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Accounting 23rd Edition Jonathan E. Duchac, James M. Reeve, Carl S. Warren - Solutions

Preparing lessee’s journal entries for an operating lease and a capital lease. General Motors Corporation (GM) sells a luxury minivan for $25,000. FedUp Delivery Services agrees to lease a minivan for a monthly rental of $750 for three years. FedUp Delivery Services will return the minivan to GM
Preparing lessor’s journal entries for an operating lease and a capital lease. Sun Microsystems manufacturers an engineering workstation for $7,200 and sells it for $12,000. Although the workstation has a physical life of approximately ten years, rapid technological change limits its expected
Preparing lessee’s journal entries fur an operating lease and a capital lease. On January 1, 2008, Baldwin Products, as lessee, leases a machine used in its operations. The annual lease payment of $10,000 is due on December 31 of 2008, 2009, and 2010. The machine reverts to the lessor at the end
Accounting for long-term bonds. The notes to the financial statements of Aggarwal Corporation for 2008 reveal the following information with respect to long-term debt. All interest rates in this problem assume semiannual compounding and the effective interest method of amortization using amortized
Accounting for zero coupon debt. When Time Warner Inc. announced its intention to borrow about $500 million by issuing 20-year zero coupon (single payment) notes, The Wall Street Journal reported the following:New York-Time Warner announced an offering of debt that could yield the company as much
Understanding and using bond tables. Exhibit 10.19 presents a bond table for 8%, semiannual bonds for various market yields and years to maturity. The amounts given are percentages of face value.a. Why are the amounts in the 8.0% market yield column equal to 100% regardless of the number of years
Interpreting disclosures of long-term debt. Exhibit 10.20 presents excerpts from the notes to the financial statements of Lowe’s.a. The amounts shown for Debentures, Notes, and the Medium-Term Notes appear as the same amounts on February 3, 2006, and February 2, 2007. What is the likely
Accounting for lease by lessor and lessee. IBM manufactures a particular computer for$6,000 and sells it for $10,000. Adair Corporation needs this computer in its operations and contemplates three ways of acquiring it on January 1, 2008. The computer has a three-year estimated useful life and zero
Comparison of borrow/buy with operating and capital leases. Carom Sports Collectibles Shop plans to acquire, as of January 1, 2008, a computerized cash register system that costs $100,000 and has a five-year life and no salvage value. The company considers two plans for acquiring the system:(1)
Financial statement effects of capital and operating lease. Excerpts from the notes to the financial statement of Northern Airlines for two recent years reveal the following (amounts in million).Future minimum commitments under leases with lease periods extending beyond one year taken from notes to
Financial statement effect of capital and operating leases. Excerpts from the notes to the financial statements of FebUp corporation for two recent years reveal the following (amount in millions).Future minimum commitments under leases with lease periods extending beyond one year taken from notes
Measuring interest expense. GSB Corporation issued semiannual coupon bonds with a face value of $110,000 several years ago. The annual coupon rate is 8%, with two coupons due each year, six months apart. The historical market interest rate was 10% compounded semiannually when GSB Corporation
Compare and contrast the financial statement effects of achieving off-balance-sheet financing through an executory contract versus an asset sale with recourse, where the seller of the assets will reimburse the buyer for any shortfall in collections from the purchased asset.
Identifying the entity that enjoys the economic benefits and incurs the risk in a business transaction is not always clear-cut. How does the financial components approach attempt to deal with this difficulty?
Recognizing the rights and obligations under all executory contracts (for example. leases, purchase commitments, employment contracts) would eliminate a major means of off-balance-sheet financing.” How might such an action confuse and possibly mislead financial statement users?
What role does a special purpose entity or variable interest entity serve in achieving off-balance-sheet financing involving the sale of receivables?
The principal accounting issue involving deferred compensation plans relates to when firms recognize compensation cost as an expense.” Explain.
Over sufficiently long periods of time, why is the total amount of an employer’s pension expense equal to the cash the employer pays into a pension plan instead of the cash the pension plan pays retired employees?
Under what circumstances would an employer firm report both a net pension asset and a net pension liability on its balance sheet? Why don’t U.S. GAALP and IFRS permit the firm to net these amounts and show only a single net pension asset or net pension liability?
When an employer firm recognizes the change in either a pension asset or pension for a period, the offsetting credit or debit is usually to Other Comprehensive Income. Why doesn’t this amount immediately affect pension expense as a credit or debit instead?
