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AACSB assurance of learning standards in accounting and business education require documentation of outcomes assessment. Although schools, departments, and faculty may approach assessment and its documentation differently, one approach is to provide specific questions on exams that become the basis […]

Exercise A–4 Requirement 1 June 30 Fair value of interest rate swap $11,394 Fair value of note payable $220,000 Fixed rate 10% Floating rate 6% Fixed receipts $5,000 ([10% x ¼] x $200,000) Floating payments (3 ,000) ([6% x ¼] […]

Problem A–1 (continued) Requirement 5 Swap Note Jan. 1, 2018 100,000 Dec. 31, 2018 1,759 1,759 Balance 1,759 98,241 Dec. 31, 2019 2,694 2,694 Balance 935 100,935 Dec. 31, 2020 935 935 100 ,000 Balance 0 0 Problem A–1 (continued) […]

Problem A-3 (continued) Requirement 6 Income Statement  (  ) 2018 (8,000) Interest expense 2019 (8,842) Interest expense (158) Interest expense 3,852 Holding gain—interest rate swap (1 ,852) Holding loss—hedged note (7 ,000) Net effect—same as floating interest payment […]

CHAPTER 1 ENVIRONMENT AND THEORETICAL STRUCTURE OF FINANCIAL ACCOUNTING Overview The primary function of financial accounting is to provide useful financial information to users external to the business enterprise. The focus of financial accounting is on the information needs of […]

3. Group/Research Activity The debate over principles-based versus rules-based accounting standards provides an excellent opportunity for class discussion, in-class debate, or for a writing assignment. One suggestion is to form groups of 4 or 5 students to research the issue. […]

Question 1–1 Financial accounting is concerned with providing relevant financial information about various kinds of organizations to different types of external users. The primary Question 1–2 Resources are efficiently allocated if they are given to enterprises that will use them […]

Exercise 1–2 Requirement 1 Year 2 Year 3 Revenues $350,000 $450,000 Expenses: Rent ($80,000  2) (40,000) (40,000) Requirement 2 Amount owed at the end of year one $ 5,000 Advertising costs incurred in year two 25 ,000 30,000 Amount […]

Communication Case 1–7 Suggested Grading Concepts and Grading Scheme: Content (70%) _______ 30 Briefly outlines the standard setting process. ______ Role of FASB, SEC. ______ The process. Writing (30%) _______ 6 Terminology and tone appropriate to the audience of a […]

CHAPTER 10 PROPERTY, PLANT, AND EQUIPMENT AND INTANGIBLE ASSETS: ACQUISITION Overview This chapter and the one that follows address the measurement and reporting issues involving property, plant, and equipment and intangible assets, the tangible and intangible long-lived assets that are […]

Suggestions for Class Activities 1. Guest Speaker The assigning of fair value to assets acquired in an acquisition is an interesting topic for students. The accounting issues are interesting, as are the valuation issues. Through your contacts at local CPA […]

Question 10–1 The difference between tangible and intangible long-lived, revenue-producing Question 10–2 The cost of property, plant, and equipment and intangible assets includes the purchase price (less any discounts received from the seller); transportation costs paid by the buyer to […]

Brief Exercise 10–4 Cost of silver mine: Acquisition, exploration, and development $5,600,000 *Present value of $1, n = 5, i = 6% (from Table 2) Brief Exercise 10–5 After one year, the liability will increase to $455,456. ($429,675† + ($429,675 […]

Exercise 10–5 Patent ($200,000 + 10,000)…………………………………………. 210,000 ……………………………………………………………………..Cash ……………………………………………………………………….935,000 *The ongoing expense each month of operating as a franchise would be expensed as incurred. Exercise 10–6 Calculation of goodwill: Consideration exchanged $17,000,000 Less fair value of net assets: Assets $23,000,000 […]

Exercise 10–18 Requirement 1 Fair value of old land + Cash given = Fair value of new land Requirement 2 Land—new ($72,000 + 14,000)…………………………………… 86,000 ……………………………………………………………………..Cash …………………………………………………………………………14,000 ……………………………………………..Land—old (book value) …………………………………………………………………………30,000 ……………………………………………………………….Gain ($72,000 – 30,000) …………………………………………………………………………42,000 Requirement 3 Land—new ($30,000 […]

Exercise 10–22 Average accumulated expenditures: Interest capitalized: $3,000,000 – 1 ,500,000 (construction loan) x 10% = $150,000 $1,500,000 x 7%* = 105 ,000 $255 ,000 = interest capitalized * Weighted-average rate of all other debt: $2,000,000 x 9% = $180,000 […]

Exercise 10–32 Requirement 1 2018: ………………………………………………………………………..Cash ……………………………………………………………………………..2,200,000 2019: Research and development expense……………………………. 800,000 Software development costs ……………………………………… 400,000 ………………………………………………………………………..Cash ……………………………………………………………………………..1,200,000 Requirement 2 (1) Percentage-of-revenue method: $1,000,000 = 20% × $400,000 = $80,000 $5,000,000 (2) Straight-line method: 1/4 or 25% × […]

Problem 10–8 Case A. Requirement 1 Book value less fair value = loss on exchange Fair value of old tractor + cash given = Initial value of new tractor $9,000 + 20,000 = $29,000 Journal entry (not required): New tractor […]

Judgment Case 10–1 Requirement 1 All costs necessary to bring the land to its condition for use should be capitalized as the cost of the land. This should include the following costs: Purchase price. Title insurance. Requirement 2 Assets acquired […]

Judgment Case 10–9 Requirement 1 The costs of research equipment used exclusively for Trouver would be reported as research and development expenses in the period incurred. The costs of research equipment used on both Trouver and future research Requirement 2 […]

CHAPTER 11 PROPERTY, PLANT, AND EQUIPMENT AND INTANGIBLE ASSETS: UTILIZATION AND DISPOSITION Overview This chapter completes our discussion of accounting for property, plant, and equipment and intangible assets. We address the allocation of the cost of these assets to the […]

Question 11–1 The terms depreciation, depletion, and amortization all refer to the process of allocating the cost of property, plant, and equipment and finite-life intangible assets Question 11–2 The term depreciation often is confused with a decline in value or […]

Problem 11–13 (concluded) 2019 Depreciation of equipment: Original cost $140,000 Less: 2018 depreciation (19 ,500) 2019 Depreciation of structures: Original cost $68,000 Less: 2018 depreciation (10 ,200) Remaining depreciable cost $57,800  Revised estimate of tons remaining (1,000,000 – 120,000) […]

Ethics Case 11–10 Requirement 1 2018 expense using CEO’s approach: $42,000,000 Cost Depreciation to date (2016–2017) 33,600,000 Book value ÷ 3 Estimated remaining life (2018–2020) $11,200,000 New annual depreciation 2018 income would include only depreciation expense of $11,200,000. 2018 expense […]

Brief Exercise 11–3 a. Straight-line: b. Sum-of-the-years’ digits: Sum-of-the-digits is ([4 (4 + 1)] ÷ 2) = 10 2018 $28,000 × 4/10 × 9/12 = $8,400 2019 $28,000 × 4/10 × 3/12 = $2,800 + $28,000 × 3/10 × 9/12 […]

Exercise 11–2 1. Straight-line: 2. Sum-of-the-years’ digits: Sum-of-the-digits is ([10 (10 + 1)] ÷ 2) = 55 2018 $110,000 × 10/55 = $20,000 2019 $110,000 × 9/55 = $18,000 3. Double-declining balance: Straight-line rate is 10% (1 ÷ 10 years) […]

Exercise 11–11 Requirement 1 To update depreciation in 2018; 2 months of service to date of disposal. Depreciation expense …………………………………………….. 2,000 ……………………………………….Accumulated depreciation …………………………………………………………………………..2,000 Requirement 2 To record the sale of the truck. Cash …………………………………………………………………….. 58,000 Loss on sale of […]

Exercise 11–20 Adjustment of amortization expense to reflect change in useful life. ($ in millions) ……………………………………………………………………Patent ………………………………………………………………………..2.5 Calculation of annual amortization after the estimate change: $ in millions) $9 Cost $1 Previous annual amortization ($9 ÷ 9 years) × 4 […]

Exercise 11–30 Requirement 1 Determination of implied fair value of goodwill: Fair value of Centerpoint, Inc. $220 million Measurement of impairment loss: Book value of goodwill $50 million Implied fair value of goodwill 20 million Impairment loss $30 million Requirement […]

Problem 11–1 Requirement 1 Determine useful life: Determine age of assets: $40,000 accumulated depreciation = 4 years old $10,000 annual depreciation Double-declining balance in 4th year of life: Year 1 (2015) $200,000 × 10% = $20,000 Year 2 (2016) 180,000 […]

Problem 11–7 Requirement 1 Cost of mineral mine: Depletion: $2,200,000 – 100,000 Depletion per ton = = $5.25 per ton 400,000 tons 2018 depletion = $5.25 × 50,000 tons = $262,500 2019 depletion: Revised depletion rate = ($2,200,000 – 262,500) […]

Problem 11–10 (concluded) b. This is a change in accounting principle that is accounted for as a change in estimate. SYD 2014 depreciation $ 60,000 ($330,000 × 10/55) 2015 depreciation 54,000 ($330,000 × 9/55) 2016 depreciation 48,000 ($330,000 × 8/55) […]

CHAPTER 12 INVESTMENTS Overview In this chapter we cover various approaches used to account for investments that companies make in the debt and equity securities of other companies. An investing company has the option to account for these investments at […]

Question 12–1 Question 12–2 Increases and decreases in the market value between the time a debt security is acquired and the day it matures to a prearranged maturity value are ignored for a security classified as “held-to-maturity.” These changes aren’t […]

Problem 12–5 (continued) 2) Recording the sale transaction: Cash (proceeds)…………………………………………………….. 425,000 November 1 Investment in M&D Corporation bonds ………………… 1,400,000 Cash……………………………………………………………….. 1,400,000 Investment in Distribution Transformers bonds (cost) 400,000 Fair-value adjustment (account balance)…………………. 25,000 Problem 12–5 (continued) December 31 Adjusting […]

Problem 12–7 (continued) December 31 Adjusting entries: Accumulated Unrealized Equity Securities Cost Fair Value Gain (Loss) $10,000* *Need to move from a fair-value adjustment of $0 to $10,000: Fair-Value Adjustment 1/1/2018 0 Change needed 10,000 12/31/2018 10,000 Fair value adjustment […]

Problem 12–9 2018 ($ in millions) October 18 October 31 Cash…………………………………………………………………………………. 1.5 Interest revenue………………………………………………………………. 1.5 November 1 Investment in Holistic Entertainment bonds (HTM)……………….. 18 Cash……………………………………………………………………………… 18 November 1 1) Updating the fair-value adjustment: Need to move from a fair-value adjustment […]

Problem 12–11 Note: the answer to P12-11 is the same as the answer to Requirement 2 of P12-10. Purchase ($ in millions) Net income No entry Dividends Cash (10 million shares x $2)……………………………………………………. 20 Dividend revenue……………………………………………………………. 20 Adjusting entry Need […]

Problem 12–16 (continued) Need to move from a fair-value adjustment from $0 to ($9,420): Fair-Value Adjustment 1/1/2018 0 December 31, 2018 Cash ($150,000 x 6%) ÷ 2……………………………….. 4,500 Discount on bond investment (difference)…………. 390 Interest revenue [{$150,000 – ($10,658 – […]

International Case 12–4 Requirement 1 P. 140 of the 10K includes the following note: “Interests in other companies Interests in other companies are measured at fair value. Investments in equity investments that do not have a quoted market price in […]

Brief Exercise 12–2 Because S&L Financial is purchasing the bonds for purposes of earning profits on short-term differences in price, those bonds would be classified as trading securities. For trading securities, gains and losses from changes in fair values are […]

Brief Exercise 12–19 LED does not intend to sell the investment, and it does not believe it is more likely than not that it will have to sell the investment before fair value recovers, so Fair value adjustment…………………………………… 100,000 Reclassification […]

Exercise 12–7 (continued) 2019 January 5 1) Updating the fair-value adjustment: Need to move from a fair-value adjustment of $50,000 to $45,000: Fair-Value Adjustment Change needed 5,000 1/5/2019 45,000 Unrealized holding loss—NI ($395,000 – $400,000)…………… 5,000 Fair value adjustment………………………………………………. 5,000 […]

Exercise 12–12 (continued) a. June 30, 2019: Recognition of interest revenue b. July 1, 2019: Any entries necessary upon sale of the Jackson bonds 1) Updating the fair-value adjustment: Need to move from a fair-value adjustment of $200,000 to ($100,000): […]

Exercise 12–17 (continued) Requirement 2 Need to move from a fair-value adjustment from ($145,000) to ($70,000): Fair-Value Adjustment 1/1/2018 145,000 Fair Value Adjustment Balance on 1/1/2018 ($145,000) ± Adjustment needed to update fair value ? Balance needed on 12/31/2018 ($1,275,000 […]

Exercise 12–24 Requirement 1 Purchase ($ in millions) Net income Investment in VB shares (25% x $32 million) ………………………. 8 Investment revenue…………………………………………………. 8 Dividends Cash (25% x $24 million)………………………………………………… 6 Investment in VB shares………………………………………….. 6 Amortization of differential Investment revenue […]

Exercise 12–29 Requirement 1 Requirement 2 Cash (death benefit)………………………………………………… 250,000 Cash surrender value of life insurance (account balance) 16,000 Gain on life insurance settlement (to balance)………… 234,000 Insurance expense (difference)………………………………… 22,900 Cash surrender value of life insurance ($4,600 – 2,500).. […]

