Questions and Answers of Intermediate Accounting 11th

Turner Company purchased 40% of the outstanding stock of ICA Company for $10,000,000 on January 2, 2024. Turner elects the fair value option to account for the investment. During 2024, ICA reports
Note: The loss included in NI equals the difference between the proceeds ($30 million) and the carrying value of the investment ($35 million). An additional $15 million was recognized in net income
Feherty, Inc., accounts for its investments under IFRS No. 9 and purchased the following investments during December 2024:1. Fifty of Donald Company’s $1,000 bonds. The bonds pay semiannual
Superior Company owns 40% of the outstanding stock of Bernard Company. During 2024, Bernard paid a $100,000 cash dividend on its common shares. What effect did this dividend have on Superior’s 2024
Stewart Enterprises has the following investments, all purchased prior to 2024:1. Bee Company 5% bonds, purchased at face value, with an amortized cost of $4,000,000, and classified as
On February 18, 2024, Union Corporation purchased 600 IBM bonds as a long-term investment at their face value for a total of $600,000. Union will hold the bonds indefinitely, and may sell them if
The accounting records of Jamaican Importers, Inc., at January 1, 2024, included the following:No changes occurred during 2024 in the investment portfolio.Required:Prepare appropriate adjusting
The investments of Harlon Enterprises included the following cost and fair value amounts ($ in millions):Harlon accounts for its equity investment portfolio at fair value through net income. Harlon
As a long-term investment at the beginning of the 2024 fiscal year, Florists International purchased 30% of Nursery Supplies Inc.’s 8 million shares for $56 million. The fair value and book value
Assume the same facts as in BE 12-20, except that Wickum accounts for the investment as FVOCI rather than HTM. How would Wickum record the $300,000 decrease in credit loss?Data from in BE 12-20Wickum
On December 12, 2024, an equity investment costing $80,000 was sold for $100,000. The investment was carried in the balance sheet at $75,000, and was accounted for under the equity method. An error
Fizer Pharmaceutical paid $68 million on January 2, 2024, for 4 million shares of Carne Cosmetics common stock. The investment represents a 25% interest in the net assets of Carne and gave Fizer the
On January 1, 2024, Cameron Inc. bought 20% of the outstanding common stock of Lake Construction Company for $300 million cash, giving Cameron the ability to exercise significant influence over
Northwest Carburetor Company established a fund in 2021 to accumulate money for a new plant scheduled for construction in 2024. How should this special purpose fund be reported in Northwest’s
Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2021. Company management has the positive intent and ability to hold the bonds until
On July 1, 2024, Gupta Corporation bought 25% of the outstanding common stock of VB Company for $100 million cash, giving Gupta the ability to exercise significant influence over VB’s operations.
Lacy Construction has a noncontributory, defined benefit pension plan. At December 31, 2024, Lacy received the following information:The expected long-term rate of return on plan assets was 10%.
