ACTG 3P33.Test I.V1.Fall 2011

ACTG 3P33.Test I.V1.Fall 2011 - BROCK UNIVERSITY TEST 1,...

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Unformatted text preview: BROCK UNIVERSITY TEST 1, Fall 2011 -- (V1) Number ofPages: 12 Course: ACTG 3P33 Number of Students: 45 Date of Examination: October 13, 2011 Number of Hours: 1:20 Time of Examination: 9:30-10:50 Instructor: R. Roubi All questions are to be answered on the examination paper. Please hand this paper 1n at the completion of the exam. No examination aids other than those specified are permitted. Use or possession of unauthorized materials will automatically result in the award of a zero grade for this examination. Permitted: Scientific or financial calculators. Nat permitted: Programmable calculators. Question Maximum Marks Marks Awarded 30 20 _r 25 25 20 STUDENT NAME: Student Number: ACTG 3P33 October 13, 201 1 Page 2 of 12 Pages Problem I (30 marks) 1. On January 1, 2011, Gables Co. purchased $100,000 of eight percent bonds for $108,530. The bonds were purchased to yield six percent. Interest is paid on July 1 and January 1 and the bonds mature on January 1, 2016. Gables Co. uses the effective interest method to amortize any premium/discount and applies the amortized cost model. (round to nearest dollar) Instructions / , (1) Prepare the journal entry on January 1, 2011. - "twee-reek ; (emit/3 ' iogfigo/ e4 Q6515 10a {70 (2) Prepare an amortization table for theentire bonds term. f; ‘ a 3 ate bask“ in Ural r / “rams FrémKmel/ J ~ ““ W‘“ W Ei/ ,\ ' M a ‘03! J ' l 2- ¢ . e ALI), 0” @3000 [aria—8C3 heavy!” Lou Au. 1, L011 thew 3,13% flag 101,030 5 K ' olZ 7- 7 £3 ’ 2 “1,000 “3m “18% 106,1“ Bee-311011 .e ’ - f1 1%. M1013 Levee fir 8‘3 16", 9-13 f 1, 1013 uxj 1+19h» 31¢} 2,3?— lO " 5C1311'L0‘3 I L!" D owl; ION-L- 430142 3"5} 39$ 1031).}? 1, tour ., . £3 Leia-0b 3] H1 7 _ ?&;3l,2,oIL[~ V , 3’33 ((3330 1%], 2,01; [+1000 groé" 91;)" I01" ‘1 if “vuwu’ Le m 'zm’U (-743 1 100,9 92 M gl’LC‘hfi . p 1 7" 2—: FL.» *_ W 1}) (H )" lamp 1”" CC 2) gl/fla’g: lei-Inn:-F(ri H C7 :3" L, \‘Awm 1 WM J4 ACTG 3P33 October 13, 2011 Page 3 of12 Pages (3) Prepare the journal entries to accrue/receive interest and record amortization of the premium I for the remainder of 201 1. A L M 0011/ Let/D Iwurw-£=‘i~/i. hawk; g ire/Li u Saba—95]; Inc‘mgé 3/1le Dec. "31) Le 11 "W :“mfil/ Reader/(M Luz/’23 'Ehvesl‘wrl be 3 1r. (9 intern? Ian 3 A $1+ (4) What is the carrying value of the investment on December 31, 2012‘? 75/05“, 4/5? (5) Assuming that these bonds were accounting for according to the FV—NI model. The company’s management made the decision to hold the bonds to maturity. Prepare the December 31, 2013 and 2014 journal entries to record only the bonds’ fair value adjustments. Assume that the bonds fair values were: / ‘ Fair Value‘ 53 Date Date Fair Value Dec. 31, 2011 $109,000 Dec. 31, 2012 $106,000 Dec. 31, 2013 $105,500 Dec. 31, 2014 $102,500 at. )orb u. ELM—£4 _flum___ _______W M} . _ w ., w "P _ . U... ' 15%...12,’ 163,33 LsJeK “+qu , ,1/7 24/ ’m ' o be“ “Urea” Lweh 10:: 1 e {a} O to ~ wee-Me- w " / .0 ’ o ,___,___ ‘ c. - ' 3' “Jr-3‘1 h___‘ De 31.2.6“ 10 1,ch lb “Mb-Mm “k £13 7 ML,» 10 353% Le “Ci/um) \. '3'1’1‘8 ‘ . I ' Be .31 am: \0 (0,0013 wa—m " 8’3"”?; 7 w MM I D .3 (a, we-..“ U06 25". mi ,..._....__~777......