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Zurich Co. reports pretax financial income of $70,000 for 20x1




Question;I.;Zurich Co. reports pretax;financial income of $70,000 for 20x1.;The following items cause taxable income to be different than pretax;financial income;1.;Depreciation on the tax return;is greater than depreciation on the income statement by $16,000.;2.;Rent collected on the tax;return is greater than rent earned on the income statement by $22,000.;3.;Fines for pollution appear as;an expense of $11,000 on the income statement.;Zurich?s tax rate is 30% for all years and the company expects to report;taxable income in all future years.;a);Compute taxable income.;b) Prepare the journal entry;to record income tax expense, deferred income tax, and income tax payable for;20x1;c) Prepare the income tax;expense section of the income statement for 20x1, beginning with the line ?Income;before income taxes.?;II. Marie Leasing signs an agreement on;January 1, 20x1 to lease equipment to Metro Company. The following information relates to this;agreement.;The lease term is 6 years.;The equipment has an estimated economic life of 6 years.The cost of the asset to the lessor is $245,000. The fair value at January 1, 20x1 is;also $245,000.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 $43,622;(guaranteed by lessee).The agreement requires equal annual payments (each January 1);beginning on January 1, 20x1.Collectibility of the lease payment s is reasonably;assured. There are no important;uncertainties surrounding the amount of costs yet to be incurred by the;lessor.;a) Assuming the lessor;desires a 10% rate of return on its investment, calculate the amount of the;annual lease payment required.;b) Prepare an amortization;schedule for the lease term using the Excel.;c) Prepare all of the journal;entries for the lessor for 20x1 and 20x2.;Assume the lessor?s annual accounting period ends on December 31.;III.;Castle Leasing signs a lease agreement on January 1, 20x1 to lease;equipment to Perry Company. The lease;term is 2 years and payments are required at the end of each year. The following information relates to this;agreement.;-;Perry Company has the option to;purchase the equipment for $8,000 upon the termination of the lease.;-;The equipment has a cost and;fair value of $160,000 to Castle, the useful economic life is 2 years.;-;Perry Company is required to;pay $5,000 each year (on 12/31) to the lessor for executory costs.;-;Castle Leasing desires to earn;a return of 10% on its investment (Perry?s incremental borrowing rate is also;10%).;a) What type of lease is this;for the lessee? Explain.;b) Calculate the annual lease;payment.;c) Prepare a lease;amortization schedule (use the Excel).;d) Prepare the journal;entries for the lessee for 20x1 and 20x2.


Paper#39798 | Written in 18-Jul-2015

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