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Intermediate Accounting principles and analysis 2nd Edition Terry d. Warfield, jerry j. weygandt, Donald e. kieso - Solutions

The financial statements of The Coca-Cola Company and PepsiCo, Inc. can be accessed at the book’s website.InstructionsUse information found at the book’s website to answer the following questions.(a) What were the cash and cash equivalents reported by Coca-Cola and PepsiCo at the end of 2006?
Microsoft is the leading developer of software in the world. To continue to be successful Microsoft must generate new products, which requires significant amounts of cash. Shown below is the current asset and current liability information from Microsoft's balance sheet (in millions). Following the
The following information is taken from the 2006 financial statements and accompanying notes of The Scotts Miracle-Gro Company, a manufacturer of lawn-care products.The Scotts Miracle-Gro CompanyNote 17. Concentrations of Credit Risk (partial)Financial Instruments which potentially subject the
Ariel Company has significant amounts of trade accounts receivable. Ariel uses the allowance method to estimate bad debts instead of the direct write-off method. During the year, some specific accounts were written off as uncollectible, and some that were previously written off as uncollectible
Anne Archer Company uses the net method of accounting for sales discounts. Anne Archer also offers trade discounts to various groups of buyers.On August 1, 2008, Archer sold some accounts receivable on a without recourse basis. Archer incurred a finance charge.Archer also has some notes receivable
Orlando Bloom conducts a wholesale merchandising business that sells approximately 5,000 items per month with a total monthly average sales value of $250,000. Its annual bad debt ratio has been approximately 11/2% of sales. In recent discussions with his bookkeeper, Mr. Bloom has become confused by
On September 30, 2007, Tiger Machinery Co. sold a machine and accepted the customer’s zero-interest-bearing note. Tiger normally makes sales on a cash basis. Since the machine was unique, its sales price was not determinable using Tiger’s normal pricing practices. After receiving the first of
Soon after beginning the year-end audit work on March 10 at Engone Company, the auditor has the following conversation with the controller.CONTROLLER: The year ended March 31st should be our most profitable in history and, as a consequence, the board of directors has just awarded the officers
Esplanade Inc. owns land that it purchased on January 1, 2001, for $420,000. At December 31, 2008, its current value is $770,000 as determined by appraisal. At what amount should Esplanade report this asset on its December 31, 2008, balance sheet? Explain.
What is the rationale for assigning a portion of overhead to the cost of an asset?
Jones Company has purchased two tracts of land. One tract will be the site of its new manufacturing plant. The other is being purchased with the hope that it will be sold in the next year at a profit. How should these two tracts of land be reported in the balance sheet?
Yukio Mishima Industries acquired equipment this year to be used in its operations. The equipment was delivered by the suppliers, installed by Mishima, and placed into operation. Some of it was purchased for cash with discounts available for prompt payment. What costs should Mishima capitalize for
Adam Dunn Co. purchased for $2,200,000 property that included both land and a building to be used in operations. The seller’s book value was $300,000 for the land and $900,000 for the building. By appraisal, the fair market value was estimated to be $500,000 for the land and $2,000,000 for the
Richardson Co. acquires machinery by paying $10,000 cash. Richardson purchased a similar machine last month for $13,500. At what cost should the new equipment be recorded?
Michael Bennett is evaluating two recent transactions involving exchanges of equipment. In one case, the exchange has commercial substance; in the second situation, the exchange lacks commercial substance. Explain to Bennett the differences in accounting for these two situations.
Elizabeth Ashley Company purchased a machine on January 2, 2008, for $600,000. The machine has an estimated useful life of 5 years and a salvage value of $100,000. Depreciation was computed by the 150% declining-balance method. What is the amount of accumulated depreciation at the end of December
JLo Company purchased machinery for $120,000 on January 1, 2008. It is estimated that the machinery will have a useful life of 20 years, scrap value of $15,000, production of 84,000 units, and working hours of 42,000. During 2008 the company uses the machinery for 14,300 hours, and the machinery
A building that was purchased December 31, 1983, for $2,400,000 was originally estimated to have a life of 50 years with no salvage value at the end of that time. Depreciation has been recorded through 2007. During 2008 an examination of the building by an engineering firm discloses that its
Melanie Mayron purchased a computer for $6,000 on July 1, 2008. She intends to depreciate it over 4 years using the double-declining balance method. Salvage value is $1,000. Compute depreciation for 2009.
