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Intermediate Accounting 17th Edition James D. Stice, Earl K. Stice, Fred Skousen - Solutions

The following information comes from the 2006 financial statements of McDonald’s Corporation. Individual franchise arrangements generally include a lease and a license and provide for payment of initial fees, as well as continuing rent and service fees to the Company based upon a percent of
Imagine that you have been selected to compete with students from other universities in presenting a case considering whether the FASB should be abolished and its standard-setting role taken over by the SEC. Prepare a 1-page summary outlining the major arguments for and against the SEC replacing
To help you become familiar with the accounting standards, this case is designed to take you to the FASB’s Web site and have you access various publications. Access the FASB’s Web site at www.fasb.org. Click on “Pronouncements & EITF Abstracts.” For this case, we will use Statement of
Accounting standards place limits on the set of allowable alternative accounting treatments, but the accountant must still exercise judgment to choose among the remaining alternatives. In making those choices, which of the following should the accountant seek to do?1. Maximize reported income.2.
On February 20, 2011, Hudson Inc. purchased a machine for $2,100,000 for the purpose of leasing it. The machine is expected to have a 12-year life, has no residual value, and is depreciated on the straight-line basis to the nearest month. The machine was leased to Donah Company on March 1, 2011,
The following information relates to a capital lease between Glass Electric Co. (lessee) and Williams Manufacturing Inc. (lessor). The lease term began on January 1, 2011. Glass capitalized the 10-year lease and recorded $150,000 as an asset. The annual lease payment, made at the beginning of each
On January 1, 2011, Warr Delivery Company purchased some equipment for $64,768 in cash. Warr Delivery immediately leased the equipment; Warr Delivery is the lessor. The lease contract calls for the receipt of $14,000 payments at the end of each year for five years. The residual value of the
The following lease information was obtained by a staff auditor for a client, Kroller Inc., at December 31, 2011. Indicate how this information should be presented in Kroller’s 2-year comparative financial statements. Include any notes to the statements required to meet generally accepted
Acme Enterprises leased equipment from Monument Equipment Co. on January 1, 2011. The terms of the lease agreement require five annual payments of $20,000 with the first payment being made on January 1, 2011, and each subsequent payment being made on December 31 of each year. Because the equipment
The following information comes from the 2011 financial statements of Jessica Hatch Company:Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $250,000Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . .
On July 1, 2011, Flashlight Corporation sold equipment it had recently purchased to an unaffiliated company for $480,000. The equipment had a book value on Flashlight’s books of $390,000 and a remaining life of six years. On that same day, Flashlight leased back the equipment at $95,000 per year,
Smalltown Grocers sold its plant facilities to United Grocers, Inc., for $813,487. United immediately leased the building back to Smalltown for 20 annual payments of $96,000 with the first payment due immediately. The terms of the lease agreement provide a bargain purchase option wherein Smalltown
Extractor Company leased a machine on July 1, 2011, under a 10-year lease. The economic life of the machine is estimated to be 15 years. Title to the machine passes to Extractor Company at the expiration of the lease, and thus, the lease is a capital lease. The lease payments are $97,000 per year,
York Industries leases a large specialized machine to Echo Company at a total rental of $1,400,000, payable in five annual installments in the following declining pattern: 24% in the first two years, 20% in the third and fourth years, and 12% in the last year. The lease begins January 1, 2011. In
Aldridge Enterprises has a long-standing policy of acquiring company equipment by leasing. Early in 2011, the company entered into a lease for a new milling machine. The lease stipulates that annual payments will be made for five years. The payments are to be made in advance on December 31 of each
For some time, Ulrich Inc. has maintained a policy of acquiring company equipment by leasing. On January 1, 2011, Ulrich entered into a lease with Riverbottoms Fabricators for a new concrete truck that had a selling price of $315,000. The lease stipulates that annual payments of $61,800 will be
Trost Leasing Company buys equipment for leasing to various manufacturing companies. On October 1, 2010, Trost leases a press to Shumway Shoe Company. The cost of the machine to Trost was $196,110, which approximated its fair value on the lease date. The lease payments stipulated in the lease are
Enco Tech Corporation is in the business of leasing new sophisticated satellite systems. As a lessor of satellites, Enco Tech purchased a new system on December 31, 2011. The system was delivered the same day (by prior arrangement) to Ocular Investment Company, a lessee. The corporation accountant
Aquatran Incorporated uses leases as a method of selling its products. In early 2011, Aquatran completed construction of a passenger ferry for use between Manhattan and Staten Island. On April 1, 2011, the ferry was leased to the Manhattan Ferry Line on a contract specifying that ownership of the
New World Enterprises adopted the policy of leasing as the primary method of selling its products. The company’s main product is a small jet airplane that is very popular among corporate executives. New World constructed such a jet for Corporate Air Company (CAC) at a cost of $6,456,239.
