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intermediate accounting
Intermediate Accounting 14th Edition Kieso, weygandt and warfield. - Solutions
Katherine Irving, controller of Lotan Corp., is aware of a pronouncement on accounting changes. After reading the pronouncement, she is confused about what action should be taken on the following items related to Lotan Corp. for the year 2012. 1. In 2012, Lotan decided to change its policy on
Listed below and on the next page are three independent, unrelated sets of facts relating to accounting changes.Situation 1Sanford Company is in the process of having its first audit. The company has used the cash basis of accounting for revenue recognition. Sanford president, B. J. Jimenez, is
Joblonsky Inc. has recently hired a new independent auditor, Karen Ogleby, who says she wants “to get everything straightened out.” Consequently, she has proposed the accounting changes shown below and on the next page in connection with Joblonsky Inc.’s 2012 financial statements. 1. At
On January 3, 2011, Martin Company purchased for $500,000 cash a 10% interest in Renner Corp. On that date, the net assets of Renner had a book value of $3,700,000. The excess of cost over the underlying equity in net assets is attributable to undervalued depreciable assets having a remaining life
On January 1, 2012, Millay Inc. paid $700,000 for 10,000 shares of Genso Company’s voting common stock, which was a 10% interest in Genso. At that date, the net assets of Genso totaled $6,000,000. The fair values of all of Genso’s identifiable assets and liabilities were equal to their book
Lowell Corporation has used the accrual basis of accounting for several years. A review of the records, however, indicates that some expenses and revenues have been handled on a cash basis because of errors made by an inexperienced bookkeeper. Income statements prepared by the bookkeeper reported
On March 5, 2013, you were hired by Hemingway Inc., a closely held company, as a staff member of its newly created internal auditing department. While reviewing the company’s records for 2011 and 2012, you discover that no adjustments have yet been made for the items listed below.Items 1.
You have been assigned to examine the financial statements of Zarle Company for the year ended December 31, 2012. You discover the following situations. 1. Depreciation of $3,200 for 2012 on delivery vehicles was not recorded. 2. The physical inventory count on December 31, 2011,
On December 31, 2012, before the books were closed, the management and accountants of Madrasa Inc. made the following determinations about three depreciable assets. 1. Depreciable asset A was purchased January 2, 2009. It originally cost $540,000 and, for depreciation purposes, the
The management of Utrillo Instrument Company had concluded, with the concurrence of its independent auditors, that results of operations would be more fairly presented if Utrillo changed its method of pricing inventory from last-in, first-out (LIFO) to average cost in 2012. Given below is the
Aston Corporation performs year-end planning in November of each year before its calendar year ends in December. The preliminary estimated net income is $3 million. The CFO, Rita Warren, meets with the company president, J. B. Aston, to review the projected numbers. She presents the following
Penn Company is in the process of adjusting and correcting its books at the end of 2012. In reviewing its records, the following information is compiled. 1. Penn has failed to accrue sales commissions payable at the end of each of the last 2 years, as follows.December 31, 2011
Botticelli Inc. was organized in late 2010 to manufacture and sell hosiery. At the end of its fourth year of operation, the company has been fairly successful, as indicated by the following reported net incomes. The company has decided to expand
Holtzman Company is in the process of preparing its financial statements for 2012. Assume that no entries for depreciation have been recorded in 2012. The following information related to depreciation of fixed assets is provided to you. 1. Holtzman purchased equipment on January 2, 2009, for
Gamble Corp. was a 30% owner of Sabrina Company, holding 210,000 shares of Sabrina’s common stock on December 31, 2012. The investment account had the following entries.On January 2, 2013, Gamble sold 126,000 shares of Sabrina for $3,440,000, thereby losing its significant influence. During the
On January 1, 2012, Sandburg Co. purchased 25,000 shares (a 10% interest) in Yevette Corp. for $1,400,000. At the time, the book value and the fair value of Yevette’s net identifiable assets were $13,000,000. On July 1, 2013, Sandburg paid $3,040,000 for 50,000 additional shares of
