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

Refer to Practice 10-6. Assume that construction was not completed on December 31 of Year 1. Also assume that the same loans were outstanding for all of Year 2. The following expenditure was made during Year 2:July 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The company has received a donation of land from a rich local philanthropist. The land originally cost the philanthropist $48,000. On the date of the donation, it had a market value of $111,000. Make the journal entry necessary on the books of the company to record the receipt of the land.
The company purchased a mining site that will have to be restored to certain specifications when the mining production ceases. The cost of the mining site is $800,000, and the restoration cost is expected to be $200,000. It is estimated that the mine will continue in operation for 15 years. The
The company recently replaced the heating/cooling system for its building. The old system cost $160,000, and was 80% depreciated. The new system cost $210,000, which was paid in cash. The new system will extend the economic useful life of the building by five years. Make the journal entry necessary
During the year, the company made the following research and development expenditures:Compute the total research and development (R&D) expense for the year assuming (1) the expenditures were for normal R&D, (2) the expenditures were for software R&D, and (3) the expenditures were for normal R&D and
The company started business on January 1 and during the year had oil and gas exploration costs of $500,000. Of these costs, $100,000 was associated with successful wells and $400,000 with so-called dry holes. For simplicity, assume that all of the costs were incurred on December 31. Compute the
Stafford Company purchased Deaver Manufacturing for $1,400,000 cash on January 1. The book value and fair value of the assets of Deaver as of the date of the acquisition follow:In addition, Deaver had liabilities totaling $500,000 at the time of the acquisition. Deaver has no other separately
Refer to Practice 10-14. Assume that the cash acquisition price is $720,000 instead of $1,400,000. Make the journal entry necessary on the books of Stafford Company to record the acquisition.
The company paid $500,000 to purchase the following: a building with an appraised value of $200,000, an operating permit valued at $100,000, and ongoing research and development projects valued at $150,000. In addition, it is estimated that the fair value of the order backlog associated with the
Buyer Company purchased Target Company for $800,000 cash. Target Company had total liabilities of $300,000. Buyer Company’s assessment of the fair values it obtained when it purchased Target Company is as follows:Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Company A had sales for the year totaling $480,000. The net property, plant, and equipment balance at the beginning of the year was $160,000; the ending balance was $200,000. Compute the fixed asset turnover ratio.
Refer to Practice 10-18. Company A’s competitor, Company B, had sales for the year totaling $360,000. The net property, plant, and equipment balance at the beginning of the year was $200,000; the ending balance was $220,000. Company B is a very young company; all of its fixed assets have been
The following expenditures were incurred by Peterson Enterprises Co. in 2011:Purchase of land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 270,000Land survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,800Fees for
Dean Lang Enterprises Inc. developed a new machine that reduces the time required to insert the fortunes into its fortune cookies. Because the process is considered very valuable to the fortune cookie industry, Dean Lang patented the machine. The following expenses were incurred in developing and
Allred Shipping Co. acquired land, buildings, and equipment at a lump-sum price of $920,000. An appraisal of the assets at the time of acquisition disclosed the following values.Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $250,000Buildings .
Ratcliff Corporation purchased land, a building, a patent, and a franchise for the lump sum of $1,450,000. A real estate appraiser estimated the building to have a resale value of $600,000 (2/3 of the total worth of land and building). The franchise had no established resale value. The patent was
Custom Industries purchases new specialized manufacturing equipment on July 1, 2011. The equipment cash price is $96,000. Custom signs a deferred payment contract that provides for a down payment of $10,000 and a 10-year note for $112,420. The note is to be paid in 10 equal annual payments of
HiTech Industries purchases new electronic equipment for its telecommunication system. The contractual arrangement specifies 10 payments of $8,600 each to be made over a 10-year period. If HiTech had borrowed money to buy the equipment, it would have paid interest at 9%. HiTech’s accountant
On May 31, 2011, Julienne Corp. exchanged 20,000 shares of its $1 par common stock for the following assets:(a) A trademark valued at $183,000.(b) A building, including land, valued at $732,000 (20% of the value is for the land).(c) A franchise right. No estimate of the value is available at time
Sayer Co. enters into a contract with Bradford Construction Co. for construction of an office building at a cost of $680,000. Upon completion of construction, Bradford agrees to accept in full payment of the contract price Sayer Co.’s 10% bonds with a face value of $350,000 and common stock with
Valdilla’s Music Store acquired land and an old building in exchange for 50,000 shares of its common stock, par $0.50, and cash of $80,000. The auditor ascertains that the company’s stock was selling for $15 per share when the purchase was made. The following additional costs were incurred to
Brodhead Manufacturing Company has constructed its own special equipment to produce a newly developed product. A bid to construct the equipment by an outside company was received for $1,200,000. The actual costs incurred by Brodhead to construct the equipment were as follows:Direct material . . . .
