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intermediate accounting 11th

Intermediate Accounting IFRS International Adaptation 5th Edition Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield - Solutions

BE21.3 (LO 1) Shannon AG, changed from the average-cost to the FIFO cost flow assumption in 2025.The increase in the prior year’s income before taxes is €1,200,000. The tax rate is 40%. Prepare Shannon’s 2025 journal entry to record the change in accounting policy.
BE21.2 (LO 1) Refer to the accounting change by Wertz Construction in BE21.1. Wertz has a profit-sharing plan, which pays all employees a bonus at year-end based on 1% of pretax income. Compute the indirect effect of Wertz’s change in accounting policy that will be reported in the 2025 income
BE21.1 (LO 1) Wertz Construction decided at the beginning of 2025 to change from the cost-recovery method to the percentage-of-completion method for financial reporting purposes. The company will continue to use the cost-recovery method for tax purposes. For years prior to 2025, pretax income under
20. Equipment was purchased on January 2, 2025, for $24,000, but no portion of the cost has been charged to depreciation. The company wishes to use the straight-line method for these assets, which have been estimated to have a life of 10 years and no residual value.What effect does this error have
19. An entry to record Purchases and related Accounts Payable of¥130,000 for merchandise purchased on December 23, 2025, was recorded in January 2026. This merchandise was not included in inventory at December 31, 2025. What effect does this error have on reported net income for 2025? What entry
18. In January 2024, installation costs of £6,000 on new equipment were charged to Maintenance and Repairs Expense. Other costs of this equipment of £30,000 were correctly recorded and have been depreciated using the straight-line method with an estimated life of 10 years and no residual value.
17. Elliott AG failed to record accrued salaries for 2023, €2,000; 2024,€2,100; and 2025, €3,900. What is the amount of the overstatement or understatement of Retained Earnings at December 31, 2026?
16. Prior to 2025, Heberling Inc. excluded manufacturing overhead costs from work in process and finished goods inventory. These costs were expensed as incurred. In 2025, the company decided to change its accounting methods for manufacturing inventories to full costing by including these costs as
15. Discuss and illustrate how a correction of an error in previously issued financial statements should be handled.
14. Distinguish between counterbalancing and non-counterbalancing errors. Give an example of each.
13. What are some of the key motivations that managers might have to change accounting policies?
12. What relevance do political costs have to accounting changes?
11. Discuss how a change in accounting policy is handled when it is impracticable to determine previous amounts.
10. Parsons Inc. wishes to change from the cost-recovery to the percentage-of-completion method for financial reporting purposes.The auditor indicates that a change would be permitted only if it is to a preferable method. What difficulties develop in assessing preferability?
9. Whittier Construction had followed the practice of expensing all materials assigned to a construction job without recognizing any residual inventory. On December 31, 2025, it was determined that residual inventory should be valued at CHF52,000. Of this amount, CHF29,000 arose during the current
8. Indicate how the following items are recorded in the accounting records in the current year of Coronet Co.a. Impairment of goodwill.b. A change in depreciating plant assets from the accelerated to the straight-line method.c. Large write-off of inventories because of obsolescence.d. Change from
7. Lenexa State Bank has followed the practice of capitalizing certain marketing costs and amortizing these costs over their expected life. In the current year, the bank determined that the future benefits from these costs were doubtful. Consequently, the bank adopted the policy of expensing these
6. Define a change in estimate and provide an illustration.
5. What is an indirect effect of a change in accounting policy? Briefly describe the approach to reporting the indirect effects of a change in accounting policy.
4. Identify and describe the approach the IASB requires for reporting changes in accounting policies.
3. Discuss briefly the three approaches that have been suggested for reporting changes in accounting policies.
2. State how each of the following items is reflected in the financial statements.a. Change from FIFO to average-cost method for inventory valuation purposes.b. Charge for failure to record depreciation in a previous period.c. Litigation won in current year, related to prior period.d. Change in the
1. In recent years, the financial press has indicated that many companies have changed their accounting policies. What are the major reasons why companies change accounting policies?
