Garner Company

Garner Company

Garner Company began operations on January 1, 2010, and uses the average cost method of pricing inventory. Management is contemplating a change in inventory methods for 2013. The following information is available for the years 2010–2012.

Net Income Computed Using
Average Cost Method
FIFO Method
LIFO Method
On January 1, 2012, Garner issued 10-year, $200,000 face value, 6% bonds, at par. Each $1,000 bond is convertible into 30 shares of Garner common stock. The company has had 10,000 common shares outstanding throughout its life. None of the bonds have been exercised as of the end of 2013. (Ignore tax effects.)

Using the spreadsheet Journal Entries, prepare the journal entry necessary to record a change from the average cost method to the FIFO method in 2013.

Assume Garner Company used the LIFO method instead of the average cost method during the years 2010–2012. In 2013, Garner changed to the FIFO method. Using the spreadsheet Journal Entries, prepare the journal entry necessary to record the change in accounting principle.

Assuming Garner had the accounting change described in (2), Garner’s income in 2013 was $30,000. Compute basic and diluted earnings per share for Garner Company for 2013. Show how income and EPS will be reported for 2017 and 2018. 

Assume that the following facts pertain to a noncancelable lease agreement between Fifth-Third Leasing Company and Bob Evans Farms, a lessee.      

Inception date January 1, 2012   

Annual lease payment due at the beginning of each year, beginning with January 1, 2012 $81,365   

Residual value of equipment at end of lease term, guaranteed by the lessee $50,000   

Lease term 6 years   

Economic life of leased equipment 6 years   

Fair value of asset at January 1, 2012 $400,000   

Lessor’s implicit rate 12%   

Lessee’s incremental borrowing rate 12%   

The lessee assumes responsibility for all executory costs, which are expected to amount to $4,000 per year. The asset will revert to the lessor at the end of the lease term. The lessee has guaranteed the lessor a residual value of $50,000. The lessee uses the straight-line depreciation method for all equipment.  

Using the spreadsheet Lease Amort Schedule, prepare an amortization schedule that would be suitable for the lessee for the lease term.   

Using the spreadsheet Journal Entries, prepare the journal entries for the lessee for 2012 and 2013 to record the lease agreement and all expenses related to the lease. Assume the lessee’s annual accounting period ends on December 31 and that reversing entries are used when appropriate.   

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