Carver Department Stores, Inc., constructs its own stores. In the past, no cost has been added to the asset value for interest on funds borrowed for construction. Management has decided to correct its policy and desires to include interest as part of the cost of a new store just being completed.
For each of the situations described here, indicate when interest should be capitalized (C) and when it should not be capitalized (NC).(a) Queen Company is constructing a piece of equipment for its own use. Total construction costs are expected to be $4 million, and the construction period will be
Simpson Company purchased a nerve gas detoxification facility. The facility cost $900,000. The cost of cleaning up the routine contamination caused by the initial location of nerve gas on the property is estimated to be $1,300,000; this cost will be incurred in 20 years when all of the existing
GoodeHill Company replaced some parts of its factory building during 2011:(a) The outside corrugated covering on the factory walls was removed and replaced. The job was done by an expert crew from Hollister Construction Company and will extend the life of the building by six years. The cost of the
In 2011, the Slidell Corporation incurred research and development costs as follows:Materials and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $160,000Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,000Indirect costs .
Pringle Company has a substantial research department. Following are listed, in chronological order, some of the major activities associated with one of Pringle’s research projects.Project Started(a) Purchased special equipment to be used solely for this project.(b) Purchased general equipment
Exploratory Company is an oil and gas exploration firm. During 2011, Exploratory engaged in 86 different exploratory projects, only 20 of which were successful. The total cost of this exploration effort was $24 million, $5.6 million of which was associated with the successful projects. As of the
One of the most difficult problems facing an accountant is the determination of which expenditures should be capitalized and which should be immediately expensed. What position would you take in each of the following instances? (a) Painting partitions in a large room recently divided into four
Conglomerate Company purchased Individual Company for $860,000 cash. A schedule of the fair values of Individual€™s assets and liabilities as of the purchase date follows.1. Make the journal entry necessary for Conglomerate Company to record the purchase.2. Assume that the purchase price
Landers Inc. is considering purchasing J&B Properties, which has the following assets and liabilities.1. Make the journal entry necessary for Landers Inc. to record the purchase if the purchase price is $650,000 cash.2. Assume that the purchase price is $320,000 cash. Make the journal entry
Taraz Company paid $500,000 to purchase the following portfolio of intangibles with estimated fair values as indicated:EstimatedFair ValueInternet domain name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $150,000Order backlog . . . . . . . . . . . . . . . . . . . . . . .
Omniportal Company purchased Network Enterprises. The following fair values were associated with the items acquired in this business acquisition:The fair value associated with Network Enterprises€™ government contacts is not based on any legal or contractual relationship. In addition, for
Dandy Hardware Stores reported the following asset values in 2010 and 2011:In addition, Dandy Hardware had sales of $3,500,000 in 2011. Cost of goods sold for the year was $2,200,000. Compute Dandy Hardware€™s fixed asset turnover ratio for2011.
On December 31, 2011, Bridgeport Co. shows the following account for machinery it had assembled for its own use during 2011:Account: MACHINERY (Job Order #1329)An analysis of the details in the account disclosed the following:(a) The old machine, which was removed before the installation of the new
The accountant for Stansbury Development Company is uncertain how to record the following costs associated with the construction of a golf course.(a) Building artificial lakes.(b) Moving earth around to enhance the “hilliness” of the course.(c) Planting fairway grass.(d) Planting trees and
Skyline Corporation has decided to expand its operations and has purchased land in Salina for construction of a new manufacturing plant. The following costs were incurred in purchasing the property and constructing the building:Land purchase price . . . . . . . . . . . . . . . . . . . . . . . . . .
The following transactions were completed by Millenial Toy Co. during 2011:Mar. 1 Purchased real property for $829,700, which included a charge of $29,700 representing property tax for March 1–June 30 that had been prepaid by the vendor; 25% of the purchase price is deemed applicable to land and
Bylund Corporation was organized in June 2011. In auditing its books, you find the following land, buildings, and equipment account:An analysis of this account and of other accounts disclosed the following additional information:(a) The building acquired on June 16, 2011, was valued at $41,000.(b)
In your audit of the books of Dyer Corporation for the year ended September 30, 2011, you found the following items in connection with the company’s patents account:(a) The company had spent $120,000 during its fiscal year ended September 30, 2010, for research and development costs and debited
What is the historical significance of par value?
Transactions during 2011 of the newly organized Menlove Corporation included the following:Jan. 2 Paid legal fees of $15,000 and stock certificate costs of $8,300 to complete organization of the corporation.15 Hired a clown to stand in front of the corporate office for two weeks and hand out
What rights of ownership are given up by preferred shareholders? What additional protections are enjoyed by preferred shareholders?
Bridges Wholesale Company incurred the following costs in 2011 for a warehouse acquired on July 1, 2011, the beginning of its fiscal year:Cost of land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $132,000Cost of building . . . . . . . . . . . . . . . .
