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intermediate accounting reporting

Intermediate Accounting Reporting and Analysis 3rd edition James M. Wahlen, Jefferson P. Jones, Donald Pagach - Solutions

Lightning Delivery Company purchased a new delivery truck for $45,000 on April 1, 2019. The truck is expected to have a service life of 10 years or 120,000 miles and a residual value of $3,000. The truck was driven 10,000 miles in 2019 and 13,000 miles in 2020. Lightning computes depreciation
Burrell Company purchased a machine for $20,000 on January 2, 2019. The machine has an estimated service life of 5 years and a zero estimated residual value. The asset earns income before depreciation and income taxes of $10,000 each year. The tax rate is 21%.Required:Compute the rate of return
On January 2, 2019, Lapar Corporation purchased a machine for $50,000. Lapar paid shipping expenses of $500, as well as installation costs of $1,200. The company estimated that the machine would have a useful life of 10 years and a residual value of $3,000. On January 1, 2020, Lapar made additions
On January 1, 2018, Emming Corporation purchased some machinery.The machinery has an estimated life of 10 years and an estimated residual value of $5,000. The depreciation expense on this machinery was $20,000 in 2020.Required:Next Level Compute the acquisition cost of the equipment under the
Nickle Company purchased three identical assets for $17,000 on January 2, 2019. Each asset has an expected residual value of $1,000. The depreciation expense for 2019 and 2020 is shown below for three assets:Required:1. Next Level Which depreciation method is the company using for each asset?2.
Sorter Company purchased equipment for $200,000 on January 2, 2019. The equipment has an estimated service life of 8 years and an estimated residual value of $20,000.Required:Compute the depreciation expense for 2019 under each of the following methods:1. Straight-line2.
Gruman Company purchased a machine for $220,000 on January 2, 2019. It made the following estimates:Service life 5 years or ................10,000 hoursProduction ................................200,000 unitsResidual value ..........................$20,000In 2019, Gruman uses the machine for 1,800
On July 1, 2018, Mundo Corporation purchased factory equipment for $50,000. Residual value was estimated at $2,000. The equipment will be depreciated over 10 years using the double-declining balance method. Counting the year of acquisition as one-half year, Mundo should record 2019 depreciation
Vorst depreciates Asset C by the straight-line method. On June 30, 2020, Vorst sold Asset C for $28,000 cash. How much gain (loss) should Vorst record in 2020 on the disposal of Asset C?a. $2,800b. ($2,800)c. ($5,600)d. ($8,400)The following information: Vorst Corporation’s schedule of
Using the sum-of-the-years’-digits method, how much depreciation expense should Vorst record in 2020 for Asset B?a. $6,000b. $9,000c. $11,000d. $12,000The following information: Vorst Corporation’s schedule of depreciable assets at December 31, 2019, was as follows:Vorst takes a full year’s
Vorst depreciates Asset A on the double-declining-balance method. How much depreciation expense should Vorst record in 2020 for Asset A?a. $32,000b. $25,600c. $14,400d. $6,400The following information: Vorst Corporation’s schedule of depreciable assets at December 31, 2019, was as follows:Vorst
Obtain LVMH (Moet Hennessy Louis Vuitton)’s 2017 annual report using the “Investor Relations” portion of its web site (do a Web search for Moet Hennessy Louis Vuitton investor relations).Required:1. What is the value of LVMH’s property, plant, and equipment?2. What categories of property,
Obtain Starbucks’s 2017 annual report either using the “Investor Relations” portion of its web site (do a Web search for Starbucks investor relations) or go to http://www.sec.gov and click “Search for company filings” under “Filings and Forms (EDGAR).”Required:1. What is the value of
You are the accountant for a division of a company that is constructing a building for its own use. It is January 2020, and you are working on closing the books for 2019. The CEO of the division stops by your office and says, “I have some questions about our building. Although we started
You have been hired to examine Brahe Corporation’s financial statements for the year ending December 31, 2019. Brahe was organized in January 2019 by Moses and Price, the original owners of options to acquire oil leases on 5,000 acres of land for $350,000. They expected that first the oil leases
Iwata Oil Company incurred costs of $6 million during 2019 by drilling for oil. Half the costs resulted in oil being found, and half resulted in dry wells. Iwata expects the oil wells to produce 10% of their capacity each year from 2020 to 2029.Required:1. What amounts appear in the financial
The following selected events occurred for Orwell Company during the first quarter of 2019:Jan. 11 A motor breaks on a machine and is replaced for $2,400. This replacement was expected when the machine was purchased.Feb. 15 A machine breaks down unexpectedly and requires repairs of $700.Mar. 10 An
Foothills Power Company begins a 2-year construction project on a power plant on January 1, 2019. The following information is available:• The company borrows $10 million on January 1, 2019, at 12%, specifically for use on the project.• The company’s other borrowings are:°° $20 million at
