Inter 3 Exam 2

Sicora Incorporated reported installment sales totaling $670,000 in its income statement for Year 1, its first year of operations. Sicora is not required to report installment sales income on its tax return until the cash is collected. Sicora will make the collections on these installment sales as follows: Year 1 $70,000 Year 2 $130,000 Year 3 $140,000 Year 4 $160,000 Year 5 $170,000 Total $670,000 The enacted tax rate is 30% in each of these years. What is the ending balance in the deferred tax liability account related to these installment sales at the end of Year 1?

180,000 670,000 - 70,000 = 600,000 (600,000 - 0) x 30% = 180,000

On January 1, 2018, Savor Corporation leased equipment to Spree Company. The lease term is 9 years. The first payment of $698,000 was made on January 1, 2018. The present value of the lease payments is $4,561,300. The lease is appropriately classified as a sales-type lease. Assuming the interest rate for this lease is 9%, how much interest revenue will Savor record in 2018 on this lease?

347,697 Interest = (4,561,300 - 698,000) * 9%

Burnham Company collected rent of $3,800 during Year 1. For income tax reporting, the rent is taxed when collected. For financial reporting, the rent is recognized as income in the period earned. At the end of Year 1, the unearned portion of the rent collected during the year amounted to $440. Burnham had no temporary differences at the beginning of the current year. Assume an income tax rate of 30%. What is the amount of the deferred tax asset that should be recognized at the end of Year 1?

132 440 x 30% = 132

Assume that the five classification criteria are applied to a lease involving equipment and, because none of the criteria is met, it is determined that a lease should be classified as an operating lease. At the beginning of the lease, the lessee:

Records the entry that includes a debit to Right-of-use asset for the PV of the lease payments

On January 1, Leveler Corporation leased equipment to Messy Company. The present value of the lease payments is $200,000 and Leveler's cost of the equipment was $125,000. The lease is properly classified as a sales-type lease. In comparison to the entries that would have been made if this lease did not include a selling profit, how are the entries affected because this lease includes a selling profit?

The entries made by Messy are not affected The entry made by Leveler to record the receipt of the first lease payment also will include the sales revenue and cost of goods sold

On January 1, Year 1, Savor Corporation leased equipment to Spree Company. The lease term is 9 years. The first payment of $698,000 was made on January 1, 2018. The present value of the lease payments is $4,561,300. The lease is appropriately classified as an operating lease. Assuming the interest rate for this lease is 9%, how much interest revenue will Savor record in Year 1 on this lease?

0 When a lease is classified as an operating lease, the lessor will report lease revenue rather than interest revenue (which it would have reported if this had been a sales-type lease). In other words, the lessor does not report any interest revenue for an operating lease.

Match each timing difference described with the deferred tax assets or liabilities created by the timing difference. 1. Estimated expenses and losses 2. Installment sales of property 3. Prepaid expenses 4. Subscriptions collected in advance

1. Deferred tax assets 2. Deferred tax liabilities 3. Deferred tax liabilities 4. Deferred tax assets

1. Lessee has, in substance, purchased the leased asset 2. Lessor transfers control of the lease asset to lessee, with or without a selling profit on the sale of the asset 3. Fundamental rights and responsibilities of ownership are retained by the lessor and the lessee merely is using the asset temporarily

1. finance lease 2. Sales-type lease 3. Operating Lease

Assume that a lessor applies the five criteria to a lease involving equipment and determines that a lease should be classified as a sales-type lease. The entry the lessor will record at the beginning of the lease will include a:

Debit to lease receivable for the present value of the lease payments

Saunders Incorporated, reported pretax accounting income of $100,000 during the current year, which included $10,000 interest from investments in municipal bonds. The enacted tax rate is 25%. Prepare the appropriate journal entry to record the company's income taxes for the current year. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field.

Income Tax Expense = 22,500 Income Tax Payable = 22,500 100,000 - 10,000 = 90,000 90,000 x 25% = 22,500

Exeter Corporation reports warranty expense by estimating the amount that eventually will be paid to satisfy warranties on its product sales. For tax purposes, the expense is deducted when paid. During its first year of operations, Exeter reports pretax accounting income of $100,000. Its income statement includes a $50,000 warranty expense that is deducted for tax purposes when paid in Year 2 in the amount of $30,000 and Year 3 in the amount of $20,000. Exeter is subject to a tax rate of 40%. Prepare the appropriate journal entry to record the company's income tax expense for Year 1. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field.

Income Tax Expense = 40,000 Deferred Tax Asset = 20,000 Income Tax Payable = 60,000 (100,000 + 50,000) x 40% = 60,000 (30,000 + 20,000) x 40% = 20,000 60,0000 - 20,000 = 40,000

Fitzgerald Corporation reports pretax accounting income of $210,000, but because of a single temporary difference, taxable income is only $155,000. At the beginning of the year, no temporary differences existed. Fitzgerald is subject to a tax rate of 40%. Prepare the appropriate journal entry to record the company's income tax expense for the year. For its first year of operations, Marcus Corporation reported pretax accounting income of $274,800. However, because of a temporary difference in the amount of $19,200 relating to depreciation, taxable income is only $255,600. The tax rate is 39%. What amount should Marcus report as its deferred income tax liability in its balance sheet at the end of that year?

Income tax expense = 84,000 Income tax payable = 62,000 Deferred Tax Liability = 22,000 155,000 x 40% = 62,000 (210,000-155,000) x 40% = 22,000 62,000 + 22,000 = 84,000 7,488 19,200 x 39% = 7,488

Which of the following statements about why companies frequently choose to lease assets are true?

Leasing offers flexibility when disposing of the asset Leasing reduces the upfront cash needed to use an asset

Amortization of a right-of-use asset over the lease term is recorded by the:

Lessee with a debit to Amortization Expense

The amortization of a right-of-use asset over the lease term is computed by:

Subtracting the amount needed for interest from the straight-line lease payment

Assume Jackson Company determines that it is more likely than not that a portion of its deferred tax asset ultimately will not be realized and records an entry to increase its valuation allowance. Which of the following describes how the company's financial statements will be impacted?

The amount of income tax expense reported in the income statement will increase Total assets reported in the balance sheet will decrease

Which of the following describe the criteria that must be met for a company to treat a lease as a short-term lease?

The lease term (including any option to renew or extend) is twelve months or less The lease does not contain a purchase option that the lessee is reasonably certain to exercise, which would extend the term beyond twelve months

Under an operating lease:

The lessee reports a single amount of lease expense, which is equal to interest expense plus amortization expense, in its income statement The lessee reports lease expense on a straight-line basis and the lessor reports lease revenue on a straight-lie basis over the lease term