes for the following calendar year ends: 2015 $100,000 2016 $500,000 2017 ($400,000) 2018 ($300,000) 2019 $300,000 a) Prepare the 2017 year end journal entry for income tax expenses (benefit). b) Assume that Williams is unable to determine if the firm will be profitable in the future when preparing the 201 Prepare the 2018 year end journal entry (entries) for income tax expenses (benefit) . c) Prepare the 2019 year end journal entry (entries) for income tax expenses. 3. Your firm has been conducting tax research by looking at cases settled in federal courts as a means to decide wha Based upon the outcome of existing tax law cases, and after consulting with the firm's auditors and attorney's, you fe this tax position when it files its US tax return, the firm will be successful if the IRS challenges this tax position. The p year is material to the Balance Sheet and Income Statement. The tax benefit is an all or nothing tax benefit. Each of the tax law cases to date have also upheld 100% of the tax benefit claimed by other firms related to this tax p a) With specific reference to the ASC for uncertain tax positions, summarize the accounting rules that apply. b) Would the firm be able to recognize the entire tax benefit from this tax position in the current year's income sta 4. Assume the following information for Robert Corporation for the year ended December 31, 2016: Accounting Income Before Income Taxes Permanent Differences-Income Items Included in the above Accounting Income Before Income Taxes Which Are Not Taxable under the Income Tax rules $1,000,000 $100,000 a) Record the journal entry for income tax expense and income taxes payable under US GAAP, assuming that the US Corporate Income Tax Rate is 35% for the year ended December 31, 2016. 5. Assume the following information for Robert Corporation for the year ended December 31, 2016: Accounting Income Before Income Taxes Permanent Differences-Income Items Included in the above Accounting Income Before Income Taxes Which Are Not Taxable under the Income Tax rules Timing Differences: Robert Corporation uses accelerated depreciation methods for income tax purposes. For 2016, income tax depreciation expense using the accelerated method was greater than accounting (book) depreciation expense by $1,000,000 $100,000 $100,000 a) Record the journal entry for income tax expense, income taxes payable, and deferred income taxes payable und US Corporate Income Tax Rate is 35% for the year ended December 31, 2016. Assume this is the first year that Robert Corporation has been in operation. t operating loss (reports a Loss Before Income Taxes). ons on January 1, 2017. een reported accounting profits and taxable income) in any calendar year. owing calendar year ends: e future when preparing the 2018 journal entry (entries) l courts as a means to decide what position to take when reporting this year's taxes. m's auditors and attorney's, you feel there is a 75% chance that if your firm takes challenges this tax position. The potential benefit from taking this position in the current all or nothing tax benefit. by other firms related to this tax position. accounting rules that apply. n in the current year's income statement? December 31, 2016: der US GAAP, assuming that the December 31, 2016: eferred income taxes payable under US GAAP, assuming that the Q3-Pensions 1. Explain in several concise sentences the main differences between a Defined Benefit Pension Plan and a Defi 2. There are three methods or approaches firms can use to calculate their Pension Benefit Obligations (Liabilit is most preferable according to the FASB, explain how that method for calculating the liability is calculated, and to be the most preferable of the three methods according to the FASB? 3. The following information is available for the Pension Plan of Robinson Company for the 2016 Calendar Yea Actual and expected return on plan assets for 2016 Benefits paid to retirees Contributions to the fund made by the Company Prior service cost amortization Projected benefit obligation, January 1, 2016 Interest/discount rate Service cost $12,000 $40,000 $90,000 $10,000 $500,000 10% $60,000 Calculate the pension expense for 2016 for the Robinson Company. Show your calculation in a tabular format Record the journal entry to record the pension expense for 2016 based upon the information you are provided Pension Plan and a Defined Contribution Pension Plan. fit Obligations (Liability). Which of the three methods ability is calculated, and why is this method deemed the 2016 Calendar Year: tion in a tabular format below. mation you are provided above. Q4-Revenue Recognition 1. List in summary form the FASBs 5-Step Revenue Recognition Model prescribed in ASC606. 