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

Why might a business invest in another company’s stock?
Why would there be a gain or loss on the sale of a bond investment?
When is using the cost method the appropriate accounting for equity investments?
How does the accounting for a dividend received differ between the cost method and the equity method?
How are brokerage commissions treated under the cost method of accounting for equity investments?
How is the income of the investor impacted by equity method investments?
If Valuation Allowance for Trading Investments has a credit balance, how is it treated on the balance sheet?
How would a debit balance in Unrealized Gain (Loss) on Available-for-Sale Investments be disclosed in the financial statements?
What would cause Unrealized Gain (Loss) on Available-for-Sale Investments to go from a $12,000 debit balance at the beginning of the year to a $1,000 credit balance at the end of the year?
Corvis Company€™s balance sheet disclosed its long-term investment in Mid-American Company under the equity method for comparative years as follows:In addition, the 2011 Corvis Company income statement disclosed equity earnings in the Mid-American Company investment as $10 million.
Lydell Capital, Inc., makes investments in trading securities. Selected income statement items for the years ended December 31, 2010 and 2011, plus selected items from comparative balance sheets, are as follows:There were no dividends.Determine the missing lettereditems.
Oceanic Airways makes investments in available-for-sale securities. Selected income statement items for the years ended December 31, 2010 and 2011, plus selected items from comparative balance sheets, are as follows:There were no dividends.Determine the missing lettereditems.
Nantahla, Inc., purchased the following available-for-sale securities during 2009, its first year of operations:The market price per share for the available-for-sale security portfolio on December 31, 2009, and December 31, 2010 was as follows:a. Provide the journal entry to adjust the
Roman Products, Inc., is a wholesaler of men’s hair products. The company began operations on January 1, 2010. The following transactions relate to securities acquired by Roman Products, Inc., which has a fiscal year ending on December 31:2010Jan. 3. Purchased 3,000 shares of Whalen Inc. as an
Western Capital Inc. is a regional investment company that began operations on January 1, 2010. The following transactions relate to trading securities acquired by Western Capital Inc., which has a fiscal year ending on December 31:2010Feb. 3. Purchased 2 ,500 shares of Titan Inc. as a trading
Dollar-Mart Inc. is a general merchandise retail company that began operations on January 1, 2010. The following transactions relate to debt investments acquired by Dollar-Mart Inc., which has a fiscal year ending on December 31:2010May 1. Purchased $60,000 of Elkin City 4%, 10-year bonds at face
Miranda, Inc., manufactures and sells commercial and residential security equipment. The comparative unclassified balance sheets for December 31, 2011 and 2010 are provided below. Selected missing balances are shown by letters.Note 1. Investments are classified as available for sale. The
Broadway Arts Inc. produces and sells theater set designs and costumes. The company began operations on January 1, 2010. The following transactions relate to securities acquired by Broadway Arts Inc., which has a fiscal year ending on December 31:2010Jan. 10. Purchased 5,000 shares of Crystal Inc.
Jupiter Insurance Co. is a regional insurance company that began operations on January 1, 2010. The following transactions relate to trading securities acquired by Jupiter Insurance Co., which has a fiscal year ending on December 31:2010Feb. 21. Purchased 3,000 shares of Loral Inc. as a trading
Eclipse Inc. is an athletic footware company that began operations on January 1, 2010. The following transactions relate to debt investments acquired by Eclipse Inc., which has a fiscal year ending on December 31:2010Mar. 1. Purchased $80,000 of Noble Co. 6%, 10-year bonds at face value plus
Scholar House, Inc., is a book publisher. The comparative unclassified balance sheets for December 31, 2011 and 2010 are provided below. Selected missing balances are shown by letters.Note 1. Investments are classified as available for sale. The investments at cost and fair value on December 31,
Selected transactions completed by Jordan Products Inc. during the fiscal year ending December 31, 2010, were as follows:a. Issued 14,500 shares of $30 par common stock at $48, receiving cash.b. Issued 8,000 shares of $120 par preferred 6% stock at $130, receiving cash.c. Issued $8,000,000 of
On August 16, 1995, Parson Corp. purchased 20 acres of land for $300,000. The land has been held for a future plant site until the current date, December 31, 2010. On December 5, 2010, Mobile Air, Inc., purchased 20 acres of land for $2,000,000 to be used for a distribution center. The Mobile Air
International Accounting Standard No. 16 provides companies the option of valuing property, plant, and equipment at either historical cost or fair value. If fair value is selected, then the property, plant, and equipment must be revalued periodically to fair value. Under fair value, if there is an
Financial assets include stocks and bonds. These are fairly simple securities that can often be valued using quoted market prices. However, Wall Street has created many complex and exotic securities that do not have quoted market prices. These securities, such as structured investment vehicles
Berkshire Hathaway, the investment holding company of Warren Buffett, reports its “less than 20% ownership” investments according to generally accepted accounting principles. However, it also provides additional disclosures that it terms “look-through” earnings. Warren Buffett states,Many
Does a discounted note payable provide credit without interest? Discuss.
