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intermediate accounting reporting

Intermediate Accounting 16th Edition Donald E. Kieso - Solutions

Potlatch Corporation has issued various types of bonds such as term bonds, income bonds, and debentures.Differentiate between term bonds, mortgage bonds, debenture bonds, income bonds, callable bonds, registered bonds, bearer or coupon bonds, convertible bonds, commodity-backed bonds, and deep
Distinguish between the following values relative to bonds payable:(a) Maturity value. (c) Market (fair) value.(b) Face value. (d) Par value.
Briggs and Stratton recently issued debt with issue costs of$5.1 million. How should the costs of issuing these bonds be accounted for and classified in the financial statements?
Pierre Company has a 12% note payable with a carrying value of $20,000. Pierre applies the fair value option to this note. Given an increase in market interest rates, the fair value of the note is $22,600. Prepare the entry to record the fair value option for this note, assuming (a) no change in
How are restrictions of retained earnings reported?*2
McNabb Corp. had $100,000 of 7%, $20 par value preferred stock and 12,000 shares of $25 par value common stock outstanding throughout 2017.(a) Assuming that total dividends declared in 2017 were $64,000, and that the preferred stock is not cumulative but is fully participating, common stockholders
Four years after issue, debentures with a face value of$1,000,000 and book value of $960,000 are tendered for conversion into 80,000 shares of common stock immediately after an interest payment date. At that time, the market price of the debentures is 104, and the common stock is selling at $14 per
Explain how trading debt securities are accounted for and reported.
At what amount should trading, available-for-sale, and held-to-maturity debt securities be reported on the balance sheet?
On July 1, 2017, Wheeler Company purchased $4,000,000 of Duggen Company’s 8% bonds, due on July 1, 2024.The bonds, which pay interest semiannually on January 1 and July 1, were purchased for $3,500,000 to yield 10%.Determine the amount of interest revenue Wheeler should report on its income
If the bonds in Question 8 are classified as available-forsale and they have a fair value at December 31, 2017, of$3,604,000, prepare the journal entry (if any) at December 31, 2017, to record this transaction.
Indicate how unrealized holding gains and losses should be reported for debt investments classified as trading, available-for-sale, and held-to-maturity.
(a) Assuming no Fair Value Adjustment account balance at the beginning of the year, prepare the adjusting entry at the end of the year if Laura Company’s available-forsale debt securities have a fair value $60,000 below cost.(b) Assume the same information as part (a), except that Laura Company
Hayes Company sold 10,000 shares of Kenyon Co. common stock for $27.50 per share, incurring $1,770 in brokerage commissions. These securities originally cost $260,000.Prepare the entry to record the sale of these securities.
Distinguish between the accounting treatment for marketable versus nonmarketable equity securities.
Where on the asset side of the balance sheet are debt investments classified as trading securities, available-forsale securities, and held-to-maturity securities reported?Explain.
Explain how to account for the impairment of a held-tomaturity debt security.
Franklin Corp. has a debt investment that it has held for several years. When it purchased the debt investment, Franklin classified and accounted for it as available-forsale.Can Franklin use the fair value option for this investment? Explain.
What was viewed as a major criticism of GAAP as it relates to revenue recognition?
When is revenue recognized in the following situations?(a) Revenue from selling products, (b) revenue from services performed, (c) revenue from permitting others to use company assets, and (d) revenue from disposing of assets other than products.
Refer to the information in Question
Assume that Allee has limited experience with a construction project on the same scale as the 10 speedboats. How does this affect the accounting for the variable consideration?
In measuring the transaction price, explain the accounting for (a) time value of money, and (b) noncash consideration.
Why in franchise arrangements may it be improper to recognize the entire franchise fee as revenue at the date of sale?
The book basis of depreciable assets for Erwin Co. is$900,000, and the tax basis is $700,000 at the end of 2018.The enacted tax rate is 34% for all periods. Determine the amount of deferred taxes to be reported on the balance sheet at the end of 2018.
Roth Inc. has a deferred tax liability of $68,000 at the beginning of 2018. At the end of 2018, it reports accounts receivable on the books at $90,000 and the tax basis at zero (its only temporary difference). If the enacted tax rate is 34% for all periods, and income taxes payable for the period
Lee Company’s current income taxes payable related to its taxable income for 2017 is $320,000. In addition, Lee’s deferred tax liability increased $40,000 and its deferred tax asset increased $10,000 during 2017. What is Lee’s income tax expense for 2017?
