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Intermediate Accounting 17th Edition James D. Stice, Earl K. Stice, Fred Skousen - Solutions
What disclosures are required by the FASB for lessors under sales-type and direct financing leases?
How does the lease classification standard in IAS 17 differ from that in Statement No. 13?
What lease accounting proposal has been circulating among the members of the international accounting community?
When should the profit or loss be recognized by the seller-lessee in a sale-leaseback arrangement?
A lease involves payments of $1,000 per month for two years. The payments are made at the end of each month. The lease also involves a guaranteed residual value of $10,000 to be paid at the end of the 2-year period. The appropriate interest rate is 12% compounded monthly. Compute the present value
The lessor is computing the appropriate monthly lease payment. The fair value of the leased asset is $75,000. The guaranteed residual value at the end of the lease term is $12,000. The appropriate interest rate is 12% compounded monthly. The lease term is 36 months, and the lease payments occur at
A lease involves payments of $1,000 per month for five years. The payments are made at the end of each month. The lease also involves a guaranteed residual value of $10,000 to be paid at the end of the 5-year period. The fair value of the leased asset is $35,000. Compute the interest rate implicit
A lease involves payments of $8,000 per month for four years. The payments are made at the end of each month. The lease also involves a guaranteed residual value of $25,000 to be paid at the end of the 4-year period. Compute the present value of the minimum payments(1) Using the rate implicit in
The lessor leased equipment to the lessee. The fair value of the equipment is $246,000. Lease payments are $35,000 per year, payable at the end of the year, for 10 years. The interest rate implicit in the lease is 9%. At the end of 10 years, the lessor will repossess the equipment. The lease does
On January 1, the lessee company signed an operating lease contract. The lease contract calls for $3,000 payments at the end of each year for 10 years. The rate implicit in the lease is 10%. Make the journal entries necessary on the books of the lessee company(1) On the lease-signing date and(2) To
The company is a lessee and signed a 3-year operating lease that calls for a payment of $10,000 at the end of the first year and payments of $40,000 at the end of each year for the second and third years. Make the journal entries necessary to record the lease payments at the end of each of the
Refer to Practice 15-6. Assume that the lease is to be accounted for as a capital lease. Also assume that the leased asset is to be amortized over the 12-year asset life rather than the 10-year lease term. Make the journal entries necessary on the books of the lessee company(1) On the lease-signing
A lease involves payments of $10,000 per year for six years. The payments are made at the end of each year. The lease involves a bargain purchase option of $6,000 to be exercised at the end of the 6-year period. The total economic life of the leased asset is nine years. The interest rate implicit
On December 31, the company, a lessee, purchased some machinery that it had been leasing under a capital lease arrangement. The leased asset and lease liability were originally recorded at $500,000. At the time of the purchase, the accumulated amortization on the leased asset was $200,000, and the
Refer to Practice 15-6. Net income for the year was $10,000. Except for lease-related items, there were no changes in current operating assets or liabilities during the year, no purchases or sales of property, plant, or equipment, and no dividends paid, stock issued, or loans obtained or repaid.
On January 1, the lessor company purchased a piece of equipment for $24,000. The equipment has an expected life of four years with zero salvage value. The lessor company immediately leased the equipment under an operating lease agreement. The lease calls for the lessor company to receive lease
Refer to Practice 15-12. Assume that the lease is accounted for as a direct financing lease instead of as an operating lease. The interest rate implicit in the lease is 9%. Make the journal entries necessary on the lessor’s books to record(1) The signing of the lease,(2) The receipt of the
Accounting has been defined as a service activity. Who is served by accounting and how do they benefit?
