Questions and Answers of Intermediate Accounting 11th

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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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.
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
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
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
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
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
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
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
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
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
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
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 $3 million
Williams-Santana Inc. is a manufacturer of high-tech industrial parts that was started in 2009 by two talented engineers with little business training. In 2024, the company was acquired by one of its
Whaley Distributors is a wholesale distributor of electronic components. Financial statements for the years ended December 31, 2022 and 2023, reported the following amounts and subtotals ($ in
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
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
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
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 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
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
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
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 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.
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
Below are three independent and unrelated errors.a. On December 31, 2023, Wolfe-Bache Corporation failed to accrue salaries expense of $1,800. In January 2024, when it paid employees for the December
Target Corporation prepares its financial statements according to U.S. GAAP. Target’s financial statements and disclosure notes for the year ended February 1, 2020, are available in Connect. This
Shown below in T-account format are the beginning and ending balances ($ in millions) of both inventory and accounts payable.Required:1. Use a T-account analysis to determine the amount of cash paid
“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
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
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
“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’
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
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
“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
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
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
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
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
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
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
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
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
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,
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
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,
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
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
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
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
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,
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
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
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
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
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
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,
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,
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
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
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
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
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
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
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
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
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
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
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,
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
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
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
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
On January 1, 2024, Quick Stream Communications leased telephone equipment from Digium, Inc. Digium’s cash selling price for the equipment is $1,306,578.∙ The lease agreement specifies six annual
Lahiri Leasing purchased a single-engine plane for its fair value of $645,526 and leased it to Red Baron Flying Club on January 1, 2024. Terms of the lease agreement and related facts werea. Eight
Natick Industries leased high-tech instruments from Framingham Leasing on January 1, 2024. Natick has the option to renew the lease at the end of two years for an additional three years. Natick is
On January 1, 2024, Jasperse Corporation leased equipment under a finance lease designed to earn the lessor a 12% rate of return for providing long-term financing. The lease agreement specified ten
On December 31, 2024, Rhone-Metro Industries leased equipment to Western Soya Co. for a four-year period ending December 31, 2028, at which time possession of the leased asset will revert back to
At January 1, 2024, Café Med leased restaurant equipment from Crescent Corporation under a nine-year lease agreement.∙ The lease agreement specifies annual payments of $25,000 beginning January 1,

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