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Intermediate Accounting 17th Edition James D. Stice, Earl K. Stice, Fred Skousen - Solutions
Refer to Practice 13-8. Assume that the stock-based compensation plan involves stock appreciation rights. At the end of three years, the employees are given a cash award equal to the excess of the fair value at that time of 150,000 shares of stock above the threshold price of $25. The stock price
On January 1, Year 1, the company issued mandatorily redeemable preferred shares in exchange for $1,000 cash. No dividends are to be paid on these shares, and they must be redeemed in exactly two years, on January 1, Year 3, for $1,166.40. The interest rate implicit in this agreement is 8%. Make
On January 1, Year 1, the company wrote a put option agreeing to purchase 100 shares of its own stock for $50 per share on December 31, Year 2, at the option of the purchaser of the put option. The market price of the company’s shares on January 1, Year 1, was $50 per share. As of January 1, Year
Stockholders of the company converted 12,000 shares of $40 par preferred stock into 60,000 shares of $1 par common stock. The preferred shares were originally issued for $44 per share. Make the journal entry necessary to record the conversion.
The Retained Earnings balance at the end of last year was $50,000. In June of this year, well after last year’s books were closed, it was found that a mistake had been made in computing depreciation expense last year. The mistake resulted in reported depreciation expense that was $4,000 too high
On August 17, the company declared cash dividends of $35,000. The dividends were paid on September 16. Make the journal entries necessary to record both events.
On January 1, the company purchased 10,000 shares of Wilsonville Company stock for $20 per share as an available-for-sale investment. In March, the company decided to distribute the Wilsonville shares as a property dividend to its stockholders. The Wilsonville shares had a market price of $27 per
The company had 20,000 shares of $1 par common stock outstanding. When each share of stock had a market value of $44, the company declared and distributed a 10% stock dividend. After the distribution of the dividend shares, each share of stock had a market value of $40. Make the journal entries
The company started business on January 1, 2009. Net income and dividends for the first three years of the company€™s existence are as follows:The company has some foreign subsidiaries and also maintains a portfolio of available for-sale securities. During 2009, 2010, and 2011, the U.S.
Palo Verde Company was incorporated on January 1, 2011, with the following authorized capitalization:25,000 shares of common stock, stated value $6 per share8,000 shares of 8% cumulative preferred stock, par value $20 per shareMake the entries required for each of the following transactions:(a)
Holanna Company reported the following balances related to common stock as ofDecember 31, 2010:Common stock, $1 par, 200,000 shares issued and outstanding . . . . . . . . . . $ 200,000Paid-in capital in excess of par . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . .
In 2011, Calton Inc. had 100,000 shares of $1.50 par value common stock outstanding. Calton issued 100,000 stock rights. Five rights, plus $50 in cash, are required to purchase one new share of Calton common stock. On the date the rights were issued, Calton common stock was selling for $55 per
On January 1, 2010, Obregon Supply Company established a stock-based compensation plan for its senior employees. A total of 45,000 options was granted that permit employees to purchase 45,000 shares of $2 par common stock at $29 per share. Each option had a fair value of $7 on the grant date.
San Juan Corporation established a stock option plan that provides for cash payments to employees based on the appreciation of stock prices from an established option price. The plan was instituted on January 1, 2011, and provides benefits to employees who work for the succeeding three years. Cash
Consistent Company has been paying regular quarterly dividends of $1.50 and wants to pay the same amount in the third quarter of 2011. Given the following information,(1) What is the total amount that Consistent will have to pay in dividends in the third quarter in order to pay $1.50 per share,
Phelps Company distributed the following dividends to its stockholders:(a) 450,000 shares of Bedrock Corporation stock, carrying value of investment, $975,000; fair market value, $1,350,000.(b) 220,000 shares of Great Basin Company stock, a closely held corporation. The shares were purchased by
Zenon Company has 450,000 shares of $1 par value common stock outstanding. In declaring and distributing a 10% stock dividend, Zenon initially issued only 40,000 new shares; the other stock dividend shares have not yet been issued as of the end of the year. Prepare all journal entries necessary to
Van Etten Company declared and paid a cash dividend of $3.25 per share on its $1 par common stock. Van Etten has 100,000 shares of common stock outstanding and total paid-in capital from common stock of $800,000. As part of the dividend announcement, Van Etten stated that retained earnings served
Lighthouse Company began operations on January 1. Authorized were 25,000 shares of $1 par value common stock and 5,000 shares of 10%, $100 par value convertible preferred stock. The following transactions involving stockholders’ equity occurred during the first year of operations:Jan. 1 Issued
What are the two general revenue recognition criteria?
