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intermediate accounting reporting

Questions and Answers of Intermediate Accounting Reporting

Hamlet Corporation purchases computer equipment at a price of $100,000 on January 1, 2019, paying $40,000 down and agreeing to pay the balance in three $20,000 annual installments beginning December
Lubbock Corporation acquires machinery from South Company in exchange for a $20,000 non-interest-bearing, 5-year note on June 30, 2019. The note is due on June 30, 2024. The machinery has a fair
On January 1, 2019, Berlin Corporation issued $500,000 of 11.5% bonds due December 31, 2025, at 102. The bonds pay interest semiannually on June 30 and December 31. Each $1,000 bond carried 20
Wedge Corporation issued $1,500,000 of 10% convertible bonds for $1,620,000 on March 1, 2019. The bonds are dated March 1, 2019, pay interest semiannually on August 31 and February 28, and the
Baxter Corporation issued $400,000 of 11% bonds for $385,279.91 on January 1, 2019. The bonds pay interest semiannually on June 30 and December 31, were issued to yield 12%, and are due on December
Wilbury Corporation issued $1 million of 13.5% bonds for $985,071.68. The bonds are dated and issued October 1, 2019, are due September 30, 2020, and pay interest semiannually on March 31 and
Before maturity, Foster Incorporated sold $500,000 of 12% bonds on January 1, 2019, for $470,143.47, a price that yields a 14% interest rate. The bonds pay interest semiannually on June 30 and
Bats Corporation issued $800,000 of 12% face value bonds for $851,705.70. The bonds were dated and issued on April 1, 2019, are due March 31, 2023, and pay interest semiannually on September 30 and
Hillis Corporation issued $600,000 of 13% bonds on January 1, 2019, for $614,752.24. The bonds are due December 31, 2021, were issued to yield 12%, and pay interest semiannually on June 30 and
On January 1, 2019, Gates Corporation issued $100,000 of 5-year bonds due December 31, 2023, for $103,604.79 minus debt issuance costs of $3,000. The bonds carry a stated rate of interest of 13%
On June 30, 2019, Gaston Corporation sold $800,000 of 11% face value bonds for $761,150.96. On December 31, 2019, Gaston sold $700,000 of this same bond issue for $734,645.28. The bonds were dated
Barnett Industries, Inc., issued $600,000 of 8% bonds on January 1, 2019. The bonds pay interest semiannually on July 1 and January 1. The maturity date on these bonds is December 31, 2028. The firm
Refer to the debt restructuring information in E14-29.Required:Prepare the journal entries for Great National Bank to record the restructuring agreement assuming:1. The bank accepts the 10,000 shares
On December 31, 2019, Central Bank agrees to a restructuring of a 12% note with a $200,000 face value and $60,000 of accrued interest owed to the bank by Carter Company. The bank agrees to forgive
On January 1, 2019, Boonville Corporation is delinquent on a $300,000 note to Great National Bank on which $66,000 of interest has accrued. On January 2, 2019, Boonville enters into a debt
On January 1, 2019, Northfield Corporation becomes delinquent on a $100,000, 14% note to First National Bank, on which $16,651 of interest has accrued. On January 2, 2019, the bank agrees to
On January 1, 2019, Billips Corporation purchased equipment having a fair value of $72,054.94 by issuing a $90,000 note, payable in three $30,000 annual installments beginning December 31,
On January 1, 2019, Sanders Corporation purchased equipment having a fair value of $68,301.30 by issuing a non-interest-bearing, $100,000, 4-year note due December 31, 2022.Required:Prepare the
Webb Corporation purchased an asset from Shaw Corporation on January 1, 2019. Shaw accepted a 3-year, non-interest-bearing note of $18,000 due December 31, 2021, in exchange for the asset. Neither
Spath Company borrows $75,000 by issuing a 4-year, non-interest-bearing note to a customer on January 1, 2019. In addition, Spath agrees to sell inventory to the customer at reduced prices over a
On January 1, 2019, Johnson Corporation issued a 2-year note due December 31, 2017, with a face value of $10,000, receiving $7,694.68 in exchange.Required:Prepare the journal entries to account for
On January 2, 2019, Lindsay Corporation issued $800,000 of 8% convertible bonds at par. The bonds mature in 10 years and pay interest semiannually on June 30 and December 31. Each $1,000 bond could
On July 2, 2018, McGraw Corporation issued $500,000 of convertible bonds. Each $1,000 bond could be converted into 20 shares of the company’s $5 par value stock. On July 3, 2020, when the bonds