Addison Co. has one temporary difference at the beginning of 2017 of $500,000. The deferred tax liability established for this amount is $150,000, based on a tax rate of 30%. The temporary difference will provide the following taxable amounts: $100,000 in 2018, $200,000 in 2019, and $200,000 in
Boey Company reported net income of $25,000 in 2018. It had the following amounts related to its pension plan in 2018: Actuarial liability gain $10,000; Unexpected asset loss $14,000; Accumulated other comprehensive income(G/L) (beginning balance), zero. Determine for 2018(a) Boey’s other
A headline in the Wall Street Journal stated, “Firms Increasingly Tap Their Pension Funds to Use Excess Assets.” What is the accounting issue related to the use of these “excess assets” through plan terminations?
(FASB and Standard-Setting) Presented below are four statements which you are to identify as true or false. If false, explain why the statement is false.1. GAAP is the term used to indicate the whole body of FASB authoritative literature.2. Any company claiming compliance with GAAP must comply with
(GAAP and Standard-Setting) Presented below are four statements which you are to identify as true or false. If false, explain why the statement is false.1. The objective of financial statements emphasizes a stewardship approach for reporting financial information.2. The purpose of the objective of
(Financial Accounting) Omar Morena has recently completed his first year of studying accounting. His instructor for next semester has indicated that the primary focus will be the area of financial accounting.Instructions(a) Differentiate between financial accounting and managerial accounting.(b)
(Objective of Financial Reporting) Karen Sepan, a recent graduate of the local state university, is presently employed by a large manufacturing company. She has been asked by Jose Martinez, controller, to prepare the company’s response to a current Preliminary Views published by the Financial
(Accounting Numbers and the Environment) Hardly a day goes by without an article appearing on the continuing fallout from the financial crisis of 2008. An overheated real estate market, fueled by home purchase incentives, poor lending practices, and securitization through high-risk, mortgage-backed
(AICPA’s Role in Rule-Making) One of the major groups that has been involved in the standard-setting process is the American Institute of Certified Public Accountants. Initially, it was the primary organization that established accounting principles in the United States. Subsequently, it
(Models for Setting GAAP) Presented below are three models for setting GAAP.1. The purely political approach, where national legislative action decrees GAAP.2. The private, professional approach, where GAAP is set and enforced by private professional actions only.3. The public/private mixed
Discuss how a leased building might qualify as an asset of the lessee(tenant) under this definition.
Refer to the definition of assets on page
GROUPWORK (GAAP Terminology) Wayne Rogers, an administrator at a major university, recently said, “I’ve got some CDs in my IRA, which I set up to beat the IRS.” As elsewhere, in the world of accounting and finance, it often helps to be fluent in abbreviations and acronyms.Instructions
Where should the following items be shown on the balance sheet, if shown at all?(a) Allowance for doubtful accounts.(b) Merchandise held on consignment.(c) Advances received on sales contract.(d) Cash surrender value of life insurance.(e) Land.(f) Merchandise out on consignment.(g) Franchises.(h)
In what section of the balance sheet should the following items appear, and what balance sheet terminology would you use?(a) Treasury stock (recorded at cost).(b) Checking account at bank.(c) Land (held as an investment).(d) Sinking fund.(e) Unamortized premium on bonds payable.(f) Copyrights.(g)
The New York Knicks, Inc. sold 10,000 season tickets at$2,000 each. By December 31, 2017, 16 of the 40 home games had been played. What amount should be reported as a current liability at December 31, 2017?
ETHICS (Rule-Making Issues) When the FASB issues new pronouncements, the implementation date is usually 12 months from date of issuance, with early implementation encouraged. Karen Weller, controller, discusses with her financial vice president the need for early implementation of a rule that would
What is meant by liquidity? Rank the following assets from one to five in order of liquidity.(a) Goodwill. (d) Short-term investments.(b) Inventory. (e) Accounts receivable.(c) Buildings.
What are the two ways that other comprehensive income may be displayed (reported)?
