Problem 17: (15 points total) Prepare the necessary journal entries for the Lessor: On January 1, 2018, Saturn Equipment Rentals leases a piece of equipment to Mars Construction for 4 years. The equipment has a useful life of 5 years. The lease requires 4 payments of $55,911 per year beginning January 1, 2018. Mars has an incremental borrowing rate of 9%. Saturn computed the lease payments based upon an 8% implicit rate, which is known to Mars. Both Saturn and Mars estimate the residual value at the end of the lease term to be $68,024 and the residual value is not guaranteed by Mars Construction. The equipment was purchased on December 31, 2017 at a cost (current book value) of $100,000. PV Factor 4 year 8% Annuity Due 3.57711. PV Factor 4 year 8% Single Sum 0.735030. What journal entries are necessary for Saturn Equipment Rentals in 2018? Problem 16: (10 points total) Use this information for parts A and B. In 2022, McGill Company reported pretax GAAP income of $400,000. During 2022, McGill had the following differences between GAAP and tax: Recognized $150,000 installment sale revenue under GAAP in 2022. Starting in 2023, this revenue will be recognized for tax purposes in equal amounts over the next three years. Recognized $75,000 depreciation in 2022 for tax. Starting in 2023, GAAP depreciation is $15,000 per year for the next five years. Received $80,000 in unearned rent revenue in 2022. Rent will be earned in equal amounts in 2023 and 2024 The tax rate for 2022 is 35 percent and 40 percent thereafter. Part A: (5 Points) What journal entry does McGill record for taxes in 2022? Part B: (5 Points) Assuming that taxable income is $500,000 in 2023, what journal entry does McGill record for taxes in 2023? On January 1, Bartlett Co. acquired 40% (5,000 shares) of Apple Co's stock in a transaction that did not result in any acquisition differentials. Thus, the fair value and carrying amount of Apple's net assets were equal on January 1. The balance in the investment at year end was $400,000. Apple's reported net income for the year was $240,000, and it declared and paid dividends of $65,000. The fair value of Apple's stock was $125 at year end. The amount paid by Bartlett for its investment in Apple was what amount? None of the other answers O $496,000 O $330,000 O $278,000 $625,000 On January 1, Year 1, ABC Co. acquired bonds issued by Tyler Co. They have a face amount of $300,000, pay 10% interest, and were purchased to yield 9%. The bonds were purchased with a premium of $16,973. The maturity date is December 31, Year 10, and interest is due annually every December 31. Using the effective-interest method, what would ABC Co. record as interest income for the bonds in Year 2? O $30.000 O $28,528 None of the other answers $31,697 $28,395 On December 31 Year 1, Flanigan had the following securities in its trading securities portfolio. Company Name Shares Cost per share Fair value per share 12/31/Year 1 Johnson Utilities 2,500 $25 $28 Cumberland Merchants 1,000 $50 $53 Clinton Pharmaceuticals 3.000 $65 |$45 On July 31 Year 2, Flanigan sells all 1,000 shares of Cumberland Merchants for $54 per share. On December 31 Year 2 the fair value of Johnson Utilities is $34 per share and the fair value of Clinton Pharmaceuticals is $47 per share. At the end of Year 2, Flanigan will record an adjusting entry that includes which of the following: None of the other answers Credit to Fair Value Adjustment for $31,500 O Debit to Fair Value Adjustment for $18,000 O Credit to Fair Value Adjustment for $49,500 Debit to Fair Value Adjustment for $1,000 Shields Construction signed a contract to build an apartment complex for $6,000,000. An additional performance bonus of $300,000 will be paid if the project is completed on time. The performance Bonus decreases by $50,000 a week for every week beyond the completion date. Shields Construction estimates that there is a 65% chance they complete the project on time, a 30% chance they will complete the project 1 week late and a 5% chance they complete the project 2 weeks late. What is the transaction price under the Expected Value method and under the Most Likely Outcome method? Expected Value Most Likely Outcome A. $5,980,000 $6,000,000 B. $6,280,000 $6,000,000 C. $6,250,000 $6,300,000 D. $6,280,000 $6,300,000 E. None of the other answers , None of the other answers OA OD OB In 2021, Smokey's Lawn Service had $60,000 excess tax deprecation for taxes. This temporary difference will reverse evenly over three years beginning in 2022. The firm's tax rate is 30% for 2021 and 2022 and 25% for all years after 2022. What is the deferred tax liability that will be reported on Smokey's 12/31/21 balance sheet? $16,000 $29,000 O $18,000 O $15,000 None of the other answers On January 1, 2021, Trinity