Employees are subject to taxes withheld from their paychecks.(a) List the federal taxes withheld from most employee paychecks.(b) Give the title of the accounts credited by amounts withheld.
Why are deductions from employees’ earnings classified as liabilities for the employer?
Taylor Company, with 20 employees, is expanding operations. It is trying to decide whether to hire one full-time employee for $25,000 or two part-time employees for a total of $25,000. Would any of the employer’s payroll taxes discussed in this chapter have a bearing on this decision? Explain.
What are the principal reasons for using a special payroll checking account?
Explain how a payroll system that is properly designed and operated tends to ensure that (a) Wages paid are based on hours actually worked and(b) Payroll checks are not issued to fictitious employees.
Identify several factors that influence the future pension obligation of an employer under a defined benefit pension plan.
When should the liability associated with a product warranty be recorded? Discuss.
The “Questions and Answers Technical Hotline” in the Journal of Accountancy included the following question:Several years ago, Company B instituted legal action against Company A. Under a memorandum of settlement and agreement, Company A agreed to pay Company B a total of $17,500 in three
Todd Hackworth’s weekly gross earnings for the present week were $2,000. Hackworth has two exemptions. Using the wage bracket withholding table in Exhibit 3 with a $67 standard withholding allowance for each exemption, what is Hackworth’s federal income tax withholding?
Todd Hackworth’s weekly gross earnings for the week ending December 18 were $2,000, and his federal income tax withholding was $396.19. Prior to this week, Hackworth had earned $98,500 for the year. Assuming the social security rate is 6% on the first $100,000 of annual earnings and Medicare is
The payroll register of Woodard Construction Co. indicates $2,552 of social security withheld and $660 of Medicare tax withheld on total salaries of $44,000 for the period.Federal withholding for the period totaled $8,712.Provide the journal entry for the period’s payroll.
The payroll register of Woodard Construction Co. indicates $2,552 of social security withheld and $660 of Medicare tax withheld on total salaries of $44,000 for the period. Assume earnings subject to state and federal unemployment compensation taxes are $10,500, at the federal rate of 0.8% and the
Hillman Pizza is a pizza restaurant specializing in the sale of pizza by the slice. The store employs 7 full-time and 13 part-time workers. The store’s weekly payroll averages $3,800 for all 20 workers.Hillman Pizza uses a personal computer to assist in preparing paychecks. Each week, the
The following items were selected from among the transactions completed by Emerald Bay Stores Co. during the current year:Jan. 15. Purchased merchandise on account from Hood Co., $220,000, terms n/30.Feb. 14. Issued a 60-day, 6% note for $220,000 to Hood Co., on account.Apr. 15. Paid Hood Co.
