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

Locate the information relating to pensions and other postretirement benefits found in The Walt Disney Company’s annual report (which can be found on the Internet at www.disney.com) and answer the following questions.1. What is Disney’s PBO at the end of fiscal 2007 (September 29, 2007)?2. Look
Northrop Grumman is a leading aerospace/defense company. The company has developed the F-16 fighter, the Apache helicopter, the AWACS early warning airborne radar, and the B-2 Stealth bomber. Grumman, one of the predecessor companies of Northrop Grumman, was the primary contractor for the Lunar
Direct your attention to the company with perhaps the largest private pension plan in the world—General Motors. GM’s note relating to its pension plan is included in Exhibit 17-11 on pages 1056–1057. Use that information to answer the following questions.1. Compute GM’s total PBO as of
In the United States, accounting for pensions has received a great deal of attention. In other countries, pension accounting is given much less attention. In one page, examine the reasons that would explain why pension accounting is given much less emphasis in most foreign countries as compared to
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 the accounting
FASB Concepts Statement No. 1 states, “The primary focus of financial reporting is information about an enterprise’s performance provided by measures of earnings and its components.” Why is it unwise for users of financial statements to focus too much attention on the income statement?
After the necessary definitions and assumptions that support the determination of income have been made, what are the two methods of income measurement that may be used to determine income? How do they differ?
What different measurement methods may be applied to net assets in arriving at income under the capital maintenance approach?
Income as determined by income tax regulations is not necessarily the same as income reported to external users. Why might there be differences?
What is the difference between a code law country and a common law country?
How are revenues and expenses different from gains and losses?
What two factors must be considered in deciding the point at which revenues and gains should be recognized? At what point in the revenue cycle are these conditions usually met?
Name three exceptions to the general rule that assumes revenue is recognized at the point of sale. What is the justification for these exceptions?
What guidelines are used to match costs with revenues in determining income?
What are some possible disadvantages of a multiple-step income statement?
Identify the major sections (components of income) that are included in a multiple-step income statement.
What are restructuring charges, and why do they generate controversy?
What is the meaning of “intraperiod” income tax allocation?
Pop-Up Company has decided to sell its lid manufacturing division even though the division is expected to show a small profit this year. The division’s assets will be sold to another company at a loss of $10,000. What information (if any) should Pop-Up disclose in its financial reports with
Which of the following would not normally qualify as an extraordinary item?(a) The write-down or write-off of receivables.(b) Major devaluation of foreign currency.(c) Loss on sale of plant and equipment.(d) Gain from early extinguishment of debt.(e) Loss due to extensive flood damage to an asphalt
Explain briefly the difference in accounting treatment of (a) A change in accounting principle and (b) A change in accounting estimate.
Under IASB standards, how is the cumulative effect of a change in accounting principle reported?
What is the general practice in reporting earnings per share?
Define comprehensive income. How does it differ from net income?
What is the starting point for the preparation of forecasted financial statements?
Describe the process one should use in forecasting depreciation expense.
The company had the following total asset and total liability balances at the beginning and the end of the year:During the year, the company received $100,000 in new investment funds contributed by the owners. Using the financial capital maintenance concept, determine the company€™s
Refer to Practice 4-1. Assets with the same productive capacity as the assets comprising the $400,000 beginning asset balance had a current cost of $465,000 at the end of the year. Using the physical capital maintenance concept, determine the company’s income for the year.
The company sells custom-designed engineering equipment. During the most recent year, the company received the following customer orders:For Machine A, selling price = $125,000, production cost = $67,000For Machine B, selling price = $235,000, production cost = $140,000For Machine C, selling price
The following information describes the company’s sales for the year:(a) A sale for $100,000 was made on March 23. As of the end of the year, all work associated with the sale has been completed. Unfortunately, the customer is a significant credit risk and the collection of the cash for the sale
The following information describes the company€™s costs incurred during the year:How much expense should be recognized for theyear?
Using the following information, prepare a multiple-step income statement.Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,000Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Using the following information, prepare a multiple-step income statement.Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,000Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Refer to the IBM information in Exhibit 4-5. Compute the overall gross profit percentage for 2004, 2005, and 2006.
Refer to the IBM information in Exhibit 4-5. Compute income from continuing operations as a percentage of total revenue for 2004, 2005, and 2006.
