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

What is the only significant difference between the provisions of IAS 39 and those of FASB Statement No. 115?
The company purchased 1,000 shares of equity securities for $32 per share. The shares were purchased as an available-for-sale investment. The broker’s commission on the purchase was $20. Make the journal entry necessary to record the purchase
The company owns 2,000 shares of Stock A and 4,000 shares of Stock B. The company received dividends of $2.50 per share from Stock A and $0.65 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, Davis Company purchased 4,000 shares of the 10,000 outstanding shares of Company B for a total of $65,000. At the time of the purchase, the book value of Company B’s equity was $120,000. Any excess of investment purchase price over the book value of Company B’s equity is
On December 1, the company purchased securities for $1,000. 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 market value was (a) $1,200 and(b) $850. 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
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 market value of security A at the time of the reclassification was $8,000. Security B was reclassified as available for
During Year 1, Rosie Company purchased 8,000 shares of Company A common stock for $30 per share and 5,000 shares of Company B common stock for $50 per share. These investments are classified as available-for-sale securities. At December 31, Year 1, Rosie Company appropriately recorded a $100,000
The following transactions of Knight, Inc., occurred within the same accounting period:(a) Purchased $105,000 U.S. Treasury 7% bonds, paying 103 plus accrued interest of $1,200. In addition, Knight paid brokerage fees of $470. Knight uses the revenue approach to record accrued interest on purchased
On January 10, 2008, Washington Corporation acquired 20,000 shares of the outstanding common stock of United Company for $900,000. At the time of purchase, United Company had outstanding 80,000 shares with a book value of $3.6 million. On December 31, 2008, the following events took place:(a)
On January 1, 2008, Rex Incorporated purchased $400,000 of 10-year, 12% bonds when the market rate of interest was 9%.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
During 2007, Sunbeam Inc. purchased the following trading securities:At the beginning of 2007, Sunbeam 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 2008, assuming
The securities portfolio for Hill Top 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 2007 and 2008 financial statements? Give the valuation entries for these years, assuming
Bridgeman Paper Co. reported the following selected balances on its financial statements for each of the four years 2006€“2009:Based on these balances, reconstruct the valuation entries that must have been made eachyear.
Galaxy Enterprises loaned $200,000 to Vader Inc. on January 1, 2007. The terms of the loan require principal payments of $40,000 each year for five years plus interest at the market rate of interest of 8%. The first principal and interest payment is due on January 1, 2008. Vader made the required
During 2008, Buzz Company purchased 4,000 shares of Honey Company common stock for $12 per share and 2,500 shares of Pollen Company common stock for $27 per share. These investments are intended to be held as ready sources of cash and are classified as trading securities.Also in 2008, Buzz
During 2008 and 2009,Kopson Co. made the following journal entries to account for transactions involving trading securities:2008(a) Nov. 1 Investment in Trading Securities'10% U.S. Treasury Bonds . . . 106,883Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
On January 1, 2008, Compustat Co. bought 30% of the outstanding common stock of Freelance Corp. for $258,000 cash. Compustat Co. accounts for this investment by the equity method. At the date of acquisition of the stock, Freelance Corp.’s net assets had a carrying value of $590,000. Assets with
One Tree Incorporated had the following portfolio of securities on December 31, 2007:The balances in the market adjustment accounts as of January 1, 2007, were as follows:Market Adjustment€”Trading Securities . . . . . . . . . . . . . . . . . . . . . . . . $8,000 DrMarket
On January 2, 2006, Bradley Company acquired 20% of the 100,000 shares of outstanding common stock of Caldecott Corp. for $20 per share. The purchase price was equal to Caldecott€™s underlying book value. Bradley plans to hold this stock to influence the activities of Caldecott.The
Jayleen Associates loaned Norris Company $750,000 on January 1, 2006. The terms of the loan were payment in full on January 1, 2011, plus annual interest payments at 11%. The interest payment was made as scheduled on January 1, 2007; however, due to financial setbacks, Norris was unable to make its
FASB Statement No. 115 is another example of the Board’s emphasis on the balance sheet as contrasted with the income statement. As treasurer of Diamond Instrument, you desire to maximize income over the short run. Diamond has had excess cash, and you have chosen to invest it in both marketable
Accounting methods of financial institutions, such as savings and loan companies and banks, were the major reasons the FASB studied the valuation issues relating to investments. FASB Statement No. 115, however, affects all companies that invest in marketable debt and equity securities. As
The Investing Activities section of the statement of cash flows of Archer Daniels Midland Company (ADM), seller of agricultural commodities and products, follows.Based on the information given, answer the following questions.Instructions:1. Based on all the buying and selling activity associated
The following note is taken from Ford Motor Company€™s 2004 annual report:Note 5. Marketable, loaned and other securitiesInvestments in available-for-sale securities at December 31, 2004, were as follows (in millions):1. What amount of gains and losses on available-for-sale securities is
On January 1, the company had 100,000 common shares outstanding. During the year, the following events occurred:March 1: 2-for-1 stock splitJune 1: Issued 30,000 additional sharesSeptember 1: 20% stock dividendWhat was the weighted-average number of shares outstanding for the year?
