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intermediate accounting reporting
Questions and Answers of
Intermediate Accounting Reporting
Jayryan Company sells products in a volatile market. The company began operating in 2017 and reported (and paid taxes on) taxable income in 2017 and 2018. It has one taxable temporary difference
At the beginning of 2019, Norris Company had a deferred tax liability of $6,400, because of the use of MACRS depreciation for income tax purposes and units-of-production depreciation for financial
Colt Company reports pretax financial “income” of $143,000 in 2019. In addition to pretax income from continuing operations (of which revenues are $295,000), the following items are included in
At the end of 2018, Duff Company prepared the following schedule of its deferred tax items (based on the currently enacted tax rate of 30%):On April 30, 2019, Congress changed the income tax rate to
Ross Company has been in business for several years, during which time it has been profitable. For each of those years, Ross reported (and paid taxes on) taxable income in the same amount as pretax
Peterson Company has computed its pretax financial income to be $66,000 in 2019 after including the effects of the appropriate items from the following information:Peterson’s accountant has
Gire Company began operations at the beginning of 2019 at which time it purchased a depreciable asset for $60,000. For 2019 through 2022, the asset was depreciated on the straightline basis over a
At the beginning of 2019, its first year of operations, Cooke Company purchased an asset for $100,000. This asset has an 8-year economic life with no residual value, and it is being depreciated by
Quick Company reports the following revenues and expenses in its pretax financial income for the year ended December 31, 2019:Revenues .........................................$ 229,600Expenses
Wicks Corporation began operations on January 1, 2019. At the end of 2019, Wicks reported pretax financial income of $60,000 and taxable income of $57,700, due to two temporary differences. The
Klerk Company had four temporary differences between its pretax financial income and its taxable income during 2019 as follows:At the beginning of 2019, Klerk had a deferred tax liability of $84,300
Wilcox Company has prepared the following reconciliation of its pretax financial income with its taxable income for 2019:At the beginning of 2019, Wilcox had a deferred tax liability of $495. The
Thiel Company reports the following deferred tax items at the end of 2019:Required:Show how the preceding deferred tax items are reported on Thiel’s December 31, 2019, balance sheet. Related Asset
Lester Corporation reports $119,000 of both pretax accounting “income” and taxable income in 2019. In addition to income from continuing operations (of which revenues are $500,000), included in
EyeBeam Corporation reports the following pretax accounting (and taxable) income items during 2019:Income from continuing operations .................................................$ 90,000*Loss
Wright Company reports the following information for the year ended December 31, 2019:Pretax income from continuing operations ....................................$160,000aPretax income from
Baxter Company began operations in 2015 and was profitable through 2018, during which time the tax rate was 30%. At the end of 2019, the tax rate was changed to 21% and, Baxter reported a pretax
At the end of 2019, its first year of operations, Swelland Company reported a pretax operating loss of $32,000 for both financial reporting and income tax purposes. At that time, Swelland had no
At the end of 2019, Keil Company reports a pretax operating loss of $80,000 for both financial reporting and income tax purposes. Prior to 2019, Keil had been successful and is expected to be
Assume the following facts for Munoz Company in 2019. Munoz reported pretax financial income of $800,000. In addition, Munoz reported the following differences between its pretax financial income and
Lin has just completed its first year of operations and has a number of differences between its pretax financial income and taxable income. The differences at the end of 2019 are as follows:a. Lin
For the year ended December 31, 2019, Nelson Co.’s income statement showed income of $435,000 before income, tax expense. To compute taxable income, the following differences were noted:Required:1.
Vickers Company reports taxable income of $4,500 for 2019. Vickers has two temporary differences between pretax financial income and taxable income at the end of 2019. The first difference is
Tanner Corporation begins operations in 2018 and reports the following amounts of pretax financial income and taxable income for the years 2018 through 2022. Tanner has only one temporary difference
Thun Company has been in operation for several years. It has both a deductible and a taxable temporary difference. At the beginning of 2019, its deferred tax asset was $690, and its deferred tax
Zeta Corporation reported taxable income for 2019 of $200,000. The enacted tax rate for 2019 is 40%. During 2019, Zeta became the defendant in a lawsuit. The lawsuit has not been resolved at the end
At the end of 2019, its first year of operations, Beattie Company reported taxable income of $38,000 and pretax financial income of $34,400. The difference is due to the way the company handles its
Pito Company has been in operation for several years. During those years, the company has been profitable and it expects to continue to be profitable in the foreseeable future. At the beginning of
At the end of 2019, Fulhage Company reported taxable income of $9,000 and pretax financial income of $10,600. The difference is due to depreciation for tax purposes in excess of depreciation for
At the end of 2019, its first year of operations, Slater Company reported a book value for its depreciable assets of $40,000 for financial reporting purposes and $33,000 for income tax purposes.
At the end of 2019, Sentry Company reported a deferred tax liability of $6,120 based on an income tax rate of 30%. On January 2, 2020, Congress changed the income tax rate to 35%.Required:1.
