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Intermediate Accounting 17th Edition James D. Stice, Earl K. Stice, Fred Skousen - Solutions
An intangible asset cost $300,000 on January 1, 2011. On January 1, 2012, the asset was evaluated to determine whether it was impaired. As of January 1, 2012, the asset was expected to generate future cash flows of $25,000 per year (at the end of the year).The appropriate discount rate is 5%.1.
Largest Company acquired Large Company on January 1. As part of the acquisition, $10,000 in goodwill was recognized; this goodwill was assigned to Largest's Production reporting unit. During the year, the Production reporting unit reported revenues of $13,000. Publicly traded companies with
On December 31, 2011, Debenham Corporation sold for $15,000 an old machine having an original cost of $84,000 and a book value of $9,000. The terms of the sale were as follows: $3,000 down payment, $6,000 payable on December 31 of the next two years. The sales agreement made no mention of interest;
On April 1, 2011, Brandoni Company has a piece of machinery with a cost of $100,000 and accumulated depreciation of $75,000. On April 1, Brandoni decided to sell the machine within one year. As of April 1, 2011, the machine had an estimated selling price of $10,000 and a remaining useful life of
Assume that Coaltown Corporation has a machine that cost $52,000, has a book value of $35,000, and has a market value of $40,000. The machine is used in Coaltown’s manufacturing process. For each of the following situations, indicate the value at which the company should record the new asset and
On January 2, 2011, Joshon Hardware Company traded with a dealer an old delivery truck for a newer model. Data relative to the old and new trucks follow:Old truck:Original cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Feng Company purchased a machine for $180,000 on September 1, 2011. It is estimated that the machine will have a 10-year life and a salvage value of $18,000. Its working hours and production in units are estimated at 36,000 and 750,000, respectively. It is the company’s policy to depreciate
Rocky Point Foundry purchased factory equipment on March 15, 2010. The equipment will be depreciated for financial purposes over its estimated useful life, counting the year of acquisition as a half-year. The company accountant revealed the following information regarding this machine:Purchase
Olympus Equipment Company purchased a new piece of factory equipment on May 1, 2011, for $29,200. For income tax purposes, the equipment is classified as a 7-year asset. Because this is similar to the economic life expected for the asset, Olympus decides to use the tax depreciation for financial
A delivery truck was acquired by Navarro Inc. for $40,000 on January 1, 2011. The truck was estimated to have a 3-year life and a trade-in value at the end of that time of $10,000. The following depreciation methods are being considered:(a) Depreciation is to be calculated by the straight-line
On January 1, 2008, Ron Shelley purchased a new tractor to use on his farm. The tractor cost $100,000. Ron also had the dealer install a front-end loader on the tractor. The cost of the front-end loader was $7,000. The shipping charges were $600, and the cost to install the loader was $800. The
A company buys a machine for $61,700 on January 1, 2008. The maintenance costs for the years 2008–2011 are as follows: 2008, $4,900; 2009, $4,700; 2010, $12,400 (includes $7,800 for cost of a new motor installed in December 2010); 2011, $4,800.Instructions:1. Assume the machine is recorded in a
Lyell Company started a newspaper delivery business on January 1, 2008. On that date, the company purchased a small pickup truck for $14,000. Lyell planned to depreciate the truck over three years and assumed an $800 residual value. During 2008 and 2009, Lyell’s business expanded. On January 1,
Wright Manufacturing Co. acquired 20 similar machines at the beginning of 2006 for a total cost of $75,000. The machines have an average life of five years and no residual value. The group depreciation method is employed in writing off the cost of the machines. They were retired as follows:2
Machines are acquired by Milestone Corporation on April 1, 2011, as follows:Instructions:1. Calculate the group depreciation rate for this group.2. Calculate the average life in years for the group.3. Give the entry to record the group depreciation for the year ended December 31,2011.
