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

Tingey Industries sells merchandise on a consignment basis to dealers. The selling price of the merchandise averages 25% above cost of merchandise. The dealer is paid a 10% commission on the sales price for all sales made. All dealer sales are made on a cash basis. The following consignment sales
On January 1, Reschke Company signed a 1-year rental for a total of $90,000, with quarterly payments of $22,500 due at the end of each quarter. In addition, the renter must pay contingent rent of 3% of all sales in excess of $1,200,000. The contingent rent is paid in one payment on December 31. On
The stockholders’ equity of Thomas Company as of December 31, 2010, was as follows:Common stock, $1 par, authorized 275,000 shares;240,000 shares issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . $ 240,000Paid-in capital in excess of par . . . . . . . . . . . . . . . . . . .
Zamponi's Construction Company reports its income for tax purposes on a completed contract basis and income for financial statement purposes on a percentage-of completion basis. A record of construction activities for 2011 and 2012 follows:General and administrative expenses for 2011 and 2012 were
The Rushing Construction Company obtained a construction contract to build a highway and bridge over the Snake River. It was estimated at the beginning of the contract that it would take three years to complete the project at an expected cost of $50,000,000. The contract price was $60,000,000. The
Uptown Builders Company commenced doing business in January 2011. Construction activities for the year 2011 are summarized in the following table.The company is your client. The president has asked you to compute the amounts of revenue for the year ended December 31, 2011, that would be reported
Western Company wants to raise additional equity capital. After analysis of the available options, the company decides to issue 1,000 shares of $20 par preferred stock with detachable warrants. The package of the stock and warrants sells for $90. The warrants enable the holder to purchase 1,000
The Pierson Construction Corporation contracted with the City of Plaquemine to construct a dam on the bayou at a price of $14,000,000. Pierson expects to earn $1,270,000 on the contract. The percentage-of-completion method is to be used, and the completion stage is to be determined by estimates
Rhiener Corporation initiated a performance-based employee stock option plan on January 1, 2010. The performance base for the plan is net sales in the year 2012. The plan provides for stock options to be awarded to the employees as a group on the following basis:The options become exercisable on
Jana Crebs is a contractor for the construction of large office buildings. At the beginning of 2011, three buildings were in progress. The following data describe the status of these buildings at the beginning of the year:During 2011, the following costs were incurred.Building 1 $930,000 (estimated
Stockholders’ equity for Channa Co. on December 31 was as follows:Preferred stock, $14 par, 25,000 shares issued and outstanding . . . . . . . . $ 350,000Paid-in capital in excess of par—preferred stock . . . . . . . . . . . . . . . . . . . . . 100,000Common stock, $9 par, 125,000 shares issued
Endicott Company’s December 31, 2010, balance sheet reported retained earnings of $86,500, and net income of $124,000 was reported in the 2010 income statement. While preparing financial statements for the year ended December 31, 2011, Tom Dryden, accountant for Endicott Company, discovered
The balance sheet of Carmen Corporation shows the following:Common stock, $1 stated value, 80,000 shares issued and outstanding . . . . . . . $ 80,000Paid-in capital in excess of stated value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,120,000Retained earnings . . . . . . . . .
The capital accounts for Alston Market on June 30, 2011, are as follows:Common stock, $6 par, 50,000 shares issued and outstanding . . . . . . . . . . . . $ 300,000Paid-in capital in excess of par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600,000Retained earnings
The retained earnings account for Carlitos Inc. shows the following debits and credits. Indicate all entries required to correct the account. What is the corrected amount of retainedearnings?
The following data are for Radial Company:Contributed capital and retained earnings . . . . . . . . . . . . . . . . . . $875,000Foreign currency translation adjustment . . . . . . . . . . . . . . . . . . . . . 72,000Unrealized gain on available-for-sale securities . . . . . . . . . . . . . . .
