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Accounting concepts and applications 11th Edition Albrecht Stice, Stice Swain - Solutions

Tatia Wilks, the president of Lewbacca Company, is concerned about the low earnings that Lewbacca is scheduled to report this year. She called the company’s accounting staff into her office to question them about the accounting treatment of several items. She raised the following points:a. Why do
Do employee bonus plans provide incentives to work harder and achieve personal and corporate goals, or are they a catalyst for corporate corruption? For example, assume you work for a Fortune 500 company. You are the chief financial officer of the company and are in charge of the company’s
Your wife is setting up a home-based Web design business. Her purpose for setting up the business is to earn some extra income now and, in two to three years, sell the business. She is wondering whether she can capitalize the start-up costs or whether they must be expensed. She has heard from other
Using the 2009 Form 10-K for Wal-Mart in Appendix A, consider the following questions:1. Find Wal-Mart’s financial statement note on “Income taxes.’’a. Using the current tax information and the information given on income before income taxes, compute Wal-Mart’s fiscal 2008 effective tax
AT&T has a set of very large private pension and postretirement benefit plans that cover nearly all of its U.S. employees. The following information was extracted from the notes to AT&€™s 2008 financial statements. All numbers are in millions of U.S. dollars.1. The benefit obligation is
Note P to IBM€™s 2008 financial statements describes how taxes affect IBM€™s operations. Among the information given is the following (amounts in millions of U.S. dollars):The continuing operations provision for income taxes by geographic operations is as follows:1. a. Compute
In Hong Kong, Li Ka-shing is known as “Superman.” Li and his family fl ed from China in 1940 in order to escape the advancing Japanese army. Li dropped out of school at age 13 to support his family by selling plastic trinkets on the streets of Hong Kong. Later, he scraped together enough money
You are a member of an environmental group that is working to clean up Valley River, which runs through your town. Right now, the group is focusing on forcing Allied Industrial, a manufacturer with a large plant located on the river, to conduct its operations in a more environmentally friendly way.
Fray Enterprises is a small business that purchases electronic personal information managers (PIM) from manufacturers and sells them to consumers. These PIMs keep track of appointments, phone numbers, to-do lists, and the like. Fray conducts business via the Internet and, at this point, carries
What are the major characteristics of property, plant, and equipment?
With respect to time value, it is often said that the last payment (say, 20 years in the future) doesn’t cost as much as the next payment today. Explain.
Why are expenditures other than the net purchase price included in the cost of an asset?
Why would a company include leased assets in the property, plant, and equipment section of its balance sheet when the assets are owned by another entity?
A company that borrows money to construct its own building generally should include the interest paid on the loan during the construction period in the cost of the building. Why?
Why are fair market values used to determine the cost of operating assets acquired in a basket purchase?
Companies usually depreciate assets like buildings even though those assets may be increasing in value. Why?
How does the company accountant decide whether an expenditure should be capitalized or expensed?
If a firm is uncertain whether an expenditure will benefit one or more than one accounting period, or whether it will increase the capacity or useful life of an operational asset, most firms will expense rather than capitalize the expenditure. Why?
Sometimes long-term assets experience sudden dramatic decreases in value. For example, a waste dump might suddenly be constructed next to an office building. When such impairment of value occurs, should the decrease in value be recognized immediately, or should the same amount of depreciation
Accountants in other countries sometimes write up the recorded amounts of long-term assets when their values increase. Why are U.S. accountants reluctant to increase the recorded value of property, plant, and equipment when that value increases?
Why is it common to have a gain or loss on the disposal of a long-term operating asset? Is it true that if the useful life and salvage value of an asset could be known with certainty and were realized, there would never be such a gain or loss?
When recording the disposal of a long-term operating asset, why is it necessary to debit the accumulated depreciation of the old asset?
Why are intangible assets considered assets although they have no physical substance?
Goodwill can be recorded only when a business is purchased. Does this result in similar businesses having incomparable financial statements?
How is fixed asset turnover calculated, and what does the resulting ratio value mean? Discuss.
