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Exam 3_F2020 Instruction: There are 4 open response questions to follow related to chapter 19 and 23. These are all brand new questions made by me on Dec 14th so don’t bother with anything but your notes and brains. Good luck! You have until 6pm on Dec 15th to complete the exam. There is a drop box on mycourses please upload it there. If you complete after 7pm, the drop box will be closed. Name_____________ Score_____________ Question 1: 40 points The balance sheets for Air Jordan Company is shown below. Additional information concerning transactions and events during 2040 are presented below. Air Jordan Company Balance Sheet December31 20402039 Cash $ 42,350 $ 10,200 Accounts receivable (net) 43,300 20,300 Inventory 52,700 42,000 Long-term investments 0 15,000 Property, plant & equipment 236,500 150,000 Accumulated depreciation (37,700) (25,000) $337,150 $212,500 Accounts payable $ 13,250 $ 26,500 Accrued liabilities 28,900 17,000 Line of Credit 25,0000 Long-term notes payable 70,000 50,000 Common stock 130,000 90,000 Retained earnings 70,000 29,000 $308,000 $212,500 ADDITional data: 1. Net income for the year 2040, $71,000. 2. Depreciation on plant assets for the year, $12,700. 3. Sold the long-term investments for $50,000 (assume gain or loss is ordinary). 4. Paid dividends of $30,000. 5. Purchased machinery costing $26,500, paid cash. 6. Purchased machinery and gave a $60,000 long-term note payable. Instructions Fill in the blanks to complete the Statement of Cash Flows: Air Jordan Company Statement of Cash Flows For the Year Ended December 31, 2040 Increase (Decrease) in Cash CASH Flows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities: $__________ __________________________________ $__________ __________________________________ __________ __________________________________ __________ __________________________________ __________ __________________________________ __________ __________________________________ __________ __________ Net cash provided (used) by operating activities Cash flows from investing activities __________ ___________________________________ __________ ___________________________________ __________ Net cash provided (used) by investing activities Cash flows from financing activities __________ ___________________________________ __________ ___________________________________ __________ ___________________________________ __________ Net cash provided (used) by financing activities __________ Net increase (decrease) in cash $ Cash, January 1, 2040$ Cash, December 31, 2040 Noncash investing and financing activities ___________________________________ $__________ Question 2: 10 points The FOLLowing is a question related to the difference between GAAP and Tax. Evaluate each item separately. For each item, whether the item will result in a temporary or permanent difference, if you believe it is a temporary difference, indicate if it will create a deferred tax asset or liability. 1. Expenses incurred in obtaining tax-exempt revenue. _________________________ 2. Installment sales. _________________________ 3. Excess tax depreciation over accounting depreciation. _______________________ 4. Investments accounted for by the equity method (ignore dividends received deduction). _________________________ 5. Advance rental receipts. _________________________ 6. Fine for polluting. _________________________ 7. Long-term construction contracts. _________________________ 8. Premiums paid on life insurance of officers (company is the beneficiary). _________________________ 9. Excess of contributions over pension expense. _________________________ 10. Estimated future warranty costs. _________________________ Question 3: 40 points Peanut Butter Jelly Time, Inc. IDENtified the following book-to-tax differences for the current year (3004): Pretax financial income $ 520,000 Life Insurance Premiums 10,000 Tax Exempt Interest 4,500 Estimated Warranty Liability 50,000 Extra depreciation taken for tax purposes 900,000 Estimated litigation loss 1,100,000 Taxable income $?? The estimated Warranty Liability is expected to be settled evenly over the next 2 years. Depreciation related to a new piece of Machinery purchased for $1,200,000. For tax purposes the company was able to write-off the entire cost. For book purposes the company will use the straight-line method with a useful life of 4 years (no salvage value). The estimated litigation loss relates to an unfavorable lawsuit – which the company expects to be settled and paid by 3007. Instructions (a) Prepare a schedule of future taxable and deductible amounts (not if an item doesn’t belong on the schedule put a “0” in the total column”. 3005 3006 3007 Total Life Insurance Premiums ________ ________ ________ ________ Tax Exempt Interest________ ________ ________ ________ Estimate Warranty Liability ________ ________ ________ ________ Extra Depreciation________ ________ ________ ________ Litigation (b) Complete the journal entry to record income, assuming a tax rate of 21% for all years. Income Tax Expense ________ Deferred Tax Asset________ Deferred Tax Liability________ Income Tax Payable________ Question 4: 10 points Instructions For each TRANsaction listed below, list the letter or letters from above that describe(s) the effect of the transaction on a statement of cash flows. (Ignore any income tax effects.). There are only 7 options so you can use a letter more than once as an answer. Cash flows from operating activities a. Net income will be increased or adjusted upward. b. Net income will be decreased or adjusted downward. Cash flows from investing activities c. Increase as a result of cash inflows. d. Decrease as a result of cash outflows. Cash flows from financing activities e. Increase as a result of cash inflows. f. Decrease as a result of cash outflows. Noncash Investing and Financing Activity g.Noncash investing and financing activity 1. Refinance of Note with New Note_____________________ 2. Purchase of Bulldozer_____________________ 3. Payment of Dividends to Common Stockholders _____________________ 4. Purchase of Equipment using a note _____________________ 5.Depreciation Expense _____________________ 6.Increase to Inventory _____________________ 7.Sale of Land at Book Value _____________________ 8.Increase to Accounts Payable _____________________ 9.Loan from Bank by signing a note _____________________ 10. Annual Bond Payment _____________________