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

Inventory and receivable balances and gross profit data for Mountain Electric follow.Instructions:Compute the following ratios for 2011 and 2010.1. Accounts receivable turnover2. Average collection period (Use the receivables balance at the end of the year.)3. Inventory turnover4. Number of days'
The following data are taken from Clayburgh Corporation's records for the years ended December 31, 2011, 2010, and 2009.Instructions:1. Compute turnover rates for 2011 and 2010 for the following:(a) Finished goods(b) Goods in process(c) Raw materials2. Analyze the turnover results as to
The following are comparative data for Sunshine State Equipment, Inc., for the 3-year period 2009â€“2011.Instructions:1. From the foregoing data, calculate financial ratios for the three years 2009â€“2011 as follows (for all ratios using balance sheet amounts, use the end-of-year
Use the comparative data for Sunshine State Equipment, Inc., as given in Problem 23-35. In addition, the year-end price per share of Sunshine’s stock was $50 for 2009, $25 for 2010, and $35 for 2011.Instructions:1. Compute financial ratios for the three years 2009–2011 as follows (for ratios
The following three ratios have been computed using the financial statements for the year ended December 31, 2011, for Fun Science Company:The following additional information has been assembled:(a) Fun Science uses the LIFO method of inventory valuation. Beginning inventory was $23,000, and
Sample CPA Exam Questions1. A company pays $75,000 in cash to pay a current account payable. Would this transaction increase, decrease, or have no effect on the current ratio that now stands at 2:1?(a) Increase(b) Decrease(c) No effect2. A company purchases equipment by making a down payment and
As the world economy becomes more integrated, one question facing financial analysts is whether financial ratios can be compared across national boundaries. For example, at one time the average P/E ratio for Japanese companies was around 60, and the average for U.S. companies was between 15 and
Royer Donahoe owns two businesses, a drug store and a retail department store.Which business is more profitable? Which business is more efficient? Overall, which business would you consider to be a more attractiveinvestment?
Tony Christopher is analyzing the financial statements of Shaycole Company and has computed the following ratios.Andy Martinez, Tony€™s colleague, tells Tony that Shaycole looks great. Andy points out that although Shaycole€™s ratios deviate significantly from the industry
Judy Snow is considering investing $10,000 and wishes to know which of two following companies offers the better alternative.Hoffman Company earned net income of $63,000 last year on average total assets of $280,000 and average stockholders’ equity of $210,000. The company’s shares are selling
Locate the 2007 financial statements for The Walt Disney Company on the Internet. Once you have located those financial statements, consider the following questions.1. Disney has four primary business segments: Media Networks, Parks and Resorts, Studio Entertainment, and Consumer Products. Which
Shown on the next page are comparative income statements for McDonald's for 2005, 2006, and 2007.1. There are two kinds of McDonald's restaurants'restaurants that McDonald's itself owns and restaurants owned by McDonald's franchisees. For each of the three years, prepare a mini income statement for
The following information is from the 2007 annual reports of The Coca-Cola Company and of PepsiCo (all amounts are in millions of U.S. dollars). The information for PepsiCo is separated into overall results and results for just the beverage segments. Coca-Cola reports that substantially all of its
Below are sales data, in nominal dollars, for Safeway, the supermarket chain, from 1981 through 2007 (in millions of U.S. dollars). In addition, the consumer price index (CPI) for each year is given (1982€“1984 = 100).Nominal dollar sales are just the regular sales as reported. Constant
Roaring Springs Booksellers is a mail-order book company. Customers choose their purchases from a catalog and send in their order by mail, fax, phone, or e-mail. Roaring Springs then assembles the books from its warehouse inventory, packs the order, and ships it to the customer within three working
What securities fall under the scope of FASB Statement No. 115?
What criteria must be met for a security to be classified as held to maturity?
What criteria must be met for a security to be classified as a trading security?
What is “the fair value option”?
How does the classification of investment securities under International Financial Reporting Standards (trading, available for sale, and held to maturity) differ from the classification under U.S. GAAP?
(a) When computing the price to be paid for a debt security, the stated rate of interest is used to determine what value? (b) How does the market or effective rate affect a debt security’s value?
