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intermediate accounting 11th
Intermediate Accounting 11th Edition Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield - Solutions
(Entries for Various Dilutive Securities) The stockholders’ equity section of McLean Inc. at the beginning of the current year appears below.Common stock, $10 par value, authorized 1,000,000 shares, 300,000 shares issued and outstanding $3,000,000 Paid-in capital in excess of par 600,000 Retained
(Computation of Basic and Diluted EPS) The information below pertains to Prancer Company for 2007.Net income for the year $1,200,000 8% convertible bonds issued at par ($1,000 per bond). Each bond is convertible into 40 shares of common stock. 2,000,000 6% convertible, cumulative preferred stock,
The Procter & Gamble Company (P&G)The financial statements of (P&G) are presented in Appendix 5B or can be accessed on the KWW website.Instructions Refer to P&G’s financial statements and accompanying notes to answer the following questions.(a) Under P&G’s stock-based compensation plan, stock
Richardson Company is contemplating the establishment of a share-based compensation plan to provide long-run incentives for its top management. However, members of the compensation committee of the board of directors have voiced some concerns about adopting these plans, based on news accounts
Zucker-Abrahams Airlines Inc. awards members of its Flightline program a second ticket at half price, valid for 2 years anywhere on its flight system, when a full-price ticket is purchased. How would you account for the fullfare and half-fare tickets?
Northeast Airlines Co. awards members of its Frequent Fliers Club one free round-trip ticket, anywhere on its flight system, for every 50,000 miles flown on its planes.How would you account for the free ticket award?
Describe the nature, type, and valuation of current liabilities.
Explain the classification issues of short-term debt expected to be refinanced.
Identify types of employee-related liabilities.
Identify the criteria used to account for and disclose gain and loss contingencies.
Explain the accounting for different types of loss contingencies.
Indicate how current liabilities and contingencies are presented and analyzed.
Desert Storm Company borrowed $50,000 on November 1, 2004, by signing a $50,000, 9%, 3-month note. Prepare Desert Storm’s November 1, 2004, entry; the December 31, 2004, annual adjusting entry; and the February 1, 2005, entry.
Kawasaki Corporation borrowed $50,000 on November 1, 2004, by signing a $51,125, 3-month, zero-interest-bearing note. Prepare Kawasaki’s November 1, 2004, entry; the December 31, 2004, annual adjusting entry; and the February 1, 2005, entry.
At December 31, 2004, Fifa Corporation owes $500,000 on a note payable due February 15, 2005.(a) If Fifa refinances the obligation by issuing a long-term note on February 14 and using the proceeds to pay off the note due February 15, how much of the $500,000 should be reported as a current
Game Pro Magazine sold 10,000 annual subscriptions on August 1, 2004, for $18 each. Prepare Game Pro’s August 1, 2004, journal entry and the December 31, 2004, annual adjusting entry.
Flintstones Corporation made credit sales of $30,000 which are subject to 6% sales tax. The corporation also made cash sales which totaled $19,610 including the 6% sales tax. (a) Prepare the entry to record Flintstones’ credit sales. (b) Prepare the entry to record Flintstones’ cash sales.
Tale Spin Inc. provides paid vacations to its employees. At December 31, 2004, 30 employees have each earned 2 weeks of vacation time. The employees’ average salary is $600 per week. Prepare Tale Spin’s December 31, 2004, adjusting entry.
Gargoyle Corporation provides its officers with bonuses based on income. For 2004, the bonuses total $450,000 and are paid on February 15, 2005. Prepare Gargoyle’s December 31, 2004, adjusting entry and the February 15, 2005, entry.
Darby’s Drillers erects and places into service an off-shore oil platform on January 1, 2005, at a cost of $10,000,000. Darby is legally required to dismantle and remove the platform at the end of its useful life in 10 years. The estimated present value of the dismantling and removal costs at
Herzog Zwei Corporation sells VCRs. The corporation also offers its customers a 2-year warranty contract. During 2004, Herzog Zwei sold 15,000 warranty contracts at $99 each. The corporation spent $180,000 servicing warranties during 2004, and it estimates that an additional $900,000 will be spent
Klax Company offers a set of building blocks to customers who send in 3 UPC codes from Klax cereal, along with 50¢. The blocks sets cost Klax $1.10 each to purchase and 60¢ each to mail to customers.During 2004, Klax sold 1,000,000 boxes of cereal. The company expects 30% of the UPC codes to be
Locke Company provides its president, Cyan Garamonde, with a bonus equal to 10% of income after deducting income tax and bonus. Income before deducting income tax and bonus is $265,000, and the tax rate is 40%. Compute the amount of Cyan Garamonde’s bonus.
