Examination card № 25

on the discipline “Financial Accounting II”

for the 3rd year students

1. Determine steps in recording fair value in an acquisition.

2. Dixon Development began operations in December 2013. When lots for industrial development are sold, Dixon recognizes income for financial reporting purposes in the year of the sale. For some lots, Dixon recognizes income for tax purposes when collected. Income recognized for financial reporting purposes in 2013 for lots sold this way was $12 million, which will be collected over the next three years. Scheduled collections for 2014–2016 are as follows:

2014 4 million

2015 5 million

2016 3 million

= $12 million

Pretax accounting income for 2013 was $16 million. The enacted tax rate is 40%.

Required:

1. Assuming no differences between accounting income and taxable income other than those described above, prepare the journal entry to record income taxes in 2013.

2. Suppose a new tax law, revising the tax rate from 40% to 35%, beginning in 2015, is enacted in 2014, when pretax accounting income was $15 million. Prepare the appropriate journal entry to record income taxes in 2014.

3. Camden Biotechnology began operations in September 2013. The following selected transactions relate to liabilities of the company for September 2013 through March 2014. Camden’s fiscal year ends on December 31. Its financial statements are issued in April.

2013

1. On September 5, opened checking accounts at Second Commercial Bank and negotiated a short-term line of credit of up to $15,000,000 at the bank’s prime rate (10.5% at the time). The company will pay no commitment fees.

2. On October 1, borrowed $12 million cash from Second Commercial Bank under the line of credit and issued a five-month promissory note. Interest at the prime rate of 10% was payable at maturity. Management planned to issue 10-year bonds in February to repay the note.

3. Received $2,600 of refundable deposits in December for reusable containers used to transport and store chemical-based products.

4. For the September–December period, sales on account totaled $4,100,000. The state sales tax rate is 3% and the local sales tax rate is 3%. (This is a summary journal entry for the many individual sales transactions for the period.)

5. Recorded the adjusting entry for accrued interest.

2014

f. In February, issued $10 million of 10-year bonds at face value and paid the bank loan on the March 1 due date.

g. Half of the storage containers covered by refundable deposits were returned in March. The remaining containers are expected to be returned during the next six months.

Lecturer A. Kaldarova ______________________

Confirmed at the meeting of the department of "Socio-Economic Disciplines"

Minute №____ from ____ of 2015.

The dean of the faculty "International Educational Programs"

Ronald Voogdt _____________

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