2. Given the following scenarios, can/should a firm recognize revenues? Yes or No, and why or why not? And dis Refer, when possible, to the FASBs 5-Step Revenue Recognition Model from Question 1. a. The Craig Corporation delivers on consignment 100 new state-of-the-art J-Phones to a consignee; the consignee h Craig Corporation invoices the consignee $100 for each J-Phone upon delivery and the consignee immediately pays C The consignee takes title to the J-Phones immediately upon delivery from Craig Corporation; the consignee maintain b. The Craig Corporation signs a contract with the Williams Corporation to provide them with various consulting ser Craig Corporation invoices Williams Corporation in advance $100,000 for these consulting services which are estima Williams Corporation pays Craig Corporation for this invoice within 30 days of invoicing. At the end of the 12 month provided by Craig to Williams, and any overpayment is refunded at that time by Craig to Williams, or Craig invoices W c. The Craig Corporation signs a contract with the Roberts Corporation and delivers to Roberts and invoices Roberts Craig Corporation also provides Roberts Corporation with a 90-day warranty for any defects any customers of Robert from Roberts. d. Paul Jones, CPA, prepares the corporate income tax returns of a local furniture manufacturer for which Paul wou The local furniture manufacturer pays Paul Jones by supplying his office with furniture with a normal retail selling of receipt of the furniture both take place on April 1, 2017. How will Paul Jones record providing the tax return services and the receipt of the office furniture on April 1, 2017 If the value of the furniture was not known (for example, it was discontinued furniture sitting in manufacturer's w why or why not? And discuss any journal entries required in each case. onsignee; the consignee has the right to return any unsold J-Phones to Craig after 90 days. signee immediately pays Craig Corporation upon delivery of the 100 J-Phones. n; the consignee maintains and pays for insurance on the J-Phones while they are in the consignee's possession. ith various consulting services on an ad-hoc basis over the next 12 months. services which are estimated at 500 hours at $200 per hour. the end of the 12 month period, both parties reconcile the consulting services lliams, or Craig invoices Williams for any services provided in excess of the original advance. erts and invoices Roberts for 500 J-Phones at the price of $100 per J-Phone on December 31, 2016. s any customers of Robert's has with the J-Phones from the date of their purchase of the J-Phone cturer for which Paul would normally have charged a client $5,000 to prepare. h a normal retail selling of $6,000. The delivery of the tax returns by Paul and Paul's furniture on April 1, 2017 on his books? tting in manufacturer's warehouse from years ago), how would Paul record this transaction? Q5: Statement of Cash Flows The March 2016 and 2017 comparative Balance Sheet for ABC Corporation is shown below: ABC Corporation Comparative Balance Sheets 31-Mar 2017 Current assets: Cash Accounts receivable Inventories Prepaid expenses Long-term investment Equipment, net Land $28,300 60,000 69,200 1,500 11,000 74,200 43,100 $287,300 Current liabilities: Notes payable, short-term Accounts payable Income tax payable Accrued liabilities Interest payable Salary payable Long-term note payable Common stock Retained earnings $14,200 44,100 14,200 23,900 5,100 3,500 57,000 68,000 -9,100 $220,900 Additional information: Transaction data for the year ended June 30, 2017 a. Net income b. Depreciation expense on equipment c. Purchased long-term investment d. Sold land for cash Loss on sale of land Acquired equipment by issuing long-term e. note payable f. Paid long-term note payable Received cash for issuance of common g. stock h. Paid cash dividends $ 66,400 13,700 4,500 45,400 7,100 14,100 61,500 10,400 15,000 i. Paid short-term note payable by issuing common stock 5,000 Requirement 1 Prepare the statement of cash flows of ABC Corporation for the year ended March 31, 2017 using the i Title Cash flow from Operations Net cash flow from Operating Activities Cash Flows from Investing Activities Net cash flow from Investing Activities Financing Cash Flows Net Cash Flows from financing activities Net Increase (decrease in Cash) Requirement 2: Prepare the notes related to non-cash investing and financing activities. Non-cash investing and financing activities: r ABC Corporation is shown below: Corporation ve Balance Sheets 31-Mar Increase (Decrease) 2016 $8,700 33,200 61,400 2,800 6,500 73,800 95,600 $282,000 $19,600 $26,800 $7,800 ($1,300) $4,500 $400 ($52,500) $5,300 $19,200 42,600 16,800 28,500 9,200 2,800 104,400 52,600 5,900 $282,000 ($5,000) $1,500 ($2,600) ($4,600) ($4,100) $700 ($47,400) $15,400 ($15,000) ($61,100) rporation for the year ended March 31, 2017 using the indirect method to report operating activities ancing activities.