Problem 12–2 Requirement 1 ($ in millions) Requirement 2 Cash (4% x $80 million)…………………………………… 3.20 Discount on bond investment (difference)…………. .10 Interest revenue (5% x $66)……………………………… 3.30 Requirement 3 Cash (4% x $80 million)…………………………………… 3.20 Discount on bond investment (difference)…………. […]

CHAPTER 13 CURRENT LIABILITIES AND CONTINGENCIES Overview Chapter 13 is the first of five chapters devoted to liabilities. In Part A of this chapter, we discuss liabilities that are classified appropriately as current. In Part B, we turn our attention […]

5. Ethical Dilemma Consider the following ethical dilemma: ETHICAL DILEMMA You are chief financial officer of Camp Industries. Camp is the defendant in a $44 million class-action suit. The company’s legal counsel informally advises you that chances are remote that […]

A liability involves the past, the present, and the future. It is a present responsibility, to sacrifice assets in the future, caused by a transaction or other event 1. are probable, future sacrifices of economic benefits 2. that arise from […]

TARGET CASE Requirement 1 a. The four components of current liabilities are: ($ in millions) 1/30/2016 1/31/2015 Current Liabilities: Accounts payable $ 7,418 $ 7,759 b. Current assets are sufficient to cover current liabilities in both the fiscal years ended […]

Brief Exercise 13–6 December 12 January 16 Cash…………………………………………………………….. 216,000 Deferred sales revenue……………………………………. 24,000 Sales revenue…………………………………………….. 240,000 Brief Exercise 13–7 In 2018 Lizzie would recognize $11,500 of revenue ($4,000 + 3,000 + 2,500 + 2,000). In 2019 Lizzie would recognize the […]

Exercise 13–7 Requirement 1 Deposits Collected Containers Returned Liability—refundable deposits …………………… 790,000 Cash…………………………………………………….. 790,000 Deposits Forfeited Liability—refundable deposits …………………… 35,000 Revenue—sale of containers…………………… 35,000 Cost of goods sold…………………………………….. 35,000 Inventory of containers ………………………….. 35,000 Requirement 2 Balance on January 1 […]

Exercise 13–18 Requirement 1 This is a loss contingency. Some loss contingencies don’t involve liabilities at all. Some contingencies when resolved cause a noncash asset to be impaired, so Requirement 2 Bad debt expense: 3% x $2,400,000 = $72,000 Requirement […]

Problem 13–1 Requirement 1 Blanton Plastics L & T Bank Notes receivable………………………………………………. 14,000,000 Cash …………………………………………………………… 14,000,000 Requirement 2 Adjusting entries (December 31, 2018) Blanton Plastics Interest expense ($14,000,000 x 12% x 3/12)…………….. 420,000 Interest payable…………………………………………….. 420,000 L & T Bank […]

Problem 13–7 Requirement 1 Item (a): Because the loss is probable and can be reasonably estimated, HW would be required to accrue a liability under both U.S. GAAP and Item (b): Under IFRS, present values would be used, so the […]

Problem 13–13 Salaries and wages expense (total amount earned)……….. 2,000,000 Withholding taxes payable (federal income tax)………. 400,000 Withholding taxes payable (local income tax)…………. 53,000 Payroll tax expense (total)……………………………………. 273,000 Social security taxes payable (employer’s matching amount) 124,000 Medicare taxes payable […]

Communication Case 13–7 Assumptions students make will determine the correct answer to some classifications. Depending on the assumptions made, different views can be convincingly defended. The process of developing and synthesizing the arguments will likely be more beneficial than any […]

IFRS Case 13–15 Under IFRS, the $70 million environmental contingency would be accrued and included in Fizer’s liabilities. The associated loss would be reported in the income statement. Accounting for contingencies is covered under IAS No. 37, “Provisions, Contingent Liabilities, […]

CHAPTER 14 BONDS AND LONG-TERM NOTES Overview This chapter continues the presentation of liabilities. While the discussion focuses on the accounting treatment of long-term liabilities, the borrowers’ side of the same transactions is presented as well. Long-term notes and bonds […]

Suggestions for Class Activities 1. Real World Scenario An article in Barron’s, titled “Wall Street’s Latest Illusion,” reported that “Goldman Sachs, Morgan Stanley and other firms are booking profits from the falling value of their own debt.” The article asserts […]

QUESTIONS FOR REVIEW OF KEY TOPICS Question 14–1 Periodic interest is calculated as the effective interest rate times the amount of the debt outstanding during the period. This same principle applies to the flip side of the Question 14–2 Long-term […]

Problem 14–11 Requirement 1 *Present value of an ordinary annuity of $1: n = 5, i = 10% (Table 4) ** Present value of $1: n = 5, i = 10% (Table 2) Equipment (fair value)……………………………………………. 115,883 Discount on notes […]

Problem 14–19 Requirement 1 Convertible Bonds—2005 issue Cash (97.5% x $200 million)……………………………………………….. 195 Bonds with Warrants—2009 issue Cash (102% x $50 million)………………………………………………….. 51 Discount on bonds payable (difference)………………………………. 3 Bonds payable (face amount)………………………………………….. 50 Equity—stock warrants (given)……………………………………… 4 Requirement 2 […]

Problem 14–23 (continued) Requirement 4 If the fair value on December 31 is $342,000, Appling needs to compare that amount with the amortized initial measurement on that date. That amount was increased when Appling recorded interest on December 31: Interest […]

Problem 14–25 1. Liabilities at September 30, 2018 Bonds payable (face amount)……………………………….. $160,000,000 Less: discount………………………………………………….. 20 ,000,000 2. Interest expense for year ended September 30, 2018 June 30, 2018 interest expense…………………………… $5,600,000 (4) September 30, 2018 interest expense………………….. 4 ,208,000 […]

Case 14–3 (continued) Arguments Supporting View 1: 1. Those who favor accounting for convertible debt as entirely a liability until it is either converted or repaid argue that a convertible bond offers the holder two mutually exclusive choices. The holder […]

Case 14–9 (continued) AGF has experienced favorable leverage, as demonstrated by calculating and comparing the return on assets and the return on shareholders’ equity for 2016: The debt to equity ratio is not used to shareholders’ advantage. The return on […]

Brief Exercise 14–1 face annual fraction of the cash amount rate annual period interest Brief Exercise 14–2 Interest $ 2,000,000 ¥ x 23.11477* =$46,229,540 Principal $80,000,000 x 0.30656** = 24,524,800 Present value (price) of the bonds $70,754,340 ¥ [5 ÷ […]

Exercise 14–3 1. Price of the bonds at January 1, 2018 2. January 1, 2018 Cash (price determined above)……………………………….. 70,823,680 Discount on bonds payable (difference)………………… 9,176,320 Bonds payable (face amount)……………………………. 80,000,000 3. June 30, 2018 Interest expense (6% x $70,823,680)………………………….. […]

Exercise 14–11 1. February 1, 2018 2. July 31, 2018 Interest expense (5% x $731,364)…………………… 36,568 Discount on bonds payable (difference)…… 568 Cash (4.5% x $800,000)………………………….. 36,000 3. December 31, 2018 Interest expense (5/6 x 5% x [$731,364 + 568]). […]

Exercise 14–19 1. January 1, 2018 Cash ……………………………………………………………………….. 8,000,000 2. Amortization schedule $8,000,000 ÷ 2.67301 = $2,992,881 amount (from Table 4) of loan n = 3, i = 6% Cash Effective Decrease in Outstanding Dec.31 Payment Interest Balance Balance 6% […]

Exercise 14–27 Requirement 1 Under U.S. GAAP, the entire issue price of convertible debt is recorded as debt: Under IFRS, convertible debt is divided into its liability and equity elements. We achieve separation by measuring the fair value of a […]

Exercise 14–30 (concluded Rapid will report the loss from the change in the fair value of the bonds in net income if the entire change is due to the change in general interest rates. But any change in the fair […]

Problem 14–3 (continued) Requirement 3 (effective interest) (straight-line) Interest expense ($4,500 + 404)…………………………………. 4,904 Discount on bonds payable ($3,232 ÷ 8)…………….. 404 Cash (4.5% x $100,000)…………………………………….. 4,500 Requirement 4 By the straight-line method, a company determines interest indirectly by allocating […]

Problem 14–6 (concluded) February 28, 2021 (Western) Interest expense ($1,800,000 + 40,000 – 1,200,000). 640,000 Interest payable (from adjusting entry)……………….. 1,200,000 February 28, 2021 (Stillworth) Cash ($30,000 x 12% x 6/12)……………………………… 1,800 Discount on bond investment ($20 x 2 months)…… […]

CHAPTER 15 LEASES Overview In the previous chapter, we saw how companies account for their long-term debt. The focus of that discussion was bonds and notes. In this chapter, we continue our discussion of debt, but we now turn our […]

PowerPoint Slides Two PowerPoint presentations of the chapter are available in the Connect Library: 1. With “Concept Checks” useful for classroom presentation, permitting the instructor to intersperse in the presentation short exercises students can be asked to solve individually or […]

QUESTIONS FOR REVIEW OF KEY TOPICS Question 15-1 Regardless of the legal form of the agreement, a lease is accounted for as either a rental agreement or a purchase/sale accompanied by debt financing depending on the Question 15-2 Periodic interest […]

Problem 15-4 Requirement 1 Finance lease to lessee; Sales-type lease to lessor. Since the present value of lease payments (same for both the lessor and the Calculation of the Present Value of Lease Payments Present value of periodic lease payments […]

Problem 15-9 Situation 1 2 3 4 A. The lessor’s: 1. Lease payments1$40,000 $40,000 $40,000 $33,000 B. The lessee’s: 4. Lease payments440,000 40,000 40,000 33,000 5. Right-of-use asset534,437 34,437 34,437 29,319 6. Lease payable634,437 34,437 34,437 29,319 1 ($10,000 x […]

Problem 15–13 Requirement 1 January 1, 2018 Present Value of Lease Payments for Lessee Present value of periodic lease payments Plus: Present value of the excess lessee-guaranteed residual value ($40,000 x .82270*) 32 ,908 Present value of lease payments $742 […]

Problem 15-17 (connued) Requirement 2 Branson Construction (Lessee) Interest expense (10% x [$936,492* – 100,000])………………… 83,649 ** present value of an annuity due of $1: n=20, i=10% Amortization expense ($936,492 ÷ 20 years)…………………….. 46,825 …………………………………………………..Right-of-use asset …………………………………………………………………………46,825 *** This debit […]

Problem 15-18 (connued) Requirement 10 December 31, 2021 Yard Art Landscaping (Lessee) Maintenance expense (2021 fee)……………………………………… 1,000 ………………….Prepaid maintenance expense (paid in 2020) …………………………………………………………………………..1,000 Branch Motors (Lessor) Cash (lease payment)…………………………………………………. 11,000 …..Maintenance fee payable [or prepaid maintenance*] …………………………………………………………………………..1,000 ……………Lease receivable […]

Problem 15-20 (connued) Requirement 3 Lease Amortization Schedule Effective Decrease Outstanding Payments Interest in Balance Balance 10% x Outstanding Balance 645,526 1/1/18 110,000 110,000 535,526 12/31/18 110,000 .10 (535,526) = 53,553 56,447 479,079 12/31/19 110,000 .10 (479,079) = 47,908 62,092 […]

Problem 15-22 Requirement 1 Lessor’s Calculation of Lease payments Amount to be recovered (fair value) $365,760 Less: Present value of the residual value ($25,000 x .68301*) (17 ,075) * present value of $1: n=4, i=10% ** present value of an […]

Problem 15-23 (connued) (a) by Western Soya Co. (the lessee) Since at least one (two in this case) classification criterion is met, this is a finance lease to the lessee. Western Soya records the present value of lease payments as […]

Problem 15–26 Requirement 1 $5,000  .86384*** = $4,319 * Present value of $1: n = 1, i = 5%. ** Present value of $1: n = 2, i = 5%. *** Present value of $1: n = 3, i […]

Problem 15-29 (concluded) Calculations: September 30, 2018* Lease receivable (present value calculated above)…………. 6,000,000 December 31, 2018** Cash (lease payment)……………………………………………….. 391,548 Lease receivable (difference)………………………………… 223,294 Interest revenue (3% x [$6,000,000 – 391,548])………… 168,254 Equipment (lessor’s cost)……………………………………… 6,000,000 Cash (lease payment)……………………………………………….. […]

Brief Exercise 15-1 The present value of the lease payments is greater than “substantially all” of the Brief Exercise 15-2 The lease is a finance lease to Athens because the present value of the lease payments is greater than “substantially […]

Communication Case 15-2 First, this case has no single right answer. The process of developing the proposed solutions will likely be more beneficial than the solutions themselves. Students should benefit from participating in the process, interacting first with other group […]

Exercise 15-1 Situation 1 Since none of the criteria is met, this is an operating lease to the lessee: Lessee’s Application of Classification Criteria 1 Does the agreement specify that ownership of the asset transfers 2 Does the agreement contain […]

Exercise 15-5 1. Calculation of the present value of lease payments (“selling price”) 2. Receivable at December 31, 2018 Receivable Initial balance, June 30, 2018…………. $3,000,000 June 30, 2018 reduction………………… (562,907)* Dec. 31, 2018 reduction………………… (441 ,052)** December 31, 2018 […]