Saadi Company purchased a heavy-duty truck on July 1, 2005, for $30,000. It was estimated that it would have a useful life of 10 years and then would have a trade-in value of $6,000. It was traded on August 1, 2009, for a another truck costing $39,000; $13,000 was allowed as trade-in value (also
Bonanza Brothers Inc. purchased land at a price of $27,000. Closing costs were $1,400. An old building was removed at a cost of $12,200. What amount should be recorded as the cost of the land?
Chavez Corporation purchased a truck with a price of $60,000. Chavez signed a 6-month note for the purchase, subject to a 2% cash discount if paid in 60 days. Prepare the journal entry to record the purchase of this truck.
Cool Spot Inc. purchased land, building, and equipment from Pinball Wizard Corporation for a cash payment of $306,000. The estimated fair values of the assets are land $60,000; building $220,000; and equipment $80,000. At what amounts should each of the three assets be recorded?
Dark Wizard Company obtained land by issuing 2,000 shares of its $10 par value common stock. The land was recently appraised at $85,000. The common stock is actively traded at $41 per share. Prepare the journal entry to record the acquisition of the land.
Cheetah Company purchased machinery on January 1, 2008, for $60,000. The machinery is estimated to have a salvage value of $6,000 after a useful life of 8 years.(a) Compute 2008 depreciation expense using the straight-line method.(b) Compute 2008 depreciation expense using the straight-line method
Use the information for Cheetah Company given in BE10-6.(a) Compute 2008 depreciation expense using the sum-of-the-years’-digits method.(b) Compute 2008 depreciation expense using the sum-of-the-years’- digits method assuming the machinery was purchased on April 1, 2008.
Use the information for Cheetah Company given in BE10-6.(a) Compute 2008 depreciation expense using the double-declining balance method.(b) Compute 2008 depreciation expense using the double-declining balance method assuming the machinery was purchased on October 1, 2008.
Garfield Company purchased a machine on July 1, 2008, for $25,000. Garfield paid $200 in title fees and county property tax of $125 on the machine. In addition, Garfield paid $500 shipping charges for delivery, and paid $475 to a local contractor to build and wire a platform for the machine on the
Myst Company purchased a computer for $7,000 on January 1, 2007. Straight-line depreciation is used, based on a 5-year life and a $1,000 salvage value. In 2009, the estimates are revised. Myst now feels the computer will be used until December 31, 2010, when it can be sold for $500. Compute the
Sim City Corporation owns machinery that cost $20,000 when purchased on January 1, 2005. Depreciation has been recorded at a rate of $3,000 per year, resulting in a balance in accumulated depreciation of $9,000 at December 31, 2007. The machinery is sold on September 1, 2008, for $10,500. Prepare
Use the information presented for Sim City Corporation in BE10-11, but assume the machinery is sold for $5,200 instead of $10,500. Prepare journal entries to(a) Update depreciation for 2008, and(b) Record the sale.
Strider Corporation traded a used truck (cost $20,000, accumulated depreciation $18,000) for a small computer worth $3,700. Strider also paid $1,000 in the transaction. Prepare the journal entry to record the exchange, assuming it has commercial substance.
Sloan Company traded a used welding machine (cost $9,000, accumulated depreciation $3,000) for office equipment with an estimated fair value of $5,000. Sloan also paid $2,000 cash in the transaction. Prepare the journal entry to record the exchange. The exchange has commercial substance.
Bubey Company traded a used truck for a new truck. The used truck cost $30,000 and has accumulated depreciation of $27,000. The new truck is worth $35,000. Bubey also made a cash payment of $33,000. Prepare Bubey’s entry to record the exchange. The exchange has commercial substance.