Use the following information to compute income from continuing operations. Assume that the income tax rate on all items is 40%.Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,000Interest expense . . . . . . . . . . . . . . . . . .
Fleming Company has two divisions, E and N. Both qualify as business components. In 2011, the firm decides to dispose of the assets and liabilities of Division N; it is probable that the disposal will be completed early next year. The revenues and expenses of Fleming for 2010 and 2011 are as
Refer to the data in Practice 4-11. Repeat the exercise, assuming that Division E is being discontinued. Also assume that instead of a $2,000 pretax loss on the disposal, there was a $1,500 pretax gain.
Use the following information to compute income from continuing operations and net income. Assume that the income tax rate on all items is 40%.Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,000Interest expense . . . . . . . . . . . . .
The company started business in 2009. In 2011, the company decided to change its method of computing oil and gas exploration expense. The company has only two expenses: oil and gas exploration expense and income tax expense. The following sales and oil and gas exploration expense information are
A building was purchased for $100,000 on January 1, 2006. It was estimated to have no salvage value and to have an estimated useful life of 20 years. On January 1, 2011, the estimated useful life was changed from 20 years to 30 years. Compute depreciation expense for 2011. Use straight-line
Use the following information to compute return on sales.Earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1.67Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,000Cash . . . . . . . . . . . . .
For the years 2009€“2011, Robbins Soccer Company had net income and average shares outstanding as follows:What was the percentage of change in earnings per share (EPS) in 2010? In2011?
Refer to Practice 4-16. Use that information to compute the price-earnings ratio.
Use the following information to compute net income and comprehensive income. For simplicity, ignore income taxes.Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,000Unrealized loss on available-for-sale securities . . . . . . . . . . . . . . . . .
The following balance sheet asset information is for 2011:Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . 500Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The following balance sheet information represents actual data for 2011 and forecasted data for 2012:The actual income statement for 2011 is as follows:Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000Cost of goods sold . . . .
Changes in the balance sheet account balances for the Bubble Bobble Co. during 2011 follow. Dividends declared during 2011 were $15,000. Calculate the net income for the year assuming that no transactions other than the dividends affected retained earnings. Increase(Decrease)Cash . . .
For each of the following transactions, events, or circumstances, indicate whether the recognition criteria for revenues and gains are met and provide support for your answer.(a) An order of $25,000 for merchandise is received from a customer.(b) The value of timberlands increases by $40,000 for
Indicate which of the following transactions or events gives rise to the recognition of revenue in 2011 under the accrual basis of accounting. If revenue is not recognized, what account, if any, is credited?(a) On December 15, 2011, Howe Company received $20,000 as rent revenue for the 6-month
For each of the following items, indicate whether the expense should be recognized using (1) direct matching, (2) systematic and rational allocation, or (3) immediate recognition. Provide support for your answer.(a) Johnson & Smith, Inc., conducts cancer research. The company’s hope is to develop
Borgquist Corporation purchased a patent on January 2, 2008, for $400,000. Its original life was estimated to be 10 years. However, in December of 2011, Borgquist’s controller received information proving conclusively that the product protected by the Borgquist patent would be obsolete within
Where in a multiple-step income statement would each of the following items be reported?(a) Purchase discounts(b) Gain on early retirement of debt(c) Interest revenue(d) Loss on sale of equipment(e) Casualty loss from hurricane(f) Sales commissions(g) Loss on disposal of business component(h)
The selling expenses of Caribou Inc. for 2011 are 13% of sales. General expenses, excluding doubtful accounts, are 25% of cost of goods sold but only 15% of sales. Doubtful accounts are 2% of sales. The beginning inventory was $136,000, and it decreased 30% during the year. Income from operations
Nephi Corporation reported the following income items before tax for the year 2011:Income from continuing operations before income taxes . . . . . . . . . . . . . . . $260,000Loss from operations of a discontinued business component . . . . . . . . . . . . 70,000Gain from disposal of a
On May 31, 2011, top management of Stafford Manufacturing Co. decided to dispose of an unprofitable business component. An operating loss of $210,000 associated with the component was incurred during the year. The plant facilities associated with the business segment were sold on November 30, and a
Jason Bond Company operates two restaurants, one in Valencia and one in Saugus. The operations and cash flows of each of the two restaurants are clearly distinguishable. During 2011, Jason Bond decided to close the restaurant in Saugus and sell the property; it is probable that the disposal will be
In 2011, Compliance Industries changed its method of inventory valuation. The summary effect of those changes is as follows:Net income was $128,000, $119,000, and $98,000 for 2011, 2010, and 2009, respectively. The income tax rate is 30%.1. Compute the reported net income for each year if three
Under what classification would you report each of the following items on the financial statements?(a) Revenue from sale of obsolete inventory.(b) Loss on sale of the fertilizer production division of a lawn supplies manufacturer.(c) Loss stemming from expropriation of assets by a foreign
From the following list of accounts, prepare a multiple-step income statement in good form showing all appropriate items properly classified, including disclosure of earnings-per-share data. (No monetary amounts are to be reported.)Accounts PayableAccumulated Depreciation—Office
Jacksonville Window Co. reports the following for 2011:Retained earnings, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $335,200Selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $290,200Sales revenue . . . . . . . . . . . .
