Accounting Assignment-2: Treasury Stock Transactions, Bond Issuance, and Income Taxes

Question 1: Treasury Stock Transactions

This is your Assignment-2.You will see 3 questions below. and take the questions from the text and modified to fit as per needs.This is also a good practice for midterm test.Please provide the journal entries in good form (proper format).

Wonder Ltd. has treasury stock transactions in 20X9 as follows: 

At the end of 20X8, Wonder Limited had reported the following in shareholders’ equity:

1. Prepare journal entries for the treasury stock transactions.

2. Calculate the balances in the equity accounts, after the effects of the transactions in requirement 1. 

Nero Solutions Co. issued an $800,000, 6%, three-year bond for $806,000. The bond pays interest annually, at each year-end. At maturity, the bond can be repaid in cash or converted to 60,000 common shares at the investor’s option. The market interest rate for bonds of similar term and risk, but that are not convertible, is in the range of 7%.

1. Calculate the portion of the bond to be recorded as a liability.

2. Provide the entry to record issuance of the bond.

3. Provide the entries to record interest expense and the annual cash payment each year over the bond’s three-year life.

4. Provide the entry to record the maturity of the bond, assuming that shares were issued.

5. Provide the entry to record the maturity of the bond, assuming that cash is paid. 

The records of Boomer Corp, in its first year of operations, at the end of 20X8, provided the following data related to income taxes.

1. Golf club dues expense in 20X8, $10,000, properly recorded for accounting purposes but not tax deductible at any time

2. Investment revenue in 20X8, $325,000, properly recorded for accounting purposes, but not taxable at any time.

3. Estimated expense for warranty costs, $70,000; accrued for accounting purposes at the end of 20X8; to be reported for income tax purposes when paid. There were no warranty cost incurred in 20X8

4. Gain on disposal of land, $240,000; recorded for accounting purposes at the end of 20X8; to be reported as a capital gain for income tax purposes when collected at the end of 20X10

5. Costs incurred for development costs, $50,000; deducted for income tax purposes; recognized for accounting purposes as depreciated. There was no depreciation of development costs in 20X8

6. Equipment purchase in 20X8, $1,500,000; depreciation $100,000 recorded for accounting purposes in 20X8; CCA of $150,000 was deducted for income tax purposes in 20X8

Accounting earnings (from the SCI) for 20X8 was $1,200,000; the income tax rate is 38%. There were no deferred tax amounts as of the beginning 20X8.

1. Are the individual differences listed above permanent differences or temporary differences? Explain why..

2. Calculate Taxable Income and Tax payable.

3. Prepare the journal entry to record income tax at the end of 20X8.