(Balance Sheet Classification of Various Liabilities) How would each of the following items be reported on the balance sheet?(a) Accrued vacation pay. (j) Premium offers outstanding.(b) Estimated taxes payable. (k) Discount on notes payable.(c) Service warranties on appliance sales. (l) Personal
(Accounts and Notes Payable) The following are selected 2004 transactions of Sean Astin Corporation.Sept. 1 Purchased inventory from Encino Company on account for $50,000. Astin records purchases gross and uses a periodic inventory system.Oct. 1 Issued a $50,000, 12-month, 12% note to Encino in
(Refinancing of Short-Term Debt) On December 31, 2004, Hattie McDaniel Company had$1,200,000 of short-term debt in the form of notes payable due February 2, 2005. On January 21, 2005, the company issued 25,000 shares of its common stock for $38 per share, receiving $950,000 proceeds after brokerage
(Refinancing of Short-Term Debt) On December 31, 2004, Chris Atkins Company has $7,000,000 of short-term debt in the form of notes payable to Blue Lagoon State Bank due periodically in 2005. On January 28, 2005, Atkins enters into a refinancing agreement with Blue Lagoon that will permit it to
(Compensated Absences) Zero Mostel Company began operations on January 2, 2003. It employs 9 individuals who work 8-hour days and are paid hourly. Each employee earns 10 paid vacation days and 6 paid sick days annually. Vacation days may be taken after January 15 of the year following the year in
(Compensated Absences) Assume the facts in the preceding exercise, except that Zero Mostel Company has chosen not to accrue paid sick leave until used, and has chosen to accrue vacation time at expected future rates of pay without discounting. The company used the following projected rates to
(Adjusting Entry for Sales Tax) During the month of June, R. Attenborough Boutique had cash sales of $233,200 and credit sales of $153,700, both of which include the 6% sales tax that must be remitted to the state by July 15.Instructions Prepare the adjusting entry that should be recorded to fairly
(Payroll Tax Entries) The payroll of Rene Auber Company for September 2003 is as follows.Total payroll was $480,000, of which $110,000 is exempt from Social Security tax because it represented amounts paid in excess of $84,900 to certain employees. The amount paid to employees in excess of $7,000
(Payroll Tax Entries) Green Day Hardware Company’s payroll for November 2004 is summarized below.At this point in the year some employees have already received wages in excess of those to which payroll taxes apply. Assume that the state unemployment tax is 2.5%. The F.I.C.A. rate is 7.65% on an
(Warranties) Soundgarden Company sold 200 copymaking machines in 2004 for $4,000 apiece, together with a one-year warranty. Maintenance on each machine during the warranty period averages $330.Instructions(a) Prepare entries to record the sale of the machines and the related warranty costs,
(Warranties) Sheryl Crow Equipment Company sold 500 Rollomatics during 2004 at $6,000 each.During 2004, Crow spent $20,000 servicing the 2-year warranties that accompany the Rollomatic. All applicable transactions are on a cash basis.Instructions(a) Prepare 2004 entries for Crow using the expense
(Premium Entries) Yanni Company includes 1 coupon in each box of soap powder that it packs, and 10 coupons are redeemable for a premium (a kitchen utensil). In 2004, Yanni Company purchased 8,800 premiums at 80 cents each and sold 110,000 boxes of soap powder at $3.30 per box; 44,000 coupons were
(Contingencies) Presented below are three independent situations. Answer the question at the end of each situation.1. During 2004, Salt-n-Pepa Inc. became involved in a tax dispute with the IRS. Salt-n-Pepa’s attorneys have indicated that they believe it is probable that Salt-n-Pepa will lose
(Asset Retirement Obligation) Oil Products Company purchases an oil tanker depot on January 1, 2004, at a cost of $600,000. Oil Products expects to operate the depot for 10 years, at which time it is legally required to dismantle the depot and remove the underground storage tanks. It is estimated
(Premiums) Presented below are three independent situations.1. Fred McGriff Stamp Company records stamp service revenue and provides for the cost of redemptions in the year stamps are sold to licensees. McGriff’s past experience indicates that only 80% of the stamps sold to licensees will be
(Financial Statement Impact of Liability Transactions) Presented below is a list of possible transactions.1. Purchased inventory for $80,000 on account (assume perpetual system is used).2. Issued an $80,000 note payable in payment on account (see item 1 above).3. Recorded accrued interest on the
(Ratio Computations and Discussion) Sprague Company has been operating for several years, and on December 31, 2004, presented the following balance sheet.The net income for 2004 was $25,000. Assume that total assets are the same in 2003 and 2004.Instructions Compute each of the following ratios.
