Archives: Solution Manual

CHAPTER 14 Bonds and Long-Term Notes Overview This chapter continues the presentation of liabilities. Specifically, the discussion focuses on the accounting treatment of long-term liabilities. Long-term notes and bonds are discussed, as well as the extinguishment of debt and troubled […]

Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Judgment Case 14–9 Requirement 1 The debt to equity ratio is computed by dividing total liabilities by total shareholders’ equity. […]

Real World Case 14–2 Requirement 1 ($ in millions) Cash (price given) ………………………………………………. 968 Discount on notes (difference) …………………………….. 832 Notes payable (face amount) ……………………………. 1,800 Requirement 2 ($ in millions) Fiscal Increase Outstanding Year-end Cash Interest Expense in Balance […]

Problem 14–20 (concluded) Requirement 4 Microsoft’s note states that “Because the convertible debt may be wholly or partially settled in cash, we are required to separately account for the liability and equity components of the notes.” As indicated in the […]

Problem 14–6 (continued) December 31, 2016 (Western) Interest expense ($1,200,000 + 80,000) …………………. 1,280,000 Discount on bonds payable ($20,000 x 4 months) 80,000 Interest payable ($30,000,000 x 12% x 4/12) …….. 1,200,000 December 31, 2016 (Stillworth) Interest receivable ($30,000 x […]

Exercise 14–34 Analysis: Book value: $12 million + 1.2 million = $13,200,000 Future payments: ($1 million x 2) + $11 million = 13,000,000 Gain to debtor $ 200,000 1. January 1, 2016 Interest payable (10% x $12,000,000) ……………………. 1,200,000 Notes […]

Exercise 14–20 1. January 1, 2016 Machinery ……………………………………………………………….. 4,000,000 Notes payable ………………………………………………………… 4,000,000 2. Amortization schedule $4,000,000 ÷ 3.16987 = $1,261,881 amount (from Table 4) installment of loan n = 4, i = 10% payment Cash Effective Decrease in Outstanding […]

Exercise 14–4 1. January 1, 2016 Interest $4,000,000¥ x 11.46992 * = $45,879,680 Principal $80,000,000 x 0.31180 ** = 24,944,000 Present value (price) of the bonds $70,823,680 ¥ 5% x $80,000,000 * Present value of an ordinary annuity of $1: […]

Chapter 14 Bonds and Long-Term Notes 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 […]

Principal $240,000,000 x 0.31180 ** = 74,832,000 Present value (price) of the bonds $212,471,040 ¥ 5% x $240,000,000 * present value of an ordinary annuity of $1: n=20, i=6% ** present value of $1: n=20, i=6% Cash (price determined above) […]

Student Name: Class: Debit Credit 14,000,000 Maturity (January 31, 2017) 420,000 14,000,000 14,560,000 «- Correct! 14,560,000 «- Correct! 140,000 420,000 14,000,000 Interest payable Notes payable Cash Cash Interest revenue L & T Bank Interest receivable Notes receivable 140,000 Issuance of […]

PRODUCT WARRANTIES AND GUARANTEES  The contingent liability for product warranties almost always is accrued. Caldor Health, a supplier of in-home health care products, introduced a new therapeutic chair carrying a 2-year warranty against defects. Estimates based on industry experience […]

C CH HA AP PT TE ER R 1 13 3 C Cu ur rr re en nt t L Li ia ab bi il li it ti ie es s a an nd d C Co on nt ti […]

13–78 Intermediate Accounting, 8/e Communication Case 13–10 Suggested Grading Concepts and Grading Scheme: Content (80% ) 20 Identifies the situation as a change in estimate. The liability was originally (appropriately) estimated as $750,000. The final settlement indicates the estimate should […]

Problem 13–12 (continued) Requirement 5 December 31, 2016 ($ in millions) Current Liabilities Accounts payable and accruals $ 43 6.5% bonds maturing on July 31, 2025, callable July 31, 2017 90 Current portion of 7% notes payable due May 2017 […]

CMA Exam Questions 1. b. If an enterprise intends to refinance short-term obligations on a long- term basis and demonstrates an ability to consummate the refinancing, the obligations should be excluded from current liabilities and classified as noncurrent. Under U.S. […]

Exercise 13–8 Requirement 1 Cash …………………………………………………………….. 7,500 Deferred sales revenue ……………………………….. 7,500 Requirement 2 Cash …………………………………………………………….. 25,500 Liability—refundable deposits ……………………. 25,500 Requirement 3 Accounts receivable ……………………………………….. 856,000 Sales revenue ……………………………………………. 800,000 Sales taxes payable ([5% + 2%] x $800,000) ……… […]

