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intermediate accounting 11th
Intermediate Accounting 11th Edition David Spiceland - Solutions
A zero-coupon bond pays no interest. Explain.
Universal Foods issued 10% bonds, dated January 1, with a face amount of $150 million on January 1, 2024.∙ The bonds mature on December 31, 2038 (15 years).∙ The market rate of interest for similar issues was 12%.∙ Interest is paid semiannually on June 30 and December 31.∙ Universal uses
On January 1, a company issued 3%, 20-year bonds with a face amount of $80 million for $69,057,776 to yield 4%. Interest is paid semiannually. What was the straight-line interest expense on the December 31 annual income statement?
Being fairly new to the accounting team, you are eager to make a good impression in your meeting with the CFO. The meeting concerns the way you have proposed accounting for an upcoming issue of convertible bonds. Your proposal involves allocating the proceeds from the convertible bonds into two
The fiscal year ends December 31 for Lake Hamilton Development. To provide funding for its Moonlight Bay project, LHD issued 5% bonds with a face amount of $500,000 on November 1, 2024. The bonds sold for $442,215, a price to yield the market rate of 6%. The bonds mature October 31, 2043 (20
Some financial instruments can be considered compound instruments in that they have features of both debt and shareholders’ equity. The most common example encountered in practice is convertible debt—bonds or notes convertible by the investor into common stock. A topic of debate for several
On January 1, a company purchased 3%, 20-year corporate bonds for $69,057,776 as an investment. The bonds have a face amount of $80 million and are priced to yield 4%. Interest is paid semiannually. Prepare the journal entry to record revenue at the effective interest rate on December 31, the
Universal Foods sold the entire bond issue described in the previous exercise to Wang Communications.Required:1. Prepare the journal entry to record the purchase of the bonds by Wang Communications on January 1, 2024.2. Prepare the journal entry to record interest revenue on June 30, 2024.3.
On January 1, 2024, Rodriguez Window and Pane issued $18 million of 10-year, zero-coupon bonds for $5,795,518.Required:1. Prepare the journal entry to record the bond issue.2. Determine the effective rate of interest.3. Prepare the journal entry to record annual interest expense at December 31,
On January 1, 2024, Nantucket Ferry borrowed $14,000,000 cash from Bank One and issued a four-year, $14,000,000, 6% note. Interest was payable annually on December 31. Prepare the journal entries for both firms to record interest at December 31, 2024.
When PaAmerican Food Services, Inc., acquired a packaging machine from Barton and Barton Corporation.∙ Barton and Barton completed construction of the machine on January 1, 2024.∙ In payment for the $4 million machine, American Food Services issued a four-year installment note to be paid in
National Orthopedics Co. issued 9% bonds, dated January 1, with a face amount of $500,000 on January 1, 2024.∙ The bonds mature on December 31, 2027 (4 years).∙ For bonds of similar risk and maturity the market yield was 10%.∙ Interest is paid semiannually on June 30 and December
When companies offer new debt security issues, they publicize the offerings in the financial press and on Internet sites. Assume the following were among the debt offerings reported in December 2024:Required:1. Prepare the appropriate journal entries to record the sale of both issues to
At January 1, 2024, Brant Cargo acquired equipment by issuing a five-year, $150,000 (payable at maturity), 4% note. The market rate of interest for notes of similar risk is 10%.Required:1. Prepare the journal entry for Brant Cargo to record the purchase of the equipment.2. Prepare the journal entry
On March 1, 2024, Tanaka Lighting issued 14% bonds, dated March 1, with a face amount of $300,000.∙ The bonds sold for $294,000 and mature on February 28, 2044 (20 years).∙ Interest is paid semiannually on August 31 and February 28.∙ Tanaka uses the straight-line method and its fiscal year
On February 1, 2024, Strauss-Lombardi issued 9% bonds, dated February 1, with a face amount of $800,000.∙ The bonds sold for $731,364 and mature on January 31, 2044 (20 years).∙ The market yield for bonds of similar risk and maturity was 10%.∙ Interest is paid semiannually on July 31 and