Exercise 15–11 Present Value of Lease Payments: contract present payments value * Present value of an annuity due of $1: n = 20, i = 2% [i = 2% (8% ÷ 4) because the contract calls for quarterly payments] Requirement […]

Exercise 15-16 Present Value of Lease Payments: lease present payments value * present value of an annuity due of $1: n=8, i=2% [i = 2% (8% ÷ 4) because the lease calls for quarterly payments] January 1, 2018 Right-of-use asset […]

Exercise 15-23 The lease term will be 6 years. The lease term is the contractual lease term modified by any renewal or termination options for which exercise of the options is “reasonably certain.” Requirement 1 January 1, 2018   […]

Exercise 15-29 Requirement 1 Note: Because exercise of the option appears at the beginning of the lease to be reasonably certain, payment of the option price ($45,000) is expected to occur when the option becomes exercisable (at the end of […]

Exercise 15-36 Requirement 1 The specific citation that specifies when a lessee remeasures the lease payments is FASB ASC 842–10–35–4: “Leases–Overall–Subsequent Measurement–Lease Payments.” Requirement 2 A lessee shall remeasure the lease payments if any of the following occur: a. The […]

CHAPTER 16 ACCOUNTING FOR INCOME TAXES Overview In this chapter we explore financial accounting and reporting for the effects of income taxes. The discussion defines and illustrates temporary differences, which are the basis for recognizing deferred tax assets and deferred […]

Suggestions for Class Activities 1. Target Analysis Have students, individually or in groups, go to Target’s most recent annual report at Target’s website. Ask them to: 1. Determine the temporary difference that for Target creates the largest deferred assets and […]

_____________________________________________________________________________ Question 16–1 Income tax expense is comprised of both the current and the deferred tax consequences of events and transactions already recognized. Specifically, the $12.3 Question 16–2 Temporary differences between the reported amount of an asset or liability in […]

Analysis Case 16–1 Requirement 1 Temporary differences originate in one or more years and reverse in one or more future years. Differing depreciation methods are a common example of a Requirement 2 Intraperiod tax allocation allocates the total income tax […]

Analysis Case 16–8 1. As an example, Kroger’s January 30, 2016 income statement reports the income tax expense for the year as $1,045 million. The current portion is $723 Income tax expense 1,045 Deferred tax assets/liabilities 285 Income tax payable […]

Brief Exercise 16–9 Current year Future taxable amount Pretax accounting income $ 900,000 Permanent difference: Taxable income (tax return) $ 760,000 Enacted tax rate 40% 40% Tax payable currently $ 304 ,000 Deferred tax liability $ 48,000 Journal entry Income […]

Exercise 16–7 1. Liability—loss contingency 2. Liability—deferred subscription revenue 3. Prepaid rent 4. Accrued bond interest payable 5. Prepaid insurance 6. Unrealized loss on investments (shareholders’ equity account) 7. Warranty liability 8. Liability—deferred rent revenue 9. Accumulated depreciation; and thus […]

Exercise 16–15 Requirement 1 ($ in millions) Current Future Year Deductible Amounts Total 2018 2019 2020 2021 2022 Pretax accounting income 14 Temporary difference:  Deferred Tax Asset Deferred Tax Asset: 0 Ending balance (balance currently needed) $ 1.7 1.7 […]

Exercise 16–22 Requirement 1 ($ in thousands) Current Future Prior Years Year Deductible 2016 2017 2018 Amounts [total] Net operating loss (160)  Deferred Tax Asset Deferred Tax Asset: 0 Ending balance (balance currently needed) $ 8 8Less: beginning balance […]

Exercise 16–30 Income Statement For the fiscal year ended March 31, 2018 ($ in millions) Revenues $ 830 Cost of goods sold (350 ) The FASB Accounting Standards Codification represents the single source of authoritative U.S. generally accepted accounting principles. […]

Problem 16–4 2018 2019 2020 2021 Pretax accounting income $60,000 $80,000 $70,000 $70,000 Cumulative Temporary 2018 2019 2020 2021 Difference Straight-line 30,000 30,000 30,000 30,000 Tax depreciation (39 ,600) (52 ,800) (18 ,000) (9 ,600) Temporary differences: (9,600) (22,800) 12,000 […]

Problem 16–8 (continued) Journal entry at the end of 2018 Income tax expense (to balance) 52 * Temporary difference for subscriptions: 2017 2018 2019 Earned in current yr. (reported on income statement) $25 $33 Collected in prior yr., recognized in […]

Problem 16–11 Requirement 1 Deferred tax assets are recognized for all deductible temporary differences and operating loss carryforwards. Deferred tax assets are then reduced by a valuation allowance if it is “more likely than not” that some portion or all […]

CHAPTER 17 PENSIONS AND OTHER POSTRETIREMENT BENEFITS Overview Employee compensation comes in many forms. Salaries and wages, of course, provide direct and current payment for services provided. However, it’s commonplace for compensation also to include benefits payable after retirement. We […]

PowerPoint Slides Two PowerPoint presentations of the chapter are available in the Connect Library: 1. With “Concept Checks” useful for classroom presentation, permitting the instructor to intersperse in the presentation short exercises students can be asked to solve individually or […]

Assignment Chart Learning Est. time Questions Objective(s) Topic (min.) 17–1 1 Motivation to offer a pension plan 5 17–2 1 Qualified pension plans 5 17–3 1 What type of pension plan? 5 17–4 2 What is the vested benefit obligation? […]

AACSB assurance of learning standards in accounting and business education require documentation of outcomes assessment. Although schools, departments, and faculty may approach assessment and its documentation differently, one approach is to provide specific questions on exams that become the basis […]

Problem 17–15 ( )s indicate credits; debits otherwise ($ in 000s) PBO Plan Assets Prior Service Cost –AOCI Net Loss –AOCI Pension Expense Cash Net Pension (Liability) / Asset Balance, Jan. 1, 2018 (4100) 4530 840 477 430 Service cost2(332) […]

Problem 17–17 (concluded) Requirement 2 GLOBAL COMMUNICATIONS Statement of Comprehensive Income Year ended December 31, 2018 Net income $300.0 Other comprehensive income: Net unrealized holding gain on investments ($30, net of $12 tax) $ 18.0 Loss on pensions—PBO estimate ($23, […]

Case 17–1 (continued) Requirement 2 The value of your plan assets as of the anticipated retirement date is $1,872,981: A B C D E End of Years to Future Value Year: Retirement Salary Contribution at Retirement 2018 39 100,000 8,000 […]

Real World Case 17–7 Requirement 1 FedEx sponsors both defined benefit and defined contribution pension plans as well as a postretirement healthcare plan. These are described in disclosure note 13 (in part) for the years ended May 31, 2015 and […]

Brief Exercise 17–1 ($ in millions) Beginning of the year PBO $80 Service cost 10 Brief Exercise 17–2 ($ in millions) Beginning of the year PBO $80 Service cost ? Interest cost 4  (5% x $80) Loss (gain) on […]

Exercise 17–4 Requirement 1 ($ in millions) Pension expense (total)…………………………………………… 14 Requirement 2 ($ in millions) Pension expense (total)…………………………………………… 10 Plan assets (expected return on assets)………………………….. 4 Amortization of net gain—OCI (current amortization)* ….. 2 PBO ($10 service cost + […]

Exercise 17–15 PBO Plan Assets Prior Service Cost –AOCI Net Gain –AOCI Pension Expense Cash Net Pension (Liability ) / Asset Balance, Jan. 1, 2018 (800) 600 114 80 (200) Service cost (84) 84 (84) Interest cost, 5% (40) 40 […]

Exercise 17–21 Requirement 1 ($ in millions) Service cost $ 60 Interest cost 27 * Since the amendment was at the end of the year, there is no amortization of prior service cost in 2018. Requirement 2 ($ in millions) […]

Exercise 17–29 Requirement 1 ($ in millions) Service cost $34 Requirement 2 ($ in millions) Postretirement benefit expense (calculated above)…………………… 47 Amortization of prior service cost—OCI (amortization)*……. 1 APBO ($34 service cost + $12 interest cost)…………………………… 46 The amortization amount […]

Problem 17–6 1. Projected Benefit Obligation ($ in 000s) Balance, January 1, 2018 $ 0 Service cost 150 2. Plan Assets Balance, January 1, 2018 $ 0 Actual return on plan assets (10% x $0) 0 Contributions, 2018 160 Benefits […]

Problem 17–10 (concluded) Requirement 3 ($ in millions) PBO balance, January 1 $480 Service cost 75 Plan assets balance, January 1 $300 Actual return on plan assets 20 Contributions 2018 60 Benefits paid (36 ) Plan assets balance, December 31 $344 Because […]

CHAPTER 18 SHAREHOLDERS’ EQUITY Overview We turn our attention in this chapter from liabilities, which represent the creditors’ interests in the assets of a corporation, to the shareholders’ residual interest in those assets. The discussions distinguish between the two basic […]

5. Professional Skills Development Activities The following are suggested assignments from the end-of-chapter material that will help your students develop their communication, research, analysis, and judgment skills. Communication Skills. Analysis Case 18–2, Exercise 18–23, and Problem 18–6 are suitable for […]

AACSB assurance of learning standards in accounting and business education require documentation of outcomes assessment. Although schools, departments, and faculty may approach assessment and its documentation differently, one approach is to provide specific questions on exams that become the basis […]

Case 18–4 (concluded) Requirement 4 One component of Other comprehensive income for Cisco is “unrealized gains on investments.” For reporting purposes, some investments in securities are reported at their fair values. The holding gains and losses from writing “available-for-sale” 15. […]

Research Case 18–9 The results students report will vary depending on the companies chosen. It Typical items that affect retained earnings are dividends (cash, property, or stock) and net income or loss. Treasury stock or retired stock transactions also affect […]

Brief Exercise 18–5 Horton’s total paid-in capital will decline by $17 million, the price paid to buy back the shares. Journal entry (not required): ($ in millions) Common stock (2 million shares x $1 par)……………………………. 2 * Paid-in capital—excess of […]

Exercise 18–2 Requirement 1 The specific citation that describes the guidelines for presenting accumulated other comprehensive income on the statement of shareholders’ equity is FASB ASC Requirement 2 45-14 The total of other comprehensive income for a period shall be […]

Exercise 18–12 1. January 23, 2018 ($ in millions) 2. September 3, 2018 Cash (1 million shares x $21)……………………………………………… 21 Treasury stock (1 million shares x $20)…………………………….. 20 Paid-in capital—share repurchase (remainder)………………… 1 3. November 4, 2018 Cash (1 million […]

Exercise 18–22 The FASB Accounting Standards Codification represents the single source of authoritative U.S. generally accepted accounting principles. The specific citation for each of the following items is: 1. Disclosure for the pertinent rights and privileges of the various securities […]

Problem 18–3 Requirement 1 February 15, 2018 (a) Retired Common stock (300,000 shares x $1 par)…………………….. 300,000 (b) Accounted for as treasury stock Treasury stock (300,000 shares x $8)………………………….. 2,400,000 Cash (300,000 shares x $8)……………………………………. 2,400,000 February 17, 2019 (a) […]

Problem 18–6 Requirement 1 2018 ($ in millions) Cash……………………………………………………………………………. 480 Preferred stock (1 million shares x $10 par per share)…………… 10 Paid-in capital—excess of par, preferred……………………… 470 Cash……………………………………………………………………………. 70 2019 ($ in millions) Common stock (3 million shares x $1 […]

Problem 18–11 A stock dividend is the distribution of additional shares of stock to current shareholders of the corporation. The investor receives no assets, only additional shares. Because each shareholder receives the same percentage increase in To record the investment […]

Real World Case 18–1 Requirement 1 Assuming the shares are issued at the midpoint of the price range indicated, Requirement 2 $ in millions Cash (determined above)…………………………………………………..398.750 Common stock (27.5 million shares x $.01 par)…………………. .275 Paid-in capital—excess of par […]

CHAPTER 19 SHARE-BASED COMPENSATION AND EARNINGS PER SHARE Overview We’ve discussed a variety of employee compensation plans in prior chapters, including pension and other postretirement benefits in Chapter 17. In this chapter we look at some common forms of compensation […]

Suggestions for Class Activities 1. Research Activity Microsoft reported the following in a recent annual report: Employee Stock Purchase Plan. We have an employee stock purchase plan for all eligible employees. Compensation expense for the employee stock purchase plan is […]

AACSB assurance of learning standards in accounting and business education require documentation of outcomes assessment. Although schools, departments, and faculty may approach assessment and its documentation differently, one approach is to provide specific questions on exams that become the basis […]

Real World Case 19–7 Requirement 1 The note indicates that Best Buy does not include potentially dilutive shares of common stock when calculating EPS for the twelve months ended March 3, 2012. Requirement 2 Best Buy’s diluted earnings per share […]

Case 19–12 (concluded) Requirement 2 Sometimes, the effect of potential common shares would be to increase, rather than decrease, EPS. These we refer to as “antidilutive” securities. Such securities are ignored when calculating both basic and diluted EPS. For example, […]

Question 19–20 The accounting treatment of SARs depends on whether the award is considered an equity instrument or a liability. If the employer can choose to settle in shares rather than cash, the award is considered to be equity. If […]

Exercise 19–2 Requirement 1 Requirement 2 no entry Requirement 3 ($ in millions) Compensation expense ($30 million ÷ 3 years)… 10 Paid-in capital—restricted stock…………….. 10 Requirement 4 Compensation expense ($30 million ÷ 3 years)… 10 Paid-in capital—restricted stock…………….. 10 Requirement […]