Linus Paper Company decided to close two small pulp mills in Conway, New Hampshire, and Corvallis, Oregon.These two closings do not represent a major shift in strategy for the company. Would these closings be reported in a separate section entitled “Discontinued operations after income from
On January 30, 2016, a suit was filed against Frazier Corporation under the Environmental Protection Act. On August 6, 2017, Frazier Corporation agreed to settle the action and pay $920,000 in damages to certain current and former employees. How should this settlement be reported in the 2017
Qualls Corporation reported 2017 earnings per share of $7.21. In 2018, Qualls reported earnings per share as follows.On income from continuing operations $6.40 On discontinued operations 1.88 On net income $8.28 Is the increase in earnings per share from $7.21 to $8.28 a favorable trend?
Neumann Company computed earnings per share as follows.Net income Common shares outstanding at year-end Neumann has a simple capital structure. What possible errors might the company have made in the computation?Explain.
Indicate the section of a multiple-step income statement in which each of the following is shown.(a) Loss on inventory write-down.(b) Loss from strike.(c) Bad debt expense.(d) Loss on disposal of a discontinued operation.(e) Gain on sale of machinery.(f) Interest revenue.(g) Depreciation
Indicate where the following items would ordinarily appear on the financial statements of Boleyn, Inc. for the year 2017.(a) The service life of certain equipment was changed from 8 to 5 years. If a 5-year life had been used previously, additional depreciation of $425,000 would have been
Discuss the appropriate treatment in the financial statements of each of the following.(a) Gain on sale of investment securities.(b) A profit-sharing bonus to employees computed as a percentage of net income.(c) Additional depreciation on factory machinery because of an error in computing
Distinguish between cash-basis accounting and accrualbasis accounting. Why is accrual-basis accounting acceptable for most businesses and the cash-basis unacceptable in the preparation of an income statement and a balance sheet?
Jay Hawk, maintenance supervisor for Boston Insurance Co., has purchased a riding lawnmower and accessories to be used in maintaining the grounds around corporate headquarters. He has sent the following information to the accounting department.Cost of mower and Date purchased 7/1/17 accessories
The treasurer of Landowska Co. has heard that conservatism is a doctrine that is followed in accounting and, therefore, proposes that several policies be followed that are conservative in nature. State your opinion with respect to each of the policies listed.(a) The company gives a 2-year warranty
(Economic Consequences) Presented below are comments made in the financial press.Instructions Prepare responses to the requirements in each item.(a) Rep. John Dingell, at one time the ranking Democrat on the House Commerce Committee, threw his support behind the FASB’s controversial derivatives
Three expense recognition methods (associating cause and effect, systematic and rational allocation, and immediate recognition) were discussed in the text under the expense recognition principle. Indicate the basic nature of each of these expense recognition methods and give two examples of each.
The chairman of the board of directors of the company for which you are chief accountant has told you that he has little use for accounting figures based on historical cost.He believes that replacement values are of far more significance to the board of directors than “out-of-date costs.”
According to the FASB conceptual framework, the objective of financial reporting for business enterprises is based on the needs of the users of financial statements. Explain the level of sophistication that the Board assumes about the users of financial statements.
GROUPWORK (GAAP and Economic Consequences) The following letter was sent to the SEC and the FASB by leaders of the business community.Dear Sirs:The FASB has been struggling with accounting for derivatives and hedging for many years. The FASB has now developed, over the last few weeks, a new
If you were given complete authority in the matter, how would you propose that GAAP should be developed and enforced?
For what purposes did the AICPA create the Accounting Principles Board?