Alta Company is constructing a production complex that qualifies for interest capitalization. The following information is available:• Capitalization period: January 1, 2019, to June 30, 2020• Expenditures on project:2019January 1 .............................................$ 540,000May 1
Olson Machine Company manufactures small and large milling machines. Selling prices of these machines range from $35,000 to $200,000. During the 5-month period from August 1, 2019, through December 31, 2019, Olson manufactured a milling machine for its own use. This machine was built as part of the
Bussell Company exchanged the following assets during 2019:a. Acquired a newer machine by paying $4,000 cash and giving up a machine that originally cost $40,000, has a book value of $25,000, and is worth $30,000.b. Same facts as in Item a, except that the asset being surrendered has a book value
Bremer Company made the following exchanges of assets during 2019:1. Acquired a more advanced machine worth $10,000 by paying $2,000 cash and giving up a machine that had originally cost $40,000 and has a book value of $12,000.2. Acquired a building worth $55,000 by paying $5,000 cash and giving up
At December 31, 2018, certain accounts included in the property, plant, and equipment section of Townsand Company’s balance sheet had the following balances:Land .....................................................$100,000Buildings
The following transactions of Weber Company occurred during 2019:1. The company acquired a tract of land in exchange for 1,000 shares of $10 par value common stock. The stock was traded on the New York Stock Exchange at $24 on the date of exchange. The land had a book value on the selling
The following account balances were included in Bromley Company’s balance sheet on December 31, 2018:Land .....................................................$100,000Land improvements .............................20,000Buildings ............................................300,000Machinery and
Mawn Company bought land and built a warehouse during 2019. It improperly debited the following related costs to an account titled Land and Buildings:Land purchase ...........................................................................................................$22,000Demolition of old
In 2019, Lawrence Company spends $4 million drilling oil wells.Sixty percent of the drilling is successful and results in commercial quantities of oil being found.Required:1. How much drilling expense should the company recognize under:a. Successful-efforts methodb. Full-cost method2. At what value
McClain Company incurred the following expenditures during 2019:Apr. 9 The air conditioning system in the old manufacturing facility was replaced for $83,000. The old air conditioning system had a cost of $74,000 and a book value of $2,000. The old air conditioning system had no scrap value.June 29
Kit Company borrows $6 million at 12% on January 1, 2019, specifically for the purpose of financing the construction of a building that is expected to take 18 months to complete. Kit invests the total amount at 11% until it makes payments for the construction project. During the first year of
Snowbird Company is constructing a building that qualifies for interest capitalization.It is built between January 1 and December 31, 2019. Snowbird made the following expenditures related to this building:April 1 .................$396,000July 1 ....................400,000September 1
Matrix Inc. borrowed $1,000,000 at 8% to finance the construction of a new building for its own use. Construction began on January 1, 2019, and was completed on October 31, 2019.Expenditures related to this building were:January 1 $252,000 (includes cost of purchasing land of.................
On February 1, 2019, Edwards Corporation purchased a parcel of land as a factory site for $100,000. It demolished an old building on the property and began construction on a new building that was completed on October 2, 2019. Costs incurred during this period are:Demolition of old building $
In January 2019, Cordova Company entered into a contract to acquire a new machine for its factory. The machine, which has a cash price of $215,000, was paid for as follows:Down payment $ 55,000Note payable in 4 equal annual payments starting in January 2020 ..........................$120,000600
Voiture Company manufactures compact, energy-efficient cars. On April 1, it purchased a machine for its assembly line at a contract price of $400,000 with terms of 2/10, n/30. Voiture paid the contract price on April 8 and also incurred installation and transportation costs of $5,000, sales tax of
On January 1, 2019, Marshall Inc. purchased equipment for $1,000,000 that was to be used in various toxic chemical processes. The asset has a useful life of 20 years. Additionally, Marshall estimates that it will cost $100,000 to remove the asset and restore the site to a suitable use. Based on
On January 1, Duane Company purchases land at a cost of $125,000. Duane incurs costs of $2,000 for the closing fees and surveys. Duane also spent $7,500 on clearing costs to prepare the land for use. What is the cost of land to be recorded by Duane?
