5. For the year ended December 31, Year 1, Health Company reported a $300,000 wa

Question

5. For the year ended December 31, Year 1, Health Company reported a $300,000 warranty expense in its income statement. The expense was based on actual waranty costs of $60,000 in Year 1 and expected warranty costs of $70,000 in Year 2, $80,000 in d taxes should be based on a a. $240,000 taxable temporary difference. $300,000 deductible temporary difference $300,000 taxabte temporary difference $240,000 deductible temporary difference. d. George Corporation declared a cash dividend of $10,000 on January 17. This dividend was payable to shareholders of record on February 10, and payment was made on March 2. As a result of this cash dividend, working capital will increase (decrease) by what amount on 6. January 12 a. $0 b. $(10,000) c. $10,000 d. $(10,000) February 10 s0 $0 $0 $10,000 Lidiot Co. commenced its existence on January 1 of the current year. Its articles of incorporation authorize the issuance of 1 million shares of $10 par value common stock On February 1, it issued 200,000 shares for $2.5 million. On April 30, 8,000 shares were issued to a management consultant in exchange for services rendered. These services had a fair value of $120,000. On November 1, Lidiot issued 40,000 shares for a plant site when the fair value of the stock was $17.50 per share. Assuming that the foregoing were the only transactions affecting the paid-in capital accounts in the first year of Lidiot's operations, what was the balance of additional paid-in capital at year end? 7. a. $840,000 b. $800,000 c. $540,000 d. $500,000

Explanation / Answer

1)Since Whole of $300000is deducted as warranty expense in year1 in Books but only$60000 is deducted for tax purpose ,it will result in temporary deductible difference

correct option is "D"

2)correct option is "B"

One declaration date ,it will result in increase in current liability(dividend payable) as a result working capital will decrease.

on date of payment,record that there is no entry .working capital will not be affected.

3)

correct option is"A"

Par value Paid in capital Transaction 200000*10=2,000,000 2,500,000-2,000,000= 500,000 2 8000*10=80000 120000-80000=40000 3 40000*10=400000 40000*7.5= 300000 Total paid in capital 840000

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