Alta Corporation entered into an agreement with Snowfire Company to lease equipment for use in its ski manufacturing facility. The lease is appropriately recorded as a purchase by Alta and as a sale by Snowfire. The agreement specifies that lease payments will be made on an annual basis. The cost
Mullen Equipment Company both leases and sells its equipment to its customers. The most popular line of equipment includes a machine that costs $280,000 to manufacture. The standard lease terms provide for five annual payments of $110,000 each (excluding executory costs), with the first payment due
Atwater Equipment Co. manufactures, sells, and leases heavy construction equipment. England Construction Company, a regular customer, leased equipment on July 1, 2011, that had cost Atwater $252,000 to manufacture. The lease payments are $63,161, beginning on July 1, 2011, and continuing annually
Gryphon Manufacturing Company manufactures and leases a variety of items. On January 2, 2011, Gryphon leased a piece of equipment to Scissor Industries Co. The lease is for seven years for an annual amount of $43,500, payable in advance. The lease payment includes executory costs of $2,500 per
The following information relates to a capital lease between Bradford Electric Co. (lessee) and Widstoe Manufacturing Inc. (lessor). The lease term began on January 1, 2011. Widstoe recorded the lease as a sale and made the following entries related to the lease during 2011. Assume this was the
Jaquar Mining and Manufacturing Company leases from Emory Leasing Company three machines under the following terms.Machine 1: Lease period—10 years, beginning April 1, 2005; lease payment—$18,000 per year, payable in advance.Machine 2: Lease period—10 years, beginning July 1, 2009; lease
The following information comes from the financial statements of Marci Sinclair Company.Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 300,000Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1. In a sale-leaseback transaction, a gain resulting from the sale should be deferred at the time of the sale-leaseback and subsequently amortized when: I. The seller-lessee has transferred substantially all the risks of ownership.II. The seller-lessee retains the right to substantially all of the
On January 3, 2011, Wayside Inc. sold a building with a book value of $1,800,000 to Birchman Industries for $1,735,500. Wayside immediately entered into a leasing agreement wherein Wayside would lease the building back for an annual payment of $320,049. The term of the lease is eight years, the
Louise Corporation entered into a leasing arrangement with Wilder Leasing Corporation for a certain machine. Wilder’s primary business is leasing; it is not a manufacturer or dealer. Louise will lease the machine for a period of three years, which is 50% of the machine’s economic life. Wilder
Meeker Machine and Die Company has learned that a sophisticated piece of computer operated machinery is available to either buy or rent. The machinery will result in three employees being replaced, and quality of the output has been tested to be superior in every demonstration. There is no doubt
Digital X-Ray, Inc., has introduced a new line of equipment that may revolutionize the medical profession. Because of the new technology involved, potential users of the equipment are reluctant to purchase the equipment, but they are willing to enter into a lease arrangement as long as they can
Johnson Pharmaceuticals needs cash. One option being considered by the board of directors is to sell the plant facilities to a group of venture capitalists and then lease the facilities back for a long-term period with the option of repurchasing the plant facilities at the end of the lease.The
On January 1, 2011, Skull Valley Motors leased a Lincoln Navigator to T. K. “Pusan Boots” Denny. The lease is a 3-year lease requiring a payment of $695 at the end of each month for 36 months. The cash price of the Navigator was $46,000. Skull Valley Motors expects to be able to sell the
John Carson, president of Carson Enterprises, recently arranged a financing deal with a group of foreign investors whereby he sold his movie company for $13,000,000 and immediately leased the company back, recognizing a $4,000,000 profit on the sale.Mr. Carson has just entered your office to tell
Locate the 2004 financial statements for The Walt Disney Company on the Internet. In Note 4 to the financial statements, Disney briefly outlines a rather complicated lease it arranged in regard to the Disneyland Paris theme park assets of Euro Disney. To summarize:• The theme park assets are
As mentioned in the chapter, International Lease Finance Corporation leases airplanes to airlines. Disclosure regarding International’s leases is reproduced in Exhibit 15-11 in the text.1. By examining the stream of expected future lease payments as of the end of 2006 and 2007, estimate how much
The following summary data are from the May 31, 2007, balance sheet of FedEx. All numbers are in millions.Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,629Property, plant, and equipment (net) . . . . . . . . . . . . . . . . . . . .