*CA20.6 (LO 5) (Sale-Leaseback) On January 1, 2025, Perriman Company transferred equipment for cash and leased it back. As seller-lessee, Perriman retained the right to substantially all of the remaining use of the equipment. The term of the lease is 8 years.Instructionsa. What is the major issue
CA20.5 (LO 2, 4) Writing (Short-Term Lease vs. Finance Lease) You are auditing the December 31, 2025, financial statements of Hockney plc, manufacturer of novelties and party favors.During your inspection of the company garage, you discovered that a used automobile not listed in the equipment
CA20.4 (LO 2, 4) Ethics (Lease Capitalization, Bargain Purchase Option) Bader Corporation entered into a lease agreement for 100 photocopy machines for its company headquarters. The lease has a bargain purchase option because after the 5-year lease term, the company can purchase each copier for
CA20.3 (LO 2) (Lessee Accounting) On January 1, Santiago SA, a lessee, entered into three non-cancelable leases for new equipment, Lease L, Lease M, and Lease N. None of the three leases transfers ownership of the equipment to Santiago at the end of the lease term. The following information is
CA20.2 (LO 2, 3, 4) (Lessor and Lessee Accounting and Disclosure) Sylvan SA entered into a non-cancelable lease arrangement with Breton Leasing for a certain machine. Breton’s primary business is leasing. Sylvan will lease the machine for a period of 3 years, which is 50% of the machine’s
CA20.1 (LO 2) Writing (Lessee Accounting and Reporting) On January 1, 2025, Evans Company entered into a non-cancelable lease for a machine to be used in its manufacturing operations. The lease transfers control of the machine to Evans by the end of the lease term. The term of the lease is 8 years,
P20.15 (LO 2, 3) Groupwork (Lessee-Lessor Entries, Lease with an Unguaranteed Residual Value) Cleveland Group leased a new crane to Abriendo Construction under a 5-year, non-cancelable contract starting January 1, 2025. Terms of the lease require payments of R$48,555 each January 1, starting
P20.13 (LO 2, 4) (Statement of Financial Position and Income Statement Disclosure—Lessee)The following facts pertain to a non-cancelable lease agreement between Alschuler Leasing and McKee Electronics, a lessee, for a computer system.Commencement date October 1, 2025 Lease term 6 years Economic
P20.12 (LO 2, 3, 4) (Lessee-Lessor Entries, Statement of Financial Position Presentation, Finance and Sales-Type Lease) Winston Industries and Ewing SA enter into an agreement that requires Ewing to build three diesel-electric engines to Winston’s specifications. Upon completion of the engines,
P20.11 (LO 2, 3) Groupwork (Lessee-Lessor Accounting for Residual Values) Goring Dairy leases its milking equipment from King Finance Company under the following lease terms.1. The lease term is 10 years, non-cancelable, and requires equal rental payments of $30,300 due at the beginning of each
P20.10 (LO 2) (Lessee Computations and Entries, Lease with Unguaranteed Residual Value)Assume the same data as in P20.9, with JAL (JPN) having an incremental borrowing rate of 8%.Instructionsa. Compute the amount of the initial lease liability.b. Prepare a 10-year lease amortization schedule.c.
