AC 501 Unit 6 Homework Assignment

AC 501 Unit 6 Homework Assignment
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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.
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
Contributions (funding)
55,000
Actual return on plan assets
52,280
Benefits paid to retirees
40,000
Prior service cost amortization for 2008
17,000
Instructions: 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.
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.

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.
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

elated 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.
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.