Describe the rationale for reducing pension expense for the return on pension investments.
One might view a deferred tax liability as an interest-free loan from the government.” Do you agree? Why or why not?
The required accounting for deferred taxes delays recognizing in net income the benefits and costs of temporary differences from the period when they originate to the period when they reverse. Explain.
Of what value is information in the tax reconciliation about the reasons for differences between the statutory tax rate and the effective tax rate?
Of what value is information about the components of deferred tax assets and deferred tax liabilities, given that firms calculate income tax expense on income before taxes and not on individual revenues and expenses?
Using accounts receivables to achieve off-balance-sheet financing. Cypress Appliance store has $100,000 of account receivable on its books on January 2, 2008. These receivables are due on December 31, 2008. The firm wants to use these accounts receivables to obtain financing.a. Prepare journal
Using inventory to achieve off-balance-sheet financing. P. J. Lorimar Company grows and ages tobacco. On January 2, 2008, the firm has aging tobacco with a cost of $200,000 and a current market value of $300,000. P. J. Lorimar Company wants to use this tobacco to obtain financing. The firm uses a
Preparing journal entry for pension plan. An aerospace manufacturer reports the following information related to its only pension plan for 2008 (amount in millions).Give a single journal entry on the books of the aero soft manufacturing to recognize pension expense, the pension plan contribution,
Preparing journal entry for pension plan. A consumer foods company reports the following information related to its only pension plan for 2008 (amount in millions)Give a single journal entry for the consumer foods company to recognize pension expenses, the pension plan contribution, and the change
Preparing journal entry for health care plan. An automobile manufacturer reports the following lowing information related to its health care plan for 2008 (amounts in million).Give a single journal entry for the automobile manufacturer to recognize health care benefits expense, the health care plan
Preparing journal entries for income tax expense. An athletic shoe company reports the following information about its income taxes for three recent years (amounts in millions):(a) Give the journal entries to record income tax expense for 2006, 2007, 2008.(b) Describe the likely reason for the
Preparing journal entries for income tax expense. An electric utility reports the following information about its income taxes for three recent years (amount in millions):(a) Give the journal entries to record income tax expense for 2006, 2007, and 2008.(b) Describe the likely reasons for the
Deriving permanent and temporary differences from financial statement disclosures. Pownall Company reports the following information for a year:Book Income before Income Taxes ........... $318,000Income Tax Expense ................... 156,000Income Taxes Payable for the Year .............
Reconstructing information about income taxes. Lilly Company reports the following information about its financial statements and tax return for a year:Depreciation Expense from Financial Statements ..... $322,800Financial Statement Pretax Book Income ........... 190,800Income Tax Expense from
Effect of temporary differences on income taxes. Woodward Corporation purchases a new machine for $50,000 on January 1, 2008. The machine has a four-year estimated service life and an estimated salvage value of zero. After paying the cost of running and maintaining the machine, the firm enjoys a
Interpreting disclosures regarding sales of accounts receivable. Federated Department Stores Inc. owns various chains of retail department stores, including Macy’s and Bloomingdales. On August 30, 2005, it acquired May Department Stores, thereby acquiring Filenes, Marshall Field, Kaufmann’s,
Interpreting notes on off-balance-sheet financing. Louisiana-Pacific Corporation (LP) sold certain timber assets and received cash and notes receivable from the purchaser. LP then engaged in a transaction to turn the notes receivable into cash without recognizing a liability on the balance sheet.
Interpreting retirement plan disclosures. Exhibits 11.18 and 11.19 present selected information from the notes to the financial statements of a beverage company regarding its U.S. pension and health care retirement plans.a. What is the likely reason for the actuarial gains in the pension and
Interpreting retirement plan disclosures. Exhibits 11.20 and 11.21 present selected information from the notes to the financial statements of a tire manufacturing company regarding its U.S. pension and health care retirement plans.a. Refer to Exhibit 11.20. Why does the interest cost of the U.S.
