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intermediate accounting 11th
Intermediate Accounting IFRS International Adaptation 5th Edition Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield - Solutions
8. Provide examples of assets that do not qualify for capitalization of borrowing costs.
7. One financial accounting issue encountered when a company constructs its own plant is whether the borrowing cost to finance construction should be capitalized and then amortized over the life of the assets constructed. What is the justification for capitalizing such interest?
6. Cruz Company has purchased two tracts of land. One tract will be the site of its new manufacturing plant, while the other is being purchased with the hope that it will be sold in the next year at a profit.How should these two tracts of land be reported in the statement of financial position?
5. The Buildings account of Postera SpA includes the following items that were used in determining the basis for depreciating the cost of a building.a. Promotion expenses.b. Architect’s fees.c. Interest during construction.d. Interest revenue on investments held to fund construction of a
4. Two positions have normally been taken with respect to the recording of fixed manufacturing overhead as an element of the cost of plant assets constructed by a company for its own use:a. It should be excluded completely.b. It should be included at the same rate as is charged to normal
3. Indicate where the following items would be shown on a statement of financial position.a. A lien that was attached to the land when purchased.b. Landscaping costs to ready land for use.c. Attorney’s fees and recording fees related to purchasing land.d. Variable overhead related to construction
2. Name the items, in addition to the amount paid to the former owner or contractor, that may properly be included as part of the acquisition cost of the following plant assets.a. Land.b. Machinery and equipment.c. Buildings.
1. What are the major characteristics of plant assets?
CA8.6 (LO 2) Ethics (Purchase Commitments) Prophet Company signed a long-term purchase contract to buy timber from the government forest service at $300 per thousand board feet. Under these terms, Prophet must cut and pay $6,000,000 for this timber during the next year. Currently, the market
CA8.5 (LO 1, 4) (Cost Determination, LCNRV, Retail Method) Olson ASA, a retailer and wholesaler of brand-name household lighting fixtures, purchases its inventories from various suppliers.Instructionsa. 1. What criteria should be used to determine which of Olson’s costs are inventoriable?2. Are
CA8.4 (LO 4) Writing (Retail Inventory Method) Saurez Company, your client, manufactures paint. The company’s president, Maria Saurez, has decided to open a retail store to sell Saurez paint as well as wallpaper and other supplies that would be purchased from other suppliers. She has asked you
CA8.3 (LO 1) (LCNRV) Ogala NV purchased a significant amount of raw materials inventory for a new product that it is manufacturing.Ogala uses the LCNRV rule for these raw materials. The net realizable value of the raw materials is below the original cost.Ogala uses the FIFO inventory method for
CA8.2 (LO 1) Ethics (LCNRV) The net realizable value of Lake Corporation’s inventory has declined below its cost. Allyn Conan, the controller, wants to use the loss method to write down inventory because it more clearly discloses the decline in the net realizable value and does not distort the
CA8.1 (LO 1) Writing (LCNRV) You have been asked by the financial vice president to develop a short presentation on the LCNRV method for inventory purposes. The financial VP needs to explain this method to the president because it appears that a portion of the company’s inventory has declined in
P8.11 (LO 1) Writing (LCNRV) Taipai Ltd. follows the practice of valuing its inventory at the LCNRV. The following information is available from the company’s inventory records as of December 31, 2025 (amounts in thousands).Item Quantity Unit Cost Estimated Selling Price/Unit Completion & Selling
