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

On January 1, Toronto Company, a lessee, entered into three non-cancelable leases for new equipment, lease J, lease K, and lease L. None of the three leases transfers ownership of the equipment to Toronto at the end of the lease term. For each of the three leases, the present value at the beginning
In June 1988, British & Commonwealth PLC (B&C) acquired Atlantic Computers, the world’s third largest computer-leasing company. In April 1990, B&C placed Atlantic Computers into administrative receivership and wrote off its $900 million investment in the company. The reason for the write-off?
Today a business can lease cars, buildings, equipment, and machinery. You name it, you can probably lease it. Bill Roloson, a farmer from Canada, can verify that almost anything can be leased. Bill is in the horse racing and horse breeding businesses. When his stallion, Rebel Blue Chip, died in
Safeway is a large U.S. supermarket chain. Safeway leases the majority of its store locations. Disclosure regarding these leases follows.Safeway'Lessee DisclosuresNote E: Lease ObligationsApproximately two-thirds of the premises that the Company occupies are leased. The Company had approximately
The following summary data are from the May 31, 2004, balance sheet of FedEx. All numbers are in millions.Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,970Property, plant, and equipment (net) . . . . . . . . . . . . . . . . . . . . 9,037Other long-term
The franchise arrangement between McDonald€™s and its franchisees is summarized in the following note from McDonald€™s 2004 annual report.Individual franchise arrangements generally include a lease and a license and provide for payment of initial fees as well as continuing rent
What four types of unrealized gains and losses are shown as direct equity adjustments (part of accumulated other comprehensive income), bypassing the income statement? Briefly explain each.
The company received subscriptions for 10,000 shares of $1 par common stock for $30 per share. The company received 30% of the subscription amount immediately and the remainder two months later. Make the journal entries necessary to record the initial subscriptions (and cash receipt) and the
The company is experiencing a cash flow shortfall and has asked certain key employees to accept shares of common stock (instead of cash) in payment of salaries. The employees accepted 25,000 shares of $0.50 par common stock in place of salaries of $700,000. Make the necessary journal entry.
The company issued 20,000 shares of 7%, $50 par preferred stock. Associated with each share of stock was a detachable common stock warrant. Each warrant entitles the holder to purchase one share of the company’s $1 par common stock for $20 per share. Each unit (one share of preferred stock and
On January 1, the company granted 100,000 stock options to key employees. Each option allows an employee to buy one share of $1 par common stock for $30, which was the market price of the shares on the grant date of January 1. In order to be able to exercise the options, the employees must remain
Refer to Practice 13-8. Assume that the stock-based compensation plan is performance based. As of the end of the first year, the number of options that are probable to vest is 100,000. At the end of the second year, the number of options that are probable to vest is 80,000. As in Practice 13-8, the
Refer to Practice 13-8. Assume that the stock-based compensation plan involves stock appreciation rights. At the end of three years, the employees are given a cash award equal to the excess of the fair value at that time of 100,000 shares of stock above the threshold price of $30. The stock price
Stockholders of the company converted 10,000 shares of $50 par preferred stock into 50,000 shares of $1 par common stock. The preferred shares were originally issued for $53 per share. Make the journal entry necessary to record the conversion.
The company had 10,000 shares of $1 par common stock outstanding. When each share of stock had a market value of $33, the company declared and distributed a 10% stock dividend. After the distribution of the dividend shares, each share of stock had a market value of $30. Make the journal entries
The company started business on January 1, 2006. Net income and dividends for the first three years of the company€™s existence are as follows:The company has some foreign subsidiaries and also maintains a portfolio of available-for-sale securities. During 2006, 2007, and 2008, the U.S.
Refer to Practice 13-20. Compute the balance in (1) Retained Earnings and (2) Accumulated Other Comprehensive Income as of the end of each year: 2006, 2007, 2008.
Beginning balances in the equity accounts were as follows:Common stock, at par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,500Paid-in capital in excess of par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000Accumulated other
Timpview Company was incorporated on January 1, 2008, with the following authorized capitalization:• 20,000 shares of common stock, stated value $5 per share• 5,000 shares of 7% cumulative preferred stock, par value $15 per shareMake the entries required for each of the following
Marci Company reported the following balances related to common stock as of December 31, 2007:Common stock, $1 par, 100,000 shares issued and outstanding . . . . . . . . . $ 100,000Paid-in capital in excess of par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,800,000The
On January 1, 2007, Draper Hardware Company established a stock-based compensation plan for its senior employees. A total of 75,000 options was granted that permit employees to purchase 75,000 shares of $2 par common stock at $37 per share. Each option had a fair value of $6 on the grant date.