How does one compute the interest revenue to be recognized on a debt security if the effective-interest method is being used?
What other factors are considered when determining whether effective control exists when the investor does not possess absolute voting control?
(a) What factors may indicate the ability of an investor owning less than a majority voting interest to exercise significant influence on the investee’s operating and financial policies?(b) What factors may indicate the investor’s inability to exercise significant influence?
How is a joint venture a form of off-balance-sheet financing?
In the United States, we use the term “equity method investee” to describe a company in which another company has purchased between 20 and 50% of the shares and is thus able to exert significant influence. What term is used for an “equity method investee” in International Financial
How are changes in value reported in the financial statements for trading securities? Available-for-sale securities? Held-to-maturity securities?
What type of account is Market Adjustment? How is it disclosed on the financial statements?
How is an “other-than-temporary” decline in the value of investments recorded?
What impact does the sale of investment securities during the year have on the computation of unrealized gains and losses on trading securities? On unrealized increases and decreases on available-for-sale securities?
What is a QSPE?
When transferring securities between categories under the provisions of FASB Statement No. 115, how is the transfer accounted for? At what value are the securities recorded?
How are realized gains and losses on trading securities handled in the statement of cash flows? How are unrealized gains and losses on trading securities handled?
Are trading, available-for-sale, and held-to-maturity securities disclosed on the balance sheet as current or long-term assets?
Where are the cash flow effects of purchases and sales of equity securities reported?
What additional disclosures are recommended under FASB Statement No. 115 for trading, available-for-sale, and held-to-maturity securities?
Why is the impairment of a loan accounted for differently from the decline in value of a debt security?
On January 1, Issuing Company issued $50,000 in debt securities. The stated interest rate on the debt securities is 8%, with interest payable semiannually, on June 30 and December 31. On February 1, Purchasing Company purchased the bonds from the private investor who acquired them when they were
The company purchased 2,000 shares of equity securities for $27 per share. The shares were purchased as an available-for-sale investment. The broker’s commission on the purchase was $300. Make the journal entry necessary to record the purchase.
On January 1, the company purchased debt securities with a face value of $100,000. The securities mature in seven years. The securities have a stated interest rate of 8%, and interest is paid semiannually. The prevailing market interest rate on these debt securities is 12% compounded semiannually.
On January 1, the company purchased debt securities for cash of $25,518. The securities have a face value of $20,000, and they mature in 15 years. The securities have a stated interest rate of 10%, and interest is paid semiannually, on June 30 and December 31. The prevailing market interest rate
Identify how each of the following investments in equity securities should be classified by the investorcompany:
The company owns 1,000 shares of Stock A and 3,000 shares of Stock B. The company received dividends of $1.75 per share from Stock A and $0.97 per share from Stock B. The company classifies Stock A as a trading security and Stock B as an available-for-sale security. Make the journal entry or
On January 1 of Year 1, Burton Company purchased 2,000 shares of the 8,000 outstanding shares of Company A for a total of $27,000. The purchase price was equal to 25% of the book value of Company A’s equity. Company A’s net income in Year 1 was $20,000; net income in Year 2 was $25,000.
On January 1 of Year 1, Stratton Company purchased 5,000 shares of the 15,000 outstanding shares of Company B for a total of $82,000. At the time of the purchase, the book value of Company B’s equity was $202,000. Any excess of investment purchase price over the book value of Company B’s equity
On January 1 of Year 1, Dridge Company purchased 2,500 shares of the 10,000 outstanding shares of Company C for a total of $100,000. At the time of the purchase, the book value of Company C's equity was $300,000. Company C assets having a fair value greater than book value at the time of the
On December 1, the company purchased securities for $4,000. On December 31, the company still held the securities. Make the necessary adjusting journal entry to record a change in value of the securities assuming that their December 31 fair value was (a) $5,200 and (b) $2,600. In addition, before
Refer to Practice 14–10. Make the adjusting journal entries for (a) and (b) and the computations for (c) and (d), assuming that the securities are classified as available for sale.