Which one of the following is not an example of a long-term operating asset?a. Buildingsb. Landc. Goodwilld. Equipmente. Office Supplies
Pekka Inc. has the option to purchase a new drilling machine for $50,000 today. The company expects a net cash flow of $13,000 per year from using the machine, and the machine will last five years. According to the time value of money, the value today of $13,000 per year for five years is $46,862.
K. Marie Company used cash to purchase a stamping machine. The retail price on the machine is $62,000, but the company received a 1.5% discount. It also paid $3,850 in sales tax for the purchase. Make the necessary journal entry to record this transaction.
Refer to the data in PE 9-3. Assume the company borrowed $20,000 of the purchase price from a bank. Make the necessary journal entry to record this transaction.Data from PE 9-3K. Marie Company used cash to purchase a stamping machine. The retail price on the machine is $62,000, but the company
Kellman Company purchased a building for cash of $490,000. Before the building could be used, extensive remodeling was necessary; the remodeling cost of $110,000 was also paid in cash. Make the journal entry necessary to record this transaction.
Diviney Company purchased land and a building for a total of $1,000,000 in cash. The land has a fair value of $440,000. The building has a fair value of $660,000. Make the journal entry necessary to record the transaction.
Condon Company signed a lease contract to use a building for the next 25 years. Th e lease contract requires payments of $66,101 to be made at the end of each year for the next 25 years. If the building had been purchased instead of leased, it would have cost $600,000. Because the payments are not
On January 1, MMD Company entered into a lease for equipment rental. The company agreed to pay $4,500 per year for 10 years. The present value of all 10 lease payments is $27,651. Assuming the company classified the lease as an operating lease, make the necessary journal entry to record the payment
On January 1, B. Edward Company entered into a lease for equipment rental. The company agreed to pay $4,500 per year for 10 years. The present value of all 10 lease payments is $27,651. Assuming the company classified the lease as a capital lease, make the necessary journal entry to record the
Refer to the data in PE 9-8. The interest included in the first lease payment is $2,765. Make the necessary journal entry to record the first $4,500 lease payment at the end of the first year.Data from PE 9-8On January 1, MMD Company entered into a lease for equipment rental. Th e company agreed to
Which one of the following characteristics of a lease would not cause the lease to be classified as a capital lease?a. Lease ownership transfers to the lessee at the end of the lease.b. The present value of the lease payments at the beginning of the lease is 90% or more of the fair market value of
Using the following data, compute the total cost of a self-constructed office building.Percentage of overhead attributable to construction of office building . . . . 25%Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Komo Company purchased a building and the accompanying land for $890,000 cash. Independent appraisers estimated the fair market value of the building and the land to be $720,000 and 240,000, respectively. Make the necessary journal entry to record this transaction.
Using the following data and the straight-line method of depreciation, compute depreciation expense and make the necessary journal entry to record depreciation expense for the first year.Cost of machine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Refer to the data in PE 9-14. Using the units-of-production method of depreciation, compute depreciation expense and make the necessary journal entry to record depreciation expense for the first year.Data from PE 9-14Cost of machine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
On September 30, Hoagland Company purchased a $34,000 delivery truck. The company estimates the truck will last six years and have a salvage value of $4,000 at the end of six years. Using the straight-line method of depreciation, compute the amount of depreciation in the first two years of the
Muriel Company purchased an oil field for $4,200,000 cash. The oil field contains an estimated 600,000 barrels of oil. During the first year of operation, the company extracts and sells 70,000 barrels of oil. Compute the amount of depletion expense, and make the necessary journal entry to record
Runyan Company has a molding machine with a historical cost of $150,000 and accumulated depreciation of $110,000. On January 1, the company performed a major motor overhaul costing $24,000. Runyan expects the machine will last seven more years and have a salvage value of $8,000. Compute
Buyun Company purchased a building 14 years ago for $830,000. The building has accumulated depreciation of $581,000 and a fair value of $175,000. Buyun expects the building will generate a net cash inflow of $30,000 per year for the next seven years. From an accounting point of view, determine
Using the information in PE 9-19, determine the amount of impairment and record the impairment loss.Data from PE 9-19Buyun Company purchased a building 14 years ago for $830,000. Th e building has accumulated depreciation of $581,000 and a fair value of $175,000. Buyun expects the building will
Stout Company scrapped a truck with a historical cost of $60,000 and accumulated depreciation of $48,000. In addition, the company had to pay $500 to discard the truck. Make the necessary journal entry to record this transaction.
