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

Chris Titera is the chief financial officer (CFO) for Dallas Company. It is January 10, and Chris has just finished compiling the preliminary financial results for the most recent fiscal year, which ended on December 31. The preliminary results indicate that Dallas lost $100,000 during the year.
Stella Valerio is a financial analyst who follows Olsen Company and other companies in the same industry. You have just done a historical analysis of Stella’s earnings forecasts for Olsen Company and noticed that its earnings have exceeded Stella’s forecasted amount for 27 quarters in a row.
You are an analyst for an investment fund that invests in initial public offerings (IPOs). You are looking at the financial statements of two companies, Clark Company and Durfee Company, that plan to go public soon. Net income for the past three years for the two companies has been as follows (in
Dalian Company is a Chinese state-owned enterprise. This means that ownership of the company rests in one of the ministries of the Chinese central government. Ministry officials have decided to sell a portion (40%) of the government’s ownership interest in Dalian to outside investors, including
Cruella DeVil is the chief financial officer (CFO) of a local publicly traded company. She was recently invited to speak to accounting students at the local university. One of the students asked Cruella whether she thought earnings management was ethical. Cruella laughed and responded that her view
Heidelberg Company has been in business for 100 years. The past three years have been trying ones for the company, which has reported operating losses in each of those three years. The board of directors is planning a huge, year-long celebration of the company’s centennial year. The board has
You are a senior staff member in the office of the Chief Accountant of the Securities and Exchange Commission (SEC). You have been supervising a case brought against an audit firm. The audit client used non-GAAP accounting practices that allowed it to report annual earnings of $47.3 million instead
John Sleaze and Mary Scum run Earnings Management, Inc., a consulting business. They have the following items in their product line:1. A database that lists types of depreciable assets and the minimum and maximum depreciation lives that have been accepted by auditors for each type of asset. The
Frank Elsholz is the new chief executive officer (CEO) of Kearl Street Company. You are the controller for Kearl Street; you have been with the company for 15 years. In connection with the preparation of this year’s financial statements (the first prepared since the departure of the old
Lily Company has historically reported a bad debt expense amount of between 1% and 4% of sales. The percentage for any given year is a function of both the business conditions for the year and whether recent experience suggests that the estimates in past years have been too high or too low. For
The H.K. Clark Health Club sells lifetime memberships for $5,000 each. These memberships entitle a person to unlimited access to the club’s weight room, exercise equipment, swimming pool, and sauna. Once a lifetime membership fee is paid, it is not refundable for any reason. According to the
Worthington Company and Millward Company both reported pro forma earnings numbers in conjunction with their release of results for the most recent quarter. Both announcements included a reconciliation to GAAP earnings. These reconciliations are reproduced here.Worthington CompanyPro Forma
Jacob Marley is the controller for Dickens Company. Marley has been with Dickens for more than 30 years. Marley is a dedicated employee and prides himself on the efficiency of his accounting department staff. Over the years, Marley has received many inquiries and suggestions from the board of
You are the chief financial officer (CFO) of Lorien Company, which is publicly traded. At the annual shareholders’ meeting you discussed the company’s recent reported results. As part of your presentation, you illustrated the minimum and maximum values for net income that Lorien could have