On January 2, 2019, Yuki Yogurt Company decided to replace its obsolete refrigeration system with a more efficient one. The old system had a book value of $9,000 and a fair value of $1,000. Yuki’s new refrigeration system has a fair value of $190,000, for which Yuki paid $189,000 after permitting
The following expenditures were among those incurred by Jensen Corporation during the year ended December 31, 2019:Replacement of tiles on portion of roof that had been leaking $4,000Overhaul of machinery that is expected to extend its useful life for another 2 years 6,000How much should be charged
Distinguish between the successful-efforts and full-cost methods of accounting for oil and gas properties.
What are the primary differences between U.S. GAAP and IFRS with regard to the capitalization of interest on self-constructed assets?
What are the two common alternative treatments of overhead costs during self-construction of an asset? What are the arguments in favor of each?
Bogan Company is in need of cash to finance its operations. The company creates a new company, Hall Company, which is wholly owned by Bogan. On November 1, 2019, Bogan sells inventory on credit to Hall for $50,000, which in turn immediately uses the inventory for a $40,000, 12% loan (guaranteed by
Obtain Moet Hennessy Louis Vuitton’s 2017 annual report using the “Investor Relations” portion of its web site (do a Web search for Moet Hennessy Louis Vuitton investor relations).Required:1. What were the total current liabilities at the end of 2017? What was the largest current liability?2.
Obtain Starbucks’s 2017 annual report either using the “Investor Relations” portion of its web site (do a Web search for Starbucks investor relations) or go to http://www.sec.gov and click “Search for company filings” under “Filings and Forms (EDGAR).”Required:1. With regard to
Hart Corporation is a chemical company that produces cleaning fluids of different types. It is the main employer in a small town. Stan Hart has been the company president for 15 years and is paid a salary plus a 10% bonus based on pretax income; he is also the major shareholder. After treatment to
Reese Company sells two types of merchandise, Type A and Type B. Each carries a 1-year assurance-type warranty.• Type A merchandise: Product warranty costs, based on past experience, will normally be 1% of sales.• Type B merchandise: Product warranty costs cannot be reasonably estimated because
At December 31, 2019, Niki Company reviewed the following situations to consider their impact on its 2019 financial statements:1. In December 2019, Niki became aware of a safety hazard related to one of its products and announced a product recall. Estimates of the probable costs resulting from the
On December 15, 2019, a truck driver for Cork Transfer Company negligently rounded a curve that was also a bridge covering several local merchant shops. The truck jumped the guardrail and fell 30 feet onto one of the shops, causing highly flammable chemicals in the truck to explode. Although by
Selected transactions of Shadrach Computer Corporation during November and December of 2019 are as follows:Nov. 1 Borrowed money from the bank by issuing a non-interest-bearing, $40,000, 90-day note. The note is discounted on a 12% basis.9 Sold 100 computers with a 1-year assurance-type warranty
Selected transactions of Lizard Lick Corporation during 2019 are as follows:Jan. 5 Purchased merchandise from Boston Company for $30,000; terms, 2/10, n/30. Purchases and accounts payable are recorded by Lizard Lick using the net price method.26 Paid the January 5 invoice.Mar. 31 Purchased a van
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 journal entries to record the lower of cost or net realizable value for each of the following
Retail and Fire Loss Golden Company adopted the dollar-value retail LIFO method on January 1, 2019. The following information relates to the following 2 years:In addition, the following price indexes are available:January 2019 100December 2019 106September 2020 110On September 8, 2020, a fire
During 2019, Boge Corporation signed a noncancelable contract to purchase 10,000 bushels of soybeans at $5 per bushel with delivery to be made in 2020. On December 31, 2019, the price of soybeans had fallen to $4.50 per bushel. On May 1, 2020, Boge takes delivery of the soybeans when the price is
Gravais Company made two purchases on December 29, 2019. One purchase for $3,000 was shipped FOB destination, and the second for $4,000 was shipped FOB shipping point. Neither purchase had been received nor paid for on December 31, 2019.Required:Which of these purchases, if either, does Gravais
Howard, Inc. is a merchandising company that began operations on January 1, 2019. During January, the following inventory transactions occurred:Jan. 11 Howard purchased merchandise on account for $12,000.Jan. 15 Howard returned some of the merchandise purchased on Jan. 11, and the supplier credited
The following amounts were obtained from the accounting records of Enderle Company:Required:Next Level Compute the missing amounts. 2019 2020 2021 (b) Beginning inventory Net purchases Ending inventory Cost of goods sold $38,900 (a) (d) $91,820 42,350 (e) $71,200 (c) 90,800 42,100 83,500
On December 31, 2018, Kern Company adopted the dollar-value LIFO inventory method. All of Kern’s inventories constitute a single pool. The inventory on December 31, 2018, using the dollar-value LIFO inventory method was $600,000. Inventory data for 2019 are as follows: Dec. 31, 2019
The cost of the inventory on January 31, 2019, under the LIFO method is:a. $400b. $2,700c. $3,100d. $3,200
The cost of the inventory on January 31, 2019, under the FIFO method is:a. $400b. $2,700c. $3,100d. $3,200
Dixon Menswear Shop purchased shirts from Colt Company on May 28, 2019, and received an invoice with a list price amount of $5,000 and payment terms of 2/10, n/30. Dixon uses the net method to record purchases. Dixon should record purchases of:a. $4,000b. $4,900c. $5,000d. $5,100
The following items were included in Venicio Corporation’s inventory account on December 31, 2019:Merchandise out on consignment, at sales price, including 40% markup on selling price ...........$14,000Goods purchased, in transit, shipped FOB shipping point
What types of information do companies disclose regarding inventory?
