Question 2
Deferred Income taxes In 2007, the initial year of its existence, Gibson 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 2007, Gibson elected, 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 2007. These procedures created a $300,000 difference between book and taxable incomes. The future collection of the installment contracts receivables are expected to result in taxable amounts of $150,000 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. The temporary difference due to excess tax depreciation will reverse equally over the three year period from 2008-2010. 3) Gibson leased some of its property to Brees Company on July 1, 2007. The lease was to expire on July 1, 2009 and the monthly rentals were to be $40,000. Brees , however, paid the first year?s rent in advance and Gibson reported this entire amount on its tax return. These procedures resulted in a $250,000 difference between book and taxable incomes. (Note: this lease was an operating lease and Gibson classified the unearned rent as a current liability on its balance sheet.) 4) Gibson owns $200,000 of bonds issued by the state of Oregon upon which 5% interest is paid annually. In 2007, Gibson showed $10,000 of income from the bonds on its income statement but did not show any of these amounts on its tax return. (Note these bonds are classified as long-term investments on Gibson?s balance sheet.) 5) In2007, Gibson 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. INSTRUCTIONS Assuming that the income statement of Gibson Company showed income before income taxes of $1,200,000 that the enacted tax rates are 40% for all years; and that no other differences between book and taxable income existed, except for those mentioned above: A) Compute the income tax payable B) Prepare a schedule of future taxable and ( deductible)amount at the end of 2007 C) Prepare a schedule of deferred tax (asset) and liability at the end of 2007 D) Compute the net deferred tax expense (benefit) for 2007 E) Make the journal entry recording income tax expense, income tax payable, and deferred income taxes for 2007 F) Indicate how income tax expense and any deferred income under generally accepted accounting principles. Show the amounts for these items and indicate specifically where they would be disclosed.,i need these answer with explain
Question 3
1. Cost Plus Inc.'s portfolio of marketable securities was as follows (all securities were purchased in the current year): Securities Purchase Price Year-end Fair Market Value A One 10-year bond $1,500 $1,400 (face value $1,000) (carrying value $1,450) B 100 shares common stock $30 per share $28 per share C 50 shares preferred stock $100 per share $105 per share Cost Plus intends to keep the A bond until maturity and to sell one half of its investment in B common stock next year. It is unsure of its intention for the remaining 50 shares of B common stock and its 50 shares of C preferred stock. At what amount should Cost Plus report investment securities (in total) on its year-end balance sheet? (Points: 10) $9,500 $9,450 $9,550 $9,400 2. Cost Plus Inc.'s portfolio of marketable securities was as follows: (all securities were purchased this year) Securities Purchase Price Year-End Fair Market Value A One 10-year Bond $1,500 $1,400 (face value $1,000) (carrying value $1,450) B 100 shares common stock $30 per share $28 per share C 50 shares preferred stock $100 per share $105 per share Cost Plus intends to keep the A bond until maturity and to sell one half of its B common stock investment next year. It is unsure of its intention for the remaining 50 shares of B common stock and its 50 shares of C preferred stock. What amount of unrealized gain/loss should be reported on this year's income statement as part of income from continuing operations? (Points: 10) $100 loss. $200 loss. $150 loss. $ 50 gain. 3. Louis, Inc. acquired 40% of the outstanding non-voting preferred stock of Rich Co. What method for recording the investment should Louis use? (Points: 10) The equity method since significant influence must be assumed. The equity method if no other investor has more than a 40% interest. The equity method if it can acquire an additional 11% by year-end. The cost method. 4. On 12/31/Year1, Passey Co. acquired a 100% interest in Solomon Co. by exchanging 10,000 shares of its common stock for 100,000 shares of Solomon's common stock. The fair market value of Passey's common stock on December 31, Year 1, was $9 per share, and the fair value of Solomon's was $3.50 per share. Additional information as of December 31, Year 1, is as follows: Solomon Co. Book Values Fair Values Current assets $115,000 $115,000 Plant assets 200,000 255,000 Liabilities 10,000 10,000 Passey Co. Plant assets $1,700,000 $1,800,000 Passey Co.'s consolidated financial statements as of December 31, Year 1, would report: (Points: 10) Gain of $235,000. Gain of $270,000. A deferred credit (negative goodwill) of $235,000. A deferred credit (negative goodwill) of $270,000. 