(Ratio Computations and Analysis) Hood Company’s condensed financial statements provide the following information.Instructions (a) Determine the following for 2004.(1) Current ratio at December 31.(2) Acid-test ratio at December 31.(3) Accounts receivable turnover.(4) Inventory turnover.(5) Rate
(Ratio Computations and Effect of Transactions) Presented below is information related to Carver Inc.Instructions (a) Compute the following ratios or relationships of Carver Inc. Assume that the ending account balances are representative unless the information provided indicates differently.(1)
(Bonus Computation) Jud Buechler, president of the Supporting Cast Company, has a bonus arrangement with the company under which he receives 15% of the net income (after deducting taxes and bonuses) each year. For the current year, the net income before deducting either the provision for income
(Bonus Computation and Income Statement Preparation) The incomplete income statement of Scottie Pippen Company follows.The employee profit-sharing plan requires that 20% of all profits remaining after the deduction of the bonus and income taxes be distributed to the employees by the first day of
(Bonus Compensation) Alan Iverson Company has a profit-sharing agreement with its employees that provides for deposit in a pension trust for the benefit of the employees of 25% of the net income after deducting (1) federal taxes on income, (2) the amount of the annual pension contribution, and(3) a
(Current Liability Entries and Adjustments) Described below are certain transactions of James Edwards Corporation.1. On February 2, the corporation purchased goods from Jack Haley Company for $50,000 subject to cash discount terms of 2/10, n/30. Purchases and accounts payable are recorded by the
(Current Liability Entries and Adjustments) Listed below are selected transactions of Kobe Bryant Department Store for the current year ending December 31.1. On December 5, the store received $500 from the Phil Jackson Players as a deposit to be returned after certain furniture to be used in stage
(Payroll Tax Entries) Star Wars Company pays its office employee payroll weekly. Below is a partial list of employees and their payroll data for August. Because August is their vacation period, vacation pay is also listed.Assume that the federal income tax withheld is 10% of wages. Union dues
(Payroll Tax Entries) Below is a payroll sheet for Empire Import Company for the month of September 2004. The company is allowed a 1% unemployment compensation rate by the state; the federal unemployment tax rate is 0.8% and the maximum for both is $7,000. Assume a 10% federal income tax rate for
(Warranties, Accrual, and Cash Basis) Jerry Royster Corporation sells portable computers under a 2-year warranty contract that requires the corporation to replace defective parts and to provide the necessary repair labor. During 2004 the corporation sells for cash 300 computers at a unit price of
(Extended Warranties) Brett Perriman Company sells televisions at an average price of $750 and also offers to each customer a separate 3-year warranty contract for $75 that requires the company to perform periodic services and to replace defective parts. During 2004, the company sold 300
(Warranties, Accrual, and Cash Basis) Albert Pujols Company sells a machine for $7,400 under a 12-month warranty agreement that requires the company to replace all defective parts and to provide the repair labor at no cost to the customers. With sales being made evenly throughout the year, the
(Premium Entries) To stimulate the sales of its Alladin breakfast cereal, Khamsah Company places 1 coupon in each box. Five coupons are redeemable for a premium consisting of a children’s hand puppet.In 2005, the company purchases 40,000 puppets at $1.50 each and sells 440,000 boxes of Alladin at
