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Intermediate Accounting 16th Edition James D. Stice, Earl K. Stice, Fred Skousen - Solutions

You are a financial analyst and have been looking at the financial statements of Denethor Company. The notes to the financial statements reveal that Denethor changed its estimated depreciation lives for its manufacturing equipment. You calculate that without this change, Denethor would have had a
You are the controller for Rosie Company. Rosie has just acquired another company and it is your job to allocate the $10 million overall purchase price to the specific items acquired. The following is a list of the items to which the purchase price must be allocated along with two possible
Rex Tee is a staff auditor for a large audit firm. As part of the audit planning process for the Kirtland Company audit, he has been informed that the materiality threshold for the audit will be $250,000.This means that audit disagreements about amounts less than $250,000 will not be actively
In the press release announcing Disney’s results for the quarter ending July 2, 2005, the company stated the following: The Walt Disney Company today reported earnings for the quarter and nine months ended July 2, 2005. Diluted earnings per share (EPS) for the third quarter increased 41% to
According to Rule 203 of the AICPA Code of Professional Conduct, which set of accounting standards has the highest priority?
For each of the following independent situations, identify the relevant objective(s) of financial reporting that the company could be overlooking. Discuss each of these objectives.1. The president of Coventry, Inc., believes that the financial statements should be prepared for use by management
In each of the following independent situations, an example is given requiring a trade-off between the qualitative characteristics discussed in the text. For each situation, identify the relevant characteristics and briefly discuss how satisfying one characteristic may involve not satisfying
One of the underlying assumptions of the accounting model is the going concern assumption. When this assumption is questionable, valuation methods used for assets and liabilities may differ from those used when the assumption is viable. For each of the following situations, identify the measurement
Quality Enterprises Inc. issued its 2007 financial statements on February 22, 2008. The auditors expressed a “clean” opinion in the audit report. On July 14, 2008, the company filed for bankruptcy as a result of the inability to meet currently maturing long-term debt obligations. Reasons
The existence of just five large CPA firms that service virtually all of the major industrial and financial companies and thus dominate the accounting profession has led to criticism through the years.1. What dangers do you see from the dominance of a few large CPA firms? What advantages?2. During
Locate the 2004 financial statements for The Walt Disney Company on the Internet and consider the following questions:1. How well did Disney do financially during the year ended September 30, 2004? 2. Comment on the level of detail in Disney’s balance sheet. Should there be more balance sheet
Individual franchise arrangements generally include a lease and a license and provide for payment of initial fees, as well as continuing rent and service fees to the Company based upon a percent of sales with minimum rent payments that parallel the Company€™s underlying leases and
Using the following information, compute: (a) Total contributed capital, (b) Ending retained earnings, and (c) Total stockholders’ equity:Additional Paid-In Capital, Common . . . . . . . . . . . . . . . . . . . $ 9,000Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Use the following information to compute the current ratio:Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,100Paid-In Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,750Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Refer to Practice 3-9. Net income for the year totaled $2,000. Compute return on assets.
On December 31, the warranty liability was estimated to be $100,000. On January 16 of the following year, it was learned that one week before, on January 9, poor-quality materials were introduced into the production process. This mistake is expected to create an additional $75,000 in warranty
From the following data, compute the working capital for Monson Equipment Co. at December 31, 2008.Cash in general checking account . . . . . . . . . . . . . . . . . . . $ 25,000Cash in fund to be used to retire bonds in 2012 . . . . . . . . 60,000Cash held to pay sales taxes . . . . . . . . . . .
In its annual report to stockholders, Crantz Inc. presents a condensed balance sheet with detailed data provided in supplementary schedules.1. From the adjusted trial balance of Crantz, prepare the following sections of the balance sheet, properly classifying all accounts as to balance sheet
The following data are from the financial statements of Borg Company.Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 70,000Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000Current liabilities . . . . . . . . . . . . . . . . . .
The following information relates to two companies, designated Company A and Company B. One of the companies is a traditional steel manufacturer. The other is a successful Internet retailer. Using the following information, identify which is which, and explain youranswer.
Following is a list of account titles and balances for Waite Investment Corporation as ofJanuary 31, 2008.Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 87,900Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161,200Accumulated
Adjusted account balances and supplemental information for Brockbank Research Corp. as of December 31, 2008, are as follows:Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. $ 32,160Accounts Receivable—Trade . . . . . . . . . . . . . . . . .