Stockholders’ equity for Yuri Co. on December 31 was as follows:Preferred stock, $15 par, 30,000 shares issued and outstanding . . . . . . . . . . $ 450,000Paid-in capital in excess of par—preferred stock . . . . . . . . . . . . . . . . . . . . . . . . 90,000Common stock, $10 par, 150,000
Roberts Company distributed the following dividends to its stockholders:(a) 300,000 shares of Nanny Corporation stock, carrying value of investment, $1,200,000; fair market value, $1,800,000.(b) 170,000 shares of Yellowstone Company stock, a closely held corporation. The shares were purchased by
The capital accounts for Shop Right Market on June 30, 2008, are as follows:Common stock, $5 par, 40,000 shares issued and outstanding . . . $ 200,000Paid-in capital in excess of par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 835,000Retained earnings . . . . . . . . . .
The retained earnings account for Gotfried Corp. shows the following debits and credits. Indicate all entries required to correct the account. What is the corrected amount of retainedearnings?
Vicars Company began operations on January 1. Authorized were 20,000 shares of $1 par value common stock and 4,000 shares of 10%, $100 par value convertible preferred stock. The following transactions involving stockholders’ equity occurred during the first year of operations:Jan. 1 Issued 500
Egbert Company has two classes of capital stock outstanding: 10%,$20 par preferred and $1 par common. During the fiscal year ended November 30, 2008, the company was active in transactions affecting the stockholders' equity. The following summarizes these transactions:Balances of the accounts in
PapaTom’s Company had the following transactions occur during 2008:(a) Issued 10,000 shares of common stock to the founders for land valued at $350,000. Par value of the common stock is $1 per share.(b) Issued 2,000 shares of $100 par preferred stock for cash at $115.(c) Sold 3,000 shares of
Bauil Corporation, a new environmental control company, initiated a performance-based stock option plan for its management on January 1, 2007. The plan provided for the granting of a variable number of stock options to management personnel who worked for the entire 4-year period ending December 31,
Ellis Corporation was organized on June 30, 2005. After 2 1/2 years of profitable operations, the equity section of Ellis’s balance sheet was as follows:Contributed capital:Common stock, $3 par, 600,000 shares authorized,200,000 shares issued and outstanding . . . . . . . . . . . . . . . . . . .
Seneca Inc. was organized on January 2, 2007, with authorized capital stock consisting of 50,000 shares of 10%, $200 par value preferred, and 200,000 shares of no-par, no stated value common. During the first two years of the company’s existence, the following selected transactions took
You have been assigned to the audit of Belcore Inc., a manufacturing company. You have been asked to summarize the transactions for the year ended December 31, 2008, affecting stockholders’ equity and other related accounts. The Stockholders’ Equity section of Belcore’s December 31, 2007,
Raton Company, in payment for services, issues 5,000 shares of common stock to persons organizing and promoting the company and another 20,000 shares in exchange for properties believed to have valuable mineral rights. The par value of the stock, $5 per share, is used in recording the
Colter Corporation suspended dividend payments on all four classes of capital stock outstanding because of a downturn in the economy. The four classes of stock include 7% preferred stock, cumulative, $50 par; 5% preferred stock, noncumulative, convertible, $35 par; 9% preferred stock,
Buzzyear Company is considering starting an employee incentive plan. One possibility is to make the plan a bonus plan in which employees receive bonuses based on the reported net income of the company. Another possibility is to give employees options to buy the company’s stock. You are an expert
Largo Corp. has paid quarterly dividends of $0.70 per share for the last three years and is trying to continue this tradition. Largo€™s balance sheet is as follows:Largo€™s net income in 2008 was $400,000. Should Largo continue its $0.70 per share quarterly dividend in the first
In 1993, General Motors paid cash dividends on 11 different classes of capital stock. Those classes of stock were as follows:1. The January 1, 1993, balance in General Motors€™ retained earnings was a negative $3.354 billion. The December 31, 1993, balance was a negative $2.003 billion.