(Premium Entries and Financial Statement Presentation) Roberto Hernandez Candy Company offers a CD single as a premium for every five candy bar wrappers presented by customers together with$2.00. The candy bars are sold by the company to distributors for 30 cents each. The purchase price of each CD
(Loss Contingencies: Entries and Essay) On November 24, 2004, 26 passengers on Tom Paris Airlines Flight No. 901 were injured upon landing when the plane skidded off the runway. Personal injury suits for damages totaling $5,000,000 were filed on January 11, 2005, against the airline by 18 injured
(Loss Contingencies: Entries and Essays) Shoyo Corporation, in preparation of its December 31, 2004, financial statements, is attempting to determine the proper accounting treatment for each of the following situations.1. As a result of uninsured accidents during the year, personal injury suits for
(Warranties and Premiums) Gloria Estefan’s Music Emporium carries a wide variety of musical instruments, sound reproduction equipment, recorded music, and sheet music. Estefan’s uses two sales promotion techniques—warranties and premiums—to attract customers.Musical instruments and sound
(Liability Errors) You are the independent auditor engaged to audit Christine Agazzi Corporation’s December 31, 2004, financial statements. Christine Agazzi manufactures household appliances.During the course of your audit, you discovered the following contingent liabilities.1. Christine Agazzi
(Bonus Computation) Henryk Inc. has a contract with its president, Nathalie Sarraute, to pay her a bonus during each of the years 2003, 2004, 2005, and 2006. The federal income tax rate is 40% during the 4 years. The profit before deductions for bonus and federal income taxes was $250,000 in
(Warranty, Bonus, and Coupon Computation) Victor Hugo Company must make computations and adjusting entries for the following independent situations at December 31, 2004.1. Its line of amplifiers carries a 3-year warranty against defects. On the basis of past experience the estimated warranty costs
(Nature of Liabilities) Presented below is the current liabilities section of Nizami CorporationInstructions Answer the following questions.(a) What are the essential characteristics that make an item a liability?(b) How does one distinguish between a current liability and a long-term liability?(c)
(Current versus Noncurrent Classification) D’Annunzio Corporation includes the following items in its liabilities at December 31, 2004.1. Notes payable, $25,000,000, due June 30, 2005.2. Deposits from customers on equipment ordered by them from D’Annunzio, $6,250,000.3. Salaries payable,
(Refinancing of Short-Term Debt) Levi Eshkol Corporation reports in the current liability section of its balance sheet at December 31, 2004 (its year-end), short-term obligations of $15,000,000, which includes the current portion of 12% long-term debt in the amount of $11,000,000 (matures in March
(Refinancing of Short-Term Debt) Medvedev Inc. issued $10,000,000 of short-term commercial paper during the year 2003 to finance construction of a plant. At December 31, 2003, the corporation’s year-end, Medvedev intends to refinance the commercial paper by issuing long-term debt. However,
(Loss Contingencies) On February 1, 2004, one of the huge storage tanks of Paunee Manufacturing Company exploded. Windows in houses and other buildings within a one-mile radius of the explosion were severely damaged, and a number of people were injured. As of February 15, 2004 (when the December
(Warranties and Loss Contingencies) The following two independent situations involve loss contingencies.Part 1 Clarke Company sells two products, John and Henrick. Each carries a one-year warranty.1. Product John—Product warranty costs, based on past experience, will normally be 1% of sales.2.