From the following information, reconstruct the journal entries that were made byRivers Corporation during 2011.*Includes net income of $40,000 for 2011. There were no dividends. Assume that revenues and expenses were closed to a temporary account, Income Summary. Use this account to complete the
Kenny Co. began operations on January 1, 2010, by issuing at $15 per share one half of the 950,000 shares of $1 par value common stock that had been authorized for sale. In addition, Kenny has 500,000 shares of $5 par value, 6% preferred shares authorized. During 2010, Kenny had $1,025,000 of net
The Kirby Construction Company was the low bidder on a specialized equipment contract. The contract bid was $5,400,000 with an estimated cost to complete the project of $4,800,000. The contract period was 34 months, beginning March 1, 2010. The company uses the cost-to-cost method to estimate
Tuscany Boatbuilders was recently awarded a $17,000,000 contract to construct a luxury liner for Queen Cruiseliners Inc. Tuscany estimates it will take 42 months to complete the contract. The company uses the cost-to-cost method to estimate profits. The following information details the actual and
London Corporation has been using the cash method to account for income since its first year of operation in 2011. All sales are made on credit with notes receivable given by the customers. The income statements for 2011 and 2012 included the following amounts:The balances due on the notes at the
Potter's Home Goods sells furniture and electronic items. The majority of its business is on credit, and the following information is available relating to sales transactions for 2010, 2011, and 2012.Instructions: Prepare the journal entries for the years 2010â€“2012 assuming Potter's uses the
The Wasatch Construction Company entered into a $4,500,000 contract in early 2011 to construct a multipurpose recreational facility for the city of Helper. Construction time extended over a 2-year period. The table below describes the pattern of progress payments made by the city of Helper and
1. Which of the following is used in calculating the income recognized in the fourth and final year of a contract accounted for by the percentage-of-completion method?2. When should a lessor recognize in income a nonrefundable lease bonus paid by a lessee upon signing an operating lease?(a) When
As the new controller for Enclave Construction Company, you have been advised that your predecessor classified all revenues and expenses by project, each project being considered a separate venture. All revenues from uncompleted projects were treated as unearned revenue, and all expenses applicable
The Abbott Construction Company has several contracts to build sections of freeways, bridges, and dams. Because most of these contracts require more than one year to complete, the accountant, Dave Allred, has recommended use of the percentage-of-completion method to recognize revenue and income on
The Superb Health Studio has been operating for five years but is presently for sale. It has opened 50 salons in various cities in the United States. The normal pattern for a new opening is to advertise heavily and sell different types of memberships: 1-year, 3-year, and 5-year. For the initial
Hertzel Advertising Agency handles advertising for clients under contracts that require the agency to develop advertising copy and layouts and place ads in various media, charging clients a commission of 15% of the media cost as its fee. The agency makes advance billings to its clients of estimated
Green Brothers Furniture sells discount furniture and offers easy credit terms. Its margins are not large, but it deals in heavy volume. Its customers are often low-income individuals who cannot obtain credit elsewhere. Green Brothers retains the title to the furniture until full payment is
High school students know how important it is to perform well on the educational tests required by many colleges and universities as part of the admissions process. In fact, an entire industry has developed to prepare students to take these tests. One company in this industry was College Bound Inc.