Rell Corporation reports under IFRS No. 9. Rell has an investment in Tirish, Inc., bonds that Rell accounts for at amortized cost, given that the bonds pay only interest and principal and Rell’s
At December 31, 2023, the balance sheet of Meca International included the following shareholders’ equity accounts:Required:Assuming that Meca International views its share buybacks as treasury
Classified Electronics has an unfunded retiree health care plan. Each of the company’s three employees has been with the firm since its inception at the beginning of 2023. As of the end of 2024,
The EPBO for Branch Industries at the end of 2024 was determined by the actuary to be $20,000 as it relates to employee Will Lawson. Lawson was hired at the beginning of 2010. He will be fully
On January 1, 2024, Hugh Morris Comedy Club (HMCC) granted 1 million stock options to key executives exercisable for 1 million shares of the company’s common stock at $20 per share. The stock
On December 31, 2023, Ainsworth, Inc., had 600 million shares of common stock outstanding.∙ Twenty million shares of 8%, $100 par value cumulative, nonconvertible preferred stock were sold on
Assume all of the same facts and scenarios as E 12–30, except that Bloom Corporation classifies its Taylor investment as AFS.Data from in E 12-30Bloom Corporation purchased $1,000,000 of Taylor
Bloom Corporation purchased $1,000,000 of Taylor Company 5% bonds, at their face amount, with the intent and ability to hold the bonds until they matured in 2028, so Bloom classifies its investment
Below are two unrelated situations relating to life insurance.Required:Prepare the appropriate journal entry for each situation.1. Ford Corporation owns a whole life insurance policy on the life of
Edible Chemicals Corporation owns a $4 million whole life insurance policy on the life of its CEO, naming Edible Chemicals as beneficiary. The annual premiums are $70,000 and are payable at the
Colah Company purchased $1 million of Jackson, Inc., 5% bonds at their face amount on July 1, 2024, with interest paid semi-annually. The bonds mature in 20 years but Colah planned to keep them for
As a long-term investment at the beginning of the 2024 fiscal year, Florists International purchased 30% of Nursery Supplies Inc.’s 8 million shares of capital stock for $56 million. The fair value
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
On November 1, 2024, Quantum Technology, a geothermal energy supplier, borrowed $16 million cash to fund a geological survey. The loan was made by Nevada BancCorp under a noncommitted short-term line
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
Blanton Plastics, a household plastic product manufacturer, borrowed $14 million cash on October 1, 2024, to provide working capital for year-end production. Blanton issued a four-month, 12%
A fellow accountant has solicited your opinion regarding the classification of short-term obligations repaid prior to being replaced by a long-term security. Cheshire Foods, Inc., issued $5,000,000
The Heinrich Tire Company recalled a tire in its subcompact line in December 2024. Costs associated with the recall were originally thought to approximate $50 million. Now, though, while management
Consider the following liabilities of Future Brands, Inc., at December 31, 2024, the company’s fiscal year-end. Should they be reported as current liabilities or long-term liabilities?1. $77
On July 1, 2024, Li-Ma Industries issued nine-month notes in the amount of $400 million. Interest is payable at maturity.Required:Determine the amount of interest expense that should be recorded in a
The following selected transactions relate to liabilities of Interstate Farm Equipment Company for December 2024. Interstate’s fiscal year ends on December 31.Required:Prepare the appropriate
The information that follows pertains to Richards Refrigeration, Inc.: a. At December 31, 2024, temporary differences existed between the financial statement book values and the tax bases of the
IGF Foods Company is a large, primarily domestic, consumer foods company involved in the manufacture, distribution, and sale of a variety of food products. Industry averages are derived from Troy’s
Camden Biotechnology began operations in September 2024. The following selected transactions relate to liabilities of the company for September 2024 through March 2025. Camden’s fiscal year ends on
The following selected transactions relate to liabilities of United Insulation Corporation. United’s fiscal year ends on December 31.Required:Prepare the appropriate journal entries through the
The following is an excerpt from ABC News:Required:1. Why must Microsoft report this charge of over $1 billion entirely in one quarter, the last quarter of the company’s fiscal year?2. When the
On January 1, 2024, Poplar Fabricators Corporation agreed to grant its employees two weeks of vacation each year, with the stipulation that vacations earned each year can be taken the following year.