Interpreting income tax disclosures. Exhibit 11.22 presents selected information from the notes to the financial statements of a manufacturer of equipment for farming, construction, and residential uses for the years ending October 31, 2008, 2007, and 2006.a. Present the journal entry to recognize
Interpreting income tax disclosures. Exhibit 11.23 presents information from the income tax note to the financial statements for a computer manufacturer for the years ending December 31, 2008, 2007, and 2006.a. Present the journal entry to recognize income tax expense and income taxes payable for
Interpreting income tax disclosures. Exhibit 11.24 presents information from the income tax note for a discount retailer for its fiscal years ending January 31, 2008, 2007, and 2006.a. Present the journal entry to recognize income tax expense and income taxes payable for the year ended January 31,
Behavior of deferred income tax account when a firm acquires new assets every year. Equilibrium Company has adopted a program of purchasing a new machine each year. It uses a prescribed method of depreciation on its income tax return and straight-line depreciation on its financial statements. Each
Attempts to achieve off-balance-sheet financing. (Adapted from materials by R. Dieter, D. Landsittel, J. Stewart, and A. Wyatt.) Shiraz Company wants to raise $50 million cash but, for various reasons, does not want to do so in a way that results in a newly recorded liability. It is sufficiently
Under what circumstances will a firm report a deferred tax asset on the balance sheet? Under what circumstances will a firm report a deferred tax liability on the balance sheet?
1. Rob was given a residence in 2010. At the time of the gift, the residence had a fair market value of $200,000, and its adjusted basis to the donor was $140,000. The donor paid a gift tax of $10,000 on the taxable gift of $188,000. What is Rob’s basis for gain?a. $140,000.b. $143,209.c.
On July 1, 2007, Gibson Company acquired 75,000 of the outstanding shares of Miller Company for $12 per share. This acquisition gave Gibson a 35 percent ownership of Miller and allowed Gibson to significantly influence the investee's decisions.As of July 1, 2007, the investee had assets with a book
Armada Company has these comparative balance sheet data:Additional information for 2010:1. Net income was $25,000.2. Sales on account were $375,000. Sales returns and allowances amounted to $25,000.3. Cost of goods sold was $198,000.4. Net cash provided by operating activities was $48,000.5.
A few years ago, Brown Corp. purchased equipment for $20,000,000. Western uses straight-line depreciation for financial reporting and MACRS for tax purposes. At December 31, 2008, the carrying value of the equipment was $18,000,000 and its tax basis was $15,000,000. At December 31, 2009, the
In 2010, Sondra makes taxable gifts aggregating $300,000. Her only other taxable gifts amount to $200,000, all of which she made in 1997.a. What is Sondra's 2010 gift tax liability?b. What is her 2010 gift tax liability under the assumption that she made the $200,000 of taxable gifts in 1974
Feeble Co. on January 1, 2011 initiated a noncontributory, defined-benefit pension plan that grants benefits to its 100 employees for services rendered in years prior to the adoption of the pension plan. The total expected service-years of the 100 employees who are expected to receive benefits
Before inventory purchases are recorded, the receiving report should be reconciled to what documents? Discuss.
Why is it important to periodically take a physical inventory if the perpetual system is used?
Because of imperfections, an item of merchandise cannot be sold at its normal selling price. How should this item be valued for financial statement purposes?
How is the method of determining the cost of the inventory and the method of valuing it disclosed in the financial statements?
Funtime Co. sold merchandise to Jaffe Company on December 31, FOB shipping point. If the merchandise is in transit on December 31, the end of the fiscal year, which company would report it in its financial statements? Explain.
A manufacturer shipped merchandise to a retailer on a consignment basis. If the merchandise is unsold at the end of the period, in whose inventory should the merchandise be included?
The units of an item available for sale during the year were as follows:There are 50 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost by(a) The first-in, first-out method,(b) The last-in, first-out method, and(c) The
Three identical units of Item WH4 are purchased during June, as shown below.Assume that one unit is sold on June 23 for $53. Determine the gross profit for June and ending inventory on June 30 using the(a) First-in, first-out (FIFO);(b) Last-in, first-out (LIFO); and(c) Average costmethods.
Three identical units of Item JC07 are purchased during August, as shown below.Assume that one unit is sold on August 30 for $125.Determine the gross profit for August and ending inventory on August 31 using the(a) First-in, first-out (FIFO);(b) Last-in, first-out (LIFO); and(c) Average costmethods.