Under the November 2007 Preliminary Views document issued by the FASB, how would preferred stock be classified in the balance sheet?
Powersoft Company is engaged in developing computer software for the small business and home computer market. Most of the computer programmers are involved in developmental work designed to produce software that will perform fairly specific tasks in a user-friendly manner. Extensive testing of the
How is stock valued when it is issued in exchange for noncash assets or for services?
At December 31, 2010, certain accounts included in the Noncurrent Operating Assets section of Salvino Company’s balance sheet had the following balances:Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $150,000Buildings . . . . . . . . . . . . . . .
At December 31, 2010, Davis Company’s noncurrent operating asset accounts had the following balances:CategoryLand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 280,000Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Why might a company repurchase its own stock? Discuss.
Oceanwide Enterprises, Inc., is involved in building and operating cruise ships. Each ship is identified as a separate discrete job in the accounting records. At the end of 2010, Oceanwide correctly reported $5,400,000 as Construction in Progress on the following jobs.Construction costs for 2011,
(a) What is the basic difference between the cost method and the par value method of accounting for treasury stock? (b) How will total stockholders’ equity differ, if at all, under the two methods?
American Corporation received a $400,000 low bid from a reputable manufacturer for the construction of special production equipment needed by American in an expansion program. Because its own plant was not operating at capacity, American decided to construct the equipment itself and recorded the
There is frequently a difference between the purchase price and the selling price of treasury stock. Why isn’t this difference shown as a gain or a loss on the income statement?
Madison Company has purchased land that will serve as a temporary repository for nuclear waste. The site will function for 20 years, at which time Madison will be required to completely decontaminate the land. The purchase price for the land is $700,000. Madison knows that the land will have to be
Aurora Corp. acquired Payette Company on December 31, 2011. The following information concerning Payette€™s assets and liabilities was assembled on the acquisition date:Instructions:1. Make the journal entry necessary for Aurora Corp. to record the purchase, assuming the purchase price
Explain the difference in the accounting for detachable and nondetachable warrants.
What option value is used in the computation of compensation expense associated with a basic stock-based compensation plan?
Santa Clarita Company reported interest expense in 2011 and 2010 of $470,000 and $410,000, respectively. The balance in Accrued Interest Payable at the end of 2011, 2010, and 2009 was $51,000, $59,000, and $46,000, respectively. In addition, a note to Santa Clarita’s 2011 financial statements
With a performance-based stock option plan, a catch-up adjustment is necessary when the probable number of options that will vest changes from one year to the next. Describe this catch-up adjustment.
As of December 31, 2011, W. W. Cole Company’s total assets were $325 million and total liabilities were $180 million. Net income for 2011 was $38 million. During 2011, W. W. Cole’s chief executive officer had put extreme pressure on employees to meet the profitability goal the CEO had set for
When a stock-based award calls for settlement in cash, how is the obligation accounted for?
Trevor Company completed a program of expansion and improvement of its plant during 2011. You are provided with the following information concerning its buildings account:(a) On October 31, 2011, a 50-foot extension to the present factory building was completed at a contract cost of $462,000.(b)
Beecher’s Boston Barbeque Company purchased a customer list and an ongoing research project for a total of $300,000. Beecher uses the expected cash flow approach for estimating the fair value of these two intangibles. The appropriate interest rate is 8%. The potential future cash flows from the
Under the November 2007 Preliminary Views document issued by the FASB, how would employee stock options be classified in the balance sheet?
Progressive Company reported the following asset values in 2010 and 2011:In addition, in 2011, Progressive had sales of $4,800,000; cost of goods sold for the year was $2,900,000. As of the end of 2010, the fair value of Progressive€™s total assets was $3,000,000. Of the excess of fair
How should mandatorily redeemable preferred shares be reported in the balance sheet?
1. Cole Co. began constructing a building for its own use in January 2011. During 2011, Cole incurred interest of $50,000 on specific construction debt and $20,000 on other borrowings. The amount of interest that could have been avoided if the building construction expenditures had been used to pay
When a corporation writes a put option on its own shares, what does the corporation receive? What does the corporation agree to do?
Fugate Energy Corp. has recently purchased a small local company, Gleave Inc., for $556,950 cash. Fugate’s chief accountant has been given the assignment of preparing the journal entry to record the purchase. An investigation disclosed the following information about the assets of Gleave Inc.:(a)
Strategy, Inc., was organized by Elizabeth Durrant and Ramona Morales, two students working their way through college. Both Elizabeth and Ramona had used the Internet extensively while in high school and had become very proficient Web surfers. Elizabeth had a special ability for designing Web-based
Terri Morton has been recently hired as a financial analyst. Her first assignment is to analyze why the reported return on assets (ROA) for Arnold Company is so much different from that of Baker Company. Arnold Company develops and markets innovative consumer products. Baker Company is a fabricator
In 1974, as the FASB considered requiring the expensing of all in-house research and development expenditures, the Board received many comments predicting that if firms were required to expense R&D, they would significantly cut back on research expenditures to avoid hurting reported earnings.