Chapter 13 Current Liabilities and Contingencies QUESTIONS FOR REVIEW OF KEY TOPICS Question 13–1 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 […]

Cash ……………………………………………………… 6,000,000 Notes payable ………………………………………. 6,000,000 Interest expense ($6,000,000 x 14% x 4/12) …….. 280,000 Interest payable …………………………………… 280,000 Interest expense ($6,000,000 x 14% x 2/12) …….. 140,000 Interest payable (from adjusting entry) ………….. 280,000 Notes payable (face amount) […]

Student Name: Class: Debit Credit 28 2 30 «- Correct! Cash Loss on sale of investments Investment in Kansas Abstractors bonds 5.6 5.6 «- Correct! 44 44 «- Correct! 5.7 «- Correct! 5.6 0.1 3 3 «- Correct! Gain on […]

12-40 Intermediate Accounting, 8/e REPORTING AN EQUITY-METHOD INVESTMENT ON THE BALANCE SHEET The investment account represents the investor’s share of the investee’s net assets initially acquired, adjusted for the investor’s share of the subsequent increase in the investee’s net assets […]

Accounting for AFS Securities Purchase AFS Investments (Note: we use the same basic journal entries for HTM, TS, and AFS investments) July 1, 2016 Investment in Masterwear bonds ……………………………………….. 700,000 Discount on bond investment …………………………………… 33,367 Cash ………………………………………………………………………. 666,633 Investment […]

C CH HA AP PT TE ER R 1 12 2 I In nv ve es st tm me en nt ts s Overview In this chapter we cover various approaches used to account for investments that companies make in […]

12–120 Intermediate Accounting, 8/e Real World Case 12–1 Requirement 1 Fair Value Adjustment, AFS Investments Dec. 29, 2012) $1,079 gain – $5 loss 1,074 Increase during 2013 1,821 Dec. 28, 2013) $2,902 gain – $7 loss 2,895 Given the T-account […]

Problem 12–11 Requirement 1 (note: requirement 1 has the same answer as does P 12–10) Purchase ($ in millions) Investment in Lavery Labeling shares …………………………………… 324 Cash …………………………………………………………………………….. 324 Net income No entry Dividends Cash (10 million shares x $2) […]

Problem 12–4 (concluded) Then, to record it at fair value, we increase the investment by $70 – 66.21 = $3.79 million: Fair value adjustment ………………………… ……….. 3.79 Net unrealized holding gains and losses—I/S ($70 – 66.21) 3.79 Because these are […]

So, net income will be decreased by $250,000, OCI by $150,000, and comprehensive income by $400,000. Solutions Manual, Vol.1, Chapter 12 12–61 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of […]

Exercise 12–12 (continued) Requirement 2 Accumulated ($ in 000s) Unrealized Available-for-Sale Securities Cost Fair Value Gain (Loss) IBM shares—Dec. 31, 2016 $1,345 $1,275 $(70) Moving from a negative $145 (Jan.1) to a negative $70 requires an increase of $75: ——————————————————————————–———– […]

Brief Exercise 12–15 Because the drop in the market price of stock is considered to be other-than- temporary, LED records the impairment of $450,000 ($4.50 x 100,000 shares) and reclassifies previously recognized unrealized losses of $100,000 ($1.00 x 100,000 shares) […]

Question 12–1 Investment securities are classified as “held–to–maturity,” “trading,” or “available-for-sale” securities. 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 […]

Investment in Oracle bonds ………………………………………………… 200 Cash …………………………………………………………………………….. 200 Cash ………………………………………………………………………………… 3 Investment revenue ………………………………………………………… 3 Cash ………………………………………………………………………………… 10 Investment revenue ………………………………………………………… 10 Cash ………………………………………………………………………………… 205 Investment in Oracle bonds …………………………………………….. 200 Gain on sale of investments …………………………………………….. 5 Investment […]

Student Name: Class: Balance Balance 12/31/2015 Increase Decrease 12/31/2016 Land (1) 175,000$ 312,500$ –$ 487,500$ Land improvements – 192,000 – 192,000 Market price 50$ Fair value of shares 1,250,000$ Correct! (1) Plant facility acquired from King 1/6/2016 – allocation to […]