The following balance sheet was prepared by the accountant for Tippetts Company.Instructions: Prepare a corrected classified balance sheet using appropriate accounttitles.
The bookkeeper for Reliable Computers, Inc., reports the following balance sheet amounts as of June 30, 2008.Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $233,400Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lane Peterson incorporated his concrete manufacturing operations on January 1, 2008, by issuing 10,000 shares of $1 par common stock to himself. The following balance sheet for the new corporation was prepared.Outrigger CorporationBalance SheetJanuary 1, 2008Cash . . . . . . . . . . . . . . . . .
Forbes annually provides a list of the most valuable companies in the world. The top 10 most valuable companies in the United States, from the 2005 Forbes 2000, follow.As an analyst for a securities broker, you are asked the following questions concerning some of the figures.1. Microsoft has total
Ditka Engineering Co. has signed a third-party loan guarantee for Liberty Company. The loan is from the National Bank of Illinois for $500,000. Liberty has recently filed for bankruptcy, and it is estimated by the company’s auditors that creditors can expect to receive no more than 40% of their
Excello Corporation’s basic financial statements for the year just ended have been prepared in accordance with GAAP. During the current year, management changed the accounting method for computing depreciation, a major competitor constructed a new plant in the area, three separate lawsuits were
The following is an excerpt from an article dealing with accounting and banks in The Wall Street Journal, “GAO Says Accountants Auditing Thrifts Are Hiding Behind Outdated Standards” (February 6, 1989) p. C21. Congress deregulated the left side of the balance sheet [liabilities] by permitting
Kuanysh Company is considering purchasing a large retail location. The retail site includes a large parking lot, loading dock facilities, and a warehouse-sized store suitable for sale of both general merchandise and groceries. The retail site is in a prime location and costs $15 million. Kuanysh
Diageo is a United Kingdom (UK) consumer products firm, best known in the United States for the following brand names: Smirnoff, Johnnie Walker, J&B, Gordon€™s, Seagram€™s, and Guinness. Diageo€™s 2004 consolidated balance sheet follows.Re-create Diageo€™s
Safeway operates 1,802 supermarkets in the United States and Canada. In the United States, Safeway is located principally in the Western, Southwestern, Rocky Mountain, Midwestern, and Mid-Atlantic regions. Albertson€™s operates 2,503 stores in 37 Northeastern, Western, Midwestern, and
The company sells custom-designed engineering equipment. During the most recent year, the company received the following customer orders:For Machine A, selling price = $150,000, production cost = $79,000For Machine B, selling price = $270,000, production cost = $163,000For Machine C, selling price
Refer to the information in Practice 4-6. Use that information to prepare a multiple-step income statement.
Refer to the Nike information in Exhibit 4-5. Using the data for fiscal year 2001, compute both the gross profit and the gross profit percentage.
Refer to the Nike information in Exhibit 4-5. Using the data for fiscal year 2001, compute both the operating income and the operating income as a percentage of sales. Treat the restructuring charge as an operating item and the other expense as a nonoperating item.
Use the following information to compute income from continuing operations. Assume that the income tax rate on all items is 40%.Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,000Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Use the following information to compute income from continuing operations and net income. Assume that the income tax rate on all items is 40%.Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,000Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . .
For the years 2006€“2008, Dudley Docker Company had net income and average shares outstanding as follows:What was the percentage of change in earnings per share (EPS) in 2007? In2008?
Use the following information to compute net income and comprehensive income. For simplicity, ignore income taxes. Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . $11,000 Unrealized loss on available-for-sale securities . . . . . . . . . . . . . . . .
Changes in the balance sheet account balances for the Beecher Sales Co. during 2008 follow. Dividends declared during 2008 were $20,000. Calculate the net income for the year assuming that no transactions other than the dividends affected retained earnings.Increase(Decrease)Cash . . . . . . . . .