Millard Company sold a truck with a historical cost of $30,000 and accumulated depreciation of $24,000 for $7,000 cash. Make the necessary journal entry to record this transaction.
Didericksen Company sold a truck with a historical cost of $50,000 and accumulated depreciation of $24,000 for $20,000 cash. Make the journal entry necessary to record the sale.
On January 1, Jameson Company purchased a 13-year-old patent from another company for $210,000. The patent has a seven-year legal life remaining. Make the necessary journal entry to record amortization for the year the patent was acquired.
Big Company purchased Little Company for $290,000. At the time of purchase, the fair value of Little Company’s assets and liabilities was as follows:Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40,000Property, plant, and
Using the following data, compute the fixed asset turnover.Current assets, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,000Fixed assets, end of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180,000Fixed
Johnson Company is considering acquiring a new airplane. It has looked at two financing options. The first is to lease the airplane for 10 years with lease payments of $70,000 each year. The second is to purchase the airplane, making a down payment of $250,000 and annual payments of $40,000 for 10
Action Jackson Company acquired a new machine in order to expand its productive capacity. The costs associated with the machine purchase were as follows:Purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25,000Installation costs . . . . . . . . . .
Maximum Renovation Company decided to purchase a new carpet cutting machine for its shop in Los Angeles. After a long search, it found the appropriate machine in Chicago. The machine costs $32,000 and has an estimated 16-year life and no salvage value. Maximum made the following additional
Vandre Oil Company, which prepares financial statements on a calendar-year basis, purchased new drilling equipment on July 1, 2012, using check numbers 1035 and 1036. The check totals are shown here, along with a breakdown of the charges.1035 (Payee—Oil Equipment, Inc.):Cost of drilling
On January 1, 2012, Hanks Company leased a copy machine with an integrated laser printer from Officeneeds, Inc. The five-year lease is noncancelable and requires monthly payments of $200 at the end of each month, with the first payment due on January 31, 2012. At the end of five years, Hanks will
Litton Company is constructing a new office building. Costs of the building are as follows:Wages paid to construction workers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $185,000Building materials purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warbler Corporation purchased land, a building, and equipment for a total cost of $625,000. After the purchase, the property was appraised. Fair values were determined to be $245,000 for the land, $350,000 for the building, and $105,000 for the equipment. Given these appraisals, record the purchase
Garns Photography Company purchased a new car on July 1, 2011, for $26,000. The estimated life of the car was five years or 110,000 miles, and its salvage value was estimated to be $1,000. The car was driven 9,000 miles in 2011 and 24,000 miles in 2012.1. Compute the amount of depreciation expense
Denver Hardware Company has a giant paint mixer that cost $31,500 plus $400 to install. The estimated salvage value of the paint mixer at the end of its useful life in 15 years is estimated to be $1,900. Denver estimates that the machine can mix 850,000 cans of paint during its lifetime. Compute
Prepare entries in the books of Thinker, Inc., to reflect the following. (Assume cash transactions.)1. Purchased a milling machine to be used by the firm in its production process.Invoice price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $35,000Cash
Consider the following three independent scenarios:1. For each of the three scenarios, answer the following questions:a. Is the asset impaired?b. At what amount (net of accumulated depreciation) should the asset be reported?2. Make the journal entry required in Scenario3.
In 2007, Yorkshire Company purchased land and a building at a cost of $700,000, of which $150,000 was allocated to the land and $550,000 was allocated to the building. As of December 31, 2011, the accounting records related to these assets were as follows:Land . . . . . . . . . . . . . . . . . . .