Tooele Company is publicly traded. However, its chief executive officer (CEO), Kara Brown, is considering taking the company private in a leveraged buyout (LBO). One of the primary motivations for the LBO is dissatisfaction with the amount of time Kara must spend each quarter giving guidance to
There are two general types of financial analysts:• Buy-side analyst. An analyst employed by an entity, such as a mutual fund, which invests on its own accounts. Unlike that of the sell-side analysts employed by brokerage firms, research produced by buy-side analysts is usually unavailable
Tarazania is a country with a small but active stock market. However, the country has no accounting standards; in fact, the issuance of financial statements is illegal. This odd law stems from the fact that the founding king of Tarazania once took an intermediate accounting course and was so
Joseph Han has $10 million that he wishes to invest. He has identified two candidate companies: Company A and Company B. Both companies are privately held and have never yet released external financial statements. Joseph Han has some familiarity with the use of financial statements, but his
In the press release announcing Disney’s results for the first fiscal quarter of 2008 ending December 29, 2007, the company stated the following: The Walt Disney Company today reported earnings for its first fiscal quarter ended December 29, 2007. Diluted earnings per share (EPS) for the quarter
As indicated in the case at the beginning of this chapter, Xerox was manipulating income between the years 1997 through 1999. Below are revenue, gross profit, net income, and operating cash flow data for Xerox for the years 1997 through 2000.The securitization of the finance receivables represents
You are the controller for Cam-Ry Industries. Your company has recently received a large amount of unfavorable publicity because an SEC investigation uncovered a systematic 2-year effort by Cam-Ry’s management to manipulate reported earnings. The primary motivation for this earnings management
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 earnings
You are a manager with Doman & Detmer, a mid-sized local accounting firm. You have been with the firm for six years. Currently, you are working on the McMahon Company audit engagement. You are supervising a team of seven staff and senior accountants. Your direct supervisor, Giff Nielsen, is the
Dietrick Corporation borrowed $30,000 from its major shareholder, the president of the company, at an annual interest rate of 12%.1. Assuming simple interest,(a) How much will Dietrick have to pay to settle its obligation if the loan is to be repaid in 12 months?(b) How much of the payment is
Determine the amount that would accumulate for the following investments:1. $10,050 at 10% per annum, compounded annually for six years.2. $650 at 12% per annum, compounded quarterly for 10 years.3. $5,000 at 16% per annum, compounded annually for four years, and then reinvested at 16% per annum,
Determine the amount that must be deposited now at compound interest to provide the desired sum for each of the following:1. Amount to be invested for 10 years at 6% per annum, compounded semiannually, to equal $17,000.2. Amount to be invested for 21/2 years at 8% per annum, compounded quarterly,
Heather Company has $10,000 to invest. One alternative will yield 10% per year, compounded annually for four years. A second alternative is to deposit the $10,000 in a bank that will pay 8% per year, compounded quarterly for four years. Which alternative should Heather select?
Ryan Henry wants to buy his son a car for his 21st birthday. If Ryan’s son is turning 16 today, and interest is 8% per annum, compounded semiannually, what would Ryan’s semiannual investment need to be if the car will cost $26,000 and the first payment is made six months from today?
Determine the number of periods for which the following amounts would have to be invested, under the terms specified, to accumulate to $10,000. Convert the number of periods to years. 1. $5,051 at 10% per annum, compounded semiannually.2. $5,002 at 8% per annum, compounded annually.3. $5,134 at 16%
Determine the annual interest rate that is needed for the following investments to accumulate to $50,000.1. $10,414 for 20 years, interest compounded semiannually.2. $7,102 for 10 years, interest compounded quarterly.3. $33,778 for 10 years, interest compounded annually.