When the records of Archibald Corporation were reviewed at the close of 2013, the errors listed below were discovered. For each item, indicate by a check mark in the appropriate column whether the error resulted in an overstatement, an understatement, or had no effect on net income for the years
The before-tax income for Fitzgerald Co. for 2012 was $101,000 and $77,400 for 2013. However, the accountant noted that the following errors had been made. 1. Sales for 2012 included amounts of $38,200 which had been received in cash during 2012, but for which the related products were
A partial trial balance of Dickinson Corporation is as follows on December 31, 2012. Additional adjusting data: 1. A physical count of supplies on hand on December 31, 2012, totaled $1,100. 2. Through oversight, the Salaries
Emerson Tool Company’s December 31 year-end financial statements contained the following errors. An insurance premium of $60,000 was prepaid in 2011 covering the years 2011, 2012, and 2013. The entire amount was charged to expense in 2011. In
The reported net incomes for the first 2 years of Sinclair Products, Inc., were as follows: 2012, $147,000; 2013, $185,000. Early in 2014, the following errors were discovered.1. Depreciation of equipment for 2012 was overstated $19,000.2. Depreciation of equipment for 2013 was understated
You have been engaged to review the financial statements of Longfellow Corporation. In the course of your examination, you conclude that the bookkeeper hired during the current year is not doing a good job. You notice a number of irregularities as follows. 1. Year-end wages payable of $3,400
Below is the net income of Benchley Instrument Co., a private corporation, computed under the three inventory methods using a periodic system. Instructions(Ignore tax considerations.) (a) Assume that in 2013 Benchley decided to
Bryant Construction Company began operations in 2011 and changed from the completed-contract to the percentage-of-completion method of accounting for long-term construction contracts during 2012. For tax purposes, the company employs the completed- contract method and will continue this approach in
Frederick Industries changed from the double-declining-balance to the straight-line method in 2012 on all its plant assets. There was no change in the assets’ salvage values or useful lives. Plant assets, acquired on January 2, 2011, had an original cost of $2,400,000, with a $100,000 salvage
Thurber Co. purchased equipment for $710,000 which was estimated to have a useful life of 10 years with a salvage value of $10,000 at the end of that time. Depreciation has been entered for 7 years on a straight-line basis. In 2013, it is determined that the total estimated life should be 15 years
On January 1, 2008, McElroy Company purchased a building and equipment that have the following useful lives, salvage values, and costs.Building, 40-year estimated useful life, $50,000 salvage value, $1,200,000 costEquipment, 12-year estimated useful life, $10,000 salvage value, $130,000 costThe
Tarkington Co. purchased a machine on January 1, 2009, for $440,000. At that time it was estimated that the machine would have a 10-year life and no salvage value. On December 31, 2012, the firm’s accountant found that the entry for depreciation expense had been omitted in 2010. In addition,
Presented below are the comparative income statements for Pannebecker Inc. for the years 2011 and 2012. The following additional information is provided. 1. In 2012, Pannebecker Inc. decided to switch its depreciation method from
Robillard Inc. acquired the following assets in January of 2009.Equipment, estimated service life, 5 years; salvage value, $15,000 $465,000Building, estimated service life, 30 years; no salvage value $780,000 The
Linden Company started operations on January 1, 2008, and has used the FIFO method of inventory valuation since its inception. In 2014, it decides to switch to the average cost method. You are provided with the following information.Instructions (a) What is the beginning retained earnings
Ramirez Co. decides at the beginning of 2012 to adopt the FIFO method of inventory valuation. Ramirez had used the LIFO method for financial reporting since its inception on January 1, 2010, and had maintained records adequate to apply the FIFO method retrospectively. Ramirez concluded that FIFO is
Whitman Company began operations on January 1, 2010, and uses the average cost method of pricing inventory. Management is contemplating a change in inventory methods for 2013. The following information is available for the years 2010–2012.