On July 1, 2019, Salem Corporation issued $3 million of 12% bonds payable in 10 years. The bonds pay interest semiannually. The bonds include detachable warrants giving the bondholder the right to
On January 1, 2019, Conroe Corporation sold $500,000 of 13% bonds at 107. Each $1,000 bond carried 20 warrants, and each warrant allowed the holder to acquire one share of $10 par value common stock
On July 1, 2020, Tuttle Company had bonds payable outstanding with a face value of $200,000 and a book value of $194,000. The interest on these bonds was paid on June 30. When these bonds were
On January 1, 2018, when its $30 par value common stock was selling for $80 per share, a corporation issued $10 million of 10% convertible debentures due in 10 years. The conversion option allowed
Rockwood Company issued $100,000 of 10% bonds on November 1, 2019, at 103. Interest on the bonds is payable on November 1 and May 1 of each year, and the maturity date is November 1, 2029. Rockwood
On December 1, 2017, Cone Company issued its 10%, $2 million face value bonds for $2.3 million, plus accrued interest. Interest is payable on November 1 and May 1. On December 31, 2019, the book
On January 1, 2008, Davis Corporation issued $3,000,000 of 8% bonds at 103. Interest is paid annually on December 31 of each year. The bonds mature on December 31, 2027, and the company uses the
Hill Corporation issued $1,500,000 of 11% bonds at 98 on January 2, 2019. Interest is paid semiannually on June 30 and December 31. The bonds had a 10-year life from the date of issue, and the
On October 1, 2019, Ball Company issued 9% bonds dated October 1, 2019, with a face amount of $200,000. The bonds mature in 10 years. Interest is paid semiannually on March 31 and September 30. The
Burr Motor Company, a manufacturer of small- to medium-sized electric motors, needs additional funds to market a revolutionary new motor. Burr has arranged for private placement of a $50,000, 5-year,
On January 1, 2019, Calvert Company issues 12%, $100,000 face value bonds for $103,545.91, a price to yield 10%. The bonds mature on December 31, 2020. Interest is paid semiannually on June 30 and
Taylor Company issued $100,000 of 13% bonds on January 1, 2019. The bonds pay interest semiannually on June 30 and December 31 and are due December 31, 2021.Required:1. Assume the company sells the
The inventories of Berry Company for the years 2019 and 2020 are as follows:Berry uses the periodic inventory method and the FIFO inventory cost flow assumption.Required:1. Assume the inventory that
During the course of your examination of the financial statements of Burnett Co., a new client, for the year ended December 31, 2019, you discover the following:• Inventory at January 1, 2019, was
On December 31, 2018, Davison Company adopted the dollar-value LIFO retail inventory method. Inventory data for 2019 are as follows:Required:Compute the cost of Davison’s inventory at December 31,
Wyatt Company adopts the dollar-value LIFO retail inventory method on January 1, 2019. The company’s records reveal that the inventory on January 1, 2019, had a cost of $75,000 and a retail value
Johns Company adopts the dollar-value LIFO retail inventory method on January 1, 2019. The following information for 2019 is obtained from Johns’ records:The price index on January 1, 2019, was
Polk Incorporated issued $200,000 of 13% bonds on July 1, 2019, for $206,801.60. The bonds were dated January 1, 2019, pay interest on each June 30 and December 31, are due December 31, 2023, and
Chowan Corporation issued $100,000 of 10% bonds dated January 1, 2019, for $96,832.72 on January 1, 2019. The bonds are due December 31, 2019, were issued to yield 11%, and pay interest semiannually
Bryan Company issued $500,000 of 10% face value bonds on January 1, 2019, for $486,000. The bonds are due December 31, 2021, and pay interest semiannually on June 30 and December 31. Bryan uses the
On January 1, 2019, Hackman Corporation issued $1 million face value 12% bonds dated January 1, 2019, for $1,023,000. The bonds pay interest semiannually on June 30 and December 31 and are due
On January 1, 2019, Knorr Corporation issued $1,000,000 of 9%, 5-year bonds dated January 1, 2019. The bonds pay interest annually on December 31. The bonds were issued to yield 10%. Debt issuance
Burris Corporation is authorized to issue $800,000 of 9% bonds. Interest on the bonds is payable semiannually; the bonds are dated January 1, 2019, and are due December 31, 2023.Required:Prepare the
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

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