Buck Rogers Corporation traded a used truck for a new truck. The used truck cost $20,000 and has accumulated depreciation of $17,000. The new truck is worth $35,000. Rogers also made a cash payment of $33,000. Prepare Rogers’ entry to record the exchange. The exchange has commercial substance.
In ts 2006 annual report Campbell Soup Company reports beginning-of-the-year total assets of $6,776 million, end-of-the-year total assets of $7,870 million, total sales of $7,343 million, and net income of $766 million.(a) Compute Campbell’s asset turnover ratio.(b) Compute Campbell’s profit
The following expenditures and receipts are related to land, land improvements, and buildings acquired for use in a business enterprise. The receipts are enclosed in parentheses.(a) Money borrowed to pay building contractor (signed a note) $(275,000)(b) Payment for construction from note proceeds
Martin Buber Co. purchased land as a factory site for $400,000. The process of tearing down two old buildings on the site and constructing the factory required 6 months.The company paid $42,000 to raze the old buildings and sold salvaged lumber and brick for $6,300. Legal fees of $1,850 were paid
Alexei Urmanov Corporation operates a retail computer store. To improve delivery services to customers, the company purchases three new trucks on April 1, 2008. The terms of acquisition for each truck are described below.1. Truck #1 has a list price of $15,000 and is acquired for a cash payment of
Ben Sisko Supply Company, a newly formed corporation, incurred the following expenditures related to Land, to Buildings, and to Machinery and Equipment.InstructionsDetermine the amounts that should be debited to Land, to Buildings, and to Machinery and Equipment. Assume the benefits of capitalizing
Plant acquisitions for selected companies are as follows.1. Belanna Industries Inc. acquired land, buildings, and equipment from a bankrupt company, Torres Co., for a lump sum price of $700,000. At the time of purchase, Torres assets had the following book and appraisal values.To be conservative,
Jane Geddes Engineering Corporation purchased conveyor equipment with a list price of $10,000. The vendor’s credit terms were 2/10, n/30. Presented below are two independent cases related to the equipment. Assume that the purchases of equipment are recorded gross. (Round to nearest dollar.)(a)
Below are transactions related to Michelle Wie Company(a) The City of Pebble Beach gives the company 5 acres of land as a plant site. The market value of this land is determined to be $81,000.(b) 13,000 shares of common stock with a par value of $50 per share are issued in exchange for land and
Presented below is information related to Bucky Katt Company.1. On July 6 Bucky Katt Company acquired the plant assets of Satchel Company, which had discontinued operations. The appraised value of the property is:Land ........... $ 400,000Building ........ 1,200,000Machinery and equipment ..
Queen Kelly Resources Group has been in its plant facility for 15 years. Although the plant is quite functional, numerous repair costs are incurred to maintain it in sound working order. The company’s plant asset book value is currently $800,000, as indicated below.Original cost .........