The following independent cases describe facts concerning the ownership of racing bicycles.(a) Piero Niccolo, winner of the 2009 Milan–San Remo cycling classic, purchased a new Fierro bicycle for $6,500 at the beginning of 2009. The bicycle was being depreciated using the straight-line method
Roscoe Corp. was organized on January 2, 2011. It was authorized to issue 74,000 shares of common stock. On the date of organization, it sold 20,000 shares at $50 per share and gave the remaining shares in exchange for certain land-bearing recoverable ore deposits estimated by geologists at 900,000
In 2007, Heslop Mining Company purchased property with natural resources for $5,400,000. The property was relatively close to a large city and had an expected residual value of $700,000. The following information relates to the use of the property:(a) In 2007, Heslop spent $300,000 in development
In 2006, Sunbeam Corporation acquired a silver mine in eastern Alaska. Because the mine is located deep in the Alaskan frontier, Sunbeam was able to acquire the mine for the low price of $50,000. In 2007, Sunbeam constructed a road to the silver mine costing $5,000,000. Improvements to the mine
The following independent situations describe facts concerning the ownership of various assets.(a) Dickenton Company purchased a tooling machine in 1996 for $85,000. The machine was being depreciated on the straight-line method over an estimated useful life of 30 years with no salvage value. At the
Oakeson Company is a manufacturing firm. Work-in-process and finished goods inventories for December 31, 2011, and December 31, 2010, follow:Depreciation is a major portion of Oakeson€™s overhead, and the inventories listed above include depreciation in the following
Deedle Company purchased four convenience store buildings on January 1, 2005, for a total of $26,000,000. The buildings have been depreciated using the straight-line method with a 20-year useful life and 5% residual value. As of January 1, 2011, Deedle has converted the buildings into Internet
JJS Corporation purchased a building on January 1, 2007, for a total of $12,000,000. The building has been depreciated using the straight-line method with a 20-year useful life and no residual value. As of January 1, 2011, JJS is evaluating the building for possible impairment. The building has a
On January 3, 2003, Merris Company spent $89,000 to apply for and obtain a patent on a newly developed product. The patent had an estimated useful life of 10 years. At the beginning of 2007, the company spent $16,000 in successfully prosecuting an attempted infringement of the patent. At the
On December 31, 2010, Magily Company acquired the following three intangible assets:(a) A trademark for $30,000. The trademark has seven years remaining in its legal life. It is anticipated that the trademark will be renewed in the future, indefinitely, without problem.(b) Goodwill for $150,000.
A review of the books of Lakeshore Electric Co. disclosed that there were five transactions involving gains and losses on the exchange of fixed assets. The transactions were recorded as indicated in the following ledger accounts:Investigation disclosed the following facts concerning these
Wild Expansion Co. acquired the following assets in exchange for various nonmonetary assets. 2011Mar. 15 Acquired from another company a large lathe in exchange for three small lathes. The small lathes had a total cost of $28,000 and a remaining book value of $15,000. The new lathe had a market
Information pertaining to Hedlund Corporation's property, plant, and equipment for 2011 follows.The salvage values of the depreciable assets are immaterial. Depreciation is computed to the nearest month. Transactions during 2011 and other information are as follows:(a) On January 2, 2011, Hedlund
At December 31, 2010, Oteron Company's noncurrent operating asset and accumulated depreciation and amortization accounts had balances as follows:Depreciation is computed to the nearest month. The salvage values of the depreciable assets are immaterial.Transactions during 2011 and other information
1. In January 2011, Vorst Co. purchased a mineral mine for $2,820,000 with removable ore estimated at 1,200,000 tons. After it has extracted all the ore, Vorst believes it will be able to sell the property for $300,000. During 2011, Vorst incurred $360,000 of development costs preparing the mine
The following two depreciation methods are acceptable for tax purposes:(a) Straight line with a half-year convention. The half-year convention is the assumption that all assets are acquired in the middle of the year. Therefore, a half-year’s depreciation is allowed in the first year.(b) 200%
The managements of two different companies argue that because of specific conditions in their companies, recording depreciation expense should be suspended for 2011. Evaluate carefully their arguments.(a) The president of Guzman Co. recommends that no depreciation be recorded for 2011 because the
