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intermediate accounting 11th

Intermediate Accounting 11th Edition Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield - Solutions

(Term Modification without Gain—Debtor’s Entries) On December 31, 2007, the Firstar Bank enters into a debt restructuring agreement with Nicole Bradtke Company, which is now experiencing financial trouble. The bank agrees to restructure a 12%, issued at par, $2,000,000 note receivable by the
(Term Modification without Gain—Creditor’s Entries) Using the same information as in E14-21 above, answer the following questions related to Firstar Bank (creditor).Instructions (a) What interest rate should Firstar Bank use to calculate the loss on the debt restructuring?(b) Compute the loss
(Term Modification with Gain—Debtor’s Entries) Use the same information as in E14-21 above except that Firstar Bank reduced the principal to $1,300,000 rather than $1,600,000. On January 1, 2011, Bradtke pays $1,300,000 in cash to Firstar Bank for the principal.Instructions(a) Can Bradtke
(Term Modification with Gain—Creditor’s Entries) Using the same information as in E14-21 and E14-23 above, answer the following questions related to Firstar Bank (creditor).Instructions (a) Compute the loss Firstar Bank will suffer under this new term modification. Prepare the journal entry to
(Debtor/Creditor Entries for Settlement of Troubled Debt) Petra Langrova Co. owes $199,800 to Mary Joe Fernandez Inc. The debt is a 10-year, 11% note. Because Petra Langrova Co. is in financial trouble, Mary Joe Fernandez Inc. agrees to accept some property and cancel the entire debt. The property
(Debtor/Creditor Entries for Modification of Troubled Debt) Steffi Graf Corp. owes $225,000 to First Trust. The debt is a 10-year, 12% note due December 31, 2007. Because Graf Corp. is in financial trouble, First Trust agrees to extend the maturity date to December 31, 2009, reduce the principal to
(Impairments) On December 31, 2006, Iva Majoli Company borrowed $62,092 from Paris Bank, signing a 5-year, $100,000 zero-interest-bearing note. The note was issued to yield 10% interest. Unfortunately, during 2008, Majoli began to experience financial difficulty. As a result, at December 31, 2008,
(Impairments) On December 31, 2006, Conchita Martinez Company signed a $1,000,000 note to Sauk City Bank. The market interest rate at that time was 12%. The stated interest rate on the note was 10%, payable annually. The note matures in 5 years. Unfortunately, because of lower sales, Conchita
(Analysis of Amortization Schedule and Interest Entries) The following amortization and interest schedule reflects the issuance of 10-year bonds by Terrel Brandon Corporation on January 1, 2000, and the subsequent interest payments and charges. The company’s year-end is December 31, and financial
(Issuance and Retirement of Bonds) Palmiero Co. is building a new hockey arena at a cost of$2,000,000. It received a downpayment of $500,000 from local businesses to support the project, and now needs to borrow $1,500,000 to complete the project. It therefore decides to issue $1,500,000 of 10.5%,
(Negative Amortization) Slippery Sales Inc. developed a new sales gimmick to help sell its inventory of new automobiles. Because many new car buyers need financing, Slippery offered a low downpayment and low car payments for the first year after purchase. It believes that this promotion will bring
(Issuance and Retirement of Bonds; Income Statement Presentation) Chris Mills Company issued its 9%, 25-year mortgage bonds in the principal amount of $5,000,000 on January 2, 1993, at a discount of $250,000, which it proceeded to amortize by charges to expense over the life of the issue on a
(Comprehensive Bond Problem) In each of the following independent cases the company closes its books on December 31.1. Danny Ferry Co. sells $250,000 of 10% bonds on March 1, 2007. The bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, 2010. The bonds yield