P20.9 (LO 3, 4) Groupwork (Lessor Computations and Entries, Sales-Type Lease with Unguaranteed Residual Value) Kobayashi Group manufactures a check-in kiosk with an estimated economic life of 12 years and leases it to Japan Airlines (JAL) (JPN) for a period of 10 years. The normal selling price
P20.8 (LO 2, 4) (Lessee Computations and Entries, Lease with Guaranteed Residual Value)Assume the same data as in P20.7 and that Chambers Medical Center has an incremental borrowing rate of 5% and an expected residual value at the end of the lease of R$10,000.Instructionsa. Compute the amount of
P20.7 (LO 3) (Lessor Computations and Entries, Sales-Type Lease with Guaranteed Residual Value) Amirante SA manufactures an X-ray machine with an estimated life of 12 years and leases it to Chambers Medical Center for a period of 10 years. The normal selling price of the machine is R$495,678, and
P20.6 (LO 2, 3) (Lessee-Lessor Entries, Lease with a Guaranteed Residual Value) Glaus Leasing AG agrees to lease equipment to Jensen Furniture on January 1, 2025. The following information relates to the lease agreement.1. The term of the lease is 7 years with no renewal option, and the machinery
P20.5 (LO 2) (Basic Lessee Accounting with Difficult PV Calculation) In 2024, Grishell Trucking negotiated and closed a long-term lease contract for newly constructed truck terminals and freight storage facilities. The buildings were erected to the company’s specifications on land owned by the
P20.4 (LO 2) (Lessee Entries, Lease with Monthly Payments) Shapiro Inc. began operations in 2024 as a computer software service firm, with an accounting fiscal year ending August 31. Shapiro’s primary product is a sophisticated online inventory-control system; its customers pay a fixed fee plus a
P20.3 (LO 2) Groupwork (Lessee Entries and Statement of Financial Position Presentation)Ludwick Steel SA, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2025. Annual rental payments of €40,000 are to be made at the beginning of each lease year (December
P20.2 (LO 2, 4) (Lessee Entries and Statement of Financial Position Presentation) On January 1, 2025, Cage Company contracts to lease equipment for 5 years, agreeing to make a payment of$120,987 at the beginning of each year, starting January 1, 2025. The leased equipment is to be capitalized at
P20.1 (LO 2, 4) (Lessee Entries) The following facts pertain to a non-cancelable lease agreement between Faldo Leasing and Vance plc, a lessee.Commencement date January 1, 2025 Annual lease payment due at the beginning of each year, beginning with January 1, 2025£113,864 Residual value of
*E20.19 (LO 5) (Lessee-Lessor, Sale-Leaseback) Respond to the requirements in each situation.Instructionsa. On January 1, 2025, Zarle Inc. sold computer equipment to Daniell Co. The sales price of the equipment was $520,000 and its carrying amount is $400,000. Record any journal entries necessary
*E20.18 (LO 5) (Sale-Leaseback) Assume that on January 1, 2025, Humphrey’s Restaurants NV sells a computer system to Liquidity Finance for €680,000 and immediately leases back the computer system. The relevant information is as follows.1. The computer was carried on Humphrey’s books at a
E20.17 (LO 3, 4) (Lessor Accounting) Use the information for Rauch AG and Donahue SA from E20.16.Instructionsa. Explain how Rauch arrived at the amount of the rental payments used in the lease agreement, and show calculations.b. Prepare the entries for Rauch for 2025.c. Suppose that instead of
E20.16 (LO 2, 4) (Lessee Accounting, Initial Direct Costs) Rauch AG leases a piece of equipment to Donahue SA on January 1, 2025. The lease agreement called for annual rental payments of €4,892 at the beginning of each year of the 4-year lease. The equipment has an economic useful life of 6
E20.15 (LO 2) (Amortization Schedule and Journal Entries for Lessee) Laura Leasing SA signs an agreement on January 1, 2025, to lease equipment to Plote AG. The following information relates to this agreement.1. The term of the non-cancelable lease is 3 years with no renewal option. The equipment
E20.14 (LO 2) (Lessee Entries) Use the information for the Phelps/Walsh lease in E20.13. In this instance, however, Walsh is unaware of the implicit rate used in the lease by Phelps and has an incremental borrowing rate of 9%.Instructions How would your answer to E20.13(a) change?
