Johnson Company Case Study
w1. Johnson Co. prepared the following reconciliation of its pretax F/S income to taxable income for the year ended 12/31/94, its first year of operations: Pretax financial income 160,000 Nontaxable interest rcvd on municipal securities (5,000) LT loss accrual in excess of deductible amount 10,000 Depr. in excess of F/S amt (25,000) Taxable income 140,000 Johnson’s tax rate for 1994 is 40%
In it’s 12/31/94 B/S, what should Johnson report as deferred income tax liability?
C. 6,000
2.As a result of differences b/t depr. for financial reporting purposes and tax purposes, the financial reporting basis for Noor Co’s sole depreciable asset, …show more content…
acquired in ‘94, exceed its tax basis by $250K at 12/31/94. This difference will reverse in future years. The exacted tax rate is 30% for 1994, and 40% for future years. Noor has no other temporary differences. In it’s 12/31/94 B/S, how should it report the deferred tax effect on this difference?
D. As a liability of $100,000
3.On its 12/31/94 B/S, Shin Co. had income taxes payable of $13,0000 and a current deferred tax asset of $20,000 before determining the need for a valuation account. Shin has reported a current deferred tax asset of $15K at 12/31/93. No estimated tax payments were made during ‘94. As 12/31/94, Shin determined that it was more likely than not that 10% of that deferred tax asset would not be realized. In its ‘94 I/S, what amount should Shin report as total income tax expense?
C. $10,000
4. Thorn Co. applies Statement of Financial Acct. Stand. No. 109 accounting for Income taxes. At the end of ‘93, the tax effects of temporary differences were as follows: Def.
Tax Asset (Liab) Related Asset Classification
Acc. Tax Depr. (75,000) Noncurrent Asset
Addt’l Costs in inv. For tax purposes 25,000 Current Asset 50.000
A valuation allowance was not considered necessary. Thorn anticipates that 10K of the deferred tax liab will reverse in ’94. In Thorn’s 12/31/93 B/S, what amount should Thorn report as noncurrent deferred tax liability?
D. 75,000
5. On 1/1/89, Park Co. signed a 10-yr operating lease for office space at $96,000 per year. The lease included a provision for addt’l rent of 5% of ann. Company sales in excess of $500K. Park’s sales for the year ended 12/31/89 were 600K . Upon execution of the lease, Park paid $24,000 as a bonus for the lease. Park’s rent expense for the year ended 12/31/89 is:
C. 103,400
6. Wall Co. lease office premises to Fox Inc for a 5-yr term beginning 1/2/92. Under the terms of the operating lease, rent for the 1st year is 8000 and rent for years 2 thru 5 is 12,500 per annum. However, as a inducement to enter the lease, Wall granted Fox the first six months rent-free. In its 12/31/92 I/S, what amt should Wall report as rental income?
C. 10,800
8. On 12/31 1990, Day Co. leased a new machine from …show more content…
Parr: Lease term 6yrs Ann. Rent/pay at beg. Of year 50,000 Useful life 8 yrs Days incremental borrowing rate 15% Implicit rate in lease ( known by Day) 12% PV of an ANN of $1 in adv for 6 pds at 12 % 4.61 “ “ @ 15% 4.35
The lease is not renewable and the machine reverts to Parr at the termination of the lease.
The cost of the machine on Parr’s accounting records is 375K. At the beg of the term, Day should record a lease liab of:
B. 230,000
9. On 1/2/92, Nori mining co (lessee) entered into a 5-yr lease for drilling equipt. Nori accounted for the acquis. As a capital lease for 240K which includes 10,000 BPO. At the end of lease, Nori expects to exercise the BPO. Nori estimates that the equip fair value will be 20,000 at the end of its 8-yr life. Nori regularly uses straight-line depreciation on similar equipt. For the year ended 12/31/92, what amount should Nori recognize as depreciation expense of the leased asset?