(Conceptual Framework—General) Wayne Cooper has some questions regarding the theoretical framework in which GAAP is set. He knows that the FASB and other predecessor organizations have attempted to develop a conceptual framework for accounting theory formulation. Yet, Wayne’s supervisors have
WRITING (Conceptual Framework—General) The Financial Accounting Standards Board (FASB) has developed a conceptual framework for financial accounting and reporting. The FASB has issued eight Statements of Financial Accounting Concepts. These statements are intended to set forth the objective and
(Objective of Financial Reporting) Homer Winslow and Jane Alexander are discussing various aspects of the FASB’s concepts statement on the objective of financial reporting. Homer indicates that this pronouncement provides little, if any, guidance to the practicing professional in resolving
GROUPWORK (Qualitative Characteristics) Accounting information provides useful information about business transactions and events. Those who provide and use financial reports must often select and evaluate accounting alternatives.The FASB statement on qualitative characteristics of accounting
(Revenue Recognition Principle) After the presentation of your report on the examination of the financial statements to the board of directors of Piper Publishing Company, one of the new directors expresses surprise that the income statement assumes that an equal proportion of the revenue is
(Expense Recognition Principle) An accountant must be familiar with the concepts involved in determining earnings of a business entity. The amount of earnings reported for a business entity is dependent on the proper recognition, in general, of revenues and expenses for a given time period. In some
(Expense Recognition Principle) Accountants try to prepare income statements that are as accurate as possible. A basic requirement in preparing accurate income statements is to record costs and revenues properly. Proper recognition of costs and revenues requires that costs resulting from typical
(Expense Recognition Principle) Daniel Barenboim sells and erects shell houses, that is, frame structures that are completely finished on the outside but are unfinished on the inside except for flooring, partition studding, and ceiling joists. Shell houses are sold chiefly to customers who are
WRITING (Qualitative Characteristics) Recently, your uncle, Carlos Beltran, who knows that you always have your eye out for a profitable investment, has discussed the possibility of your purchasing some corporate bonds. He suggests that you may wish to get in on the “ground floor” of this deal.
ETHICS (Expense Recognition Principle) Anderson Nuclear Power Plant will be “mothballed” at the end of its useful life (approximately 20 years) at great expense. The expense recognition principle requires that expenses be recognized as assets are used up or liabilities are incurred. Accountants
(Reporting the Financial Effects of Varied Transactions) In an examination of Arenes Corporation as of December 31, 2017, you have learned that the following situations exist. No entries have been made in the accounting records for these items.1. The corporation erected its present factory building
(Identifying Balance Sheet Deficiencies) The assets of Fonzarelli Corporation are presented below (000s omitted).Instructions Indicate the deficiencies, if any, in the foregoing presentation of Fonzarelli Corporation’s assets. FONZARELLI CORPORATION BALANCE SHEET (PARTIAL) DECEMBER 31, 2017
WRITING (Critique of Balance Sheet Format and Content) The following is the balance sheet of Sameed Brothers Corporation (000s omitted).Instructions Evaluate the balance sheet presented. State briefly the proper treatment of any item criticized. SAMEED BROTHERS CORPORATION BALANCE SHEET DECEMBER
WRITING (Cash Flow Analysis) The partner in charge of the Kappeler Corporation audit comes by your desk and leaves a letter he has started to the CEO and a copy of the cash flow statement for the year ended December 31, 2017. Because he must leave on an emergency, he asks you to finish the letter
(L03) Match the qualitative characteristics below with the following statements.1. Relevance 5. Comparability 2. Faithful representation 6. Completeness 3. Predictive value 7. Neutrality 4. Confirmatory value 8. Timeliness(a) Quality of information that permits users to identify similarities in and
(L03) Match the qualitative characteristics below with the following statements.1. Timeliness 5. Faithful representation 2. Completeness 6. Relevance 3. Free from error 7. Neutrality 4. Understandability 8. Confirmatory value(a) Quality of information that assures users that information represents
(L03) Discuss whether the changes described in each of the cases below require recognition in the CPA’s audit report as to consistency. (Assume that the amounts are material.)(a) The company changed its inventory method to FIFO from weighted-average, which had been used in prior years.(b) The
(L03) Identify which qualitative characteristic of accounting information is best described in each item below. (Do not use relevance and faithful representation.)(a) The annual reports of Best Buy Co. are audited by certified public accountants.(b) Black & Decker and Cannondale Corporation both
(L03) Presented below are three different transactions related to materiality. Explain whether you would classify these transactions as material.(a) Blair Co. has reported a positive trend in earnings over the last 3 years. In the current year, it reduces its bad debt allowance to ensure another
(L05) If the going concern assumption is not made in accounting, discuss the differences in the amounts shown in the financial statements for the following items.(a) Land. (d) Inventory.(b) Unamortized bond premium. (e) Prepaid insurance.(c) Depreciation expense on equipment.
