ASSIGNMENT 04 A06 Intermediate Accounting II Part A (40 points) Colorado Company has provided you the following information.


A06 Intermediate Accounting II

Part A (40 points)

Colorado Company has provided you the following information.

YearTaxable incomeIncome tax rate





Colorado Company has decided to use the loss carryback and carryforward provision as a result of the year 2017 loss. The enacted tax rate remains at 40% after year 2017. Colorado Company has determined that a valuation allowance is not necessary.

Prepare the journal entry on December 31, 2017 to record the carryback and carryforward decision.

Part B (30 points)

The Matrix Company began operations as of the beginning of 2015. During 2015, Matrix reported GAAP (book) income before taxes of $789,500. For income tax purposes, depreciation expense was $150,000; for GAAP (book) purposes, depreciation expense was $74,000. Matrix accrued $900,000 of revenue for GAAP (book) purposes during 2015; $600,000 of the accrued revenue was taxable during 2015. Matrix earned interest of $79,800 from a municipal bond investment during 2015. Matrix’s marginal income tax rate is 40%. Matrix did not make any income tax payments during 2015.

a.Determine Matrix’s taxable income for the year ended December 31, 2015.

b.Prepare the 2015 year-end journal entry to record income tax expense.

Part C (30 points)

a.For each of the items below, determine whether the items are temporary differences or permanent differences. Also, for each temporary difference, you are required to determine whether a deferred tax asset or deferred tax liability is created by the temporary difference described. Assume that each of the temporary differences described is an originating difference.

1.Municipal bond interest

2.Accrued warranty expense

3.Sales revenues received in advance

4.Prepaid insurance where the tax deduction in future years will be less than the book expense

5.Tax depreciation expense exceeds GAAP (book) depreciation expense

6.Accrued bad debt expense

7.The dividends received deduction

8.Installment sales revenue (recognized currently for GAAP, recognized for tax purposes when cash is collected in future years)

9.Life insurance payments for executives for which the company is the beneficiary

10.Fines paid for law violations

b.Explain why temporary differences result in deferred tax assets or deferred tax liabilities while permanent differences do not, and describe the difference in the formation of deferred tax assets and deferred tax liabilities.



A06 Intermediate Accounting II

Part A (30 points)

Cannon Company has the following information for the year ending December 31, 2015.

•Long-term debt of $18,000 was issued for cash.

•Cash paid for labor during 2015 amounted to $489,500.

•During the year, Cannon experienced a pension outflow of $14,000.

•Dividends of $34,000 were received.

•Cannon’s cash balance at the beginning of 2015 was $975,000; at the end of 2015 the cash balance was $839,500.

•The company made an investment of $310,000 in an affiliate company.

•A lease payment of $110,000 was made on November 1, 2015. There is no asset recorded in connection with the lease.

•During the year, Cannon collected $780,000 cash from customers.

•Cash paid for income taxes amounted to $56,000 for all of 2015.

•During 2015, Cannon discontinued its consumer electronics division. The business was sold resulting in a $12,000 net cash inflow.

1.Prepare Cannon Company’s statement of cash flows for the year ending December 31, 2015 using the indirect method.

2.Explain how the indirect statement of cash flows that you prepared would differ under IFRS rules. Assume this is a nonfinancial entity.

Part B (30 points)

The following Income Statement and Operating Cash Flow information pertain to Receivership Inc.’s operations for the year ended December 31, 2014. Prepare the net cash flow from operating activities section of the cash flow statement using the direct method.

Income statement for the year ended December 31, 2014



Rent expenses152

Wages expenses136

Insurance expenses53

Other SG&A (includes depreciation expenses)198

Interest expenses30

Gain on sale of asset(5)


Income before tax177


Net income115

Cash flow provided by operating activities (indirect method), for the year ended December 31, 2014

Net income115


Gain on sale of asset(5)


Increases/decreases in A/R26


Prepaid rent13


Wages payable(20)

Tax payable5

Interest payable(2)

Advances from customers(3)

Other accrued SG&A5


Net cash provided by operating activities159

Part C (40 points)

The following information and financial statements excerpts pertain to Liquidity Inc.

a.All short term investments (securities available for sale) were purchased on 12/31/14 and sold during 2015.

b.The company entered a lease agreement on 12/31/15.

c.Fixed assets with a net book value of $15 were sold during the year.

d.The company repaid the current portion of long-term debt during the year.

e.Dividend was declared and partially paid.




Short term investments950

Accounts receivable4585


Prepaid general expenses1115

Fixed assets under capital lease, net050

Fixed assets, net165228


Liabilities and stockowners’ equity

Accounts payable3848

Wages payable126

Tax payable35

Dividend payable04

Current portion of long term debt1012

Obligations under capital leases050

Long term debt183180

Common stock150163

Retained earnings2630



Revenues, net426

Cost of goods sold310

Gross margin116

General expenses30

Wages expenses42

Depreciation expense24

Interest expense11

Loss on sale of fixed assets3

Gain on sale of securities available for sale–12

Tax expenses8


Net income10

1.Prepare the statement of cash flows for the year 2015 using the direct method.

2.Reconcile net income and net cash flows from operating activities for the year 2015.



A04 Intermediate Accounting I

Part A (30 points)

The Bravo Company manufactures a single product. On December 31, 2012 Bravo adopted the dollar-value LIFO inventory method. The inventory on that date using the dollar-value LIFO inventory method was determined to be $500,000. Inventory data for succeeding years are as follows:

Year Ended December 31Inventory at Respective Year-end PricesRelevant Price Index (Base Year 2012)





Compute the inventory amount at December 31, 2013, 2014, and 2015 using the dollar-value LIFO inventory method for each year. (Round all amounts to the nearest dollar, 10 points each)

Part B (40 points)

Information from Hope Company’s records for the year ended December 31, 2015 is available as follows:

Net sales$2,800,000

Cost of goods manufactured:



Operating expenses:



Units manufactured70,000

Units sold60,000

Finished goods inventory, 1/1/2015$0

Hope had no work-in-process inventories at either the beginning or end of 2015.

a.What would be Hope’s finished goods inventory cost under the variable (direct) costing method at December 31, 2015? (20 points)

b.What would Hope’s operating income be under the absorption costing method? (20 points)

Part C (30 points, 10 each)

Tool City, Inc. had 300 cordless screwdrivers on hand at January 1, 2015 costing $45 each. Purchases and sales of cordless screwdrivers during the month of January were as follows:


January 9200 @ $75

January 14100 @ $47

January 2375 @ $76

January 25100 @ $48

January 3075 @ $77

Tool City does not maintain perpetual inventory records. According to a physical count, 150 cordless screwdrivers were on hand at January 31, 2015.

a.What is the cost of the inventory at January 31, 2015 under the FIFO method?

b.What is the cost of the inventory at January 31, 2015 under the LIFO method?

c.What is the cost of the inventory at January 31, 2015 under the FIFO method if only 145 cordless screwdrivers were on hand at the time of the physical count?


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