The company had 100,000 shares of common stock outstanding throughout the year. In addition, as of January 1, the company had issued stock options that allowed employees to purchase 40,000 shares of common stock. The option exercise price is $10 per share. The company has no other potentially
Refer to Practice 18–5. Assume that the options were issued on September 1 instead of being outstanding throughout the year. Compute diluted earnings per share, assuming that (1) The average stock price for the year and for the September 1–December 31 period was $4 and (2) The average stock
The company had 100,000 shares of common stock outstanding throughout the year. In addition, as of January 1, the company had issued 500 convertible bonds ($1,000 face value, 10%). The company has no other potentially dilutive securities.Net income for the year was $200,000. The income tax rate is
Refer to Practice 18–9. Assume that the convertible bonds were issued on October 1. Compute diluted earnings per share, assuming that (1) Each bond was convertible into 50 shares of common stock and (2) Each bond was convertible into 15 shares of common stock.
The company had 100,000 shares of common stock outstanding on January 1. In addition, as of January 1, the company had issued 10,000 convertible preferred shares (cumulative, 5%, $100 par). These preferred shares were converted on September 1. Each preferred share was converted into four shares of
The company reported net income of $220,000 for the year and 100,000 shares of common stock were outstanding during the year. The income tax rate is 40%. The company has the following potentially dilutive securities. Assume that each of the securities was issued on or before January 1. Compute (1)
Compute the weighted-average number of shares outstanding for Troy Company, which has a simple capital structure, assuming that the following transactions in common stock occurred during the calendaryear.
At December 31,2008,Munter Corporation had 50,000 shares of common stock issued and outstanding, 30,000 of which had been issued and outstanding throughout the year and 20,000 of which had been issued on October 1, 2008. Income before income taxes for the year ended December 31, 2008, was $753,200.
On January 1, 2008, Wander Corporation had 68,000 shares of common stock outstanding that did not change during 2008. In 2007, Wander granted options to certain executives to purchase 9,000 shares of its common stock at $7 each. The average market price of common was $10.50 per share during 2008.
Barone Company has employee stock options outstanding to purchase 40,000 common shares at $14 per share. All options were outstanding during the entire year. The average price of the company’s common stock during the year was $20. Compute the incremental shares that would be used in arriving at
On January 2, 2008, McGregor Co. issued at par $45,000 of 9% bonds convertible in total into 4,000 shares of McGregor’s common stock. No bonds were converted during 2008. Throughout 2008, McGregor had 10,000 shares of common stock outstanding. McGregor’s 2008 net income was $75,000.
During all of 2008, Van Horn Inc. had outstanding 200,000 shares of common stock and 12,000 shares of $6 preferred stock. Each share of the preferred stock is convertible into three shares of common stock. For 2008, Van Horn had a $190,000 loss from operations; no dividends were paid or declared.