On January 1, the lessor company purchased a piece of equipment for $50,000. The equipment has an expected salvage value of $1,987; this amount is not guaranteed. The lessor company immediately leased the equipment under a direct financing lease agreement. The lease calls for the lessor company to
On January 1, the lessor company purchased a piece of equipment for $7,000 as inventory. The lessor company immediately leased the equipment under a sales-type lease agreement; the cash selling price of the equipment is $10,000. The lease calls for the lessor company to receive five annual lease
On January 1, the lessor company purchased a piece of equipment for $6,000 as inventory. The lessor company immediately leased the equipment under a sales-type lease agreement. The lease calls for the lessor company to receive five annual lease payments of $2,500 per year, to be received at the
Refer to Practice 15-16. Assume the same facts except that the $500 bargain purchase option is instead a $500 unguaranteed residual value. Make the journal entries necessary on the books of the lessor company to record(1) The lease signing (including receipt of the first lease payment) and(2) The
On January 1, the lessor company purchased a piece of equipment for $9,000 as inventory. The lessor company immediately leased the equipment under a sales-type lease agreement. The lease calls for the lessor company to receive six annual lease payments of $3,000 per year, to be received at the
On December 31 of Year 1, the company, a lessor, sold some machinery that it had been leasing under a direct financing lease arrangement. On January 1 of Year 1 (after receipt of the lease payment for the year), the following account balances were associated with the lease:Gross Lease Payments
On January 1, the lessor company purchased some equipment (for cash) that the company then immediately leased. The lease contract calls for the receipt of $5,000 payments at the end of each year for eight years. The residual value of the equipment at the end of the 8-year lease term is expected to
As of December 31, the company has total assets of $10,000 and total liabilities of $4,000. Future minimum payments on operating leases for which the company is the lessee are $600 per year for the next 15 years. Assume that the lease payments occur at the end of the year. The appropriate discount
On January 1, Seller-Lessee sold a building to Buyer-Lessor for $200,000. The building had originally cost Seller-Lessee $230,000 and had accumulated depreciation of $70,000 on the date of the sale. On the day of the sale, Seller-Lessee leased the building back from Buyer-Lessor. The lease calls
Atwater Manufacturing Co. leases its equipment from Westside Leasing Company. In each of the following cases, assuming none of the other criteria for capitalizing leases are met, determine whether the lease would be a capital lease or an operating lease under FASB Statement No. 13. Your decision is
Doxey Company purchased a machine on January 1, 2011, for $1,250,000 for the express purpose of leasing it. The machine was expected to have a 9-year life from January 1, 2011, no salvage value, and to be depreciated on a straight-line basis. On March 1, 2011, Doxey leased the machine to Mondale
How does the fact that there are limited resources in the world relate to accounting information?
Mighty Inc. leases some of the equipment it uses. The lease term is five years, and the lease payments are to be made in advance as shown in the following schedule.January 1, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 60,000January 1, 2012
Bingham Smelting Company entered into a 15-year noncancelable lease beginning January 1, 2011, for equipment to use in its smelting operations. The term of the lease is the same as the expected economic life of the equipment. Bingham uses straight-line depreciation for all plant assets. The
On January 2, 2011, Jacques Company entered into a noncancelable lease for new equipment. The equipment was built to Jacques Company’s specifications and is in an area in which rental to another lessee would be difficult. Rental payments are $300,000 a year for 10 years, payable in advance. The
Stagg Construction Co. is leasing equipment from Cloud Inc. The lease calls for payments of $50,000 a year plus $3,000 a year executory costs for five years. The first payment is due on January 1, 2011, when the lease is signed, with the other four payments coming due on December 31 of each year.
Cordon Enterprise Company leases many of its assets and capitalizes most of the leased assets. At December 31, the company had the following balances on its books in relation to a piece of specialized equipment:Leased Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Smithston Corporation leased equipment to Dayplanner Co. on January 1, 2011. The terms of the lease called for annual lease payments to be made at the first of each year. Smithston’s implicit interest rate for the transaction is 12%. On July 1, 2013, Dayplanner purchased the equipment and paid
Moor Leasing leases equipment to Wong Manufacturing. The fair value of the equipment is $527,169. Lease payments, excluding executory costs, are $60,000 per year, payable in advance, for 15 years. What is the implicit rate of interest Moor Leasing should use to record this capital lease on its
Deseret Finance Company purchased a printing press to lease to Quality Printing Company. The lease was structured so that at the end of the lease period of 15 years, Quality would own the printing press. Lease payments required in this lease were $190,000 (excluding executory costs) per year,
Massachusetts Casualty Insurance Company decides to enter the leasing business. It acquires a specialized packaging machine for $300,000 cash and leases it for a period of six years, after which the machine is to be returned to the insurance company for disposition. The expected unguaranteed
Accounting is sometimes characterized as dealing only with the past. Give examples of how accounting information can be of value in dealing with the future.