(Issuance of Bonds between Interest Dates, Straight-line, Retirement) Presented below are selected transactions on the books of Powerglide Corporation.May 1, 2007 Bonds payable with a par value of $700,000, which are dated January 1, 2007, are sold at 106 plus accrued interest. They are coupon
(Entries for Life Cycle of Bonds) On April 1, 2007, Fontenot Company sold 12,000 of its 11%, 15-year, $1,000 face value bonds at 97. Interest payment dates are April 1 and October 1, and the company uses the straight-line method of bond discount amortization. On March 1, 2008, Fontenot took
(Entries for Zero-Interest-Bearing Note) On December 31, 2007, Jose Luis Company acquired a computer from Cuevas Corporation by issuing a $400,000 zero-interest-bearing note, payable in full on December 31, 2011. Jose Luis Company’s credit rating permits it to borrow funds from its several lines
(Entries for Zero-Interest-Bearing Note; Payable in Installments) Sun Yat-sen Cosmetics Co.purchased machinery on December 31, 2006, paying $40,000 down and agreeing to pay the balance in four equal installments of $30,000 payable each December 31. An assumed interest of 8% is implicit in the
(Comprehensive Problem; Issuance, Classification, Reporting) Presented below are four independent situations.(a) On March 1, 2008, Heide Co. issued at 103 plus accrued interest $3,000,000, 9% bonds. The bonds are dated January 1, 2008, and pay interest semiannually on July 1 and January 1. In
(Effective Interest Method) Mathilda B. Reichenbacher, an intermediate accounting student, is having difficulty amortizing bond premiums and discounts using the effective interest method. Furthermore, she cannot understand why GAAP requires that this method be used instead of the straight-line
(Loan Impairment Entries) On January 1, 2007, Botosan Company issued a $1,200,000, 5-year, zero-interest-bearing note to National Organization Bank. The note was issued to yield 8% annual interest.Unfortunately, during 2008, Botosan fell into financial trouble due to increased competition. After
(Debtor/Creditor Entries for Continuation of Troubled Debt) Jeremy Hillary is the sole shareholder of Hillary Inc., which is currently under protection of the U.S. bankruptcy court. As a “debtor in possession,” he has negotiated the following revised loan agreement with Valley Bank. Hillary
(Restructure of Note under Different Circumstances) Sandro Corporation is having financial difficulty and therefore has asked Botticelli National Bank to restructure its $3 million note outstanding.The present note has 3 years remaining and pays a current rate of interest of 10%. The present market
(Debtor/Creditor Entries for Continuation of Troubled Debt with New Effective Interest)Mildred Corp. owes D. Taylor Corp. a 10-year, 10% note in the amount of $110,000 plus $11,000 of accrued interest. The note is due today, December 31, 2007. Because Mildred Corp. is in financial trouble, D.
(Bond Theory: Balance Sheet Presentations, Interest Rate, Premium) On January 1, 2008, Branagh Company issued for $1,075,230 its 20-year, 13% bonds that have a maturity value of $1,000,000 and pay interest semiannually on January 1 and July 1. Bond issue costs were not material in amount.Below are
(Various Long-Term Liability Conceptual Issues) Emma Thompson Company has completed a number of transactions during 2007. In January the company purchased under contract a machine at a total price of $1,200,000, payable over 5 years with installments of $240,000 per year. The seller has considered
(Bond Theory: Price, Presentation, and Retirement) On March 1, 2008, Jackie Chan Company sold its 5-year, $1,000 face value, 9% bonds dated March 1, 2008, at an effective annual interest rate (yield)of 11%. Interest is payable semiannually, and the first interest payment date is September 1, 2008.