Ferris Bueller, Inc., owns a building in Des Moines, Iowa, that was built at a cost of $5,000,000 in 2000. The building was used as a manufacturing facility from 2001 to 2010. However, economic conditions have made it necessary to consolidate Ferris Bueller’s operations, and the building has been
Atwater Manufacturing Company purchased a new machine especially built to perform one particular function on the assembly line. A difference of opinion has arisen as to the method of depreciation to be used in connection with this machine. Three methods are now being considered:(a) The
In today’s high-tech, high-cost entertainment industry, motion pictures often have costs in the tens of millions of dollars. Of course, it is hoped that these movies will be box office winners and that the revenues will exceed the cost outlay. With first runs, reruns, DVD sales and rentals, and
Professor Linda DeAngelo found evidence suggesting that when the management of a company is ousted under fire, the new management tends to take an earnings “bath” after gaining control. A “bath” is a large reduction in earnings due to asset write-downs, reorganization charges,
Different airlines depreciate the same airplanes but using different useful-life and residual value assumptions. For example, airlines have depreciated the same Boeing aircraft over lives ranging from 14 years to 28 years. What might cause a firm to decide to increase the estimated useful life of a
Locate the 2007 financial statements for The Walt Disney Company on the Internet and consider the following questions:1. What depreciation method does Disney use for its parks, resorts, and other property? For its film and television costs?2. Where do you have to look to find out that Disney’s
The following information is from the June 30, 1998, balance sheet for Delta Air Lines (all dollar amounts are in millions):Delta also included this note to its financial statements:Depreciation and Amortization'Effective July 1, 1998, the Company increased the depreciable life of certain new
The following data come from the 2007 financial statements of Ford Motor Company:1. Estimate the book value of property and equipment disposed of during 2007.2. Assume that a half-year's depreciation is taken on all assets acquired and disposed of during the year. Estimate the average depreciation
The FASB frequently receives recommendations about areas it should consider for study. Depreciation accounting has not been addressed as a separate topic by the FASB, and several alternative methods are used for recording this expense on the books. Assume that a group of financial analysts
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 issues relating
You and your partner own a small data-entry company. You contract with businesses to manually enter data, such as library card catalogs and medical records, into a computer database. Your most significant physical assets are a large office building you own, along with the computer hardware and
Accounting methods used by a company to determine income for financial reporting purposes frequently differ from those used to determine taxable income. What is the justification for these differences?
Distinguish between a nondeductible expense and a temporary difference that results in a taxable income greater than pretax financial income reported in the income statement.
Distinguish between taxable temporary differences and deductible temporary differences, and give at least two examples of each type.
One possibility for reporting income tax expense in the income statement for a given year is to merely report the amount of income tax payable in that year. What is wrong with this approach?
What are the major advantages of the asset and liability method?
What is a drawback of the asset and liability method?
Describe how a change in enacted future tax rates is accounted for under the asset and liability method.
When is a valuation allowance necessary?
How does the FASB define the probability term “more likely than not” in Statement No. 109 ?
What are the sources of income through which the tax benefit of a deferred tax asset can be realized?
In applying the net operating loss carryback and carryforward provisions, what order of application is followed for federal tax purposes?
How is the classification of assets arising from NOL carryforwards determined under FASB Statement No. 109 ?
Under what conditions would scheduling the temporary difference reversals be required under Statement No. 109 ?
How would you define “uncertain” tax position?
What are the two steps that are required in determining the amount of tax benefit to be recognized in association with an uncertain tax position?
Why would FIN 48 require interest and penalties to be accrued on liabilities associated with unrecognized tax benefits?
What was the most significant change in accounting for income tax carryforwards made by Statement No. 109 ?