E20.13 (LO 2, 3) (Lessee-Lessor Entries, Sales-Type Lease; Guaranteed Residual Value)Phelps plc leases a building to Walsh Ltd. on January 1, 2025. The following facts pertain to the lease agreement.1. The lease term is 5 years, with equal annual rental payments of £4,703 at the beginning of each
E20.12 (LO 2, 3, 4) (Lessee-Lessor Entries, Sales-Type Lease with Bargain Purchase Option)On January 1, 2025, Bensen Company leased equipment to Flynn Corporation. The following information pertains to this lease.1. The term of the non-cancelable lease is 6 years. At the end of the lease term,
E20.11 (LO 3) (Lessor Entries with Bargain Purchase Option) A lease agreement between Mooney Leasing and Choi Group is described in E20.10.Instructions Refer to the data in E20.10 and do the following for the lessor. (Round all numbers to the nearest yen.)a. Discuss the nature of this lease for
E20.10 (LO 2) (Lessee Entries with Bargain Purchase Option) The following facts pertain to a non-cancelable lease agreement between Mooney Leasing and Choi Group, a lessee (amounts in thousands).Commencement date May 1, 2025 Annual lease payment due at the beginning of each year, beginning with May
E20.9 (LO 2, 4) (Lessee Entries, Initial Direct Costs) Use the information for Crosley Company in E20.8. Assume that Dexter Corporation does not know the rate implicit in the lease used by Crosley, and Dexter’s incremental borrowing rate is 8%. In addition, assume that Dexter incurs initial
E20.8 (LO 3) (Lessor Entries, Sales-Type Lease) Crosley Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2025. The lease is for an 8-year period and requires equal annual payments of $35,004 at the beginning of each year. The first payment is received on January 1,
E20.7 (LO 2, 3) (Type of Lease, Amortization Schedule) Macinski Leasing leases a new machine to Sharrer SA. The machine has a cost of €70,000 and fair value of €95,000. Under the 3-year, non-cancelable contract, Sharrer will receive title to the machine at the end of the lease. The machine has
E20.6 (LO 3) (Lessor Entries, Sales-Type Lease with Option to Purchase) Castle Leasing Company signs a lease agreement on January 1, 2025, to lease electronic equipment to Jan Way Company.The term of the non-cancelable lease is 2 years, and payments are required at the end of each year. The
E20.5 (LO 3) (Computation of Rental, Journal Entries for Lessor) Morgan Leasing Group signs an agreement on January 1, 2025, to lease equipment to Cole plc. The following information relates to this agreement.1. The term of the non-cancelable lease is 6 years with no renewal option. The equipment
E20.4 (LO 2, 4) (Lessee Entries, Unguaranteed Residual Value) Assume that on December 31, 2024, Stora Enso (FIN) signs a 10-year, non-cancelable lease agreement to lease a storage building from Sheffield Storage. The following information pertains to this lease agreement.1. The agreement requires
E20.3 (LO 2) (Lessee Computations and Entries, Lease with Guaranteed Residual Value)Delaney AG leases an automobile with a fair value of €10,000 from Simon Motors, on the following terms.1. Non-cancelable term of 50 months.2. Rental of €200 per month (at the beginning of each month). (The
E20.2 (LO 2) (Lessee Entries, Lease with Unguaranteed Residual Value) On December 31, 2024, Burke Corporation signed a 5-year, non-cancelable lease for a machine. The terms of the lease called for Burke to make annual payments of $8,668 at the beginning of each year, starting December 31, 2024.The
E20.1 (LO 2) (Lessee Entries, No Residual Value) DU Journeys enters into an agreement with Traveler plc to lease a car on December 31, 2024. The following information relates to this agreement.1. The term of the non-cancelable lease is 3 years with no renewal or bargain purchase option. The
*BE20.27 (LO 5) Assume the same facts as BE20.26, except the lease term is now 5 years and the 5 annual rental payments are €8,309, with no expected residual value at the end of the lease term. Prepare Irwin’s 2025 journal entries assuming these new facts.
