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Convertible Preferred Stock, Convertible Bonds, and EPS Francis Company has 16,800 shares of common stock outstanding at the beginning of 2013.

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Convertible Preferred Stock, Convertible Bonds, and EPS

Francis Company has 16,800 shares of common stock outstanding at the beginning of 2013. Francis issued 2,100 additional shares on May 1 and 1,400 additional shares on September 30. It also has two convertible securities outstanding at the end of 2013. These are:

  1. Convertible preferred stock: 1,750 shares of 8.0%, $50 par, preferred stock were issued on January 2, 2010, for $55 per share. Each share of preferred stock is convertible into 2 shares of common stock. Current dividends have been declared and paid. To date, no preferred stock has been converted.
  2. Convertible bonds: Bonds with a face value of $175,000 and an interest rate of 5.0% were issued at par in 2012. Each $1,000 bond is convertible into 20 shares of common stock. To date, no bonds have been converted.

Francis earned net income of $80,000 during 2013. The income tax rate is 30%.

Required:

4b. Show how the basic EPS you calculated should be reported to shareholders. You do not have to calculate diluted EPS.

 
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Chris Green, CPA, is auditing Rayne Co.’s 2013 financial statements. For the year ended December 31, 2013, Rayne is applying GAAP for income taxes.

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Chris Green, CPA, is auditing Rayne Co.’s 2013 financial statements. For the year ended December 31, 2013, Rayne is applying GAAP for income taxes. Rayne’s controller, Dunn, has prepared a schedule of all differences between financial statement and income tax return income. Dunn believes that as a result of pending legislation, the enacted tax rate at December 31, 2013, will be increased for 2014. Dunn is uncertain which differences to include and which rates to apply in computing deferred taxes. Dunn has requested an overview of GAAP from Green.

Required:

Prepare a brief memo to Dunn from Green that identifies the objectives of accounting for income taxes, defines temporary differences, explains how to measure deferred tax assets and liabilities, and explains how to measure deferred income tax expense or benefit.

NOTE: Use your readings from the textbook and at least one additional academic resource to provide support for your response

 
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Comprehensive At the beginning of 2013, Norris Company had a deferred tax liability of $6,600, because of the use of MACRS depreciation for income

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Comprehensive

At the beginning of 2013, Norris Company had a deferred tax liability of $6,600, because of the use of MACRS depreciation for income tax purposes and units-of-production depreciation for financial reporting. The income tax rate is 30% for 2012 and 2013, but in 2012 Congress enacted a 40% tax rate for 2014 and future years.

      Norris’s accounting records show the following pretax items of financial income for 2013: income from continuing operations, $136,500 (revenues of $334,000 and expenses of $197,500); gain on disposal of Division F, $22,200; extraordinary loss, $18,300; loss from operations of discontinued Division F, $11,500; and prior period adjustment, $17,700, due to an error that understated revenue in 2012. All of these items are taxable; however, financial depreciation for 2013 on assets related to continuing operations exceeds tax depreciation by $7,200. Norris had a retained earnings balance of $144,000 on January 1, 2013, and declared and paid cash dividends of $44,000 during 2013.

Required:

1. Prepare Norris’s income tax journal entry at the end of 2013.

If an amount box does not require, leave it blank.

2. Prepare Norris’s 2013 income statement.

3. Prepare Norri’s 2013 statement of retained earnings.

4. Show the related income tax disclosures on Norris’s December 31, 2013, balance sheet.

 
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ACC 620 Milestone Two Guidelines