Datarite, a maker of computer hardware systems, sells its products to dealers who in turn sell to the final customer. Datarite offers very liberal credit terms and allows its dealers to take up to 90 days to pay. These terms allow dealers to hold larger inventories. As the end of the fiscal year
The Rain-Soft Water Company distributes its water softeners to dealers upon their request. The contract agreement with the dealers is that they may have 90 days to sell and pay for the softeners. Until the 90-day period is over, any softeners may be returned at the dealer’s expense and with no
Locate the 2007 financial statements for The Walt Disney Company on the Internet.1. Locate Disney’s note on revenue recognition. What is Disney’s revenue recognition policy for the various business segments?2. Relating to video and video game sales, what other points in the revenue cycle
Review the following note relating to revenue recognition for Siskon Gold Corporation, a company “engaged in the business of exploring, acquiring, developing, and exploiting precious mineral properties, principally gold.”2. SIGNIFICANT ACCOUNTING POLICIESRevenue recognition—Revenue from gold
Ben & Jerry’s Homemade, Inc., an ice cream manufacturer, was acquired by Unilever in 2000. Before that, Ben & Jerry’s was a publicly traded company. Below is the revenue recognition note for Ben & Jerry’s from its 1998 annual report:Revenue RecognitionThe Company recognizes revenue and the
Lockheed Martin Corporation “principally researches, designs, develops, manufactures, integrates, operates and sustains advanced technology systems and products, and provides a broad range of management, engineering, technical, scientific, logistic and information services” within its four
Many large electronics manufacturers offer very easy credit terms when a customer purchases their products. For example, Mitsubishi often offers its customers a “$0 down, no payments for 12 months” payment option when purchasing a big-screen television. In a case such as this, when would
To help you become familiar with the accounting standards, this case is designed to take you to the FASB
You are the president and founder of Gold Strike Inc., a mining company that acquires land and mines gold. The success of your company is largely dependent on finding large deposits of gold. To do this requires expensive geological surveys and testing. You have used an engineering firm in the past
How does a derivative differ from other financial instruments and contracts?
Why is a derivative often an executory contract? Give another example of an executor contract.
Briefly describe the four types of risk discussed in the chapter.
Why would a company enter into an interest rate swap?
What is the difference between a forward contract and a futures contract?
How does an option differ from the other types of derivatives discussed in the chapter?
Describe the purpose of a cash flow hedge, and give an example of a cash flow hedge.
Why is traditional historical cost accounting inappropriate when accounting for derivative contracts?
When does partial hedge ineffectiveness occur?
Derivatives are to be reported in the balance sheet at their fair value on the balance sheet date. How are unrealized gains and losses on derivatives recognized in the financial statements?
What is the notional amount of a derivative? How can the notional amount be misleading?
A derivative used as an economic hedge of foreign currency risk associated with a foreign currency-denominated asset or liability is not accounted for as a hedge under the provisions of Statement No. 133. How are these derivatives accounted for?
How does the accounting for a speculative derivative investment differ from that for a derivative that serves as a hedge?
What international standard governs the accounting for derivatives? How does this standard differ from Statement No. 133?
How should contingent liabilities that are reasonably possible of becoming liabilities be reported in the financial statements?
Describe the appropriate treatment of contingent gains.
What factors are important in deciding whether a pending lawsuit should be reported as a liability on the balance sheet?
What factors must a company consider in estimating the amount to recognize for a probable contingent liability?
Under what circumstances should the existence of an environmental liability be considered “probable”?
In what ways can segment information assist in the analysis of a company’s financial statements?
How is a business segment to be identified under the provisions of FASB Statement No. 131?
How large must an internally defined segment be for separate financial statement disclosure to be required?
Is segment information prepared according to GAAP? Explain.
Distinguish between the two primary viewpoints concerning the preparation of interim financial statements.
Why should investors be careful in interpreting interim reports?