Cherokee Construction Company began operations in 2011 and changed from the completed-contract to the percentage-of-completion method of accounting for long-term construction contracts during 2012. For tax purposes, the company employs the completed-contract method and will continue this approach
Oliver Corporation has owned stock of Conrad Corporation since 2009. At December 31, 2012, its balances related to this investment were:Equity Investments
Simmons Corporation owns stock of Armstrong, Inc. Prior to 2012, the investment was accounted for using the equity method. In early 2012, Simmons sold part of its investment in Armstrong, and began using the fair value method. In 2012, Armstrong earned net income of $80,000 and paid dividends of
Indicate the effect—Understate, Overstate, No Effect—that each of the following errors has on 2012 net income and 2013 net income.
At January 1, 2012, Beidler Company reported retained earnings of $2,000,000. In 2012, Beidler discovered that 2011 depreciation expense was understated by $400,000. In 2012, net income was $900,000 and dividends declared were $250,000. The tax rate is 40%. Prepare a 2012 retained earnings
In 2012, Bailey Corporation discovered that equipment purchased on January 1, 2010, for $50,000 was expensed at that time. The equipment should have been depreciated over 5 years, with no salvage value. The effective tax rate is 30%. Prepare Bailey’s 2012 journal entry to correct the error.
Sesame Company purchased a computer system for $74,000 on January 1, 2011. It was depreciated based on a 7-year life and an $18,000 salvage value. On January 1, 2013, Sesame revised these estimates to a total useful life of 4 years and a salvage value of $10,000. Prepare Sesame’s entry to record
Tedesco Company changed depreciation methods in 2012 from double-declining-balance to straight line. Depreciation prior to 2012 under double-declining-balance was $90,000, whereas straight-line depreciation prior to 2012 would have been $50,000. Tedesco’s depreciable assets had a cost of $250,000
Shannon, Inc., changed from the LIFO cost flow assumption to the FIFO cost flow assumption in 2012. The increase in the prior year’s income before taxes is $1,200,000. The tax rate is 40%. Prepare Shannon’s 2012 journal entry to record the change in accounting principle.
Refer to the accounting change by Wertz Construction Company in BE22-1. Wertz has a profitsharing plan, which pays all employees a bonus at year-end based on 1% of pretax income. Compute the indirect effect of Wertz’s change in accounting principle that will be reported in the 2012 income
Wertz Construction Company decided at the beginning of 2012 to change from the completed-contract method to the percentage-of-completion method for financial reporting purposes. The company will continue to use the completed-contract method for tax purposes. For years prior to 2012, pretax income
Equipment was purchased on January 2, 2012, for $24,000, but no portion of the cost has been charged to depreciation. The corporation wishes to use the straight-line method for these assets, which have been estimated to have a life of 10 years and no salvage value. What effect does this error have
An entry to record Purchases and related Accounts Payable of $13,000 for merchandise purchased on December 23, 2013, was recorded in January 2014. This merchandise was not included in inventory at December 31, 2013. What effect does this error have on reported net income for 2013? What entry should
On January 2, 2012, $100,000 of 11%, 10-year bonds were issued for $97,000. The $3,000 discount was charged to Interest Expense. The bookkeeper, Mark Landis, records interest only on the interest payment dates of January 1 and July 1. What is the effect on reported net income for 2012 of this
In January 2012, installation costs of $6,000 on new machinery were charged to Maintenance and Repairs Expense. Other costs of this machinery of $30,000 were correctly recorded and have been depreciated using the straight-line method with an estimated life of 10 years and no salvage value. At
Elliott Corp. failed to record accrued salaries for 2011, $2,000; 2012, $2,100; and 2013, $3,900. What is the amount of the overstatement or understatement of Retained Earnings at December 31, 2014?