Distinguish between management accounting and financial accounting.
What five items make up the general-purpose financial statements?
Contrast the roles of an accountant and an auditor.
Wenville Savings and Loan Company acquires a piece of specialized manufacturing equipment for $2,000,000 that it leases on January 1, 2011, to a local factory for $466,646 per year, payable in advance. Because of rapid technological developments, the equipment is expected to be replaced after four
Why are independent audits necessary?
What conditions led to the establishment of accounting standard-setting bodies in the United States?
Describe the structure of the FASB. Where does the FASB get its operating funds?
Mario Automobile Company leases automobiles under the following terms. A 3-year lease agreement is signed in which the lessor receives annual rental of $4,000 (in advance). At the end of the three years, the lessee agrees to make up any deficiency in residual value below $3,500. The cash price of
What are the differences in purpose and scope of the FASB’s Statements of Financial Accounting Standards and Statements of Financial Accounting Concepts?
What characteristics of the standard-setting process are designed to increase the acceptability of standards established by the FASB?
Salcedo Co. leased equipment to Erickson Inc. on April 1, 2011. The lease, appropriately recorded as a sale by Salcedo, is for an 8-year period ending March 31, 2019. The first of eight equal annual payments of $175,000 (excluding executory costs) was made on April 1, 2011. The cost of the
(a) What role does the EITF play in establishing accounting standards? (b) Why can it meet this role more efficiently than the FASB?
How does the SEC influence the setting of accounting standards?
What is the AICPA? The AAA?
Explain the relationship between financial accounting rules and tax accounting rules.
Why is standard setting such a difficult and complex task?
According to the FASB’s GAAP hierarchy, which set of accounting standards has the highest priority?
Why are differing national accounting standards converging to a common global standard?
What is the IASB? What is the SEC position regarding IASB standards?
List and explain the main reasons that a conceptual framework of accounting is important.
Loco Leasing and Manufacturing Company uses leases as a means of financing sales of its equipment. Loco leased a machine to Potomac Construction for $15,000 per year, payable in advance, for a 10-year period. The cost of the machine to Loco was $86,000. The fair value at the date of the lease was
Identify the major objectives of financial reporting as specified by the FASB.
One objective of financial reporting is understandability. Understandable to whom?
Why is it so difficult to measure the cost effectiveness of accounting information?
Distinguish between the qualities of relevance and reliability.
Does reliability imply absolute accuracy? Explain.
Define comparability.
Of what value is consistency in financial reporting?
What is the current numerical materiality standard in accounting?
What is conservatism in accounting? What is an example of conservatism in accounting practice?
Identify the criteria that an item must meet to qualify for recognition.
Identify and describe five different measurement attributes.
Briefly describe the five traditional assumptions that influence the conceptual framework.
What is the most common career path for a college graduate who starts out in public accounting?
What user careers require a knowledge of intermediate accounting issues?