(L06) Identify which basic principle of accounting is best described in each item below.(a) Norfolk Southern Corporation reports revenue in its income statement when the performance obligation is satisfied instead of when the cash is collected.(b) Yahoo! recognizes depreciation expense for a
(L02,3) On July 1, 2017, Crowe Co. pays $15,000 to Zubin Insurance Co. for a 3-year insurance policy. Both companies have fiscal years ending December 31. For Crowe Co., journalize the entry on July 1 and the adjusting entry on December 31.
(L02,3) Using the data in BE3-3, journalize the entry on July 1 and the adjusting entry on December 31 for Zubin Insurance Co. Zubin uses the accounts Unearned Service Revenue and Service Revenue.
(L02,3) Assume that on February 1, Procter & Gamble (P&G) paid $720,000 in advance for 2 years’ insurance coverage.Prepare P&G’s February 1 journal entry and the annual adjusting entry on June 30.
(L02,3) Dresser Company’s weekly payroll, paid on Fridays, totals $8,000. Employees work a 5-day week. Prepare Dresser’s adjusting entry on Wednesday, December 31, and the journal entry to record the $8,000 cash payment on Friday, January 2.
(L03) Prepare the following adjusting entries at August 31 for Walgreens.(a) Interest on notes payable of $300 is accrued.(b) Services performed but unbilled total $1,400.(c) Salaries and wages earned by employees of $700 have not been recorded.(d) Bad debt expense for year is $900.Use the
(L03) Starr Co. had sales revenue of $540,000 in 2017. Other items recorded during the year were:Cost of goods sold $330,000 Salaries and wages expense 120,000 Income tax expense 25,000 Increase in value of company reputation 15,000 Other operating expenses 10,000 Unrealized gain on value of
(L03) Brisky Corporation had net sales of $2,400,000 and interest revenue of $31,000 during 2017. Expenses for 2017 were cost of goods sold $1,450,000, administrative expenses $212,000, selling expenses $280,000, and interest expense $45,000.Brisky’s tax rate is 30%. The corporation had 100,000
(L03) Using the information provided in BE4-2, prepare a condensed multiple-step income statement for Brisky Corporation.
(L02,3,4) Finley Corporation had income from continuing operations of $10,600,000 in 2017. During 2017, it disposed of its restaurant division at an after-tax loss of $189,000. Prior to disposal, the division operated at a loss of $315,000 (net of tax)in 2017 (assume that the disposal of the
(L02,3,4) Stacy Corporation had income from operations of $7,200,000. In addition, it suffered an unusual and infrequent pretax loss of $770,000 from a volcano eruption, interest revenue of $17,000, and a write-down on buildings of $53,000. The corporation’s tax rate is 30%. Prepare a partial
(L05) During 2017, Williamson Company changed from FIFO to weighted-average inventory pricing. Pretax income in 2016 and 2015 (Williamson’s first year of operations) under FIFO was $160,000 and $180,000, respectively. Pretax income using weighted-average pricing in the prior years would have been
(L05) Vandross Company has recorded bad debt expense in the past at a rate of 1½% of accounts receivable, based on an aging analysis. In 2017, Vandross decides to increase its estimate to 2%. If the new rate had been used in prior years, cumulative bad debt expense would have been $380,000 instead
(L04) In 2017, Hollis Corporation reported net income of $1,000,000. It declared and paid preferred stock dividends of$250,000. During 2017, Hollis had a weighted average of 190,000 common shares outstanding. Compute Hollis’s 2017 earnings per share.
(L06) Portman Corporation has retained earnings of $675,000 at January 1, 2017. Net income during 2017 was$1,400,000, and cash dividends declared and paid during 2017 totaled $75,000. Prepare a retained earnings statement for the year ended December 31, 2017.
(L05,6) Using the information from BE4-9, prepare a retained earnings statement for the year ended December 31, 2017. Assume an error was discovered: land costing $80,000 (net of tax) was charged to maintenance and repairs expense in 2014.
(L07) On January 1, 2017, Richards Inc. had cash and common stock of $60,000. At that date, the company had no other asset, liability, or equity balances. On January 2, 2017, it purchased for cash $20,000 of debt securities that it classified as available-for-sale. It received interest of $3,000

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