Prior to 2012, Heberling Inc. excluded manufacturing overhead costs from work in process and finished goods inventory. These costs have been expensed as incurred. In 2012, the company decided to change its accounting methods for manufacturing inventories to full costing by including these costs as
Whittier Construction Co. had followed the practice of expensing all materials assigned to a construction job without recognizing any salvage inventory. On December 31, 2012, it was determined that salvage inventory should be valued at $52,000. Of this amount, $29,000 arose during the current year.
Brecker Company leases an automobile with a fair value of $10,906 from Emporia Motors, Inc., on the following terms: 1. Non-cancelable term of 50 months. 2. Rental of $250 per month (at end of each month). (The present value at 1% per month is $9,800.) 3. Estimated residual value
Where can authoritative IFRS related to the accounting for leases be found?
On December 31, 2012, Shellhammer Co. sold 6-month-old equipment at fair value and leased it back. There was a loss on the sale. Shellhammer pays all insurance, maintenance, and taxes on the equipment. The lease provides for eight equal annual payments, beginning December 31, 2013, with a present
On January 1, 2012, Perriman Company sold equipment for cash and leased it back. As seller lessee, Perriman retained the right to substantially all of the remaining use of the equipment. The term of the lease is 8 years. There is a gain on the sale portion of the transaction. The lease
Baden Corporation entered into a lease agreement for 10 photocopy machines for its corporate headquarters. The lease agreement qualifies as an operating lease in all terms except there is a bargain purchase option. After the 5-year lease term, the corporation can purchase each copier for $1,000,
Part 1Capital leases and operating leases are the two classifications of leases described in FASB pronouncements from the standpoint of the lessee.Instructions (a) Describe how a capital lease would be accounted for by the lessee both at the inception of the lease and during the first year of
On January 1, 2012, Evans Company entered into a noncancelable lease for a machine to be used in its manufacturing operations. The lease transfers ownership of the machine to Evans by the end of the lease term. The term of the lease is 8 years. The minimum lease payment made by Evans on January 1,
Goring Dairy leases its milking equipment from King Finance Company under the following lease terms. 1. The lease term is 10 years, noncancelable, and requires equal rental payments of $30,300 due at the beginning of each year starting January 1, 2012. 2. The equipment has a fair value
In 2011, Grishell Trucking Company negotiated and closed a long-term lease contract for newly constructed truck terminals and freight storage facilities. The buildings were erected to the company’s specifications on land owned by the company. On January 1, 2012, Grishell Trucking Company took
Shapiro Inc. was incorporated in 2011 to operate as a computer software service firm with an accounting fiscal year ending August 31. Shapiro’s primary product is a sophisticated online inventory-control system; its customers pay a fixed fee plus a usage charge for using the system.
On January 1, 2012, Cage Company contracts to lease equipment for 5 years, agreeing to make a payment of $137,899 (including the executory costs of $6,000) at the beginning of each year, starting January 1, 2012. The taxes, the insurance, and the maintenance, estimated at $6,000 a year, are the
Ludwick Steel Company as lessee signed a lease agreement for equipment for 5 years, beginning December 31, 2012. Annual rental payments of $40,000 are to be made at the beginning of each lease year (December 31). The taxes, insurance, and the maintenance costs are the obligation of the lessee. The
The following facts pertain to a noncancelable lease agreement between Alschuler Leasing Company and McKee Electronics, a lessee, for a computer system.Inception date
Winston Industries and Ewing Inc. enter into an agreement that requires Ewing Inc. to build three diesel-electric engines to Winston’s specifications. Upon completion of the engines, Winston has agreed to lease them for a period of 10 years and to assume all costs and risks of ownership. The
Cleveland Inc. leased a new crane to Abriendo Construction under a 5-year noncancelable contract starting January 1, 2012. Terms of the lease require payments of $33,000 each January 1, starting January 1, 2012. Cleveland will pay insurance, taxes, and maintenance charges on the crane, which has an
Glaus Leasing Company agrees to lease machinery to Jensen Corporation on January 1, 2012. The following information relates to the lease agreement. 1. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. 2. The cost of the