On January 1 of Year 1, the company entered into a 2-year $100,000 variable interest rate loan. In the first year of the loan, the interest rate is 10%. In its second year, the interest rate is equal to the prime lending rate on January 1 of Year 2. The company does not want to bear the risk
Refer to Practice 19-1 and complete the following:1. Compute the total amount (including all swap-related cash flows) that the company will pay in interest in Year 2, assuming that the prime lending rate on January 1 of Year 2 is (a) 7%, (b) 15%, and (c) 10%. Comment on your computations.2. When
The company is a golf course developer that constructs approximately 15 courses per year. Next year, the company will buy 5,000 trees to install in the courses it builds. In recent years, the price of trees has fluctuated wildly. To eliminate this uncertainty, the company has found a reputable
Refer to Practice 19-3 and complete the following:1. Compute the total amount (including all forward-related cash flows) that the golf course developer will pay to buy 5,000 trees in Year 2, assuming that the price of a tree on January 1 of Year 2 is (a) $250, (b) $600, and (c) $400. Comment on
The mining company produces 25,000 pounds of copper each month in its mining operations. To eliminate the price risk associated with copper sales, on December 1 of Year 1, the mining company entered into a futures contract to sell 25,000 pounds of copper on January 1 of Year 2. The futures price is
Refer to Practice 19-5 and complete the following:1. Compute the total amount (including all futures-related cash flows) that the mining company will receive to sell 25,000 pounds of copper in January of Year 2, assuming that the price of copper per pound on January 1 of Year 2 is (a) $0.62, (b)
The company makes colorful 100% cotton shirts that are very popular among sophisticated business executives. The company uses 100,000 pounds of cotton each month in its production process. On December 1 of Year 1, the company purchased a call option to buy 100,000 pounds of cotton on January 1 of
Refer to Practice 19-7 and complete the following:1. Compute the total amount (including all option-related cash flows) that the shirt company will pay to buy 100,000 pounds of cotton in January of Year 2, assuming that the price of cotton per pound on January 1 of Year 2 is(a) $0.52,(b) $0.30,
Refer to Practice 19-1 and Practice 19-2. What would be the impact on the company’s total cash payment in Year 2 if the pay-fixed, receive-variable interest rate swap had been based on a loan amount of $300,000 instead of $100,000? In other words, what would be the company’s total cash payment
Refer to Practice 19-3 and Practice 19-4. What would be the impact on the golf course developer’s total cash payment to purchase trees in Year 2 if the forward contract had been for just 1,500 trees rather than the full 5,000 trees expected to be purchased in Year 2? In other words, what would be
On December 1 of Year 1, the company made a $100,000 investment in a highly risky Internet stock. The investment is classified as a trading security. Part of the investment agreement prevents the company from selling the investment before January 1 of Year 2. To remove uncertainty about
A farmer expects to sell 5,000 bushels of corn on January 1 of Year 2. On December 1 of Year 1, the farmer enters into a futures contract to sell the corn on January 1 of Year 2 at $2.30 per bushel. The market price of corn on December 1 was also $2.30 per bushel. Make all journal entries necessary
Compute the notional amount of the derivative contract for each of the following:1. The interest rate swap contract. See Practice 19-1.2. The tree forward contract. See Practice 19-3.3. The copper futures contract. See Practice 19-5.4. The corn futures contract. See Practice 19-12.
Refer to Practice 19-1. Make any necessary journal entry on the borrowing company’s books on December 31 of Year 1 in connection with the interest rate swap, assuming that the prime lending rate on December 31 is(1) 7%,(2) 15%, and(3) 10%.Even though the swap payment is not made until December 31
Refer to Practice 19-3. Make any necessary journal entry on the golf course developer’s books on December 31 of Year 1 in connection with the tree forward contract, assuming that the price per tree on that date is(1) $250,(2) $600, and(3) $400.
Refer to Practice 19-5. Make any necessary journal entry on the mining company’s books on December 31 of Year 1 in connection with the copper futures contract, assuming that the price of copper per pound on that date is(1) $0.62,(2) $0.88, and(3) $0.77.
Refer to Practice 19-7. Make any necessary journal entry on the shirt company’s books on December 31 of Year 1 in connection with the cotton option contract, assuming that the price of cotton per pound on that date is(1) $0.52,(2) $0.30, and(3) $0.39.Remember that the cotton option was purchased
On December 1 of Year 1, Lorien Company made a credit sale to a Thai company. The amount of the sale was 100,000 Thai baht. Lorien will collect the account on January 1 of Year 2. On December 1, the exchange rate was 40 Thai baht for 1 U.S. dollar. On December 1, Lorien entered into a futures
The company specializes in speculating on the direction of movements in the price of gold. On December 1 of Year 1, the company entered into a futures contract to sell 100 ounces of gold at $319 per ounce on January 1 of Year 2. The company expected the price of gold to decline between December 1
The company has the following three potential obligations. Describe how each will be reported in the financial statements.1. The company has guaranteed a loan for one of its suppliers. If the supplier fails to repay the loan, the company will be required to repay it. Currently, the probability of
In each of the following cases, make the necessary journal entry, if any. If no journal entry is necessary, describe how the item would be reported in the financial statements.1. The company has sued another company for patent infringement and won a preliminary judgment of $800,000 in the case.