(Bond Theory: Amortization and Gain or Loss Recognition)Part I. The appropriate method of amortizing a premium or discount on issuance of bonds is the effective interest method.Instructions(a) What is the effective interest method of amortization and how is it different from and similar to the
(Off-Balance-Sheet Financing) Brad Pitt Corporation is interested in building its own soda can manufacturing plant adjacent to its existing plant in Partyville, Kansas. The objective would be to ensure a steady supply of cans at a stable price and to minimize transportation costs. However, the
(Bond Issue) Roland Carlson is the president, founder, and majority owner of Thebeau Medical Corporation, an emerging medical technology products company. Thebeau is in dire need of additional capital to keep operating and to bring several promising products to final development, testing, and
The Procter & Gamble Company (P&G)The financial statements of P&G are presented in Appendix 5B or can be accessed on KWW website.Instructions Refer to P&G’s financial statements and the accompanying notes to answer the following questions.(a) What cash outflow obligations related to the repayment
Case 1 Commonwealth Edison Co.The following article appeared in the Wall Street Journal.Bond Markets Giant Commonwealth Edison Issue Hits Resale Market With $70 Million Left Over NEW YORK—Commonwealth Edison Co.’s slow-selling new 91/4% bonds were tossed onto the resale market at a reduced
The Coca-Cola Company and PepsiCo, Inc.Instructions Go to the KWW website and use information found there to answer the following questions related to The Coca-Cola Company and PepsiCo, Inc.(a) Compute the debt to total assets ratio and the times interest earned ratio for these two
Instructions Use an appropriate source (such as those identified in Chapter 2 Research Case 1) to identify a firm that recently had its bond rating changed. Answer the following questions.(a) Which rating agency(ies) changed the rating?(b) What was the bond rating before and after the change?(c)
The February 2, 2002, edition of the Wall Street Journal includes an article by Mark Maremount entitled“Tyco May Alter Plan to Buy Back $11 Billion in Bonds with Tenders.” (You can access the article at the KWW website.)Instructions Read the article and answer the following questions.(a) Tyco
Wie Company has been operating for just 2 years, producing specialty golf equipment for women golfers.To date, the company has been able to finance its successful operations with investments from its principal owner, Michelle Wie, and cash flows from operations. However, current expansion plans
Honoré de Balzac Inc. has been producing quality children’s apparel for more than 25 years. The company’s fiscal year runs from April 1 to March 31. The following information relates to the obligations of Balzac as of March 31, 2006.Bonds Payable Balzac issued $5,000,000 of 11% bonds on April
(Settlement of Debt) Larisa Nieland Company owes $200,000 plus $18,000 of accrued interest to First State Bank. The debt is a 10-year, 10% note. During 2007, Larisa Nieland’s business deteriorated due to a faltering regional economy. On December 31, 2007, First State Bank agrees to accept an
Explain the accounting procedures for issuing shares of stock.
Explain the accounting for and reporting of preferred stock.
Describe the policies used in distributing dividends.
(Recording the Issuances of Common Stock) During its first year of operations, Collin Raye Corporation had the following transactions pertaining to its common stock.Jan. 10 Issued 80,000 shares for cash at $6 per share.Mar. 1 Issued 5,000 shares to attorneys in payment of a bill for $35,000 for
(Recording the Issuance of Common and Preferred Stock) Kathleen Battle Corporation was organized on January 1, 2007. It is authorized to issue 10,000 shares of 8%, $100 par value preferred stock, and 500,000 shares of no par common stock with a stated value of $1 per share. The following stock
(Entries for Stock Dividends and Stock Splits) The stockholders’ equity accounts of G.K.Chesterton Company have the following balances on December 31, 2007.Chesterton Company have the following balances on December 31, 2007.Common stock, $10 par, 300,000 shares issued and outstanding $3,000,000
(Dividend Entries) The following data were taken from the balance sheet accounts of Masefield Corporation on December 31, 2006.Current assets $540,000 Investments 624,000 Common stock (par value $10) 500,000 Paid-in capital in excess of par 150,000 Retained earnings 840,000 Instructions Prepare the
(Computation of Retained Earnings) The following information has been taken from the ledger accounts of Isaac Stern Corporation.Total income since incorporation $317,000 Total cash dividends paid 60,000 Total value of stock dividends distributed 30,000 Gains on treasury stock transactions 18,000