As a second-year financial analyst for A.J. Straub Investments, you are performing an initial analysis on Reliant Pharmaceuticals. A difficulty you’ve encountered in making comparisons with its
Wang Corporation issued $12 million of commercial paper on March 1 on a nine-month note. Interest was discounted at issuance at a 9% discount rate. Prepare the journal entry for the issuance of the
The unadjusted trial balance of the Manufacturing Equitable at December 31, 2024, the end of its fiscal year, included the following account balances. Manufacturing’s 2024 financial statements were
JWS Transport Company’s employees earn vacation time at the rate of 1 hour per 40-hour work period. The vacation pay vests immediately (that is, an employee is entitled to the pay even if
The balance sheet at December 31, 2024, for Nevada Harvester Corporation includes the liabilities listed below:a. 11% bonds with a face amount of $40 million were issued for $40 million on October
Reporting requirements for contingent liabilities under IFRS differ somewhat from those under U.S. GAAP.Required:For each of the following, access the online version of the indicated financial report
On December 12, 2021, Park Electronics received $24,000 from a customer toward a cash sale of $240,000 of diodes to be completed on January 16, 2025. What journal entries should Park record on
Honda Motor Company, Ltd., is a Japanese manufacturer of automobiles, motorcycles, and power equipment. The company’s fiscal year ends Mach 31, 2020, and it filed its financial statements with the
In the March 2025 meeting of Valleck Corporation’s board of directors, a question arose as to the way a possible obligation should be disclosed in the forthcoming financial statements for the year
Bavarian Bar and Grill opened for business in November 2024. During its first two months of operation, the restaurant sold gift cards in various amounts totaling $5,200, mostly as Christmas presents.
The long-term liabilities section of CPS Transportation’s December 31, 2023, balance sheet included the following:a. A lease liability with 15 remaining lease payments of $10,000 each, due annually
Russell-James Corporation is a diversified consumer products company. During 2024, Russell-James discontinued its line of cosmetics, which constituted discontinued operations for financial reporting
Eastern Manufacturing is involved with several situations that possibly involve contingencies. Each is described below. Eastern’s fiscal year ends December 31, and the 2024 financial statements are
In Lizzie Shoes’ experience, gift cards that have not been redeemed within 12 months are not likely to be redeemed. Lizzie Shoes sold gift cards for $18,000 during August 2024. $4,000 of cards were
Diversified Semiconductors sells perishable electronic components. Some must be shipped and stored in reusable protective containers. Customers pay a deposit for each container received. The deposit
Holmes Watson (HW) is considering what the effect would be of reporting its liabilities under IFRS rather than U.S. GAAP. The following facts apply:a. HW is defending against a lawsuit and believes
Tru Developers, Inc., sells plots of land for industrial development. Tru recognizes income for financial reporting purposes in the year it sells the plots. For some of the plots sold this year, Tru
J-Matt, Inc., had pretax accounting income of $291,000 and taxable income of $300,000 in 2024. The only difference between accounting and taxable income is estimated product warranty costs of $9,000
Syer Co. reports net operating income (loss) for financial reporting and tax purposes in each year as follows:Syer’s 2020 NOL is driven by an unfortunate obsolescence of its primary product. Given
At the end of 2023, Payne Industries had a deferred tax asset account with a balance of $25 million attributable to a temporary book-tax difference of $100 million in a liability for estimated
Assume the same facts as in E 16-23. During 2025, Baginski reported income of $200,000 for financial reporting and tax purposes. The enacted tax rate is 25%.Required:1. Prepare the journal entry to
Superior Developers sells lots for residential development. When lots are sold, Superior recognizes income for financial reporting purposes in the year of the sale. For some lots, Superior recognizes
For the year ended December 31, 2024, Fidelity Engineering reported pretax accounting income of $978,000. Selected information for 2024 from Fidelity’s records follows:Fidelity’s income tax rate
At the end of 2023, Payne Industries had a deferred tax asset account with a balance of $25 million attributable to a temporary book-tax difference of $100 million in a liability for estimated
An August 11, 2020 article from World Oil Magazine had the following headline: “Marathon Sets Up for $1.1 Billion Tax Refund via Coronavirus Aid Law.” * The article goes on to indicate, “That
Allmond Corporation, organized on January 3, 2024, had pretax accounting income of $14 million and taxable income of $20 million for the year ended December 31, 2024. The 2024 tax rate is 25%. The
What is intraperiod tax allocation?