Montaigne Delivery Company has a truck that it wants to sell. The truck had an original cost of $60,000, was purchased three years ago, and was expected to have a useful life of eight years with no salvage value. Using straight-line depreciation and assuming that depreciation expense for three full
Aeronautics Company purchased a machine for $115,000. The machine has an estimated useful life of eight years and a salvage value of $7,000. Journalize the disposal of the machine under each of the following conditions. (Assume straight-line depreciation.)1. Sold the machine for $97,000 cash after
Cervantes Labs, Inc., has the following intangible assets:1. Record the amortization expense for both of these intangible assets for 2012 assuming neither of the assets is impaired.2. Prepare the intangible assets section of the balance sheet for Cervantes as of December 31,2012.
On January 1, 2011, Landon Company purchased a patent for $250,000 to allow it to improve its product line. On July 1, 2011, Landon purchased another existing business in a nearby city for a total cost of $750,000. The market value of the land, building, equipment, and other tangible assets was
Stringtown Company purchased Stansbury Island Manufacturing for $1,800,000 cash. The book value and fair value of the assets of Stansbury as of the date of the acquisition are listed below.In addition, Stansbury had liabilities totaling $400,000 at the time of the acquisition.1. At what amounts
Fitzgerald€™s Emporium reported the following asset values in 2011 and 2012:In addition, Fitzgerald€™s had sales of $3,650,000 in 2012. Cost of goods sold for the year was $2,300,000. Compute Fitzgerald€™s fixed asset turnover ratio for2012.
On January 2, 2012, Dickens Company purchased a building and land for $740,000. The most recent appraisal values for the building and the land are $520,000 and $280,000, respectively. The building has an estimated useful life of 20 years and a salvage value of $60,000.Required:1. Assuming cash
Jordon Company is considering replacing its automated stamping machine. The machine is specialized and very expensive. Jordon is considering three acquisition alternatives. The first is to lease a machine for 10 years at $1 million per year, after which time Jordon can buy the machine for $1
Ray’s Printing Company purchased a new printing press. The invoice price was $184,250. The company paid for the press within 10 days, so it was allowed a 2% discount. The freight cost for delivering the press was $3,000. A premium of $1,200 was paid for a special insurance policy to cover the
On January 2, 2012, Austen Company contracted to lease a mainframe computer on a noncancelable basis for seven years at an annual rental of $85,200, payable at the end of each year. The computer has an estimated economic life of eight years. There is no bargain purchase option, and the computer
The board of directors of Swogen Company authorized the president to lease a corporate jet to facilitate her travels to domestic and international subsidiaries of the company. After extensive investigation of the alternatives, the company agreed to lease a jet for $300,548 each year for five years,
Jennifer Cosmetics wants to construct a new building. It has two building options, as follows:a. Hire a contractor to do all the work. Jennifer has a bid of $850,000 from a reputable contractor to complete the project.b. Construct the building itself by taking out a construction loan of $800,000.
On January 1, Chaucer Corporation purchased a $51,000 machine. The estimated life of the machine was three years, and the estimated salvage value was $6,000. The machine had an estimated useful life in productive output of 60,000 units. Actual output for the first two years was: year 1, 22,000
On April 1, 2012, Cajun Company paid $210,000 in cash to purchase land, a building, and equipment. The appraised fair market values of the assets were as follows: land, $70,000; building, $120,000; and equipment, $60,000. The company incurred legal fees of $8,000 to determine that it would have a
On March 1, 2012, McCullough Company purchased for $300,000 a tract of land on which was located a fully equipped factory. The following information was compiled regarding this purchase:Required:1. Prepare the journal entry to record the purchase of these assets.2. Assume that the building is
On January 2, 2010, Seamus International Company purchased a new corporate airplane. The following costs are related to the purchase:Airplane, base price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,200,000Cash discount . . . . . . . . . . . . . . . . . . . . . .
