Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Concept explainers
Textbook Question
Chapter 22, Problem 13P
Gray Company’s financial statements showed income before income taxes of $4,030,000 for the year ended December 31, 2020, and $3,330,000 for the year ended December 31, 2019. Additional information is as follows:
- Capital expenditures were $2,800,000 in 2020 and $4,000,000 in 2019. Included in the 2020 capital expenditures is equipment purchased for $1,000,000 on January 1, 2020, with no salvage value. Gray used straight-line depreciation based on a 10-year estimated life in its financial statements. As a result of additional information now available, it is estimated that this equipment should have only an 8-year life.
- Gray made an error in its financial statements that should be regarded as material. A payment of $180,000 was made in January 2020 and charged to expense in 2020 for insurance premiums applicable to policies commencing and expiring in 2019. No liability had been recorded for this item at December 31, 2019.
- The allowance for doubtful accounts reflected in Gray’s financial statements was $7,000 at December 31, 2020, and $97,000 at December 31, 2019. During 2020, $90,000 of uncollectible receivables were written off against the allowance for doubtful accounts. In 2019, the provision for doubtful accounts was based on a percentage of net sales. The 2020 provision has not yet been recorded. Net sales were $58,500,000 for the year ended December 31, 2020, and $49,230,000 for the year ended December 31, 2019. Based on the latest available facts, the 2020 provision for doubtful accounts is estimated to be 0.2% of net sales.
- A review of the estimated warranty liability at December 31, 2020, which is included in “other liabilities” in Gray’s financial statements, has disclosed that this estimated liability should be increased $170,000.
- Gray has two large blast furnaces that it uses in its manufacturing process. These furnaces must be periodically relined. Furnace A was relined in January 2014 at a cost of $230,000 and in January 2019 at a cost of $280,000. Furnace B was relined for the first time in January 2020 at a cost of $300,000. In Gray’s financial statements, these costs were expensed as incurred. Since a relining will last for 5 years, Gray’s management feels it would be preferable to capitalize and
depreciate the cost of the relining over the productive life of the relining. Gray has decided to nuke a change in accounting principle from expensing relining costs as incurred to capitalizing them and depreciating them over their productive life on a straight-line basis with a full year’s depreciation in the year of relining. This change meets the requirements for a change in accounting principle under GAAP.Required:
- 1. For the years ended December 31, 2020 and 2019, prepare a worksheet reconciling income before income taxes as given previously with income before income taxes as adjusted for the preceding additional information. Show supporting computations in good form. Ignore income taxes and
deferred tax considerations in your answer. The worksheet should have the following format: - 2. As of January 1, 2020, compute the retrospective adjustment of
retained earnings for the change in accounting principle from expensing to capitalizing relining costs. Ignore income taxes and deferred tax considerations in your answer.
- 1. For the years ended December 31, 2020 and 2019, prepare a worksheet reconciling income before income taxes as given previously with income before income taxes as adjusted for the preceding additional information. Show supporting computations in good form. Ignore income taxes and
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
At December 31, 2020, the following existed on the records of DRA Co.:
Fixed Assets: $86,000
Accumulated Depreciation: $39,700
Fixed assets purchased during the year cost $180,000. During the year ended September 30,2021, fixed assets with a written down value of $37,000 was sold for $49,000. The plant had original cost of $80,000. It is the company's policy to charge a full year's depreciation in the year of acquisition of an asset and none in the year of sale. DRA uses 10% rate on a straight-line basis.
What net amount (book value) should appear in the statement of financial position as of September 30, 2021 for fixed assets?
At December 31, 2020, the following existed on the records of BULGOGI Co.:
Fixed Assets: $86,000
Accumulated Depreciation: $39,700
Fixed assets purchased during the year cost $180,000. During the year ended September 30,2021, fixed assets with a written down value of $37,000 was sold for $49,000. The plant had original cost of $80,000. It is the company's policy to charge a full year's depreciation in the year of acquisition of an asset and none in the year of sale. DRA uses 10% rate on a straight-line basis.
What net amount (book value) should appear in the statement of financial position as of September 30, 2021 for fixed assets?
Maryland Company purchased equipment for 2,000,000 on January 1,2020 with a useful life of 5 years and a residual value of 500,000 using the straight-line method for financial statement purposes. Depreciation was P300,000 for 2020 and P200,000 for 2021 for tax purposes. Income before tax and depreciation was P3,000,000 during 2021 and the tax rate was 25%. During 2021 the entity made an estimated tax payment of 200,000.
What is the income tax payable on December 31,2021?