Swalberg Corporation purchased a patent on January 2, 2003, for $600,000. Its original life was estimated to be 15 years. However, in December of 2008, Swalberg’s controller received information proving conclusively that the product protected by the Swalberg patent would be obsolete within four
On June 30, 2008, top management of Garrison Manufacturing Co. decided to dispose of an unprofitable business component. An operating loss of $130,000 associated with the component was incurred during the year. The plant facilities associated with the business segment were sold on December 1, and a
In 2008, Miller Company changed its method of depreciating long-term assets. The summary effect of those changes is as follows:Net income was $117,000, $111,000, and $82,000 for 2008, 2007, and 2006, respectively. The income tax rate is 30%.1. Compute the reported net income for each year if three
M. Taylor has been employed as a bookkeeper at Losser Corporation for a number of years. With the assistance of a clerk, Taylor handles all accounting duties, including the preparation of financial statements. The following is a statement of earned surplus prepared by Taylor for
Han Company wishes to forecast its net income for the year 2009. Han has assembled balance sheet and income statement data for 2008 and has also done a forecast of the balance sheet for 2009. In addition, Han has estimated that its sales in 2009 will rise to $2,200.This information is summarized in
Richmond Company manufactures and sells robot-type toys for children. Under one type of agreement with the dealers, Richmond is to receive payment upon shipment to the dealers. Under another type of agreement, Richmond receives payments only after the dealer makes the sale. Under this latter
Radiant Cosmetics Inc. shows a retained earnings balance on January 1, 2008, of $620,000. For 2008, the income from continuing operations was $210,000 before income tax. Following is a list of special items:Income from operations of a discontinued cosmetics division . . . . . . . . .
A newly hired staff accountant prepared the pre-audit income statement of Jericho Recreation Incorporated for the year ending December 31, 2008.The following information was obtained by Jericho's independent auditor.(a) Net revenues in the income statement included the following items.Sales returns
The following information for the year ending December 31, 2008, has been provided forRexburg Company.Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $470,000Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plath Company’s board of directors finally receives the income statement for the past year from management. Board members are initially pleased to see that after three years of losses, the company will be reporting a profit for the current year. Further investigation reveals that depreciation
You are engaged as a consultant to Skyways Unlimited, a manufacturer of satellite dishes for television reception. Skyways sells its dishes to dealers who in turn sell them to customers. As an inducement to carry sufficient inventory, the dealers are not required to pay for the dishes until they
Small loan companies often experience losses in the operation of newly opened branch loan offices. Management usually can anticipate such results prior to making a decision on expansion. Some accountants have recommended that the operating losses of newly opened branches should be reported as
Walesco Corporation has decided to discontinue an entire component of its business effective November 1, 2008. It hopes to sell the assets involved and convert the physical plant to other uses within the manufacturing division. The CPA auditing the books indicates that GAAP requires separate
A common method for inflating revenues and profits is to ship more inventory to customers than they order. Business Week illustrates two instances in which the revenue recognition criteria may have been compromised. Using a practice known as “trade loading,” RJR Nabisco, the second largest
Locate the 2004 financial statements for The Walt Disney Company on the Internet. 1. Did Disney have any below-the-line items in 2004? Explain.2. Disney’s net income increased from $1,267 million in 2003 to $2,345 million in 2004. Identify the major reasons for the increase.3. Imagine that you
Pfizer is one of the largest pharmaceutical and consumer healthcare products companies in the world. Familiar products sold by Pfizer include Sudafed, Zantac, Benadryl, Listerine, and Viagra. The company€™s highest selling product is Lipitor, which is designed to help reduce high
Wells Fargo & Company is the fourth largest bank in the United States (based on total assets as of December 31, 2004).Wells Fargo is the successor to the banking and stagecoach company founded by Henry Wells and William G. Fargo in 1852.The company€™s consolidated statement of income
Reader€™s Digest is the most widely read monthly magazine in the world. Its worldwide circulation is 23 million, and over 100 million people read it each month. Reader€™s Digest is published in 19 languages. But The Reader€™s Digest Association, Inc., does more than
The consolidated statement of income for Ford Motor Company appears at the top of the following page.1. What is the first thing you notice about the way revenues and expenses are partitioned?2. For the Automotive division, compute the ratio (Cost of sales/Sales) for each of the three years
Company S shipped goods costing $10,000 to Company C on consignment. The sales agreement states that Company C has 90 days to either sell the goods and pay Company S$16,000 for them or to return the goods to Company S. Make the journal entries necessary on the books of Company S to record (1) The
The company operates a travel club through which subscribers can access low rates for air fares, hotel rooms, and rental cars. Each year, subscribers pay a refundable fee of $1,000 that allows them access to the company’s services for that year. A customer may receive a full refund of this fee at
Online Company operates a Web grocer. Customers submit their orders online to Online Company; Online then forwards the orders to a national grocery chain. The grocery chain arranges for assembly and shipment of the order. Online Company receives 2% of the retail value of all orders it takes. During
The company signed a $1,200,000 contract to build an environmentally friendly access trail to Deseret Peak. The project was expected to take approximately 3 years. The following information was collected for each year of the project, Year 1, Year 2, and Year 3:The company uses the
Refer to Practice 8-15. Assume that the company uses the percentage of trail feet constructed in estimating the percentage of completion. Make the journal entries to record revenue and cost for the construction project in(1) Year 1,(2) Year 2, and(3) Year 3.