J. Mair has been employed as a bookkeeper at Problems Inc. for a number of years. With the assistance of a clerk, Mair handles all accounting duties, including the preparation of financial statements. The following is a statement of earned surplus prepared by Mair for 2011:Instructions:1. Prepare a
Svedin Incorporated provides the following information relating to 2011:Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,650Unrealized losses on available-for-sale securities . . . . . . . . . . . . . . . . . . . 1,285Foreign
Romney and Associates wishes to forecast its net income for the year 2012. Romney has assembled balance sheet and income statement data for 2011 and has also done a forecast of the balance sheet for 2012. In addition, Romney has estimated that its sales in 2012 will rise to $3,600. This information
Forecasted Balance Sheet and Income Statement Ryan Company wishes to prepare a forecasted income statement and a forecasted balance sheet for 2012. Ryan’s balance sheet and income statement for 2011 follow.Balance Sheet 2011Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
McGrath Co. on June 30, 2011, reported a retained earnings balance of $1,475,000 before closing the books. The books of the company showed the following account balances on June 30, 2011:Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Manchester Company manufactures and sells robot-type toys for children. Under one type of agreement with the dealers, Manchester is to receive payment upon shipment to the dealers. Under another type of agreement, Manchester receives payments only after the dealer makes the sale. Under this latter
On December 31, 2011, Hadley Company provides the following pre-audit income statement for your review:Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $185,000Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The following information relates to Spiker Manufacturing Inc. for the fiscal year ended July 31, 2011. Assume that there are no tax rate changes, a 30% tax rate applies to all items reported in the income statement, and there are no differences between financial and taxable income.Taxable income,
Plush Textiles Inc. shows a retained earnings balance on January 1, 2011, of $580,000. For 2011, the income from continuing operations was $225,000 before income tax. Following is a list of special items:Income from operations of a discontinued textiles division . . . . . . . . . . . . . . . .
In 2011, Laetner Industries decided to discontinue its Laminating Division, a separately identifiable component of Laetner’s business. At December 31, Laetner’s year-end, the division has not been completely sold. However, negotiations for the final and complete sale are progressing in a
The following financial statement information for Tronics Inc. is available:The following information relates to the firm€™s common stock for the same period:Instructions:1. For each year compute(a) Gross profit percentage.(b) Return on sales.(c) Price-earnings ratio.2. Do you notice any
Selected account balances of Connell Company for 2011 along with additional information as of December 31 are as follows:Bad Debt Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,000Delivery Expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
A newly hired staff accountant prepared the pre-audit income statement of Be Fit Recreation Incorporated for the year ending December 31, 2011.The following information was obtained by Be Fit€™s independent auditor.(a) Net revenues in the income statement included the following
On December 31, 2011, analysis of Sayer Sporting Goods’ operations for 2011 revealed the following.(a) Total cash collections from customers, $105,260.(b) December 31, 2010, inventory balance, $12,180.(c) Total cash payments, $92,450.(d) Accounts receivable, December 31, 2010, $22,150.(e)
Selected pre-adjustment account balances and adjusting information of Sunset Cosmetics Inc. for the year ended December 31, 2011, are as follows:Retained Earnings, January 1, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $440,670Sales Salaries and Commissions . . . . . . . . . . . .