1. EPS in 2018 (amounts in thousands, except per share amount) net Earnings income Per Share $400 $400 —————————————————————————— –––– = 2. EPS in 2019 (amounts in thousands, except per share amount) net Earnings income Per Share $400 $400 —————————————————————————— […]

Requirement 1 three-year vesting period, reducing earnings by $30 million each year. 2017 Compensation expense………………………………………………………….. 30 Paid-in capital—restricted stock………………………………………….. 30 2018 Compensation expense………………………………………………………….. 30 Paid-in capital—restricted stock………………………………………….. 30 Requirement 2 The total compensation for the award is $90 million ($5 […]

Requirement 1 We treat each individual vesting date as a separate award and allocate the compensation cost for each of the four groups (tranches) evenly over its individual vesting (service) period: Vesting Amount Fair Value Date Vesting per Option The […]

Problem 19–7 Requirement 1 No entry until the end of the reporting period, but compensation must be estimated at the grant date: options fair estimated expected value total to vest per option compensation Requirement 2 December 31, 2018, 2019, 2020, […]

(amounts in millions, except per share amounts) Basic EPS net preferred income dividends shares at Jan. 1 The incremental effect of the conversion of the preferred stock is: preferred dividends +120* ————————————— = $3.75 +32 conversion of preferred stock The […]

Problem 19–19 (continued) Requirement 2 (amounts in millions, except per share amount) 2019 Basic EPS net income shares at Jan. 1 2019 Diluted EPS net income $160 $160 —————————————————————————— = —— = $.50 300 + (30 – 20*) + (15 […]

CHAPTER 2 REVIEW OF THE ACCOUNTING PROCESS Overview Chapter 1 explained that the primary means of conveying financial information to investors, creditors, and other external users is through financial statements and related notes. The purpose of this chapter is to […]

Question 2–1 External events involve an exchange transaction between the company and a separate economic entity. For every external transaction, the company is receiving Question 2–2 According to the accounting equation, there is equality between the total economic resources of […]

Problem 2–10 (continued) McGUIRE CORPORATION Income Statement For the Year Ended December 31, 2018 Sales revenue …………………………………………… $342,000 Rent………………………………………………………. 12,000 Depreciation…………………………………………… 3,000 Miscellaneous ……………………………………….. 10,000 Total operating expenses ……………. 110,000 Operating income …………………………………….. 32,000 Other expense: Interest …………………………………………………. 3,600 Net […]

Problem 2–13 (continued) EXCALIBUR CORPORATION Balance Sheet At December 31, 2018 Assets Current assets: Cash ……………………………………………………… $ 23,300 Accounts receivable ……………………………….. 32,500 Liabilities and Shareholders’ Equity Current liabilities: Accounts payable …………………………………… $ 26,100 Salaries and wages payable ……………………… 4,500 Note […]

Brief Exercise 2–12 Sales revenue………………………………………………………… 850,000 ……………………………………………………Income summary ……………………………………………………………………….850,000 Solutions Manual, Vol.1, Chapter 2 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Income summary…………………………………………………… 815,000 ………………………………………………….Cost of goods […]

Exercise 2–8 1. Prepaid insurance ($12,000 x 30/36)………………………… 10,000 Insurance expense………………………………………….. 10,000 2. Depreciation expense…………………………………………. 15,000 Accumulated depreciation ……………………………… 15,000 Solutions Manual, Vol.1, Chapter 2 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior […]

Exercise 2–15 Requirement 1 Supplies 11/30 Balance 1,500 Expense 2,000 Requirement 2 Prepaid insurance 11/30 Balance 6,000 Expense ? 12/31 Balance 4,500 Insurance expense for December = $6,000 – 4,500 = $1,500 December 31, 2018 Insurance expense………………………………………………….. 1,500 ……………………………………………………Prepaid insurance […]

Exercise 2–21 Requirement 1 June 30 – adjusting entry Salaries and wages expense ($10,000 x 3/5)………………….. 6,000 July 1 – reversing entry Salaries and wages payable…………………………………….. 6,000 ……………………………………..Salaries and wages expense …………………………………………………………………………..6,000 July 2 – payment of salaries Salaries and […]

Problem 2–2 (continued) Requirements 1 and 3 BALANCE SHEET ACCOUNTS Cash Accounts receivable _____________________________ _____________________________ 1/1 Bal. 5,000 1/1 Bal. 1/31 Bal. Inventory Equipment _____________________________ _____________________________ 1/1 Bal. 5,000 1/1 Bal. 1/10 9,500 2,000 1/1 1/2 5,500 2,800 1/8 1/13 […]

Problem 2–4 (continued) PASTINA COMPANY Statement of Shareholders’ Equity For the Year Ended December 31, 2018 Total Common Retained Shareholders’ Stock Earnings Equity Balance at January 1, 2018 $60,000 $28,500 $ 88,500 Issue of common stock – 0 – – […]

Problem 2–6 (continued) INCOME STATEMENT ACCOUNTS Service revenue Miscellaneous expenses _____________________________________________________________________________ _____________________________________________________________________________ 0 1/1 Bal. 0 Salaries expense _____________________________________________________________________________ 1/1 Bal. 0 d. 41,000 _______ 12/31 Bal. 41,000 Requirement 4 Account Title Debits Credits Cash 45,800 Accounts receivable 17,700 Equipment […]

Requirement 2 Income overstated (understated) Adjustments to revenues: Adjustments to expenses: Overstatement of insurance expense (1,500) Understatement of depreciation expense 6,000 Understatement of interest expense 600 Understatement of supplies expense 1 ,100 Overstatement of net income $3 ,600 Understatement of […]

CHAPTER 20 ACCOUNTING CHANGES AND ERROR CORRECTIONS Overview Chapter 4 provided a brief overview of accounting changes and error correction. Later, we discussed changes encountered in connection with specific assets and liabilities as we dealt with those topics in subsequent […]

3. Professional Skills Development Activities The following are suggested assignments from the end-of-chapter material that will help your students develop their communication, research, analysis, and judgment skills. Communication Skills. Ethics Case 20–3, Research Case 20–7, and Problem 20–10 are suitable […]

AACSB assurance of learning standards in accounting and business education require documentation of outcomes assessment. Although schools, departments, and faculty may approach assessment and its documentation differently, one approach is to provide specific questions on exams that become the basis […]

Problem 20-16 Fair value adjustment calculation: Investment balance, December 31, 2018, as reported $250,000 Error adjustment 40,000 Corrected balance, 12/31/2018 $290,000 Fair value, 12/31/2018 (274,000) Fair value credit adjustment needed, 12/31/2018 $ 16,000 c. Loss–lawsuit……………………………………………………………. 130,000 Liability—lawsuit…………………………………………………. 130,000 d. Cost […]

Analysis Case 20-4 For changes not involving LIFO or changes from the LIFO method to another, the event is accounted for as a normal change in accounting principle. In general, we report voluntary changes in accounting principles retrospectively. This means […]

Judgment Case 20-10 Situation I 2.The change in estimate should be reflected in the current period and in future periods. Unlike a change in accounting principle, the change in accounting estimate should not be applied retrospectively. 3.This change in accounting […]

Brief Exercise 20-1 To record the change: ($ in millions) Retained earnings ……………………………………………………………………………. 8.2 Inventory ($32 million – 23.8 million)………………………………. 8.2 B & B applies the average cost method retrospectively; that is, to all prior Then, the cumulative effects of […]

Brief Exercise 20-12 (concluded) Error b 1. To include the $3 million in year 2018 purchases and increase retained earnings to what it would have been if 2017 cost of goods sold had not included the $3 million purchases. Analysis: […]

Exercise 20-6 The FASB Accounting Standards Codification® represents the single source of authoritative U.S. generally accepted accounting principles. The specific citation for each of the following items is: 1. Reporting most changes in accounting principle: 2. Disclosure requirements for a […]

Exercise 20-15 Requirement 1 A deferred tax liability is established using the currently enacted tax rate for the year(s) a temporary difference is expected to reverse. In this case that rate was ($ in millions) Income tax expense (to balance)………………………………………… […]

Exercise 20-21 Requirement 1 The error caused both 2016 net income and 2017 net income to be overstated, so retained earnings is overstated by a total of $85,000. Also, the note payable would be understated by the same amount. Remember, […]

Problem 20-4 Requirement 1 To record the change: Retained earnings (net effect) ………………………………………….. 12,000 Note: For financial reporting purposes, but not for tax, the company is retrospectively decreasing accounting income, but not taxable income. This creates a temporary difference between […]

Problem 20-8 (concluded) A change in depreciation method is considered a change in accounting estimate resulting from a change in accounting principle. Accordingly, the Hoffman Group reports the change prospectively; previous financial statements are not revised. Instead, the company simply […]

Problem 20-12 (concluded) f. This is a change in estimate resulting from a change in accounting principle and is accounted for prospectively. No entry is needed to record the change 2018 adjusting entry: A change in depreciation method is considered […]

CHAPTER 21 THE STATEMENT OF CASH FLOWS REVISITED Overview The objective of financial reporting is to provide investors and creditors with useful information, primarily in the form of financial statements. The balance sheet and the income statement—the focus of your […]

3. Spreadsheet Activity Have students create a functional spreadsheet in Excel or some other spreadsheet program capable of being used to help prepare a statement of cash flows. Suggest that the spreadsheet: 1. Accommodate debit and credit “explanations” for changes […]

AACSB assurance of learning standards in accounting and business education require documentation of outcomes assessment. Although schools, departments, and faculty may approach assessment and its documentation differently, one approach is to provide specific questions on exams that become the basis […]

Problem 21–14 (continued) Spreadsheet for the Statement of Cash Flows (continued) Dec.31 Changes Dec. 31 2017 Debits Credits 2018 Statement of Cash Flows Operating activities: Net income (1)50 Adjustments for noncash effects: Depreciation expense (2)22 Bad debt expense (3) 8 […]

METAGROBOLIZE INDUSTRIES Spreadsheet for the Statement of Cash Flows Dec.31 Changes Dec. 31 2017 Debits Credits 2018 Balance Sheet Assets: Cash 375 (15)205 580 Accounts receivable 450 (7)150 600 6 ,880 Liabilities: Accounts payable 450 (9)300 750 Accrued expenses 225 […]

Problem 21–19 (continued) INCOME STATEMENT ACCOUNTS Sales Dividend Revenue ________________________ ________________________________ Cost of Goods Sold Salaries Expense ________________________ ________________________________ 120 25 __________ (3) 120 (4) 25 Depreciation Expense Bad Debt Expense ________________________ ________________________________ 5 1 __________ (5) 5(1) 1 Interest […]

Problem 21–21 (continued) INCOME STATEMENT ACCOUNTS Sales Investment Revenue ________________________ ________________________________ Gain on Sale of Treasury Bills Cost of Goods Sold ________________________ ________________________________ 2 180 __________ 2(3) (4) 180 Salaries Expense Depreciation Expense ________________________ ________________________________ 73 12 __________ (5) 73 […]

Analysis Case 21–5 Requirement 1 (a) Cash _________________________________________________________________ Beginning balance ? Beginning cash + Net increase in cash = Ending cash Beginning cash + 183 = 360 Beginning cash = 360 – 183 Beginning cash = 177 (b) Accounts Receivable […]

Research Case 21–9 Requirement 1 The specific citation that specifies the classification of notes payable to suppliers is Requirement 2 Specifically, paragraph 45–17a states that cash outflows for operating activities include payments to acquire materials for manufacture or goods for […]

($ in millions) Interest expense (10% x 1/2 x $380) 19 Agee would report the cash inflow of $380 million from the sale of the bonds as a cash inflow from financing activities in its statement of cash flows. The […]

Cost of Accounts Cash paid to Situation goods sold Inventory payable suppliers increase increase (decrease) (decrease) 2 200 6 0 206 2. Summary Entry Cost of goods sold 200 Inventory 6 Cash (paid to suppliers of goods) 206 3 200 […]

Exercise 21–15 Wilson would report the $3,000,000* investment in the commercial food The $391,548 ($195,774* + 195,774**) cash lease payments are divided into the interest portion and the principal portion. The interest portion, $84,127, is reported as cash outflows from […]

Direct Method Cash Flows from Operating Activities: Cash received from customers $672 Cash paid to suppliers (234) The depreciation expense, patent amortization expense, and loss on sale of land are not cash flows. Indirect Method Cash Flows from Operating Activities: […]

$ in millions Pension expense (given) 82 Plan assets (expected return) 90 Exercise 21–28 PBO ($112 service cost + $51 interest cost) 163 Amortization of net loss—OCI (given) 1 Amortization of prior service cost—OCI (given) 8 Plan assets 9 Gain—OCI […]

WRIGHT COMPANY Spreadsheet for the Statement of Cash Flows Dec.31 Changes Dec. 31 2017 Debits Credits 2018 Balance Sheet Assets: Cash 30 (15)12 42 Accounts receivable 75 (1) 2 73 Liabilities: Accounts payable 35 (2) 7 28 Salaries payable 5 […]

METAGROBOLIZE INDUSTRIES Spreadsheet for the Statement of Cash Flows Dec.31 Changes Dec. 31 2017 Debits Credits 2018 Balance Sheet Assets: Cash 375 (14)205 580 Liabilities: Accounts payable 450 (4)300 750 Accrued expenses 225 (9)75 300 Lease liability—land 0 (2)20 X(2)150 […]