Presented below are four independent situations. (a) On December 31, 2012, Beard Inc. sold computer equipment to Barber Co. and immediately leased it back for 10 years. The sales price of the equipment was $560,000, its carrying amount is $400,000, and its estimated remaining economic life is
Assume that on January 1, 2012, Elmer’s Restaurants sells a computer system to Liquidity Finance Co. for $510,000 and immediately leases the computer system back. The relevant information is as follows. 1. The computer was carried on Elmer’s books at a value of $450,000. 2. The term
On February 20, 2012, Hooke Inc., purchased a machine for $1,200,000 for the purpose of leasing it. The machine is expected to have a 10-year life, no residual value, and will be depreciated on the straight-line basis. The machine was leased to Sage Company on March 1, 2012, for a 4-year period at
On January 1, 2012, a machine was purchased for $900,000 by Floyd Co. The machine is expected to have an 8-year life with no salvage value. It is to be depreciated on a straight-line basis. The machine was leased to Crampton Inc. on January 1, 2012, at an annual rental of $180,000. Other relevant
On January 1, 2012, Secada Co. leased a building to Ryker Inc. The relevant information related to the lease is as follows. 1. The lease arrangement is for 10 years. 2. The leased building cost $3,600,000 and was purchased for cash on January 1, 2012. 3. The building is
Grady Leasing Company signs an agreement on January 1, 2012, to lease equipment to Azure Company. The following information relates to this agreement. 1. The term of the noncancelable lease is 5 years with no renewal option. The equipment has an estimated economic life of 5 years. 2.
Fieval Leasing Company signs an agreement on January 1, 2012, to lease equipment to Reid Company. The following information relates to this agreement. 1. The term of the noncancelable lease is 6 years with no renewal option. The equipment has an estimated economic life of 6 years. 2.
A lease agreement between Lennox Leasing Company and Gill Company is described in E21-8.InstructionsRefer to the data in E21-8 and do the following for the lessor. (Round all numbers to the nearest cent.) (a) Compute the amount of the lease receivable at the inception of the lease. (b)
On January 1, 2012, Palmer Company leased equipment to Woods Corporation. The following information pertains to this lease. 1. The term of the noncancelable lease is 6 years, with no renewal option. The equipment reverts to the lessor at the termination of the lease. 2. Equal rental
Jacobsen Leasing Company leases a new machine that has a cost and fair value of $75,000 to Stadler Corporation on a 3-year noncancelable contract. Stadler Corporation agrees to assume all risks of normal ownership including such costs as insurance, taxes, and maintenance. The machine has a 3 year
Krauss Leasing Company signs a lease agreement on January 1, 2012, to lease electronic equipment to Stewart Company. The term of the noncancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement. 1. Stewart has the
Assume that on January 1, 2012, Kimberly-Clark Corp. signs a 10-year noncancelable lease agreement to lease a storage building from Trevino Storage Company. The following information pertains to this lease agreement. 1. The agreement requires equal rental payments of $90,000 beginning on
On January 1, 2012, Adams Corporation signed a 5-year noncancelable lease for a machine. The terms of the lease called for Adams to make annual payments of $9,968 at the beginning of each year, starting January 1, 2012. The machine has an estimated useful life of 6 years and a $5,000 unguaranteed
On January 1, 2012, Irwin Animation sold a truck to Peete Finance for $33,000 and immediately leased it back. The truck was carried on Irwin’s books at $28,000. The term of the lease is 5 years, and title transfers to Irwin at lease-end. The lease requires five equal rental payments of $8,705 at
Geiberger Corporation manufactures replicators. On January 1, 2012, it leased to Althaus Company a replicator that had cost $110,000 to manufacture. The lease agreement covers the 5-year useful life of the replicator and requires 5 equal annual rentals of $40,800 payable each January 1, beginning
Use the information for Indiana Jones Corporation from BE21-9. Assume that for Lost Ark Company, the lessor, collectibility is reasonably predictable, there are no important uncertainties concerning costs, and the carrying amount of the equipment is $202,921. Prepare Lost Ark’s January 1, 2012,
Indiana Jones Corporation enters into a 6-year lease of equipment on January 1, 2012, which requires 6 annual payments of $40,000 each, beginning January 1, 2012. In addition, Indiana Jones guarantees the lessor a residual value of $20,000 at lease-end. The equipment has a useful life of 6 years.