Arrow Company began operations at the beginning of 2019. At the end of 2019, Arrow reported taxable income of $20,800 and pretax financial income of $22,200 because of a single temporary difference.
Barth James Inc. has the following deferred tax assets and liabilities: $12,000 noncurrent deferred tax asset, and $10,500 noncurrent deferred tax liability. Show how Barth James would report these
Sky Company reports a pretax operating loss of $50,000 in Year 3 for both financial reporting and income tax purposes. Its reported pretax financial income and taxable income for the previous 2 years
Brooks Company reported a prior period adjustment of $12,000 in pretax financial “income” and taxable income for 2020. The prior period adjustment was the result of an error in calculating bad
In 2019, Swope Company reports a pretax operating loss of $100,000 for both financial reporting and income tax purposes. Swope concludes that the operating loss in 2019 is temporary and that the
Oliver Company earned taxable income of $7,500 during 2019, its first year of operations. A reconciliation of pretax financial income and taxable income indicated that an additional $2,500 of
At the beginning of 2019, Conley Company purchased an asset at a cost of $10,000. For financial reporting purposes, the asset has a 4-year life with no residual value and is depreciated by the
Prior to and during 2019, Shadrach Company reported tax depreciation at an amount higher than the amount of financial depreciation, resulting in a book value of the depreciable assets of $24,500 for
Why must a corporation match its income tax expense against the major components of its pretax income?
How is a corporation’s effective tax rate calculated?
Give two examples of permanent differences that are caused by expenses that are recognized under GAAP for financial reporting purposes but are never deductible for income tax purposes.
What is a permanent difference? Give two examples of revenues that are recognized under GAAP for financial reporting purposes but are never taxable.
What source is used to determine income tax expense, and what source is used to determine income tax paid?
On November 1, 2019, Olivia’s Art Shoppe agreed to a contract with Tobacco Road Company to create 10 murals for the company’s corporate headquarters. The contract has a transaction price of
On January 1, 2019, Mopps Corp. agrees to provide Conklin Company 3 years of cleaning and janitorial services. The contract sets the price at $12,000 per year, which is the normal standalone price
Contract Identification On October 1, 2019, Graham’s Weed&Feed Inc. signs a contract to maintain the grounds for BigData Corp. The contract ends on March 31, 2020, and has a monthly payment of
Blackmon Company provides locator services to the city transportation departments. Blackmon’s service involves installing a dedicated hardware transmitter in each city bus. This transmitter
Jorg is building an office building for Wilmington Company for $20,000,000. The contract has the following characteristics:• The office building is built to the customer’s specifications and the
Escargot Inc. is a 5-star restaurant in Cincinnati. The restaurant sells 500 gift cards during January 2019. Each gift card has a face value of $300. The gift cards never expire, although based on
Fender Construction Company receives a contract to construct a building over a period of 3 years for a price of $700,000. The contract represents a single performance obligation that will be
In 2019, Dreyer Corp. began construction work under a 3-year contract, which represents a single performance obligation. The contract price is $800,000, and the performance obligation is satisfied
Palantir Corp. sells specialized equipment to the healthcare industry. Palantir pays its sales agents a salary plus a 5% commission on sales. Sales agents employed by the company sold 10 Osgilith MRI
January 2, 2019, TI enters into a contract with Drewry Corp. to build a new piece of equipment. The contract price is $3 million, and construction is expected to take 18 months. Drewry is billed and
On January 1, 2019, ForeRunner Inc. enters into a contract with a sporting goods company to provide 100 GPS-enabled watches for $25,000 ($250 per watch) over the next 6 months. On April 1, 2019, when
JustKitchens Inc. provides services to restaurants and hotels. The company supplies paper products, tableware, cookware, restaurant and kitchen equipment, and cleaning supplies. On January 2, 2019,
Each of the following independent situations relates to the recognition of revenue:a. On June 2, 2019, a customer books travel on an airline, paying $500 for a round-trip ticket that departs July 15,
Newberg Construction Corp. contracted to construct a building for $400,000. Construction began in 2019 and was completed in 2020. Data relating to the contract are as follows:Newberg determined that
Koolman Construction Company began work on a contract in 2019. The contract price is $3,000,000, and the company determined that its performance obligation was satisfied over time. Other information
King Construction Company began work on a contract in 2019. The contract price is $4,000,000, and King determined that its performance obligation was satisfied over time. Other information relating
In 2019, Tarlo Company agrees to construct a highway for Brice County over a 3-year period (2019 through 2021). The contract price is $1,200,000, and the construction costs (both actual and
Assume the same facts as in E17-19, except that Rix cannot directly observe the stand-alone selling prices of the installation and service contracts. However, Rix has determined that the cost of the
Rix Company sells home appliances and provides installation and service for its customers. On April 1, 2019, a customer purchased a dishwasher that Rix normally sells for $1,000. In addition, the