The equity categories for Swire Pacific Limited are illustrated in Exhibit 13-9, on page 790. Using the information in the exhibit, answer the following questions:1. Recall that the primary purpose of defining different reserve categories is to distinguish between distributable and
The company paid $500,000 to buy a collection of assets. The assets had the following appraised values:Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $120,000Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000Land
The company constructed its own building. The cost of materials was $300,000. Labor cost incurred on the construction project was $500,000. Total overhead cost for the company for the year was $6,000,000; total labor cost (including the cost of construction) was $3,000,000. Interest incurred to
The company has received a donation of land from a rich local philanthropist. The land originally cost the philanthropist $35,000. On the date of the donation, it had a market value of $100,000. Make the journal entry necessary on the books of the company to record the receipt of the land.
James Company purchased Thomas Manufacturing for $1,000,000 cash on January 1.The book value and fair value of the assets of Thomas as of the date of the acquisition follow:In addition, Thomas had liabilities totaling $400,000 at the time of the acquisition. Thomas has no other separately
Refer to Practice 10-14. Assume that the cash acquisition price is $500,000 instead of $1,000,000. Make the journal entry necessary on the books of James Company to record the acquisition.
Buyer Company purchased Target Company for $800,000 cash. Target Company had total liabilities of $300,000. Buyer Company’s assessment of the fair values it obtained when it purchased Target Company is as follows:Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Company A had sales for the year totaling $300,000. The net property, plant, and equipment balance at the beginning of the year was $100,000; the ending balance was $120,000. Compute the fixed asset turnover ratio.
Refer to Practice 10-18.Company A’s competitor, Company B, had sales for the year totaling $200,000. The net property, plant, and equipment balance at the beginning of the year was $130,000; the ending balance was $150,000. Company B is a very young company; all of its fixed assets have been
Chen King Enterprises Inc. developed a new machine that reduces the time required to insert the fortunes into its fortune cookies. Because the process is considered very valuable to the fortune cookie industry, Chen King patented the machine. The following expenses were incurred in developing and
Foley Industries purchases new specialized manufacturing equipment on July 1, 2008.The equipment cash price is $79,000. Foley signs a deferred payment contract that provides for a down payment of $10,000 and an 8-year note for $103,472. The note is to be paid in eight equal annual payments of
On January 31, 2008, Cesarino Corp. exchanged 10,000 shares of its $1 par common stock for the following assets:(a) A trademark valued at $145,000.(b) A building, including land, valued at $650,000 (20% of the value is for the land).(c) A franchise right. No estimate of the value is available at
Lodi Department Stores, Inc., constructs its own stores. In the past, no cost has been added to the asset value for interest on funds borrowed for construction. Management has decided to correct its policy and desires to include interest as part of the cost of a new store just being completed.
Ash LaRue Company replaced some parts of its factory building during 2008:(a) The outside corrugated covering on the factory walls was removed and replaced. The job was done by an expert crew from Marblehead Construction Company and will extend the life of the building by four years. The cost of
Findit Company is an oil and gas exploration firm. During 2008, Findit engaged in 73 different exploratory projects, only 12 of which were successful. The total cost of this exploration effort was $22 million, $4.5 million of which was associated with the successful projects. As of the end of 2008,
One of the most difficult problems facing an accountant is the determination of which expenditures should be capitalized and which should be immediately expensed. What position would you take in each of the following instances?(a) Painting partitions in a large room recently divided into four
Cossack Company purchased Village Enterprises. The following fair values were associated with the items acquired in this business acquisition:The fair value associated with Village Enterprises€™ government contacts is not based on any legal or contractual relationship. In addition, for
On December 31, 2008, Lakeside Co. shows the following account for machinery it had assembled for its own use during 2008:An analysis of the details in the account disclosed the following:(a) The old machine, which was removed before the installation of the new one, had been fully depreciated.(b)
The following transactions were completed by Space Age Toy Co. during 2008:Mar. 1 Purchased real property for $628,250, which included a charge of $18,250 representing property tax for March 1–June 30 that had been prepaid by the vendor; 20% of the purchase price is deemed applicable to
Wenatcher Wholesale Company incurred the following costs in 2008 for a warehouse acquired on July 1, 2008, the beginning of its fiscal year:Cost of land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........ $ 90,000Cost of building . . . . . . . . . . .