What four revenue recognition factors are identified in AICPA Statement of Position (SOP) 97-2, and how do these four factors relate to the two general revenue recognition criteria?
Why did the SEC issue Staff Accounting Bulletin (SAB) 101?
Why does Question 1 in SAB 101 emphasize the proper signing of a sales agreement?
What types of side agreements can turn a sale into a consignment?
What is a bill-and-hold arrangement? Under what circumstances may a seller recognize revenue before shipment on a bill-and-hold arrangement?
What is the significance of customer acceptance provisions?
In general, why are up-front, nonrefundable fees not recognized as revenue immediately?
Under EITF 00-21, when is a delivered element of a multiple-element arrangement considered to be a unit of accounting?
Under EITF 00-21, what is the difference between the “residual method” and the “reverse residual method”?
Why shouldn’t revenue be recognized until the transaction price can be definitely determined?
Under what circumstances can a refundable fee be recognized as revenue month-by-month before the refund period is over?
Why can’t contingent rents be estimated and recognized on a straight-line basis over the course of a year?
Under what circumstances can a company reliably estimate product returns?
Why would a company prefer gross revenue reporting over net revenue reporting?
Briefly describe the two asset-and-liability revenue recognition models currently being considered by the FASB and IASB.
Which of the two asset-and-liability revenue recognition models currently being considered by the FASB and IASB is more similar to current practice?
Under what conditions is percentage-of-completion accounting recommended for construction contractors?
Distinguish between the cost-to-cost method and efforts-expended method of measuring the percentage of completion.
Output measures of percentage of completion are sometimes preferred to input measures. What are some examples of commonly used output measures?
What is the relationship between the construction in progress account and the progress billings on construction contracts account? How should these accounts be reported on the balance sheet?
When a measure of percentage of completion other than cost-to-cost is used, the amount of cost charged against revenue using the percentage of completion usually will be different from the costs incurred. How do some AICPA committee members recommend handling this situation so that the costs
The construction in progress account is used to accumulate all costs of construction. What additional item is included in this account when percentage-of-completion accounting is followed?
The gross profit percentage reported on long-term construction contracts often varies from year to year. What is the major reason for this variation?
How are anticipated contract losses treated under the completed-contract and percentage-of- completion methods?
What input and output measures usually are applicable to the proportional performance method for long-term service contracts?
The proportional performance method spreads the profit over the periods in which services are being performed. What arguments could be made against this method of revenue recognition for newly formed service-oriented companies?
Distinguish among the three different approaches to revenue recognition that await the receipt of cash. How does the treatment of costs incurred vary depending on the approach used?
Under what general conditions is the installment sales method of accounting preferred to the full accrual method?
The normal accounting entries for installment sales require keeping a separate record by year of receivables, collections on receivables, and the deferred gross profit percentages. Why are these separate records necessary?
Installment sales contracts generally include interest. Contrast the method of recognizing interest revenue from the method used to recognize the gross profit on the sale.
Under what conditions would the cash method of recognizing revenue be acceptable for reporting purposes?
The company collected $1,000 cash in advance from a customer for services to be rendered. Subsequently, the company rendered the services. Make the journal entries necessary to record (1) The receipt of the cash and (2) The subsequent completion of the services.
Company S shipped goods costing $12,000 to Company T on consignment. The sales agreement states that Company T has 90 days to either sell the goods and pay Company S $18,000 for them or to return the goods to Company S. Make the journal entries necessary on the books of Company S to record (1) The
On January 1, the company received layaway payments from two customers. Each customer paid $50. On December 24, the layaway period expired. On that date, the company received $300 from Customer 1 and delivered the promised merchandise (costing $200). Customer 2 did not return to make the final
The company sells satellite phone service. Customers are required to pay an initial fee of $360, followed by continuing service fees of $50 per month. The initial fee is not refundable. The company’s best estimate is that the average customer will continue the service for three years. On January
