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intermediate accounting 11th
Intermediate Accounting 11th Edition David Spiceland - Solutions
In 2024, Adonis Industries changed its method of valuing inventory from the average cost method to the FIFO method. At December 31, 2023, Adonis’s inventories were $47.6 million (average cost). Adonis’s records indicated that the inventories would have totaled $64 million at December 31, 2023,
Early one Wednesday afternoon, Ken and Larry studied in the dormitory room they shared at Fogelman College. Ken, an accounting major, was advising Larry, a management major, regarding a project for Larry’s Business Policy class. One aspect of the project involved analyzing the 2024 annual report
In keeping with a modernization of corporate statutes in its home state, UMC Corporation decided in 2024 to discontinue accounting for reacquired shares as treasury stock. Instead, shares repurchased will be viewed as having been retired, reassuming the status of unissued shares. As part of the
Shown below are net income amounts as they would be determined by Roberti Steel Company by each of three different inventory costing methods ($ in thousands).Required:1. Assume that Roberti used FIFO before 2024, and then in 2024 decided to switch to average cost. Prepare the journal entry to
In 2024, J J Dishes changed its method of valuing inventory from the FIFO method to the LIFO method. At December 31, 2023, J J’s inventories were $96 million (FIFO). J J’s records were insufficient to determine what inventories would have totaled if determined on a LIFO cost basis. Briefly
DRS Corporation changed the way it depreciates its computers from the sum-of-the-year’s-digits method to the straight-line method beginning January 1, 2024. DRS also changed its estimated residual value used in computing depreciation for its office building. At the end of 2024, DRS changed the
The Hoyle Companies, Inc. has ownership interests in several public companies. At the beginning of 2024, the company’s ownership interest in the common stock of Paik Properties increased to the point that it became appropriate to begin using the equity method of accounting for the investment. The
The Strawser-Morris Corporation uses a periodic inventory system and has used the FIFO cost method since inception of the company in 1985. In 2024, the company decided to change to the average cost method. Data for 2024 are as follows:Additional Information:1. The company’s effective income tax
Lynch Corporation changes from the sum-of-the-years’-digits method of depreciation for existing assets to the straight-line method. How should the change be reported? Explain.
Sometimes a business entity will change its method of accounting for certain items. The change may be classified as a change in accounting principle, a change in accounting estimate, or a change in reporting entity. Listed below are three independent, unrelated sets of facts relating to accounting
Sugarbaker Designs Inc. changed from the FIFO inventory costing method to the average cost method during 2024. Which items from the 2023 financial statements should be restated on the basis of the average cost method when reported in the 2024 comparative financial statements?
Refer to the situation described in BE 20–4. Suppose Irwin has been using the straight-line method and switches to the sum-of-the-years’-digits method. Ignoring income taxes, what journal entry(s) should Irwin record relating to the machine for 2024?Data from in BE 20-4Irwin, Inc. constructed a
Fantasy Fashions had used the LIFO method of costing inventories, but at the beginning of 2024 decided to change to the FIFO method. The inventory as reported at the end of 2023 using LIFO would have been $20 million higher using FIFO. Retained earnings reported at the end of 2022 and 2023 was $240
Some inventory errors are said to be “self-correcting” in that the error has the opposite financial statement effect in the period following the error, thereby “correcting,” the original account balance errors. Despite this self-correcting feature, these errors should not be ignored. An
During 2022 and 2023, Faulkner Manufacturing used the sum-of-the-years’-digits (SYD) method of depreciation for its depreciable assets, for both financial reporting and tax purposes. At the beginning of 2024, Faulkner decided to change to the straight-line method for both financial reporting and
Three programmers at Feenix Computer Storage, Inc., write an operating systems control manual for Hill-McGrawPublishing, Inc., for which Feenix receives royalties equal to 12% of net sales. Royalties are payable annually on February 1 for sales the previous year. The editor indicated to Feenix on
Millington Materials is a leading supplier of building equipment, building products, materials, and timber for sale, with over 200 branches across the Mid-South. On January 1, 2024, management decided to change from the average inventory costing method to the FIFO inventory costing method at each
Ray Solutions decided to make the following changes in its accounting policies on January 1, 2024:a. Changed from the cash to the accrual basis of accounting for recognizing revenue on its service contracts.b. Adopted straight-line depreciation for all future equipment purchases, but continued to
Southeast Steel, Inc., changed from the FIFO inventory costing method to the LIFO method during 2024. How would this change likely be reported in the 2024 comparative financial statements?