(Warranties) The Ray Company, owner of Bleacher Mall, charges Creighton Clothing Store a rental fee of $600 per month plus 5% of yearly profits over $500,000. Harry Creighton, the owner of the store, directs his accountant, Burt Wilson, to increase the estimate of bad debt expense and warranty
3M Company The financial statements of 3M are presented in Appendix 5B or can be accessed on the Take Action! CD.Instructions Refer to these financial statements and the accompanying notes to answer the following questions.(a) What was 3M’s short-term debt and related weighted average interest
Case 1 Northland Cranberries Despite being a publicly traded company only since 1987, Northland Cranberries of Wisconsin Rapids, Wisconsin, is one of the world’s largest cranberry growers. Despite its short life as a publicly traded corporation, it has engaged in an aggressive growth strategy. As
Case Mohican Company Presented below is the current liabilities section and related note of Mohican Company.Instructions Answer the following questions.(a) What is the difference between the cash basis and the accrual basis of accounting for warranty costs?(b) Under what circumstance, if any, would
The Coca-Cola Company and PepsiCo, Inc.Instructions Go to the Take Action! CD and use information found there to answer the following questions related to The Coca-Cola Company and PepsiCo, Inc.(a) How much working capital do each of these companies have at the end of 2001? Comment on the
Instructions Obtain the most recent edition of Accounting Trends and Techniques. Examine the disclosures included under the section regarding gain contingencies, and answer the following questions.(a) Determine the nature of each of the disclosed gain contingencies. Are there any common themes?(b)
The January 25, 2002, edition of the Wall Street Journal contained an article by Schad Terhune entitled“Georgia Pacific Says Asbestos Charge Will Result in Fourth Quarter Net Loss.” (Subscribers to Business Extra can access the article at that site.)Instructions Read the article and answer the
An important difference between U.S. and international accounting standards is the accounting for liabilities related to provisions. Due in part to differences in tax laws, accounting standards in some countries and the standards issued by the International Accounting Standards Board (IASB) allow
Alex Rodriguez Inc., a publishing company, is preparing its December 31, 2003, financial statements and must determine the proper accounting treatment for the following situations(a) Rodriguez sells subscriptions to several magazines for a 1-year, 2-year, or 3-year period. Cash receipts from
Toy Story Corporation issued $500,000 of 6% bonds on May 1, 2008. The bonds were dated January 1, 2008, and mature January 1, 2013, with interest payable July 1 and January 1. The bonds were issued at face value plus accrued interest. Prepare Toy Story’s journal entries for (a) the May 1
Izzy Corporation issued $400,000 of 7% bonds on November 1, 2008, for $429,757. The bonds were dated November 1, 2008, and mature in 10 years, with interest payable each May 1 and November 1. Izzy uses the effective interest method with an effective rate of 6%. Prepare Izzy’s December 31, 2008,
At December 31, 2008, Treasure Land Corporation has the following account balancesShow how the above accounts should be presented on the December 31, 2008, balance sheet, including the proper classifications. Bonds payable, due January 1, 2016 $2,000,000 Discount on bonds payable 98,000 Bond
McNabb Corporation issued a 4-year, $50,000, zero-interest-bearing note to Reid Company on January 1, 2008, and received cash of $31,776. The implicit interest rate is 12%. Prepare McNabb’s journal entries for (a) the January 1 issuance and (b) the December 31 recognition of interest.
Larry Byrd Corporation issued a 4-year, $50,000, 5% note to Magic Johnson Company on January 1, 2008, and received a computer that normally sells for $39,369. The note requires annual interest payments each December 31. The market rate of interest for a note of similar risk is 12%. Prepare Larry
King Corporation issued a 4-year, $50,000, zero-interest-bearing note to Salmon Company on January 1, 2008, and received cash of $50,000. In addition, King agreed to sell merchandise to Salmon at an amount less than regular selling price over the 4-year period. The market rate of interest for
Assume that Toni Braxton Company has recently fallen into financial difficulties. By reviewing all available evidence on December 31, 2006, one creditor of Toni Braxton, the National American Bank, determined that Toni Braxton would pay back only 65% of the principal at maturity. As a result, the
(Classification of Liabilities) Presented below are various account balances of K.D. Lang Inc.(a) Unamortized premium on bonds payable, of which $3,000 will be amortized during the next year.(b) Bank loans payable of a winery, due March 10, 2011. (The product requires aging for 5 years before
(Classification) The following items are found in the financial statements.(a) Discount on bonds payable(b) Interest expense (credit balance)(c) Unamortized bond issue costs(d) Gain on repurchase of debt(e) Mortgage payable (payable in equal amounts over next 3 years)(f) Debenture bonds payable
(Entries for Bond Transactions) Presented below are two independent situations.1. On January 1, 2007, Simon Company issued $200,000 of 9%, 10-year bonds at par. Interest is payable quarterly on April 1, July 1, October 1, and January 1.2. On June 1, 2007, Garfunkel Company issued $100,000 of 12%,
(Entries for Bond Transactions—Straight-Line) Celine Dion Company issued $600,000 of 10%, 20-year bonds on January 1, 2008, at 102. Interest is payable semiannually on July 1 and January 1. Dion Company uses the straight-line method of amortization for bond premium or discount.Instructions
(Entries for Bond Transactions—Effective Interest) Assume the same information as in E14-4, except that Celine Dion Company uses the effective interest method of amortization for bond premium or discount. Assume an effective yield of 9.7705%.Instructions Prepare the journal entries to record the
(Amortization Schedules—Straight-line) Devon Harris Company sells 10% bonds having a maturity value of $2,000,000 for $1,855,816. The bonds are dated January 1, 2007, and mature January 1, 2012. Interest is payable annually on January 1.Instructions Set up a schedule of interest expense and
(Amortization Schedule—Effective Interest) Assume the same information as E14-6.Instructions Set up a schedule of interest expense and discount amortization under the effective interest method. (Hint:The effective interest rate must be computed.)