640,000
500,000
450,000
675,000
Chapter 22 Solutions
Intermediate Accounting: Reporting And Analysis
Ch. 22 - Prob. 1GICh. 22 - Prob. 2GICh. 22 - Prob. 3GICh. 22 - What steps are necessary to apply the...Ch. 22 - Prob. 5GICh. 22 - Prob. 6GICh. 22 - Prob. 7GICh. 22 - Prob. 8GICh. 22 - Define a change in estimate. What is the proper...Ch. 22 - Prob. 10GI
Ch. 22 - How is a change in depreciation method accounted...Ch. 22 - Describe a change in a reporting entity. How does...Ch. 22 - Prob. 13GICh. 22 - Prob. 14GICh. 22 - Prob. 15GICh. 22 - Prob. 16GICh. 22 - Prob. 17GICh. 22 - Prob. 18GICh. 22 - Prob. 19GICh. 22 - Prob. 20GICh. 22 - The cumulative effect of an accounting change...Ch. 22 - When a change in accounting principle is made...Ch. 22 - Prob. 3MCCh. 22 - A change in the expected service life of an asset...Ch. 22 - During 2019, White Company determined that...Ch. 22 - Generally, how should a change in accounting...Ch. 22 - On January 2, 2017, Garr Company acquired...Ch. 22 - A company has included in its consolidated...Ch. 22 - Shannon Corporation began operations on January 1,...Ch. 22 - Shannon Corporation began operations on January 1,...Ch. 22 - Prob. 1RECh. 22 - Heller Company began operations in 2019 and used...Ch. 22 - Refer to RE22-2. Assume the pretax cumulative...Ch. 22 - Refer to RE22-2. Assume Heller Company had sales...Ch. 22 - Bloom Company had beginning unadjusted retained...Ch. 22 - Suppose that Blake Companys total pretax...Ch. 22 - Bliss Company owns an asset with an estimated life...Ch. 22 - At the end of 2019, Framber Company received 8,000...Ch. 22 - At the end of 2019, Cortex Company failed to...Ch. 22 - At the end of 2019, Jayrad Company paid 6,000 for...Ch. 22 - At the end of 2019, Manny Company recorded its...Ch. 22 - Abrat Company failed to accrue an allowance for...Ch. 22 - The following are independent events: a. Changed...Ch. 22 - Prob. 2ECh. 22 - The following are independent events: a. A...Ch. 22 - Change in Inventory Cost Flow Assumption At the...Ch. 22 - Fava Company began operations in 2018 and used the...Ch. 22 - Berg Company began operations on January 1, 2019,...Ch. 22 - Prob. 7ECh. 22 - In 2020, Frost Company, which began operations in...Ch. 22 - Gundrum Company purchased equipment on January 1,...Ch. 22 - Prob. 10ECh. 22 - On January 1, 2014, Klinefelter Company purchased...Ch. 22 - The following are independent errors made by a...Ch. 22 - The following are independent errors made by a...Ch. 22 - Refer to the information in E22-13. Required:...Ch. 22 - The following are independent errors: a. In...Ch. 22 - Dudley Company failed to recognize the following...Ch. 22 - Prob. 1PCh. 22 - Prob. 2PCh. 22 - Koopman Company began operations on January 1,...Ch. 22 - Schmidt Company began operations on January 1,...Ch. 22 - Prob. 5PCh. 22 - Kraft Manufacturing Company manufactures two...Ch. 22 - Jackson Company has decided to issue common stock...Ch. 22 - At the beginning of 2020, Holden Companys...Ch. 22 - At the end of 2020, while auditing Sandlin...Ch. 22 - At the beginning of 2020, Tanham Company...Ch. 22 - A review of Anderson Corporations books indicates...Ch. 22 - Prob. 12PCh. 22 - Gray Companys financial statements showed income...Ch. 22 - Prob. 14PCh. 22 - There are three types of accounting changes:...Ch. 22 - Prob. 2CCh. 22 - Berkeley Company, a manufacturer of many different...Ch. 22 - When the FASB issues a new generally accepted...Ch. 22 - It is important in accounting theory to be able to...Ch. 22 - Prob. 6CCh. 22 - Prob. 7CCh. 22 - Prob. 8CCh. 22 - Prob. 9CCh. 22 - Sometimes a business entity may change its method...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Maryland Company purchased equipment for 2,000,000 on January 1,2020 with a useful life of 5 years and a residual value of 500,000 using the straight-line method for financial statement purposes. Depreciation was P300,000 for 2020 and P200,000 for 2021 for tax purposes. Income before tax and depreciation was P3,000,000 during 2021 and the tax rate was 25%. During 2021 the entity made an estimated tax payment of 200,000. 1. What is the income tax payable on December 31,2021? a. 640,000 b. 500,000 c. 450,000 d. 675,000 2. What would be the total amount of income tax expense that is reported in the 2021 income statement? a. 675,000 b. 500,00 c. 475,000 d. 640,000arrow_forwardMaryland Company purchased equipment for 2,000,000 on January 1,2020 with a useful life of 5 years and a residual value of 500,000 using the straight-line method for financial statement purposes. Depreciation was P300,000 for 2020 and P200,000 for 2021 for tax purposes. Income before tax and depreciation was P3,000,000 during 2021 and the tax rate was 25%. During 2021 the entity made an estimated tax payment of 200,000. What is the income tax payable on December 31,2021? 640,000 500,000 450,000 675,000 What would be the total amount of income tax expense that is reported in the 2021 income statement? 675,000 500,00 475,000 640,000arrow_forwardAt December 31, 2020, the following existed on the records of Chogiwa Co.: Fixed Assets: $860,000 Accumulated Depreciation: $397,000 During the year ended September 30,2021, fixed assets with a written down value of $37,000 was sold for $49,000. The pant had originally cost $80,000. Fixed assets purchased during the year cost $180,000. It is the company's policy to charge a full year's depreciation in the year of acquisition of an asset and none in the year of sale. Chogiwa uses 10% rate on a straight-line basis. What net amount (book value) should appear in the statement of financial position as of September 30, 2021 for fixed assets?arrow_forward