P8.10 (LO 1, 2, 5) (Statement and Note Disclosure, LCNRV, and Purchase Commitment)Maddox Specialty Company, a division of Lost World Inc., manufactures three models of gear shift components for bicycles that are sold to bicycle manufacturers, retailers, and catalog outlets. Since beginning
P8.9 (LO 4) Groupwork (Retail Inventory Method) Fuque Ltd. uses the retail inventory method to estimate ending inventory for its monthly financial statements. The following data pertain to a single department for the month of October 2025.Inventory, October 1, 2025 At cost £ 52,000 At retail
P8.8 (LO 4) (Retail Inventory Method) Presented below is information related to Waveland Inc.Cost Retail Inventory, 12/31/25 $250,000 $ 390,000 Purchases 914,500 1,460,000 Purchase returns 60,000 80,000 Purchase discounts 18,000 —Gross sales (after employee discounts) — 1,410,000 Sales returns
P8.7 (LO 4) (Retail Inventory Method) The records for the Clothing Department of Wei’s Discount Store are summarized below for the month of January (HK$ in thousands).Inventory, January 1: at retail HK$25,000; at cost HK$17,000 Purchases in January: at retail HK$137,000; at cost HK$82,500
P8.6 (LO 3) Groupwork (Gross Profit Method) On April 15, 2025, fire damaged the office and warehouse of Stanislaw ASA. The only accounting record saved was the general ledger, from which the trial balance below was prepared.Stanislaw ASA Trial Balance March 31, 2025 Cash € 20,000 Accounts
P8.5 (LO 3) (Gross Profit Method) Yu Ltd. lost most of its inventory in a fire in December just before the year-end physical inventory was taken. Company records disclose the following (yen in thousands).Inventory (beginning) ¥ 80,000 Sales ¥415,000 Purchases 290,000 Sales returns 21,000 Purchase
P8.4 (LO 2) (Valuation at Net Realizable Value) Finn Berge realized his lifelong dream of becoming a vineyard owner when he was able to purchase the Hillside Vineyard at an estate auction in August 2025 for €750,000. Finn retained the Hillside name for his new business. The purchase was risky
P8.3 (LO 1) (LCNRV—Cost-of-Goods-Sold and Loss) Malone Company determined its ending inventory at cost and at LCNRV at December 31, 2025, December 31, 2026, and December 31, 2027, as shown below.Cost LCNRV 12/31/25 $650,000 $650,000 12/31/26 780,000 712,000 12/31/27 905,000 830,000 Instructionsa.
P8.2 (LO 1) Groupwork (LCNRV) Garcia Home Improvement plc installs replacement siding, windows, and louvered glass doors for single-family homes and condominium complexes. The company is in the process of preparing its annual financial statements for the fiscal year ended May 31, 2025. Jim Alcide,
P8.1 (LO 1) (LCNRV) Remmers SE manufactures desks. Most of the company’s desks are standard models and are sold on the basis of catalog prices. At December 31, 2025, the following finished desks appear in the company’s inventory.Finished Desks A B C D 2025 catalog selling price €450 €480
E8.23 (LO 5) (Analysis of Inventories) The financial statements of AB InBev’s (BEL) 2018 annual report disclosed the following information.(in millions) 31 December 2018 31 December 2017 Inventories $4,234 $4,119 Fiscal Year 2018 2017 Sales $54,619 $56,444 Cost of sales 20,359 21,386 Net income
E8.22 (LO 4) (Retail Inventory Method) The records of Mandy’s Boutique report the following data for the month of April.Sales £95,000 Purchases (at cost) £55,000 Sales returns 2,000 Purchases (at sales price) 88,000 Markups 10,000 Purchase returns (at cost) 2,000 Markup cancellations 1,500
E8.21 (LO 4) (Retail Inventory Method) Presented below is information related to Kuchinsky Company.Cost Retail Beginning inventory € 200,000 € 280,000 Purchases 1,425,000 2,140,000 Markups 95,000 Markup cancellations 15,000 Markdowns 35,000 Markdown cancellations 5,000 Sales 2,250,000
E8.20 (LO 4) (Retail Inventory Method) Presented below is information related to Luzon SA.Cost Retail Beginning inventory R$ 58,000 R$100,000 Purchases (net) 122,000 200,000 Net markups 20,000 Net markdowns 30,000 Sales 186,000 Instructionsa. Compute the ending inventory at retail.b. Compute a
E8.19 (LO 3) (Gross Profit Method) Presented below is information related to Jerrold Ltd. for the current year.Beginning inventory £ 600,000 Purchases 1,500,000 Total goods available for sale £2,100,000 Sales 2,300,000 Instructions Compute the ending inventory, assuming that (a) gross profit is