_ 2 __M ,lem 7 4_ Eu. 3.1, 2013 1d): .302) -. -e - —- 7-7 r - ..._.,n._wf__, W J we,qu u HL 2%) ,__ l 0 ’2 , for) (6) What is the Fair Value of these bonds on December 31, 2015? ‘/ I 5.5— A Md, a ad : 07251 hm" t/ media, ACTG 3P33 October 13, 201 l Page 4 of 12 Pages Problem 11 (20 marks) 2. On January 1, 2010, Halkirk Company bought 30,000 shares of the available 100,000 voting common shares of Wong Corporation a publicly traded firm. This acquisition provided Halkirk with significant influence. Halkirk paid $700,000 cash for the investment. At the time of the acquisition, Wong had assets of $2,500,000 and liabilities of $1,200,000. Asset values reflected fair market value except for depreciable capital assets that had a net book value of $500,000 and a fair market value of $730,000. These assets had a remaining useful life of five years. Wong Corp. uses straight-line depreciation method. For 2010 Wong reported net income of $400,000 and paid cash dividends of $100,000. Instructions Assuming Halkirk is using private entity GAAP, A) Did the initial investment include a payment for goodwill? Provide support for your answer. (Pm, W56 {3’ I} e C3 gr"r6361, 30;“; 6% mill/Mei; @U I _ C 1.50% c w w ’. New-v as}; 2 Bare W76 Excesr {m lame 10mg 21 0/ am) 309. d} Ems; Pal/ewe, (30' Chaim? 7 p , 305/, (13‘36W " 5‘59- é‘i, Cruzfi ems/(g ACTG 3P33 October 13, 201 l Page 5 of 12 Pages B) At the end of 2010 what would appear on the income statement and balance sheet of Halkirk? Show supporting calculations. , / .7 LL?- S'W ‘4 (BOYDCz‘Wga :1 lZO/V/LJ “fir- LanSI/M/l" v 7r MU C/UJ + SW \- M IACB 6/) (LEGO/cw) ‘20; ._ 1 . c/b fizz/«395' PPILQV Cl 3/ .800) —~ 0031021121) C736), O'Ufli - n u u - -'——Lh C) Prov1de the entr(1es) to account for Halklrk's 1nvestment1n Wong on Dm. 7:3 igfiarcl ;, Enveflrmub C 4&4“ lb; (44.1 n a :hval‘W imam/H: [20%‘1/ C PFKQ InvasiM/V raga, r ._ p. ,/ 56' lW‘ifi‘x‘Wc J r 4‘ “::>—-——.h ' l 0 ’b [C (Cg D IIUL\OR\1J_€£«3 LQL( 1/1 L U 1): V1 V1? § Uri/b) Vb ACTG 3P33 October 13, 2011 Page 6 of 12 Pages Problem III (25 marks) 3. The following differences apply to the reconciliation of accounting income and taxable income of Rhodes Inc for the year ended December 31, 2012, its first year of operations. The enacted income tax rate is 30% for all years. Pretax accounting income $450,000 Excess CCA (240,000) Litigation accrual 35,000 Unearned rent revenue deferred on the books but correctly included in taxable income 25,000 Dividend income from Canadian corporations (10,000) Taxable income £260,000 1. Excess CCA will reverse equally over a four-year period, 2013—2016. 2. It is estimated that the litigation liability will be paid in 2016. 3. Unearned rent revenue will be recognized as earned equally over a four year period, 2013— 2016. Instructions 5": (a) Compute future taxablg‘and deductible amounts for the year: 2013 through 20.;6. ‘ .Tw “C. w I ./. fl Rh ) am 20 x 2,0- t - @W» v3; 13 / I Ly .Za .) 1:3 tc _ a? (0/ Mew-'2: équ me T’D ell—l '5: c w bald-Midi? D “(finalize ,_ ' , _ A (AJJ " W Z“) O mutt}: may “T D Page 7 of 12 Pages ACTG 3P33 October 13, 201] (b) Compute the balance of any future income tax asset and/or future income tax liability as of December 201 _ F17— }: ail/avg m m/ 2*, 3/ (c) Since this is the first year of operations, there is no beginning future income tax asset or / liability. Calculate the net future income tax expense (benefit). /. fl/ef ACTG 3P33 October 13, 20] 1 Page 8 of 12 Pages ((1) Prepare the adjusting journal entries to record income tax expense, future income taxes, and the income taxes payable for 2012. / C1 Cur/“24,6; {Lat/W3 / “(8/ U (NV)? 