In 2023, Quapau Products introduced a new line of hot water heaters that carry a one-year warranty against manufacturer’s defects. Based on industry experience, warranty costs were expected to approximate 5% of sales revenue. First-year sales of the heaters were $300,000. An evaluation of the
In 2024, the William Jesse Company purchased land containing a mineral mine for $1,600,000. Additional costs of $600,000 were incurred to develop the mine. Geologists estimated that 400,000 tons of ore would be extracted. After the ore is removed, the land will have a resale value of $100,000. To
Flay Foods has always used the FIFO inventory costing method for both financial reporting and tax purposes. At the beginning of 2024, Flay decided to change to the LIFO method. As a result of the change, net income in 2024 was $80 million. If the company had used LIFO in 2023, its cost of goods
Described below are six independent and unrelated situations involving accounting changes. Each change occurs during 2024 before any adjusting entries or closing entries were prepared. Assume the tax rate for each company is 25% in all years. Any tax effects should be adjusted through the deferred
Van Frank Telecommunications has a patent on a cellular transmission process. The company has amortized the $18 million cost of the patent on a straight-line basis since it was acquired at the beginning of 2020. Due to rapid technological advances in the industry, management decided that the patent
Wolfgang Kitchens has always used the FIFO inventory costing method for both financial reporting and tax purposes. At the beginning of 2024, Wolfgang decided to change to the LIFO method. Net income in 2024 was correctly stated as $90 million. If the company had used LIFO in 2023, its cost of goods
When DeSoto Water Works purchased equipment at the end of 2023 at a cost of $65,000, the company debited Buildings and credited Cash $65,000. The error was discovered in 2024. What journal entry will DeSoto use to correct the error? What other step(s) would be taken in connection with the error?
You have been hired as the new controller for the Ralston Company. Shortly after joining the company in 2024, you discover the following errors related to the 2022 and 2023 financial statements:a. Inventory at 12/31/2022 was understated by $6,000.b. Inventory at 12/31/2023 was overstated by
For financial reporting, Kumas Poultry Farms has used the declining-balance method of depreciation for conveyor equipment acquired at the beginning of 2021 for $2,560,000. Its useful life was estimated to be six years with a $160,000 residual value. At the beginning of 2024, Kumas decides to change
The Collins Corporation purchased office equipment at the beginning of 2022 and capitalized a cost of $2,000,000. This cost included the following expenditures:The company estimated an eight-year useful life for the equipment. No residual value is anticipated. The double- declining-balance method
In 2024, internal auditors discovered that PKE Displays, Inc., had debited an expense account for the $350,000 cost of a machine purchased on January 1, 2021. The machine’s useful life was expected to be five years with no residual value. Straight-line depreciation is used by PKE. Ignoring income
Danville Bottlers is a wholesale beverage company. Danville uses the FIFO inventory method to determine the cost of its ending inventory. Ending inventory quantities are determined by a physical count. For the fiscal yearend June 30, 2024, ending inventory was originally determined to be
The Canliss Milling Company purchased machinery on January 2, 2022, for $800,000. A five-year life was estimated and no residual value was anticipated. Canliss decided to use the straight-line depreciation method and recorded $160,000 in depreciation in 2022 and 2023. Early in 2024, the company
S. J. Boylan Engineering Group receives royalties on a technical manual written by two of its engineers and sold to William B. Irving Publishing, Inc. Royalties are 10% of net sales, receivable on October 1 for sales in January through June and on April 1 for sales in July through December of the
Refer to the situation described in BE 20–10. Assume the error was discovered in 2026, after the 2025 financial statements are issued. Ignoring income taxes, what journal entry will PKE use to correct the error?Data from in BE 20-10In 2024, internal auditors discovered that PKE Displays, Inc.,
Williams-Santana Inc. is a manufacturer of high-tech industrial parts that was started in 2012 by two talented engineers with little business training. In 2024, the company was acquired by one of its major customers. As part of an internal audit, the following facts were discovered. The audit
The Commonwealth of Virginia filed suit in October 2022 against Northern Timber Corporation, seeking civil penalties and injunctive relief for violations of environmental laws regulating forest conservation. When the financial statements were issued in 2023, Northern had not reached a settlement
