Question 1:Prepare the potential entries for the items below:
Mason Company is relocating their Human Resources Department to an unused space closer to the main administration building. The 4000 square foot space is empty and has not been used in several years. Jane, the VP of Personnel, is overseeing the conversion and relocation of the HR Department. Mason Company’s maintenance people will actually perform the work. Jane has asked George, the maintenance foreman, to prepare a list of what needs to be done to bring the space to the point where the HR Department can move. George provided the following short list, assume the labor will be performed by contractors and the cost given includes the labor:
1) Painting – estimated cost $15,000
2) Removal of old asbestos in the ceiling – estimated cost $12,000
3) Replacing the wood floors with tile to increase the life of the space – $34,000
4) Installing wiring for computers – $18,000
5) Installing modular units for work space – $124,000
Question 2:
Mason Company, during 2012, began and completed a small warehouse. Construction on the warehouse began January 2, 2012. Expenditures were made as follows:
January 2 – $1,000,000
March 1 – $900,000
July 1 – $400,000
October 1 – $800,000
Mason Company financed the project by issuing $1,000,000 in stock at the beginning of 2012 and borrowed $1,200,000 from the First National Bank at an interest rate of 8%. In addition, the company had the following debt: $1,000,000 with interest rate of 9% borrowed in 2012 and $2,000,000 with interest rate of 11% borrowed in 2009.
A) Calculate the 2012 weighted average accumulated expenditures
B) How much is avoidable interest
C) How much is actual interest
D) Make the entry capitalizing the interest
Questions 3:
The following information is provided:
Income before taxes – $900,000
Income before taxes included the following:
Interest income of = $80,000 (from municipal bonds)
Rental income was collected in advance in 2011 and earned in 2012 = $20,000
A piece of equipment was purchased in 2012. Depreciation per books = $40,000
And per income taxes $100,000
Warranty expenses in 2012 was $20,000, but for tax purposed only $5,000 was deductible.
Assume that at the beginning of 2012 deferred tax asset = $8,000 due to the rent income.
Tax rate for 2012 and the foreseeable future is 40%
A) Calculate taxable income
B) Make the necessary tax entry (including the amounts for tax expense and deferred taxes)
Question 4:
Assume that last year (2011) Mason Company had a net operating loss of $50,000 and for this problem Mason Company reported tax expense for 2012 of $70,000. Also, assume that in 2010 Mason Company had income of $10,000 and a tax rate of 20% (ignore the earlier years).
This year, 2012, Mason Products reported net income of $70,000 and a tax rate of 20%.
A) Prepare the entry that Mason Company should have made in 2011:
B) Prepare the entry for 2012 recording the effect on Mason Company’s books of the 2011 NOL.
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