How do changes in the balances of deferred income taxes affect the amount of cash paid for income taxes?
If a company experiences a current operating loss, it may carry the loss backward and forward. What impact do these carrybacks and carryforwards have on the reported operating loss? On the statement of cash flows?
What rules govern the netting of deferred tax assets and deferred tax liabilities?
In the past, why was accounting for income taxes not as significant an issue in some foreign countries as it is in the United States?
In 1996, the IASB revised IAS 12. Did that revision make the international standard for deferred tax accounting more or less similar to the U.S. standard?
Briefly describe the partial recognition approach to accounting for deferred income taxes.
The company had sales for the year of $200,000. Expenses (except for income taxes) for the year totaled $170,000. Of this $170,000 in expenses, $12,000 is bad debt expense. The tax rules applicable to this company stipulate that bad debts are not tax deductible until the accounts are actually
The company reported pretax financial income in its income statement of $50,000. Among the items included in the computation of pretax financial income were the following:Interest revenue from municipal bonds . . . . . . . . . . . . . . . . . . . . . . $10,000Nondeductible expenses . . . . . . . .
On January 1, the company purchased investment securities for $1,000. The securities are classified as trading. By December 31, the securities had a fair value of $1,800 but had not yet been sold. Excluding the trading securities, income before taxes for the year was $10,000. Assume that there are
On January 1, 2011, the company purchased a piece of equipment for $75,000. The equipment has a 5-year useful life and $0 residual value. The company uses straightline depreciation for financial accounting purposes. Assume that the depreciation deduction for income tax purposes is as follows: 2011
Refer to Practice 16–4. Assume that the income tax rate is 35% for the current year but that the enacted tax rate for all future years is 42%. Prepare the journal entry or entries necessary to record income tax expense for the year.
Refer to Practice 16–5. Assume that on January 1, 2013, Congress changes the enacted tax rate. Make the journal entry necessary to record this tax rate change on January 1, 2013, assuming that(1) The new tax rate is 30% and(2) The new tax rate is 43%.
On January 1, the company purchased investment securities for $1,000. The securities are classified as trading. By December 31, the securities had a fair value of $100 but had not yet been sold. Excluding the trading securities, income before taxes for the year was $5,000. Assume that there are no
The company started business on January 1 and had revenues of $60,000 for the year. In addition to income tax expense, the company’s only other expenses are as follows:Bad debt expense of $10,000. Tax rules do not allow any deduction until the bad debts are actually written off. During the year,
On January 1, the company purchased investment securities for $2,000. The securities are classified as trading. By December 31, the securities had a fair value of $4,200 but had not yet been sold. The company also recognized a $7,000 restructuring charge during the year. The restructuring charge is
On January 1, the company purchased investment securities for $1,000. The securities are classified as trading. By December 31, the securities had a fair value of $700 but had not yet been sold. On January 1, the company also purchased a piece of equipment for $10,000. The equipment has a 4-year
Refer to Practice 16–8. The company had no taxable income in past years. Analysis of prospects for the future indicates that it is more likely than not that total taxable income in the foreseeable future will be no more than $400. Assume that the income tax expense journal entry required in
Refer to Practice 16–9. The company had no taxable income in past years. Analysis of prospects for the future indicates that it is more likely than not that total taxable income in the foreseeable future will be no more than $20,000. Assume that the income tax expense journal entry required in
The company has taken a tax position that is subject to review by the Internal Revenue Service. The company determines that there is a 40% probability that the position will not be sustained upon review. Is this a “highly certain” tax position? Why or why not?
The company has determined that there is an 80% likelihood that its position on a tax issue will be upheld upon review by taxing authorities and that the entire amount of the position, $100,000, will be allowed. Is this a “highly certain” tax position? Why or why not?