(Dividends and Stockholders’ Equity Section) Anne Cleves Company reported the following amounts in the stockholders’ equity section of its December 31, 2006, balance sheet.During 2007, Cleves took part in the following transactions concerning stockholders’ equity.1. Paid the annual 2006 $10
(Preferred Dividends) Matt Schmidt Company’s ledger shows the following balances on December 31, 2007.7% Preferred stock—$10 par value, outstanding 20,000 shares $ 200,000 Common stock—$100 par value, outstanding 30,000 shares 3,000,000 Retained earnings 630,000 Instructions Assuming that the
(Treasury Stock—Cost Method—Equity Section Preparation) Constantine Company has the following stockholders’ equity accounts at December 31, 2006.Common Stock—$100 par value, authorized 8,000 shares $480,000 Retained Earnings 294,000 Instructions(a) Prepare entries in journal form to record
(Cash Dividend Entries) The books of John Dos Passos Corporation carried the following account balances as of December 31, 2006.Cash $ 195,000 Preferred stock, 6% cumulative, nonparticipating, $50 par 200,000 Common stock, no par value, 300,000 shares issued 1,500,000 Paid-in capital in excess of
(Stock and Cash Dividends) Gul Ducat Corporation has outstanding 2,000,000 shares of common stock of a par value of $10 each. The balance in its retained earnings account at January 1, 2007, was$24,000,000, and it then had Additional Paid-in Capital of $5,000,000. During 2007, the company’s net
(Analysis and Classification of Equity Transactions) Ohio Company was formed on July 1, 2003. It was authorized to issue 300,000 shares of $10 par value common stock and 100,000 shares of 8%$25 par value, cumulative and nonparticipating preferred stock. Ohio Company has a July 1–June 30 fiscal
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 these financial statements and the accompanying notes to answer the following questions.(a) What is the par or stated value of P&G’s preferred
Kellogg Corporation is the world’s leading producer of ready-to-eat cereal products. In recent years the company has taken numerous steps aimed at improving its profitability and earnings per share. Presented below are some basic facts for Kellogg CorporationInstructions (a) What are some of the
Recall from Chapter 13 that Hincapie Co. (a specialty bike-accessory manufacturer) is expecting growth in sales of some products targeted to the low-price market. Hincapie is contemplating a preferred stock issue to help finance this expansion in operations. The company is leaning toward
Presented below are the stockholders' equity sections for AMR Corporation for 2004 and 2003.All amounts are in millions, except number of shares and par value.(a) Explain why common stock is classified as part of stockholders’ equity.(b) Explain why treasury stock is not classified as an
Marcy Co. acquired a trademark that is helpful in distinguishing one of its new products. The trademark is renewable every 10 years at minimal cost. All evidence indicates that this trademark product will generate cash flows for an indefinite period of time. How should this trademark be amortized?
Alonzo Mourning Company spent $190,000 developing a new process, $45,000 in legal fees to obtain a patent, and$91,000 to market the process that was patented, all in the year 2003. How should these costs be accounted for in 2003?
Yellow 3 purchased a patent for $450,000 which has an estimated useful life of 10 years. Its pattern of use or consumption cannot be reliably determined. Prepare the entry to record the amortization of the patent in its first year of use.
Logan Company determines that its goodwill is impaired.It finds that its implied goodwill is $380,000 and its recorded goodwill is $400,000. The fair value of its identifiable assets is $1,450,000. What is the amount of goodwill impaired?
In 2002, Cassie Logan Corporation developed a new product that will be marketed in 2003. In connection with the development of this product, the following costs were incurred in 2002: research and development costs $420,000;materials and supplies consumed $60,000; and compensation paid to research
Matt Antonio, Inc. has incurred $6 million in developing a computer software product for sale to third parties. Of the $6 million costs incurred, $4 million is capitalized. The product produced from this development work has generated$2 million in 2004 and is anticipated to generate another$8
Describe the characteristics of intangible assets.
Identify the costs included in the initial valuation of intangible assets.
Explain the procedure for amortizing intangible assets.