Refer to Practice 14–10. Make the adjusting journal entries for (a) and (b) and the computations for (c) and (d), assuming that the securities are classified as held to maturity. The changes in value are not deemed to be “other than temporary.”
Refer to Practice 14–10. Make the adjusting journal entries for (a) and (b) and the computations for (c) and (d), assuming that the securities are accounted for using the equity method. Ignore the impact of the investee company income and dividends. The changes in value are not deemed to be
During Year 1, the company purchased 1,000 shares of stock for $23 per share. Near the end of Year 1, the company sold 400 shares. Make the journal entry to record the sale, assuming that the shares were sold for(1) $27 per share and(2) $20 per share.The shares were classified as trading securities.
The company purchased the following securities during Year 1:On July 23, Year 2, the company sold all of the shares of security B for a total of $9,500. As of December 31, Year 2, the shares of security A had a fair value of $5,800. No other activity occurred during Year 2 in relation to the
The company purchased the following securities during Year 1:In Year 2, the company reclassified both of these securities. Security A was reclassified as available for sale; the fair value of security A at the time of the reclassification was $5,500. Security B was reclassified as trading; the fair
The company purchased the following securities during Year 1:In Year 2, the company reclassified both of these securities. Security A was reclassified as held to maturity; the fair value of security A at the time of the reclassification was $9,000. Security B was reclassified as available for sale;
The company entered into the following transactions during the year:Purchase of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $400Sale of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 470The company had no investment
Refer to Practice 14–18. Assume that the securities are classified as trading and that they were purchased for operating purposes. Compute (1) Cash flow from operating activities and (2) Cash flow from investing activities.
During Year 1, Walters Company purchased 6,000 shares of Company A common stock for $25 per share and 10,000 shares of Company B common stock for $32 per share. These investments are classified as available-for-sale securities. At December 31, Year 1, Walters Company appropriately recorded a
On January 1 of Year 1, the lending company made a $10,000, 8% loan. The $800 interest is receivable at the end of each year, with the principal amount to be received at the end of five years. As of the end of Year 1, the first year’s interest of $800 has not yet been received because the
Refer to Practice 14–21. Make all journal entries necessary on the lending company’s books in connection with the loan during Year 2, Year 3, Year 4, and Year 5. Assume that all cash payments are received according to the renegotiated schedule.
The following transactions of Kelsey, Inc., occurred within the same accounting period:(a) Purchased $55,000 U.S. Treasury 6% bonds, paying 102 plus accrued interest of $1,400. In addition, Kelsey paid brokerage fees of $500. Kelsey uses the revenue approach to record accrued interest on purchased
During January 2011, Aragorn Inc. purchased the following securities:During 2011, Aragorn received interest from Mirkwood and the U.S. Treasury totaling $3,630. Dividends received on the stock held amounted to $1,760. During November 2011, Aragorn sold 200 shares of the Gimli stock at $17 per share
For each of the following independent situations, determine the appropriate accounting method to be used: cost or equity. For cost method situations, determine whether the security should be classified as trading or available for sale. For equity method situations, determine whether consolidated
On January 10, 2011, Delta Corporation acquired 12,000 shares of the outstanding common stock of Kennedy Company for $600,000. At the time of purchase, Kennedy Company had outstanding 48,000 shares with a book value of $2.4 million. On December 31, 2011, the following events took place:(a) Kennedy
Alpha Co. acquired 20,000 shares of Beta Co. on January 1, 2010, at $12 per share. Beta Co. had 80,000 shares outstanding with a book value of $800,000. The difference between the book value and fair value of Beta Co. on January 1, 2010, is attributable to a broadcast license intangible asset. Beta
On January 3, 2011, McDonald Inc. purchased 40% of the outstanding common stock of Old Farms Co., paying $128,000 when the book value of the net assets of Old Farms equaled $250,000. The difference was attributed to equipment, which had a book value of $60,000 and a fair value of $100,000, and to
On January 1, 2011, Randy Incorporated purchased $500,000 of 20-year, 10% bonds when the market rate of interest was 8%. Interest is to be paid on June 30 and December 31 of each year.1. Prepare the journal entry to record the purchase of the debt security classified as held to maturity.2. Prepare