The company operates a travel club through which subscribers can access low rates for air fares, hotel rooms, and rental cars. Each year, subscribers pay a refundable fee of $2,000 that allows them access to the company’s services for that year. A customer may receive a full refund of this fee at
On June 4, Seller Company signed a sales agreement with Buyer Company to deliver and install a piece of factory equipment. The total contract price is $300,000. Customers usually buy an equipment/installation package, but Seller Company does sell equipment without installation and also installs
On January 1, Owner Company signed a 1-year rental for a total of $480,000, with monthly payments of $40,000 due at the end of each month. In addition, the renter must pay contingent rent of 2% of all sales in excess of $50 million annually. The contingent rent is paid in one payment on December
Shop-at-Home Company operates a Web grocer. Customers submit their orders online to Shop-at-Home Company; Shop-at-Home then forwards the orders to a national grocery chain. The grocery chain arranges for assembly and shipment of the order. Shop-at-Home Company receives 3% of the retail value of all
On June 4, Seller Company signed a sales agreement with Buyer Company to deliver and install a piece of factory equipment. The total contract price is $300,000. Customers usually buy an equipment/installation package, but Seller Company does sell equipment without installation and also installs
The company signed an $800,000 contract to build an environmentally friendly access trail to South Willow Lake. The project was expected to take approximately three years. The following information was collected for each year of the project'Year 1, Year 2, and Year 3:The company uses the
Refer to Practice 8-10. Assume that the company employs the efforts-expended method of estimating the percentage of completion. In particular, the company measures its progress by the number of support timbers laid in the trail. Compute the amount of revenue to be recognized in(1) Year 1,(2) Year
Refer to Practice 8-10. Assume that the company employs an output measure to estimate the percentage of completion. In particular, the company measures its progress by the number of trail feet that have been completed. Compute the amount of revenue to be recognized in(1) Year 1,(2) Year 2, and(3)
Refer to Practice 8-10. In addition to the percentage-of-completion information, the following information is available regarding billing and cash collection for the project:Make the journal entries necessary to record the construction cost, the progress billings, and the cash collections in (1)
Refer to Practice 8-10 and Practice 8-13. Assume that the company uses the completed-contract method. Make the journal entries necessary in Year 3 to recognize revenue and costs for the completed project.
Refer to Practice 8-10 and Practice 8-13. Assume that the company uses the percentage-of- completion method and uses a cost-to-cost approach in estimating the percentage of completion. Make the journal entries to record revenue and cost for the construction project in (1) Year 1, (2) Year 2, and
Refer to Practice 8-10, Practice 8-13, and Practice 8-15. Indicate how, and in what amount, the following accounts will be reported in the company’s balance sheet for Year 1, Year 2, and Year 3: (1) Accounts Receivable, (2) Progress Billings, and (3) Construction in Progress. Assume that as of
The company signed a $1,800,000 contract to build an environmentally friendly access trail to Timpanogas Caves. The project was expected to take approximately three years. The following information was collected for each year of the project, Year 1, Year 2, and Year 3:The company uses the
Refer to Practice 8-17. Assume that the company uses the percentage of trail feet constructed in estimating the percentage of completion. Make the journal entries to record revenue and cost for the construction project in(1) Year 1,(2) Year 2, and(3) Year 3.
The company signed a $1,500,000 contract to build an environmentally friendly access trail to Stansbury Peak. The project was expected to take approximately three years. The following information was collected for each year of the project'Year 1, Year 2, and Year 3:The company uses the
The Washington Blue Sox is a minor league baseball team. The team has 55 home games during a season and sells season tickets for $600 each. For the most recent season, the Blue Sox sold 1,900 season tickets. The total initial direct costs (in cash) related to the season tickets (including product
The company had sales during the year of $350,000. The gross profit percentage during the year was 20%. Cash collected during the year related to these sales was 40% of the sales. Give all journal entries necessary during the year, assuming use of the installment sales method.
Refer to Practice 8-21. Indicate how the installment sales receivable would be reported in the balance sheet at the end of the year.