The following information about the payroll for the week ended December 30 was obtained from the records of Arnsparger Equipment Co.:Instructions:1. Assuming that the payroll for the last week of the year is to be paid on December 31, journalize the following entries:(a) December 30, to record the
Gridiron Concepts Co. began business on January 2, 2009. Salaries were paid to employees on the last day of each month, and social security tax, Medicare tax, and federal income tax were withheld in the required amounts. An employee who is hired in the middle of the month receives half the monthly
The payroll register for Namesake Co. for the week ended September 12, 2010, is presented in the working papers.Instructions1. Journalize the entry to record the payroll for the week.2. Journalize the entry to record the issuance of the checks to employees.3. Journalize the entry to record the
The following data for Enrichment Industries, Inc. relate to the payroll for the week ended December 10, 2010:Employees Olson and Odom are office staff, and all of the other employees are sales personnel. All sales personnel are paid 11/2 times the regular rate for all hours in excess of 40 hours
The following accounts, with the balances indicated, appear in the ledger of Wadsley Gifts Co. on December 1 of the current year:The following transactions relating to payroll, payroll deductions, and payroll taxes occurred during December:Dec. 2. Issued
The following items were selected from among the transactions completed by Paulson, Inc. during the current year:Apr. 1. Borrowed $60,000 from McCaw Company, issuing a 45-day, 6% note for that amount.26. Purchased equipment by issuing a $160,000, 180-day note to Houston Manufacturing Co., which
The following information about the payroll for the week ended December 30 was obtained from the records of Vienna Co.:Tax rates assumed:Social security, 6% on first $100,000 of employee annual earningsMedicare, 1.5%State unemployment (employer only), 3.8%Federal unemployment (employer only),
CTU Industries, Inc., began business on January 2, 2009. Salaries were paid to employees on the last day of each month, and social security tax, Medicare tax, and federal income tax were withheld in the required amounts. An employee who is hired in the middle of the month receives half the monthly
The payroll register for Gogol Manufacturing Co. for the week ended September 12, 2010, is presented in the working papers.Instructions1. Journalize the entry to record the payroll for the week.2. Journalize the entry to record the issuance of the checks to employees.3. Journalize the entry to
The following data for Burtard Industries, Inc., relate to the payroll for the week ended December 10, 2010:Employees Barnes and Crean are office staff, and all of the other employees are sales personnel. All sales personnel are paid 11/2 times the regular rate for all hours in excess of 40 hours
The following accounts, with the balances indicated, appear in the ledger of YukonKayak Co. on December 1 of the current year:The following transactions relating to payroll, payroll deductions, and payroll taxes occurred during December:Dec. 1. Issued Check No. 510 to Tidy Insurance Company for
Selected transactions completed by Blackwell Company during its first fiscal year ending December 31 were as follows:Jan. 2. Issued a check to establish a petty cash fund of $2,000.Mar. 4. Replenished the petty cash fund, based on the following summary of petty cash receipts: office supplies, $789;
Suzanne Thompson is a certified public accountant (CPA) and staff accountant for Deuel and Soldner, a local CPA firm. It had been the policy of the firm to provide a holiday bonus equal to two weeks’ salary to all employees. The firm’s new management team announced on November 15 that a bonus
The annual examination of Tidal Company’s financial statements by its external public accounting firm (auditors) is nearing completion. The following conversation took place between the controller of Tidal Company (Jose) and the audit manager from the public accounting firm (Cara).Cara: You
Paul Sheile, the owner of Sheile Trucking Company, initiated an executive bonus plan for his chief executive officer (CEO). The new plan provides a bonus to the CEO equal to 3% of the income before taxes. Upon learning of the new bonus arrangement, the CEO issued instructions to change the
Payroll accounting involves the use of government-supplied forms to account for payroll taxes. Three common forms are the W-2, Form 940, and Form 941. Form a team with three of your classmates and retrieve copies of each of these forms. They may be obtained from a local IRS office, a library, or
If you asked your broker to purchase for you a 10% bond when the market interest rate for such bonds was 11%, would you expect to pay more or less than the face amount for the bond? Explain.
If bonds issued by a corporation are sold at a premium, is the market rate of interest greater or less than the contract rate?
When a corporation issues bonds at a discount, is the discount recorded as income when the bonds are issued? Explain.
Assume that two 30-year, 10% bond issues are identical, except that one bond issue is callable at its face amount at the end of five years. Which of the two bond issues do you think will sell for a lower value?