At the beginning of 2024, VHF Industries acquired a machine with a fair value of $6,074,700 by issuing a four year, noninterest-bearing note in the face amount of $8 million. The note is payable in four annual installments of $2 million at the end of each year.Required:1. What is the effective rate
Braxton Technologies, Inc., constructed a conveyor for A&G Warehousers that was completed and ready for use on January 1, 2024.∙ A&G paid for the conveyor by issuing a $100,000, four-year note that specified 5% interest to be paid on December 31 of each year, and the note is to be repaid
At the end of 2023, Majors 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 2037. The discount on the bonds is amortized by the straight-line method. The following entry was recorded on February 1,
Hoffman Corporation issued $60 million of 5%, 20-year bonds at 102. Each of the 60,000 bonds was issued with 10 detachable stock warrants, each of which entitled the bondholder to purchase, for $20, one share of $1 par common stock. At the time of sale, the market value of the common stock was $25
Federal Semiconductors issued 11% bonds, dated January 1, with a face amount of $800 million on January 1, 2024.∙ The bonds sold for $739,813,200 and mature on December 31, 2043 (20 years).∙ For bonds of similar risk and maturity the market yield was 12%.∙ Interest is paid semiannually on
The long-term liability section of Twin Digital Corporation’s balance sheet as of December 31, 2023, included 12% bonds having a face amount of $20 million and a remaining discount of $1 million. Disclosure notes indicate the bonds were issued to yield 14%. Interest expense is recorded at the
AI Tool and Dye issued 8% bonds with a face amount of $160 million on January 1, 2024. The bonds sold forv$150 million. For bonds of similar risk and maturity the market yield was 9%. Upon issuance, AI elected the option to report these bonds at their fair value. On June 30, 2024, the fair value of
Cupola Fan Corporation issued 10%, $400,000, 10-year bonds for $385,000 on June 30, 2024.∙ Debt issue costs were $1,500.∙ Interest is paid semiannually on December 31 and June 30.∙ One year from the issue date (July 1, 2025), the corporation exercised its call privilege and retired the bonds
Bradley-Link’s December 31, 2024, balance sheet included the following items:On January 3, 2025, when Bradley-Link’s common stock had a market price of $32 per share, Bradley-Link called the convertible bonds to force conversion. Ninety percent were converted; the remainder were acquired at the
Refer to the situation described in P 14–16.Data from in P 14-16Cupola Fan Corporation issued 10%, $400,000, 10-year bonds for $385,000 on June 30, 2024.∙ Debt issue costs were $1,500.∙ Interest is paid semiannually on December 31 and June 30.∙ One year from the issue date (July 1, 2025),
Nakano 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 Nakano issued a three-year installment note to be paid in three equal payments at the end of each
Amber Mining and Milling, Inc., contracted with Truax Corporation to have constructed a custom-made lathe.∙ The machine was completed and ready for use on January 1, 2024.∙ Amber paid for the lathe by issuing a $600,000, three-year note that specified 4% interest, payable annually on December
The long-term liability section of Eastern Post Corporation’s balance sheet as of December 31, 2023, included 10% bonds having a face amount of $40 million and a remaining premium of $6 million. On January 1, 2024, Eastern Post retired some of the bonds before their scheduled
Refer to the situation described in E 14–17.Data from in E14-17Amber Mining and Milling, Inc., contracted with Truax Corporation to have constructed a custom-made lathe.∙ The machine was completed and ready for use on January 1, 2024.∙ Amber paid for the lathe by issuing a $600,000,
The following transactions relate to bond investments of Livermore Laboratories. The company’s fiscal year ends on December 31. Livermore uses the straight-line method to determine interest.Required:1. Prepare the appropriate journal entries for these long-term bond investments.2. By how much
Appling Enterprises issued 8% bonds with a face amount of $400,000 on January 1, 2024.∙ The bonds sold for $331,364 and mature in 2043 (20 years).∙ For bonds of similar risk and maturity the market yield was 10%.∙ Interest is paid semiannually on June 30 and December 31.∙ Appling determines
FinanceCo lent $8 million to Corbin Construction on January 1, 2024, to construct a playground. Corbin signed a three-year, 6% installment note to be paid in three equal payments at the end of each year.Required:1. Prepare the journal entry for FinanceCo’s lending the funds on January 1, 2024.2.