Atlas, Inc., has the following capital structure at January 1, 2008.During 2008, Atlas had the following stock transactions:May 1 Issued 50,000 shares of common stock for $30 per share.Aug. 1 Purchased 100,000 shares of treasury stock at $35 per share.Oct. 1 Converted $2,000,000 of bonds.Net
Information relating to the capital structure of Roninger Corporation at December 31, 2007 and 2008, is as follows:Roninger Corporation paid dividends of $5 per share on its preferred stock. The preferred stock is convertible into 40,000 shares of common stock. The 7.5% convertible bonds are
The following condensed financial statements for Tomac Corporation were prepared by the accounting department.Instructions: Compute the basic EPS under each of the following independent assumptions (the company has a simple capital structure).1. No change in the capital structure occurred in
Great Northern Inc. reported the following comparative information in the Stockholders' Equity section of its 2009 balance sheet.*Par value after June 1, 2009, stock split.In addition, company records show that the following transactions involving stockholders' equity were recorded in 2008 and
Ugrumov Technology Co. provides the following data at December 31, 2008.Operating revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,120,000Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Carrizo Corporation's capital structure is as follows:The following additional information is available.(a) On September 1, 2009, Carrizo sold 56,000 additional shares of common stock.(b) Net income for the year ended December 31, 2009, was $860,000.(c) During 2009, Carrizo declared and paid
1. Happy Valley Inc. began the year with 100,000 shares of common stock outstanding.The following events occurred during the year relating to common stock:• March 1—2-for-1 stock split• June 1—10% stock dividend• August 1—Sold 10,000 additional shares of stock• November 1—2-for-1
Data for Dwight Powder Company at the end of 2009 follow. All bonds are convertible as indicated and were issued at their face amounts.Instructions:1. Compute basic and diluted EPS for 2009, assuming that no additional shares of common stock were issued during the year.2. Compute basic and diluted
Tolman Yacht Company has just completed its determination of EPS for the year. As a result of issuing convertible securities during the year, Tolman’s capital structure is now defined as being complex. The basic EPS for this year is $2.90, but the diluted EPS is only $2.50; both figures are down
As you know, a firm with multiple potentially dilutive securities must individually determine the effect of each security’s incremental per-share contribution and include those securities with the smallest incremental contribution to the point where diluted EPS is less than the next security’s
Review the information relating to EPS found in The Walt Disney Company’s income statement and notes to the financial statements on the Internet.Answer the following questions.1. Using the information provided on the face of the income statement relating to net income and average number of
McDonald's Corporation is in the business of'wait, we all know what McDonald's does. The company's earnings per share information and an accompanying note relating to its computation of EPS follow.PER COMMON SHARE INFORMATIONDiluted net income per common share is calculated using net income divided
Cadbury Schweppes manufactures beverages and confectionary candies. Because the company is based in the United Kingdom, it is not required to comply with U.S.GAAP. However, the standards relating to EPS under which Cadbury Schweppes prepared its 2004 annual report are similar to the requirements of
On January 1, 2005, the company purchased equipment for $100,000. The equipment has a 10-year expected useful life and $0 residual value. Initially, the company used double declining- balance depreciation. On January 1, 2008, the company changed to straight-line depreciation. The expected useful
Refer to Practice 20-2. Assume that before 2008 the company used straight-line depreciation for tax purposes while using double-declining-balance depreciation for book purposes. The change to straight-line depreciation in 2008 is made for book purposes; the company continues to use straight-line
On January 1, 2005, the company purchased equipment for $100,000. The equipment has a 10-year expected useful life and $0 residual value. Initially, the company used straight-line depreciation. On January 1, 2008, the company changed to double-declining-balance depreciation. Compute depreciation
On December 31, 2008, Large Company acquired Small Company for $100,000. This amount exceeded the recorded value of Small Company's net assets by $20,000 on the acquisition date. The entire excess was attributable to a Small Company building that had a remaining useful life of 10 years as of the
The company miscounted its total credit sales in the last two weeks of the year. The correct amount of credit sales for this period was $100,000. The error was not discovered until the following year when the books for the preceding year were already closed. Make the correcting entry necessary the
In December 2007, the company paid $2,500 for insurance for the first six months of 2008. This payment was mistakenly recorded as insurance expense in 2007. Make the necessary correcting entry, assuming that (1) The error was found in August 2008 after the 2007 books had been closed and (2) The
In January 2006, the company made $10,000 in expenditures. These expenditures should have been expensed immediately. Instead, the company recorded this $10,000 payment as a purchase of equipment with a useful life of 10 years and $0 expected salvage value. The company uses straight-line
Refer to Practice 20-21. Assume that the error was found in May 2008. Net income for 2008 (correctly stated) was $25,000. Dividends for 2008 were $10,000. The Retained Earnings balance as originally reported at the end of 2007 was $100,000. Prepare a statement of retained earnings for 2008.