Bonds Payable has a balance of $1,000,000, and Discount on Bonds Payable has a balance of $50,000. If the issuing corporation redeems the bonds at 98, is there a gain or loss on the bond redemption?
What is a mortgage note?
Fleeson Company needs additional funds to purchase equipment for a new production facility and is considering either issuing bonds payable or borrowing the money from a local bank in the form of an installment note. How does an installment note differ from a bond payable? Discuss.
What is meant by the phrase “time value of money”?
On the first day of the fiscal year, a company issues a $750,000, 7%, five-year bond that pays semiannual interest of $26,250 = ($750,000 × 7% × ½), receiving cash of $663,128. Journalize the bond issuance.
On the first day of the fiscal year, a company issues a $1,000,000, 11%, 10-year bond that pays semiannual interest of $55,000 ($1,000,000 × 11% × ½), receiving cash of $942,646. Journalize the bond issuance.
Based on the data in Exercise 14-1, discuss factors other than earnings per share that should be considered in evaluating such financing plans.
The financial statements for Nike, Inc., are presented in Appendix E at the end of the text. What is the major source of financing for Nike?
Procter and Gamble’s 8% bonds due in 2024 were reported as selling for 126.987. Were the bonds selling at a premium or at a discount? Explain.
On January 1, 2010, Zinn Company obtained a $52,000, four-year, 6.5% installment note from Fidelity Bank. The note requires annual payments of $15,179, beginning on December 31, 2011.a. Prepare an amortization table for this installment note, similar to the one presented in Exhibit 3.b. Journalize
At the beginning of the current year, two bond issues (X and Y) were outstanding. During the year, bond issue X was redeemed and a significant loss on the redemption of bonds was reported as an extraordinary item on the income statement. At the end of the year, bond issue Y was reported as a
Assume the same data as in Appendix 1 Exercise 14-16, except that the current interest rate is 14%. Will the present value of your winnings using an interest rate of 14% be one half the present values of your winnings using an interest rate of 7%? Why or why not?
The following transactions were completed by Hobson Inc., whose fiscal year is the calendar year:2010July 1. Issued $10,000,000 of 10-year, 15% callable bonds dated July 1, 2010, at an effective rate of 11%, receiving cash of $12,390,085. Interest is payable semiannually on December 31 and June
On July 1, 2010, Linux Corporation, a wholesaler of electronics equipment, issued $45,000,000 of 10-year, 10% bonds at an effective interest rate of 14%, receiving cash of $35,465,423. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the
Prosser Corporation produces and sells baseball cards. On July 1, 2010, Prosser Corporation issued $40,000,000 of 10-year, 12% bonds at an effective interest rate of 11%, receiving cash of $42,390,112. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the
Lachgar Industries develops and produces bio diesel, an alternative energy source. The company has an outstanding $200,000,000, 30-year, 12% bond issue dated July 1, 2005. The bond issue is due June 30, 2035. The bond indenture requires a bond sinking fund, which has a balance of $24,000,000 as of
Finn Kilgallon recently won the jackpot in the Wisconsin lottery while he was visiting his parents. When he arrived at the lottery office to collect his winnings, he was offered the following three payout options:a. Receive $10,000,000 in cash today.b. Receive $2,200,000 today and $1,050,000 per
Moody’s Investors Service maintains a Web site at www.Moodys.com. One of the services offered at this site is a listing of announcements of recent bond rating changes. Visit this site and read over some of these announcements. Write down several of the reasons provided for rating downgrades and
Emilio Alvarez and Graciela Zavala joined together to form a partnership. Is it possible for them to lose a greater amount than the amount of their investment in the partnership? Explain.
In the absence of an agreement, how will the net income be distributed between Ethan Arnold and Tessa Winthrop, partners in the firm of A and W Environmental Engineering?
Josiah Barlow, Patty DuMont, and Owen Maholic are contemplating the formation of a partnership. According to the partnership agreement, Barlow is to invest $60,000 and devote one-half time, DuMont is to invest $40,000 and devote threefourths time, and Maholic is to make no investment and devote
All partners agree that $150,000 of accounts receivable invested by a partner will be collectible to the extent of 90%. How should the accounts receivable be recorded in the general ledger of the partnership?
