Connect Intermediate Accounting Pre Final
Q1. Which of the following usually results in an increase in a deferred tax liability?
- Prepaid operating expenses, currently deductible.
- All of these answer choices are correct.
- Accrual of estimated operating expenses.
- Revenue collected in advance.
Q2. Isaac Inc. began operations in January 2018. For certain of its property sales, Isaac recognizes income in the period of sale for financial reporting purposes. However, for income tax purposes, Isaac recognizes income when it collects cash from the buyer’s installment payments.
In 2018, Isaac had $704 million in sales of this type. Scheduled collections for these sales are as follows:
Assume that Isaac has a 27% income tax rate and that there were no other differences in income for financial statement and tax purposes.
Ignoring operating expenses and additional sales in 2019, what deferred tax liability would Isaac report in its year-end 2019 balance sheet? (Round your answer to the nearest whole million.)
- $152 million.
- $61 million.
- $129 million.
- $190 million.
Q3. Woody Corp. had taxable income of $8,175 in the current year. The amount of MACRS depreciation was $3,225, while the amount of depreciation reported in the income statement was $875. Assuming no other differences between tax and accounting income, Woody’s pretax accounting income was:
Q4. For its first year of operations, Tringali Corporation’s reconciliation of pretax accounting income to taxable income is as follows:
|Pretax accounting income||$240,000|
Tringali’s tax rate is 31%. Assume that no estimated taxes have been paid.
What should Tringali report as income tax payable for its first year of operations?
Q5. The following information relates to Franklin Freightways for its first year of operations (data in millions of dollars):
|Pretax accounting income:||$220|
|Pretax accounting income included:|
|Overweight fines (not deductible for tax purposes)||3|
|Depreciation in the tax return using MACRS:||106|
The applicable tax rate is 38%. There are no other temporary or permanent differences.
Franklin’s taxable income ($ in millions) is:
Q6. The changes in account balances for Elder Company for 2018 are as follows:
|Paid-in capital—excess of par||17,000||credit|
Assuming the only changes in retained earnings in 2018 were for net income and a $63,000 dividend, what was net income for 2018?
Q7. The following partial information is taken from the comparative balance sheet of Levi Corporation:
|Common stock, $5 par; 38 million shares authorized; 33 million shares issued and 29 million shares outstanding at 12/31/2018; and ____million shares issued and ____shares outstanding at 12/31/2017.||$165 million||$145 million|
|Additional paid-in capital on common stock||525 million||397 million|
|Retained earnings||190 million||162 million|
|Treasury common stock, at cost, 4 million shares at 12/31/2018 and 2 million shares at 12/31/2017||(65 million)||(43 million)|
|Total shareholders’ equity||$815 million||$661 million|
How many of Levi’s common shares were outstanding on 12/31/2017?
- 29 million.
- None of these answer choices are correct.
- 34 million.
- 27 million.
Q8. Outstanding common stock is:
- Stock that is performing well on the New York Stock Exchange.
- Stock that has been authorized by the state for issue.
- Stock held in the corporate treasury.
- Stock owned by shareholders.
Q9. Roberto Corporation was organized on January 1, 2018. The firm was authorized to issue 89,000 shares of $5 par common stock. During 2018, Roberto had the following transactions relating to shareholders’ equity:
Issued 9,800 shares of common stock at $7.00 per share.
Issued 19,000 shares of common stock at $9.80 per share.
Reported a net income of $108,000.
Paid dividends of $56,000.
Purchased 4,000 shares of treasury stock at $11.80 (part of the 19,000 shares issued at $9.80).
What is total shareholders’ equity at the end of 2018?
Q10. The changes in account balances for Allen Inc. for 2018 are as follows:
|Paid-in capital—excess of par||31,000||credit|
Assuming the only changes in retained earnings in 2018 were for net income and a $47,000 dividend, what was net income for 2018?
Q11. Popeye Company purchased a machine for $390,000 on January 1, 2017. Popeye depreciates machines of this type by the straight-line method over a five-year period using no salvage value. Due to an error, no depreciation was taken on this machine in 2017. Popeye discovered the error in 2018. What amount should Popeye record as depreciation expense for 2018? The tax rate is 30%.
Q12. In December 2018, Kojak Insurance Co. received $500,000 in premiums for a two-year property insurance policy. The company recorded the transaction by debiting cash and crediting insurance premium revenue for the full amount. An internal audit conducted in early 2019 flagged this transaction. The appropriate accounting treatment is that:
- Kojak is not required to make any accounting adjustments.
