ACC 703 Chapter Notes - Chapter 7: Income Statement, Book Value, Retained Earnings
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30 Nov 2014
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Chapter 7a intercompany profits in depreciable assets. Sub purchased for ,500, but immediately sold to parent for ,800. Taxes paid were (40%). Useful life is 1. 5 years: parent records depreciation on december 31, year 1. Before- tax income is reduced. Tax expense reduced by : reduction of depreciation expense. Increases before- tax income by . Analysis and interpretation of financial statements. Balance sheet on the consolidated statement. Intercompany sale of a used depreciable asset. Accumulated depreciation on july 1, year 1 is ,500, and carrying amount is ,500: upon sale: cash. 3,500: consolidated working papers would gross- up equipment and accumulated depreciation by ,500 to match original cost to consolidated entity. This will be done for each year that equipment is not sold to outsiders. Intercompany profits on depreciable assets are realized as the assets are used over their useful lives. Comparison of realization of inventory and equipment profits over a two- .
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The following information has been reported by Laporte Inc. on its statements of financial position at December 31, 2016 and 2017, and on its statement of earnings for the year ended December 31, 2017. Amounts are in millions of dollars: |
Statements of Financial Position | ||||||||||
2017 | 2016 | |||||||||
Cash | $ | 114 | $ | 80 | ||||||
Accounts receivable | 46 | 36 | ||||||||
Merchandise inventory | 40 | 44 | ||||||||
Long-term investments | - | 30 | ||||||||
Property, plant, and equipment | 232 | 190 | ||||||||
Accumulated depreciation | (90 | ) | (108 | ) | ||||||
Total assets | $ | 342 | $ | 272 | ||||||
Accounts payable | $ | 36 | 62 | |||||||
Income taxes payable | 15 | 16 | ||||||||
Long-term borrowings | 92 | 32 | ||||||||
Contributed capital | 139 | 112 | ||||||||
Retained earnings | 60 | 50 | ||||||||
Total liabilities and shareholders’ equity | $ | 342 | $ | 272 | ||||||
Statement of Earnings | ||||||||||
Sales | $ | 176 | ||||||||
Cost of sales | (96 | ) | ||||||||
Gross profit | 80 | |||||||||
Depreciation expense | (22 | ) | ||||||||
Other operating expenses | (40.0 | ) | ||||||||
Earnings from operations | 18.0 | |||||||||
Gain on sale of investments | 18 | |||||||||
Loss on sale of equipment | (14 | ) | ||||||||
Earnings before income tax | 22.0 | |||||||||
Income tax expense | 8.8 | |||||||||
Net earnings | $ | 13.2 | ||||||||
|
Soto Industries Inc. is an athletic footware company that began operations on January 1, Year 1. The following transactions relate to debt investments acquired by Soto Industries Inc., which has a fiscal year ending on December 31:
Record these transactions on page 10
Year 1 | ||
---|---|---|
Apr. | 1. | Purchased $100,000 of Welch Co. 6%, 15-year bonds at their face amount plus accrued interest of $500. The bonds pay interest semiannually on March 1 and September 1. |
June | 1. | Purchased $210,000 of Bailey 4%, 10-year bonds at their face amount plus accrued interest of $700. The bonds pay interest semiannually on May 1 and November 1. |
Sept. | 1. | Received semiannual interest on the Welch Co. bonds. |
30. | Sold $40,000 of Welch Co. bonds at 97 plus accrued interest of $200. | |
Nov. | 1. | Received semiannual interest on the Bailey bonds. |
Dec. | 31 | Accrued $1,200 interest on the Welch Co. bonds. |
31 | Accrued $1,400 interest on the Bailey bonds. |
Record these transactions on page 11
Year 2 | ||
---|---|---|
Mar. | 1 | Received semiannual interest on the Welch Co. bonds. |
May | 1 | Received semiannual interest on the Bailey bonds. |
Required:
1. | Journalize the entries to record these transactions. Refer to the information given and the Chart of Accounts provided for the exact wording of the answer choices for text entries. |
2. | If the bond portfolio is classified as available for sale, what impact would this have on financial statement disclosure? |
X
Journal
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CHART OF ACCOUNTSSoto Industries Inc.General Ledger
ASSETS | |
110 | Cash |
111 | Petty Cash |
120 | Accounts Receivable |
121 | Allowance for Doubtful Accounts |
131 | Notes Receivable |
132 | Interest Receivable |
141 | Merchandise Inventory |
145 | Office Supplies |
146 | Store Supplies |
151 | Prepaid Insurance |
161 | Investments-Welch Co. Bonds |
162 | Investments-Bailey Bonds |
165 | Valuation Allowance for Trading Investments |
166 | Valuation Allowance for Available-for-Sale Investments |
181 | Land |
191 | Store Equipment |
192 | Accumulated Depreciation-Store Equipment |
193 | Office Equipment |
194 | Accumulated Depreciation-Office Equipment |
LIABILITIES | |
210 | Accounts Payable |
221 | Notes Payable |
231 | Interest Payable |
241 | Salaries Payable |
251 | Sales Tax Payable |
EQUITY | |
311 | Common Stock |
312 | Paid-In Capital in Excess of Par-Common Stock |
321 | Preferred Stock |
322 | Paid-In Capital in Excess of Par-Preferred Stock |
331 | Treasury Stock |
332 | Paid-In Capital from Sale of Treasury Stock |
340 | Retained Earnings |
350 | Unrealized Gain (Loss) on Available-for-Sale Investments |
351 | Cash Dividends |
352 | Stock Dividends |
390 | Income Summary |
REVENUE | |
410 | Sales |
611 | Interest Revenue |
612 | Dividend Revenue |
631 | Gain on Sale of Investments |
641 | Unrealized Gain on Trading Investments |
EXPENSES | |
511 | Cost of Merchandise Sold |
512 | Bad Debt Expense |
515 | Credit Card Expense |
516 | Cash Short and Over |
520 | Salaries Expense |
531 | Advertising Expense |
532 | Delivery Expense |
533 | Repairs Expense |
534 | Selling Expenses |
535 | Rent Expense |
536 | Insurance Expense |
537 | Office Supplies Expense |
538 | Store Supplies Expense |
561 | Depreciation Expense-Store Equipment |
562 | Depreciation Expense-Office Equipment |
590 | Miscellaneous Expense |
710 | Interest Expense |
731 | Loss on Sale of Investments |
741 | Unrealized Loss on Trading Investments |