American Food Services, Inc., acquired a packaging machine from Barton and Barton Corporation.∙ Barton and Barton completed construction of the machine on January 1, 2024.∙ In payment for the $4 million machine, American Food Services issued a four-year installment note to be paid in four equal
On January 1, 2024, NFB Visual Aids issued $800,000 of its 20-year, 8% bonds.∙ The bonds were priced to yield 10%.∙ Interest is payable semiannually on June 30 and December 31.∙ NFB Visual Aids records interest expense at the effective rate and elected the option to report these bonds at
LCD Industries purchased a supply of electronic components from Entel Corporation on November 1, 2024. In payment for the $24 million purchase, LCD issued a 1-year installment note to be paid in equal monthly payments at the end of each month. The payments include interest at the rate of
The balance sheet of River Electronics Corporation as of December 31, 2023, included 12.25% bonds having a face amount of $90 million. The bonds had been issued in 2016 and had a remaining discount of $3 million at December 31, 2023. On January 1, 2024, River Electronics called the bonds before
On March 1, 2024, Baddour, Inc., issued 10% bonds, dated January 1, with a face amount of $160 million.∙ The bonds were priced at $140 million (plus accrued interest) to yield 12%.∙ The price if issued on January 1 would have been $137.25 million.∙ Interest is paid semiannually on June 30 and
On January 1, 2024, Gless Textiles issued $12 million of 9%, 10-year convertible bonds at 101.∙ The bonds pay interest on June 30 and December 31.∙ Each $1,000 bond is convertible into 40 shares of Gless’s no par common stock.∙ Bonds that are similar in all respects, except that they are
At January 1, 2024, Rothschild Chair Company, Inc., was indebted to First Lincoln Bank under a $20 million, 10% unsecured note. The note was signed January 1, 2021, and was due December 31, 2027. Annual interest was last paid on December 31, 2022. Rothschild Chair Company was experiencing severe
At January 1, 2024, Mahmoud Industries, Inc., owed Second BancCorp $12 million under a 10% note due December 31, 2026. Interest was paid last on December 31, 2022. Mahmoud was experiencing severe financial difficulties and asked Second BancCorp to modify the terms of the debt agreement. After
Refer to the situation described in E 14–24.Data from in 14-24On January 1, 2024, Gless Textiles issued $12 million of 9%, 10-year convertible bonds at 101.∙ The bonds pay interest on June 30 and December 31.∙ Each $1,000 bond is convertible into 40 shares of Gless’s no par common stock.∙
On January 1, 2024, Madison Products issued $40 million of 6%, 10-year convertible bonds at a net price of $40.8 million.∙ Madison recently issued similar, but nonconvertible, bonds at 99 (that is, 99% of face amount).∙ The bonds pay interest on June 30 and December 31.∙ Each $1,000 bond is
Refer to the situation described in E 14–26.Data from in E 14-26On January 1, 2024, Madison Products issued $40 million of 6%, 10-year convertible bonds at a net price of $40.8 million.∙ Madison recently issued similar, but nonconvertible, bonds at 99 (that is, 99% of face amount).∙ The bonds
On August 1, 2024, Perez Communications issued $30 million of 10% nonconvertible bonds at 104.∙ The bonds are due on July 31, 2044.∙ Each $1,000 bond was issued with 20 detachable stock warrants, each of which entitled the bondholder to purchase, for $60, one share of Perez Communications’ no
Federal Semiconductors issued 11% bonds, dated January 1, with a face amount of $800 million on January 1, 2024.∙ The bonds sold for $739,813,200 and mature on December 31, 2043 (20 years).∙ For bonds of similar risk and maturity the market yield was 12%.∙ Interest is paid semiannually on
On January 1, 2024, Rapid Airlines issued $200 million of its 8% bonds for $184 million.∙ The bonds were priced to yield 10%.∙ Interest is payable semiannually on June 30 and December 31.∙ Rapid Airlines records interest at the effective rate and elected the option to report these bonds at
On January 1, 2024, Essence Communications issued $800,000 of its 10-year, 8% bonds for $700,302.∙ The bonds were priced to yield 10%.∙ Interest is payable semiannually on June 30 and December 31.∙ Essence Communications records interest at the effective rate and elected the option to report
On March 1, 2024, Brown-Ferring Corporation issued $100 million of 12% bonds, dated January 1, 2024, for $99 million (plus accrued interest). The bonds mature on December 31, 2043, and pay interest semiannually on June 30 and December 31. Brown Ferring’s fiscal period is the calendar
