Corporate Accounting (Coursework Sample)

Corporate Accounting Question#1 a. Three examples of differences with no deferred tax consequences Deferred tax occurs as a result of a difference in timing between when it is due to be paid and when the tax was accrued. For instance, it can indicate taxable transactions, including an installment sale which happened on a certain date but the taxes are not due until further notice. Some illustrations evidences the differences with no deferred tax consequences include interest acquired from investments in bonds offered by municipal and state governments, proceeds received from life insurance upon the demise of an insured executive , the cost of investment sustained to achieve tax-exempt income, as well as the premiums remitted for policies involving life insurance. b. In the event that there is a change in a tax rate or law, a deferred tax asset or liability should be amended to indicate the amount to be recovered or paid in the future. If a deferred tax liability is created with the aim of taxing the future taxable amount from 34 to 36 percent, then the liability associated with deferred tax will be increased to accommodate and indicate that the future taxable amount will be taxed at 36 percent rather than 34 percent. Thus, the rate of tax changes are automatically accounted for using the standard practice of (1) recalculating the anticipated balance in a deferred tax liability or asset every period, (2) drawing a comparison between that amount with any previously existing balance, and (3) changing the account as required to attain anticipated ending balance. The impact of the adjustments is captured in operating income in the year the amendment in the tax rate or law is adopted. c. Future deductible amounts simply imply that taxable income will be reduced in line with pretax corporate revenue in one or more future years. This can materialize when a corporate utilizes the cash approach involved in tax preparation. Here, the corporate reports an outflow on the current tax return, but accounts it for purposes of financial statement in the future For projected costs that are documented in income statements when sustained, but deducted on tax returns in the future when actually paid and incomes that are taxed when gained, but are documented on income statements in the future when truly received. These circumstances have positive tax effects that are acknowledged as deferred tax assets. Question#2 a. Cash received from customers is determined by adding sales to decrease or subtracting increase in accounts receivable. Besides, sales revenue refers to the income obtained the provision of services or from sales of goods. In corporate accounting, the terms “revenue” and “sales” often are and can be, employed interchangeably to imply the same thing. However, revenue does not necessarily mean cash received. Thus, to find out whether the sales revenue of $200,000, was received from customers or not can be determined by getting the difference between sales and increase in accounts receivable. b. Purchase of inventory is not considered as investing activities because it is recorded in a statement of cash flow under the operating activities that result from the activities a company employs to generate net income. For instance, operating cash flows comprise sources of cash from sales and cash used to pay for operating expenses including utilities and salaries, and cash utilized to procure inventory. Each cash flow in due course impacts one or more account’ balance in the balance sheet, and the cash flows associated with income-generating practices also are reflected in the income statement. c. The three broad classes of cash flow are the investing activities, financing activities, and operating activities. Investing activities are practices involving the sale or purchase of long-term investments, including equipment or property and other long-term assets such as fixtures, furniture, company vehicles and land. On the other hand, operating activities refer to cash activities that generate net income. Further, financing activities are transactions occurring in a company’s stockholders equity and long-term liability accounts, such as retained earnings payment of dividends and payable. Lastly, the need for this classification is to help businesses understand the activities that use cash flows and those that generate cash flows. Using these insights a company is able to come up with a balance sheet showing equal amount obtained from the sum of net cash flows from these three activities and cash balance. The company will use the information in the balance sheet to recognize the value of its operations, the value obtained from financing activities and the value generated from investments. Question#3 The solution of the amounts that Beldon should capitalize as the cost of the land and the new building are provided in table 1 and table 2 below Table 1 Capitalized cost of the land Capitalized cost of the land Item Amount ($) Demolition of old building Less: Sale of materials 2,000 Legal fees for title investigation 2,000 Land purchase price 60,000 Total cost of land 64,000 Table 2 Cost of new building Cost of new building Item Amount ($) Architect’s fees (for new building) 12,000 Construction costs 500,000 Interest on construction loan 5,000 Total cost of constructing new building 517,000 Note: The property taxes on land for period starting on 1st of March are valued at $ 3,000 and are recurring expenses meaning they are expensed off instead of being capitalized. Question#4 * A journal entry for acquiring firm with records of a business combination when dissolution happens No. General Journal Debit Credit 1 Land Inventory Customer relationships Buildings Goodwill Accounts payable Common stock Cash 990,000 600,000 800,000 2,000,000 690,000 80,000 40,000 4,000,000 2 Professional services expense Additional paid-in capital Cash 42,000 960,000 42,000 ...