Duong-Burnett Products introduced a new line of commercial sprinklers in 2023 that carry a one-year warranty against manufacturer’s defects. Because this was the first product for which the company offered a warranty, trade publications were consulted to determine the experience of others in the
In 2024, the internal auditors of Development Technologies, Inc., discovered that (a) 2023 accrued salaries of $2 million were not recognized until they were paid in 2024 and (b) a $3 million purchase of merchandise in 2024 was recorded as a debit to Purchases in 2023 instead. The physical
Williams-Santana Inc. is a manufacturer of high-tech industrial parts that was started in 2009 by two talented engineers with little business training. In 2024, the company was acquired by one of its major customers. As part of an internal audit, the following facts were discovered. The audit
Whaley Distributors is a wholesale distributor of electronic components. Financial statements for the years ended December 31, 2022 and 2023, reported the following amounts and subtotals ($ in millions):In 2024, the following situations occurred or came to light:a. Internal auditors discovered that
Conrad Playground Supply underwent a restructuring in 2024. The company conducted a thorough internal audit, during which the following facts were discovered. The audit occurred during 2024 before any adjusting entries or closing entries are prepared.a. Additional computers were acquired at the
If merchandise inventory is understated at the end of 2023, and the error is not discovered, how will net income be affected in 2024?
You are internal auditor for Shannon Supplies, Inc., and are reviewing the company’s preliminary financial statements. The statements, prepared after making the adjusting entries, but before closing entries for the year ended December 31, 2024, are as follows:Shannon’s income tax rate was 25%
Boyas Industries reported a deferred tax liability of $5 million for the year ended December 31, 2023, related to a temporary difference of $20 million. The tax rate was 25%. The temporary difference is expected to reverse in 2025, at which time the deferred tax liability will become payable. There
George Young Industries (GYI) acquired industrial robots at the beginning of 2022 and added them to the company’s assembly process. During 2024, management became aware that the $1 million cost of the equipment was inadvertently recorded as repair expense on GYI’s books and on its income tax
The Peridot Company purchased machinery on January 2, 2022, for $800,000. A five-year life was estimated and no residual value was anticipated. Peridot decided to use the straight-line depreciation method and recorded $160,000 in depreciation in 2022 and 2023. Early in 2024, the company revised the
During 2024, Lipe and Lipe Corporation discovered that its ending inventories reported on its financial statements were misstated by the following amounts:Lipe and Lipe uses the periodic inventory system and the FIFO cost method.Required:1. Determine the effect of these errors on retained earnings
Wardell Company purchased a mini computer on January 1, 2022, at a cost of $40,000. The computer has been depreciated using the straight-line method over an estimated five-year useful life with an estimated residual value of $4,000. On January 1, 2024, the estimate of useful life was changed to a
At the end of 2023, Martinez Furniture Company failed to accrue $61,000 of interest expense that accrued during the last five months of 2023 on bonds payable. The bonds mature in 2035. The discount on the bonds is amortized by the straight-line method. The following entry was recorded on February
On December 12, 2024, an investment in equity securities costing $80,000 was sold for $100,000. The total of the sale proceeds was credited to the investment in equity securities account.Required:1. Prepare the journal entry to correct the error, assuming it is discovered before the books are
Wilkins Food Products Inc. acquired a packaging machine from Lawrence Specialists Corporation. Lawrence completed construction of the machine on January 1, 2022. In payment for the machine Wilkins issued a threeyear installment note to be paid in three equal payments at the end of each year. The
Below are three independent and unrelated errors.a. On December 31, 2023, Wolfe-Bache Corporation failed to accrue salaries expense of $1,800. In January 2024, when it paid employees for the December 27–January 2 workweek, Wolfe-Bache made the following entry:b. On the last day of 2023, Midwest
Target Corporation prepares its financial statements according to U.S. GAAP. Target’s financial statements and disclosure notes for the year ended February 1, 2020, are available in Connect. This material is also available under the Investor Relations link at the company’s website
Shown below in T-account format are the beginning and ending balances ($ in millions) of both inventory and accounts payable.Required:1. Use a T-account analysis to determine the amount of cash paid to suppliers of merchandise during the reporting period if cost of goods sold was $300 million.2.