Identify the types of intangible assets.
Explain the conceptual issues related to goodwill.
Describe the accounting procedures for recording goodwill.
Explain the accounting issues related to intangible asset impairments.
Identify the conceptual issues related to research and development costs.
Describe the accounting procedures for research and development costs and for other similar costs.
Use the information provided in BE12-1. Assume that at January 1, 2006, the carrying amount of the patent on Doom Troopers’ books is $51,200. In January, Doom Troopers spends $24,000 successfully defending a patent suit. Doom Troopers still feels the patent will be useful until the end of 2013.
Incredible Hulk Corporation commenced operations in early 2004. The corporation incurred$70,000 of costs such as fees to underwriters, legal fees, state fees, and promotional expenditures during its formation. Prepare journal entries to record the $70,000 expenditure and 2004 amortization, if any.
On September 1, 2004, Dungeon Corporation acquired Dragon Enterprises for a cash payment of $750,000. At the time of purchase, Dragon’s balance sheet showed assets of $620,000, liabilities of$200,000, and owners’ equity of $420,000. The fair value of Dragon’s assets is estimated to be
Dorsett Corporation incurred the following costs in 2004.Prepare the necessary 2004 journal entry or entries for Dorsett. Cost of laboratory research aimed at discovery of new knowledge Cost of testing in search for product alternatives $140,000 100,000 Cost of engineering activity required to
Wiggens Industries acquired two copyrights during 2004. One copyright related to a textbook that was developed internally at a cost of $9,900. This textbook is estimated to have a useful life of 3 years from September 1, 2004, the date it was published. The second copyright (a history research
Earthworm Jim Corporation has capitalized software costs of $700,000, and sales of this product the first year totaled $420,000. Earthworm Jim anticipates earning $980,000 in additional future revenues from this product, which is estimated to have an economic life of 4 years. Compute the amount of
(Classification Issues—Intangibles) Presented below is a list of items that could be included in the intangible assets section of the balance sheet.1. Investment in a subsidiary company.2. Timberland.3. Cost of engineering activity required to advance the design of a product to the manufacturing
(Classification Issues—Intangibles) Presented below is selected account information related to Martin Burke Inc. as of December 21, 2003. All these accounts have debit balances.Instructions Identify which items should be classified as an intangible asset. For those items not classified as an
(Classification Issues—Intangible Asset) Joni Hyde Inc. has the following amounts included in its general ledger at December 31, 2003.Instructions (a) On the basis of the information above, compute the total amount to be reported by Hyde for intangible assets on its balance sheet at December 31,
(Intangible Amortization) Presented below is selected information for Alatorre Company.1. Alatorre purchased a patent from Vania Co. for $1,000,000 on January 1, 2002. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2012. During 2004, Alatorre
(Correct Intangible Asset Account) As the recently appointed auditor for William J. Bryan Corporation, you have been asked to examine selected accounts before the 6-month financial statements of June 30, 2003, are prepared. The controller for William J. Bryan Corporation mentions that only one
(Recording and Amortization of Intangibles) Rolanda Marshall Company, organized in 2003, has set up a single account for all intangible assets. The following summary discloses the debit entries that have been recorded during 2004.Instructions Prepare the necessary entries to clear the Intangible
(Accounting for Trade Name) In early January 2003, Gayle Crystal Corporation applied for a trade name, incurring legal costs of $16,000. In January of 2004, Gayle Crystal incurred $7,800 of legal fees in a successful defense of its trade name.Instructions(a) Compute 2003 amortization, 12/31/03 book
(Accounting for Organization Costs) Horace Greeley Corporation was organized in 2002 and began operations at the beginning of 2003. The company is involved in interior design consulting services.The following costs were incurred prior to the start of operations.Instructions (a) Compute the total
