1.Assume that the following data relative to Eddy Company for 2014 is available:

Net Income$1,400,000

Transactions in Common Shares  ChangeCumulative

Jan. 1, 2014, Beginning number500,000

Mar. 1, 2014, Purchase of treasury shares(60,000)440,000

June 1, 2014, Stock split 2-1440,000880,000

Nov. 1, 2014, Issuance of shares120,0001,000,000

8% Cumulative Convertible Preferred Stock

Sold at par, convertible into 200,000 shares of common;

Outstanding for all of 2014.$1,000,000

Stock Options

Exercisable at the option price of $25 per share. Average 

market price in 2014, $30.  Outstanding for all of 2014.60,000 shares

REQUIRED:

Compute both basic and diluted earnings per share.

2.Your client has asked you to provide guidance on the following potential accounting changes:

(1)Change from straight-line method of depreciation to sum-of-the-years’-digits

(2)Change from the cash basis to accrual basis of accounting

(3)Change from FIFO to LIFO method for inventory valuation purposes

(4)Change from presentation of statements of individual companies to presentation of consolidated statements

(5)Change due to failure to record depreciation in a previous period

(6)Change in the realizability of certain receivables

(7)Change from LIFO to FIFO method for inventory valuation purposes

REQUIRED:

For each of the items above: 

• Indicate the type of accounting change, using one of the following codes:

E – Change in estimate

EP – Change in estimate resulting from change in principle

N – Not an accounting change (correction of an error)

PP – Change in principle reported prospectively

PR – Change in principle reported retrospectively

R – Change in reporting entity

• Indicate whether or not restatement of prior year financial statements is necessary.
• Indicate whether the cumulative effect on prior years’ income is reported.

3.  Yarman Inc. began business on January 1, 2013. Its pretax financial income for the first 2 years was as follows:

2013$  95,000

2014$180,000

The following items caused the only differences between pretax financial income and taxable income.

• In 2013, the company collected $90,000 of rent; of this amount, $30,000 was earned in 2013; the other $60,000 will be earned equally over the 2014-2015 period. The full $90,000 was included in taxable income in 2013.

• The company pays $5,000 a year for life insurance on officers.

• In 2014, the company terminated a top executive and agreed to $60,000 of severance pay. The amount will be paid $20,000 per year for 2014-2016. The 2014 payment was made. The $60,000 was expensed in 2014. For tax purposes, the severance pay is deductible as it is paid.

• The enacted tax rates existing at December 31, 2013 are 35% for 2013 and 40% for 2014 and beyond.

REQUIRED:

(a)Determine taxable income for 2013 and 2014.

(b)Compute the total deferred tax asset / (liability) at the end of 2013 and 2014.

(c)Prepare the journal entry to record income taxes for 2013 and 2014.

(d)Compute net income for 2013 and 2014.

(e)Compute the effective income tax rate for 2013 and 2014.

E2-1 – The gross earnings of the factory workers for Vargas Company during the month of January are $66,000. The employer’s payroll taxes for the factory payroll are 8,000. The fringe benefits to be paid by the employer on this payroll are $6,000. Of the total accumulated cost of factory labor, 85% is related to direct labor and 15% is attributable to indirect labor:
Instructions:
a)    Prepare the entry to record the factory labor cost for the month of January
b)    Prepare the entry to assign factory labor to production.

E2-2– Stine Company uses a job order cost system. On May 1st, the company has a balance in Work in Process Inventory of 3,500 and two jobs in process: Job No. 429 $2,000, and Job No. 430 $1,500. During May, a summary of source documents reveals the following.

Job Number     Materials            Requisition Slips     Labor         Time Tickets

429    $2,500     $1,900
430    3,500    3,000
431    4,400                   $10,400    7,600                   $12,500
General use    800    1,200
$11,200     $13,700

Stine Company applies manufacturing overhead to jobs at an overhead rate of 60% of direct labor cost. Job No. 429 completed during the month.
Instructions:
a)    Prepare summary journal entries to record (i) the requisition slips, (ii) the time tickets, (iii) the assignment of manufacturing overhead to jobs, and (iv) the completion of Job No. 429.
b)    Post the entries to Work in Process Inventory, and prove the agreement of the control account with the job cost sheet. (Use a T-account.)

BE2-1 Knox Company begins operations on January 1. Because all work is done to customer specifications, the company decides to use a job order cost system. Prepare a flow-chart of a typical job order system with arrows showing the flow of costs. Identify the eight transactions.
BE2-2  During January, its first month of operations, Knox Company accumulated the following manufacturing costs: raw materials $4,000 on account, factory labor $6000 of which $5,200 relates to factory wages payable and $800 relates to payroll taxes payable, and utilities payable $2000. Prepare separate journal entries for each type of manufacturing cost.
BE2-3In January, Knox Company requisitions raw materials for production as follows: Job 1 $900, Job 2 $1,400, Job 3 $700, and general factory use $600. Prepare a summary journal entry to record raw materials used.
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