IMPAIRMENT OF VALUE – A SUMMARY Type of Asset When to Test for Impairment Impairment Test To Be Held and Used: Tangible and finite- life intangible assets book value may not be recoverable. (undiscounted sum of estimated future cash flows […]

INTERNATIONAL FINANCIAL REPORTING STANDARDS Valuation of Intangible Assets. IAS No. 38 allows a company to value an intangible asset subsequent to initial valuation at (1) cost less accumulated amortization or (2) fair value, if fair value can be determined by […]

CHAPTER 11 PROPERTY, PLANT, AND EQUIPMENT AND INTANGIBLE ASSETS: UTILIZATION AND IMPAIRMENT 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 […]

fair value less cost to sell. An impairment loss is recognized for any write-down to fair value less cost to sell. Solutions Manual, Vol.1, Chapter 11 11–93 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without […]

Problem 11–13 Requirement 1 Hecala’s cost of the mineral mine is $13,721,871, determined as follows: Mining site $10,000,000 Development costs 3,200,000 Restoration costs 521,871 † $13,721,871 † $600,000 x 30% = $180,000 700,000 x 30% = 210,000 800,000 x 40% […]

Problem 11–2 (continued) Requirement 2 CORD COMPANY Depreciation and Amortization Expense For the Year Ended December 31, 2016 Land Improvements: Cost $192,000 Straight-line rate (1 ÷ 12 years) x 8 1/3% Annual depreciation 16,000 Depreciation on land improvements for 2016: […]

Exercise 11–24 Requirement 1 IFRS requires an impairment loss to be recognized when an asset’s book value exceeds the higher of the asset’s value–in-use (present value of estimated future cash flows) and fair value less costs to sell. In this […]

Exercise 11–3 (concluded) 5. Units-of-production: $115,000 – 5,000 = $.50 per unit depreciation rate 220,000 units 2016 10,000 units x $.50 = $ 5,000 2017 25,000 units x $.50 = $12,500 Exercise 11–4 Building depreciation: $5,000,000 – 200,000 = $160,000 […]

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 to periods of use. The only difference between the terms is that they refer […]

Sum-of-the-digits is {[8 (8 + 1)]÷2} = 36 2016 $220,000 x 8/36 = $48,889 2017 $220,000 x 7/36 = 42,778 Straight-line rate is 12.5% (1 ÷ 8 years) x 2 = 25% DDB rate 2016 $240,000 x 25% = $60,000 […]

Student Name: Class: Requirement 1: Balance Balance 12/31/2015 Increase Decrease 12/31/2016 350,000$ 438,000$ 788,000$ 180,000 180,000 35,000 438,000$ Correct! 260,000$ 27,000 287,000$ Correct! 3,750$ 15,250 19,000$ Correct! Invoice cost Installation cost Cost recorded for new automobile 12/31/2016: Fair value of […]

RESEARCH AND DEVELOPMENT ➢ All research and development costs are charged to expense in the period incurred.  R&D costs entail a high degree of uncertainty of future benefits.  It is difficult to match R&D costs with future revenues. […]

GOODWILL (continued) The Smithson Corporation acquired all of the outstanding common stock of the Rider Corporation in exchange for $18 million in cash. Smithson assumed all of Rider’s long-term debt which had a fair value of $12 million at date […]

C CH HA AP PT TE ER R 1 10 0 P PR RO OP PE ER RT TY Y, , P PL LA AN NT T, , A AN ND D E EQ QU UI IP PM ME EN […]

Case 10–4 (concluded) Requirement 5 The three steps used to determine the amount of interest capitalized during a period are: 1. Determine the average accumulated expenditures for the period. 2. Multiply average accumulated expenditures by the appropriate interest rate(s). 3. […]

Problem 10–8 (concluded) Requirement 3 If the exchange lacked commercial substance, no gain is recognized. Book value of old land + cash given = Initial value of new land $500,000 + 50,000 = $550,000 Journal entry (not required): New land […]

Exercise 10–30 Requirement 1 According to U.S. GAAP, the following costs would be expensed as R&D: Research for new formulas $2,425,000 Development of a new formula 1,600,000 Total $4,025,000 The legal and filing fees are capitalized as an intangible asset. […]

Exercise 10–9 Requirement 1 Tractor ($5,000 cash + 18,783† present value of note) …………. 23,783 Discount on note payable (difference) ……………………….. 6,217 Cash …………………………………………………………………. 5,000 Note payable (face amount) ……………………………………. 25,000 † Present value of note payment: PV = $25,000 […]