The following transactions occurred during 2009. Assume that depreciation of 10% per year is charged on all machinery and 5% per year on buildings, on a straight-line basis, with no estimated salvage value. Depreciation is charged for a full year on all fixed assets acquired during the year, and no
Plant assets often require expenditures subsequent to acquisition. It is important that they be accounted for properly. Any errors will affect both the balance sheets and income statements for a number of years.InstructionsFor each of the following items, indicate whether the expenditure should be
Montoni Company purchases equipment on January 1, year 1, at a cost of $469,000. The asset is expected to have a service life of 12 years and a salvage value of $40,000.Instructions(a) Compute the amount of depreciation for each of years 1 through 3 using the straight-line depreciation method.(b)
Warhol Company acquired a plant asset at the beginning of year 1. The asset has an estimated service life of 5 years. An employee has prepared depreciation schedules for this asset using three different methods to compare the results of using one method with the results of using other methods. You
Judds Company purchased a new plant asset on April 1, 2008, at a cost of $711,000. It was estimated to have a service life of 20 years and a salvage value of $60,000. Judds’ accounting period is the calendar year.Instructions(a) Compute the depreciation for this asset for 2008 and 2009 using the
Jon Seceda Furnace Corp. purchased machinery for $315,000 on May 1, 2008. It is estimated that it will have a useful life of 10 years, scrap value of $15,000, production of 240,000 units, and working hours of 25,000. During 2009 Seceda Corp. uses the machinery for 2,650 hours, and the machinery
Billips Corporation purchased a new machine for its assembly process on August 1, 2008. The cost of this machine was $117,900. The company estimated that the machine would have a trade-in value of $12,900 at the end of its service life. Its life is estimated at 5 years and its working hours are
Dawayne Wade Company purchased equipment for $212,000 on October 1, 2008. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $12,000. Estimated production is 40,000 units and estimated working hours 20,000.During 2008, Wade uses the equipment for 525 hours
Jackel Industries presents you with the following information.InstructionsComplete the table for the year ended December 31, 2009. The company depreciates all assets using the half-year convention.
In 1981, Manning Company completed the construction of a building at a cost of $2,000,000 and first occupied it in January 1982. It was estimated that the building will have a useful life of 40 years and a salvage value of $60,000 at the end of that time.Early in 1992, an addition to the building
Randy Johnson Company constructed a building at a cost of $2,200,000 and occupied it beginning in January 1989. It was estimated at that time that its life would be 40 years, with no salvage value.In January 2009, a new roof was installed at a cost of $300,000, and it was estimated then that the
Busytown Corporation, which manufactures shoes, hired a recent college graduate to work in its accounting department. On the first day of work, the accountant was assigned to total a batch of invoices with the use of an adding machine. Before long, the accountant, who had never before seen such a
Carlos Arruza Company exchanged equipment used in its manufacturing operations plus $3,000 in cash for similar equipment used in the operations of Tony LoBianco Company. The following information pertains to the exchange.Instructions(a) Prepare the journal entries to record the exchange on the
Dana Ashbrook Inc. has negotiated the purchase of a new piece of automatic equipment at a price of $8,000 plus trade-in, f.o.b. factory. Dana Ashbrook Inc. paid $8,000 cash and traded in used equipment. The used equipment had originally cost $62,000; it had a book value of $42,000 and a secondhand
On December 31, 2008, Travis Tritt Inc. has a machine with a book value of $940,000. The original cost and related accumulated depreciation at this date are as follows.Machine .......... $1,300,000Accumulated depreciation ..... 360,000 $
On April 1, 2008, Yellow Card Company received a condemnation award of $430,000 cash as compensation for the forced sale of the company’s land and building, which stood in the path of a new state highway. The land and building cost $60,000 and $280,000, respectively, when they were acquired. At
The 2006 annual report of Walgreens contains the following information.InstructionsCompute the following ratios for Walgreens for 2006.(a) Asset turnover ratio.(b) Rate of return on assets.(c) Profit margin on sales.(d) How can the asset turnover ratio be used to compute the rate of return
Steve Nash Company was incorporated on January 2, 2009, but was unable to begin manufacturing activities until July 1, 2009, because new factory facilities were not completed until that date.The Land and Building account at December 31, 2009, was as follows.The following additional information is
George Fayne Mining Co. received a $760,000 low bid from a reputable manufacturer for the construction of special production equipment needed by Fayne in an expansion program. Because the company’s own plant was not operating at capacity, Fayne decided to construct the equipment and recorded the