At January 1, 2024, Transit Developments owed First City Bank Group $600,000, under an 11% note with three years remaining to maturity.∙ Due to financial difficulties, Transit was unable to pay the previous year’s interest.∙ First City Bank Group agreed to settle Transit’s debt in exchange
Hope Still, chief executive of Great Divide Technologies (GDT), a state-certified aircraft repair company, worked with her local bank to get a $210,000 loan under the Paycheck Protection Program in early May of 2020 that allowed her to keep paying her 19 employees. The loan would be fully forgiven
On January 1, 2024, the general ledger of Freedom Fireworks includes the following account balances:During January 2024, the following transactions occurred:January 1 Borrowed $100,000 from Captive Credit Corporation. The installment note bears interest at 7% annually and matures in 5 years.
Hope Still, chief executive of Great Divide Technologies (GDT), a state-certified aircraft repair company, worked with her local bank to get a $210,000 loan under the Paycheck Protection Program in early May of 2020 that allowed her to keep paying her 19 employees. The loan would be fully forgiven
At January 1, 2024, NCI Industries, Inc., was indebted to First Federal Bank under a $240,000, 10% unsecured note.∙ The note was signed January 1, 2017, and was due December 31, 2025.∙ Annual interest was last paid on December 31, 2022.∙ NCI was experiencing severe financial difficulties and
Van Rushing Hunting Goods’ fiscal year ends on December 31. At the end of the 2024 fiscal year, the company had notes payable of $12 million due on February 8, 2025. Rushing sold 2 million shares of its $0.25 par, common stock on February 3, 2025, for $9 million. The proceeds from that sale along
Fleener Company is in the process of refinancing some long-term debt. Its fiscal year ends on December 31, 2024, and its financial statements will be issued on March 15, 2025. Under current IFRS, how would the debt be classified if the refinancing is completed on December 15, 2024? What if instead
An annual report of Marriott International, Inc., contained a rather lengthy narrative entitled “Liquidity and Capital Resources.” The narrative noted that a revolving credit agreement outstanding at the end of the year aggregated $4.5 billion and that during the following year, “While any
Das Medical introduced a new implant that carries a five-year warranty against manufacturer’s defects. Based on industry experience with similar product introductions, warranty costs are expected to approximate 1% of sales. Sales were $15 million and actual warranty expenditures were $20,000 for
Consider the information presented in E 13–11.Data from in E 13-11An annual report of Marriott International, Inc., contained a rather lengthy narrative entitled “Liquidity and Capital Resources.” The narrative noted that a revolving credit agreement outstanding at the end of the year
Transit Airlines provides regional jet service in the Mid-South. The following is information on liabilities of Transit at December 31, 2024. Transit’s fiscal year ends on December 31. Its annual financial statements are issued in April.1. Transit has outstanding 6.5% bonds with a face amount of
Domestic Transfer and Storage is a large trucking company headquartered in the Midwest. Rapid expansion in recent years has been financed in large part by debt in a variety of forms. In preparing the financial statements for 2023, questions have arisen regarding the way certain of the liabilities
At December 31, 2024, Newman Engineering’s liabilities include the following:1. $10 million of 9% bonds were issued for $10 million on May 31, 2002. The bonds mature on May 31, 2032, but bondholders have the option of calling (demanding payment on) the bonds on May 31, 2025. However, the option
Late in 2024, you and two other officers of Curbo Fabrications Corporation just returned from a meeting with officials of the City of Jackson. The meeting was unexpectedly favorable even though it culminated in a settlement with city authorities that required your company pay a total of $475,000 to
Cupola Awning Corporation introduced a new line of commercial awnings in 2024 that carry a two-year warranty against manufacturer’s defects. Based on their experience with previous product introductions, warranty costs are expected to approximate 3% of sales. Sales and actual warranty
“I see an all-nighter coming on,” Gayle grumbled. “Why did Mitch just now give us this assignment?” Your client, Western Manufacturing, is involved with several situations that possibly involve contingencies. The assignment Gayle refers to is to draft appropriate accounting treatment for
Define a loss contingency. Provide three examples.