(Accounting for Patents, Franchises, and R & D) Jimmy Carter Company has provided information on intangible assets as follows.A patent was purchased from Gerald Ford Company for $2,000,000 on January 1, 2003. Carter estimated the remaining useful life of the patent to be 10 years. The patent
(Accounting for Patents) During 2000, George Winston Corporation spent $170,000 in research and development costs. As a result, a new product called the New Age Piano was patented. The patent was obtained on October 1, 2000, and had a legal life of 20 years and a useful life of 10 years. Legal
(Accounting for Patents) Tones Industries has the following patents on its December 31, 2005, balance sheet.The following events occurred during the year ended December 31, 2006.1. Research and development costs of $245,700 were incurred during the year.2. Patent D was purchased on July 1 for
(Accounting for Goodwill) Fred Moss, owner of Moss Interiors, is negotiating for the purchase of Zweifel Galleries. The balance sheet of Zweifel is given in an abbreviated form below.Moss and Zweifel agree that:1. Land is undervalued by $30,000.2. Equipment is overvalued by $5,000.Zweifel agrees to
(Accounting for Goodwill) On July 1, 2003, Brigham Corporation purchased Young Company by paying $250,000 cash and issuing a $100,000 note payable to Steve Young. At July 1, 2003, the balance sheet of Young Company was as followsThe recorded amounts all approximate current values except for land
(Copyright Impairment) Presented below is information related to copyrights owned by Walter de la Mare Company at December 31, 2004.Assume that Walter de la Mare Company will continue to use this copyright in the future. As of December 31, 2004, the copyright is estimated to have a remaining useful
(Goodwill Impairment) Presented below is net asset information related to the Carlos Division of Santana, Inc.The purpose of the Carlos division is to develop a nuclear-powered aircraft. If successful, traveling delays associated with refueling could be substantially reduced. Many other benefits
(Accounting for R & D Costs) Leontyne Price Company from time to time embarks on a research program when a special project seems to offer possibilities. In 2003 the company expends $325,000 on a research project, but by the end of 2003 it is impossible to determine whether any benefit will be
(Accounting for R & D Costs) Thomas More Company incurred the following costs during 2003 in connection with its research and development activities.Instructions Compute the amount to be reported as research and development expense by More on its income statement for 2003. Assume equipment is
(Accounting for Computer Software Costs) New Jersey Inc. has capitalized computer software costs of $3,600,000 on its new “Trenton” software package. Revenues from 2003 (first year) sales are$2,000,000. Additional future revenues from “Trenton” for the remainder of its economic life,
(Accounting for Computer Software Costs) During 2003, Delaware Enterprises Inc. spent$5,000,000 developing its new “Dover” software package. Of this amount, $2,200,000 was spent before technological feasibility was established for the product, which is to be marketed to third parties. The
(Correct Intangible Asset Account) Esplanade Co., organized in 2002, has set up a single account for all intangible assets. The following summary discloses the debit entries that have been recorded during 2002 and 2003.Intangible Assets 7/1/02 8-year franchise; expiration date 6/30/10 $ 42,000
(Accounting for Patents) Ankara Laboratories holds a valuable patent (No. 758-6002-1A) on a precipitator that prevents certain types of air pollution. Ankara does not manufacture or sell the products and processes it develops. Instead, it conducts research and develops products and processes which
(Accounting for Franchise, Patents, and Trade Name) Information concerning Haerhpin Corporation’s intangible assets is as follows.1. On January 1, 2004, Haerhpin signed an agreement to operate as a franchisee of Hsian Copy Service, Inc. for an initial franchise fee of $75,000. Of this amount,
(Accounting for R & D Costs) During 2001, Florence Nightingale Tool Company purchased a building site for its proposed research and development laboratory at a cost of $60,000. Construction of the building was started in 2001. The building was completed on December 31, 2002, at a cost of
(Goodwill, Impairment) On July 31, 2003, Postera Company paid $3,000,000 to acquire all of the common stock of Mendota Incorporated, which became a division of Postera. Mendota reported the following balance sheet at the time of the acquisition.It was determined at the date of the purchase that the

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