The units of an item available for sale during the year were as follows:There are 24 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost using(a) The first-in, first-out (FIFO) method;(b) The last-in, first-out (LIFO)
The units of an item available for sale during the year were as follows:There are 48 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost using(a) The first-in, first-out (FIFO) method;(b) The last-in, first-out (LIFO)
The beginning inventory of merchandise at Waldo Co. and data on purchases and sales for a three-month period are as follows:Instructions1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 3, using the
The beginning inventory for Waldo Co and data on purchases and sales for a three-month period are shown in Problem 7-1A.Instructions1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 4, using the last-in,
Artic Appliances uses the periodic inventory system. Details regarding the inventory of appliances at January 1, 2010, purchases invoices during the year, and the inventory count at December 31, 2010, are summarized as follows:Instructions1. Determine the cost of the inventory on December 31, 2010,
Data on the physical inventory of Winesap Co. as of December 31, 2010, are presented in the working papers. The quantity of each commodity on hand has been determined and recorded on the inventory sheet. Unit market prices have also been determined as of December 31 and recorded on the sheet. The
Selected data on merchandise inventory, purchases, and sales for Clairemont Co. and Malibu Co. are as follows:Instructions1. Determine the estimated cost of the merchandise inventory of Clairemont Co. on July 31 by the retail method, presenting details of the computations.2. a. Estimate the cost of
Data on the physical inventory of Zircon Company as of December 31, 2010, are presented in the working papers. The quantity of each commodity on hand has been determined and recorded on the inventory sheet. Unit market prices have also been determined as of December 31 and recorded on the sheet.
Selected data on merchandise inventory, purchases, and sales for Gainesville Co. and Tallahassee Co. are as follows:Instructions1. Determine the estimated cost of the merchandise inventory of Gainesville Co. on April 30 by the retail method, presenting details of the computations.2. a. Estimate the
Mimotopes Company began operations in 2009 by selling a single product. Data on purchases and sales for the year were as follows:Sales:April 8,000 unitsMay
Dell Inc. and Hewlett-Packard Development Company, L.P. (HP) are both manufacturers of computer equipment and peripherals. However, the two companies follow two different strategies. Dell follows primarily a build-to-order strategy, where the consumer orders the computer from a Web page. The order
Tiffany Co. is a high-end jewelry retailer, while Amazon.com uses its e-commerce services, features, and technologies to sell its products through the Internet. Recent balance sheet inventory disclosures for Tiffany and Amazon.com (in thousands) are as follows:The cost of merchandise sold reported
The general merchandise retail industry has a number of segments represented by the following companies:Company Name Merchandise ConceptCostco Wholesale Corporation Membership warehouseWal-Mart Discount general merchandiseJCPenney Department storeFor a recent year, the following cost of merchandise
Jean Howard established an insurance agency on July 1 of the current year and completed the following transactions during July:a. Opened a business bank account with a deposit of $50,000 from personal funds.b. Purchased supplies on account, $1,600.c. Paid creditors on account, $500.d. Received cash
On November 1 of the current year, Rhea Quade established a business to manage rental property. She completed the following transactions during November:a. Opened a business bank account with a deposit of $30,000 from personal funds.b. Purchased supplies (pens, file folders, and copy paper) on
On April 1, 2010, Ryan Barnes established Coyote Realty. Ryan completed the following transactions during the month of April:a. Opened a business bank account with a deposit of $25,000 from personal funds.b. Paid rent on office and equipment for the month, $3,200.c. Paid automobile expenses
On August 1, 2010, Tanja Zier established Royal Realty. Tanja completed the following transactions during the month of August:a. Opened a business bank account with a deposit of $20,000 from personal funds.b. Purchased supplies (pens, file folders, paper, etc.) on account, $2,650.c. Paid creditor
Colfax Dry Cleaners is owned and operated by Maria Acosta. A building and equipment are currently being rented, pending expansion to new facilities. The actual work of dry cleaning is done by another company at wholesale rates. The assets and the liabilities of the business on November 1, 2010, are
Blake Gillis, president of Wayside Enterprises, applied for a $175,000 loan from American National Bank. The bank requested financial statements from Wayside Enterprises as a basis for granting the loan. Blake has told his accountant to provide the bank with a balance sheet. Blake has decided to
On August 1, 2009, Dr. Dana Hendley established Med, a medical practice organized as a proprietorship. The following conversation occurred the following February between Dr. Hendley and a former medical school classmate, Dr. Elyse Monti, at an American Medical Association convention in New York
Amber Keck, a junior in college, has been seeking ways to earn extra spending money. As an active sports enthusiast, Amber plays tennis regularly at the North Fulton Tennis Club, where her family has a membership. The president of the club recently approached Amber with the proposal that she manage
Amazon.com, an Internet retailer, was incorporated and began operation in the mid-90s. On the statement of cash flows, would you expect Amazon.com's net cash flows from operating, investing, and financing activities to be positive or negative for its first three years of operations? Use the
The now defunct Enron Corporation, once headquartered in Houston, Texas, provided products and services for natural gas, electricity, and communications to wholesale and retail customers. Enron’s operations were conducted through a variety of subsidiaries and affiliates that involved transporting
Why would a company maintain separate accounts receivable ledgers for each customer, as opposed to maintaining a single accounts receivable ledger for all customers?
