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intermediate accounting reporting

Questions and Answers of Intermediate Accounting Reporting

Synergy Corporation is authorized to issue $1,200,000 of 8% bonds. Interest on the bonds is payable semiannually; the bonds are dated January 1, 2019, and are due December 31, 2023.Required:Prepare
Madison Corporation is authorized to issue $500,000 of 5-year bonds dated June 30, 2019, with a stated rate of interest of 11%. Interest on the bonds is payable semiannually, and the bonds are sold
On January 2, 2019, Jennings Company purchases machinery and equipment and borrows $200,000 on a 5-year non-interest-bearing note. The principal of $200,000 will be paid at the maturity date of
On January 1, 2019, Boater Company issues a $20,000 non-interest-bearing, 5-year note for equipment. Neither the fair value of the note nor the equipment is determinable. Boater’s incremental
On January 1, 2019, Branson Corporation issued $500,000 of convertible bonds at par value. The bonds were issued with a stated interest rate of 3%. Each $1,000 bond is convertible into 20 shares of
On January 1, 2019, Langdon & Co. issues bonds with a face value of $50,000 for $51,000. Each $1,000 bond carries 10 warrants, and each warrant allows the holder to acquire one share of $1 par
On June 1, 2019, Fignon Company recalls bonds with a face value of $200,000 and a current book value of $190,000. Fignon pays $192,000 to retire the bonds. Prepare the journal entry to record the
Use the information in RE14-8, except assume that the bonds are sold for $318,000. Prepare the journal entries to record the issuance on April 1, 2019, and the first interest payment on October 1,
Bangles Corporation issued 5-year, 11% bonds with a face value of $300,000 on April 1, 2019, for $288,000. Interest is paid semiannually at October 1 and April 1. Prepare the journal entries to
Use the information in RE14-6, except assume that Temple issues its bonds on March 1, 2019, at par, plus accrued interest. Prepare the journal entries to record the issuance of the bonds (adjust
On January 1, 2019 (the authorization date), Temple Company issues $500,000 of 9% bonds at 103. These bonds pay interest on June 30 and December 31. Prepare the journal entry to record the issuance
On January 1, 2019, North Company issued $2,000,000 of bonds with a stated rate of 10% that are due to mature December 31, 2025, and pay interest semiannually. The market rate of interest was 9% at
Refer to the information in RE14-3. Lightfoot uses the effective interest method to amortize the premium on June 30, 2019. Prepare the journal entry to record the first interest payment on June 30,
On January 1, 2019 Lightfoot Corporation issues 10%, 5-year bonds with a face value of $275,000 when the effective interest rate is 9%. Interest is to be paid semiannually on June 30 and December
Refer to the information in RE14-1. Assume Canglon uses the effective interest method to amortize the discount. Prepare the journal entry to record the first interest payment on June 30,
On January 1, 2019, Canglon, Inc., issues 10%, 5-year bonds with a face value of $150,000 when the effective rate is 12%. Interest is to be paid semiannually on June 30 and December 31. Prepare
On January 1, 2019, when the market rate for bond interest was 14%, Lenoir Corporation issued bonds in the face amount of $500,000 with interest at 12% payable semiannually. The bonds mature on
Pamlico Company has a $500,000, 15%, 3-year note dated January 1, 2019, payable to Forest National Bank. On December 31, 2020, the bank agreed to settle the note and unpaid interest of $75,000 for
On January 1, 2019, Onslow Company borrowed $360,000 from a major customer evidenced by a non-interest-bearing note due in 3 years. Onslow agreed to supply the customer’s inventory needs for the
On July 1, 2019, Rix Corporation had $10,000,000 of 9% bonds outstanding. The maturity date is June 30, 2024. Interest is paid semiannually every June 30 and December 31. All the bonds were redeemed
On December 31, 2019, Dare Corporation had outstanding 8%, $2,000,000 face value convertible bonds maturing on December 31, 2023. Interest is payable annually on December 31. Each $1,000 bond is
On April 1, 2019, Granville Corporation issued, at 98 plus accrued interest, 400 of its 10%, $1,000 bonds. The bonds are dated January 1, 2019, and mature on December 31, 2025. Interest is payable
On January 1, 2019, Bay Company issues bonds with a face value of $850,000 that pay 9% interest semiannually and mature in 15 years. The market interest rate at the date of issuance is 8%. What is
Under what conditions would a debtor company recognize a gain after modifying the terms of its borrowing agreement?