“Be careful with that coffee!” Your roommate is staring in disbelief at the papers in front of her. “This was my contribution to our team project,” she moaned. “When you spilled your coffee, it splashed on this page. Now I can’t recognize some of these numbers, and Craig has my source
Air France–KLM (AF), a Franco-Dutch company, prepares its financial statements according to International Financial Reporting Standards. AF’s financial statements and disclosure notes for the year ended December 31, 2019, are provided in Connect. This material is also available under the
Locate the financial statements and related disclosure notes of FedEx Corporation for the fiscal year ended May 31, 2020. You can locate the report online at www.fedex.com. Use the information provided in the statement of cash flows to respond to the questions below.Required:1. Is FedEx expanding
“I doubt my eating these Cheerios will boost their ability to pay me dividends,” you quip, referring to General Mills, the maker of the best-selling breakfast cereal. It’s General Mills’ dividend-paying ability, in fact, that you plan to investigate right after breakfast. After discovering
The income statement and a schedule reconciling cash flows from operating activities to net income are provided below for Mike Roe Computers.Required:1. Calculate each of the following amounts for Mike Roe Computers:a. Cash received from customers during the reporting period.b. Cash paid to
Agee Technology, Inc., issued 9% bonds, dated January 1, with a face amount of $400 million on July 1, 2024, at a price of $380 million. For bonds of similar risk and maturity, the market yield is 10%. Interest is paid semiannually on June 30 and December 31. Prepare the journal entry to record
“I’m so confused,” your study partner snarls, throwing up his hands in exasperation. “As part of our team’s group project, I need to find out how much cash Microsoft spent on leases last year, and their statement of cash flows doesn’t even mention leases.” Tossing a sheet of paper in
The income statement and a schedule reconciling cash flows from operating activities to net income are provided below for Macrosoft Corporation.Required:Prepare the cash flows from operating activities section of the statement of cash flows (direct method). MACROSOFT CORPORATION Income
Refer to the situation described in BE 21–5. What would be the amount(s) related to the bonds that Agee would report in its statement of cash flows for the year ended December 31, 2024, if it uses the indirect method?Data from in BE 21-5Agee Technology, Inc., issued 9% bonds, dated January 1,
Portions of the financial statements for Parnell Company are provided below.Required:1. Prepare the cash flows from operating activities section of the statement of cash flows for Parnell Company using the direct method.2. Prepare the cash flows from operating activities section of the statement of
On January 1, 2024, the Merit Group issued to its bank a $41 million, five-year installment note to be paid in five equal payments at the end of each year. Installment payments of $10 million annually include interest at the rate of 7%. What would be the amount(s) related to the note that Merit
Portions of the financial statements for Hawkeye Company are provided below.Required:1. Prepare the cash flows from operating activities section of the statement of cash flows for Hawkeye Company using the direct method.2. Prepare the cash flows from operating activities section of the statement of
On July 15, 2024, M.W. Morgan Distribution sold land for $35 million that it had purchased in 2019 for $22 million. What would be the amount(s) related to the sale that Morgan would report in its statement of cash flows for the year ended December 31, 2024, using the direct method? The indirect
The following schedule relates the income statement with cash flows from operating activities, derived by both the direct and indirect methods, in the format illustrated in Illustration 21–11. Some elements necessary to complete the schedule are missing.Required:Complete the schedule by
Most Solutions, Inc., issued 10% bonds, dated January 1, with a face amount of $640 million on January 1, 2024. The bonds mature in 2034 (10 years). For bonds of similar risk and maturity the market yield is 12%. Interest expense is recorded at the effective interest rate. Interest is paid