The following information for the year ending December 31, 2011, has been provided for Calle Company.Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $530,000Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lorien Company wishes to prepare a forecasted income statement and a forecasted balance sheet for 2012. Lorien’s balance sheet and income statement for 2011 follow.Balance Sheet 2011Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
During January 2011, Doe Corp. agreed to sell the assets and product line of its Hart division. The sale was completed on January 15, 2012; on that date, Doe recognized a gain on disposal of $900,000. Hart€™s operating losses were $600,000 for 2011 and $50,000 for the period January 1
Max Stevenson owns a local drug store. During the past few years, the economy has experienced a period of high inflation. Stevenson has had the policy of withdrawing cash from his business equal to 80% of the company’s reported net income. As the business has grown, he has had a CPA prepare the
Stan Crowfoot is a renowned sculptor who specializes in Native American sculptures. Typically, a cast is prepared for each work to permit the multiple reproduction of the pieces. A limited number of copies are made for each sculpture, and the mold is destroyed after the number is reached. Limiting
Management for Marlowe Manufacturing Company decided in 2010 to discontinue one of its unsuccessful product lines. (The product line does not meet the definition of a business component.) The planned discontinuance involved obsolete inventory, assembly lines, and packaging and advertising supplies.
Flexisoft Company has had excellent success in developing business software for computers. Management has followed the accounting practice of deferring the research costs for the software until sufficient sales have developed to cover the software cost. Because of past successes, management
Near the end of the fiscal year, preliminary financial results revealed that Stancomb Wills Company was in danger of not meeting corporate performance goals. According to an article in the business press, top executives at Stancomb Wills responded by deferring many expenses “beyond accepted
Shawn O€™Neil owns two businesses, a drug store and a retail department store.Which business earns more income? Which business has the higher gross profit percentage? Return on sales? Which business would you consider moreprofitable?
Pfizer is one of the largest pharmaceutical and consumer healthcare products companies in the world. Familiar products sold by Pfizer include Sudafed®, Zantac®, Benadryl®, Listerine®, and Viagra®. The company€™s highest selling product is Lipitor, which is designed to
Locate the 2007 financial statements for The Walt Disney Company on the Internet.1. Did Disney have any below-the-line items in 2007? Explain.2. Disney’s net income increased from $3,374 million in 2006 to $4,687 million in 2007. Identify the major reasons for the increase.3. Imagine that you
The computation of comprehensive income for 2006 for Coca-Cola is presented in Exhibit 4-11 on page 184.1. Which is greater in 2006—Coca-Cola’s net income or comprehensive income?2. With respect to the currencies in the countries where Coca-Cola has foreign subsidiaries—did those currencies
Wells Fargo & Company is the sixth largest bank in the U.S. (based on consolidated assets as of September 30, 2007). Its consolidated statement of income follows.1. How is this income statement different from all the other income statements illustrated in this chapter?2. For a merchandising firm,
Apple Inc. is one of the country€™s most successful computer technology companies. The company designs, manufactures, and sells computers, digital music devices, communication devices, and various software products. The company€™s net income has increased each year since 2002,
The consolidated statement of income for Ford Motor Company appears below.1. What do you notice about the way revenues and expenses are partitioned?2. For the Automotive division, compute the ratio (Cost of sales/Sales) for each of the three years presented. Interpret the results.3. Look at the
One of the five techniques of accounting hocus-pocus identified by former SEC Chairman Arthur Levitt in his famous 1998 speech is the big-bath restructuring charge. Write a 1-page paper identifying the benefits, both from an economic and a financial reporting perspective, that a company might reap
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 the chapter, we discussed the statement of
Far from being an exact science, accounting involves estimation and judgment. Consider the case of Dwight Nelson, chief financial officer of Pilot Enterprises. Pilot is a relatively young, privately held company with thoughts of going public in the near future. The owners of the business would like
Earnings per share computations have received increased prominence on the income statement. How would an investor use such information in making investment decisions?
What limitations should be recognized in using EPS data?
Why are EPS figures computed on the basis of common stock transactions that have not yet happened rather than on the basis of strictly historical common stock data?
What distinguishes a simple capital structure from a complex capital structure?
An enterprise split its common stock 3 for 1 on July 1. Its accounting year ends December 31. Prior to the split, there were 10,000 shares of common stock outstanding. What is the weighted-average number of shares that should be used to compute EPS in the current and preceding years?
Why are EPS figures adjusted retroactively for stock dividends, stock splits, and reverse stock splits?

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