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Kaplan University AC 501 Unit 6
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om E16-1 (Compensated Absences) Zero Mostel
Company began operations on January 2, 2008. It
employs 9 individuals who work 8-hour days and
are paid hourly. Each employee earns 10 paid
vacation days and 6 paid sick days annually.
Vacation days may be taken after January 15 of
the year following the year in which they are
earned. Sick days may be taken as soon as they
are earned unused sick days accumulate.
Additional information is as follows. E16-12
(Basic Pension Worksheet) The following
defined-benefit pension data of Doreen Corp.
apply to the year 2008.
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Projected benefits obligation, January 1,
2008 (before amendment) 560,000 Plan assets,
January 1, 2008 546,200 Pension liability
13,800 On January 1, 2008Doreen Corp., through
plan amendment, grants prior service benefits
having a present value of 100,000 Settlement
rate 9 Annual pension service cost 58.000 Contrib
utions (funding) 55.000 Actual return on plan
assets
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52,280 Benefits paid to retirees 40.000 Prior
service cost amortization for 2008 17.000 Instruct
ions For 2008, prepare a pension worksheet for
Doreen Corp. that shows the journal entry for
pension expense and the year-end balance in the
related pension accounts. E17-2 (Lessee
Computations and Entries Capital Lease with
Guaranteed Residual Value) Delaney Company leases
an automobile with fair value of 8,725 from
John Simon Motors, Inc., on the following
terms. Noncancelable term of 50, months. Rental
of 200 per month (at end of each month present
value at 1 per month is 7,840). Estimated
residual value after 50 months is 1,180. (The
present value at 1 per month is 715.) Delaney
Company guarantees the residual value of 1,180.
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Estimated economic life of the automobile is
60 months.
Delaney Company's incremental borrowing rate is
12 a year (1 a month). Simon's implicit rate
is unknown.
Instructions What is the nature of this lease to
Delaney Company? What is the present value of the
minimum lease payments? Record the lease on
Delaney Company's books at the date of
inception. Record the first month's depreciation
on Delaney Company's books. (Assume
straight-line.) Record the first month's lease
payment. E17-8 (Amortization Schedule and
Journal Entries for Lessee) Laura Leasing Company
signs an agreement on January 1, 2008, to lease
equipment to Plote Company. The following
information relates to this agreement.
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The term of the Noncancelable lease is 5 years
with no renewal option. The equipment has an
estimated economic life of 5 years. The fair
value of the asset at January 1, 2008, is
80,000. The asset will revert to the lessor at
the end of the lease term, at which time the
asset is expected to have a residual value of
7,000, none of which is guaranteed. Plote Company
assumes direct responsibility for all executor
costs, which include the following annual
amounts (1) 900 to Rocky Mountain Insurance
Company for insurance, and (2) 1,600 to Laclede
County for property taxes. The agreement requires
equal annual rental payments of 18,142.95 to
the lessor, beginning on January 1, 2008. The
lessee's incremental borrowing rate is 12. The
lessor's implicit rate is 10 and is known to the
lessee. Plote Company uses the straight-line
depreciation method for all equipment. Plote uses
reversing entries when appropriate.
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Instructions (Round all numbers to the
nearest cent.) Prepare an amortization schedule
that would be suitable for the lessee for the
lease term. Prepare all of the journal entries
for the lessee for 2008 and 2009 to record the
lease agreement, the lease payments, and all
expenses related this lease. Assume the lessee's
annual accounting period ends on December 31.
E18-11 (Change in Estimate - Depreciation) Peter
M. Dell Co. purchased equipment for 510,000
which was estimated to have a useful life of 10
years with a salvage value of 10,000 at the end
of that time. Depreciation has been entered for 7
years on a straight-line basis. In 2008, it is
determined that the total estimated life should
be 15 years with a salvage value of 5,000 at
the end of that time.
Instructions Prepare the entry (if any) to
correct the prior years' depreciation.
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Prepare the entry to record depreciation for
2008. E18-23 (EPS with Convertible Bonds and
Preferred Stock) On January 1, 2008, Crocker
Company issued 10-year, 2,000,000 face
value, 6 bonds, at par. Each 1,000 bond is
convertible into 15 shares of Crocker common
stock. Crocker's net income in 2008 was
300,000, and its tax rate was 40. The company
had 100,000 shares of common stock outstanding
throughout 2008. None of the bonds were converted
in 2008.
Instructions Compute diluted earnings per share
for 2008. Compute diluted earnings per share for
2008, assuming the same facts as above, except
that 1,000,000 of 6 convertible preferred
stock was issued instead of the bonds. Each 100
preferred shares are convertible into 5 shares of
Crocker's common stock.