The Skull Valley Angels is a minor league baseball team. The team has 60 home games during a season and sells season tickets for $500 each. For the most recent season, the Angels sold 2,000 season tickets. The total initial direct costs (in cash) related to the season tickets (including product
Yo Electronics makes all of its sales on credit and accounts for them using the installment sales method. For simplicity, assume that all sales occur on the first day of the year and that all cash collections are made on the last day of the year. Yo Electronics charges 18% interest on the unpaid
On March 1, 2008, bids were submitted for a construction project to build a new municipal building and fire station. The lowest bid was $4,270,000, submitted by the Harper Construction Company. Harper was awarded the contract. Harper uses the completed contract method to report gross profit. The
The Quality Construction Company was the low bidder on an office building construction contract. The contract bid was $7,000,000, with an estimated cost to complete the project of $6,000,000.The contract period was 34 months starting January 1, 2007. The company uses the cost-to-cost method of
Central Iowa Builders Inc. entered into a contract to construct an office building and plaza at a contract price of $10,000,000. Income is to be reported using the percentage-of-completion method as determined by estimates made by the architect. The data below summarize the activities on the
The Fitness Health Spa charges a nonrefundable annual membership fee of $600 for its services. For this fee, each member receives a fitness evaluation (value $100), a monthly magazine (annual value $32), and two hours’ use of the equipment each week (annual value $700). Each of the three elements
Bailey Bats Inc. had the following sales and gross profit percentages for the years 2007â€“2010.Historically, 55% of sales are collected in the year of the sale, 30% in the following year, and 10% in the third year. Assuming collections are as projected, give the journal entries for the years
On January 1, Hannah Company signed a 1-year rental for a total of $60,000, with quarterly payments of $15,000 due at the end of each quarter. In addition, the renter must pay contingent rent of 4% of all sales in excess of $1,000,000.The contingent rent is paid in one payment on December 31. On
The Urban Construction Company commenced doing business in January 2008.Construction activities for the year 2008 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, 2008, that would be
The Power Construction Company was the low bidder on a specialized equipment contract. The contract bid was $6,000,000 with an estimated cost to complete the project of $5,300,000. The contract period was 33 months, beginning January 1, 2007. The company uses the cost-to-cost method to estimate
Knight€™s Furniture sells furniture and electronic items. The majority of its business is on credit, and the following information is available relating to sales transactions for 2007, 2008, and 2009.Instructions: Prepare the journal entries for the years 2007€“2009 assuming
Midwestern Companies, a firm specializing in the production and sale of ethanol plants, used accrual accounting to report revenues from the sale of the plants. However, details of the sale of an ethanol plant have left many questioning Midwestern’s accounting practices. An investor in a
The cost to taxpayers to bail out failed savings and loan (S&L) companies in the late 1980s has been estimated as high as $500 billion. Reasons for the crisis included mismanagement of resources, management fraud, and unfavorable economic conditions. Another factor contributing to the S&L problems
Magleby Inn sells franchises to independent operators throughout the western part of the United States. The contract with the franchisee includes the following provisions:(a) The franchisee is charged an initial fee of $25,000. Of this amount, $5,000 is payable when the agreement is signed and a
The lessor is computing the appropriate monthly lease payment. The fair value of the leased asset is $50,000. The guaranteed residual value at the end of the lease term is $8,000. The appropriate interest rate is 12% compounded monthly. The lease term is 48 months, and the lease payments occur at
A lease involves payments of $5,000 per month for three years. The payments are made at the end of each month. The lease also involves a guaranteed residual value of $20,000 to be paid at the end of the 3-year period. Compute the present value of the minimum payments(1) Using the rate implicit in
A lease involves payments of $12,000 per year for five years. The payments are made at the end of each year. The lease involves a bargain purchase option of $5,000 to be exercised at the end of the 5-year period. The total economic life of the leased asset is eight years. The interest rate implicit
On January 1, the lessor company purchased a piece of equipment for $10,000. The equipment has an expected life of five years with zero salvage value. The lessor company immediately leased the equipment under an operating lease agreement. The lease calls for the lessor company to receive lease