E8.13 (LO 3) (Gross Profit Method) Each of the following gross profit percentages is expressed in terms of cost.1. 20%. 3. 331/3%.2. 25%. 4. 50%.Lumber Millwork Hardware Inventory, Jan. 1, 2025 $ 250,000 $ 90,000 $ 45,000 Purchases to Aug. 18, 2025 1,500,000 375,000 160,000 Sales to Aug. 18, 2025
E8.12 (LO 2) (Purchase Commitments) At December 31, 2025, Volkan AG has outstanding noncancelable purchase commitments for 40,000 gallons, at €3.00 per gallon, of raw material to be used in its manufacturing process. The company prices its raw material inventory at lower-of-cost-or-net realizable
E8.11 (LO 2) (Purchase Commitments) Prater Company has had difficulty obtaining key raw materials for its manufacturing process. The company therefore signed a long-term, non-cancelable purchase commitment with its largest supplier of this raw material on November 30, 2025, at an agreed price of
E8.10 (LO 2) (Relative Standalone Sales Value Method) During 2025, Crawford Furniture purchases a carload of wicker chairs. The manufacturer sells the chairs to Crawford for a lump sum of £60,000 because it is discontinuing manufacturing operations and wishes to dispose of its entire stock. Three
E8.9 (LO 2) (Relative Standalone Sales Value Method) Larsen Realty Ltd. purchased a tract of unimproved land for £55,000. This land was improved and subdivided into building lots at an additional cost of £30,000. These building lots were all of the same size. However, owing to differences in
E8.8 (LO 2) (Valuation at Net Realizable Value) Mt. Horeb Alpaca Co. has a herd of 150 alpaca.The alpaca are sheared once a quarter to harvest valuable wool that is used in designer sweaters.Mt. Horeb has the following information related to the alpaca herd at July 1, 2025, and during the first
E8.7 (LO 2) (Valuation at Net Realizable Value) Matsumura Dairy began operations on April 1, 2025, with the purchase of 200 milking cows for ¥6,700,000. It has completed the first month of operations and has the following information for its milking cows at the end of April 2025 (yen in
E8.6 (LO 1) (LCNRV—Error Effect) LaGreca SA uses the LCNRV method, on an individual-item basis, in pricing its inventory items. The inventory at December 31, 2025, includes product X. Relevant per-unit data for product X are as follows.Estimated selling price €50 Cost 40 Estimated selling
E8.5 (LO 1) (LCNRV—Valuation Account) Presented below is information related to Knight Enterprises.Jan. 31 Feb. 28 Mar. 31 Apr. 30 Inventory at cost $15,000 $15,100 $17,000 $14,000 Inventory at NRV 14,500 12,600 15,600 13,300 Purchases for the month 17,000 24,000 26,500 Sales for the month 29,000
E8.4 (LO 1) (LCNRV—Journal Entries) Dover plc began operations in 2025 and determined its ending inventory at cost and at NRV at December 31, 2025, and December 31, 2026. This information is presented below.Cost Net Realizable Value 12/31/25 £346,000 £322,000 12/31/26 410,000 390,000
E8.3 (LO 1) (LCNRV) Sedato Company follows the practice of pricing its inventory at LCNRV, on an individual-item basis.Item No. Quantity Cost per Unit Estimated Selling Price Cost to Complete and Sell 1320 1,200 $3.20 $4.50 $1.60 1333 900 2.70 3.40 1.00 1426 800 4.50 5.00 1.40 1437 1,000 3.60 3.20
E8.2 (LO 1) (LCNRV) Riegel Company uses the LCNRV method, on an individual-item basis, in pricing its inventory items. The inventory at December 31, 2025, consists of products D, E, F, G, H, and I.Relevant per-unit data for these products appear below.Item Item Item Item Item Item D E F G H I
E8.1 (LO 1) (LCNRV) The inventory of Oheto Company on December 31, 2025, consists of the following items.Part No. Quantity Cost per Unit Net Realizable Value per Unit 110 600 $ 95 $100 111 1,000 60 52 112 500 80 76 113 200 170 180 120 400 205 208 121a 1,600 16 1 122 300 240 235 aPart No. 121 is
BE8.11 (LO 5) Recently, Inditex (ESP) reported ending inventory of €1,581.297 (€1,297.009 the previous year). Cost of sales were €6,486.825 and net sales were €15,946.143 (all amounts in millions).Compute Inditex’s inventory turnover and average days to sell inventory.