Kent Adamson Company is a manufacturer of ballet shoes and is experiencing a period of sustained growth. In an effort to expand its production capacity to meet the increased demand for its product, the company recently made several acquisitions of plant and equipment.Tod Mullinger, newly hired in
Beckham Company purchased Machine #201 on May 1, 2008. The following information relating to Machine #201 was gathered at the end of May.Price ..................................... $73,500Credit terms .............. 2/10, n/30Freight-in costs .............. $ 970Preparation and installation costs
Goran Tool Company records depreciation annually at the end of the year. Its policy is to take a full year’s depreciation on all assets used throughout the year, and depreciation for one-half a year on all machines acquired or disposed of during the year. The depreciation rate for the machinery
The following data relate to the Plant Assets account of Faith Hill, Inc. at December 31, 2008.The following transactions occurred during 2009.(a) On May 5, Asset A was sold for $13,000 cash. The company€™s bookkeeper recorded this retirement in the following manner in the cash receipts
Susquehanna Corporation wishes to exchange a machine used in its operations.Susquehanna has received the following offers from other companies in the industry.1. Choctaw Company offered to exchange a similar machine plus $23,000. (The exchange has commercial substance for both parties.)2. Powhatan
During the current year, Garrison Construction trades an old crane that has a book value of $80,000 (original cost $140,000 less accumulated depreciation $60,000) for a new crane from Keillor Manufacturing Co. The new crane cost Keillor $165,000 to manufacture and is classified as inventory.The
Presented below is a schedule of property dispositions for Frank Thomas Co.The following additional information is available.LandOn February 15, a condemnation award was received as consideration for unimproved land held primarily as an investment, and on March 31, another parcel of unimproved land
Selig Sporting Goods Inc. has been experiencing growth in the demand for its products over the last several years. The Olympic Games have greatly increased the popularity of basketball around the world. As a result, a European sports retailing consortium entered into an agreement with Selig's
Boeing and McDonnell Douglas were two leaders in the manufactures of aircraft. In the mid-1990s Boeing announced intentions to acquire McDonnell Douglas and create one huge corporation. Competitors, primarily Airbus of Europe, were very concerned that they would not be able to compete with such a
Your client, Salvador Plastics Co., found three suitable sites, each having certain unique advantages, for a new plant facility. In order to thoroughly investigate the advantages and disadvantages of each site, 1-year options were purchased for an amount equal to 6% of the contract price of each
William Bradford Company purchased land for use as its corporate headquarters. A small factory that was on the land when it was purchased was torn down before construction of the office building began. Furthermore, a substantial amount of rock blasting and removal had to be done to the site before
Shanette Medical Labs, Inc. began operations 5 years ago producing stetrics, a new type of instrument it hoped to sell to doctors, dentists, and hospitals. The demand for stetrics far exceeded initial expectations, and the company was unable to produce enough stetrics to meet demand.The company was
Prophet Manufacturing Company was organized January 1, 2008. During 2008 it has used in its reports to management the straight-line method of depreciating its plant assets.On November 8 you are having a conference with Prophet’s officers to discuss the depreciation method to be used for income
You have two clients who are considering trading machinery with each other. Although the machines are different from each other, you believe that the exchange lacks commercial substance for the purposes of recording a nonmonetary exchange. Your clients would prefer that the exchanges be considered
In 2008 Sheila Wright Corp. spent $420,000 for “goodwill” visits by sales personnel to key customers. The purpose of these visits was to build a solid, friendly relationship for the future and to gain insight into the problems and needs of the companies served. How should this expenditure be
Michael Redd Company spent $190,000 developing a new process, $45,000 in legal fees to obtain a patent, and $91,000 to market the process that was patented, all in the year 2008. How should these costs be accounted for in 2008?
No Doubt purchased a patent for $450,000 which has an estimated useful life of 10 years. Its pattern of use or consumption cannot be reliably determined. Prepare the entry to record the amortization of the patent in its first year of use.
Astaire Inc. is considering the write-off of a limited life intangible because of its lack of profitability. Explain to the management of Astaire how to determine whether a writeoff is permitted.
Kuga Co. has equipment with a carrying amount of $700,000. The expected future net cash flows from the equipment is $705,000, and its fair value is $590,000. The equipment is expected to be used in operations in the future. What amount (if any) should Kuga report as an impairment to its equipment?
Last year Blair Company recorded an impairment on an intangible asset held for use. Recent appraisals indicate that the asset has increased in value. Should Blair record this recovery in value?