5. On 12/31/Year 1, Passey Co. acquired a 100% interest in Solomon Co. by exchanging 10,000 shares of its common stock for 100,000 shares of Solomon's common stock. The fair market value of Passey's common stock on December 31, Year 1, was $9 per share, and the fair value of Solomon's was $3.50 per share. Additional information as of December 31, Year 1, is as follows: Solomon Co. Book Values Fair Values Current assets $115,000 $115,000 Plant assets 200,000 255,000 Liabilities 10,000 10,000 Passey Co. Plant assets $1,700,000 $1,800,000 Passey's consolidated financial statements as of December 31, Year 1, would report plant assets at: (Points: 10) $1,700,000 $1,800,000 $1,955,000 $2,055,000 6. On January 1, Year 1, Pepper Company acquired 30% of the voting common stock of Salt, Inc. for $60 per share. Pepper was able to exercise significant influence over the affairs of Salt. Salt had 50,000 common shares outstanding on January 1, Year 1. On July 1, Year 1, Pepper sold all but 500 shares of its investment in Salt, Inc. Pepper held all 500 shares through year-end Year 1. Salt declared and paid a $1 per share common stock dividend on March 31, Year 1, and a $1.50 per share dividend on September 30, Year 1. Salt's net income was exactly $50,000 each quarter. What amount of revenue should Pepper record for the Year 1 from this investment? (Points: 10) $15,250 $15,750 $30,750 $31,000 7. Palmetto Inc. is currently using the equity method to account for its 30% investment in Royal Company. In the acquisition last year of Royal Co. common stock, Palmetto calculated $1,000,000 of goodwill. The correct accounting for this goodwill during the current year is: (Points: 10) Amortization over 40 years. Amortization over the anticipated holding period of the Royal Company stock. Test for impairment at year-end. No accounting necessary. 8. On December 31, Year 1, Starlight Enterprises acquired a 90% ownership interest in Lunar Importers by purchasing 90,000 of Lunar's 100,000 voting common shares outstanding for $900,000 cash. Starlight did not pay a control premium. Additional information regarding Lunar as of December 31, Year 1, follows: Book value Fair value Net assets $600,000 $800,000 The consolidated balance sheet of Starlight Enterprises and Subsidiary would report goodwill in the amount of: (Points: 10) $200,000 $280,000 $400,000 $460,000 9. During Year 1, Abaco Co., the 100% owned subsidiary of Walker, Inc., sold merchandise to Walker at a 25% markup over its cost. This practice continued into Year 2. Intercompany merchandise purchased from Abaco was then sold to unrelated third parties. Year 2 information from Walker's accounting records regarding intercompany merchandise was as follows: Beginning inventory $20,000 Purchases $80,000 Ending inventory $30,000 In one of Walker's December 31, Year 2, workpaper elimination entries, "Intercompany Cost of Goods Sold?Abaco" would have been: (Points: 10) Debited for $64,000. Credited for $64,000. Debited for $80,000. Credited for $80,000. 10. During Year 1, Abaco Co., the 100% owned subsidiary of Walker, Inc., sold merchandise to Walker at a 25% markup over its cost. This practice continued into Year 2. Intercompany merchandise purchased from Abaco was then sold to unrelated third parties. Year 2 information from Walker's accounting records regarding intercompany merchandise was as follows: Beginning inventory $20,000 Purchases $80,000 Ending inventory $30,000 In one of Walker's December 31, Year 2, workpaper elimination entries, "Cost of Goods Sold?Walker" would have been: (Points: 10) Debited for $17,500. Credited for $17,500. Debited for $14,000. Credited for $14,000.,Great, thanks!! When will it be ready? Rich,I'm checking to see if you have these questions finished..If not, I need them answered by 4:00PM Eastern time. Thanks, Rich
Question 4
"Springfield Express is a luxury passenger carrier in Texas. All seats are first class, and the following data are available: Number of seats per passenger train car 90 Average load factor (percentage of seats filled) 70% Average full passenger fare $ 160 Average variable cost per passenger $ 70 Fixed operating cost per month $3,150,000 a. What is the break-even point in passengers and revenues per month? b. What is the break-even point in number of passenger train cars per month? c. If Springfield Express raises its average passenger fare to $ 190, it is estimated that the average load factor will decrease to 60 percent. What will be the monthly break-even point in number of passenger cars? d. (Refer to original data.) Fuel cost is a significant variable cost to any railway. If crude oil increases by $ 20 per barrel, it is estimated that variable cost per passenger will rise to $ 90. What will be the new break-even point in passengers and in number of passenger train cars? e. Springfield Express has experienced an increase in variable cost per passenger to $ 85 and an increase in total fixed cost to $ 3,600,000. The company has decided to raise the average fare to $ 205. If the tax rate is 30 percent, how many passengers per month are needed to generate an after-tax profit of $ 750,000? f. (Use original data). Springfield Express is considering offering a discounted fare of $ 120, which the company believes would increase the load factor to 80 percent. Only the additional seats would be sold at the discounted fare. Additional monthly advertising cost would be $ 180,000. How much pre-tax income would the discounted fare provide Springfield Express if the company has 50 passenger train cars per day, 30 days per month? g. Springfield Express has an opportunity to obtain a new route that would be traveled 20 times per month. The company believes it can sell seats at $ 175 on the route, but the load factor would be only 60 percent. Fixed cost would increase by $ 250,000 per month for additional personnel, additional passenger train cars, maintenance, and so on. Variable cost per passenger would remain at $ 70. 1. Should the company obtain the route? 2. How many passenger train cars must Springfield Express operate to earn pre-tax income of $ 120,000 per month on this route? 3. If the load factor could be increased to 75 percent, how many passenger train cars must be operated to earn pre-tax income of $ 120,000 per month on this route? 4. What qualitative factors should be considered by Springfield Express in making its decision about acquiring this route? "
