Exhibit 17.13 presents a consolidated statement of income and retained earnings for 2013, and Exhibit 17.14 presents a consolidated balance sheet for Tuck Corporation as of December 31, 2012 and 2013. A statement of accounting policies and a set of notes to the financial statements follow these financial statements. After

studying these financial statements and notes, respond to each of the following questions and calculation requirements.

Required

a. Prepare an analysis that explains the change in the Marketable Equity Securities account during 2013.

b. Calculate the proceeds from sales of marketable equity securities classified as current assets during 2013.

c. Calculate the amount of the bad debt expense for 2013.

d. Calculate the amount of cost of goods sold assuming Tuck Corporation used a FIFO cost-flow assumption.

e. Give the journal entry (entries) to account for the change in the Investment in Thayer Corporation account during 2013.

f. Calculate the amount of income or loss from the Investment in Thayer Corporation during 2013.

g. Give the journal entry (entries) to account for the change in the Investment in Davis Corporation account during 2013.

h. Refer to Note 5. Give the journal entry to record the sale of equipment during 2013.

i. Refer to Note 9. Demonstrate that the $106,036 is the correct amount of the leasehold asset at the beginning of the lease term.

j. Calculate the amount of cash received during 2013 for rental fees.

k. Calculate the actual cost incurred to service customers’ warranties during 2013.

l. Refer to Note 7. Calculate the amount of interest expense on the $1 million, 6% bonds for 2013.

m. Give the journal entry (entries) for the change in the Mortgage Payable accounts during 2013. Be sure to consider the current portion.

n. Verify that the carrying value of the combined current and noncurrent portions of the Capitalized Lease Obligation on December 31, 2012, should be $62,064.

o. Prepare an analysis that explains the change in the carrying value of the combined current and noncurrent portions of the Capitalized Lease Obligation during 2013.

p. Give the journal entry to record income tax expense for 2013.

q. Compute the amount of cash payments for income taxes during 2013.

r. The income tax rate is 30%. Assume that during 2013, Tuck Corporation recognized $12,000 of deferred tax expense related to differences in depreciation methods. Calculate the difference between the amount of depreciation recognized for financial reporting purposes and the amount recognized for tax purposes.

s. Give the journal entry made on July 1, 2013, upon conversion of the preferred stock.

t. Give the journal entry (entries) to account for the change in the Treasury Stock account during 2013.

Statement of Accounting Policies

• Basis of consolidation. Tuck Corporation consolidates its financial statements with those of Harvard Corporation, a 100%-owned subsidiary acquired on January 2, 2011.

• Marketable securities. The firm classifies marketable securities as available for sale and measures them at fair value.

• Accounts receivable. The firm accounts for customers’ uncollectible accounts using the allowance method.

• Inventories. Tuck Corporation uses a last-in, first-out (LIFO) cost-flow assumption for inventories.

• Investments. The firm classifies investments of less than 20% of the outstanding common stock of other companies as available for sale and measures them at fair value. It accounts for investments of 20% to 50% of the outstanding common stock of affiliates using the equity method.

• Building, equipment, and leaseholds. Tuck Corporation calculates depreciation for financial reporting purposes using the straight-line method and an accelerated method for income tax reporting.

• Interest expense on long-term debt. The firm measures interest expense on long-term debt using the effective interest method.

• Deferred income taxes. Tuck Corporation provides for deferred income taxes arising from temporary differences between book and taxable income.

Notes to the Financial Statements

• Note 1: The balance sheet presents marketable equity securities, all classified as available for sale, at fair value, which is less than acquisition cost by $25,000 on December 31, 2012, and $21,000 on December 31, 2013. Tuck Corporation sold marketable equity securities costing $35,000 during 2013. It received no dividends from marketable equity securities during 2013.

• Note 2: The balance sheet presents accounts receivable net of an allowance for uncollectibles of $128,800 on December 31, 2012, and $210,400 on December 31, 2013. Tuck Corporation wrote off a total of $63,000 of accounts receivable as uncollectible during 2013.

• Note 3: The valuation of inventories on a FIFO basis exceeded the amounts on a LIFO basis by $430,000 on December 31, 2012, and by $410,000 on December 31, 2013.