Mills Company determines that its goodwill is impaired. It finds that its implied goodwill is $380,000 and its recorded goodwill is $400,000. The fair value of its identifiable assets is $1,450,000. What is the amount of goodwill impaired?
In 2007, Cassie Logan Corporation developed a new product that will be marketed in 2008. In connection with the development of this product, the following costs were incurred in 2007: research and development costs $420,000; materials and supplies consumed $60,000; and compensation paid to research
An intangible asset with an estimated useful life of 30 years was acquired on January 1, 1998, for $450,000. On January 1, 2008, a review was made of intangible assets and their expected service lives, and it was determined that this asset had an estimated useful life of 30 more years from the date
Doom Troopers Corporation purchases a patent from Judge Dredd Company on January 1, 2008, for $64,000. The patent has a remaining legal life of 16 years. Doom Troopers feels the patent will be useful for 10 years. Prepare Doom Troopers’ journal entries to record the purchase of the patent and
Use the information provided in BE11-1. Assume that at January 1, 2010, the carrying amount of the patent on Doom Troopers’ books is $51,200. In January, Doom Troopers spends $24,000 successfully defending a patent suit. Doom Troopers still feels the patent will be useful until the end of 2017.
Dr. Robotnik’s, Inc., spent $60,000 in attorney fees while developing the trade name of its new product, the Mean Bean Machine. Prepare the journal entries to record the $60,000 expenditure and the first year’s amortization, using an 8-year life.
Spidey Corporation commenced operations in early 2008. The corporation incurred $70,000 of costs such as fees to underwriters, legal fees, state fees, and promotional expenditures during its formation. Prepare journal entries to record the $70,000 expenditure and 2008 amortization, if any.
Knuckles Corporation obtained a franchise from Sonic Hedgehog Inc. for a cash payment of $100,000 on April 1, 2008. The franchise grants Knuckles the right to sell certain products and services for a period of 8 years. Prepare Knuckles’ April 1 journal entry and December 31 adjusting entry.
On September 1, 2008, Dungeon Corporation acquired Dragon Enterprises for a cash payment of $750,000. At the time of purchase, Dragon’s balance sheet showed assets of $620,000, liabilities of $200,000, and stockholders’ equity of $420,000. The fair value of Dragon’s assets is estimated to be
Kinoland Company owns machinery that cost $900,000 and has accumulated depreciation of $360,000. The expected future net cash flows from the use of this asset are expected to be $500,000. The fair value of the equipment is $400,000. Prepare the journal entry, if any, to record the impairment loss.
Nobunaga Corporation owns a patent that has a carrying amount of $330,000. Nobunaga expects future net cash flows from this patent to total $190,000. The fair value of the patent is $110,000. Prepare Nobunaga’s journal entry, if necessary, to record the loss on impairment.
Evander Corporation purchased Holyfield Company 3 years ago and at that time recorded goodwill of $400,000. The Holyfield Division’s net assets, including the goodwill, have a carrying amount of $800,000. The fair value of the division is estimated to be $1,000,000. Prepare Evander’s journal
Use the information provided in BE11-9. Assume that the fair value of the division is estimated to be $750,000 and the implied goodwill is $325,000. Prepare Evander’s journal entry, if necessary, to record impairment of the goodwill.
Dorsett Corporation incurred the following costs in 2008.Cost of laboratory research aimed at discovery of new knowledge ... $140,000Cost of testing in search for product alternatives .......... 100,000Cost of engineering activity required to advance the design of aproduct to the manufacturing
Langer Industries had one patent recorded on its books as of January 1, 2008. This patent had a book value of $240,000 and a remaining useful life of 8 years. During 2008, Langer incurred research and development costs of $96,000 and brought a patent infringement suit against a competitor. On
Wiggens Industries acquired two copyrights during 2008. One copyright related to a textbook that was developed internally at a cost of $9,900. This textbook is estimated to have a useful life of 3 years from September 1, 2008, the date it was published. The second copyright (a history research

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