BE8.10 (LO 4) Boyne Inc. had beginning inventory of $12,000 at cost and $20,000 at retail. Net purchases were $120,000 at cost and $170,000 at retail. Net markups were $10,000; net markdowns were $7,000; and sales were $147,000. Compute ending inventory at cost using the conventional retail method.
BE8.9 (LO 3) Fosbre NV’s April 30 inventory was destroyed by fire. January 1 inventory was €150,000, and purchases for January through April totaled €500,000. Sales for the same period were €700,000.Fosbre’s normal gross profit percentage is 35% on sales. Using the gross profit method,
BE8.8 (LO 2) Use the information for Kemper Company from BE8.7. In 2026, Kemper paid $1,000,000 to obtain the raw materials which were worth $950,000. Prepare the entry to record the purchase.
BE8.7 (LO 2) Kemper Company signed a long-term, non-cancelable purchase commitment with a major supplier to purchase raw materials in 2026 at a cost of $1,000,000. At December 31, 2025, the raw materials to be purchased have a fair value of $950,000. Prepare any necessary December 31 entry.
BE8.6 (LO 2) Benke Ltd. buys 1,000 computer game CDs from a distributor who is discontinuing those games. The purchase price for the lot is ¥8,000. Benke will group the CDs into three price categories for resale, as indicated below (yen in thousands).Group No. of CDs Price per CD 1 100 ¥ 5 2 800
BE8.5 (LO 2) Refer to the data in BE8.4 for Keyser’s Fleece. Prepare the journal entries for (a) the wool harvested in the first 6 months of 2025, and (b) when the wool harvested is sold for €10,500 in July 2025.
BE8.4 (LO 2) Keyser’s Fleece owns a herd of sheep. Keyser shears the sheep on a semiannual basis and then sells the harvested wool into the specialty knitting market. Keyser has the following information related to the shearing sheep at January 1, 2025, and during the first 6 months of
BE8.3 (LO 1) Kumar SA uses a perpetual inventory system. At January 1, 2025, inventory was R$214,000,000 at both cost and net realizable value. At December 31, 2025, the inventory was R$286,000,000 at cost and R$265,000,000 at net realizable value. Prepare the necessary December 31 entry under (a)
BE8.2 (LO 1) Floyd SE has the following four items in its ending inventory.Item Cost Net Realizable Value (NRV)Jokers €2,000 €2,100 Penguins 5,000 4,950 Riddlers 4,400 4,625 Scarecrows 3,200 3,830 Determine (a) the LCNRV for each item, and (b) the amount of write-down, if any, using (1) an
BE8.1 (LO 1) Presented below is information related to Rembrandt Inc.’s inventory.(per unit) Skis Boots Parkas Historical cost $190.00 $106.00 $53.00 Selling price 212.00 145.00 73.75 Cost to sell 19.00 8.00 2.50 Cost to complete 32.00 29.00 21.25 Determine the following: (a) the net realizable
18. Of what significance is inventory turnover to a retail store?
17. Tesco (GBR) reported inventory in its statement of financial position as follows.Inventories £2,430,000,000 What additional disclosures might be necessary to present the inventory fairly?
16.a. Determine the ending inventory under the conventional retail method for the furniture department of Mayron Department Stores from the following data (amounts in thousands).(Round to nearest percent.)Cost Retail Inventory, Jan. 1 ¥ 149,000 ¥ 283,500 Purchases 1,400,000 2,160,000 Freight-in
15. The conventional retail inventory method yields results that are essentially the same as those yielded by the LCNRV method. Explain.Prepare an illustration of how the retail inventory method reduces inventory to net realizable value.
14. What conditions must exist for the retail inventory method to provide valid results?
13. A fire destroys all of the merchandise of Assante Company on February 10, 2025. The following is information compiled up to the date of the fire.Inventory, January 1, 2025 $ 400,000 Sales to February 10, 2025 1,950,000 Purchases to February 10, 2025 1,140,000 Freight-in to February 10, 2025
12. With annual net sales of $5 million, Adriana Co. maintains a markup of 25% based on cost. Adriana’s expenses average 15% of net sales. What is Adriana’s gross profit and net profit in dollars?