LossCo reported a net operating loss of $25 million for financial reporting and tax purposes. Taxable income last year and the previous year, respectively, was $20 million and $15 million. The
Southern Atlantic Distributors began operations in January 2024 and purchased a delivery truck for $40,000. Southern Atlantic plans to use straight-line depreciation over a four-year expected useful
The date is November 15, 2020. You are the new controller for Engineered Solutions. The company treasurer, Randy Patey, believes that as a result of pending legislation, the currently enacted 40%
What are the primary ways in which the CARES Act changed accounting for the tax effects of NOLs?
The date is January 10, 2023, and Maryton Hotels’ CFO George Smith is looking with dismay at his company’s financial performance during 2022. Already facing stiff competition from other hotel
The CARES Act allows some companies to (1) save more taxes and (2) obtain those savings faster. How does the Act enable those benefits?
Arnold Industries has pretax accounting income of $32 million for the year ended December 31, 2024. The tax rate is 25%. The only difference between accounting income and taxable income relates to an
Krand Corp had been a very profitable company until the current tax year, in which it generated an NOL because a competitor launched a product that is much better than Krand’s. Krand recognized a
Hwang Inc. had taxable income of $100,000 in 2017, no income or loss in 2018 and 2019, and an NOL of $50,000 in 2020. The applicable tax rate was 40% in 2017 and 25% in 2018 and thereafter. Prepare
Bronson 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
Wynn Farms reported a net operating loss of $100,000 for financial reporting and tax purposes in 2024. The enacted tax rate is 25%. Taxable income, tax rates, and income taxes paid in Wynn’s first
Wynn Farms reported a net operating loss of $160,000 for financial reporting and tax purposes in 2024. The enacted tax rate is 25%. Taxable income, tax rates, and income taxes paid in Wynn’s first
Listed below are ten independent situations. For each situation indicate (by letter) whether it will create a deferred tax asset (A), a deferred tax liability (L), or neither (N). Situation 1.
Shwonson Industries reported a deferred tax asset 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
Case Development began operations in December 2024. When property is sold on an installment basis, Case recognizes installment income for financial reporting purposes in the year of the sale. For tax
Case Development began operations in December 2024. When property is sold on an installment basis, Case recognizes installment income for financial reporting purposes in the year of the sale. For tax
On December 31, DePaul Corporation had the following cumulative temporary differences associated with its operations:1. Estimated warranty expense, $16 million temporary difference: expense recorded
As of December 31, 2024, Lange Company has the following deferred tax assets and liabilities:Required:1. Assume that all of Lange’s deferred tax assets and liabilities are in the same tax
Listed below are several terms and phrases associated with accounting for income taxes. Pair each item from List A with the item from List B (by letter) that is most appropriately associated with it.
During 2024, its first year of operations, Baginski Steel Corporation reported a net operating loss of $360,000 for financial reporting and tax purposes. The enacted tax rate is 25%.Required:1.
Mallock Inc. reports net operating income (loss) for financial reporting and tax purposes in each year as follows:Mallock’s federal tax rate decreased from 35% to 21% starting in 2018. Mallock
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
Sachs Brands’s defined benefit pension plan specifies annual retirement benefits equal to 1.6% × service years × final year’s salary, payable at the end of each year. Angela Davenport was hired
Indicate by letter whether each of the events listed below increases (I), decreases (D), or has no effect (N) on an employer’s projected benefit obligation. Events 1. Interest cost. 2. Amortization
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
Sachs Brands’s defined benefit pension plan specifies annual retirement benefits equal to 1.6% × service years × final year’s salary, payable at the end of each year. Angela Davenport was hired
On January 1, 2024, Ravetch Corporation’s projected benefit obligation was $30 million. During 2024, pension benefits paid by the trustee were $4 million. Service cost for 2024 is $12 million.
Refer to the 2020 financial statements and related disclosure notes of Microsoft Corporation (www.microsoft.com).Required:1. What type of pension plan does Microsoft sponsor for its employees?2. Who
Sachs Brands’s defined benefit pension plan specifies annual retirement benefits equal to 1.6% × service years × final year’s salary, payable at the end of each year. Angela Davenport was hired

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