2024 – Exercise 12 7 Sheryl Crow Equipment Company sold 500 Rollomatics during 2008 at 6 000

Exercise 12-7 
 
Sheryl Crow Equipment Company sold 500 Rollomatics during 2008 at $6,000 each. 
During 2008, Crow spent $20,000 servicing the 2-year warranties that accompany the Rollomatic. 
All applicable transactions are on a cash basis. 
 
a.) Prepare 2008 entries for Crow using the expense warranty approach 
b.) Prepare 2008 entries for Crow assuming that the warranties are not an integral part of the sale.
Assume that of the sales total, $150,000 relates to sales of warranty contracts.
Crow estimates the total cost of servicing the warranties will be over $120,000 for 2 years.
Estimate revenues earned on the basis of costs incurred and estimated costs.

Exercise 12-18 
 
Celine Dion Company issued $600,000 of 10%, 20-year bonds on January 1, 2009, at 102. 
Interest is payable semiannually on July 1 and January 1. 
Dion Company uses the effective interest method of amortization for bond premium or discount. 
Assume an effective yield of 9.75% 
 
Prepare the journal entries to record the following (round to the nearest dollar). 
a.) The issuance of the bonds
b.) The payment of interest and related amortization on July 1, 2009.

Exercise 13-8                   
                   
Otis Thorpe Corporation has 10,000 shares of $100 par value, 8%, preferred stock and 50,000 shares of $10 par value common stock outstanding at December 31, 2008.                    
Answer the questions in each of the following independent situations.                           
a.) If the preferred stock is cumulative and dividends were last paid on the preferred stock on December 31, 2005, what are the dividends in arrears that should be reported on the Dec. 31, 2008 balance sheet?             
b.) If the preferred stock is convertible into seven shares of $10 par value common stock and 4,000 shares are converted, what entry is required for the conversion assuming the preferred stock was  issued at par value?            
c.) If the preferred stock was issued at $107 per share, how should the preferred stock be reported in the stockholders’ equity section?                   
Exercise 15-6 
 
Listed below are items that are commonly accounted for differently for financial accounting purposes than they are for tax purposes. 
 
For each item below, indicate whether it involves: 
 
1. A temporary difference that will result in future deductible amounts and, therefore, will usually give rise to a deferred income tax asset. 
2. A temporary difference that will result in future taxable amounts and, therefore, will usually give rise to a deferred income tax liability. 
3. A permanent difference. 

The MACRS depreciation system is used for tax purposes, and the straight-line depreciation method is used for financial reporting purposes for some plant assets.
A landlord collects some rents in advance. Rents received are taxable in the period in which they’re received.
Expenses are incurred in obtaining tax-exempt income.
Costs of guarantees and warranties are estimated and accrued for financial reporting purposes.
Installment sales of investments are accounted for by the acrual method for financial reporting purposes and the installment method for tax purposes.
For some assets, staight-line depreciation is used for both financial reporting purposes and tax purposes but the assets’ lives are shorter for tax purposes.
Interest is received on an investment in tax-exempt municipal obligations.
Proceeds are received from a life insurance company because of the death of a key officer. (The company carries a policy on key officers.)
The tax return reports a deduction for 80% of the dividends received from U.S. Corporations. The cost method is used in accounting for the related investments for financial reporting purposes.
Estimated losses on pending lawsuits and claims are accrued for books. These losses are tax deductible in the period(s) when the related liabilities are settled.
Expenses on stock options are accrued from financial reporting purposes.

Exercise 15-22 
 
The differences between the book basis and the tax basis of the assets and liabilities of Castle Corporation at the end of 2008 are presented below. 
 
 
Accounts Receivable 
Litigation Liability 
 
It is estimated that the litigation liability will be settled in 2009. 
The difference in accounts receivable will result in taxable amounts of $30,000 in 2009 and $20,000 in 2010. 
The company has taxable income of $350,000 in 2008 and is expected to have taxable income in each of the following 2 years. 
Its enacted tax rate is 34% for all years. 
This is the company’s first year of operations. 
The operating cycle of the business is 2 years. 
 
a.) Prepare the journal entry to record income tax expense, deferred income taxes, and income tax payable for 2008. 
b.) Indicate how deferred income taxes will be reported on the balance sheet at the end of 2008.