Refer to Practice 15-12. Assume that the lease is accounted for as a direct financing lease instead of as an operating lease. The interest rate implicit in the lease is 15%. Make the journal entries necessary on the lessor’s books to record (1) The signing of the lease, (2) The receipt of the
On January 1, the lessor company purchased a piece of equipment for $6,000 as inventory. The lessor company immediately leased the equipment under a sales-type lease agreement. The lease calls for the lessor company to receive five annual lease payments of $2,500 per year, to be received at the
On January 1, the lessor company purchased some equipment (for cash) that the company then immediately leased. The lease contract calls for the receipt of $3,000 payments at the end of each year for 10 years. The residual value of the equipment at the end of the 10-year lease term is expected to be
On January 1, Seller-Lessee sold a building to Buyer-Lessor for $100,000. The building had originally cost Seller-Lessee $120,000 and had accumulated depreciation of $45,000 on the date of the sale. On the day of the sale, Seller-Lessee leased the building back from Buyer-Lessor. The lease calls
Alma Inc. leases some of the equipment it uses. The lease term is five years, and the lease payments are to be made in advance as shown in the following schedule.January 1, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,000January 1, 2009 .
Wallin Construction Co. is leasing equipment from Astro Inc. The lease calls for payments of $75,000 a year plus $5,000 a year executory costs for five years. The first payment is due on January 1, 2008, when the lease is signed, with the other four payments coming due on December 31 of each year.
Simpson Leasing leases equipment to Chang Manufacturing. The fair market value of the equipment is $253,130. Lease payments, excluding executory costs, are $40,000 per year, payable in advance, for 10 years. What is the implicit rate of interest Simpson Leasing should use to record this capital
Steadman Savings and Loan Company acquires a piece of specialized hospital equipment for $1,000,000 that it leases on January 1, 2008, to a local hospital for $253,090 per year, payable in advance. Because of rapid technological developments, the equipment is expected to be replaced after four
On February 20, 2008, Topham Inc. purchased a machine for $1,200,000 for the purpose of leasing it. The machine is expected to have a 10-year life, no residual value, and is depreciated on the straight-line basis to the nearest month. The machine was leased to Lutts Company on March 1, 2008, for a
On January 1, 2008, Delhi Club Company purchased some equipment for $45,372 in cash. Delhi Club immediately leased the equipment; Delhi Club is the lessor. The lease contract calls for the receipt of $10,000 payments at the end of each year for five years. The residual value of the equipment at the
On July 1, 2008, Baker Corporation sold equipment it had recently purchased to an unaffiliated company for $570,000. The equipment had a book value on Baker’s books of $450,000 and a remaining life of five years. On that same day, Baker leased back the equipment at $135,000 per year, payable in
Calderwood Industries leases a large specialized machine to Youngstown Company at a total rental of $1,800,000, payable in five annual installments in the following declining pattern: 25% for each of the first two years, 22% in the third year, and 14% in each of the last two years. The lease begins
Pinnacle Controls Corporation is in the business of leasing new sophisticated satellite systems.As a lessor of satellites, Pinnacle Controls purchased a new system on December 31, 2008. The system was delivered the same day (by prior arrangement) to Kerry Investment Company, a lessee. The
Universal Enterprises adopted the policy of leasing as the primary method of selling its products. The company’s main product is a small jet airplane that is very popular among corporate executives. Universal constructed such a jet for Executive Transport Services (ETS) at a cost of $8,329,784.
Astle Manufacturing Company manufactures and leases a variety of items. On January 2, 2008, Astle leased a piece of equipment to Haws Industries Co. The lease is for six years for an annual amount of $33,500, payable in advance. The lease payment includes executor costs of $1,500 per year. The
The following information comes from the financial statements of Travis Campbell Company.Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,000Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . 80,000Property, plant, and equipment . . . . . . . . . .
On January 3, 2008, Aspen Inc. sold a building with a book value of $2,100,000 to Spruce Industries for $2,025,040. Aspen immediately entered into a leasing agreement wherein Aspen would lease the building back for an annual payment of $320,000. The term of the lease is 10 years, the expected

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