Jennifer Brent Corporation owns equipment that cost $80,000 and has a useful life of 8 years with no salvage value. On January 1, 2012, Jennifer Brent leases the equipment to Donna Havaci Inc. for one year with one rental payment of $15,000 on January 1. Prepare Jennifer Brent Corporation’s 2012
Use the information for IBM from BE21-6. Assume the direct-financing lease was recorded at a present value of $150,000. Prepare IBM’s December 31, 2012, entry to record interest.
Assume that IBM leased equipment that was carried at a cost of $150,000 to Sharon Swander Company. The term of the lease is 6 years beginning January 1, 2012, with equal rental payments of $30,044 at the beginning of each year. All executory costs are paid by Swander directly to third parties. The
Jana Kingston Corporation enters into a lease on January 1, 2012, that does not transfer ownership or contain a bargain-purchase option. It covers 3 years of the equipment’s 8-year useful life, and the present value of the minimum lease payments is less than 90% of the fair value of the asset
Vickie Plato, accounting clerk in the personnel office of Streisand Corp., has begun to compute pension expense for 2014 but is not sure whether or not she should include the amortization of unrecognized gains/losses. She is currently working with the following beginning-of-the-year present values
Davis Corporation is a medium-sized manufacturer of paperboard containers and boxes. The corporation sponsors a noncontributory, defined benefit pension plan that covers its 250 employees. Sid Cole has recently been hired as president of Davis Corporation. While reviewing last year’s financial
Elton Co. has the following postretirement benefit plan balances on January 1, 2012.Accumulated postretirement benefit obligation $2,250,000Fair value of plan assets
Hollenbeck Foods Inc. sponsors a postretirement medical and dental benefit plan for its employees. The following balances relate to this plan on January 1, 2012.Plan assets
Larson Corp. sponsors a defined benefit pension plan for its employees. On January 1, 2013, the following balances related to this plan.Plan assets (market-related value) $270,000Projected benefit obligation
The following data relate to the operation of Kramer Co.’s pension plan in 2013. The pension worksheet for 2012 is provided in P20-10.Service cost
Kramer Co. has prepared the following pension worksheet. Unfortunately, several entries in the worksheet are not decipherable. The company has asked your assistance in completing the worksheet and completing the accounting tasks related to the pension plan for 2012.
Hobbs Co. has the following defined benefit pension plan balances on January 1, 2012.Projected benefit obligation $4,600,000Fair value of plan assets
Lemke Company sponsors a defined benefit pension plan for its employees. The following data relate to the operation of the plan for the years 2012 and 2013. Instructions (a) Prepare a pension worksheet presenting both years 2012 and 2013 and
Hanson Corp. sponsors a defined benefit pension plan for its employees. On January 1, 2012, the following balances related to this plan.Plan assets (market-related value) $520,000Projected benefit obligation
Aykroyd Inc. has sponsored a noncontributory, defined benefit pension plan for its employees since 1989. Prior to 2012, cumulative net pension expense recognized equaled cumulative contributions to the plan. Other relevant information about the pension plan on January 1, 2012, is as follows.
Hiatt Toothpaste Company initiates a defined benefit pension plan for its 50 employees on January 1, 2012. The insurance company which administers the pension plan provided the following selected information for the years 2012, 2013, and 2014. There
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