ARDUOUS COMPANY Spreadsheet for the Statement of Cash Flows Dec.31 Changes Dec. 31 2017 Debits Credits 2018 Balance Sheet Assets: Cash 81 (21)28 109 Accounts receivable 194 (1) 4 190 Investment rev. receivable 4 (2) 2 6 1 ,211 Liabilities: […]

CHAPTER 3 THE BALANCE SHEET AND FINANCIAL DISCLOSURES Overview Chapter 1 stressed the importance of the financial statements in helping investors and creditors predict future cash flows. The balance sheet, along with accompanying disclosures, provides relevant information useful in helping […]

5. Ethical Dilemma The chapter contains the following ethical dilemma: ETHICAL DILEMMA The Raintree Cosmetic Company has several loans outstanding with a local bank. The debt agreements all contain a covenant stipulating that Raintree must maintain a current ratio of […]

Question 3–1 The purpose of the balance sheet, also known as the statement of financial position, is to present the financial position of the company on a particular date. Unlike the income statement, Question 3–2 The balance sheet does not […]

Exercise 3–1 1. Total current assets 2. Short-term investments $90,000 – 5,000 – 20,000 – 60,000 = $5,000 3. Retained earnings Current assets + Long-term assets = Current liabilities + Long-term liabilities + Paid-in capital + Retained earnings (RE) $90,000 […]

Exercise 3–12 1. (B) in a separate disclosure note. 2. (A) in the summary of significant policies note. 3. (C) on the face of the balance sheet. 4. (B) in a separate disclosure note. 5. (B) in a separate disclosure […]

Exercise 3–19 1. Debt to equity ratio = Total liabilities ÷ Shareholders’ equity = 1.4 Shareholders’ equity × 1.4 = Total liabilities $2,500,000 × 1.4 = $3,500,000 = Total liabilities Total liabilities + Equity = Total assets $3,500,000 + 2,500,000 […]

Problem 3–4 WEISMULLER PUBLISHING COMPANY Balance Sheet At December 31, 2018 Assets Current assets: Cash and cash equivalents (1) ………………………………………….. $ 95,000 Short-term investments …………………………………………………… 110,000 Property, plant, and equipment: Machinery and equipment ………………………………………………. $320,000 Less: Accumulated depreciation ………………………………………. (110 […]

Problem 3–6 (concluded) (1) $67,000 + 50,000 in treasury bills considered a cash equivalent. Requirement 2 Cash equivalents—the policy used to determine what items are considered to be cash equivalents. Accounts receivable, net—disclosure on the face of the statement of […]

Communication Case 3–1 IBM manufactures and sells personal and mainframe computers. The computers included as current assets in the balance sheet for the company represent the cost of inventory available for sale. In addition, IBM uses computers in its operations. […]

Real World Case 3–10 Requirement 3 a. Note 21 reports the following subsequent event: On February 5, 2014, the Company entered into agreements with Green Mountain Coffee Roasters, Inc. (“GMCR”), providing for the development and introduction of the Company’s global […]

CHAPTER 4 THE INCOME STATEMENT, COMPREHENSIVE INCOME, AND THE STATEMENT OF CASH FLOWS Overview This chapter has a threefold purpose: (1) To consider important issues dealing with the content, presentation, and disclosure of net income and other components of comprehensive […]

PowerPoint Slides Three PowerPoint presentations of the chapter are available in the Connect Library: 1. With “Concept Checks” useful for classroom presentation, permitting the instructor to intersperse in the presentation short exercises students can be asked to solve individually or […]

Question 4–1 The income statement is a change statement that reports transactions— Question 4–2 Income from continuing operations includes the revenue, expense, gain, and loss transactions that will probably continue in future periods. It is important to segregate the income […]

Requirement 5 The current ratios of the two firms are comparable and within the range of the Current ratio = Current assets Current liabilities Metropolitan = $1,203.0 = 0.94 $1,280.2 Republic = $1,478.7 =0.83 $1,787.1 Acid-test ratio = Quick assets […]

Judgment Case 4–6 Financial Statement Presentation Situation Treatment (a–g) (CO, BC, or RE) 1. a. CO 2. b. RE 3. e. CO 4. f. CO 5. a. CO 6. d. BC 7. c. RE Judgment Case 4–7 1. The loss […]

Case 4–15 (concluded) 1. The company could have chosen to present the information in the two statements in a single, continuous statement of comprehensive income. 2. The company reported the following other comprehensive income items: a. Foreign currency translation adjustments. […]

Brief Exercise 4–3 PACIFIC SCIENTIFIC CORPORATION Income Statement For the Year Ended December 31, 2018 ($ in millions) Operating expenses: Selling………………………………………………………. $126 General and administrative………………………….. 105 Total operating expenses …………………………. 231 Operating income ………………………………………… 635 Other income (expense): Gain on […]

Brief Exercise 4–15 Receivables turnover ratio = Net sales Average accounts receivable (net) Receivables turnover ratio = $600,000 [$100,000 + 120,000] ÷ 2 Inventory turnover ratio = $400,000* [$80,000 + 60,000] ÷ 2 =5.45 times =5.71 times Inventory turnover ratio […]

Exercise 4–5 AXEL CORPORATION Income Statement For the Year Ended December 31, 2018 Sales revenue ………………………………………………. $ 592,000 Operating expenses: Selling …………………………………………………….. $67,000 Administrative …………………………………………. 87,000 Restructuring costs ……………………………………. 55 ,000 Total operating expenses …………………………. 209 ,000 Operating income ………………………………………… […]

Exercise 4–16 (concluded) Requirement 2 WAINWRIGHT CORPORATION Statement of Cash Flows For the Month Ended March 31, 2018 Cash flows from operating activities: Collections from customers $ 55,000 Cash flows from investing activities: Purchase of equipment (10 ,000) Net cash […]

Exercise 4–23 The FASB Accounting Standards Codification® represents the single source of authoritative U.S. generally accepted accounting principles. The specific citation for each of the following items is: 1. The calculation of the weighted average number of shares for basic […]

Problem 4–1 REED COMPANY Comparative Income Statements For the Years Ended December 31 2018 2017 Sales revenue …………………………………………………[1] $4,000,000 [6] $3,000,000 Operating expenses: Administrative …………………………………………….[3] 750,000 [8] 635,000 Selling ………………………………………………………..[4] 340,000 [9] 282,000 Loss from fire damage ………………………………….. 50,000 – […]

Problem 4–8 DUKE COMPANY Statement of Comprehensive Income For the Year Ended December 31, 2018 Sales revenue ………………………………………………………… $15,000,000 Operating expenses: General and administrative …………………………………… $1,000,000 Selling ………………………………………………………………. 500,000 Restructuring costs ………………………………………………. 300,000 Loss from write-down of obsolete inventory …………… […]

Requirement 2 The return on assets indicates a company’s overall J&J’s profitability is significantly higher than that of Pfizer. Rate of return on assets = Net income Total assets profitability, ignoring specific sources of financing. In this regard, J&J = […]

CHAPTER 5 REVENUE RECOGNITION Overview In Chapter 4, we discussed net income and its presentation in the income statement. In Chapter 5, we focus on revenue recognition, which determines when and how much revenue appears in the income statement. In […]

Supplement: GAAP in Effect Prior to ASU No. 2014-09 I. Summary of GAAP Changes A. ASU No. 2014-09 replaced over 200 specific items of revenue recognition guidance. Illustration 5–S1 summarizes some important changes in GAAP that occurred. II. The Realization […]

Chapter 5 Revenue Recognition and Profitability Analysis QUESTIONS FOR REVIEW OF KEY TOPICS Question 5–1 The five key steps in applying the core revenue recognition principle are: 1. Identify the contract with a customer. 5. Recognize revenue when (or as) […]

Problem 5-1 (concluded) Requirement 2 a. Number of performance obligations in the contract: 1. The access to the gym for 50 visits is one performance obligation. The option to is not a performance obligation in the contract. (Note: It could […]

Problem 5–6 Requirement 1 Cash 80,000 Deferred revenue 80,000 $80,000 is recognized as deferred revenue. Requirement 2 Deferred revenue ($80,000 ÷ 10) Bonus receivable ($40,000 ÷ 10) 8,000 4,000 Service revenue 12,000 Super Rise earns revenue of $12,000 associated in […]

Requirement 5 2018 2019 2020 Costs incurred during the year $2,400,000 $3,800,000 $3,900,000 2018 2019 2020 Contract price $10 ,000,000 $10 ,000,000 $10,000,000 Actual costs to date 2,400,000 6,200,000 10,100,000 Estimated costs to complete 5 ,600,000 4 ,100,000 – 0 […]

Problem 5–15 Requirement 1 2018 cost recovery % : $180,000 2019 cost recovery %: $280,000 = 70% (gross profit % = 30%) $400,000 2018 gross profit: Cash collection from 2018 sales = $120,000 x 40% = $48,000 2019 gross profit: […]

Problem 5–19 Requirement 1 a. January 30, 2018 Cash ……………………………………………………………………. 200,000 1,200,000 b. September 1, 2018 Deferred franchise fee revenue………………………………… 1,200,000 Franchise fee revenue ………………………………………… 1,200,000 c. September 30, 2018 Accounts receivable ($40,000 x 3%) …………………………… 1,200 Service revenue …………………………………………………. […]

Communication Case 5–7 The critical question that student groups should address is how to account for The preferred solution should include the idea that the sale of an ice cream cone to a person who has a card involves two […]

Target Case Requirement 1 Target reports Sales revenue of $73,785 million for the 2015 fiscal year, which ended January 30, 2016. Requirement 2 Recording revenue at the point of sale indicates that Target records revenue at the Requirement 3 Target […]

Question 5–21 Sometimes a company arranges for another company to sell its product under consignment. The “consignor” physically transfers the goods to the other company commission and approved expenses) to the consignor. Because the consignor retains the risks and rewards […]

Brief Exercise 5-11 Number of performance obligations in the contract: 1. The separate goods and services that Precision Equipment has agreed to provide each other. The contractor’s role is to integrate and customize them to create one automated assembly line. […]

Brief Exercise 5–40 Orange has separate sales prices for the two parts of LearnIt-Plus, so the that revenue will be deferred and recognized over the life of the one-year period in which the Office Hours are delivered. If LearnIt were […]

Exercise 5-8 Requirement 1 Number of performance obligations in the contract: 2. Delivery of keyboards is one performance obligation. The special discount being distinct, as it could be sold or provided separately, and it is separately identifiable, as it is […]

Exercise 5–16 The FASB Accounting Standards Codification® represents the single source of authoritative U.S. generally accepted accounting principles. Requirement 1 Regarding disclosures that are required with respect to performance the appropriate citation is: FASB ASC 606–10–50–12: “Revenue from Contracts with […]

Exercise 5–21 SUMMARY Gr. Profit Recognized Over Time Gr. Profit Recognized Upon Completion Situation 2018 2019 2020 2018 2019 2020 1$166,667 $233,333 $100,000 $0 $0 $500,000 6$(100,000) $(100,000) $(100,000) $(100,000) $(100,000) $(100,000) Situation 1 – Revenue Recognized Over Time 2018 […]

SUPPLEMENT EXERCISES Exercise 5–23 Requirement 1 2018 cost recovery %: $234,000 2019 cost recovery %: $245,000 = 70% (gross profit % = 30%) $350,000 2018 gross profit: Cash collection from 2018 sales of $150,000 x 35% = $52 ,500 2019 […]

Exercise 5–29 (concluded) When payments are received, gain on sale of land is recognized, calculated by April 1, 2018 Cash…………………………………………………………………….. 120,000 Installment receivables……………………………………….. 120,000 To record cash collection from installment sale Deferred gain………………………………………………………… 96,000 Gain on sale of land (80% […]

CHAPTER 6 TIME VALUE OF MONEY CONCEPTS Overview Time value of money concepts, specifically future value and present value, are essential in a variety of accounting situations. These concepts and the related computational procedures are the subjects of this chapter. […]

Question 6–1 Question 6–2 Compound interest includes interest not only on the original invested amount but also on the accumulated interest from previous periods. Question 6–3 If interest is compounded more frequently than once a year, the effective rate or […]

Exercise 6–3 Present value of $1: n = 10, i = 7% (from Table 2) 2. PV = $14,000 (0.39711) = $5,560 Present value of $1: n = 12, i = 8% (from Table 2) 3. PV = $25,000 (0.10367) […]

Exercise 6–16 PV = ? x 0.90573= 1,200 annuity amount PVA = $1,325 = $88 = Payment 14.99203 Present value of an ordinary annuity of $1: n = 18, i = 2% (from Table 4) Exercise 6–17 To determine the […]

Problem 6–6 1. Present value of $1: n = ?, i = 8% (from Table 2, n = approximately 9 years) 2. Annuity factor = Annuity factor = $28,700 = 4.1000 $7,000 Present value of an ordinary annuity of $1: […]

Problem 6–14 Requirement 1 Tinkers: Present value of an ordinary annuity of $1: n = 15, i = 11% (from Table 4) PV = $143,817 x 0.81162 = $116,725 Present value of $1: n = 2, i = 11% (from […]

Real World Case 6–6 Requirement 1 The maturity value (face amount) can be determined by dividing the present value by the present value of $1 factor for 8 semiannual periods (end of 2015 – beginning of 2020) at the semiannual […]

CHAPTER 7 CASH AND RECEIVABLES Overview We begin our study of assets by looking at cash and receivables—the two assets typically listed first in a balance sheet. Internal control and classification in the balance sheet are key issues we address […]