Determine the number of periods for which the following annuity payments would have to be invested to accumulate to $20,000. Assume payments are made at the end of each period. Convert the number of periods to years.1. Annual payments of $5,927 at 12% per annum, compounded annually.2. Semiannual
Determine the annual interest rate that is needed for the following annuities to accumulate to $25,000. Assume payments are made at the end of each period.1. Annual payments of $4,095 for five years, interest compounded annually.2. Semiannual payments of $5,715 for two years, interest compounded
Determine the amount of the periodic payments needed to pay off the following purchases. Payments are made at the end of the period.1. Purchase of a waterbed for $1,205. Monthly payments are to be made for one year with interest at 24% per annum, compounded monthly.2. Purchase of a motor boat for
Determine the unknown quantity for each of the following independent situations using the appropriate interest tables:1. Jeff and Nancy want to start a trust fund for their newborn son, Mark. They have decided to invest $5,000 today. If interest is 8% compounded semiannually, how much will be in
Determine the unknown quantity for each of the following independent situations using the appropriate interest tables:1. Sue wants to have $10,000 saved when she begins college. If Sue enters college in four years and interest is 8% compounded annually, how much will Sue need to save each year
Valley Technical College needs to purchase some computers. Because the college is short of cash, Computer Sales Company has agreed to let Valley have the computers now and pay $2,500 per computer six months from now. If the current cash price is $2,404, what is the rate of interest Valley would be
Foot Loose, Inc., needs to purchase a new shoelace-making machine. Machines Ready has agreed to sell Foot Loose the machine for $22,000 down and four payments of $5,700 to be paid in semiannual installments for the next two years. Do-It-Yourself Machines has offered to sell Foot Loose a comparable
Park City Construction is building a new office building, and management is trying to decide how rent payments for the office space should be structured. The alternatives are as follows:Plan A Annual payment of $15,000 at the end of each year.Plan B Monthly payments of $1,200 at the end of each
George and Barbara Shrub would like to purchase a large white house and are evaluating their financing options. Bank A offers a 10-year mortgage at 12% annual interest, compounded monthly, with payments made at the end of each month. Bank B is offering a 10-year mortgage at 13% annual interest,
The following payment plans are offered on the purchase of a new freezer:Plan A $375 cash.Plan B 8 monthly payments of $55.Plan C $100 cash down and six monthly payments of $50.Which payment plan would you choose if interest is 24% annually, compounded monthly, if you are the purchaser? If you are
Big Company purchased a machine on February 1, 2011, and will make seven semiannual payments of $14,000 beginning five years from the date of purchase. The interest rate will be 12%, compounded semiannually. Determine the purchase price of the machine.
Polly Company purchased three buildings. Polly has assembled the following market data, based on commercial real estate sales in the area in the past six months, which can be used to indirectly estimate the selling price of each of the buildings Polly purchased.For the three buildings it purchased,
Pockey Company has assembled the following market data, based on commercial real estate sales in the area in the past six months, which can be used to indirectly estimate the selling price of a building the company purchased.The building purchased by Pockey Company, which is called
Use of Matrix Pricing for Bonds Below is a bond pricing matrix.Company H owns a bond with a 13-year term and an AA rating. What is the fair value of this $1,000 bond? Note: The par value of each of the bonds is $1,000, and the numbers given in the matrix of bond prices are expressed in terms of a
Bodie Company has purchased three corporate bonds as temporary investments. Bodie has assembled the following matrix of bond price data for actively traded bonds which can be used to indirectly estimate the selling price of each of Bodie€™s bonds.For the three bonds it purchased, Bodie
As part of a business combination, Mother Ryan Company acquired a customer list and a franchise agreement. Mother Ryan 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 two
Sophie Zincmann Company has purchased an auto repair business in Tucson, Arizona, at the beginning of Year 1. One of the assets of the acquired company is a business license issued by the city of Tucson. These licenses are valuable, but they trade infrequently, and the last separate sale of a
Burton Dee Company has purchased the site of a gravel pit for $10 million. Burton Dee must now estimate the fair values of the assets acquired in the purchase in order to properly record the acquisition. One of the assets is a rock crushing system. This system includes a crusher, a conveyer belt,
Didericksen Company has an investment portfolio containing three securities. Details about each of the securities are given below.Security 1: 1,000 shares purchased last year for $20 per share. At the beginning of this year, the shares were trading at $25 per share. At the end of this year, the