On December 1, 2019, AwakeAllNight Inc. sells 5,000 super caffeinated candy bars to Campus Grocers. The candy bars sell for $3 per bar. In addition, AwakeAllNight pays Campus Grocers a $900
On February 1, 2019, Silicon Rentals contracts with Zurgg Technology to provide 6 months of office services in exchange for 18,000 shares of Zurgg’s common stock. The contract is signed on that
On January 1, 2019, Fulton Inc. enters into a contract with Gibson to deliver goods. Gibson pays $100,000 at the time the contract is signed, at which time the goods are transferred and Fulton’s
On January 1, 2019, Piper Company entered into an agreement with Save-Mart to sell its most popular product, the gadget. The contract stipulates that the price per unit will decrease as Save-Mart
On January 5, 2019, ShoeKing Corp. sells for cash 500 pairs of volleyball shoes to FootAction, a shoe retailer, for $70 each. FootAction has the right to return the shoes for any reason up to March
On March 1, 2019, Elkhart enters into a new contract to build a specialized warehouse for $7 million. The promise to transfer the warehouse is determined to be a performance obligation. The contract
On January 1, 2019, Crockett Pharmaceuticals granted a 5-year license of its patent rights to a drug compound to Tubbs Company for $10 million. As part of the agreement, Crockett also agrees to
WaterWorld Inc. operates an aquarium and water park in Orlando, Florida. In addition to daily admission tickets, WaterWorld offers two other ticket options. First, it offers an annual pass for $600
GrillMaster Inc. sells an industry-leading line of outdoor charcoal and gas grills to customers through its online store as well as national home improvement stores. While the majority of the
Assume the same facts as in E17-5 and ignore E17-6. On July 1, 2019, the customer realizes that she needs a text messaging plan and adds an unlimited text messaging plan for the remaining term of the
Assume the same facts as in E17-5. On July 1, 2019, the customer realizes that she needs less data in her wireless plan and downgrades to the unlimited talk and 2 GB data plan for the remaining term
On January 1, 2019, Loud Company enters into a 2-year contract with a customer for an unlimited talk and 5 GB data wireless plan for $65 per month. The contract includes a smartphone for which the
On January 1, 2019, Spring Fashions Inc. enters into a contract with a southeast retail company to provide 500 dresses for $62,500 ($125 per dress) over the next 10 months. On October 1, 2019, after
On August 1, 2019, Aiken Corp. enters into a contract with Benton Corp. to sell it $25,000 of goods. Aiken will deliver the goods on August 30, 2019, and Benton will pay the full amount upon
Consider each of the following scenarios:a. A seller orally agrees with one of its best customers to deliver goods in exchange for $10,000. While the seller’s practice is to obtain a written sales
Company enters into a contract with Dearborn Inc. to sell it $50,000 of goods with delivery on May 10, 2019. Cass manufactured the goods at a cost of $33,000. The contract is signed on April 15,
LongDrive sells a specialized golf club that has core plugs to shift weight in the club head and produce different ball flights. LongDrive sells the golf club and replacement core plugs separately,
On April 1, 2019, Pine Construction Company entered into a fixed-price contract to construct an apartment building for $6,000,000. Pine will satisfy the performance obligations in the contract over
Warren Construction Company has consistently recognized revenue from its long-term contracts as the performance obligations were met over time. In 2019, Warren started work on a $6,000,000
On July 15, 2019, Matrix Corp. sells 20,000 snow shovels to a distributor for $15 per shovel. The distributor pays the amount on July 15, 2019, and has the right to return any of the snow shovels for
Orange Construction Company enters into a long-term contract to build a new stadium. The contract is for $400 million and work is expected to be completed on June 30, 2019. Orange will receive a $20
Under what circumstances does a company recognize revenue over time for long term contracts?
What types of disclosures must companies make to allow users to understand how revenue is by affected economic factors?
If the seller’s performance creates an asset (e.g., work in progress) that the customer controls as the asset is created, would the performance obligation be satisfied at a point in time or over
How does a seller satisfy a performance obligation? When does this occur?
What is the best evidence of a good’s or service’s stand-alone selling price?
How does the seller allocate the transaction price when a contract contains multiple performance obligations?
What is the seller’s main objective when determining the transaction price?
How should the seller treat promised goods and services that are not distinct within a contract?
What is a performance obligation? Do performance obligations need to be legally enforceable?
What is a contract? What form can a contract take?
When a company recognizes revenue during a period, what does it also recognize in its balance sheet?
How does the FASB define revenues?
SituationIn 2019, its first year of operations, Kanbec Corporation appropriately reported basic earnings per share of $1.05 on its income statement. During 2020, the company instituted a share option
Ryan Company has as a goal that its earnings per share should increase by at least 3% each year; this goal has been attained every year over the past decade. As a result, the market price per share
Obtain The Coca-Cola Company’s 2017 annual report either using the “Investor Relations” portion of its web site (do a Web search for Coca-Cola investor relations) or go to http://www.sec.gov
Brady Company has 30,000 shares of $10 par value common stock authorized and 20,000 shares issued and outstanding. On August 13, 2019, Brady purchased 1,000 shares of treasury stock for $12 per
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