At December 31, 2007, Weber Company’s noncurrent operating asset accounts had the following balances:CategoryLand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 190,000Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200,000Machinery and
Burns Company has purchased land that will serve as a temporary repository for nuclear waste. The site will function for 30 years, at which time Burns will be required to completely decontaminate the land. The purchase price for the land is $500,000. Burns knows that the land will have to be
Rolitz Company completed a program of expansion and improvement of its plant during 2008. You are provided with the following information concerning its buildings account:(a) On October 31, 2008, a 30-foot extension to the present factory building was completed at a contract cost of $329,000.(b)
Bakeman Co. decides to construct a piece of specialized machinery using personnel from the maintenance department. This is the first time the maintenance personnel have been used for this purpose, and the cost accountant for the factory is concerned as to the accounting for costs of the machine.
Ling Company owns several mining claims in Nevada and California. The claims are carried on the books at the cost paid to acquire them 10 years ago. At that time, it was estimated that the claims represented ore reserves valued at $250,000, and the price paid for the properties reflected this
The FASB’s Emerging Issues Task Force (EITF) considered the question of how the costs incurred in removing asbestos from buildings should be treated (Issue 89–13). This is a widespread issue because studies indicate that some 20% of buildings in the United States contain asbestos. The EITF
In FASB Statement No.34, the FASB called for the capitalization of interest costs associated with projects involving the construction or development of assets extending over a significant time period. Interest capitalized is restricted to the amount of interest actually incurred.Consider the case
Rouse Company, a real estate developer, is well known as one of the few U.S. companies to have reported the current value of property and equipment in its financial statements. As mentioned in the text of the chapter, IAS 16 permits the inclusion of upward asset revaluations in the financial
Locate the 2004 financial statements for The Walt Disney Company on the Internet. Use those financial statements and consider the following questions.1. As illustrated in Exhibit 10-10, Interbrand estimates the value of the Disney brand name in 2004 at $27.11 billion. Search Disney’s financial
The 2004 annual report of Minnesota Mining and Manufacturing (3M) included the following information (all dollar amounts are in millions):1. Using only the net PP&E figures, estimate the book value of the property, plant, and equipment that was sold during the year.2. Using the individual PP&E and
The 2004 annual report of Eastman Kodak Company (Kodak) included the following information (all dollar amounts are in millions):2004Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 169Earnings from continuing operations (before taxes) . . . . . . . .
The company acquired a machine on January 1 at an original cost of $80,000. The machine’s estimated residual value is $10,000, and its estimated life is 4 years. (1) Compute the annual straight-line depreciation amount, (2) Make the journal entry necessary to record depreciation expense for the
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 4-year life and(2) Book value at the end of each year of the machine’s 4-year life.
The company acquired a machine on January 1 at an original cost of $60,000. The machine’s estimated residual value is $10,000, and its estimated life is 10,000 service hours. The actual usage of the machine was as follows: Year 1, 2,000 hours; Year 2, 5,000 hours; Year 3, 2,000 hours; Year 4,
On January 1, Burns Company purchased land it will use as a landfill for the next 10 years. The cost of the land was $400,000. At the end of 10 years, Burns Company will be required to spend $200,000 to landscape and reforest the landfill site. The appropriate discount rate is 10%. Because the
The company purchased a machine for $60,000. The machine had an estimated residual value of $5,000 and an estimated useful life of 11 years. After two full years of experience with the machine, it was determined that its total useful life would be only eight years instead of 11. In addition, a
A building has a cost of $500,000 and accumulated depreciation of $40,000. The current value of the building is estimated to be $120,000. The building is expected to generate net cash inflows of $15,000 per year for the next 30 years.(1) Determine whether the building is impaired and (2) If it is
On January 1 the company purchased the rights to a valuable Internet domain name for $300,000. Given current market conditions, the company estimates that these rights have an economic life of five years at which time they will have no residual value. Make the journal entry necessary to recognize
On October 1, 2008, the company has a building with a cost of $200,000 and accumulated depreciation of $155,000. The company commits to a plan to sell the building by February 1, 2009. On October 1, 2008, the building has an estimated selling price of $40,000, and it is estimated that selling costs
The company purchased a ship for $600,000. The ship has an estimated residual value of $50,000. Compute the amount of MACRS depreciation deduction for the first two years of the life of the ship.
Lyman Construction purchased a concrete mixer on July 15, 2008. Company officials revealed the following information regarding this asset and its acquisition:Purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $175,000Residual value . . . . . . . . . . . .