The franchise arrangement between McDonald€™s and its franchisees is summarized in the following note from McDonald€™s 2007 annual report.Individual franchise arrangements generally include a lease and a license and provide for payment of initial fees, as well as continuing rent
You are the accountant for Clear Water Bay Company, an equipment manufacturer. In order to help customers finance their purchases, Clear Water Bay often leases, rather than sells, the equipment. Clear Water Bay structures the lease agreements so that most of its equipment leases are classified as
To help you become familiar with the accounting standards, this case is designed to take you to the FASB’s Web site and have you access various publications. Access the FASB’s Web site at www.fasb.org. Click on “Pronouncements & EITF Abstracts.”In this chapter, we discussed issues relating
You are the chief financial officer for RAM Solutions, a small but rapidly growing retail computer hardware chain. You are trying to figure out how to finance the new buildings that are scheduled to be purchased this year. The difficulty is that RAM has an existing loan with Commercial Security
What three elements are contained in a balance sheet?
What is the importance of the term probable in the definition of an asset?
Liabilities are obligations denominated in precise monetary terms. Do you agree or disagree? Explain.
What does the difference between current assets and current liabilities measure?
What criteria are generally used (a) In classifying assets as current? (b) In classifying liabilities as current?
Indicate under what circumstances each of the following can be considered noncurrent:(a) Cash and (b) Receivables.
How can expected refinancing impact the classification of a liability?
(a) What is a subjective acceleration clause?(b) What is an objective acceleration clause?(c) How do these clauses in debt instruments affect the classification of a liability?
Distinguish between contingent liabilities and estimated liabilities.
How do the Equity sections of proprietorships, partnerships, and corporations differ from one another?
What are the three major categories in a corporation’s Equity section?
Under what circumstances may offset balances be properly recognized on the balance sheet?
In what order are assets usually listed in the balance sheet?
What are financial ratios?
Explain how the asset turnover ratio provides a measure of a company’s overall efficiency.
What one financial ratio summarizes everything about the performance of a company? How is it computed?
What are the major types of notes attached to the financial statements?
How has the FASB used note disclosure as a tool of compromise?
What are some examples of supplementary information included in the notes to financial statements?
Under what circumstances does a subsequent event lead to a journal entry for the previous reporting period?
The balance sheet does not reflect the value of a business. Do you agree or disagree? Explain.
Using the following information, compute working capital:Cost of Goods Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,000Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,400Paid-In Capital . . . . . . . . . . . . . .
Using the following information, compute total current assets:Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,000Prepaid Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,100Paid-In Capital . . . .
Using the following information, compute total current liabilities:Accrued Income Taxes Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,000Notes Payable (due in 14 months) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,100Paid-In Capital . . . . . . . . . . .
The company has the following three loans payable scheduled to be repaid in June of next year. As of December 31 of this year, identify which of the three should be classified as current and which should be classified as noncurrent.(a) The company intends to repay Loan A when it comes due in June.
The company has the following three loans. As of December 31 of this year, identify which of the three should be classified as current and which should be classified as noncurrent.(a) On July 15 of next year, Loan A will become payable on demand.(b) Loan B is scheduled to be repaid in three years.
The company has the following three potential obligations. Describe how each will be reported in the financial statements.(a) The company has promised to make fixed pension payments to employees after they retire. The company is not certain how long the employees will work or how long they will
Using the following information, compute: (a) Total contributed capital, (b) Ending retained earnings, and (c) Total stockholders’ equity:Additional Paid-In Capital, Common . . . . . . . . . . . . . . . . . . $8,200Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Using the following information, compute (a) Total contributed capital, (b) Total accumulated other comprehensive income, and (c) Total stockholders’ equity:Additional Paid-In Capital, Common . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,000Common Stock, at par . . . .
Following is a balance sheet presented in standard U.S. format. Rearrange this balance sheet to be in standard British format. Don’t worry about differences in terminology; use the U.S. labels, but present the information in the British format.Current Assets:Cash . . . . . . . . . . . . . . . .
Use the following information to compute the current ratio:Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,700Paid-In Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,650Cash . . . . . . . . . . . . . . . .
Use the following information to compute the quick ratio:Long-Term Loan Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,100Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,750Cash . . . . . . . . . . . . . . . . . . .
Use the information in Practice 3-3 to compute the debt ratio. Assume that the list includes all liability and equity items.
Use the information in Practice 3-7 to compute the debt ratio. Assume that the list includes all liability and equity items.
