2023 Exercise 22 1 Pam Erickson Construction Company changed from the completed contract to the percentage of completion method | Assignments Online

2023 Exercise 22 1 Pam Erickson Construction Company changed from the completed contract to the percentage of completion method | Assignments Online

Assignments Online 2023 Business Finance

Exercise 22-1

Pam Erickson Construction Company changed from the completed-contract to the percentage-of-completion method of accounting for long-term construction contracts during 2015. For tax purposes, the company employs the completed-contract method and will continue this approach in the future. (Hint: Adjust all tax consequences through the Deferred Tax Liability account.) The appropriate information related to this change is as follows.

   
Pretax Income from:
   
Percentage-of-Completion
 
Completed-Contract
 
Difference
2014   $780,000   $590,000   $190,000
2015   700,000   480,000   220,000

(a) Assuming that the tax rate is 35%, what is the amount of net income that would be reported in 2015?

Net income   $

 
$

 
 
 
$

 
$

 
 
 
$

 
$

 
 
 
$

 
$

:

 
 
$

:

 
 
$

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$

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Warning

 

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Exercise 22-6

Kathleen Cole Inc. acquired the following assets in January of 2012.

Equipment, estimated service life, 5 years; salvage value, $15,000   $525,000
Building, estimated service life, 30 years; no salvage value   $693,000

The equipment has been depreciated using the sum-of-the-years’-digits method for the first 3 years for financial reporting purposes. In 2015, the company decided to change the method of computing depreciation to the straight-line method for the equipment, but no change was made in the estimated service life or salvage value. It was also decided to change the total estimated service life of the building from 30 years to 40 years, with no change in the estimated salvage value. The building is depreciated on the straight-line method.

(a)   Prepare the general journal entry to record depreciation expense for the equipment in 2015.
(b)   Prepare the journal entry to record depreciation expense for the building in 2015.

(Round answers to 0 decimal places, e.g. 125. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

No.
Account Titles and Explanation
Debit
Credit
(a)
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(b)
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Warning

 

[removed] Don’t show me this message again for the assignment

  

  

 

Exercise 22-9

Joy Cunningham Co. purchased a machine on January 1, 2012, for $550,000. At that time, it was estimated that the machine would have a 10-year life and no salvage value. On December 31, 2015, the firm’s accountant found that the entry for depreciation expense had been omitted in 2013. In addition, management has informed the accountant that the company plans to switch to straight-line depreciation, starting with the year 2015. At present, the company uses the sum-of-the-years’-digits method for depreciating equipment.

Prepare the general journal entries that should be made at December 31, 2015, to record these events. (Ignore tax effects.) (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

Date
Account Titles and Explanation
Debit
Credit
Dec. 31, 2015
[removed]
[removed]
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[removed]
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(To correct for the omission of depreciation expense in 2013.)
   
Dec. 31, 2015
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(To record depreciation expense for 2015.)
   

Exercise 22-14

Below is the net income of Anita Ferreri Instrument Co., a private corporation, computed under the three inventory methods using a periodic system.

   
FIFO
 
Average Cost
 
LIFO
2012   $26,000   $24,000   $20,000
2013   30,000   25,000   21,000
2014   28,000   27,000   24,000
2015   34,000   30,000   26,000

(Ignore tax considerations.)

(a) Assume that in 2015 Ferreri decided to change from the FIFO method to the average-cost method of pricing inventories. Prepare the journal entry necessary for the change that took place during 2015, and show net income reported for 2012, 2013, 2014, and 2015. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

Account Titles and Explanation
Debit
Credit
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2015
 
2014
 
2013
 
2012
Net income   $

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  $

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  $

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  $

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(b) Assume that in 2015 Ferreri, which had been using the LIFO method since incorporation in 2012, changed to the FIFO method of pricing inventories. Prepare the journal entry necessary to record the change in 2015 and show net income reported for 2012, 2013, 2014, and 2015. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

Account Titles and Explanation
Debit
Credit
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2015
 
2014
 
2013
 
2012
Net income   $

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  $

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  $

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  $

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Warning

 

[removed] Don’t show me this message again for the assignment

  

  

 

Exercise 22-17

The reported net incomes for the first 2 years of Sandra Gustafson Products, Inc., were as follows: 2014, $147,000; 2015, $185,000. Early in 2016, the following errors were discovered.

1.   Depreciation of equipment for 2014 was overstated $17,000.
2.   Depreciation of equipment for 2015 was understated $38,500.
3.   December 31, 2014, inventory was understated $50,000.
4.   December 31, 2015, inventory was overstated $16,200.

Prepare the correcting entry necessary when these errors are discovered. Assume that the books are closed. (Ignore income tax considerations.) (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

Account Titles and Explanation
Debit
Credit
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