What distinguishes a situation in which an obligation to issue shares is recorded as equity from a situation in which an obligation to issue shares is recorded as a liability?
In 1996, Financial World magazine estimated and ranked the most valuable brand names in the world. Number 11 in the ranking was Gillette with an estimated value of $10.3 billion. Financial World explained its brand value estimation process for Gillette as follows: Estimate the amount of assets used
What is noncontrolling interest?
Rouse Company, a real estate developer, is well known as one of the few U.S. companies to have reported the current value of property and equipment in its financial statements. As mentioned in the text of the chapter, IAS 16 permits the inclusion of upward asset revaluations, based on appraisals,
How are errors corrected when they are discovered in the current year? in a subsequent year?
How can retained earnings be restricted by law? In what other ways can retained earnings be restricted?
Locate the 2007 financial statements for The Walt Disney Company on the Internet. Use those financial statements and consider the following questions.1. As illustrated in Exhibit 10-10, Interbrand estimates the value of the Disney brand name in 2007 at $29.21 billion. Search Disney’s financial
The following announcement appeared on the financial page of a newspaper: The Board of Directors of Benton Co., at its meeting on June 15, 2011, declared the regular quarterly dividend on outstanding common stock of $1.40 per share, payable on July 10, 2011, to the stockholders of record at the
The 2007 annual report of Minnesota Mining and Manufacturing (3M) included the following information (all dollar amounts are in millions):1. Using only the net PP&E figures, estimate the book value of the property, plant, and equipment that was sold during the year.2. Using the individual PP&E and
The directors of The Dress Shoppe are considering declaring either a stock dividend or a stock split. They have asked you to explain the difference between a stock dividend and a stock split and the accounting for a small stock dividend versus a large stock dividend.
The 2007 annual report of Continental Airlines, Inc., included the following information (all dollar amounts are in millions): 2007Net interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 356Earnings from continuing operations (before taxes) . . . . . . . . .
(a) What is a liquidating dividend? (b) Under what circumstances are such distributions made?
Hunter Company has developed a computerized machine to assist in the production of appliances. It is anticipated that the machine will do well in the marketplace; however, the company lacks the necessary capital to produce the machine. Rosalyn Finch, secretary-treasurer of Hunter Company, has
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 acquisition
What three types of unrealized gains and losses are shown as direct equity adjustments (part of accumulated other comprehensive income), bypassing the income statement? Briefly explain each.
On St. Patrick’s Day 1992, Chambers Development Company, one of the largest landfill and waste management firms in the United States, announced that it had been improperly capitalizing costs associated with landfill development. Chambers announced that it was immediately expensing over $40
In accounting for the equity of foreign companies, what is the primary purpose of equity reserves?
The company has 10,000 shares of 6%, $100 par preferred stock outstanding. In addition, the company has 100,000 shares of common stock outstanding. The company started business on January 1, 2010. Total cash dividends paid during 2010 and 2011 were $45,000 and $100,000, respectively. Compute the
The company issued 10,000 shares of $1 par common stock for cash of $40 per share. Make the necessary journal entry.
The company received subscriptions for 20,000 shares of $1 par common stock for $25 per share. The company received 40% of the subscription amount immediately and the remainder two months later. Make the journal entries necessary to record the initial subscriptions (and cash receipt) and the
The company is experiencing a cash flow shortfall and has asked certain key employees to accept shares of common stock (instead of cash) in payment of salaries. The employees accepted 35,000 shares of $0.50 par common stock in place of salaries of $575,000. Make the necessary journal entry.
The company repurchased 10,000 shares of $1 par common stock for a total of $300,000. None of the shares were retired. A month later, the company sold 4,000 of these shares for $144,000. The shares were initially issued for $20 per share. Make the necessary journal entries to record the repurchase
Refer to Practice 13-5. Make the necessary journal entries using the par value method.
The company issued 20,000 shares of 7%, $50 par preferred stock. Associated with each share of stock was a detachable common stock warrant. Each warrant entitles the holder to purchase one share of the company’s $1 par common stock for $20 per share. Each unit (one share of preferred stock and
On January 1, the company granted 150,000 stock options to key employees. Each option allows an employee to buy one share of $1 par common stock for $25, which was the market price of the shares on the grant date of January 1. In order to be able to exercise the options, the employees must remain
Refer to Practice 13-8. Assume that the stock-based compensation plan is performance based. As of the end of the first year, the number of options that are probable to vest is 150,000. At the end of the second year, the number of options that are probable to vest is 120,000. As in Practice 13-8,

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