Carlos Company purchased a machine on January 1, 2005, for $1,200,000. At the date of acquisition, the machine had an estimated useful life of eight years with no residual value. The machine is being depreciated on a straight-line basis. On January 1, 2008, Carlos determined, as a result of
Albrecht Inc. began business in 2005. An examination of the company's allowance for bad debts account reveals the following.In the past, the company has estimated that 3% of credit sales would be uncollectible. The accountant for Albrecht has determined that the percentage used in estimating bad
Tennecott Mining Company purchased a tract of land with estimated copper ore deposits totaling 800,000 tons. The purchase price for the land was $2.2 million. During the first year of operation, Tennecott mined and sold 90,000 tons of ore. During the second year, Tennecott mined and sold 120,000
Kamila Stores decided to change from LIFO to FIFO as of January 1, 2008. The change is being made for both book and tax purposes.1. Using LIFO, the beginning retained earnings as of January 1, 2006, was $173,000. Compute adjusted beginning retained earnings, using FIFO, as of January 1, 2006.2. The
Refer to Exercise 20-29. Assume that the detailed information for 2006 and 2007 is not available. During 2008, dividends of $17,500 were paid (compared to dividends of $15,000 in both 2006 and 2007). Based on this information, prepare the retained earnings statement for 2008. Note: Do NOT prepare
The following errors in the accounting records of the Willis & Glassett Partnership were discovered on January 10, 2008.The partners share net income and losses as follows: 60%, Willis; 40%, Glassett.1. Prepare a correcting journal entry on January 10, 2008, assuming that the books were closed for
The first audit of the books for Hintze Corporation was made for the year ended December 31, 2008. In reviewing the books, the auditor discovered that certain adjustments had been overlooked at the end of 2007 and 2008 and that other items had been improperly recorded. Omissions and other failures
The following information relates to depreciable assets of Bright Electronics.(a) Machine A was purchased for $45,000 on January 1, 2003. The entire cost was erroneously expensed in the year of purchase. The machine had a 15-year useful life and no residual value.(b) Machine B cost $160,000 and was
During 2008, All Seasons Company changed its inventory valuation method from LIFO to FIFO. The following information shows the effect of this change.Instructions:1. Before the change from LIFO to FIFO, the Retained Earnings balance on January 1, 2006, was $300,000. All Seasons Company does not pay
On January 3, 2007, Sandy’s Fashions, a clothing chain selling moderately priced women’s clothing, purchased a large number of personal computers. The cost of these computers was $120,000. On the date of purchase, Sandy’s management estimated that the computers would last approximately five
A CPA was engaged by Alpine Corp. in 2008 to examine its books and records and to make whatever corrections are necessary. An examination of the accounts discloses the following.(a) Dividends had been declared on December 15 in 2005 and 2006 but had not been entered in the books until paid.(b)
Hornberger Company has demonstrated a consistently increasing earnings trend over the past 10 years. Stockholders have come to expect this steady increase, and management has gone to great lengths to emphasize the smooth growth pattern associated with Hornberger’s earnings. At the year-end board
Locate the 2004 financial statements for The Walt Disney Company on the Internet at www.disney.com, and answer the following questions.1. Review the income statement and related notes and determine whether the company had any accounting changes for any of the years reported. To what did those
Cendant Corporation was created through the merger of CUC International, Inc. and HFS Incorporated. The company provides travel service, real estate services, and membership based consumer services. In April 1998, Cendant discovered several accounting irregularities relating to the CUC segment.
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 “FASB Pronouncements.”In this chapter, we discussed issues relating to
The company is a golf course developer that constructs approximately 10 courses per year. Next year the company will buy 10,000 trees to install in the courses it builds. In recent years, the price of trees has fluctuated wildly. To eliminate this uncertainty, the company has found a reputable
Refer to Practice 19-3 and complete the following:1. Compute the total amount (including all forward-related cash flows) that the golf course developer will pay to buy 10,000 trees in Year 2, assuming that the price of a tree on January 1 of Year 2 is (a) $300, (b) $850, and (c) $500. Comment on
The company makes colorful 100% cotton shirts that are very popular among sophisticated business executives. The company uses 50,000 pounds of cotton each month in its production process. On December 1 of Year 1, the company purchased a call option to buy 50,000 pounds of cotton on January 1 of
Refer to Practice 19-7 and complete the following:1. Compute the total amount (including all option-related cash flows) that the shirt company will pay to buy 50,000 pounds of cotton in January of Year 2, assuming that the price of cotton per pound on January 1 of Year 2 is (a) $0.68, (b) $0.32,
Refer to Practice 19-3 and Practice 19-4. What would be the impact on the golf course developer’s total cash payment to purchase trees in Year 2 if the forward contract had been for just 3,000 trees rather than the full 10,000 trees expected to be purchased in Year 2? In other words, what would
Refer to Practice 19-3. Make any necessary journal entry on the golf course developer’s books on December 31 of Year 1 in connection with the tree forward contract, assuming that the price per tree on that date is (1) $300, (2) $850, and (3) $500.
