Accounting 3312
Chapters 17-19
Name:_________________________
Spring 2012
Problem 1.
During the course of your examination of the financial statements of Simpson Corporation for the year ended December 31, 2011 you found a new account, “investments.” Your examination revealed that during 2011, Simpson began a program of investments, and all investment-related transactions were entered in this account. Your analysis of this account for 2011 follows:
Date-2011
Simpson Corporation
Analysis of Investments
For the Year Ended December 31, 2011
Debit
(a)
Credit
Pinson Company Common Stock
Feb. 14 Purchased 1,000 shares @ $55 per share.
July 26 Received 100 shares of Pinson Company common
$55,000 stock as a stock dividend. (Memorandum entry in general ledger.)
Sept. 28 Sold the 100 shares of Pinson Company common stock received July 26 @ $70 per share.
Debit (b)
Watts Inc., Common Stock
Apr. 30 Purchased 5,000 shares © $40 per share.
Oct. 28 Received dividend of $1.20 per share.
$200,000
$7,000
Credit
$6,000
Additional information:
1. The fair value for each security as of the 2011 date of each transaction follow:
Security Feb. 14
Pinson Co. $55
Watts Inc.
Apr. 30
$40
July 26
$62
Sept. 28
$70
Dec. 31
$72
$32
Simpson Corp. $25 $28 $30 $33 $35
2. All of the investments of Simpson are nominal in respect to percentage of ownership (5% or less).
3. Each investment is considered by Simpson's management to be available-for-sale.
Instructions
(1) Prepare any necessary correcting journal entries related to investments (a) and (b).
(2) Prepare the entry, if necessary, to record the proper valuation of the available-for-sale equity security portfolio as of December 31, 2011.

#2
#1 Investment - Pinson
Cash
Cash
Investment – Pinson (55000/1100) X 100
Gain on sale of investment
Investment – Watts
Cash
Cash
Dividend Revenue
Unrealized Holding Gain/Loss – Equity
Fair Value Adjustment (afs)
7000
7000
6000
6000
18000
6000
6000
18000
7000
5000
2000

Problem 2.
Norway Company purchased equipment for $270,000 on January 2, 2009, its first day of operations. For book purposes, the equipment will be depreciated using the straight-line method over three years with no salvage value. Pretax financial income and taxable income are as follows:
The temporary difference between pretax financial income and taxable income is due to the use of accelerated depreciation for tax purposes.
Instructions
(a) Prepare the journal entries to record income taxes for all three years (expense, deferrals, and liabilities) assuming that the enacted tax rate applicable to all three years is 30%.
(b) Prepare the journal entries to record income taxes for all three years (expense, deferrals, and liabilities) assuming that the enacted tax rate as of 2009 is 30% but 35% for years 2010 and 2011.
Pretax financial income
Taxable income
2009
$156,000
$120,000
2010
$170,000
$170,000
2011
$180,000
$216,000

A yr1 Tax Expense
Deferred Income Tax Liability
Taxes Payable
Yr2 Tax Expense
Taxes Payable
Yr3 Tax Expense
Deferred Income Tax Liability
Taxes Payable
B yr1 Tax Expense
Deferred Income Tax Liability
Taxes Payable
Yr2 Tax Expense
Taxes Payable
Yr3 Tax Expense
Deferred Income Tax Liability
Taxes Payable 75600
64800
12600
36000
59500
10800
36000
51000
63000
12600
46800
51000
54000
10800
48600
59500

Problem 3.
The board of directors of Frye Construction Company is meeting to review the profit for the first year of operation (2011). You have been engaged to assist Frye's controller in the preparation of a presentation to be given at the board meeting. The controller provides you with the following information: 1. Frye commenced doing business on January 1, 2011. 2. Construction activities for the year ended December
31, 2011, were as follows:
Project
A
B
C
D
E
Contract Total
$520,000
690,000
475,000
200,000
475,000
$2,360,000
Billings
$350,000
210,000
Cash Collections
$310,000
210,000
475,000
90,000
395,000
60,000
400,000 400,000
$1,525,000 $1,375,000
Project Expenses Estimated Additional
Costs to Complete
A
B
C
D
E
$424,000
224,000
350,000
118,000
320,000
$1,436,000
$116,000
416,000
0
97,000
80,000
$709,000
3. Each contract is with a different customer.
4. Any work remaining to be done on the contracts is expected to be completed in 2012.
Instructions
(a) Prepare a schedule by project, computing the amount of income (or loss) before operating costs for the year ended December 31, 2011.
(b) Prepare the general journal entry(ies) to record revenue and gross profit on project B (second project) for 2011.
(c) Indicate the balances that would appear in the balance sheet at December 31, 2011 for the following accounts for Project D (fourth project). Accounts Receivable; Billings on Construction in Process; and
Construction in Process
Project A (424/540) Costs exceed contract price Loss 20,000
Project B (224/640) X (690-640) = 17,500
Project C (350/350) X (475-350) = 125,000
Project D (118/215) X (200-215) Costs exceed contract price Loss 15,000
Project E (320/400) X (475-400) = 60,000

C.
B. Construction Expense
Construction in Process
Construction Revenue
Accounts Receivable
Billings on Construction in Process
Construction in Process (118,000-15,000 loss)
224,000
17,500
30,000
90,000
103,000
241,500