Explain the dollar-value LIFO method of inventory valuation.
Describe the key concept in determining the cost of inventory.
Consider each of the following independent situations. Should a company report the goods in its inventory?(a) Goods purchased by the company with shipping terms FOB shipping point that are in transit at the end of the year.(b) Goods received by the company on consignment.(c) An estimate of the
Bronte Company sells goods on consignment. Should Bronte include these consigned goods in its ending inventory? Why or why not?
Wright Machinery Corporation manufactures automobile engines for major automobile producers. The engines sell for $920 per engine. In addition, customers have the option to purchase a service-type warranty for $73 per engine that protects against any defects for a period of 5 years. During 2019,
Clean-All Inc. sells washing machines with a 3-year assurance-type warranty. In the past, Clean-All has found that in the year after sale, warranty costs have been 3% of sales; in the second year after sale, 5% of sales; and in the third year after sale, 7% of sales. The following data are also
Greenlaw Inc., a publishing company, is preparing its December 31, 2019, financial statements and must determine the proper accounting treatment for each of the following situations:1. Greenlaw sells subscriptions to several magazines for a 1, 2, or 3-year period. Cash receipts from subscribers
Fallon Company, a toy manufacturer that also operates several retail outlets, is preparing its December 31, 2019, financial statements. It has identified the following legal situations that may qualify as contingencies:1. A customer is suing the company for $800,000 in damages because her child was
Mauldin Company makes sales on which a 5% sales tax is assessed. The following summary transactions were made during 2019:1. sales for cash of $1,665,400, excluding sales taxes2. sales on credit of $2,820,500, excluding sales taxes3. sales taxes of $168,220 were paid to the state government during
James Kimberley, president of National Motors, receives a bonus of 10% of National’s profits above $1,500,000, before the bonus and the corporation’s income taxes are deducted.National’s effective income tax rate is 21%. Profits before income taxes and his bonus are $5,000,000 for
The balance in Ashwood Company’s accounts payable account at December 31, 2019, was $1,200,000 before any necessary year-end adjustment relating to the following:• Goods were in transit from a vendor to Ashwood on December 31, 2019. The invoice cost was $85,000, and the goods were shipped FOB
Identify how to account for warranty costs if the warranty is determined to be an assurance-type warranty? A service-type warranty?
What conditions would have to be met for a company to accrue the loss from a pending lawsuit?
Define liabilities. Explain the meaning of obligations in the context of a liability.
Obtain Moet Hennessy Louis Vuitton’s 2017 annual report using the “Investor Relations” portion of its website (do a web search for Moet Hennessy – Louis Vuitton investor relations).Required:1. Describe the inventory of LVMH.2. How does LVMH value its inventory other than wines? Why
Obtain Starbucks’ 2017 annual report either using the “Investor Relations” portion of its website (do a web search for Starbucks investor relations) or go to http://www.sec.gov and click “Search for company filings” under “Filings and Forms (EDGAR).”Required:1. What classifications
Shelly Corporation is an importer and wholesaler. Its merchandise is purchased from several suppliers and is warehoused by Shelly until sold to consumers. In conducting her audit for the year ended June 30, 2019, the corporation’s CPA determined that the system of internal control was good.