Transistor Electronics makes all of its sales on credit and accounts for them using the installment sales method. For simplicity, assume that all sales occur on the first day of the year and that all cash collections are made on the last day of the year. Transistor Electronics charges 18% interest
The company had installment sales in Year 1 of $350,000, in Year 2 of $270,000, and in Year 3 of $210,000. The gross profit percentage of each year, in order, was 20%, 25%, and 30%. Past history has shown that 40% of total sales are collected in the year of the sale, 50% in the year after the sale,
In 2011, Rawlings Wholesalers transferred goods to a retailer on consignment. The transaction was recorded as a sale by Rawlings. The goods cost $45,000 and normally are sold at a 30% markup. In 2012, $12,000 (cost) of merchandise was sold by the retailer at the normal markup, and the balance of
On December 30, Shady Company segregated goods costing $530,000 for future shipment to one of its customers, Point Company. Point was billed $890,000. Make the journal entry necessary on Shady’s books to record this action in each of the following situations. Treat each situation
BodyTone Company sells lifetime health club memberships. For one up-front, nonrefundable fee, a customer becomes a lifetime member of BodyTone’s network of health clubs. The fee is $2,000. The fee includes full access to all of the club facilities plus an initial comprehensive physical, mental,
AccounTutor Company operates a nationwide online tutorial service for college students taking intermediate financial accounting. Subscribers to the service pay an upfront, refundable fee of $200 that allows them access to the company’s services for one year. A subscriber may receive a full refund
The company had 10,000 shares of $1 par common stock outstanding. When each share of stock had a market value of $130, the company decided to reduce the price per share of stock to $65 by doubling the number of shares outstanding. Make the journal entries necessary to record the declaration of the
The board of directors of the company has decided that the interests of the shareholders will be best served if the company is liquidated in an orderly fashion, with the proceeds to be distributed to the shareholders. As the first installment in this liquidation, a total dividend of $500,000 was
On June 1, 2011, bids were submitted for a construction project to build a new municipal building and fire station. The lowest bid was $5,130,000, submitted by the Shannon Construction Company. Shannon was awarded the contract. Shannon uses the completed-contract method to report gross profit. The
Espiritu Construction Co. has used the cost-to-cost percentage-of-completion method of recognizing revenue. Tony Espiritu assumed leadership of the business after the recent death of his father, Howard. In reviewing the records, Tony finds the following information regarding a recently completed
Perfectionist Construction Company was the low bidder on an office building construction contract. The contract bid was $9,000,000, with an estimated cost to complete the project of $7,000,000. The contract period was 30 months starting May 1, 2010. The company uses the cost-to-cost method of
Refer to Practice 13-20. Compute the balance in (1) Retained Earnings and (2) Accumulated Other Comprehensive Income as of the end of each year: 2009, 2010, 2011.
Smokey International Inc. recently acquired the Kurtz Builders Company. Kurtz has incomplete accounting records. On one particular project, only the information below is available.Because the information is incomplete, you are asked the following questions assuming the percentage-of-completion
The company, based in the United Kingdom, has the following equity accounts:Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,000Asset revaluation reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kylee Builders Inc. is building a new home for Cassie Profit at a contracted price of $170,000. The estimated cost at the time the contract is signed (January 2, 2011) is $115,000. At December 31, 2011, the total cost incurred is $60,000 with estimated costs to complete of $59,000. Kylee has billed
Southern California Builders Inc. entered into a contract to construct an office building and plaza at a contract price of $30,000,000. Income is to be reported using the percentage-of-completion method as determined by estimates made by the architect. The data below summarize the activities on the
Beginning balances in the equity accounts were as follows:Common stock, at par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,000Paid-in capital in excess of par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,000Accumulated other
On January 1, 2010, the Kobe Construction Company entered into a 3-year contract to build a dam. The original contract price was $21,000,000 and the estimated cost was $19,400,000. The following cost data relate to the construction period.Prepare the required journal entries for the three years of
The Build-It Construction Company enters into a contract on January 1, 2011, to construct a 20-story office building for $42,000,000. During the construction period, many change orders are made to the original contract. The following schedule summarizes the changes made in 2011..:.Compute the
Verdero Company is authorized to issue 100,000 shares of $2 par value common stock. Verdero has the following transactions:(a) Issued 20,000 shares at $30 per share; received cash.(b) Issued 250 shares to attorneys for services in securing the corporate charter and for preliminary legal costs of
The Spectrum Fitness Club charges a nonrefundable annual membership fee of $1,200 for its services. For this fee, each member receives a fitness evaluation (value $200), a monthly magazine (annual value $25), and two hours’ use of the equipment each week (annual value $1,100). Each of the three
Solar Storm Inc. began operations on June 30, 2009, and issued 60,000 shares of $1 par common stock on that date. On December 31, 2009, Solar Storm declared and paid $24,200 in dividends. After a vote of the board of directors, Solar Storm issued 25,000 shares of 7% cumulative, $10 par, preferred
Jordan Corporation had sales in 2010 of $150,000, in 2011 of $180,000, and in 2012 of $225,000. The gross profit percentage of each year, in order, was 26%, 29%, and 32%. Past history has shown that 20% of total sales are collected in the first year, 40% in the second year, and 20% in the third
Anderson Company paid dividends at the end of each year as follows: 2009, $150,000; 2010, $240,000; and 2011, $560,000. Determine the amount of dividends per share paid on common and preferred stock for each year, assuming independent capital structures as follows:(a) 300,000 shares of no-par
Installment Sales Analysis Complete the followingtable.
Cost Recovery Method K. B. Sayer Furnishings Inc. had the following sales and gross profit percentages for the years 2010–2013.Historically, 60% of sales are collected in the year of the sale, 25% in the following year, and 10% in the third year. Assuming collections are as projected, give
Cost Recovery Analysis Hatch Enterprises uses the cost recovery method for all installment sales. Complete the followingtable.
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