Refer to the situation described in BE 21–9. What amount should Carter report as net cash from financing activities?Data from in BE 21-9Carter Containers sold marketable equity securities, land, and common stock for $30 million, $15 million, and $40 million, respectively. Carter also purchased
Sanders Awnings reported net income of $90 million. Included in that number were depreciation expense of $3 million and a loss on the sale of equipment of $2 million. Records reveal increases in accounts receivable, accounts payable, and inventory of $1 million, $4 million, and $3 million,
Shown below in T-account format are the changes affecting the retained earnings of Brenner-Jude Corporation during 2024. At January 1, 2024, the corporation had outstanding 105 million common shares, $1 par per share.Required:1. From the information provided by the account changes you should be
Following are selected balance sheet accounts of Del Conte Corp. at December 31, 2024 and 2023, and the increases or decreases in each account from 2023 to 2024. Also presented is selected income statement information for the year ended December 31, 2024, and additional information.Additional
National Food Services, Inc., borrowed $4 million from its local bank on January 1, 2024, and issued a four-year installment note to be paid in four equal payments at the end of each year. The payments include interest at the rate of 10%. Installment payments are $1,261,881 annually.Required:What
In preparation for developing its statement of cash flows for the year ended December 31, 2024, Rapid Pac, Inc., collected the following information:Required:1. In Rapid Pac’s statement of cash flows, what were net cash inflows (or outflows) from investing activities for 2024?2. In Rapid Pac’s
In preparation for developing its statement of cash flows for the year ended December 31, 2024, D-Krug Solutions, Inc. collected the following information:Required:1. In D-Krug’s statement of cash flows, what were net cash inflows (or outflows) from investing activities for 2024?2. In D-Krug’s
On January 1, 2024, Clor-Proell Enterprises bought 20% of the outstanding common stock of Chen Construction Company for $600 million cash. Chen’s net income for the year ended December 31, 2024, was $300 million. During 2024, Chen declared and paid cash dividends of $60 million. Clor-Proell
Neri Foods Corporation leased a commercial food processor on September 30, 2024. The five-year finance lease agreement calls for Neri to make quarterly lease payments of $195,774, payable each September 30, December 31, March 31, June 30, with the first payment at September 30, 2024. Neri’s
Digital Telephony issued 10% bonds, dated January 1, with a face amount of $32 million on January 1, 2024. The bonds mature in 2034 (10 years). For bonds of similar risk and maturity the market yield is 12%. Interest is paid semiannually on June 30 and December 31. Digital recorded the issue as
The following schedule relates the income statement with cash flows from operating activities, derived by both the direct and indirect methods, in the format illustrated by Illustration 21–11 in the chapter. The amounts for income statement elements are missing.Required:Deduce the missing amounts
Portions of the financial statements for Clear Transmissions Company are provided on the next page.Required:Prepare the cash flows from operating activities section of the statement of cash flows for Clear Transmissions Company using the direct method. CLEAR TRANSMISSIONS COMPANY Income
Refer to the data provided in E 21–25 for Clear Transmissions Company.Data from in E21-25Portions of the financial statements for Clear Transmissions Company are provided on the next page.Required:Prepare the cash flows from operating activities section of the statement of cash flows for Clear
On January 1, 2024, Avalanche Corporation borrowed $100,000 from First Bank by issuing a two-year, 8% fixed-rate note with annual interest payments. The principal of the note is due on December 31, 2025.∙ Avalanche wanted to hedge against declines in general interest rates, so it also entered
On January 1, 2024, Avalanche Corporation borrowed $100,000 from First Bank by issuing a two-year, 8% fixedrate note with annual interest payments. The principal of the note is due on December 31, 2025.∙ Avalanche wanted to hedge against declines in general interest rates, so it also entered into