During the year, Nelson Company conducted an impairment analysis for three assets: a building, an operating license, and goodwill. The carrying values of the assets as of the beginning of the year were as follows: building, $20,000; operating license, $38,000; goodwill, $120,000. It was found that
Before any impairment write-down, the net recorded amount of Sprint Nextel’s Wireless segment property, plant, and equipment as of December 31, 2007, is $22,882. Is the Wireless segment’s property, plant, and equipment impaired? If so, what is the amount of any necessary impairment
Before any impairment write-down, the net recorded amount of Sprint Nextel’s goodwill as of December 31, 2007, is $30,664. Is Sprint Nextel’s goodwill impaired? If so, what is the amount of any necessary impairment write-down?Both Sprint and Nextel started business on the competitive fringes of
With respect to the Wireless segment’s long-lived assets (tangible and intangible) described in the data given above, what SFAS No. 157 fair value disclosures are necessary for the year ended December 31, 2007?Both Sprint and Nextel started business on the competitive fringes of the
How will your answer change if the discount rate you use is increased by 0.5% (50 basis points)? Decreased by 0.5%? Comment.Both Sprint and Nextel started business on the competitive fringes of the telecommunications industry. Until 1984, the phone business was dominated by the AT&T monopoly
Refer to Question 2. How will your answer change if the discount rate you use is increased by 0.5% (50 basis points)? Decreased by 0.5%? Comment.Both Sprint and Nextel started business on the competitive fringes of the telecommunications industry. Until 1984, the phone business was dominated by
In conducting the goodwill impairment analysis, you used several different valuation techniques.Wireless segment valuation using price-to-sales and price-to-EBITDA data for the Wireline segmentWireless segment valuation using discounted cash flow analysisFCC license valuation using a
Briefly outline the effect of the China telecommunications industry restructuring announced in May 2008. In particular, explain how this restructuring will condense six companies into three, and list the business segments that will end up in each of the remaining three.“Industry Shakeup Creates 3
How will this restructuring into three mega-companies foster “healthy market competition and prevent a monopoly by any”?“Industry Shakeup Creates 3 Telecom Giants,” China Daily, 25 May 2008 In a brave industry shake-up, Beijing has ordered its six telecom companies to merge assets and
For each of the four Chinese telecommunications companies with publicly available data, compute price-to-sales, price-to-EBITDA, and price-to-earnings ratios as of December 31, 2007. Also compute the market capitalization per subscriber. Comment.“Industry Shakeup Creates 3 Telecom Giants,”
Discuss why fixed-line subscribers and profits have different valuation multiples than do mobile phone subscribers and profits.“Industry Shakeup Creates 3 Telecom Giants,” China Daily, 25 May 2008 In a brave industry shake-up, Beijing has ordered its six telecom companies to merge assets and
Evaluate the 165 billion yuan price tag for the acquisition of China Netcom by China Unicom. Do you think the price is too high or too low? Defend your answer.“Industry Shakeup Creates 3 Telecom Giants,” China Daily, 25 May 2008 In a brave industry shake-up, Beijing has ordered its six telecom
Evaluate the 110 billion yuan price tag for the purchase of China Unicom’s CDMA network and operations by China Telecom. Do you think China Telecom is paying too much or too little? Defend your answer.“Industry Shakeup Creates 3 Telecom Giants,” China Daily, 25 May 2008 In a brave industry
What evidence would a company use to generate the type of uncollectible accounts percentages given in the case? Given those percentages, what is the fair value of China Netcom’s accounts receivable? Ignore the time value of money.“Industry Shakeup Creates 3 Telecom Giants,” China Daily, 25
Using the lease payment data in the case material, estimate the fair value of each of China Netcom’s three fixed asset categories. For simplicity, assume that the appropriate discount rate to use in computing the fair value of the fixed assets is 10% for each of the asset categories.“Industry
Estimate the fair value of China Netcom’s operating licenses.“Industry Shakeup Creates 3 Telecom Giants,” China Daily, 25 May 2008 In a brave industry shake-up, Beijing has ordered its six telecom companies to merge assets and create three hi-tech conglomerates that will compete with each
Estimate the fair value of China Netcom’s fixed-line customer relationships.“Industry Shakeup Creates 3 Telecom Giants,” China Daily, 25 May 2008 In a brave industry shake-up, Beijing has ordered its six telecom companies to merge assets and create three hi-tech conglomerates that will
Compute the amount of goodwill that China Unicom should recognize when it records the acquisition of China Netcom.“Industry Shakeup Creates 3 Telecom Giants,” China Daily, 25 May 2008 In a brave industry shake-up, Beijing has ordered its six telecom companies to merge assets and create three
Distinguish among depreciation, depletion, and amortization expenses.
What factors must be considered in determining the periodic depreciation charges that should be made for a company’s depreciable assets?