- On January 1, 2018, Ameen Company purchased major pieces of manufacturing equipment for a total of $36 million. Ameen uses straight-line depreciation for financial statement reporting and MACRS for income tax reporting. At December 31, 2020, the book value of the equipment was $30 million and its tax basis was $20 million. At December 31, 2021, the book value of the equipment was $28 million and its tax basis was $12 million. There were no other temporary differences and no permanent differences. Pretax accounting income for 2021 was $50 million. Required: 1. Prepare the appropriate journal entry to record Ameen's 2021 income taxes. Assume an income tax rate of 25%. 2. What is Ameen's 2021 net income?arrow_forwardComplete this question by entering your answers in the tabs below. Required 1 Required 2 What is Ameen's 2021 net income? (Enter your answers in millions rounded to 2 decimal place (i.e., 10,000,000 should be entered as 10.00).) Net income millionarrow_forwardFogg Corporation's comparative balance sheet at December 31, 2020 and 2019 reported accumulated depreciation balances of $1,245,000 and $900,000, respectively. Property with a cost of $75,000 and a carrying amount of $57,000 was the only property sold in 2020. Depreciation charged to operations in 2020 wasarrow_forward
- The December 31, 2020 and 2019 comparative financial statements of Park Dong Chun Company showed equipment with an original cost of P379,000 and P344,000 with accumulated depreciation of P153,000 and P128,000, respectively. During 2020, the company purchased an equipment costing P50,000 and sold equipment with carrying value of P9,000. What amount should the company report as depreciation expense for the year ended December 31, 2020? A. P19,000 B. P25,000 C. P31,000 D. P34,000arrow_forwardCiti Company purchased factory equipment on March 10, 2019. The company accountant revealed the following information regarding this asset: Purchase price – P1,600,000; Residual value – 100,000; Estimated useful life – 8 years.The equipment was sold on November 30, 2022, for P300,000. Required:a) What amount should Citi record as depreciation expense for the year ended December 31, 2019, using double-declining balance method, assuming the company had the policy of recording half-year depreciation in the year of acquisition?b) What was the gain or loss on the sale of the equipment in 2022, assuming that Citi used the straight-line method of depreciation and had the policy of computing depreciation to the nearest full month? with explanation and solutionarrow_forwardSouth Shore Petroleum holds huge reserves of oil assets. Assume that at the end of 2018,South Shore Petroleum cost of oil reserves totaled $56,000,000, representing 7,000,000 barrels of oil. Requirement 2.Suppose South Shore PetroleumS removed and sold 600,000 barrels of oil during 2019. Journalize depletion expense for 2019.arrow_forward
- In 2020, Geiger Co. sold equipment that had cost P294,000 for P176,400. This resulted in a gain of P12,900. The balance in Accumulated Depreciation—Equipment was P975,000 on January 1, 2020, and P930,000 on December 31, 2020. No other equipment was disposed of during 2020. Depreciation expense for 2020 wasarrow_forwardAt December 31, 2020, the following existed in the in the records of Mayor Company: Fixed assets P8,600,000 P3,970,000 Accumulated depreciation During the year ended September 30, 2021, fixed assets with a written down value of P370,000 was sold for P490,000. The plant had originally cost P800,000. Fixed assets purchased during the year cost P1,800,000. It is the company's policy to charge a full year's depreciation in the year of acquisition of an asset and none in the year of sale, using a rate of 10 % on the straight -line basis. What net amount (book value) should appear in the statement of financial position as of September 30, 2021 for fixed assets ?arrow_forwardThe December 31, 2021 and 2020 comparative financial statements of Galley Company showed equipment with an original cost pf P379,000 and P344,000 with accumulated depreciation of P153,000 and P128,000, respectively. During 2021, the company purchased equipment costing P50,000 and sold equipment with a book value of P9,000. What amount should the company report as depreciation expense for 2021?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Chapter 19 Accounting for Income Taxes Part 1; Author: Vicki Stewart;https://www.youtube.com/watch?v=FMjwcdZhLoE;License: Standard Youtube License