(Determine Proper Amounts in Account Balances) Presented below are three independent situations.(a) CeCe Winans Corporation incurred the following costs in connection with the issuance of bonds:(1) printing and engraving costs, $12,000; (2) legal fees, $49,000, and (3) commissions paid to
(Entries and Questions for Bond Transactions) On June 30, 2008, Mischa Auer Company issued$4,000,000 face value of 13%, 20-year bonds at $4,300,920, a yield of 12%. Auer uses the effective interest method to amortize bond premium or discount. The bonds pay semiannual interest on June 30 and
(Entries for Bond Transactions) On January 1, 2007, Aumont Company sold 12% bonds having a maturity value of $500,000 for $537,907.37, which provides the bondholders with a 10% yield. The bonds are dated January 1, 2007, and mature January 1, 2012, with interest payable December 31 of each year.
(Information Related to Various Bond Issues) Karen Austin Inc. has issued three types of debt on January 1, 2007, the start of the company’s fiscal year.(a) $10 million, 10-year, 15% unsecured bonds, interest payable quarterly. Bonds were priced to yield 12%.(b) $25 million par of 10-year,
(Entry for Retirement of Bond; Bond Issue Costs) On January 2, 2002, Banno Corporation issued $1,500,000 of 10% bonds at 97 due December 31, 2011. Legal and other costs of $24,000 were incurred in connection with the issue. Interest on the bonds is payable annually each December 31. The$24,000
(Entries for Retirement and Issuance of Bonds) On June 30, 1999, County Crows Company issued 12% bonds with a par value of $800,000 due in 20 years. They were issued at 98 and were callable at 104 at any date after June 30, 2007. Because of lower interest rates and a significant change in the
(Entries for Retirement and Issuance of Bonds) Linda Day George Company had bonds outstanding with a maturity value of $300,000. On April 30, 2008, when these bonds had an unamortized discount of $10,000, they were called in at 104. To pay for these bonds, George had issued other bonds a month
(Entries for Zero-Interest-Bearing Notes) On January 1, 2008, Ellen Greene Company makes the two following acquisitions.1. Purchases land having a fair market value of $200,000 by issuing a 5-year, zero-interest-bearing promissory note in the face amount of $337,012.2. Purchases equipment by
(Imputation of Interest) Presented below are two independent situations:(a) On January 1, 2008, Robin Wright Inc. purchased land that had an assessed value of $350,000 at the time of purchase. A $550,000, zero-interest-bearing note due January 1, 2011, was given in exchange. There was no
(Imputation of Interest with Right) On January 1, 2006, Margaret Avery Co. borrowed and received $400,000 from a major customer evidenced by a zero-interest-bearing note due in 3 years. As consideration for the zero-interest-bearing feature, Avery agrees to supply the customer’s inventory needs
(Long-Term Debt Disclosure) At December 31, 2006, Helen Reddy Company has outstanding three long-term debt issues. The first is a $2,000,000 note payable which matures June 30, 2009. The second is a $6,000,000 bond issue which matures September 30, 2010. The third is a $17,500,000 sinking fund
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