Co purchases a $300,000 10-year 7% bond for $244,699. The market rate of interest for similar bonds is 10%. The bonds pay interest annually and Trinity classifies them as AFS securities. On January 1, 2022, Trinity sells the bonds for $290,000. The journal entry to record the sale of the bonds includes a (round to the nearest dollar): O Gain on Sale - AFS of $19.000 O Loss on Sale - AFS of $41,831 Gain on Sale - AFS of $41,831 O Loss on Sale - AFS of $19.000 O None of the other answers In 2018, Fisher Inc. had Taxable income of $125,000. Fisher had one permanent difference and one temporary difference. The permanent difference was $14,000 of non-taxable state and municipal bond income. The temporary difference was $28,000 of rent collected in 2018 and included in 2018 taxable income that was deferred until 2019 for book purposes. The tax rate is 20% for all years. After considering income tax expense, what was Fisher's accounting net income (book)? O None of the other answers O $105,600 $91,600 O $83,200 O $114,000 On January 1st, 2018, Holloway Inc. enters into a five-year operating lease to lease a building from Chattanooga Steel Co. Lease payments are $136,000 beginning on January 1st of 2018 (present value of 5 payments as annuity due - $600,000). The rate implicit in the lease (of which Holloway is aware is 6%). What is the amount of reduction to the Right to Use Asset for the year ended December 31st 2018? O $98,160 O $100,000 $108,160 O $109,000 None of the other answers The books of Catherine Company for the year ended December 31, 2016, showed pretax GAAP (book) income of $600,000. In computing the taxable income for federal income tax purposes, the following timing differences were considered: Depreciation deducted for tax purposes in excess of depreciation recorded on the books: $91,000 Income from sale reported for tax purposes in excess of income recognized on the books: $28,000 What should Catherine Co. record as its current federal income tax liability at December 31, 2016, assuming a corporate income tax rate of 25 percent? O $150,000 O None of the other answers O $134,250 O $120.250 $165.750 On January 1, 2021, Orem Mining Group signed a ten-year lease with Wyoming Corp for a drill that will enable them to mine more efficiently. The drill's fair value at the commencement of the lease was $500,000. The estimated life of the drill is 10 years with a guaranteed residual value of $30,000. The drill has a cost to Wyoming Corp of $485,000 and Wyoming Corp. has set the annual rental rate to earn 7%, which is known by Orem Mining Group. The present value of a lump sum payment at 7% for 10 periods is 0.50835. The present value of an annuity due at 7% for 10 periods is 7.51523. What amount should Wyoming Corp. report as cash received for the first payment? O $64,502 O None of the other answers O $66,532 O $48,475 O $50,000 On January 1 Year 1, Tafferty Co. sold goods to Armour Inc. for $1,000,000 in exchange for a 5-year, zero-interest-bearing note with a face amount of $1,276,282. The note had an implicit rate of 5 percent. The goods have an inventory cost on Tafferty's books of $700,000. What amount of revenue will be recognized on the December 31, Year 1 income statement because of this transaction? O $1,050,000 O $1,340,096 O $50,000 O $63,814 None of the other answers Patterson Technology developed a state-of-the-art virtual reality system. Patterson sold their new system to Sapphire Corp for a flat fee of $40,000. Included in the package was: . Standardized hardware (sold on a stand-alone basis for $30,000) Customized installation and integration into existing gaming systems. . Each installation is unique and no stand-alone price exists Patterson's standard profit margin for installation is 40% of cost. . The total installation cost is estimated to be $10,000 Six-week training session not sold separately. Based on a study of similar courses, the average cost was $1,000 per week What amount of the transaction price should be allocated to the installation? . O $14,000 O None of the other answers O $17,500 O $10,000 O $11.200 On December 31, 2021, California Corporation leased a ship from Knox Company for a six-year period expiring December 30, 2026. Equal annual payments of $200,000 are due on December 31 of each year, beginning with December 31, 2021. The lease is properly classified as a finance lease on California's books. The present value at December 31, 2021 of the six lease payments over the lease term discounted at 9% is $1,155,720. Assuming all payments are made on time, the amount that should be reported by California Corporation as the total liability for finance leases on its December 31, 2022 balance sheet is O $841,735 O $755,720 None of the other answers O $1,041.735 O $800,000