Holdaway, Inc., a small furniture manufacturer, purchased the following assets at the end of 2007.Compute the following amounts for 2008 using group depreciation on a straight-line basis:1. Depreciation expense2. Group depreciation rate3. Average life of theassets
On January 2, 2007, Cynthia Foster purchased land with valuable natural ore deposits for $10 million. The estimated residual value of the land was $2 million. At the time of purchase, a geological survey estimated 2 million tons of removable ore were under the ground. Early in 2007, roads were
Goff Corporation purchased a machine on January 1, 2003, for $500,000. At the date of acquisition, the machine had an estimated useful life of 20 years with no salvage value. The machine is being depreciated on a straight-line basis. On January 1, 2008, as a result of Goff’s experience with the
Pierce Corporation purchased a machine on July 1, 2005, for $380,000. The machine was estimated to have a useful life of 10 years with an estimated salvage value of $10,000. During 2008, it became apparent that the machine would become uneconomical after December 31, 2012, and that the machine
The Denham Springs Co. applied for and received numerous patents at a total cost of $23,215 at the beginning of 2003. It is assumed the patents will have economic value for their remaining legal life of 16 years. At the beginning of 2005, the company paid $6,985 in successfully prosecuting an
On December 31, 2008, Beckham Corporation sold for $10,000 an old machine having an original cost of $50,000 and a book value of $6,000. The terms of the sale were as follows: $2,000 down payment, $4,000 payable on December 31 of the next two years. The sales agreement made no mention of interest;
On January 2, 2008, Butler Delivery 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18,000Accumulated
Midwest States Manufacturing purchased factory equipment on March 15, 2007. 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
A company buys a machine for $28,100 on January 1, 2005. The maintenance costs for the years 2005–2008 are as follows: 2005, $2,100; 2006, $2,300; 2007, $8,700 (includes $6,500 for cost of a new motor installed in December 2007); 2008, $2,400.Instructions:1. Assume the machine is recorded in a
Machines are acquired by Siegel Inc. on March 1, 2008, 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 December31,2008.
The following independent cases describe facts concerning the ownership of racing bicycles.(a) Maurizio Fondriest, winner of the 2006 Milan–San Remo cycling classic, purchased a new Colnago bicycle for $8,000 at the beginning of 2006. The bicycle was being depreciated using the straight-line
The following independent situations describe facts concerning the ownership of various assets.(a) Dewey Company purchased a tooling machine in 1998 for $60,000. The machine was being depreciated on the straight-line method over an estimated useful life of 20 years with no salvage value. At the
John Scott Snake Company purchased a building on January 1, 2004, for a total of $10,000,000. The building has been depreciated using the straight-line method with a 25- year useful life and no residual value. As of January 1, 2008, John Scott Snake is evaluating the building for possible
Youth Development Co. acquired the following assets in exchange for various non-monetary assets.2008Mar. 15 Acquired from another company a large lathe in exchange for three small lathes. The small lathes had a total cost of $36,000 and a remaining book value of $13,000. The new lathe had a market
At December 31, 2007, Martin 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 2008 and other information
Nevada Corporation purchased Stardust Club for $2,000,000, which included $500,000 for goodwill. Nevada Corporation incurs large promotional and advertising expenses to maintain Stardust Club’s popularity. As the annual financial statements are being prepared, the CPA of Nevada Corporation, N.
To spark interest in choosing accounting as a major, the Accounting Students Association at South Willow University is sponsoring an accounting contest. Students across campus are invited to create their own time-factor depreciation methods. The straight-line, declining balance, and
FASB Statement No. 93 requires all not-for-profit organizations to compute and report depreciation expense in their external financial statements. Previously, many not-for profits, including many religious institutions, did not report depreciation expense. Many users and preparers of financial
During the 1960s and 1970s, the U.S. Congress used a tax measure known as the investment tax credit to encourage companies to expand their investment base. Under these provisions, companies received reductions of their tax liabilities based on a percentage of new investments in noncurrent operating
Locate the 2004 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 comes from the 2004 financial statements of Ford Motor Company (all dollar amounts are in millions):1. Estimate the book value of property and equipment disposed of during 2004.2. Assume that a half-year€™s depreciation is taken on all assets acquired and
The following information was extracted from the 1998 annual report of AT&T Corporation (all dollar amounts are in millions):€¢ 1998 data reflect $2.5 billion of pretax business restructuring charges.€¢ 1995 data reflect $7.8 billion of pretax business restructuring and other

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