Suggestions for Class Activities 1. Real World Scenario The following is an excerpt from a December 18, 2000, article on TheStreet.com titled “Cisco Triples Bad-Account Provision as Cash Crunch Deepens.” The article discusses an increase in bad debts for Cisco […]

Question 7–1 Cash equivalents usually include negotiable instruments as well as highly Question 7–2 Internal control procedures involving accounting functions are intended to improve the accuracy and reliability of accounting information and to safeguard the company’s assets. The separation of […]

Integrating Case 7–8 McLaughlin’s underestimation of bad debts is treated as a change in accounting estimate. Changes in estimates are accounted for prospectively. When a company revises a previous estimate, prior financial statements are not restated. Instead, the company merely […]

Brief Exercise 7–10 (1)Allowance for uncollectible accounts: Beginning balance $ 25,000 Deduct: Write-offs (16,000) Required allowance (33 ,400)* Bad debt expense $24,400 (2) Required allowance = $334,000** x 10% = $33,400* Accounts receivable: Beginning balance $ 300,000 Add: Credit sales […]

Exercise 7–5 Requirement 1 November 17, 2018 Accounts receivable……………………………………………….. 42,000 …………………………………………………………Sales revenue …………………………………………………………………………42,000 November 26, 2018 Cash (98% x $42,000)……………………………………………….. 41,160 Sales discounts (2% x $42,000)………………………………….. 840 ………………………………………………..Accounts receivable …………………………………………………………………………42,000 Requirement 2 November 17, 2018 Accounts receivable……………………………………………….. 42,000 …………………………………………………………Sales revenue […]

Exercise 7–15 Requirement 1 June 30, 2018 Note receivable (face amount)……………………………………. 30,000 December 31, 2018 Discount on note receivable ……………………………………. 1,200 ………………………………………………..Interest revenue ($30,000 x 8% x 6/12) …………………………………………………………………………..1,200 March 31, 2019 Discount on note receivable ……………………………………. 600 ………………………………………………..Interest revenue […]

Exercise 7–30 Requirement 1 Step 1: Bank Balance to Corrected Balance Balance per bank statement $38,018 Step 2: Book Balance to Corrected Balance Balance per books $38,918 Add: Error in recording cash receipt ($2,000 – 200) 1,800 Deduct: Service charges […]

Problem 7–4 Requirement 1 To record accounts receivable written off during the year 2018: ………………………………………………..Accounts receivable …………………………………………………………………………35,000 To record collection of account receivable previously written off: Accounts receivable……………………………………………….. 3,000 ………………………..Allowance for uncollectible accounts …………………………………………………………………………..3,000 Cash…………………………………………………………………….. 3,000 ………………………………………………..Accounts receivable …………………………………………………………………………..3,000 Requirement […]

Problem 7–10 Requirement 1 February 28, 2018 Note receivable……………………………………………………… 10,000 …………………………………………………………Sales revenue …………………………………………………………………………10,000 March 31, 2018 Note receivable (face amount)……………………………………. 8,000 ………………………………Discount on notes receivable ($8,000 x 10%) ……………………………………………………………………….800 ………………………………………….Sales revenue (difference) …………………………………………………………………………..7,200 April 3, 2018 Accounts receivable……………………………………………….. 7,000 …………………………………………………………Sales […]

Problem 7–15 National Bank would recognize $3,359,005 of impairment, because it is not probable that a loss will occur. ANALYSIS Previous Value: New Value: Interest $500,000 x 3.99271 * =$ 1,996,355 Principal $8 million x 0.68058 ** =5 ,444,640 Present […]

Judgment Case 7–3 Requirement 1 a. Hogan should account for the sales discounts at the date of sale using the Revenues should be recorded at the cash equivalent price at the date of sale. Under the net method, the sale […]

CHAPTER 8 INVENTORIES: MEASUREMENT Overview The next two chapters continue our study of assets by investigating the measurement and reporting issues involving inventories and the related expense—cost of goods sold. Inventory refers to the assets a company (1) intends to […]

Assignment Chart Learning Est. time Questions Objective(s) Topic (min.) 8–1 3 Types of inventory for a manufacturer 5 8–2 1 Perpetual versus period inventory systems 5 8–3 1 Perpetual versus period inventory systems 5 8–4 2 f.o.b. shipping point versus […]

Question 8–1 Question 8–2 Question 8–3 Perpetual System Periodic System (1) Purchase of merchandise debit inventory debit purchases Solutions Manual, Vol.1, Chapter 8 8–1 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written […]

Brief Exercise 8–7 First-in, first-out (FIFO) Cost of goods sold: Date of Cost of Sale Units Sold Units Sold Total Cost January 10 125 (from Beg. Inv.) $25 $3,125 Ending inventory: Date of Purchase Units Unit Cost Total Cost January […]

Air France–KLM Case Per note 4.16, AF uses the weighted-average method to value its inventory. Under IFRS, the FIFO (first-in, first-out) method also can be used. However, the LIFO (last-in, first-out) method, which can be used under U.S. GAAP in […]

Exercise 8–14 First-in, first-out (FIFO) Cost of goods sold: Date of Cost of Sale Units Sold Units Sold Total Cost Aug. 14 2,000 (from Beg. Inv.) $6.10 $12,200 Last-in, first-out (LIFO) Date Purchased Sold Balance Beginning inventory 2,000 @ $6.10 […]

Exercise 8–24 Ending Ending Inventory Inventory Layers Inventory Layers Inventory Date at Base Year Cost at Base Year Cost Converted to Cost DVL Cost 12/31/2018 $200,000 = $200,000 $200,000 (base) $200,000 x 1.00 = $200,000 $200,000 1.00 12/31/2019 $231,000 = […]

Problem 8–4 Requirement 1 Beginning inventory (10,000 x $8.00) $ 80,000 Net purchases: * The 5,000 units purchased on December 28 are not included. The merchandise was shipped f.o.b. destination and did not arrive at Johnson’s warehouse until 2019. Cost […]

Problem 8–9 Requirement 1 Beginning inventory $ 450,000 Purchases: Cost of ending inventory: Date of purchase UnitsUnit cost Total cost Beg. Inv. 10,000 $15 $150,000 Beg. Inv. 5,000 20 100,000 Totals 15,000 $250,000 Requirement 2 Cost of goods sold assuming […]

Communication Case 8–4 Suggested Grading Concepts and Grading Scheme: Content (70%) _______ Prices are increasing. _______ Prices are decreasing. ________ 25 Discusses the various motivating factors that might influence the choice of inventory method. _______ The actual physical flow of […]

CHAPTER 9 INVENTORIES: ADDITIONAL ISSUES Overview We covered most of the principal measurement and reporting issues involving the asset inventory and the corresponding expense cost of goods sold in the previous chapter. In this chapter, we complete our discussion of […]

Real World Case 9–8 Requirement 1 Inventories are valued using the retail first-in, first-out method for goods in Requirement 2 The company uses the Producer Price Index in applying the dollar-value LIFO retail method to its pharmacy department inventories. Requirement […]

Brief Exercise 9–8 Cost Retail Beginning inventory $ 300 ,000 $ 450 ,000 Estimated ending inventory at cost: Retail Cost Beginning inventory $ 450,000 $ 300,000 Current period’s layer 40 ,000 × 71.21 % = 28,484 Total $ 490 ,000 […]

Exercise 9–3 Requirement 1 (1) (2) Product Cost NRV Inventory Value [Lower of (1) and (2)] 101 $120,000 $100,000 $100,000 The inventory value is $270,000. Requirement 2 Write-down of inventory: $300,000 – 270,000 = $30,000 Cost of Goods Sold* 30,000 […]

Exercise 9–15 Cost Retail Beginning inventory $160 ,000 $ 280 ,000 Plus: Net purchases 607,760 840,000 Estimated ending inventory at cost: Retail Cost Beginning inventory $280,000 $160,000 Current period’s layer 56 ,000 × 71% = 39,760 Total $336 ,000 $199,760 […]

Exercise 9–24 Requirement 1 Requirement 2 Effect on cost of goods sold: Decrease in beginning inventory ($78,000 – 71,000) – $7,000 Decrease in ending inventory ($83,000 – 78,000) + 5 ,000 Decrease in cost of goods sold $2 ,000 Cost […]

Exercise 9–31 If market price is less than the contract price, the purchase is recorded at the market price. June 15, 2018 Purchases (market price)………………………………………………… 85,000 If market price at year-end is less than contract price for outstanding purchase commitments, […]

Problem 9–7 Requirement 1 Employee discounts must be deducted in the retail column. Cost Retail Beginning inventory $ 100,000 $ 150,000 Plus: Purchases 1,387,500 2,000,000 Freight-in 10,000 Plus: Net markups 300 ,000 2,450,000 $1,497,500 Cost-to-retail percentage: = 61.12% $2,450,000 Less: […]

Problem 9–13 (continued) 2018 Step 1 Step 2 Step 3 Ending Ending Inventory Inventory Inventory Inventory Layers Layers at Year-End at Base Year at Base Year Converted to Retail Prices Retail Prices Retail Prices Cost $206,000 $206,000 = $200,000 $150,000 […]

Problem 9–18 (concluded) Requirement 3 a. $11.50 If market price on purchase date has not declined from year-end price, the purchase is recorded at the year-end market price. b. $10.00 If market price on purchase date declines from year-end price, […]

Copyright ©2018 McGraw-Hill Intermediate Accounting, 9e (Spiceland) Chapter 1 Environment and Theoretical Structure of Financial Accounting 1) The primary function of financial accounting is to provide relevant financial information to parties external to business enterprises. Answer: TRUE Difficulty: 1 Easy […]

Copyright ©2018 McGraw-Hill Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. A) Its EITF Issues are GAAP when entered in the Accounting […]

Copyright ©2018 McGraw-Hill 70) The enhancing qualitative characteristic of understandability means that information should be understood by: A) Those who are experts in the interpretation of financial information. B) Those who have a reasonable understanding of business and economic activities. […]

Copyright ©2018 McGraw-Hill Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. A) Approximation of average outstanding debt if all construction funds were […]

Copyright ©2018 McGraw-Hill 172) Kerry, Inc., exchanged land and cash of $8,000 for equipment. The land had a book value of $55,000 and a fair value of $60,000. Required: Prepare the journal entry to record the exchange. Assume the exchange […]

Copyright ©2018 McGraw-Hill Intermediate Accounting, 9e (Spiceland) Chapter 10 Property, Plant, and Equipment and Intangible Assets: Acquisition 1) Property, plant, and equipment and intangible assets are long-term, revenue producing assets. Answer: TRUE Difficulty: 1 Easy Topic: Asset categories and types […]

Copyright ©2018 McGraw-Hill 159) Rockport Refinery acquired all the outstanding common stock of Stellman Corporation for $68,000 in cash. The book values and fair values of Stellman’s assets and liabilities were as follows: Book Value Fair Value Current assets $24,000 […]

Copyright ©2018 McGraw-Hill 79) On June 1, 2017, the Crocus Company began construction of a new manufacturing plant. The plant was completed on October 31, 2018. Expenditures on the project were as follows ($ in millions): July 1, 2017 54 […]

Copyright ©2018 McGraw-Hill 43) Braxwell Corporation acquired the following assets associated with a manufacturing facility for a lump-sum price of $9,000,000. According to independent appraisals, the fair values were $4,000,000, $2,000,000, $3,000,000, and $1,000,000 for the building, patent, land, and […]

Copyright ©2018 McGraw-Hill 184) The table below contains data on depreciation for equipment. Required: Fill in the missing data in the table. Acquisition Date 1/1/2016 1/1/2016 1/1/2016 1/1/2017 1/1/2017 Cost $100,000 $100,000 $330,000 Accumulated Depreciation1 2/31/2018 $90,000 Depreciation 2017 $10,000 […]

61 Listed below are five terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the correct term. A) Triggers commencement of depreciation. B) Cost less accumulated depreciation. C) Expenditures made […]

Copyright ©2018 McGraw-Hill 205) Assume the same facts as above, except that the fair value of Oxford (the reporting unit) is $225 million. Required: Determine the amount, if any, of the goodwill impairment loss that Dooling must recognize on these […]

Copyright ©2018 McGraw-Hill 94) Broadway Ltd. purchased equipment on January 1, 2016, for $800,000, estimating a five- year useful life and no residual value. In 2016 and 2017, Broadway depreciated the asset using the straight-line method. In 2018, Broadway changed […]

Copyright ©2018 McGraw-Hill 54) On September 30, 2018, Bricker Enterprises purchased a machine for $200,000. The estimated service life is 10 years with a $20,000 residual value. Bricker records partial-year depreciation based on the number of months in service. Depreciation […]

Copyright ©2018 McGraw-Hill Intermediate Accounting, 9e (Spiceland) Chapter 11 Property, Plant, and Equipment and Intangible Assets: Utilization and Disposition 1) The three factors in cost allocation of a depreciable asset are service life, allocation base, and allocation method. Answer: TRUE […]

Copyright ©2018 McGraw-Hill 193) On July 1, 2018, Clearwater Inc. purchased 6,000 shares of the outstanding common stock of Mountain Corporation at a cost of $140,000. Mountain had 30,000 shares of outstanding common stock. The total book value and total […]

Copyright ©2018 McGraw-Hill 89) When the investor’s level of influence changes, it may be necessary to change from the equity method to another method. When the level of ownership falls from a range of 20% to 50% to less than […]

Copyright ©2018 McGraw-Hill 128) Dicker Furriers purchased 1,000 bonds of Loose Corporation on January 10, 2017, for $800 per bond and classified the investment as securities available for sale. Loose’s market value was $400 per bond on December 31, 2017, […]