What role does residual, or salvage, value play in the various methods of time-factor depreciation?
Distinguish between the functional and physical factors affecting the useful life of a tangible noncurrent operating asset.
Distinguish between time-factor and use-factor methods of depreciation.
Briefly describe group depreciation, and describe how asset retirements are recorded under this method.
Describe the component approach to computing depreciation.
How does the recognition of an asset retirement obligation impact periodic depreciation expense? Interest expense?
Describe the proper accounting treatment for a change in estimated useful life.
What procedures must be followed when the estimate of recoverable natural resources is changed due to subsequent development work?
How does the accounting for biological natural resource under IAS 41 differ from the cost allocation process used under U.S. GAAP?
Under U.S. GAAP, what test is used to determine whether a long-term tangible asset is impaired? How is an impairment loss measured?
How does the international accounting standard for asset impairment differ from the standard used in the United States?
If a non-U.S. company chooses to revalue a longterm operating asset upward in accordance with IAS 16, how is the unrealized “gain” on the revaluation recognized in the financial statements?
Briefly describe the three types of intangible assets in terms of amortization and impairment.
Briefly describe the four procedures followed in testing goodwill for impairment.
Under IAS 36, there is basically one impairment test for intangible assets. Briefly describe the structure of that test.
What two unusual accounting actions are taken when a long-term operating asset is classified as held for sale?
Under what circumstances is a gain recognized when a productive asset is exchanged for a similar productive asset? A loss?
Why isn’t depreciation expense always computed for the exact number of days an asset is owned?
What were the original reasons for the development of the ACRS income tax depreciation method?
Depreciation expense for the year was $1,000. Make the necessary journal entry.
The company acquired a machine on January 1 at an original cost of $115,000. The machine’s estimated residual value is $20,000, and its estimated life is five years.(1) Compute the annual straight-line depreciation amount, (2) Make the journal entry necessary to record depreciation expense for
Refer to Practice 11-2. Assume that the company uses sum-of-the-years’-digits depreciation. Compute(1) Depreciation expense for each year of the machine’s 5-year life and(2) Book value at the end of each year of the machine’s 5-year life.
The company acquired a machine on January 1 at an original cost of $100,000. The machine’s estimated residual value is $10,000, and its estimated life is four years. The company uses double-declining-balance depreciation and switches to straight-line in the final year of the machine’s life.
The company acquired a machine on January 1 at an original cost of $75,000. The machine’s estimated residual value is $15,000, and its estimated life is 20,000 service hours. The actual usage of the machine was as follows: Year 1, 9,000 hours; Year 2, 5,000 hours; Year 3, 4,000 hours; Year 4,
The company acquired a machine on January 1 at an original cost of $70,000. The machine’s estimated residual value is $5,000, and its estimated lifetime output is 13,000 units. The actual output of the machine was as follows: Year 1, 3,000 units; Year 2, 5,000 units; Year 3, 2,000 units; Year 4,
The company has decided to use group depreciation based on the straight-line depreciation method. The initial pool of assets on which the group depreciation rate is based is as follows:Compute the group depreciationrate.
Refer to Practice 11-7.(1) Make the journal entry to record the sale of Asset 3 after two years for $22,000 cash.(2) Compute depreciation expense in the third year if Asset 5 is purchased at the beginning of the year for $50,000. This purchase is made at the same time that Asset 3 is sold.
On January 1, Lewis Company purchased land it will use as a landfill for the next 12 years. The cost of the land was $525,000. At the end of 12 years, Lewis Company will be required to spend $250,000 to landscape and reforest the landfill site. The appropriate discount rate is 9%. Because the
On January 1, the company purchased a mine for $100,000. At that time, it was estimated that the mine contained 5,000 tons of ore. It is also estimated that the mine will have a residual value of $20,000 when all of the ore is extracted. During the year, the company extracted 900 tons of ore from
How do accounting changes detract from the informational characteristics of comparability and consistency as described in FASB Concepts Statement No. 2?
What are the two categories of accounting changes? Explain briefly why such changes are made.

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