Rainbow Company has internally organized itself into the following seven segments:Segments 3 and 4 have similar products, use similar processes, and distribute their products through similar channels.Rainbow Company is concerned about reporting segment information for each segment.According to SFAS
The company has historically reported bad debt expense of 1% of sales in each quarter. For the current year, the company followed the same procedure in the first three quarters of the year. However, in the fourth quarter, the company, in consultation with its auditor, determined that bad debt
Shank Company manufactures candy. On September 1, Shank purchased a futures contract that obligates it to sell 150,000 pounds of sugar on September 30 at $0.41 per pound. Shank typically purchases 150,000 pounds of sugar per month to use as a raw material in the candy production process. It
On January 1, 2011, Slidell Company received a 2-year, $500,000 loan, with interest payments occurring at the end of each year and the principal to be repaid on December 31, 2012. The interest rate for the first year is the prevailing market rate of 7%, and the rate in 2012 will be equal to the
On September 1, 2011, Ramus Company purchased machine parts from Ho Man Tin Company for 6,000,000 Hong Kong dollars to be paid on January 1, 2012. The exchange rate on September 1 is HK$7.7 = $1. On the same date, Ramus enters into a forward contract and agrees to purchase HK$6,000,000 on January
Shelby Organics produces bottled orange juice. Orange juice concentrate is typically bought and sold by the pound, and Shelby uses 50,000 pounds of orange juice concentrate each month. On December 1, 2011, Shelby entered into an orange juice concentrate futures contract to buy 50,000 pounds of
Far West Clothing Mills uses approximately 250,000 pounds of cotton each month to make the cotton fabric used in its patented no-wrinkle, long-sleeved white shirts. On December 1, 2011, Far West purchased an option to buy 250,000 pounds of cotton on January 1, 2012, at a price of $0.50 per pound.
Refer back to Exercises 19-26 and 19-27.1. What is the notional value of the Hong Kong dollar forward contract described in Exercise 19-26? What is the fair value of the forward contract on December 31, 2011?2. What is the notional value of the orange juice concentrate futures contract described in
Warsaw Signal Company specializes in predicting price movements in the soybean market. On November 1, 2011, it was convinced that soybean prices were too low. Accordingly, Warsaw entered into futures contracts to purchase 50,000 bushels of soybeans at $5.00 per bushel on January 1, 2012. The market
For each of the following scenarios, identify whether the event described is an actual liability, a contingent liability, or not a liability.(a) Apple Inc. has used the toxic substance, iocaine powder, in its production process. Recently adopted federal regulations require companies to clean up any
A lawsuit has been filed against See-Me-Here, Inc., a manufacturer of video post cards, by See-Me-Wherever, another manufacturer of video post cards. The suit alleges patent right infringements by See-Me-Here and asks for compensatory damages. For the following possible situations, determine
Conrad Corporation sells motorcycle helmets. In 2011, Conrad sold 4 million helmets before discovering a significant defect in their construction. By December 31, 2011, two lawsuits had been filed against Conrad. The first lawsuit, which Conrad has little chance of winning, is expected to settle
Bell Industries is a multinational company. In preparing the annual financial statements, the auditors met with Bell’s attorneys to discuss various legal matters facing the firm. For each of the following independent items, determine the appropriate disclosure:(a) Bell is being sued by a
Multitasking Industries sells five different types of products. Internally, Multitasking is divided into five different divisions based on these five different product lines. Multitasking has prepared the following information to disclose to external users in the notes to its 2011 financial
Companies are required to disclose selected results in the financial statements for significant business segments. This information often takes the form of industry segment reporting by diversified companies, but it also can be by geographic areas.Locate the annual report of The Walt Disney

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