Professional Documents
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Yates Co. began operations on January 2, 2014. It employs 15 people who work 8-hour
days. Each employee earns 10 paid vacation days annually. Vacation days may be taken
after January 10 of the year following the year in which they are earned. The average
hourly wage rate was $24.00 in 2014 and $25.50 in 2015. The average vacation days
used by each employee in 2015 was 9. Yates Co. accrues the cost of compensated
absences at rates of pay in effect when earned.
Prepare journal entries to record the transactions related to paid vacation days during 2014
and 2015.
Ans:
2014 Salaries and Wages Expense..................................................... 28,800 (1)
Salaries and Wages Payable.......................................... 28,800
(1) 15 × 8 × $24.00 = $2,880; $2,880 × 10 = $28,800.
2nd. Problem
Santana Corporation has 400,000 ordinary shares outstanding throughout 2016. In
addition, the corporation has 5,000, 20-year, 7% bonds issued at par in 2014. Each
$1,000 bond is convertible into 20 ordinary shares after 9/23/17. During the year 2016,
the corporation earned $600,000 after deducting all expenses. The tax rate was 30%.
Compute the proper earnings per share for 2016.
Ans.
Net income $600,000
Earnings per share: ————————— = ———— = $1.50
Outstanding shares 400,000
$600,000 + $245,000
($350,000 × .7 = $245,000); —————————— = $1.69
400,000 + 100,000
Therefore the bonds are antidilutive, and earnings per share outstanding of $1.50
should be reported.
Note that the convertible security is antidilutive:
3rd. Problem
Assume that the following data relative to Kane Company for 2016 is available:
Net Income $2,100,000
LEASING
Windom Co. as lessee records a capital lease of machinery on January 1, 2008. The seven
annual lease payments of $350,000 are made at the end of each year. The present value of the
lease payments at 10% is $1,704,000. Windom uses the effective-interest method of
amortization and sum-of-the-years'-digits depreciation (no residual value).
Ans.
(a) Annual Reduction
Date Payments 10% Interest Of Liability Lease
Liability
1/1/08 $1,704,000
12/31/08 $350,000 $170,400 $179,600 1,524,400
12/31/09 350,000 152,440 197,560 1,326,840
Interest Expense.........................................................................170,400
Lease Liability.............................................................................179,600
Cash............................................................................................ 350,000
REVENUE
Benson Construction specializes in the construction of commercial and industrial buildings. The
contractor is experienced in bidding long-term construction projects of this type, with the
typical project lasting fifteen to twenty-four months. The contractor uses the percentage-of-
completion method of revenue recognition since, given the characteristics of the contractor's
business and contracts, it is the most appropriate method. Progress toward completion is
measured on a cost to cost basis. Benson began work on a lump-sum contract at the beginning
of 2008. As bid, the statistics were as follows:
It should be noted that included in the above costs incurred to date were standard electrical
and mechanical materials stored on the job site, but not yet installed, costing $105,000. These
costs should not be considered in the costs incurred to date.
(a) Compute the percentage of completion on the contract at the end of 2008.
(b) Indicate the amount of gross profit that would be reported on this contract at the end of
2008.
(c) Make the journal entry to record the income (loss) for 2008 on Benson's books.
(d) Indicate the account(s) and the amount(s) that would be shown on the balance sheet of
Benson Construction at the end of 2008 related to its construction accounts. Also indicate
where these items would be classified on the balance sheet. Billings collected during the
year amounted to $1,980,000.
(e) Assume the latest forecast on total costs at the end of 2008 was $4,050,000. How much
income (loss) would Benson report for the year 2008?
Ans.
(a) Costs to date $1,755,000
Less materials on job site (105,000)
$1,650,000
$1,650,000
————— = 55%
$3,000,000
Current Liability
Billings in excess of contract costs and recognized profit $30,000
($2,230,000 – $2,200,000)