*BE20.26 (LO 5) On January 1, 2025, Irwin Animation sold a truck to Peete Finance for €35,000 and immediately leased it back. The truck was carried on Irwin’s books at €28,000. The term of the lease is 3 years, there is no bargain purchase option, and title does not transfer to Irwin at
BE20.25 (LO 4) Brent SA owns equipment that cost €80,000 and has a useful life of 8 years with no residual value. On January 1, 2025, Brent leases the equipment to Havaci ASA for 1 year for one rental payment of €15,000 on January 1. Assuming Havaci (lessee) elects to use the short-term lease
BE20.24 (LO 4) Homestead AG entered into a lease to lease equipment from Highlander SA on January 1, 2025. The lease calls for annual lease payments of €10,000, beginning on December 31, for each of the 5 years of the lease. In addition, Highlander will pay Homestead €2,000 as a cash incentive
BE20.23 (LO 4) Bucky Corporation entered into a lease agreement to lease equipment from Badger, Inc. on January 1, 2025. The lease calls for annual lease payments of $30,000, beginning on January 1, for each of the 3 years of the lease. In addition, Badger will pay Bucky $5,000 as a cash incentive
BE20.22 (LO 4) Forrest, Inc. has entered an agreement to lease an old warehouse with a useful life of 5 years and a fair value of $20,000 from United Corporation. The agreement stipulates the following.• Rental payments of $4,638 are to be made at the start of each year of the 5-year lease. No
BE20.21 (LO 3) Use the information for Indiana Jones NV from BE20.20. Assume that for Lost Ark AG, the lessor, collectibility of lease payments is probable and the carrying amount of the equipment is€180,000. Prepare Lost Ark’s 2024 and 2025 journal entries.
BE20.20 (LO 2) Indiana Jones NV enters into a 6-year lease of equipment on December 31, 2024, which requires six annual payments of €40,000 each, beginning December 31, 2024. In addition, Indiana Jones guarantees the lessor a residual value of €20,000 at the end of the lease. However, Indiana
BE20.19 (LO 2) Use the information for Escapee plc from BE20.18. Assume the same facts, except Escapee guarantees a residual value of £9,000 at the end of the lease term, which equals the expected residual value of the machinery. (a) Does this change your answer from BE20.17? (b) Does your answer
BE20.18 (LO 2) On December 31, 2024, Escapee plc leased machinery from Terminator Group for an agreed-upon lease term of 3 years. Escapee agreed to make annual lease payments of £17,000, beginning on December 31, 2024. The expected residual value of the machinery at the end of the lease term
BE20.17 (LO 3) Use the information for Rodgers Corporation and Packers, Inc. from BE20.16. Assume that for Packers, Inc., the lessor, the collectibility of the lease payments is probable, and the fair value and cost of the equipment are $60,000. Prepare Packers’ 2025 journal entries, assuming the
BE20.16 (LO 2) Rodgers Corporation agrees on January 1, 2025, to lease equipment from Packers, Inc. for 3 years. The lease calls for annual lease payments of $12,000 at the beginning of each year. The lease does not transfer ownership or contain a bargain purchase option, and it is not a
BE20.15 (LO 3) Use the information for Kingston plc from BE20.14. Prepare all the necessary journal entries for Falls Ltd. (the lessor) for 2025, assuming the equipment is carried at a cost of £200,000.
BE20.14 (LO 2) Kingston plc leases equipment from Falls Ltd. on January 1, 2025. The lease agreement does not transfer ownership or contain a bargain purchase option, and it is not a specialized asset.It covers 3 years of the equipment’s 8-year useful life, and the present value of the lease
BE20.13 (LO 3) Kubby NV specializes in leasing large storage units to other businesses. Kubby entered a contract to lease a storage unit to Riskey Ltd. for 4 years when that particular storage unit had a remaining useful life of 5 years. The fair value of the unit was €10,000 at the commencement
BE20.12 (LO 3) Use the information for Geiberger AG from BE20.11, except assume the collectibility of the rentals is not probable. Prepare any journal entries for Geiberger on December 31, 2024.
BE20.11 (LO 3) Geiberger AG manufactures drones. On December 31, 2024, it leased to Althaus SA a drone that had cost €120,000 to manufacture. The lease agreement covers the 5-year useful life of the drone and requires five equal annual rentals of €40,800 payable each December 31, beginning
BE20.10 (LO 3) Use the information for IBM (USA) from BE20.9. Assume the sales-type lease was recorded at a present value of £150,001. Prepare IBM’s December 31, 2025, entry to record the lease transaction with Swander plc.