Frost Company’s inventory records 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 $130,000, while the market value was only $128,000. The December 31, 2020, market value of inventory was
Layne Corporation, a manufacturer of small tools, provided the following information from its accounting records for the year ended December 31, 2019:Inventory at December 31, 2019 (based on physical count of goods in Layne’s plant at cost on December 31, 2019)
The following information is obtained from Burger Company’s records. Burger uses the dollar-value LIFO retail method.The company adopted LIFO on January 1, 2019, when the cost and retail values of the inventory were $50,000 and $100,000, respectively. Burger experienced the following price
On January 20, 2020, Stewart Company’s records revealed the following information:Inventory, July 1, 2019 $ .......................................................55,300Purchases, July 1, 2019–January 20, 2020 ........................382,100Sales, July 1, 2019–January 20, 2020
On September 28, 2019, a fire destroyed the entire merchandise inventory of Carroll Corporation. The following information is available:Sales, January 1–September 28, 2019 .................................................................................$560,000Inventory, January 1, 2019
The inventories of Berry Company for the years 2019 and 2020 are as follows:Berry uses a perpetual inventory system and the FIFO inventory cost flow assumption.Required:1. Assume the inventory that existed at the end of 2019 was sold in 2020. Prepare the necessary journal entries at the end of each
The following information for Tuell Company is available:Required:1. Assume Tuell uses the LIFO cost flow assumption. What is the correct inventory value in each of the preceding situations under U.S. GAAP?2. Assume Tuell uses the average cost inventory cost flow assumption. What is the correct
Byron Company has five products in its inventory and uses the FIFO cost flow assumption. Specific data for each product are as follows:Required:1. What is the correct inventory value, assuming the LCNRV rule is applied to each item of inventory?2. What is the correct inventory value, assuming
Use the information in E8-1. Assume that Stiles uses the LIFO cost flow assumption and is applying the LCM rule.Required:1. What is the correct inventory value for each product?2. Next Level With regard to requirement 1, what effect does the imposition of the constraints on market value have on the
Acute Company manufactures a single product. On December 31, 2018, Acute adopted the dollar-value LIFO inventory method. It computes the inventory on that date using the dollar-value LIFO inventory method as $300,000. Inventory data for succeeding years are as follows:Required:Compute the inventory
Stiles Corporation uses the FIFO cost flow assumption and is in the process of applying the LCNRV rule for each of two products in its ending inventory. A profit margin of 30% on the selling price is considered normal for each product. Specific data for each product are as follows: Product B
Refer to the information provided in RE8-4. If Paul Corporation’s inventory at January 1, 2019, had a cost and net realizable value of $300,000, prepare the journal entry to record the reductions to NRV for Paul Corporation assuming that Paul uses a periodic inventory system and the allowance
Refer to the information provided in RE8-4. If Paul Corporation’s inventory at January 1, 2019, had a cost and net realizable value of $300,000, prepare the journal entry to record the reductions to NRV assuming that Paul uses a periodic inventory system and the direct method.RE8-4 Retail Cost $
Borys Company’s periodic inventory at December 31, 2019, is understated by $10,000, but purchases are correct. Johnson correctly values its 2020 ending inventory. What is the effect of this error on Borys’s 2019 and 2020 financial statements?
Using the information provided in RE8-4, prepare the journal entry to record the write-down of inventory for Paul Corporation assuming that it uses the allowance method instead of the direct method.RE8-4 Cost NRV December 31, 2019 $312,000 $298,000
Paul Corporation uses FIFO and reports the following inventory information:Assuming Paul uses a perpetual inventory system and the direct method, prepare the journal entry to record the write-down of inventory. Cost NRV December 31, 2019 $312,000 $298,000
Blue Corporation uses the FIFO cost flow assumption. Presented below is information related to Blue’s inventory:Determine (a) the net realizable value for each item and (b) the inventory value of each item using the lower of cost or net realizable value rule. Product 1 Product 2 Product 3 $ 90
At December 31, 2019, the following information was available from Crisford Company’s books:Sales for the year totaled $110,600; markdowns amounted to $1,400. Under the approximate lower of average cost or market retail method, Crisford’s inventory at December 31, 2019, was:a. $30,800b.
Hestor Company’s records indicate the following information:Merchandise inventory, January 1, 2019 .........................................$ 550,000Purchases, January 1 through December 31, 2019 .......................2,250,000Sales, January 1 through December 31, 2019
The following information is available for Silver Company for the three months ended March 31, 2019:Merchandise inventory, January 1, 2019 .........................$ 900,000Purchases ............................................................................3,400,000Freight-in
Moore Company uses the LIFO cost flow assumption and carries Product A in inventory on December 31, 2019, at its unit cost of $9.50. Because of a sharp decline in demand for the product, the selling price was reduced to $10.00 per unit. Moore’s normal profit margin on Product A is $2.00, disposal

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