11. Distinguish between gross profit as a percentage of cost and gross profit as a percentage of sales price. Convert the following gross profit percentages based on cost to gross profit percentages based on sales price: 25% and 331⁄3%. Convert the following gross profit percentages based on
10. What are the major uses of the gross profit method?
9. At December 31, 2025, Ashley plc has outstanding purchase commitments for purchase of 150,000 gallons, at £6.20 per gallon, of a raw material to be used in its manufacturing process. The company prices its raw material inventory at cost or net realizable value, whichever is lower. Assuming that
8. Under what circumstances is relative standalone sales value an appropriate basis for determining the price assigned to inventory?
7. Briefly describe the valuation of (a) biological assets and (b) agricultural produce.
6. What exceptions might call for inventory valuation at net realizable value?
5. What method(s) might be used in the accounts to record a loss due to a price decline in the inventories? Discuss.
4. In some instances, accounting principles require a departure from valuing inventories at cost alone. Determine the proper unit inventory price in the following cases.Cases 1 2 3 4 5 Cost €15.90 €16.10 €15.90 €15.90 €15.90 Sales value 14.80 19.20 15.20 10.40 17.80 Estimated cost to
3. What approaches may be employed in applying the LCNRV procedure?Which approach is normally used and why?
2. Why are inventories valued at the lower-of-cost-or-net realizable value (LCNRV)? What are the arguments against the use of the LCNRV method of valuing inventories?
1. Where there is evidence that the utility of inventory goods, as part of their disposal in the ordinary course of business, will be less than cost, what is the proper accounting treatment?
E9.3 (LO 1) (Acquisition Costs of Trucks) Haddad Corporation operates a retail computer store.To improve delivery services to customers, the company purchases four new trucks on April 1, 2025. The terms of acquisition for each truck are described below.1. Truck #1 has a list price of $15,000 and is
E9.2 (LO 1, 2) (Acquisition Costs of Realty) Pollachek Co. purchased land as a factory site for$450,000. The process of tearing down two old buildings on the site and constructing the factory required 6 months. The company paid $42,000 to raze the old buildings and sold salvaged lumber and brick
E9.1 (LO 1, 2) (Acquisition Costs of Realty) The expenditures and receipts below are related to land, land improvements, and buildings acquired for use in a business. The receipts are enclosed in parentheses.a. Money borrowed to pay building contractor (signed a note) €(275,000)b. Payment for
E9.6 (LO 1, 2, 3) (Correction of Improper Cost Entries) Plant acquisitions for selected companies are presented as follows.1. Natchez Industries Inc. acquired land, buildings, and equipment from a bankrupt company, Vivace Co., for a lump-sum price of $680,000. At the time of purchase, Vivace’s
E9.5 (LO 1, 2) (Treatment of Various Costs) Allegro Supply plc, a newly formed company, incurred the following expenditures related to Land, Buildings, and Equipment.Abstract company’s fee for title search £ 520 Architect’s fees 3,170 Cash paid for land and dilapidated building thereon 92,000
E9.4 (LO 1, 2) (Purchase and Self-Constructed Cost of Assets) Dane ASA both purchases and constructs various equipment it uses in its operations. The following items for two different types of equipment were recorded in random order during the calendar year 2025.Purchase Cash paid for equipment,
E9.3 (LO 1) (Acquisition Costs of Trucks) Haddad Corporation operates a retail computer store.To improve delivery services to customers, the company purchases four new trucks on April 1, 2025. The terms of acquisition for each truck are described below.1. Truck #1 has a list price of $15,000 and is
E9.2 (LO 1, 2) (Acquisition Costs of Realty) Pollachek Co. purchased land as a factory site for$450,000. The process of tearing down two old buildings on the site and constructing the factory required 6 months. The company paid $42,000 to raze the old buildings and sold salvaged lumber and brick
E9.1 (LO 1, 2) (Acquisition Costs of Realty) The expenditures and receipts below are related to land, land improvements, and buildings acquired for use in a business. The receipts are enclosed in parentheses.a. Money borrowed to pay building contractor (signed a note) €(275,000)b. Payment for
BE9.16 (LO 5) Use the information presented for Ottawa Corporation in BE9.15, but assume the machinery is sold for $5,200 instead of $10,500. Prepare journal entries to (a) update depreciation for 2026 and (b) record the sale.