Outdoors R Us owns several membership-based campground resorts throughout the Southwest. The company sells campground sites to new members, usually during a get-acquainted visit and tour. The campgrounds offer a wider array of on-site facilities than most. New members sign a multiyear contract, pay
At March 13, 2025, the Securities Exchange Commission is in the process of investigating a possible securities law violation by Now Chemical. The SEC has not yet proposed a penalty assessment. Now’s fiscal year ends on December 31, 2024, and its financial statements are published in March 2025.
The Manda Panda Company uses the allowance method to account for bad debts. At the beginning of 2024, the allowance account had a credit balance of $75,000. Credit sales for 2024 totaled $2,400,000 and the year-end accounts receivable balance was $490,000. During this year, $73,000 in receivables
At April 1, 2025, the Food and Drug Administration is in the process of investigating allegations of false marketing claims by Hulkly Muscle Supplements. The FDA has not yet proposed a penalty assessment. Hulkly’s fiscal year ends on December 31, 2024. The company’s financial statements are
The following selected transactions relate to contingencies of Classical Tool Makers, Inc., which began operations in July 2024. Classical’s fiscal year ends on December 31. Financial statements are issued in April 2025.Required:Prepare the year-end entries for any amounts that should be recorded
Name a loss contingency that almost always is accrued.
Indicate (by letter) the way each of the items listed below should be reported in a balance sheet at December 31, 2024. Item 1. Commercial paper 2. Noncommitted line of credit 3. Customer advances 4. Estimated quality-assurance warranty cost 5. Accounts payable 6. Long-term bonds that will be
The following selected circumstances relate to pending lawsuits for Erismus, Inc. Erismus’s fiscal year ends on December 31. Financial statements are issued in March 2025. Erismus prepares its financial statements according to U.S. GAAP.Required:Indicate the amount of asset or liability that
Woodmier Lawn 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
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 2023 financial statements were issued in 2024, Northern had not reached a
DuPont Inc. provides chemical, plastic, and agricultural products and services to various consumer markets. The following excerpt is taken from the disclosure notes of DuPont’s 2019 annual report:Required:1. Does the excerpt describe a loss contingency?2. Under what conditions would DuPont accrue
Lee Financial Services pays employees monthly. Payroll information is listed below for January 2024, the first month of Lee’s fiscal year. Assume that none of the employees exceeded any relevant base of pay, such that all benefit percentages apply to the entire $500,000 payroll.Required:Prepare
At the beginning of 2022, Metatec Inc. acquired Ellison Technology Corporation for $600 million. In addition to cash, receivables, and inventory, the following assets and their fair values were also acquired:The plant and equipment are depreciated over a 10-year useful life on a straight-line
Howarth Manufacturing Company purchased equipment on June 30, 2020, at a cost of $800,000. The residual value of the equipment was estimated to be $50,000 at the end of a five-year life. The equipment was sold on March 31, 2024, for $170,000. Howarth uses the straight-line depreciation method for
At a recent luncheon, you were seated next to Mr. Hopkins, the president of a local company that manufactures bicycle parts. He heard that you were a CPA and made the following comments to you: Why is it that I am forced to recognize depreciation expense in my company’s income statement when I
On September 30, 2024, Athens Software began developing a software program to shield personal computers from malware and spyware. Technological feasibility was established on February 28, 2025, and the program was available for release on April 30, 2025. Development costs were incurred as
On May 1, 2024, Hecala Mining entered into an agreement with the state of New Mexico to obtain the rights to operate a mineral mine in New Mexico for $10 million. Additional costs and purchases included the following:After the minerals are removed from the mine, the equipment will be sold for an
On March 31, 2024, management of Quality Appliances committed to a plan to sell equipment. The equipment was available for immediate sale, and an active plan to locate a buyer was initiated. The equipment had been purchased on January 1, 2022, for $260,000. The equipment had an estimated six-year