Distinguish between bond premiums and discounts.
At the beginning of 2018, corporate tax rates decreased from 35% to 21%. Did this decrease in tax rates increase or decrease the advantage of financing with debt?
Why does issuing debt result in an income tax advantage when compared to issuing equity?
Why does debt financing typically have a lower cost of capital than equity financing?
Blaedon Co. makes ongoing design refinements to lawnmowers that are produced for it by contractors. Blaedon stores the lawnmowers in its own warehouse and sells them at list price, directly to
Danburg Company has a $5 million, 9% bank loan outstanding with its local bank. On January 1, 2019, when the loan has 4 years remaining, Danburg contracts with Bradford Investment Bank to enter into
On January 1, 2018, Kehoe Corporation insured the lives of its president, vice president, controller, and treasurer for $100,000 each. The annual premium on each policy is $4,200, payable on January
During 2019, Francis Company decided to begin investing its idle cash in marketable securities. The information contained below relates to Francis’s 2019 marketable security transactions:Apr. 1
Anglar Company has a $3 million, 7% bank loan from Castle Rock Bank. On January 1, 2019, when the $3 million loan has 3 years remaining, Anglar contracts with Susan Investment Bank to enter into a
The following information is available concerning Nunan Corporation’s sinking fund:2019Jan. 1 Established a sinking fund to retire an outstanding bond issue by contributing $425,000.Feb. 3
Westford Corporation purchases life insurance policies on its officers, and these policies all carry a cash surrender value clause. At the beginning of 2019, Westford paid $13,300 in life insurance
On January 1, 2019, Pitt Company sold a patent to Chatham Inc. which had a carrying value on Pitt’s books of $10,000. Chatham gave Pitt a $60,000, non-interest-bearing note payable in five equal
On January 1, 2019, Tabor Company sold land with a book value of $50,000 to Wilson Company, accepting a $60,000 note, payable in three $20,000 annual installments beginning December 31, 2019. The
On January 1, 2019, Worthylake Company sold used machinery to Brown Company, accepting a $25,000, non-interest-bearing note maturing on January 1, 2021. Worthylake carried the machinery on its books
On January 1, 2019, Crouser Company sold land to Chad Company, accepting a 2-year, $150,000, non-interest-bearing note due January 1, 2021. The fair value of the land was $123,966.90 on the date of
On January 1, 2019, Jones Company acquires a 30% interest in Fink Company by purchasing 3,000 of its 10,000 common shares for $16 per share and obtains significant influence. On the date of
On January 1, 2019, Field Company acquired 40% of North Company by purchasing 8,000 shares for $144,000 and obtained significant influence. On the date of acquisition, Field calculated that its share
Miller Corporation acquired 30% of the outstanding common stock of Crowell Corporation for $160,000 on January 1, 2019, and obtained significant influence. The purchase price of the shares was equal
Southeast Bank invests in equity securities and prepares quarterly financial statements. At the beginning of the fourth quarter of 2019, the bank held as an investment in equity securities 200 shares
Midwest Bank invests in equity securities. At the beginning of December 2019, the bank held no equity securities. During December of 2019, it entered into the following transactions:Dec. 10 Purchased
On June 1, 2019, Hansen Company purchased ten $1,000 Francisco Company bonds at par and classified them as held-to-maturity. In 2020, Francisco experienced financial difficulties and on Dec 31, 2020,
On December 31, 2018, Leslie Company held an investment in bonds of Kaufmann Company which it categorized as being held to maturity. At that time, the 8%, $100,000 face value bonds had a carrying
At the end of 2018, Terry Company prepared the following schedule of investments in available-for-sale debt securities (all of which were acquired at par value):During 2019, the following
At the beginning of 2019, Ace Company had the following portfolio of investments in available-for-sale debt securities (all of which were acquired at par value):During 2019, the following
On December 31, 2018, Marsh Company held Xenon Company bonds in its portfolio of available-for-sale securities. The bonds have a par value of $15,000, carry a 10% annual interest rate, mature in
On December 31, 2019, Sumner Company held Wall Company bonds in its portfolio of trading securities. The bonds have a par value of $40,000, carry a 10% annual interest rate, mature in 2026, and had
At the end of 2018, Hodge Company prepared the following schedule of investments in trading debt securities (all of which were acquired at par value):During 2019, the following transactions