BE9.15 (LO 5) Ottawa Corporation owns machinery that cost $20,000 when purchased on July 1, 2022. Depreciation has been recorded at a rate of $2,400 per year, resulting in a balance in accumulated depreciation of $8,400 at December 31, 2025. The machinery is sold on September 1, 2026, for
BE9.14 (LO 3) In 2025, Sato Ltd. received a grant for ¥2 million to defray the cost of purchasing research equipment for its manufacturing facility. The total cost of the equipment is ¥10 million. Prepare the journal entry to record this transaction if Sato uses (a) the deferred revenue approach,
BE9.13 (LO 4) Indicate which of the following costs should be expensed when incurred.a. €13,000 paid to rearrange and reorganize machinery.b. €200,000 paid for addition to building.c. €200 paid for tune-up and oil change on a delivery truck.d. €7,000 paid to replace a wooden floor with a
BE9.12 (LO 3) Slaton Ltd. traded a used truck for a new truck. The used truck cost £20,000 and has accumulated depreciation of £17,000. The new truck is worth £35,000. Slaton also made a cash payment of £33,000. Prepare Slaton’s entry to record the exchange. (The exchange has commercial
BE9.11 (LO 3) Cheng SE traded a used truck for a new truck. The used truck cost $30,000 and has accumulated depreciation of $27,000. The new truck is worth $37,000. Cheng also made a cash payment of $36,000. Prepare Cheng’s entry to record the exchange. (The exchange lacks commercial substance.)
BE9.10 (LO 3) Mehta SE traded a used welding machine (cost €9,000, accumulated depreciation€3,000) for office equipment with an estimated fair value of €5,000. Mehta also paid €3,000 cash in the transaction. Prepare the journal entry to record the exchange. (The exchange has commercial
BE9.9 (LO 3) Use the information for Navajo ASA from BE9.8. Prepare the journal entry to record the exchange, assuming the exchange lacks commercial substance.
BE9.8 (LO 3) Navajo ASA traded a used truck (cost €20,000, accumulated depreciation €18,000) for a small computer worth €3,300. Navajo also paid €500 in the transaction. Prepare the journal entry to record the exchange. (The exchange has commercial substance.)
BE9.7 (LO 3) Fielder Company obtained land by issuing 2,000 shares of its $10 par value ordinary shares. The land was recently appraised at $85,000. The ordinary shares are actively traded at $40 per share. Prepare the journal entry to record the acquisition of the land.
BE9.6 (LO 3) Mohave Inc. purchased land, building, and equipment from Laguna Corporation for a cash payment of $315,000. The estimated fair values of the assets are land $60,000, building $220,000, and equipment $80,000. At what amounts should each of the three assets be recorded?
BE9.5 (LO 3) Chopra plc purchased a truck by issuing an £80,000, 4-year, zero-interest-bearing note to Equinox Inc. The market rate of interest for obligations of this nature is 10%. Prepare the journal entry to record the purchase of this truck.
BE9.4 (LO 2) Using the information from BE9.2 and BE9.3, determine the amount of borrowing cost that Zhang Ltd. would capitalize.
BE9.3 (LO 2) Zhang Ltd. (see BE9.2) had outstanding all year a 10%, 5-year HK$4,000,000 note payable and an 11%, 4-year HK$3,500,000 note payable. Compute the capitalization rate used for borrowing cost capitalization purposes.
BE9.2 (LO 2) Zhang Ltd. is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were HK$1,800,000 on March 1, HK$1,200,000 on June 1, and HK$3,000,000 on December 31. Compute Zhang’s average carrying amount for borrowing cost capitalization
BE9.1 (LO 1) Previn Brothers Inc. purchased land at a price of $27,000. Closing costs were $1,400. An old building was removed at a cost of $10,200. What amount should be recorded as the cost of the land?
23. What are the general rules for how gains or losses on disposal of plant assets should be reported in income?
22. Neville Enterprises has a number of fully depreciated assets that are still being used in the main operations of the business. Because the assets are fully depreciated, the president of the company decides not to show them on the statement of financial position or disclose this information in
21. To what extent do you consider the following items to be proper costs of property, plant, and equipment? Give reasons for your opinions.a. Overhead of a business that builds its own equipment.b. Cash discounts on purchases of equipment.c. Borrowing costs during construction of a building.d.
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