81 174) Jackson Company engaged in the following investment transactions during the current year. Feb. 17 Purchased 500 shares of Medical Company common stock for $20 per share plus a brokerage commission of $100. Jackson does not have significant influence […]

Copyright ©2018 McGraw-Hill Intermediate Accounting, 9e (Spiceland) Chapter 12 Investments 1) Securities classified as held to maturity could be reported as either current or long-term in a classified balance sheet, depending upon their maturity dates. Answer: TRUE Difficulty: 1 Easy […]

Copyright ©2018 McGraw-Hill 52) What is the effect on a company’s cash flows and reported profit from accounting for an investment as a trading security as compared to accounting for it as an available-for-sale security? Effect on Total Cash Flows […]

61 155) Note due June 9, 2019. Difficulty: 2 Medium Topic: Accounts payable; Credit line—Commercial paper—Notes; Advance collections — Refundable deposits; Current and noncurrent classification; Loss contingencies; Product warranties and guarantees; Unasserted claims and assessments Learning Objective: 13-02 Account for […]

99 197) In 2018, Cap City Inc. introduced a new line of televisions that carry a two-year warranty against manufacturer’s defects. Based on past experience with similar products, warranty costs are expected to be approximately 1% of sales during the […]

Copyright ©2018 McGraw-Hill 57) Which of the following is not a current liability? A) Accounts payable. B) A note payable due in two years. C) Accrued interest payable. D) Sales tax payable. Answer: B Difficulty: 1 Easy Topic: Current and […]

Copyright ©2018 McGraw-Hill Intermediate Accounting, 9e (Spiceland) Chapter 13 Current Liabilities and Contingencies 1) Some liabilities are not contractual obligations and may not be payable in cash. Answer: TRUE Difficulty: 1 Easy Topic: Characteristics of liabilities Learning Objective: 13-01 Define […]

81 179) In its 2018 annual report to shareholders, Ank-Morpork Times Inc. included the following disclosure: Revenue Recognition • Advertising revenue is recognized when advertisements are published, are broadcast, or when placed on the Company’s websites, net of provisions for […]

Copyright ©2018 McGraw-Hill 101) During the year, L&M Leather Goods sold 1,000,000 reversible belts under a new sales promotional program. Each belt carried one rebate certificate which entitles the customer to a $4.00 cash refund when the rebate is submitted […]

101 203) Determine the price of a $200,000 bond issue under each of the following independent assumptions: Maturity Interest Paid Stated Rate Effective Rate 1. 10 years annually 10% 12% 2. 10 years semiannually 10% 12% 3. 20 years semiannually […]

Copyright ©2018 McGraw-Hill 81) Which of the following indicates the margin of safety provided to creditors? A) Rate of return on shareholders’ equity. B) Times interest earned ratio. C) Gross margin. D) Debt to equity ratio. Answer: B Difficulty: 1 […]

121 224) Holly Springs, Inc. contracted with Coldwater Corporation to have constructed a custom- made lathe. The machine was completed and ready for use on January 1, 2018. Holly Springs paid for the lathe by issuing a $300,000 note due […]

Copyright ©2018 McGraw-Hill 120) Patrick Rach International issued 5% bonds convertible into shares of the company’s common stock. Rach applies U.S. GAAP. Upon issuance, Patrick Rach International should record: A) The proceeds of the bond issue as part debt and […]

Copyright ©2018 McGraw-Hill 149) Ocean Adventures issues bonds due in 10 years with a stated interest rate of 6% and a face value of $500,000. Interest payments are made semi-annually. The market rate for this type of bond is 7%. […]

138 240) On May 1, 2018, Green Corporation issued $1,000,000 of 12% bonds, dated January 1, 2018, for $975,000 plus accrued interest. The bonds mature on December 31, 2032, and pay interest semiannually on June 30 and December 31. Green’s […]

Copyright ©2018 McGraw-Hill 50) Discount-Mart issued ten thousand $1,000 bonds on January 1, 2018. The bonds have a 10- year term and pay interest semiannually. This is the partial bond amortization schedule for the bonds. Payment Cash Effective Interest Decrease […]

Copyright ©2018 McGraw-Hill Intermediate Accounting, 9e (Spiceland) Chapter 15 Leases 1) At the beginning of a lease agreement, a lessee’s debt to equity ratio and rate of return on assets are both affected regardless of whether the lease is classified […]

61 Answers: 138) L 139) I 140) J 141) A 142) H 143) E 144) N 145) O 146) C 147) D 148) M 149) B 150) F 151) G 152) K 153) Each of the independent situations below describes […]

201 301) On January 1, 2018, Tennessee Valley Corporation (TVC) leased equipment from Great Lakes Leasing under a finance lease. Lease payments are made annually. Title does not transfer to the lessee and there is no purchase option or guarantee […]

Copyright ©2018 McGraw-Hill 217) On January 1, Sepe Vineyard Supply leased a truck for a five-year period, at which time possession of the truck will revert back to the lessor. Annual lease payments are $11,000 due on December 31 of […]

141 256) Omega leased a machine for a ten-year non-cancelable term. At the end of the ten-year term, Omega has five consecutive one-year renewal options. A replacement machine can be acquired at the end of the term for the leased […]

181 287) At January 1, 2018, Gem Finder leased mining equipment from Emerald Corporation under a nine-year lease agreement. The lease agreement specifies annual payments of $75,000 beginning January 1, 2018, the beginning of the lease, and at each December […]

Copyright ©2018 McGraw-Hill 161 Answer: January 1, 2018 Lease receivable (fair value) 56,040 Equipment (lessor’s cost) 56,040 Cash (lease payment) 7,500 Lease receivable 7,500 No depreciation April 1, 2018 Cash (lease payment) 7,500 Lease receivable (difference) 6,529 Interest revenue (2% […]

212 306) Terms of a lease agreement and related facts are: a. Leased asset has a retail cash selling price of $200,000. Its useful life is six years. b. Annual lease payments at the beginning of each year are $41,746, […]

Copyright ©2018 McGraw-Hill 85) B Corp. is a lessee and has a debt/equity ratio of 2 to 1. The debt/equity ratio is increased when B records: A Finance Lease An Operating Lease a. yes yes b. no no c. yes […]

Copyright ©2018 McGraw-Hill 184) Big Bucks leased equipment to Shannon Company on July 1, 2018. The lease payments were calculated to provide the lessor a 10% return. Ten annual lease payments of $36,000 are due each July 1, beginning July […]

Copyright ©2018 McGraw-Hill 46) What is the outstanding balance after payment 9? A) $8,929. B) $13,463. C) $5,000. D) $5,537. Answer: A Explanation: Step 1 Interest = 12% × $16,901 = $2,028 Step 2 Decrease in balance = $10,000 − […]

Copyright ©2018 McGraw-Hill 150) Gore Company, organized on January 2, 2018, had pretax accounting income of $7,000,000 and taxable income of $10,000,000 for the year ended December 31, 2018. The 2018 tax rate was 40%. The only difference between book […]

95 163) Two independent situations are described below. Each involves future deductible amounts and/or future taxable amounts produced by temporary differences: SITUATION 1 2 Taxable income $40,000 $80,000 Amounts at year-end: Future deductible amounts 5,000 10,000 Future taxable amounts 0 […]

Copyright ©2018 McGraw-Hill 111) Information for Hobson Corp. for the current year ($ in millions): Income from continuing operations before tax $ 150 Loss on discontinued operation (pretax) 30 Temporary differences (all related to operating income): Accrued warranty expense in […]

Copyright ©2018 McGraw-Hill 83) The tax effect of a net operating loss (NOL) carryback usually: A) Results in a current receivable at the end of the NOL year. B) Is subject to a valuation allowance. C) Is reflected as deferred […]

Copyright ©2018 McGraw-Hill 41) Woody Corp. had taxable income of $8,000 in the current year. The amount of MACRS depreciation was $3,000, while the amount of depreciation reported in the income statement was $1,000. Assuming no other differences between tax […]

Copyright ©2018 McGraw-Hill Intermediate Accounting, 9e (Spiceland) Chapter 17 Pensions and Other Postretirement Benefits 1) The projected benefit obligation may be less reliable than the accumulated benefit obligation. Answer: TRUE Difficulty: 1 Easy Topic: Pension obligation ‒ ABO‒Vested‒PBO Learning Objective: […]

Copyright ©2018 McGraw-Hill 196) Waddle Company amended its defined benefit pension plan on January 1, 2018, to increase retirement benefits earned with each service year. The actuary estimated the prior service cost to be $216,000. Waddle’s 80 present employees are […]

Copyright ©2018 McGraw-Hill 52) When accounting for pensions, delayed recognition of gains and losses in earnings achieves: A) Income averaging. B) Expense averaging. C) Income optimization. D) Income smoothing. Answer: D Difficulty: 1 Easy Topic: Pension expense ‒ Net loss […]

Copyright ©2018 McGraw-Hill Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term. A) A shareholders’ equity account. B) Reduced by return on […]

Copyright ©2018 McGraw-Hill 229) Rodeo Corporation amended its defined benefit pension plan on January 31, 2018, to increase retirement benefits earned with each service year. The actuary estimated the prior service cost to be $216,000. Rodeo’s 80 present employees are […]

121 212) The following is an incomplete pension spreadsheet for the current year for Desperado Corporation. ($ in millions) debit (credit) PBO Plan Assets Prior Service Cost Net (Gain) Loss Pension Expense Cash Net Pension (Liability)/Asset Beginning balance (500) 250 […]

Copyright ©2018 McGraw-Hill 80) At December 31, 2017, Mongo, Inc., reported in its balance sheet a net loss of $3 million related to its pension plan. The actuary for Mongo at the end of 2018 increased her estimate of future […]

Copyright ©2018 McGraw-Hill 114) Oregon Co.’s employees are eligible for retirement with benefits at the end of the year in which both age 60 is attained and they have completed 35 years of service. The benefits provide 15 years reimbursement […]

Copyright ©2018 McGraw-Hill 116) Beasley Crossing prepares its financial statements in accordance with International Financial Reporting Standards (IFRS). The company issued shares of the company’s Class B stock. Beasley Crossing should report the stock in the company’s statement of financial […]

Copyright ©2018 McGraw-Hill 79) Preferred shares that are participating may: A) Vote for the board of directors. B) Be exchanged for common stock. C) Receive extra cash during corporate liquidation. D) Receive additional dividends beyond the stated amount. Answer: D […]

Copyright ©2018 McGraw-Hill 36) Accumulated other comprehensive income: A) is a liability. B) might include prior service cost from pension plan amendments. C) includes unrealized gains and losses on equity securities. D) is reported in the income statement. Answer: B […]

Copyright ©2018 McGraw-Hill 166) The shareholders’ equity of Nick Co. includes the items shown below. The board of directors of Nick declared cash dividends of $4 million, $8 million, and $50 million in each of its first 3 years of […]

Copyright ©2018 McGraw-Hill 81 Answer: The average price was $12.75/share, $3,538 ÷ 279. Difficulty: 3 Hard Topic: Components of shareholders’ equity; Stock-Issuance of shares Learning Objective: 18-01 Describe the components of shareholders’ equity and explain how they are reported in […]

Copyright ©2018 McGraw-Hill 115) A primary goal of earnings per share determination is: A) Conservatism. B) Comparability. C) Materiality. D) Objectivity. Answer: B Difficulty: 1 Easy Topic: Basic EPS—Calculation concepts Learning Objective: 19-04 Distinguish between a simple and a complex […]

Copyright ©2018 McGraw-Hill 39) Wilson Inc. developed a business strategy that uses stock options as a major compensation incentive for its top executives. On January 1, 2018, 20 million options were granted, each giving the executive owning them the right […]

Copyright ©2018 McGraw-Hill 214) Blair Systems offers its employees a variety of share-based compensation plans including stock options, stock appreciation rights, and restricted stock. The following is an excerpt from a disclosure note from Blair’s 2018 financial statements: Note 11 […]

Copyright ©2018 McGraw-Hill 80) During 2018, Falwell Inc. had 500,000 shares of common stock and 50,000 shares of 6% cumulative preferred stock outstanding. The preferred stock has a par value of $100 per share. Falwell did not declare or pay […]

Copyright ©2018 McGraw-Hill Intermediate Accounting, 9e (Spiceland) Chapter 19 Share-Based Compensation and Earnings per Share 1) GAAP requires using intrinsic value accounting for employee stock options. Answer: FALSE Difficulty: 1 Easy Topic: Stock options Learning Objective: 19-02 Explain and implement […]

Copyright ©2018 McGraw-Hill 202) On December 31, 2017, Vitners Company had outstanding 400,000 shares of common stock and 40,000 shares of 8% cumulative preferred stock (par $10). February 28, 2018, issued an additional 36,000 shares of common stock September 1, […]

81 Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. A) Assumption used for options, rights, and warrants. B) Dual presentation of EPS […]

101 ****Calculation of proceeds from unexpensed compensation: 30 million shares × $12 = $360 million total compensation to be expensed $90 million per year over 4 years. So, $270 million compensation (for 2019-2021) remains unexpensed and is considered part of […]

41 Answers: 101) A 102) B 103) C 104) E 105) D Listed below are ten terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. A) Refers […]

Copyright ©2018 McGraw-Hill Use this information to answer the following questions: The December 31, 2018 (pre-closing) adjusted trial balance for Kline Enterprises was as follows: Account Title Debits Credits Accounts payable 90,000 Accounts receivable 170,000 Accumulated depreciation — equipment 260,000 […]