During the current year, Marsha Engles withdrew $4,000 monthly from the partnership of Engles and Cox Water Management Consultants. Is it possible that her share of partnership net income for the current year might be more or less than $48,000? Explain.
Explain the difference between the admission of a new partner to a partnership (a) By purchase of an interest from another partner and(b) By contribution of assets to the partnership.
Why is it important to state all partnership assets in terms of current prices at the time of the admission of a new partner?
In the liquidation process, (a) How are losses and gains on realization divided among the partners, and(b) How is cash distributed among the partners?
Sixty-year-old Jasmine Howard retired from her computer consulting business in Boston and moved to Florida. There she met 27-year-old Dawn Patel, who had just graduated from Eldon Community College with an associate degree in computer science. Jasmine and Dawn formed a partnership called J&D
The statement of members€™ equity for Yellow Mountain Mines, LLC, is shown below.(a) What was the income-sharing ratio in 2010?(b) What was the income-sharing ratio in 2011?(c) How much cash did Randy Reed contribute to Yellow Mountain Mines, LLC, for his interest?(d) Why do the member
On June 1, 2009, Kevin Schmidt and David Cohen form a partnership. Schmidt agrees to invest $12,000 cash and merchandise inventory valued at $32,000. Cohen invests certain business assets at valuations agreed upon, transfers business liabilities, and contributes sufficient cash to bring his total
Desmond Drury and Ty Wilkins have decided to form a partnership. They have agreed that Drury is to invest $20,000 and that Wilkins is to invest $30,000. Drury is to devote full time to the business, and Wilkins is to devote one-half time. The following plans for the division of income are being
The ledger of Amid Moshref and Alex Weekley, attorneys-at-law, contains the following accounts and balances after adjustments have been recorded on December 31, 2010:The balance in Weekley’s capital account includes an additional investment of $20,000 made on April 5, 2010.Instructions1. Prepare
Jordan Cates and LaToya Orr have operated a successful firm for many years, sharing net income and net losses equally. Caleb Webster is to be admitted to the partnership on June 1 of the current year, in accordance with the following agreement:a. Assets and liabilities of the old partnership are to
After the accounts are closed on September 10, 2010, prior to liquidating the partnership, the capital accounts of Kris Harken, Brett Sedlacek, and Amy Eldridge are $31,000, $5,700, and $24,500, respectively. Cash and noncash assets total $7,800 and $61,400, respectively. Amounts owed to creditors
On June 3, 2010, the firm of McAdams, Cooper, and Zhang decided to liquidate their partnership. The partners have capital balances of $14,000, $84,000, and $118,000, respectively.The cash balance is $29,000, the book values of noncash assets total $242,000, and liabilities total $55,000. The
On August 1, 2010, Jarius Walker and Rae King form a partnership. Walker agrees to invest $18,200 in cash and merchandise inventory valued at $48,800. King invests certain business assets at valuations agreed upon, transfers business liabilities, and contributes sufficient cash to bring her total
Larson and Alvarez have decided to form a partnership. They have agreed that Larson is to invest $150,000 and that Alvarez is to invest $50,000. Larson is to devote one-half time to the business and Alvarez is to devote full time. The following plans for the division of income are being
The ledger of Dan Yamada and Courtney Forte, attorneys-at-law, contains the following accounts and balances after adjustments have been recorded on December 31, 2010:The balance in Forte’s capital account includes an additional investment of $10,000 made on August 10, 2010.Instructions1. Prepare
Sadhil Rao and Lauren Sails have operated a successful firm for many years, sharing net income and net losses equally. Paige Hancock is to be admitted to the partnership on May 1 of the current year, in accordance with the following agreement:a. Assets and liabilities of the old partnership are to
After the accounts are closed on July 3, 2010, prior to liquidating the partnership, the capital accounts of Whitney Lacy, Eli Oliver, and Alberto Diaz are $28,200, $7,800, and $37,200, respectively. Cash and noncash assets total $5,800 and $82,400, respectively. Amounts owed to creditors total

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