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ACC 620 Milestone Two Guidelines and Rubric Prompt: In the first milestone, you addressed stockholders’ equity and income measurement/revenue recognition for your portfolio. In the second milestone for your final project, you will continue work on your portfolio by completing critical elements III and V. You will be addressing income taxes and pensions. III. Income Taxes A. If Congress voted to eliminate corporate taxes, what would be the effect on your company’s income statement and balance sheet? Defend your response. B. Calculate the income tax rate for your chosen company. What effect will an increase in income of $2,000,000 have on your company? C. What are the effects on the balance sheet and income statement? Justify your response. D. How much did your company pay in foreign taxes last year? What percentage of its income is United States vs. foreign? V. Pensions Address the following elements in the form of a memo to your CEO: A. From your company’s financial information, what type of pension plan does it have? Discuss the reasons why your company has chosen this particular plan. B. What was the effect of the pension plan on your company’s financial statements? Defend your response. C. Your CEO has informed you—the controller of your company—that the board of directors has made the decision to look at other options of types of retirement plans. Investigate what other alternatives would be available, and determine which would be appropriate for your particular company. Guidelines for Submission: Your paper must be submitted as a 2–4-page Microsoft Word document with double spacing, 12-point Times New Roman font, oneinch margins, and at least three sources cited in APA format. Instructor Feedback: This activity uses an integrated rubric in Blackboard. Students can view instructor feedback in the Grade Center. For more information, review these instructions. Critical Element Exemplary Proficient Needs Improvement Not Evident Value Income Taxes: Corporate Taxes Meets “Proficient” criteria, and defense is well supported with quantitative evidence (100%) Accurately describes the effect on the company’s income statement and balance sheet if Congress voted to eliminate corporate taxes, and defends response (90%) Describes the effect on the company’s income statement and balance sheet if Congress voted to eliminate corporate taxes, but does not defend response, description contains inaccuracies, or defense is illogical (70%) Does not describe the effect on the company’s income statement and balance sheet (0%) 13 Income Taxes: Increase in Income Meets “Proficient” criteria, and determination is well supported with quantitative evidence (100%) Accurately calculates the income tax rate for the company and determines the effect an increase in income would have on the company (90%) Calculates the income tax rate for the company and determines the effect an increase in income would have on the company, but calculation or determination contains inaccuracies (70%) Does not calculate the income tax rate for the company (0%) 14 Income Taxes: Effects Meets “Proficient” criteria, and justification is well supported with quantitative evidence (100%) Accurately determines the effects on the balance sheet and income statement and justifies response (90%) Determines the effects on the balance sheet and income statement, but determination contains inaccuracies, does not justify determination, or justification is illogical (70%) Does not determine the effects on the balance sheet and income statement (0%) 13 Income Taxes: Foreign Taxes Accurately determines how much the company paid in foreign taxes last year and what percentage of its income was United States versus foreign (100%) Determines how much the company paid in foreign taxes last year and what percentage of its income was United States versus foreign, but determination contains inaccuracies (70%) Does not determine how much the company paid in foreign taxes last year (0%) 13 Pensions: Pension Plan Meets “Proficient” criteria and shows a nuanced understanding of the company’s decision-making rationale (100%) Discusses the type of pension plan the company has and the reasons why the company has chosen that plan (90%) Discusses the type of pension plan the company has, but does not discuss the reasons why the company chose that plan (70%) Does not identify the type of pension plan the company has (0%) 14 Pensions: Effect Meets “Proficient” criteria, and defense is well supported with concrete examples (100%) Accurately determines the effect of the pension plan on the company’s financial statements and defends response (90%) Determines the effect of the pension plan on the company’s financial statements, but determination lacks accuracy, does not defend determination, or defense is weak or illogical (70%) Does not determine the effect of the pension plan on the company’s financial statements (0%) 13 Pensions: Other Options Meets “Proficient” criteria and is well supported with concrete examples (100%) Evaluates other types of retirement plans available and determines which would be appropriate for the company (90%) Evaluates other types of retirement plans available, but does not determine which would be appropriate for the company (70%) Does not evaluate other types of retirement plans available (0%) 13 Articulation of Response Submission is free of errors related to citations, grammar, spelling, syntax, and organization and is presented in a professional and easy-toread format (100%) Submission has no major errors related to citations, grammar, spelling, syntax, or organization (90%) Submission has major errors related to citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas (70%) Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas (0%) 7 Total 100%

 
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