On July 1, 2012, Philip Ward bought a used pickup truck at a cost of $5,300 for use in his business. On the same day, Ward had the truck painted blue and white (his company’s colors) at a cost of $800. Ward estimates the life of the truck to be three years or 40,000 miles. He further estimates
On May 31, 2010, Barren Oil Company purchased an oil well with estimated reserves of 200,000 barrels of oil for $2.0 million cash.Required:Prepare journal entries for the following:1. Record the purchase of the oil well.2. During 2010, 16,000 barrels of oil were extracted from the well. Record the
Stearns Inc. owns plant and equipment on the island of Lagos. The cost and book value of the building are $3,400,000 and $2,900,000, respectively. Until this year, the market value of the factory was $6.5 million. However, a new dictator just came to power and declared martial law. As a result of
On January 1, 2012, InterGalactic Company purchased the following assets and liabilities from Immensity Company for $325,000:Required:Prepare a journal entry to record the purchase of Immensity byInterGalactic.
On January 1, 2012, Fishing Creek Company purchased Skull Valley Technologies for $8,800,000 cash. The book value and fair value of Skull Valley€™s assets as of the date of the acquisition are listed below.In addition, Skull Valley had liabilities totaling $4,000,000 at the time of the
Bradbury Corp. reported the following asset values in 2011 and 2012:In addition, Bradbury had sales of $3,000,000 in 2012. Cost of goods sold for the year was $1,800,000. As of the end of 2011, the fair value of Bradbury€™s total assets was $1,750,000. Of the excess of fair value over
Renford Company owns two restaurants. One, located in Tacoma, was purchased from a previous owner and the other, located in Seattle, was built by Renford. The Seattle restaurant was built nine years ago. The Tacoma restaurant was purchased last year and has goodwill of $550,000 on the books. As it
Current rules require that leases meeting any one of the following requirements be classified as an asset and liability on the balance sheet:• A transfer of ownership• A bargain purchase option• A lease term equal to 75% or more of the economic life of the asset• The present value of the
Using Wal-Mart’s 2009 Form 10-K contained in Appendix A, answer the following questions:1. As a percentage of total assets, is Wal-Mart’s investment in property, plant, and equipment increasing or decreasing over time? Which of Wal-Mart’s assets is increasing the fastest as a percentage of
FedEx delivers packages around the world. To accomplish this task, FedEx has made huge investments in long-term assets.1. Identify what you consider to be the major long-term assets of FedEx. Review the information shown below from FedEx's balance sheet (numbers are in millions) to see how well
1. U.S. Steel provides the following information in the notes to its financial statements relating to its use of the straight-line method of depreciation. Can you interpret the information contained in the note?Property, plant and equipment€”Property, plant and equipment is carried at
Swire Pacific, Ltd., based in Hong Kong, is one of the largest companies in the world. The primary operations of the company are in the regions of Hong Kong, China, and Taiwan where it has operated for over 130 years. Swire operates Cathay Pacific Airways and has extensive real estate holdings in
You saw in Chapter 6 that a company’s management selects the percentage to be used when computing bad debt expense. You noted in Chapter 7 that management is allowed to choose the method for valuing inventory. In this chapter, you found that management gets to choose the method used for
Which of the depreciation methods discussed in this chapter will usually result in the highest net income in the early years of an asset’s life?
How does the declining-balance method of depreciation differ from other methods of depreciation?
Modified accelerated cost recovery system (MACRS) depreciation is allowed by the IRS but usually is not used in financial reporting. Why do you think this is the case?
When changing the estimate of the useful life of an asset, should depreciation expense for all the previous years be recalculated? If not, how do you account for a change in this estimate?
Why is it often necessary to recalculate the depletion rate for natural resources?
Using the following data and the declining-balance method of depreciation, compute depreciation expense for the first two years.Cost of machine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,500,000Estimated useful life (years) . . . . . . . . . . . . . . . .
Using the data in PE 9-74 and the sum-of-the-years’-digits method of depreciation, compute depreciation expense for the first two years.Data from PE 9-74Cost of machine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,500,000Estimated useful
Consider the following data for Kathleen's Tropical Resorts, Inc.Cost of machine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,000,000Estimated useful life (years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 yearsSalvage value . . . . . . . . . .

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