2022 Final Exam W22(2)
Marks Recommended
Available Maximum Time Grade
(minutes)
Chap 20 Lease 22 35
Chap 19 Pension 16 26
Chap 18 Income Tax 18 29
Chap 22 Cashflows (2 Parts) 32 60
88 150
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Long Ltd., a private corporation adhering to ASPE, enters into a non-cancellable lease agreement on July 1, 2020, to lease equipment from Fong Ltd. The following data are
elevant to the lease agreement:
1 The term of the lease is 4 years, with no renewal option. Payments of $ 126,807 are due on June 30 of each year, with the first payment due June 30, 2021.
2 The fair value of the equipment on July 1, 2020 is $ 420,000. The equipment has an economic life of 6 years with no residual value.
3 Long depreciates similar equipment it owns on a straight-line basis.
4 Long's incremental bo
owing rate is 10%. The lessee is aware that the lessor used an implicit rate of 8% in calculating the lease payments.
5 Present value factor for 4 periods at 8% is XXXXXXXXXX; at 10%, XXXXXXXXXX.
Instructions
a) What type of lease this is for Long? What is your rationale?
) Prepare the journal entries on Long's books that relate to the lease agreement for the following dates. Round all amounts to the nearest dollar. Include a partial amortization schedule.
i. Wednesday, July 01, 2020
ii. 31-Dec-20
iii. 30-Jun-21
iv. 31-Dec-21
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Long Ltd., a private corporation adhering to ASPE, enters into a non-cancellable lease agreement on July 1, 2020, to lease equipment from Fong Ltd. The following data are
elevant to the lease agreement:
The term of the lease is 4 years, with no renewal option. Payments of $ 126,807 are due on June 30 of each year, with the first payment due June 30, 2021.
The fair value of the equipment on July 1, 2020 is $ 420,000. The equipment has an economic life of 6 years with no residual value.
Long depreciates similar equipment it owns on a straight-line basis.
Long's incremental bo
owing rate is 10%. The lessee is aware that the lessor used an implicit rate of 8% in calculating the lease payments.
Present value factor for 4 periods at 8% is XXXXXXXXXX; at 10%, XXXXXXXXXX.
What type of lease this is for Long? What is your rationale?
Prepare the journal entries on Long's books that relate to the lease agreement for the following dates. Round all amounts to the nearest dollar. Include a partial
amortization schedule.
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On January 1, 2020, Prune Ltd. reported the following balances relating to their defined benefit pension plan:
Defined benefit obligation
Fair value of plan assets
Other data related to the pension plan for 2020 are:
Cu
ent service cost
Contributions to the plan
Benefits paid
Actual return on plan assets
Interest (discount) rate
Instructions
a) Calculate the defined benefit obligation at December 31, 2020.
) Calculate the fair value of plan assets at December 31, 2020.
c) Calculate pension expense for 2020.
d) Prepare the journal entries to record the pension expense and the contributions for 2020.
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$3,200,000
3,200,000
140,000
204,000
220,000
192,000
9%
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Ha
ow Corp. purchased equipment for $ 180,000 on January 2, 2020, its first day of operations. For book purposes, the equipment will be depreciated straight-line over three years with
no residual value. Pre-tax accounting incomes and taxable incomes are as follows:
XXXXXXXXXX
Pre-tax accounting income 124, XXXXXXXXXX,000
Taxable income 100, XXXXXXXXXX,000
The reversible difference between pre-tax accounting income and taxable income is due solely to the use of CCA for tax purposes.
Instructions
a) Prepare the adjusting journal entries to record income taxes for all three years (expense, defe
ed tax assets/liabilities, etc.), assuming that the enacted income tax rate for all three years is 30%.
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Ha
ow Corp. purchased equipment for $ 180,000 on January 2, 2020, its first day of operations. For book purposes, the equipment will be depreciated straight-line over three years with
no residual value. Pre-tax accounting incomes and taxable incomes are as follows:
2022
150,000
174,000
The reversible difference between pre-tax accounting income and taxable income is due solely to the use of CCA for tax purposes.
Prepare the adjusting journal entries to record income taxes for all three years (expense, defe
ed tax assets/liabilities, etc.), assuming that the enacted income tax rate for all three years
is 30%.
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Prepare the adjusting journal entries to record income taxes for all three years (expense, defe
ed tax assets/liabilities, etc.), assuming that the enacted income tax rate for all three years
is 30%.
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Part A - Indirect Method 22
The following information is taken from Green Lake Corporation's financial statements. Green Lake adheres to ASPE:
XXXXXXXXXXDecember 31
2020
Cash $92,000
Accounts receivable 95,000
Allowance for doubtful accounts -4,500
Inventory 145,000
Prepaid expenses 7,500
Land 93,000
Buildings 287,000
Accumulated depreciation -35,000
Patents, net of accumulated amortization 20,000
Total Assets $700,000
Accounts payable $90,000
Accrued liabilities 54,000
Bonds payable 125,000
Common shares 100,000
Retained earnings 346,000
Treasury shares, at cost -15,000
Total Liabilities & Shareholders’ Equity $700,000
For 2020 Yea
Net income $53,300
Depreciation expense 22,000
Amortization of patents 7,000
Cash dividends declared and paid 20,000
Gain or loss on disposal of patents none
Instructions
Prepare a statement of cash flows (indirect method) for Green Lake Corporation for calendar 2020.
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XXXXXXXXXXDecember 31
2019
$27,000
80,000
-3,100
175,000
6,800
60,000
244,000
-13,000
35,000
$611,700
$84,000
63,000
60,000
100,000
312,700
-8,000
$611,700
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Part B - Direct Method
Presented below is the latest income statement of Mandolin Ltd.:
Sales
Cost of goods sold
Gross profit
Operating expenses
Income before income taxes
Income taxes
Net income
In addition, the following information related to net changes in working capital is available:
Cash
Accounts receivable (net)
Inventories
Salaries payable (operating expenses)
Accounts payable
Income tax payable
Mandolin Ltd. also reports that depreciation expense for the year was $ 20,550 and that the
defe
ed tax liability account increased $ 3,900.
Instructions
Prepare a schedule calculating the net cash flow from operating activities that would be shown
on a statement of cash flows using the direct method.
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10 Marks
$570,000
337,500
$232,500
127,500
105,000
42,000
$63,000
Debit Credit
$18,000
12,000
$29,100
9,000
13,500
4,500
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