Use the information in Practice 3-9 to compute the proportion of total assets in each of the following asset categories.(a) Inventory(b) Property, Plant, and Equipment
Use the information in Practice 3-2 to compute the proportion of total assets in each of the following asset categories. Assume that the list contains all the asset items.(a) Inventory(b) Property, Plant, and Equipment
Refer to Practice 3-9. Sales for the year totaled $50,000. Compute asset turnover.
Refer to Practice 3-9. Net income for the year totaled $3,600. Compute return on assets.
Refer to Practice 3-9. Net income for the year totaled $2,000. Compute return on equity.
On December 31, the warranty liability was estimated to be $100,000. On January 16 of the following year, results of a study done before December 31 were received. These study results indicate that products would require a much larger amount of warranty repairs than expected; total warranty repairs
On December 31, the warranty liability was estimated to be $100,000. On January 16 of the following year, it was learned that one week before, on January 9, poor-quality materials were introduced into the production process. This mistake is expected to create an additional $87,000 in warranty
Refer to Practice 3-9. As of the end of the year, the total market value of shares outstanding was $10,000. Compute the book-to-market ratio.
A balance sheet contains the following classifications:(a) Current assets (b) Investments (c) Property, plant, and equipment (d) Intangible assets (e) Other noncurrent assets (f) Current liabilities(g) Long-term debt(h) Other noncurrent liabilities(i) Capital stock(j) Additional paid-in capital
State how each of the following accounts should be classified on the balance sheet.(a) Treasury Stock(b) Retained Earnings(c) Vacation Pay Payable(d) Foreign Currency Translation Adjustment(e) Allowance for Bad Debts(f) Liability for Pension Payments(g) Investment Securities (Trading)(h) Paid-In
Using the definition of an asset from FASB Concepts Statement No. 6, indicate whether each of the following should be listed as an asset by Ingalls Company.(a) Ingalls has legal title to a coal mine in a remote location. Historically, the mine has yielded more than $25 million in coal. Engineering
Using the definition of a liability from FASB Concepts Statement No. 6, indicate whether each of the following should be listed as a liability by Pauli Company.(a) Pauli was involved in a highly publicized lawsuit last year. Pauli lost and was ordered to pay damages of $125 million. The payment has
From the following list of accounts, prepare a balance sheet showing all balance sheet items properly classified. (No monetary amounts are to be recognized.)Accounts PayableAccounts ReceivableAccumulated Depreciation—BuildingsAccumulated Depreciation—EquipmentAdvertising ExpenseAllowance for
From the following data, compute the working capital for Hales Shipping Co. at December 31, 2011.Cash in general checking account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34,000Cash in fund to be used to retire bonds in 2015 . . . . . . . . . . . . . . . . . . 59,000Cash
The following balance sheet was prepared for Jared Corporation as of December 31, 2011.The following additional information relates to the December 31, 2011, balance sheet.(a) Cash includes $4,000 that has been restricted to the purchase of manufacturing equipment (a noncurrent asset).(b)
On the Clark and Company Inc. balance sheet, indicate the amount that should appear for each of the items (a) through (n) on the balancesheet.
In its annual report to stockholders, Hakobe Inc. presents a condensed balance sheet with detailed data provided in supplementary schedules.1. From the adjusted trial balance of Hakobe, prepare the following sections of the balance sheet, properly classifying all accounts as to balance sheet
The following data are from the financial statements of Riverton Company.Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 55,000Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,000Current liabilities . .
Gross payroll is taxed by both federal and state governments. Identify these taxes and indicate who bears the cost of the tax, the employer or the employee.
Schlofman Company has the following assets.Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,000Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000Inventory . . . . . . . . . . . . . . . . . . .
The following events occurred after the end of the company’s fiscal year but before the annual audit was completed. Classify each event as to its impact on the financial statements, that is, (1) Reported by changing the amounts in the financial statements, (2) Reported in notes to the financial
For each of the following items, indicate whether the item should be reflected in the 2011 financial statements for Tindall Company. If the item should be reflected, indicate whether it should be reported in the financial statements themselves or by note disclosure.(a) As of December 31, 2011,
The following information was used to prepare the financial statements for Delta Chemical Company. Prepare the necessary notes to accompany the statements. Delta uses the LIFO inventory method on its financial statements. If the FIFO method were used, the ending inventory balance would be reduced
The following information relates to two companies, designated Company A and Company B. One of the companies is a traditional steel manufacturer. The other is a successful Internet retailer. Using the following information, identify which is which, and explain your answer.

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