Copyright ©2018 McGraw-Hill 149) Additional Information 12/31/18 Assets 12/31/18 Liabilities 12/31/18 Owners’ Equity 2018 Net Income The estimated uncollectible accounts receivable is now zero and should be $25,000. Answer: Additional Information 12/31/18 Assets 12/31/18 Liabilities 12/31/18 Owners’ Equity 2018 Net […]

Copyright ©2018 McGraw-Hill 50) On September 15, 2018, Oliver’s Mortuary received a $6,000, nine-month note bearing interest at an annual rate of 10% from the estate of Jay Hendrix for services rendered. Oliver’s has a December 31 year-end. What adjusting […]

Copyright ©2018 McGraw-Hill Intermediate Accounting, 9e (Spiceland) Chapter 20 Accounting Changes and Error Corrections 1) Most, but not all, changes in accounting principle are reported using the retrospective approach. Answer: TRUE Difficulty: 1 Easy Topic: Distinguish retrospective and prospective Learning […]

Copyright ©2018 McGraw-Hill 61 Answer: 1. A change in depreciation method is considered a change in accounting estimate resulting from a change in accounting principle. In other words, a change in the depreciation method is similar to changing the economic […]

Copyright ©2018 McGraw-Hill 93) A broadcasting company failed to make a year-end accrual of $400,000 for fines due to a violation of FCC rules. Its tax rate is 30%. As a result of this error, net income was: A) Unaffected. […]

Copyright ©2018 McGraw-Hill 53) Red Corp. constructed a machine at a total cost of $70 million. Construction was completed at the end of 2014 and the machine was placed in service at the beginning of 2015. The machine was being […]

81 Use the information below to answer the following question(s). In its 2018 Annual Report to Shareholders, Kinney Inc. reported the following Consolidated Statement of Cash Flows: For the years ended December 31, 2018 2017 Cash flow from operating activities: […]

Copyright ©2018 McGraw-Hill Intermediate Accounting, 9e (Spiceland) Chapter 21 The Statement of Cash Flows Revisited 1) Amounts held in cash equivalent investments must be reported separately from amounts held as cash in the statement of cash flows. Answer: FALSE Difficulty: […]

95 173) In preparation for developing its statement of cash flows for the year ended December 31, 2018, Millennium Solutions, Inc. collected the following information: ($ in millions) Payment for the early extinguishment of long-term notes (book value: $100 million) […]

Copyright ©2018 McGraw-Hill 86) Freeman Company’s accounting records include the following information: Payments to suppliers $ 50,000 Collections on accounts receivable 90,000 Cash sales 20,000 Income taxes paid 5,000 Equipment purchased 15,000 What is the amount of net cash provided […]

61 Listed below are the reporting classifications for a statement of cash flows using the direct method for reporting operating cash flows. Match the reporting classifications with the transactions described below. A) Cash collection of a nontrade note receivable. B) […]

Copyright ©2018 McGraw-Hill 48) S Company reported net income for 2018 in the amount of $400,000. The company’s financial statements also included the following: Increase in accounts receivable $ 80,000 Decrease in inventory 60,000 Increase in accounts payable 200,000 Depreciation […]

Copyright ©2018 McGraw-Hill 119) Accounts payable Difficulty: 2 Medium Topic: Classify assets―Current assets; Classify assets―Long-term assets; Classify liabilities―Current liabilities; Classify shareholders’ equity; Disclosure―Notes to financial statements; Disclosure―Management – Directors – Executives Learning Objective: 03-01, 03-02, 03-03, 03-04, 03-05 Bloom’s: Understand […]

Copyright ©2018 McGraw-Hill 58) To understand the components of a company’s profitability, an analyst may compute the ratio of each major expense classification to total sales. This type of analysis is known as: A) Cost analysis. B) Horizontal analysis. C) […]

59 146) Long-term assets Answer: Total assets = Current assets + Long-term assets Current assets (CA/Current Liabilities (CL)) = 3; therefore, CA = 3CL Quick assets (QA/Current Liabilities) = 2.25; therefore, QA = 2.25CL QA = CA − Inventory = […]

Copyright ©2018 McGraw-Hill 101) Rowdy’s Restaurants Cash Flow ($ in millions) Cash received from: Customers $ 1,800 Interest on investments 200 Sale of land 100 Sale of Rowdy’s capital stock 600 Issuance of debt securities 2,000 Cash paid for: Interest […]

Copyright ©2018 McGraw-Hill 57) On May 1, Foxtrot Co. agreed to sell the assets of its Footwear Division to Albanese Inc. for $80 million. The sale was completed on December 31, 2018. The following additional facts pertain to the transaction: […]

Copyright ©2018 McGraw-Hill Intermediate Accounting, 9e (Spiceland) Chapter 4 The Income Statement, Comprehensive Income, and the Statement of Cash Flows 1) Income from continuing operations sometimes includes gains from nonoperating activities. Answer: TRUE Difficulty: 1 Easy Topic: Continuing operations―Components Learning […]

Copyright ©2018 McGraw-Hill Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. A) Related to the external financing of the company. B) Groups […]

81 Use this information to answer the following questions: The trial balance of Rollins Inc. included the following accounts as of December 31, 2018: Debits Credits Sales revenue 5,900,000 Interest revenue 40,000 Loss on sale of investments 10,000 Unrealized holding […]

Copyright ©2018 McGraw-Hill 186) Required: Compute the average collection period (rounded to one decimal place) for 2018. Answer: 365 / 8.0 = 45.6 days Difficulty: 3 Hard Topic: Profitability analysis Learning Objective: 04-10 Bloom’s: Apply AACSB: Knowledge Application Accessible/AICPA: BB […]

Copyright ©2018 McGraw-Hill 213) When using the cost recovery method of accounting for long-term construction contracts under IFRS: A) Estimated losses on the overall contract are recognized before the contract is completed. B) Expenses are recorded each period, but revenue […]

Copyright ©2018 McGraw-Hill 242) DGA Associates, Inc. sells computer workstations designed for architects. In 2018, it sold 120 workstations for $360,000. For each workstation sold, DGA distributed a 40% discount coupon for any additional future purchases made in the next […]

Copyright ©2018 McGraw-Hill 86) Which of the following is not one of the five steps for recognizing revenue? A) Recognize revenue when (or as) each performance obligation is satisfied. B) Determine the transaction price. C) Allocate the transaction price to […]

Copyright ©2018 McGraw-Hill 187) In 2018, Cupid Construction Co. (CCC) began work on a two-year fixed price contract project. CCC recognizes revenue over time according to percentage of completion for this contract, and provides the following information (dollars in millions): […]

Copyright ©2018 McGraw-Hill Intermediate Accounting, 9e (Spiceland) Chapter 5 Revenue Recognition 1) Companies recognize revenue when goods or services are transferred to customers for the amount the company expects to be entitled to receive in exchange for those goods or […]

Copyright ©2018 McGraw-Hill 289) In 2018, KP Building Inc. began work on a four-year construction project (called Cincy One). The contract price is $300 million. KP recognizes revenue on this contract over time according to percentage of completion. At the […]

Copyright ©2018 McGraw-Hill 124) Sanjeev enters into a contract offering variable consideration. The contract pays him $1,000/month for six months of continuous consulting services. In addition, there is a 60% chance the contract will pay an additional $2,000 and a […]

Copyright ©2018 McGraw-Hill 266) Typhoon Sons & Co. manufactures various types of golf clubs to third party vendors. On April 1, 2018, Typhoon delivers a large quantity of golf clubs to Resona Country Club. Under the sales agreement, Resona is […]

Copyright ©2018 McGraw-Hill 159) Which of the following is not true about contract assets? A) Contract assets are recorded when payment depends on something other than the passage of time. B) Contract assets are recognized when the seller has a […]

Copyright ©2018 McGraw-Hill Intermediate Accounting, 9e (Spiceland) Chapter 6 Time Value of Money Concepts 1) Compound interest includes interest earned on interest. Answer: TRUE Difficulty: 1 Easy Topic: Basics of interest―Simple versus compound Learning Objective: 06-01 Explain the difference between […]

Copyright ©2018 McGraw-Hill 133) MBI Company’s largest computer has a cash selling price of $200,000. A customer wishes to buy the computer on a lease purchase plan over five years, with the first payment to be made at the inception […]

Copyright ©2018 McGraw-Hill 52) An investor purchases a 20-year, $1,000 par value bond that pays semiannual interest of $40. If the semiannual market rate of interest is 5%, what is the current market value of the bond? (FV of $1, […]

Copyright ©2018 McGraw-Hill 113) Touche Manufacturing is considering a rearrangement of its manufacturing operations. A consultant estimates that the rearrangement should result in cash savings of $6,000 the first year, $10,000 for the next two years, and $12,000 for the […]

Copyright ©2018 McGraw-Hill Intermediate Accounting, 9e (Spiceland) Chapter 7 Cash and Receivables 1) Cash equivalents would include investments in marketable equity securities as long as management intends to sell the securities in the next three months. Answer: FALSE Difficulty: 1 […]

Copyright ©2018 McGraw-Hill 50) On November 10 of the current year, Cherokee Industries sold materials to a customer for $8,000 with credit terms 2/10, n/30. Cherokee uses the net method of accounting for cash discounts. What entry would Cherokee make […]

Copyright ©2018 McGraw-Hill 121) On July 1, 2018, Cromartie Furniture established a $150 petty cash fund. A check for $150 was made out to the petty cash custodian. During July, the petty cash custodian paid the following bills from the […]

81 174) On February 14, 2018, Prime Company sold 50 air-conditioning units to L&P Heating and Cooling. The units list for $700 each, but L&P was granted a 30% trade discount. All of Prime’s sales are subject to terms 2/10, […]

Copyright ©2018 McGraw-Hill 86) San Mateo Company had the following account balances at December 31, 2018, before recording bad debt expense for the year: Accounts receivable $ 1,400,000 Allowance for uncollectible accounts (credit balance) 22,000 Credit sales for 2018 1,950,000 […]

Copyright ©2018 McGraw-Hill 199) On December 1, 2018, General Mole borrowed $400,000 at 12% interest and pledged $500,000 in accounts receivable as collateral. Additionally, General Mole was charged a finance fee equal to 1% of the accounts receivable assigned. At […]

Copyright ©2018 McGraw-Hill 169) The following information comes from the 2013 Occidental Petroleum Corporation annual report to shareholders: NOTE 4 INVENTORIES Net carrying values of inventories valued under the LIFO method were approximately $205 million and $185 million at December […]

Copyright ©2018 McGraw-Hill 50) Fulbright Corp. uses the periodic inventory system. During its first year of operations, Fulbright made the following purchases (listed in chronological order of acquisition): 40 units at $100 70 units at $80 170 units at $60 […]

Copyright ©2018 McGraw-Hill Intermediate Accounting, 9e (Spiceland) Chapter 8 Inventories: Measurement 1) Physical counts of inventory are never made with perpetual inventory systems. Answer: FALSE Difficulty: 1 Easy Topic: Perpetual inventory system Learning Objective: 08-01 Explain the types of inventory […]

Copyright ©2018 McGraw-Hill 120) Gross profit ratio Difficulty: 1 Easy Topic: Types of inventory; Included in inventory ‒ Net purchases; Cost flow in general; Inventory management ‒ Ratios Learning Objective: 08-01 Explain the types of inventory and the differences between […]

Copyright ©2018 McGraw-Hill 79) Thompson TV and Appliance reported the following in its 2018 financial statements: 2018 Sales $ 420,000 Cost of goods sold: Inventory, January 1 82,000 Net purchases 340,000 Goods available for sale 422,000 Inventory, December 31 86,000 […]

Copyright ©2018 McGraw-Hill 153) Jan. 1 accounts payable Jan. 1 inventory Dec. 31 accounts payable Dec. 31 inventory Cash paid to inventory suppliers Cost of goods sold Net purchases 80 72 606 583 621 81 Answer: Jan. 1 accounts payable […]

Copyright ©2018 McGraw-Hill 167) Cornhusker Can Co. uses the conventional retail method to estimate ending inventories. The following data has been summarized for year ended December 31, 2018: Cost Retail Inventory, January 1 $ 80,000 $ 126,000 Purchases 166,000 244,000 […]

Copyright ©2018 McGraw-Hill 43) Data related to the inventories of Mountain Ski Equipment and Supplies is presented below: Skis Boots Apparel Supplies Selling price $ 180,000 $ 150,000 $ 120,000 $ 60,000 Cost 128,000 133,000 90,000 48,000 Replacement cost 120,000 […]

Copyright ©2018 McGraw-Hill 70) When computing the cost-to-retail percentage for the average cost retail method, included in the denominator are: A) Net markups and net markdowns. B) Neither net markups nor net markdowns. C) Net markups, but not net markdowns. […]

Copyright ©2018 McGraw-Hill Intermediate Accounting, 9e (Spiceland) Chapter 9 Inventories: Additional Issues 1) For companies that use FIFO or average cost, inventory is valued at the lower of cost or net realizable value at the end of the reporting period. […]

Copyright ©2018 McGraw-Hill 150) Required: Determine the reported inventory value assuming the lower of cost or market rule is applied to categories of feed products. 81 Answer: Classes of Inventory Product Cost RC NRV NRV−NPM Demand Market Lower of Cost […]

Copyright ©2018 McGraw-Hill Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. A) Always deducted after arriving at the calculation of the cost-to-retail […]