On January 1, 2011, Cougar Creations Inc. purchased $100,000 of 5-year, 8% bonds when the effective rate of interest was 10%, paying $92,277. Interest is to be paid on July 1 and December 31.1. Prepare an interest amortization schedule for the bonds.2. Prepare the journal entries made by Cougar
Using the information from Exercise 14–30, provide the journal entry that would be necessary to properly value the debt security if, on December 31, 2011, the bond’s fair value was $96,500. Assume the security was initially classified as follows:1. A trading security2. An available-for-sale
During 2011, Litten Company purchased trading securities as a short-term investment. The costs of the securities and their fair values on December 31, 2011, follow:At the beginning of 2011, Litten had a zero balance in the market adjustment€”trading securities account. Before any
During 2010, Spelling Inc. purchased the following trading securities:At the beginning of 2010, Spelling had a zero balance in Market Adjustment€”Trading Securities.1. What entry would be made at year-end, assuming the preceding values?2. What entry would be made during 2011, assuming
American Steel Corp. acquired the following securities in 2011:At the beginning of 2011, American Steel had a zero balance in each of its market adjustment accounts.1. What entry or entries would be made at the end of 2011, assuming the preceding fair values?2. If net income before any adjustments
The securities portfolio for Malibu Industries contained the following trading securities:1. Assuming that all changes in fair value are considered temporary, what is the effect of the changes in value on the 2010 and 2011 financial statements? Give the valuation entries for these years, assuming
Kyoto Inc. had the following portfolio of securities at the end of its first year of operations:1. Provide the entry necessary to adjust the portfolio of securities to its fair value.2. In the following year, Kyoto elects to reclassify security B as an available-for sale security. On the date of
Bicknel Technologies Inc. purchased the following securities during 2010:At the beginning of 2010, Bicknel Technologies had a zero balance in each of its market adjustment accounts. During 2011, after the 2010 financial statements had been issued, Bicknel determined that security B should be
Truss Builders Co. reported the following selected balances on its financial statements for each of the four years 2009€“2012:Based on these balances, reconstruct the valuation entries that must have been made eachyear.
During 2010, the first year of its operations, Profit Industries purchased the following securities:During 2011, Profit sold one-half of security A for $8,000 and one-half of security D for $15,000.Provide the journal entries required to do the following:1. Adjust the portfolio of securities to its
Indicate how each of the following transactions or events would be reflected in a statement of cash flows prepared using the indirect method. Each transaction or event is independent of the others. For items (a) and (d), assume that the balance in the market adjustment account was zero at the
Miss Maggie Company entered into the following transactions during the year:Purchase of trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $500Sale of trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tortuga Enterprises loaned $350,000 to Turner Inc. on January 1, 2010. The terms of the loan require principal payments of $70,000 each year for five years plus interest at the market rate of interest of 6%. The first principal and interest payment is due on January 1, 2011. Turner made the
Fox Company made the following transactions in the common stock of NOP Company:July 10, 2009 Purchased 10,000 shares at $45 per share.Sept. 29, 2010 Sold 2,000 shares for $51 per share.Aug. 17, 2011 Sold 2,500 shares for $33 per share.The end-of-year market prices for the shares were as
Myers & Associates reports the following information on its December 31, 2009, balance sheet:Trading securities (at cost) . . . . . . . . . . . . . . . . . . . . . . . . . $225,850Less: Market adjustment'trading securities . . . . . . . 2,260$223,590Supporting records of Myers' trading securities
During 2011, Rooster Company purchased 5,000 shares of Hen Company common stock for $18 per share and 3,200 shares of Egg Company common stock for $21 per share. These investments are intended to be held as ready sources of cash and are classified as trading securities.Also in 2011, Rooster
On December 31, 2009, Durst Company's balance sheet showed the following balances related to its securities accounts:Durst's securities portfolio on December 31, 2009, was made up of the following securities:During 2010, the following transactions took place:Jan. 3 Received interest on the New