- Kojak has made a change in accounting principle, requiring retrospective adjustment.
- Kojak is required to adjust a change in accounting estimate prospectively.
- Kojak needs to correct an accounting error.
Q13. Due to an error in computing depreciation expense, Crote Corporation understated accumulated depreciation by $72 million as of December 31, 2018. Crote has a tax rate of 35%. Crote’s retained earnings as of December 31, 2018, would be (Round million answer to 2 decimal places.):
- Overstated by $46.80 million.
- Understated by $46.80 million.
- Overstated by $72.00 million.
- Understated by $72.00 million.
Q14. If a change is made from straight-line to units-of-production depreciation, one should record the effects by a journal entry including:
- A debit to depreciation expense.
- A credit to accumulated depreciation.
- No journal entry is required.
- A credit to deferred tax liability.
Q15. In preparing its cash flow statement for the year ended December 31, 2018, Red Co. gathered the following data:
|Gain on sale of land||$12,900|
|Proceeds from sale of land||23,000|
|Purchase of Blue, Inc., bonds (face value $212,000)||356,000|
|Amortization of bond discount||4,200|
|Cash dividends declared||98,000|
|Cash dividends paid||77,000|
|Proceeds from sales of Red Co. common stock||151,000|
In its December 31, 2018, statement of cash flows, what amount should Red report as net cash outflows from investing activities?
Q16. If bond interest expense is $850,000, bond interest payable increased by $6,500 and bond discount decreased by $2,700, cash paid for bond interest is:
Q17. When preparing the statement of cash flows using the indirect method for determining net cash flows from operating activities, depreciation is added to net income because:
- It was deducted as an expense on the income statement and affects the amount of cash.
- It is a significant portion of the year’s expenses.
- It represents a source or inflow of cash.
- It was deducted as an expense on the income statement, but does not require cash.
Q18. A company reported interest expense of $530,000 for the year. Interest payable was $25,000 and $65,000 at the beginning and the end of the year, respectively. What was the amount of interest paid?
Q19. Melanie Corporation declared cash dividends of $15,600 during the current year. The beginning and ending balances in dividends payable were $660 and $1,100, respectively. What was the amount of cash paid for dividends?
Q20. A company issued 5%, 20-year bonds with a face amount of $60 million. The market yield for bonds of similar risk and maturity is 6%. Interest is paid semiannually. At what price did the bonds sell? (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided. Enter your answers in whole dollars. Round final answers to the nearest whole dollar.)
Q21. Ayres Services acquired an asset for $82 million in 2018. The asset is depreciated for financial reporting purposes over four years on a straight-line basis (no residual value). For tax purposes the asset’s cost is depreciated by MACRS. The enacted tax rate is 40%. Amounts for pretax accounting income, depreciation, and taxable income in 2018, 2019, 2020, and 2021 are as follows:
|($ in millions)|
|Pretax accounting income||$335||$355||$370||$405|
|Depreciation on the income statement||20.5||20.5||20.5||20.5|
|Depreciation on the tax return||(25.5)||(33.5)||(15.5)||(7.5)|
Determine (a) the temporary book–tax difference for the depreciable asset and (b) the balance to be reported in the deferred tax liability account. (Leave no cell blank, enter “0” wherever applicable. Show all amounts as positive amounts. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)
Q22. Portions of the financial statements for Myriad Products are provided below.
|MYRIAD PRODUCTS COMPANY
For the Year Ended December 31, 2018
($ in millions)
|Cost of goods sold||224|
|Patent amortization expense||5|
|Loss on sale of land||3||186|
|Income before taxes||230|
|Income tax expense||115|
|MYRIAD PRODUCTS COMPANY
Selected Accounts from Comparative Balance Sheets
December 31, 2018 and 2017
($ in millions)
|Income taxes payable||24||16||8|
Prepare the cash flows from operating activities section of the statement of cash flows for Myriad Products Company using the indirect method. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10.). Amounts to be deducted should be indicated with a minus sign.)
Q23. Irwin, Inc., constructed a machine at a total cost of $56 million. Construction was completed at the end of 2014 and the machine was placed in service at the beginning of 2015. The machine was being depreciated over a 10-year life using the straight-line method. The residual value is expected to be $2 million. At the beginning of 2018, Irwin decided to change to the sum-of-the-years’-digits method.
Ignoring income taxes, prepare the journal entry relating to the machine for 2018. (If no entry is required for a transaction/event, select “No journal entry required” in the first account field. Enter your answers in millions rounded to 2 decimal places (i.e., 5,500,000 should be entered as 5.50).)