On January 1, 2024, LLB Industries borrowed $200,000 from Trust Bank by issuing a two-year, 10% note, with interest payable quarterly.∙ LLB entered into a two-year interest rate swap agreement on January 1, 2024, and designated the swap as a fair value hedge. Its intent was to hedge the risk that
The following is an excerpt from a disclosure note of Johnson & Johnson:6. Fair Value Measurements (in part) As of January 3, 2021, the balance of deferred net gains on derivatives included in accumulated other comprehensive income was $652 million after-tax. The Company expects that
Target Corporation prepares its financial statements according to U.S. GAAP. Target’s financial statements and disclosure notes for the year ended February 1, 2020, are available in Connect. This material is also available under the Investor Relations link at the company’s website
A conceptual question in accounting for derivatives is this: Should gains and losses on a hedge instrument be recorded as they occur, or should they be recorded to coincide (match) with income effects of the item being hedged? ABI Wholesalers plans to issue long-term notes in May that will replace
Air France–KLM (AF), a Franco-Dutch company, prepares its financial statements according to International Financial Reporting Standards. AF’s financial statements and disclosure notes for the year ended December 31, 2019, are available in Connect. This material is also available under the
LLB Industries borrowed $200,000 from Trust Bank by issuing a two-year, 10% note, with interest payable quarterly.∙ LLB entered into a two-year interest rate swap agreement on January 1, 2024, and designated the swap as a fair value hedge. Its intent was to hedge the risk that general interest
CMOS Chips is hedging a 20-year, $10 million, 7% bond payable with a 20-year interest rate swap and has designated the swap as a fair value hedge. The agreement called for CMOS to receive payment based on a 7% fixed interest rate on a notional amount of $10 million and to pay interest based on a
On January 1, 2024, LLB Industries borrowed $200,000 from Trust Bank by issuing a two-year, 10% note, with interest payable quarterly.∙ LLB entered into a two-year interest rate swap agreement on January 1, 2024, and designated the swap as a fair value hedge. Its intent was to hedge the risk that
On January 1, 2024, Oriole Company purchased $500,000 of Nest Corporation’s five-year, 4% notes at par, with interest receivable semiannually. The company classified the investment as available-for-sale.∙ To hedge the risk that general interest rates will increase and the fair market value of
On January 1, 2024, LLB Industries borrowed $200,000 from Trust Bank by issuing a two-year, 10% note, with interest payable quarterly.∙ LLB entered into a two-year interest rate swap agreement on January 1, 2021, and designated the swap as a fair value hedge. Its intent was to hedge the risk that
What is a futures contract?
Snackums, Inc., purchases wheat for use in its food manufacturing process. Snackums operates in a highly competitive industry and is rarely able to increase its sales price.∙ On January 1, 2024, Snackums estimates that it only has enough wheat inventory to meet its manufacturing needs for the
Cleveland Company is a U.S. firm with a U.S. dollar functional currency that manufactures copper-related products. It forecasts that it will sell 5,000 feet of copper tubing to one of its largest customers at a price of ¥50,000,000. Although this sale has not been firmly committed, Cleveland
On January 1, 2024, JPS Industries borrowed $300,000 from Austin Bank by issuing a three-year, floating rate notebased on SOFR, with interest payable semiannually on June 30 and December of each year.∙ JPS entered into a three-year interest rate swap agreement on January 1, 2024, and designated
Arlington Steel Company is a producer of raw steel and steel-related products.∙ On January 3, 2025, Arlington enters into a firm commitment to purchase 10,000 tons of iron ore pellets from a supplier to satisfy spring production demands. The purchase is to be at a fixed price of $63 per ton on
Hutchison-Sun Corporation has a defined benefit pension plan. Hutchison-Sun’s policy is to fund the plan annually, cash payments being made at the end of each year. Data relating to the pension plan for 2024 are as follows:Required:Re-create the journal entries used to record Hutchison-Sun’s
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