During 2011 and 2012, Foley Co. made the following journal entries to account for transactions involving trading securities:The beginning balance in Market Adjustment'Trading Securities was a $900 credit. There were no other entries in 2011.There were no other entries in 2012.Instructions:For each
The investment portfolio of Morris Inc. on December 31, 2010, contains the following securities:Opus Co. common, 3% ownership, 5,000 shares; cost, $100,000; fair value, $95,000; classified as a trading security.Garrod Inc. preferred, 2,000 shares; cost, $40,000; fair value, $43,000; classified as a
Both Seco Inc. and Hillsborough Corp. have 100,000 shares of no-par common stock outstanding. World Inc. acquired 10,000 shares of Seco stock for $6 per share and 30,000 shares of Hillsborough stock for $12 per share in 2010. Both securities are being held as long-term investments. Changes in
On January 1, 2011, Standard Co. bought 40% of the outstanding common stock of Exchange Corp. for $380,000 cash. Standard Co. accounts for this investment by the equity method. At the date of acquisition of the stock, Exchange Corp.’s net assets had a carrying value of $630,000. Assets with an
On July 1 of the current year, Melissa Co. acquired 25% of the outstanding shares of common stock of International Co. at a total cost of $700,000. At the time, the equity (net assets) of Melissa totaled $2,400,000, meaning that the $700,000 purchase price was greater than 25% of Melissa’s net
JJJ Inc. purchased 35% of ABC Co. on January 4, 2011, for $280,000 when ABC's book value was $810,000. On that day, the fair value of the net assets of ABC equaled their book values with the following exceptions:The equipment has a remaining useful life of 10 years, and the building has a remaining
Willow Creek Incorporated had the following portfolio of securities on December 31, 2010:The balances in the market adjustment accounts as of January 1, 2010, were as follows:Market Adjustment€”Trading Securities . . . . . . . . . . . . . . . . . . . . . . $9,000 Dr.Market
Trans America Trust Co. owns both trading and available-for-sale securities. The following securities were owned on December 31, 2010:The following transactions occurred during 2011:(a) Sold 500 shares of West Data, Inc., for $9,500.(b) Sold 200 shares of Disks, Inc., for $3,000.c) Transferred all
On January 2, 2009, Weston Company acquired 20% of the 200,000 shares of outstanding common stock of Startile Corp. for $18 per share. The purchase price was equal to Startile's underlying book value. Weston plans to hold this stock to influence the activities of Startile.The following data are
Julie Company came into existence with a $2,000 cash investment by owners on January 1, 2011, and entered into the following transactions during 2011:Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,200Cash expenses . . . . .
1. A company should report the marketable equity securities that it has classified as trading at:(a) Lower of cost or market, with holding gains and losses included in earnings.(b) Lower of cost or market, with holding gains included in earnings only to the extent of previously recognized holding
Halstead Associates loaned Stevens Company $600,000 on January 1, 2009. The terms of the loan were payment in full on January 1, 2014, plus annual interest payments at 10%. The interest payment was made as scheduled on January 1, 2010; however, due to financial setbacks, Stevens was unable to make
The movement toward the use of fair value for investments has been given the label “mark to market.” Previously, marketable equity securities were valued at the lower of cost or market. The shift to fair value, whether higher or lower than cost, is a significant departure from the past. Even
In 1986, The Coca-Cola Company borrowed $2.4 billion to purchase several large soft drink bottling operations. Then a separate company, Coca-Cola Enterprises, was formed to bottle and distribute Coke throughout the country. The Coca-Cola Company sold 51% of Coca-Cola Enterprises to the public and
International Inc. owns companies or the stock of companies in countries all over the world. International is reviewing its methods of accounting for those companies and has asked you to provide input as to whether the cost method, the equity method, or consolidation is appropriate for each of the
Logical Corporation, a producer of medical products, disclosed the following investments in affiliates in the notes to its July 31, 2011, financial statements:Discuss the factors that determine whether Logical uses the cost or the equity method in accounting for its investment in affiliates. What
You have been approached about doing a consulting job for Choi Hung Company, which is based in southern China. Choi Hung reports its financial results using International Financial Reporting Standards. The consulting job involves sorting through Choi Hung’s purchases and sales of investment

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