Intermediate Accounting 2 Chapter 16 - 18

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Intermediate Accounting 2

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Chapter 16- E16-3, E16-5, E16-6, E16- 13, E16-14, E16-21, E16- 22

Chapter 17: Pensions and Other Postretirement Benefits E17-2, E17-10, E17-11, E17-13, E17-19

Chapter 18 E18-5, E18-7, E18-11, E18-12, P18-9

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946 SECTION 3 Liabilities and Shareholders' Equity E 16-3 Taxable income given; calculate deferred tax liability • LO16-1 Ayres Services acquired an asset for $80 million in 2018. The asset is depreciated for financial reporting purposes over four years on a straight-line basis (no residual value). For tax purposes the asset's cost is depreciated by MACRS. The enacted tax rate is 40%. Amounts for pretax accounting income, depreciation, and taxable income in 2018, 2019, 2020, and 2021 are as follows: ($ in millions) 2018 2019 2020 2021 Pretax accounting income Depreciation on the income statement Depreciation on the tax return Taxable income $330 20 (25) $325 $350 20 (33) $337 $365 20 (15) $370 $400 20 (7) $413 Required: For December 31 of each year, determine (a) the temporary book-tax difference for the depreciable asset and (b) the balance to be reported in the deferred tax liability account. E 16-4 Temporary difference: income tax payable given L016-2 In 2018, DFS Medical Supply collected rent revenue for 2019 tenant occupancy. For income tax reporting, the rent is tared when collected. For financial statement reporting, the rent is recorded as deferred revenue and then recog- nized as income in the period tenants occupy the rental property. The deferred portion of the rent collected in 2018 amounted to $300,000 at December 31, 2018. DFS had no temporary differences at the beginning of the year Required: Assuming an income tax rate of 40% and 2018 income tax payable of $950.000, prepare the journal entry to record income taxes for 2018. Lance Lawn Services reports warranty expense by estimating the amount that eventually will be pala E 16-5 LUI Stock options exercise; expirations LO19-2 options were granted for 40 million $1 par common shares. The exercise price is the MLL PIILU date—$8 per share. Options cannot be exercised prior to January 1, 2020, and expire December 31, 2024. The fair value of the 40 million options, estimated by an appropriate option pricing model, is $1 per option. Required: 1. Determine the total compensation cost pertaining to the incentive stock option plan. 2. Prepare the appropriate journal entry to record compensation expense on December 31, 2018. 3. Prepare the appropriate journal entry to record compensation expense on December 31, 2019. 4. Prepare the appropriate journal entry to record the exercise of 75% of the options on March 12, 2020, when the market price is $9 per share. 5. Prepare the appropriate journal entry on December 31, 2024, when the remaining options that have vested expire without being exercised. E 19-9 Stock options; exercise LO19-2 SSG Cycles manufactures and distributes motorcycle parts and supplies. Employees are offered a variety of share- based compensation plans. Under its nonqualified stock option plan, SSG granted options to key officers on January 1, 2018. The options permit holders to acquire 12 million of the company's $1 par common shares for $11 within the next six years, but not before January 1, 2021 (the vesting date). The market price of the shares on the date of grant is $13 per share. The fair value of the 12 million options, estimated by an appropriate option pricing model, is $3 per option. Required: 1. Determine the total compensation cost pertaining to the incentive stock option plan. 2. Prepare the appropriate journal entries to record compensation expense on December 31, 2018, 2019, and 2020. 3. Record the exercise of the options if all of the options are exercised on May 11, 2022, when the market price is $14 per share. E 19-10 Employee share purchase plan LO19-3 In order to encourage employee ownership of the company's $1 par common shares, Washington Distribution permits any of its employees to buy shares directly from the company through payroll deduction. There are no brokerage fees and shares can be purchased at a 15% discount. During March, employees purchased 50,000 shares at a time when the market price of the shares on the New York Stock Exchange was $12 per share. Required: Prepare the appropriate journal entry to record the March purchases of shares under the employee share purchase plan. 19-11 Tesla Motor's disclosure notes for the year ending December 31, 2015, included the following regarding its $0.001 par common stock: LUI Stock options exercise; expirations LO19-2 options were granted for 40 million $1 par common shares. The exercise price is the MLL PIILU date—$8 per share. Options cannot be exercised prior to January 1, 2020, and expire December 31, 2024. The fair value of the 40 million options, estimated by an appropriate option pricing model, is $1 per option. Required: 1. Determine the total compensation cost pertaining to the incentive stock option plan. 2. Prepare the appropriate journal entry to record compensation expense on December 31, 2018. 3. Prepare the appropriate journal entry to record compensation expense on December 31, 2019. 4. Prepare the appropriate journal entry to record the exercise of 75% of the options on March 12, 2020, when the market price is $9 per share. 5. Prepare the appropriate journal entry on December 31, 2024, when the remaining options that have vested expire without being exercised. E 19-9 Stock options; exercise LO19-2 SSG Cycles manufactures and distributes motorcycle parts and supplies. Employees are offered a variety of share- based compensation plans. Under its nonqualified stock option plan, SSG granted options to key officers on January 1, 2018. The options permit holders to acquire 12 million of the company's $1 par common shares for $11 within the next six years, but not before January 1, 2021 (the vesting date). The market price of the shares on the date of grant is $13 per share. The fair value of the 12 million options, estimated by an appropriate option pricing model, is $3 per option. Required: 1. Determine the total compensation cost pertaining to the incentive stock option plan. 2. Prepare the appropriate journal entries to record compensation expense on December 31, 2018, 2019, and 2020. 3. Record the exercise of the options if all of the options are exercised on May 11, 2022, when the market price is $14 per share. E 19-10 Employee share purchase plan LO19-3 In order to encourage employee ownership of the company's $1 par common shares, Washington Distribution permits any of its employees to buy shares directly from the company through payroll deduction. There are no brokerage fees and shares can be purchased at a 15% discount. During March, employees purchased 50,000 shares at a time when the market price of the shares on the New York Stock Exchange was $12 per share. Required: Prepare the appropriate journal entry to record the March purchases of shares under the employee share purchase plan. 19-11 Tesla Motor's disclosure notes for the year ending December 31, 2015, included the following regarding its $0.001 par common stock:
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Explanation & Answer

Attached.

Running head: INTERMEDIATE ACCOUNTING

Intermediate Accounting
Student’s Name
Institution Affiliation

INTERMEDIATE ACCOUNTING

1

Intermediate Accounting

Chapter 16
E 16-3
Ayres Services
($ in millions)
2018
Pretax accounting income

2019

2020

2021

$330.00 $350.00 $365.00 $400.00

Depreciation on the income statement

$20.00

$20.00

$20.00

$20.00

Depreciation on the tax return

-$25.00

-$33.00

-$15.00

-$7.00

Taxable Income

$325.00 $337.00 $370.00 $413.00

Temporary book-tax difference

-$2.00

-$5.20

$2.00

$5.20

Deferred tax

-$5.00

-$13.00

$5.00

$13.00

E 16-6
1. Accrual of loss contingency: tax deductible when paid. T
2. Newspaper subscriptions: taxable when received, recognized for financial reporting
when the performanc...


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