At the beginning of 2019, Able Company had the following portfolio of investments in trading securities (all of which were acquired at par value):During 2019, the following transactions occurred:May
Glover Corporation purchased bonds with a face value of $300,000 for $307,493.34 on January 1, 2019. The bonds carry a face rate of interest of 12%, pay interest semiannually on June 30 and December
On January 1, 2019, Lynch Company acquired 13% bonds with a face value of $50,000. The bonds pay interest on June 30 and December 31 and mature on December 31, 2021. Lynch paid $51,229.35, a price
On January 1, 2019, Rodgers Company purchased $200,000 face value, 10%, 3-year bonds for $190,165.35, a price that yields a 12% effective annual interest rate. The bonds pay interest semiannually on
On November 1, 2018, Reid Corporation acquired bonds with a face value of $700,000 for $673,618.61. The bonds carry a stated rate of interest of 10%, were purchased to yield 11%, pay interest
On March 31, 2019, Brodie Corporation acquired bonds with a par value of $400,000 for $425,800. The bonds are due December 31, 2024, carry a 12% annual interest rate, pay interest on June 30 and
On January 1, 2019, Kelly Corporation acquired bonds with a face value of $500,000 for $483,841.79, a price that yields a 10% effective annual interest rate. The bonds carry a 9% stated rate of
The following investments occurred in 2019 for Mole Company.a. Mole purchased a bond that will mature in 10 years. Mole purchased this bond because it expects that over the next 6 months, interest
Refer to the information in RE13-1. Prepare the journal entry on June 30 for Gatrong to record the first interest receipt, using the effective interest method. Round to the nearest dollar.RE13-1On
On January 1, 2019, Tiger Company purchased 6,720 shares of Eagle Corporation’s common stock when Eagle had 22,400 shares outstanding. On that date, the following information pertained to
Refer to the information in RE13-11. Assume that on February 1, 2020, Wolfpack sold its investment in Cornett stock for $10,000. Prepare the journal entries of Wolfpack to record the sale.RE13-11On
Refer to the information in RE13-11. Assume that on December 31, 2019, the investment in Cornett Company stock has a market value of $10,500. Prepare the year-end journal entry to record the
Obtain Nestlé’s 2017 annual report using the “Investor Relations” portion of its web site (do a Web search for Nestlé investor relations).Required:1. What is the value of Nestlé’s
While examining the 2019 financial statements of Warder Corporation, you found evidence that the following were not included in its current liabilitieson the December 31, 2019, balance sheet:1. A
Bailey Dry Cleaners has six employees who were paid the following wages during 2019:Frank Johnson ....................$ 27,000Bill Long .................................18,000Duff Morse
Rexallo Company begins business on January 2, 2019, with 15 employees. Its company policy is to permit each employee to take 6 days of paid sick leave each year and 1½ days of paid vacation leave
Rosen Corporation was formed on December 12, 2018. It plans to close its books annually each December 31. Rosen is located in Lanmark City and Apple County. The fiscal period of these two
On January 1, 2019, Northern Manufacturing Company bought a piece of equipment by signing a non-interest-bearing $80,000, 1-year note. The face value of the note includes the price of the equipment
On December 31, 2019, Atwood Table Company has $8 million of short-term notes payable owed to City National Bank. On February 1, 2020, Atwood negotiates a revolving credit agreement providing for
Several times during 2019, Palmer Company issued shortterm commercial paper totaling $7 million. On December 31, 2019, the company’s year-end, Palmer intends to refinance the commercial paper by
Adjusto Corporation (which is on a December 31 fiscal year-end) engaged in the following transactions during 2019 and 2020:2019Nov. 1 Issued a 120-day, 12% note, face value of $20,000, to Johnson
On November 1, 2019, Edwin Inc. borrowed cash and signed a $60,000, 1-year note payable.Required:1. Compute the following items assuming (a) an interest-bearing note at 12%, (b) a
Byrd Company had the following transactions during 2019 and 2020:1. On December 24, 2019, a computer was purchased on account from Computers International for $60,000.Terms of the sale were 2/10,
On December 31, 2019, Braino Tech Inc. learned that its competitor had introduced a product using an accessory to which Braino has exclusive patent rights. Braino planned to file suit and its
On January 1, 2020, Fro-Yo Inc. began offering customers a cash rebate of $5.00 if the customer mails in 10 proof-of-purchase labels from its frozen yogurt containers. Based on historical experience,