5:23 L44) CITE leaCJ/cpuX—BOJ/ Fitch/(f6 [G’UXQ t ' >5“ s _ F/7 7(Z/crbé F)7%L‘ 22/14) FTP/7M {Ritz/A (HT/1%. )g/ac/p S 01% ‘ I I {i i ‘ Wu ” 49 XL ‘ / (a W rm 0 (MM0 ‘e— +0 0% {3N9 bfllflvmrj l g;- lef 5‘43 aw ACTG 3P33 October 13, 201 1 Page 9 of 12 Pages Problem IV (25 marks) 4. Yoda Corp purchased equipment for $180,000 on January 2, 2011, its first day of operations. For book purposes, the equipment will be depreciated using the straight-line method over three years with no residual value. Pretax accounting income and taxable income are as follows: 201 1 2012 2013 Pretax accounting income $124,000 $140,000 $150,000 Taxable income 100,000 140,000 174,000 The reversible difference between pretax accounting income and taxable income is due to the use of CCA for tax purposes. Instructions (a) Prepare the adjusting journal entries to record income taxes for all three years (current expense, future tax assets and future tax liabilities), assuming that the enacted income tax rate for / 1’; ’1 F 20H CITE” go (4,6- Ci/Tf) got-v1.) f— all three years is 30%. h j“) ACTG 3P33 October 13, 20] l Page 10 of 12 Pages (b) Prepare the adjusting journal entries to record income taxes for all three years (expense, filture tax assets and future tax liabilities), assuming that the enacted income tax rate for 2011 is A 7 I,— 30% but that in the middle of 2012, Parliament raises the income tax rate to 35%, retroactive to i l ) Q the beginning of 2012. ,o‘ i ' __ A 257/ C led'fiU 3a, pry/V HTE my?“ F {Zn 371m To net/mg FlTL r“ «'7' L tam-JO F [To amp "r2520 *1“ ’26-‘73 w ACTG 3P33 October 13, 2011 Problem V (20 marks) 5. Orion Corp. reported the following accounting net income (net loss) numbers since its incorporation in 2006: Year 13%“ 2006 :05} “JOE: -- 513—021) +3463 3 212 K ifflie-L’D HQ 32"?) a a¢}5rv;22}5 Roe; og- +1016W33-ijl/cfwgml 300, c w - st :aemf'évgmz ZC'C-Lam/ -— [gaff/3f: IKSIICLB In addition to the CCA timing differences, Orion reported the following items in its accounting income: Accounting Net Income (Loss! $200,000 $300,000 $250,000 $225,000 ($900,000) $300,000 $200,000 Page 11 of 12 Pages $30,000 $25,000 $20,000 $15,000 $10,000 $ 5,000 $12,000 1. 2007 accounting income included a late filing fine of $3,000. 2. 2008 accounting income included unrealized holding gains on a short term investments of $2,500. That amount was reversed in 2009 when the investment was sold. Required: 1. Prepare the journal entries for 2010 assuming Orion Corp. 0 f7" m/g/ 735313310 (.2 22000 x 25‘ ‘4) + (“51,5150 X 3 22) t for 82> «:0 JaiBOD @iqo'WXZCJQ‘D é70'cv 61%8 3331023 CCA > Depreciation Tax Rate 40% 35% 32% 30% 30% 28% 28% 'es the losses back 3 years. / '3 2. Assuming that Orion corp. is sure that it will be profitable in future years, prepare the journal / r? entries for 2010 to record any loss to be carried forward. I : Moo 1 .4 1th”, 322:0 2:? FITCQ/ [5275210 V3 0», 51/ u A 2 2)", log-Ki a \,¢Ekfg‘%lglé (err (Em/‘me C Leaffldzkhrg, a L. jag “0490 PM 3 ACTG 3P33 October 13, 201 1 Page 12 of 12 Pages 3. Prepare the 2010 income statement’s income tax section beginning with the caption “income before income taxes”. _/|,‘r , + e [T 5 5‘4, we - / 2X7; 3&0 Lei; (st/{33m buch 956 I LchILO Age—pare the 2011 iii—come tax journal entries. / Xe ‘ 1063/5750 e I‘TE/ 231%0/ Ci'T/W \oo’ / ZEKIL'LC) ,.-3c.»cx?;2 '/' {mame QKH‘ / ‘9‘" 9‘ L“ 73“ U700 5. Prepare t e 011 income statement’s income tax section beginning with the caption “income before income taxes”. ,/ 1i. - ' Irma-Jud ‘Qfie%r€ lnCrA—C flgOOJJ/k/U "0 L026]: 540) i ht.ng (CZ/ng < c; ...
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This note was uploaded on 12/16/2011 for the course ACTG 3P33 taught by Professor N-a during the Fall '08 term at Brock University.

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ACTG 3P33.Test I.V1.Fall 2011 - BROCK UNIVERSITY TEST 1,...

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