The adjusted trial balance of Pacific Scientific Corporation on December 31, 2024, the end of the company’s fiscal year, contained the following income statement items ($ in millions): sales revenue, $2,106; cost of goods sold, $1,240; selling expense, $126; general and administrative expense,
Melody Lane Music Company was started by John Ross early in 2024. Initial capital was acquired by issuing shares of common stock to various investors and obtaining a bank loan. The company operates a retail store that sells records, tapes, and compact discs. Business was so good during the first
The following is a partial trial balance for General Lighting Corporation as of December 31, 2024:Income tax expense has not yet been recorded. The income tax rate is 25% of income before income taxes.Required:1. Prepare a single-step income statement. An example of a single-step income statement
Companies often voluntarily provide non-GAAP earnings when they announce annual or quarterly earnings. These numbers are controversial as they represent management’s view of permanent earnings. The Sarbanes-Oxley Act (SOX), issued in 2002, requires that if non-GAAP earnings are included in any
The following income statement items appeared on the adjusted trial balance of Schembri Manufacturing Corporation for the year ended December 31, 2024 ($ in thousands): sales revenue, $15,300; cost of goods sold, $6,200; selling expenses, $1,300; general and administrative expenses, $800; interest
Refer to the situation described in BE 4–7. Assume that the semiconductor segment was not sold during 2024 but was held for sale at year-end. The estimated fair value of the segment’s assets, less costs to sell, on December 31 was $10 million. Prepare the lower portion of the 2024 income
Refer to the situation described in E 4–20.Data from in E4-20Presented below is the 2024 income statement and comparative balance sheet information for Tiger Enterprises.Required:Prepare the cash flows from operating activities section of Tiger’s 2024 statement of cash flows using the direct
Refer to the facts described in BE 4–16. Show the DuPont framework’s calculation of the three components of the 2024 return on equity for Circuit TV and Appliance.Data from in BE 4-16The 2024 income statement for Circuit TV and Appliance reported net sales of $420,000 and net income of $65,000.
This exercise is based on the Peabody Toys, Inc., data from E 4–27.Data from in E 4-27The following condensed information was reported by Peabody Toys, Inc., for 2024 and 2023: Required:1. Determine the following components of the DuPont framework for 2024:a. Profit margin on salesb. Asset
Refer to the situation described in BE 5–4. Assume that the trip will cost $26,600. What interest rate, compounded annually, must be earned to accumulate enough to pay for the trip?Data from in BE 5-4Suppose a husband wants to take his wife on a trip three years from now to Europe to celebrate
The Upward Investment Company manages a mutual fund composed mostly of speculative stocks. You recently saw an ad claiming that investments in the funds have been earning a rate of return of 21%. This rate seemed quite high so you called a friend who works for one of Upward competitors. The friend
Refer to the situation described in BE 5–8. Suppose the opportunity requires you to invest $13,200 today. What is the interest rate you would earn on this investment?Data from in BE 5-8You have an investment opportunity that promises to pay you $16,000 in four years. You could earn a 6% annual
You want to buy a nice road bike. You place $3,000 each year in an investment account that earns 8% compounded annually. How much will be in the account after (a) Two years(b) Three years (c) Four years
Refer to the situation described in BE 5–12. How much will accumulate in three years by depositing $500 at the beginning of each of the next 12 quarters?Data from in BE 5-12You would like to contribute to a savings account over the next three years in order to accumulate enough money to take a
Compute the required annual payment in Question 5–13.Data from in Question 5-13Assume that you borrowed $500 from a friend and promised to repay the loan in five equal annual installments beginning one year from today. Your friend wants to be reimbursed for the time value of money at an 8% annual
Refer to the situation described in BE 5–16. What amount did the company borrow, assuming that the first of the five annual $10,000 payments was not due for three years?Data from in BE 5-16A company borrowed money from a local bank. The note the company signed requires five annual installment
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