The company is evaluating its tax position on a certain issue and has determined that although it is more likely than not that its position will be sustained, it is less certain about the amount that will be sustained. It has provided the following probability estimates and amounts:Determine the
Taxable income and income tax rates for 2009€“2011 for the company have been as follows:Make the journal entry necessary to record any net operating loss (NOL) carryback in2011.
Refer to Practice 16–17. Assume that the net operating loss in 2011 was $150,000 instead of $80,000. Make the journal entry necessary to record(1) Any net operating loss (NOL) carryback in 2011 and(2) Any net operating loss (NOL) carryforward created in 2011.The enacted tax rate for future years
Taxable income and income tax rates for 2009–2014 for the company have been as follows:Make the journal entry necessary to record any net operating loss (NOL) carryforward created in 2014. The enacted tax rate for future years is40%.
Refer to Practice 16–5. Assume that the enacted tax rates are as follows:2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40%2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Refer to Practice 16–11. (1) What deferred tax amount or amounts would appear on the balance sheet? (2) Prepare the financial statement note disclosure needed to identify the sources of the deferred tax amounts. Refer to Exhibit 16-6.
Refer to Practice 16–3. Compute the effective tax rate.From Practice 16-3Interest revenue from municipal bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,000Nondeductible expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The company reported sales of $60,000. Other income statement items for the year were as follows:Interest revenue from municipal bonds . . . . . . . . . . . . . . . . . . . . . $ 7,000Depreciation expense (tax depreciation was $36,000) . . . . . . . . . . 25,000Expenses not deductible for tax
The company assembled the following information with respect to operating cash flow for the year:Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,000Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The company reported the following balance sheet information:Total income tax expense for 2011 was $60,000. Compute the amount of cash paid for income taxes in2011.
Indicate which of the following items are temporary differences and which are nontaxable or nondeductible. For each temporary difference, indicate whether the item considered alone would create a deferred tax asset or a deferred tax liability.(a) Tax depreciation in excess of book depreciation,
Using the information given in Exercise 16–26 and assuming pretax financial income of $3,100,000, calculate taxable income.
Faro Inc. began operating on January 1, 2011. At the end of the first year of operations, Faro reported $400,000 income before income taxes on its income statement but only $320,000 taxable income on its tax return. Analysis of the $80,000 difference revealed that $45,000 was a permanent difference
The company had sales for the year of $100,000. Of these sales, only $70,000 was collected in cash. The other $30,000 is expected to be collected in cash next year. For this business, the tax rules stipulate that income is not taxed until it is collected in cash. The only expense is income tax
Lofthouse Machinery Co. includes a 2-year warranty on its machinery sales. At the end of 2011, an analysis of the warranty records reveals an accumulated temporary difference of $120,000 for warranty expenses; book expenses related to warranties have exceeded tax deductions allowed. The enacted
Fulton Company computed a pretax financial loss of $15,000 for the first year of its operations ended December 31, 2011. This loss did not include $25,000 in unearned rent revenue that was recognized as taxable income in 2011 when the cash was received.1. Prepare the journal entries necessary to
Relevan Company computed a pretax financial loss of $15,000 for the first year of its operations ended December 31, 2011. Included in the loss was $42,000 in uncollectible accounts expense that was accrued on the books in 2011 using an allowance system based on a percentage of sales. For income tax
Goshute Company computed pretax financial income of $50,000 for the year ended December 31, 2011. Taxable income for the year was $15,000. Accumulated temporary differences as of December 31, 2010, were $120,000. A deferred tax liability of $48,000 was included on the December 31, 2010, balance
Hinton Exploration Company reported pretax financial income of $621,000 for the calendar year 2011. Included in the Other Income section of the income statement was $98,000 of interest revenue from municipal bonds held by the company. The income statement also included depreciation expense of
Pro-Tech-Tronics Company computed pretax financial income of $35,000 for the first year of its operations ended December 31, 2011. Unearned rent revenue of $55,000 had been recognized as taxable income in 2011 when the cash was received but had not yet been recognized in the financial accounting
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