ACCT 2050 Lecture Notes - Lecture 4: Suse Linux Distributions, Accrual, Long Term Ecological Research Network
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On January 1, 2013, NRC Credit Corporation leased equipment toBrand Services under a direct financing lease designed to earn NRCa 12% rate of return for providing long-term financing. The leaseagreement specified:
a. | Twelve annual payments of $64,000 (including executory costs)beginning January 1, 2013, the inception of the lease and eachDecember 31 thereafter through 2021. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
b. | The estimated useful life of the leased equipment is 12 yearswith no residual value. Its cost to NRC was $403,080. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
c. | The leasequalifies as a capital lease to Brand. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
d. | A 12-year service agreement with Quality Maintenance Company wasnegotiated to provide maintenance of the equipment as required.Payments of $5,900 per year are specified, beginning January 1,2013. NRC was to pay this executory cost as incurred, but leasepayments reflect this expenditure. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
A partial amortization schedule, appropriate for boththe lessee and lessor, follows
Assume the contract specified that NRC (the lessor) wasto pay, not only the $5,900 maintenance fees, but also insurance of$790 per year, and was to receive a $340 management fee forfacilitating service and paying executory costs. The lesseeâs leasepayments were increased to include an amount sufficient toreimburse executory costs plus NRCâs fee.
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Question 5(6 pts.) | |||||||||
5.1 (3 pts.) On December 31, 2013, Winston Inc.has determined that it is more likely than not that $240,000 of a$600,000 deferred tax asset will not be realized. The journal entryto record this reduction in asset value will include a A. debit to Income Tax Expense for $360,000. B. credit to Allowance to Reduce Deferred Tax Asset to ExpectedRealizable Value of $240,000. C. debit to Income Tax Payable of $240,000. D. credit to Income Tax Expense for $360,000. | |||||||||
5.2 (3 pts.) Based on the information aboveindicate the balance sheet presentation of therelevant accounts (not the ownersâ equity section): | |||||||||
Q6 (8 pts.) Hawkins Inc. had pre-tax accounting income of $1,800,000 and atax rate of 35% in 2013, its first year of operations. During 2013the company had the following transactions: Received rent from Barrett Co. for2014 $64,000 Municipal bondincome $80,000 Depreciation for tax purposes in excess of book depreciation$40,000 Installment sales revenue to be collected in2014 $108,000 Prepare the journal entry for taxes: | |||||||||
Q7 (3 pts.) Pringle Corporation reported$200,000 in revenues in its 2012 financial statements, of which$88,000 will not be included in the tax return until 2013. Theenacted tax rate is 40% for 2012 and 35% for 2013. What amountshould Pringle report for deferred income tax (asset or liability)in its balance sheet at December 31, 2012?
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