On the back of its cereal boxes, Tiger Cereal Company offers a premium to its customers. The premium, a toy truck, may be claimed by sending in $1 plus 10 coupons; one coupon is included in each box
Sweet Dates Company offers a premium to its customers—a glass bowl (cost to Sweet Dates is $0.90) upon return of 40 coupons. Two coupons are placed in each box of dates sold. The company estimates,
On August 1, 2019, Pereira Corporation has sold 1,600 Wiglows to Mendez Company at $450 each. Mendez also purchased a 1-year service-type warranty on all the Wiglows for $12 per unit. In 2019,
On September 1, 2019, Carolina Electronics Company has 1,000 Blu-ray players ready for sale. On October 1, 2019, 900 are sold at $125 each with a 1-year assurance-type warranty. Carolina estimates
On December 4, 2019, Dan Johnson, delivery truck driver for Farmers Products Inc., ran astop sign and collided with another vehicle. On January 8, 2020, the driver of the other vehicle filed suit
Bettinghaus Corporation began business on January 2, 2019, with five employees. Its sick leave and vacation policy follows: Each employee is allowed 8 days of paid sick leave each year and one day of
Ames Company is located in a city and county that issue property tax statements in May of each year. The fiscal year for the two local governmental units is May 1 to April 30. Property taxes of
Family Practice Associates has an estimated property tax liability of $7,200 assessed as of January 1, 2019, for the year May 1, 2019, to April 30, 2020. The property tax is paid on September 1,
On December 5, 2019, Super Circuit Store sold gift certificates totaling $12,000. By December 31, 2019, all but $2,125 worth of these certificates had been redeemed for merchandise. Outstanding
On December 31, 2019, Carrboro Textile Company had short term debt in the form of notes payable totaling $600,000. These notes were due on June 1, 2020. Carrboro expected to refinance these notes on
On December 31, 2019, Excello Electric Company had $1 million of short-term notes payable due February 7, 2020. Excello expected to refinance these notes on a longterm basis. On January 15, 2020, the
On May 1, 2019, Ramden Company issues 13% bonds with a face value of $2 million. The bond contract calls for retirement of the bonds in periodic installments of $200,000, starting on May 1, 2020,
On October 30, 2019, Sanchez Company acquired a piece of machinery and signed a 12-month note for $24,000. The face value of the note includes the price of the machinery and interest.The note is to
On November 16, 2019, Clear Glass Company borrowed $20,000 from First American Bank by issuing a 90-day, non-interest-bearing note. The bank discounted this note at 12% and remitted the difference to
On December 1, 2019, Insto Photo Company purchased merchandise, invoice price $25,000, and issued a 12%, 120-day note to Ringo Chemicals Company. Insto uses the calendar year as its fiscal year and
On January 4, 2019, Dunbar Company purchased, on credit, 2,500 television sets at $800 each. Terms of the purchase were 2/10, n/30. Dunbar paid for 20% of these sets on January 13 and the remaining
During 2019, Lawton Company introduced a new line of machines that carry a 3-year assurance-type warranty against manufacturer’s defects. Based on industry experience, warranty costs are estimated
All of Rolf Co.’s employees are entitled to two weeks of paid vacation for each full year in Rolf’s employ. Unused vacation time can be accumulated and carried forward to succeeding years and
Morgan Company determined that (1) it has a material obligation relating to employees’ rights to receive compensation for future absences attributable to employees’ services already rendered, (2)
Bronson Apparel Inc. operates a retail store and must determine the proper December 31, 2019, year-end accrual for the following expenses:• The store lease calls for fixed rent of $1,000 per month,
On September 1, 2019, a company borrowed cash and signed a 1-year, interest-bearing note on which both the principal and interest are payable on September 1, 2021. How will the note payable and the
The inventory records of Frost Company for the years 2019 and 2020 reveal the cost and market of the January 1, 2019, inventory to be $125,000. On December 31, 2019, the cost of inventory was
The following are the inventories for the years 2019, 2020, and 2021 for Parry Company:.Required:1. Assume the inventory that existed at the end of each year was sold in the subsequent year. Prepare
On January 1, 2019, Seaver Company sold land with a book value of $23,000 to Bench Company. Bench paid $15,000 down and signed a $15,000 non-interest-bearing note, payable in two $7,500 annual

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