What happens to the special journal in a computerized accounting system that uses electronic forms?
How would e-commerce improve the revenue/collection cycle?
Guardian Security Services was established on August 15, 2010, to provide security services. The services provided during the remainder of the month are listed below.Aug. 18. Issued Invoice No. 1 to Jacob Co. for $325 on account.20. Issued Invoice No. 2 to Qwik-Mart Co. for $260 on account.22.
Transactions related to revenue and cash receipts completed by Sterling Engineering Services during the period November 2–30, 2010, are as follows:Nov.2. Issued Invoice No. 717 to Yee Co., $810.3. Received cash from AGI Co. for the balance owed on its account.7. Issued Invoice No. 718 to Phoenix
GW Surveyors provides survey work for construction projects. The office staff use office supplies, while surveying crews use field supplies. Purchases on account completed by GW Surveyors during October 2010 are as follows:Oct. 1. Purchased field supplies on account from Wendell Co., $2,505.3.
Black Gold Tea Exploration Co. was established on March 15, 2010, to provide oil-drilling services. Black Gold Tea uses field equipment (rigs and pipe) and field supplies (drill bits and lubricants) in its operations. Transactions related to purchases and cash payments during the remainder of March
The transactions completed by Over-Nite Express Company during May 2010, the first month of the fiscal year, were as follows:May 1. Issued Check No. 205 for May rent, $1,000.2. Purchased a vehicle on account from McIntyre Sales Co., $22,300.3. Purchased office equipment on
Sage Learning Centers was established on January 20, 2010, to provide educational services. The services provided during the remainder of the month are as follows:Jan. 21. Issued Invoice No. 1 to J. Dunlop for $75 on account.22. Issued Invoice No. 2 to K. Todd for $280 on account.24. Issued Invoice
Transactions related to revenue and cash receipts completed by Bel-Aire Architects Co. during the period September 2–30, 2010, are as follows:Sept. 2. Issued Invoice No. 793 to Morton Co., $5,200.5. Received cash from Mendez Co. for the balance owed on its account.6. Issued Invoice No. 794 to
Green Thumb Landscaping designs and installs landscaping. The landscape designers and office staff use office supplies, while field supplies (rock, bark, etc.) are used in the actual landscaping. Purchases on account completed by Green Thumb Landscaping during May 2010 are as follows:May 2.
Tellico Springs Water Testing Service was established on September 16, 2010. Tellico uses field equipment and field supplies (chemicals and other supplies) to analyze water for unsafe contaminants in streams, lakes, and ponds. Transactions related to purchases and cash payments during the remainder
The transactions completed by Courtesy Courier Delivery Company during July 2010, the first month of the fiscal year, were as follows:July 1. Issued Check No. 610 for July rent, $6,200.2. Issued Invoice No. 940 to Capps Co., $2,340.3. Received check for $5,150 from Perkins Co.
Web Books, Inc., provides accounting applications for business customers on the Web for a monthly subscription. Web Books customers run their accounting system on the Web; thus, the business data and application reside on the servers of Web Books, Inc. The senior management of Web Books believes
The following conversation took place between Jacob Construction Co.’s bookkeeper, Ken Monroe, and the accounting supervisor, Chase Hargrove:Chase: Ken, I’m thinking about bringing in a new computerized accounting system to replace our manual system. I guess this will mean that you will need to
Like most businesses, when Manor Company renders services to another business, it is typical that the service is rendered “on account,” rather than as a cash transaction. As a result, Manor Company has an account receivable for the service provided. Likewise, the company receiving the service
For the past few years, your client, Central Medical Group (CMG), has operated a small medical practice. CMG's current annual revenues are $420,000. Because the accountant has been spending more and more time each month recording all transactions in a two-column journal and preparing the financial

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