Comprehensive review problem. Exhibits 16.8 and 16.9 (on pages 796 and 797) present a partial set of financial statements of Chicago Corporation for 2009, including a consolidated statement of income and retained earnings for 2009 and consolidated comparative balance sheets at December 31, 2008 and 2009. Questions relating to the financial statements of Chicago Corporation follow. You should study the financial statements before responding to these questions and problems. Additional information is as follows:

(1) The only transaction affecting common or preferred shares during 2009 was the sale of treasury stock.

(2) The bonds payable have a maturity (face) value of $4 million.

REQUIIED
a. Compute the amount of specific customers' accounts that Chicago Corporation wrote off as uncollectible during 2009, assuming that it made no recoveries during 2009 on accounts written off in years prior to 2009.
b. Chicago Corporation uses the LIFO cost-flow assumption in computing its cost of goods sold and its beginning and ending merchandise inventory amounts. If it had used a FIFO cost-flow assumption, the beginning inventory would have been $1,800,000 and the ending inventory would have been $1,700,000. Compute the actual gross profit (net sales less cost of goods sold) of Chicago Corporation for 2009 under.
LIFO and the corresponding amount of gross profit if it had used LIFO (Ignore income tax effects.
c. Refer to part b. Did the quantity and acquisition cost of merchandise inventory increase or decrease between the beginning and the end of 2009? Explain.
d. Chicago Corporation amounts for its three intercorporate investments in unconsolidated affiliates using the equity method. The acquisition cost of these investments equaled both the carrying value and the fair value of the assets and liabilities of the investees at the time of acquisition. How much did each of these three companies declare in dividends during 2009? How can u tell?
e. Refer to part d. Give the journal entry (entries) made during 2009 to apply the equity method.
f. Chicago Corporation acquired its only building on January 1, 2008. It estimated the building to have a 40-year useful life and zero salvage value at that time. Calculate the amount of depreciation expense on this building for 2009, assuming that the firm uses the straight-line method.
g. Chicago Corporation sold machinery and equipment costing $1,000,000, with a carrying value of $200,000, for cash during 2009. Give the journal entry to record the disposition.
h. The bonds payback carry 6% annual coupons and require the payment of interest on December 31 of each year. Give the journal entry made on December 31, 2009, to recognize interest expense for 2009, assuming that Chicago Corporation uses the effective interest method.
i. Refer to part h. What was the effective or market interest rate on these bonds on the date Chicago Corporation issued them? Explain.
j. The $170,000 deferred portion of income tax expense for 2009 includes $150,000 relating to the use of different depreciation methods for financial and tax reporting. If the income tax rate was 30%, calculate the difference between the depreciation deduction reported on the tax return and the depreciation expense reported on the income statement.
k. Give the journal entry that explains the change in the treasury shares during 2009.
l. If the original acquisition cost of the patent is $1,250,000, and the firm amortizes that cost on a straight-line basis, how long before December 31, 2009, did the firm acquire the patent?
m. Chicago Corporation acquired 2008. If it held the same amount of stock during the year, but the amount represented only a 15% ownership of the Hutchinson Company, how would the financial statements have differed? Disregard income tax effects, and assume the market price of the shares exceeds their acquisition cost of $100,000 by $25,000 on December 31, 2009.
n. During 2009. Chicago Corporation paid $170,000 to the lessor of property represented on the balance sheet by Property Rights Acquired under Lease." Property rights acquired under lease have a 10-year life, and Chicago Corporation amortizes them on a straight-line basis. What was the total expense reported by Chicago Corporation during 2009 from using the leased property?
o. How would the financial statements differ if Chicago Corporation accounted for inventories on the lower-of-cost-or-market basis and lithe market value of these inventories had been $1 6,00,000 at the end of 2009? Disregard income tax effects.
p. Refer to the earnings-per-share amounts in the income statement of Chicago Corporation. How many shares of common stock would the firm issue if holders of the outstanding shares of preferred stock converted them into common stock?
q. Prepare a T-account work sheet for the preparation of a statement of cash flows for Chicago Corporation for 2009. The certificate of deposit is a cashequivalent.

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Chicago Corporation Consolidated Statement of Income and Retained Earnings for 2009 (Problem 3) EXHIBIT 16.8 Revenues Sales $13,920,000 Gain on Sale of Machinery and Equipment 200,000 Equity in Earnings of Affiliates: Chicago Finance Corporation Rosenwald Company. $1,800,000 125,000 Hutchinson Company 75,000 2,000,000 Total Revenues $16,120,000 Expenses $ 5,000,000 Cost of Goods Sold Employee Payroll Expense 3,000,000 Depreciation of Plant and Equipment and Amortization of Leased Property Rights. 1,000,000 Amortization of Patent 125,000 Bad Debt Expense.. Interest Expense 120,000 455,000 General Corporate Expenses 420,000 Income Taxes-Current 1,430,000 Income Taxes-Deferred 170,000 Total Expenses Net Income. $11,720,000 $ 4,400,000 (120,000) (2,080,000) $ 2,200,000 2,800,000 $ 5,000,000 Less: Dividends on Preferred Shares Dividends on Common Shares Increase in Retained Earnings Retained Earnings, December 31, 2008 Retained Earnings, December 31, 2009 Basic Earnings per Common Share (based on 1,600,000 average shares outstanding) %24 2.68 Diluted Earnings per Share (assuming conversion of preferred stock). 2.20