Refer to Practice 19-7. Make any necessary journal entry on the shirt company’s books on December 31 of Year 1 in connection with the cotton option contract, assuming that the price of cotton per pound on that date is (1) $0.68, (2) $0.32, and (3) $0.46. Remember that the cotton option was
In each of the following cases, make the necessary journal entry, if any. If no journal entry is necessary, describe how the item would be reported in the financial statements.1. The company has sued another company for patent infringement and won a preliminary judgment of $120,000 in the case.
Yelrome Company manufactures candy. On September 1, Yelrome purchased a futures contract that obligates it to sell 100,000 pounds of sugar on September 30 at $0.24 per pound. Yelrome typically purchases 100,000 pounds of sugar per month to use as a raw material in the candy production process. It
On January 1, 2008, Slidell Company received a 2-year, $500,000 loan, with interest payments occurring at the end of each year and the principal to be repaid on December 31, 2009. The interest rate for the first year is the prevailing market rate of 7%, and the rate in 2009 will be equal to the
On September 1, 2008, Ramus Company purchased machine parts from Ho Man Tin Company for 6,000,000 Hong Kong dollars to be paid on January 1, 2009. The exchange rate on September 1 is HK$7.7 = $1. On the same date, Ramus enters into a forward contract and agrees to purchase HK$6,000,000 on January
Quincy Bottlers produces bottled orange juice.Orange juice concentrate is typically bought and sold by the pound, and Quincy uses 100,000 pounds of orange juice concentrate each month. On December 1, 2008, Quincy entered into an orange juice concentrate futures contract to buy 100,000 pounds of
Refer back to Exercises 19-26 and 19-27.1. What is the notional value of the Hong Kong dollar forward contract described in Exercise 19-26? What is the fair value of the forward contract on December 31, 2008?2. What is the notional value of the orange juice concentrate futures contract described in
A lawsuit has been filed against Picture Perfect, Inc., a manufacturer of video post cards, by Picture This, another manufacturer of video post cards. The suit alleges patent right infringements by Picture Perfect and asks for compensatory damages. For the following possible situations, determine
Industrious Industries sells five different types of products. Internally, Industrious is divided into five different divisions based on these five different product lines. Industrious has prepared the following information to disclose to external users in the notes to its 2008 financial
On December 31, 2007, Ryanes Company had LIFO ending inventory consisting of 500 units with a LIFO cost of $10 per unit. During the first quarter of 2008, Ryanes sold 1,000 units. As of March 31, 2008, the inventory of Ryanes is 400 units, and the current purchase price of inventory is $32 per
On January 1, 2008, Kindall Company received a 5-year, $2,000,000 loan, with interest payments occurring at the end of each year and the principal to be repaid on December 31, 2012. The interest rate for the first year is the prevailing market rate of 10%, and the rate in each succeeding year will
On January 1, 2008, Jessica Marie Company sold equipment to Gwang Ju Company for 20,000,000 Korean won, with payment to be received in two years on January 1, 2010. The exchange rate on January 1, 2008, is 800 won _ $1. On the same date, Jessica Marie enters into a futures contract and agrees to
Refer to Problems 19-41 and 19-42.Instructions:1. What is the notional value of the lobster forward contract described in Problem 19-41? What is the fair value of the forward contract during its life?2. What is the notional value of the Korean won futures contract described in Problem 19-42? What
Winter Quarters Company employs 30 analysts who closely track news about supply and demand for livestock and agricultural commodities. Winter Quarters uses that information to enter into futures contracts based on its prediction of which way agriculture prices are heading. On December 1, 2008,
Asbestos Inc. manufactures heat shields for use in oil refineries. Management has prepared financial statements for the year ended 2008 for review by the auditors. The audit team has questioned several items in the financial statements and has asked for your advice concerning the proper treatment
Backenstos Company has two different product lines and makes significant sales in both the United States and Mexico. Backenstos has compiled the following information:Required:a. Assume that Backenstos has structured its company internally into divisions based on the two products, X and Y. Prepare
King Follett Foods produces premium tofu for the U.S. market. Sales are growing rapidly in the health-conscious United States, and King Follett expects sales in 2009 to be 30% more than sales in 2008.A key ingredient in making tofu is soybeans. During 2008, King Follett used approximately 10,000
One of the most difficult estimation questions in accounting is when contingent liabilities need to be recognized in a company’s financial statements. The FASB indicated in Statement No. 5 that a liability and loss should be reported in the financial statements if it is probable that a loss

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