Determine whether the following statements are true or false. If a statement is false, explain why.1. Comprehensive income includes changes in equity resulting from distributions to owners.2. Timeliness and predictive value are both characteristics of relevant information. 3. The tendency to
Match the numbered statements below with the lettered terms. An answer (letter) may be used more than once, and some terms require more than one answer (letter).1. Key ingredients in quality of relevance.2. Traditional assumptions that influence the FASB’s conceptual framework.3. The idea that
For each of the following independent situations, identify the relevant objective(s) of financial reporting that the company could be overlooking. Discuss each of these objectives.1. The president of Daughters, Inc., believes that the financial statements should be prepared for use by management
For each situation listed, indicate by letter the appropriate qualitative characteristic(s) or accounting concept(s) applied. A letter may be used more than once, and more than one characteristic or concept may apply to a particular situation.1. Goodwill is recorded in the accounts only when it
In each of the following independent situations, an example is given requiring a trade-off between the qualitative characteristics discussed in the text. For each situation, identify the relevant characteristics and briefly discuss how satisfying one characteristic may involve not satisfying
For each of the following items, identify the financial statement element being discussed.1. Changes in equity during a period except those resulting from investments by owners and distributions to owners.2. The net assets of an entity.3. The result of a transaction requiring the future transfer of
In each of the following independent situations, an example is given involving one of the five traditional assumptions of the accounting model. For each situation, identify the assumption involved (briefly explain your answer).1. A subsidiary of Parent Inc. was exhibiting poor earnings performance
One of the underlying assumptions of the accounting model is the going concern assumption. When this assumption is questionable, valuation methods used for assets and liabilities may differ from those used when the assumption is viable. For each of the following situations, identify the measurement
1. One of the elements on a financial statement is comprehensive income. Comprehensive income excludes changes in equity resulting from which of the following?(a) Loss from discontinued operations(b) Unrealized loss from foreign currency translation(c) Dividends paid to stockholders(d) Unrealized
Assume that you just inherited $1 million. You are aware that numerous studies have shown that investments in equity securities (stocks) give the highest rate of return over the long run. However, you are not sure in which companies you should invest. You send for and receive the annual reports of
Emilio Valdez worked for several years as a loan analyst for a large bank. He recently left the bank and took a management position with Positron, a high-tech manufacturing firm. Emilio prepared for his first management meeting by extensively analyzing Positron’s external financial statements.
Quality Enterprises Inc. issued its 2010 financial statements on February 22, 2011. The auditors expressed a “clean” opinion in the audit report. On July 14, 2011, the company filed for bankruptcy as a result of the inability to meet currently maturing long-term debt obligations. Reasons
The “due process” system of the FASB encourages public input into the standard-setting process. It invites written comments, holds public hearings, and often changes proposed standards in response to this input. However, some observers have suggested that this process makes the setting of
FASB Statement No. 106 requires companies to recognize a liability for their obligation to pay for retirees’ health care. Prior to this rule, most companies recognized no liability for their health care promises to employees, although an economic liability certainly existed. Many companies used
Tom Obstinate is disgusted by all of the emphasis being put on international accounting issues. Tom plans to practice accounting in the United States, with U.S. companies, using U.S. GAAP. Accordingly, Tom sees no reason to know anything about the International Accounting Standards Board or
For more than three decades, accounting professionals, accounting educators, and accounting bodies have debated requiring more education for those entering the public accounting profession. In 1988, the AICPA passed a resolution mandating 150 college credit hours as a minimum educational
Little attempt is made to reconcile the accounting standard differences between the IRS and the FASB. These differences are recognized as arising from differences in the objectives of the two bodies. However, the existence of differences requires companies to keep two different sets of records in
The FASB concluded in Concepts Statement No. 1 that investors and creditors are interested in an enterprise’s future cash flows. However, the Board further stated that the primary focus of financial reporting is information about earnings. If an investor or creditor is interested in future cash
The cable television industry is facing competition from companies using advanced technologies. The use of satellites allows programs to be beamed at low cost to locations not accessed by cable. This technology could eliminate the need for the current high-fixed-cost, physically intrusive cable
Conserv Corporation, a computer software company, is trying to determine the appropriate accounting procedure to apply to its software development costs. Management is considering capitalizing the development costs and amortizing them over several years. Alternatively, they are considering charging
Financial statements in the United States rely heavily on historical cost information, particularly in the valuation of land, buildings, and equipment. However, International Accounting Standards allow for fixed assets to be reported at their fair values. As an example, Diageo (the British consumer
Companies regularly obtain money through the issuance of bonds. The market value of bonds changes daily and on any given day is a function of many factors including economic variables, interest rates, industry developments, and firm specific information. Should bonds be reported on the books of the
In the 1970s, a leader in the accounting profession proposed that there really needed to be only one underlying standard to govern the establishment of generally accepted accounting principles. That standard was identified as fairness. Financial statements should be prepared so that they are fair
The existence of just four large CPA firms that service virtually all of the major industrial and financial companies and thus dominate the accounting profession has led to criticism through the years.1. What dangers do you see from the dominance of a few large CPA firms? What advantages?2. During
Locate the 2007 financial statements for The Walt Disney Company on the Internet and consider the following questions:1. How well did Disney do financially during the year ended September 29, 2007? 2. Comment on the level of detail in Disney’s balance sheet. Should there be more balance sheet
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