• Note 4: Davis Corporation reported net income for 2013 of $217,500 and declared and paid dividends totaling $60,000 during the year. Tuck Corporation invested an additional $20,000 in Davis Corporation during 2013, but its ownership percentage remained at 40%.

• Note 5: Tuck Corporation sold equipment with a cost of $23,000 and a carrying value of $4,000 during 2013. This was the only disposition of property, plant, or equipment during the year.

• Note 6: Tuck Corporation paid at maturity a 90-day, 9% note with a face amount of $100,000 with interest on January 30, 2013. On December 1, 2013, Tuck Corporation borrowed $200,000 from its local bank, promising to repay the principal plus interest at 12% in six months.

• Note 7: Bonds Payable on the balance sheet comprise the following:

• Note 8: Mortgage Payable represents a building mortgage requiring equal installment payments of $40,000 on December 31 of each year. The loan underlying the mortgage bears interest of 7%, compounded annually. The final installment payment is due on December 31, 2013.

• Note 9: The Capitalized Lease Obligation represents a 20-year, non-cancelable lease on certain equipment. The lease requires annual payments, in advance, of $10,000 on January 2 of each year. Tuck Corporation will make the last lease payment on January 2, 2020. Tuck Corporation capitalizes the lease at its borrowing rate (at the inception of the lease) of 8%.

• Note 10: Each share of preferred stock is convertible into five shares of common stock. On July 1, 2013, holders of 5,000 shares of preferred stock exercised their conversion options. Tuck Corporation recorded the conversion using carrying values.

• Note 11: On October 1, 2013, Tuck Corporation issued 40,000 shares of common stock on the open market for $15 cash per share.

• Note 12: Treasury Stock comprises the following:

During 2013, Tuck Corporation sold 1,800 shares of treasury stock and acquired 550 shares.

Transcribed Image Text:

Tuck Corporation Consolidated Statement of Income and Retained Earnings for 2013 (Problem 11) EXHIBIT 17.13 REVENUES AND GAINS Sales.... $4,000,000 Gain on Sale of Equipment . 3,000 Rental Revenue. 240,000 Dividend Revenue . 8,000 Equity in Earnings of Unconsolidated Affiliates 102,000 Total Revenues and Gains.. $4,353,000 EXPENSES, LOSSES, AND DEDUCTIONS Cost of Goods Sold (Including Depreciation and Amortization). $2,580,000 Selling and Administration Expenses (Including Depreciation and Amortization and Bad Debt Expense) 1,102,205 Warranty Expense . 46,800 Interest Expense.. 165,995 Loss on Sale of Marketable Equity Securities 8,000 Income Tax Expense 150,000 Total Expenses, Losses, and Deductions Consolidated Net Income...... Less Dividends Declared.. 4,053,000 $ 300,000 (119,500) S 180,500 Increase in Retained Earnings for 2013 Retained Earnings, December 31, 2012. 277,000 Retained Earnings, December 31, 2013. $ 457,500 Cengage Lea ming 20 14 Tuck Corporation Consolidated Statement of Income and Retained Earnings for 2013 (Problem 11) EXHIBIT 17.13 REVENUES AND GAINS Sales.... $4,000,000 Gain on Sale of Equipment . 3,000 Rental Revenue. 240,000 Dividend Revenue . 8,000 Equity in Earnings of Unconsolidated Affiliates 102,000 Total Revenues and Gains.. $4,353,000 EXPENSES, LOSSES, AND DEDUCTIONS Cost of Goods Sold (Including Depreciation and Amortization). $2,580,000 Selling and Administration Expenses (Including Depreciation and Amortization and Bad Debt Expense) 1,102,205 Warranty Expense . 46,800 Interest Expense.. 165,995 Loss on Sale of Marketable Equity Securities 8,000 Income Tax Expense 150,000 Total Expenses, Losses, and Deductions Consolidated Net Income...... Less Dividends Declared.. 4,053,000 $ 300,000 (119,500) S 180,500 Increase in Retained Earnings for 2013 Retained Earnings, December 31, 2012. 277,000 Retained Earnings, December 31, 2013. $ 457,500 Cengage Lea ming 20 14

Answer rating: 100% (QA)

An availableforsale security AFS is a debt or equity security purchased with the intent of selling before it reaches maturity or holding it for a long period should it not have a maturity date Account... View the full answer