D. 27,500
10. on 1/2/95, Marx as a lessee signed a 5 yr noncancelable equipt lease with ann pymts of 200K beginning 12/31/95. Marx treated this transaction as a capital lease. The five lease payments have a present value of 758K at 1/2/95 based on interest of 10%. What amount should Marx report as interest expense for the year-ended 12/31/95?
D.
75,800
In it’s 12/31/94 B/S, what should Johnson report as deferred income tax liability?
C. 6,000
2.As a result of differences b/t depr. for financial reporting purposes and tax purposes, the financial reporting basis for Noor Co’s sole depreciable asset, …show more content…
acquired in ‘94, exceed its tax basis by $250K at 12/31/94. This difference will reverse in future years. The exacted tax rate is 30% for 1994, and 40% for future years. Noor has no other temporary differences. In it’s 12/31/94 B/S, how should it report the deferred tax effect on this difference?
D. As a liability of $100,000
3.On its 12/31/94 B/S, Shin Co. had income taxes payable of $13,0000 and a current deferred tax asset of $20,000 before determining the need for a valuation account. Shin has reported a current deferred tax asset of $15K at 12/31/93. No estimated tax payments were made during ‘94. As 12/31/94, Shin determined that it was more likely than not that 10% of that deferred tax asset would not be realized. In its ‘94 I/S, what amount should Shin report as total income tax expense?
C. $10,000
4. Thorn Co. applies Statement of Financial Acct. Stand. No. 109 accounting for Income taxes. At the end of ‘93, the tax effects of temporary differences were as follows: Def.
Tax Asset (Liab) Related Asset Classification
Acc. Tax Depr. (75,000) Noncurrent Asset
Addt’l Costs in inv. For tax purposes 25,000 Current Asset 50.000
A valuation allowance was not considered necessary. Thorn anticipates that 10K of the deferred tax liab will reverse in ’94. In Thorn’s 12/31/93 B/S, what amount should Thorn report as noncurrent deferred tax liability?
D. 75,000
5. On 1/1/89, Park Co. signed a 10-yr operating lease for office space at $96,000 per year. The lease included a provision for addt’l rent of 5% of ann. Company sales in excess of $500K. Park’s sales for the year ended 12/31/89 were 600K . Upon execution of the lease, Park paid $24,000 as a bonus for the lease. Park’s rent expense for the year ended 12/31/89 is:
C. 103,400
6. Wall Co. lease office premises to Fox Inc for a 5-yr term beginning 1/2/92. Under the terms of the operating lease, rent for the 1st year is 8000 and rent for years 2 thru 5 is 12,500 per annum. However, as a inducement to enter the lease, Wall granted Fox the first six months rent-free. In its 12/31/92 I/S, what amt should Wall report as rental income?
C. 10,800
8. On 12/31 1990, Day Co. leased a new machine from …show more content…
Parr: Lease term 6yrs Ann. Rent/pay at beg. Of year 50,000 Useful life 8 yrs Days incremental borrowing rate 15% Implicit rate in lease ( known by Day) 12% PV of an ANN of $1 in adv for 6 pds at 12 % 4.61 “ “ @ 15% 4.35
The lease is not renewable and the machine reverts to Parr at the termination of the lease.
The cost of the machine on Parr’s accounting records is 375K. At the beg of the term, Day should record a lease liab of:
B. 230,000
9. On 1/2/92, Nori mining co (lessee) entered into a 5-yr lease for drilling equipt. Nori accounted for the acquis. As a capital lease for 240K which includes 10,000 BPO. At the end of lease, Nori expects to exercise the BPO. Nori estimates that the equip fair value will be 20,000 at the end of its 8-yr life. Nori regularly uses straight-line depreciation on similar equipt. For the year ended 12/31/92, what amount should Nori recognize as depreciation expense of the leased asset?
D. 27,500
10. on 1/2/95, Marx as a lessee signed a 5 yr noncancelable equipt lease with ann pymts of 200K beginning 12/31/95. Marx treated this transaction as a capital lease. The five lease payments have a present value of 758K at 1/2/95 based on interest of 10%. What amount should Marx report as interest expense for the year-ended 12/31/95?
D.
75,800