BE20.9 (LO 3) Assume that IBM (USA) leased equipment that was carried at a cost of £120,000 to Swander plc. The term of the lease is 6 years beginning December 31, 2024, with equal rental payments of £30,044 beginning December 31, 2024. The fair value of the equipment at commencement of the lease
BE20.8 (LO 3) Mequon Inc. wishes to lease machinery to Thiensville Company. Thiensville wants the machinery for 4 years, although it has a useful life of 10 years. The machinery has a fair value at the commencement of the lease of $47,000, and Mequon expects the machinery to have a residual value
BE20.7 (LO 3) Cardinal Ltd. is negotiating to lease a piece of equipment to MTBA plc. MTBA requests that the lease be for 9 years. The equipment has a useful life of 10 years. Cardinal wants a guarantee that the residual value of the equipment at the end of the lease is at least £5,000. MTBA
BE20.6 (LO 2) Debbink plc leased machinery from Young Ltd. on January 1, 2025. The lease term was for 8 years, with equal annual rental payments of £5,300 at the beginning of each year. In addition, the lease provides an option to purchase the machinery at the end of the lease term for £2,000,
BE20.5 (LO 2) Rick Kleckner NV recorded a right-of-use asset for €300,000 as a result of a lease on December 31, 2024. Kleckner’s incremental borrowing rate is 8%, and the implicit rate of the lessor was not known at the commencement of the lease. Kleckner made the first lease payment of
BE20.4 (LO 2) Waterworld Company leased equipment from Costner Company, beginning on December 31, 2024. The lease term is 4 years and requires equal rental payments of $41,933 at the beginning of each year of the lease, starting on the commencement date (December 31, 2024). The equipment has a fair
BE20.3 (LO 2) Sanders Fashion enters into a lease arrangement with Highpoint Leasing for 5 years.Sanders agrees to pay 4% of its net sales as a variable lease payment. Sanders does not pay any fixed payments. Sanders is a highly successful company that has achieved over £1,000,000 in net sales
BE20.2 (LO 2, 4) Fieger Company leases equipment for 8 years with an annual rental of $2,000 per year or $16,000 in total. General Leasing (the lessor) agrees to provide Fieger with $300 for the first 2 years of the lease to defray needed repairs to the equipment. Determine the undiscounted lease
BE20.1 (LO 2) Samson AG leases a building and land. The lease term is 6 years and the annual fixed payments are €800,000. The lease arrangement gives Samson the right to purchase the building and land for €11,000,000 at the end of the lease. Based on an economic analysis of the lease at the
*29. Sanchez SA (seller-lessee) enters into a sale-leaseback to sell its company headquarters for R$18 million to Harper Bank. The carrying value of the headquarters at the date of sale is R$14 million. Sanchez then leases back the headquarters in exchange for R$180,000 per year in rental payments.
*28. What is the nature of a “sale-leaseback” transaction?
27. What disclosures should be made by lessees and lessors related to future lease payments?
26. What are “initial direct costs” and how are they accounted for by lessees and lessors?
25. Of what significance is (a) an unguaranteed and (b) a guaranteed residual value in the lessor’s accounting for a finance (sales-type)lease transaction?
24. The residual value is the estimated fair value of the leased property at the end of the lease term. Of what significance is (a) an unguaranteed and (b) a guaranteed residual value in the lessee’s accounting under the finance lease method?
23. Packer plc (the lessor) concludes that its lease meets one of the tests to be classified as a sales-type lease. However, collection of lease payments is not probable. In this case, how should Packer account for any lease payments received?
22. Metheny Group’s lease arrangements qualify as finance (salestype)leases at the time of entering into the transactions. How should the company recognize sales revenue and cost of goods sold in these situations?
21. Walker Company is a manufacturer and lessor of computer equipment. What should be the nature of its lease arrangements with lessees if the company wishes to account for its lease transactions as finance (sales-type) leases?
20. Explain the difference in lessor income statement presentation for a sales-type versus an operating lease.
19. Explain the accounting involved in applying the operating lease method by a lessor.

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