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intermediate accounting
Intermediate Accounting 17th edition Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfiel - Solutions
On January 1, 2017, Jackson 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, $800,000 costEquipment, 12-year estimated useful life, $10,000 salvage value, $100,000 costThe
Oliver Corporation has owned stock of Conrad Corporation since 2017. At December 31, 2020, its balances related to this investment were:Equity Investments.......................................$185,000Fair Value Adjustment......................................34,000 Dr.On January 1, 2021, Oliver
On January 3, 2019, Martin Company purchased for $500,000 cash a 10% interest in Renner Corp. The fair value of Martin?s investment in Renner securities is as follows: December 31, 2019, $560,000, and December 31, 2020, $515,000. On January 2, 2021, Martin purchased an additional 30% of Renner?s
Joy Cunningham Co. purchased a machine on January 1, 2018, for $550,000. At that time, it was estimated that the machine would have a 10-year life and no salvage value. On December 31, 2021, the firm’s accountant found that the entry for depreciation expense had been omitted in 2019. In addition,
Simmons Corporation owns stock of Armstrong, Inc. Prior to 2020, the investment was accounted for using the equity method. In early 2020, Simmons sold part of its investment in Armstrong, and began using the fair value method. In 2020, Armstrong earned net income of $80,000 and paid dividends of
On January 1, 2020, Millay Inc. paid $700,000 for 10,000 shares of Genso Company’s voting common stock, which was a 10% interest in Genso. Millay does not have the ability to exercise significant influence over the operating and financial policies of Genso. Millay received dividends of $1.50 per
You have been asked by a client to review the records of Roberts Company, a small manufacturer of precision tools and machines. Your client is interested in buying the business, and arrangements have been made for you to review the accounting records. Your examination reveals the following
Presented below are the comparative income and retained earnings statements for Denise Habbe Inc. for the years 2020 and 2021. The following additional information is provided: 1. In 2021, Denise Habbe Inc. decided to switch its depreciation method from sum-of-the-years? digits to the
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
Kathleen Cole Inc. acquired the following assets in January of 2018. Equipment, estimated service life, 5 years; salvage value, $15,000 $525,000 Building, estimated service life, 30 years; no salvage value $693,000 The equipment has been depreciated using the sum-of-the-years’-digits method for
Indicate the effect?Understate, Overstate, No Effect?that each of the following errors has on 2020 net income and 2021 net income. 2021 2020 a. Equipment (with a useful life of 5 years) was purchased and expensed in 2018. b. Wages payable were not recorded at 12/31/20. c. Equipment purchased in
On March 5, 2021, 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 2019 and 2020, you discover that no adjustments have yet been made for the following items. Items 1. Interest
Below is the net income of Anita Ferreri Instrument Co., a private corporation, computed under the three inventory methods using a periodic system. Instructions (Ignore tax considerations.) a. Assume that in 2021 Ferreri decided to change from the FIFO method to the average-cost method of pricing
At January 1, 2020, Beidler Company reported retained earnings of $2,000,000. In 2020, Beidler discovered that 2019 depreciation expense was understated by $400,000. In 2020, net income was $900,000 and dividends declared were $250,000. The tax rate is 20%. Prepare a 2020 retained earnings
As part of the year-end accounting process and review of operating policies, Tokar Co. is considering a change in the accounting for its equipment from the straight-line method to an accelerated method. Your supervisor wonders how the company will report this change in accounting. It has been a few
You have been assigned to examine the financial statements of Zarle Company for the year ended December 31, 2020. You discover the following situations. 1. Depreciation of $3,200 for 2020 on delivery vehicles was not recorded. 2. The physical inventory count on December 31, 2019, improperly
Cullen Construction Company, which began operations in 2020, changed from the completed-contract to the percentage-of-completion method of accounting for long-term construction contracts during 2021. For tax purposes, the company employs the completed-contract method and will continue this approach
In 2020, Bailey Corporation discovered that equipment purchased on January 1, 2018, 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 2020 journal entry to correct the error.
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 following accounting changes in connection with Joblonsky Inc.’s 2020 financial statements.1. At December 31, 2019, the client
On December 31, 2020, before the books were closed, the management and accountants of Madrasa Inc. made the following determinations about three pieces of equipment.1. Equipment A was purchased January 2, 2017. It originally cost $540,000 and, for depreciation purposes, the straight-line method was
Presented below are income statements prepared on a LIFO and FIFO basis for Kenseth Company, which started operations on January 1, 2019. The company presently uses the LIFO method of pricing its inventory and has decided to switch to the FIFO method in 2020. The FIFO income statement is computed
Sesame Company purchased a computer system for $74,000 on January 1, 2019. It was depreciated based on a 7-year life and an $18,000 salvage value. On January 1, 2021, 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
As a certified public accountant, you have been contacted by Joe Davison, CEO of Sports-Pro Athletics, Inc., a manufacturer of a variety of athletic equipment. He has asked you how to account for the following changes.1. Sports-Pro appropriately changed its depreciation method for its machinery
Aston Corporation performs year-end planning in November of each year before its calendar year ends in December. The preliminary estimated net income is $4,800,000. The CFO, Rita Warren, meets with the company president, J. B. Aston, to review the projected numbers. She presents the following
Gordon Company started operations on January 1, 2015, and has used the FIFO method of inventory valuation since its inception. In 2021, it decides to switch to the average-cost method. You are provided with the following information. Instructions a. What is the beginning retained earnings balance
Tedesco Company changed depreciation methods in 2020 from double-declining balance to straight-line. Depreciation prior to 2020 under double-declining-balance was $90,000, whereas straight-line depreciation prior to 2020 would have been $50,000. Tedesco’s depreciable assets had a cost of $250,000
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 2020.1. In 2020, Lotan decided to change its policy on
Penn Company is in the process of adjusting and correcting its books at the end of 2020. 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,
Taveras Co. decides at the beginning of 2020 to adopt the FIFO method of inventory valuation. Taveras had used the LIFO method for financial reporting since its inception on January 1, 2018, and had maintained records adequate to apply the FIFO method retrospectively. Taveras concluded that FIFO is
Shannon, Inc., changed from the LIFO cost flow assumption to the FIFO cost flow assumption in 2020. The increase in the prior year’s income before taxes is $1,200,000. The tax rate is 20%. Prepare Shannon’s 2020 journal entry to record the change in accounting principle.
In preparation for significant expansion of its international operations, ABC Co. has adopted a plan to gradually shift to the same accounting methods as used by its international competitors. Part of this plan includes a switch from LIFO inventory accounting to FIFO (recall that IFRS does not
The following are three independent, unrelated sets of facts relating to accounting changes.Situation 1: Sanford 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 willing to change to
Botticelli Inc. was organized in late 2018 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 operations and has applied for a sizable bank loan.
Holder-Webb Company began operations on January 1, 2018, and uses the average-cost method of pricing inventory. Management is contemplating a change in inventory methods for 2021. The following information is available for the years 2018?2020. Instructions (Ignore all tax effects.) a. Prepare the
Refer to the accounting change by Wertz Construction Company in BE22.1. Wertz has a profit-sharing 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 2020 income
The financial statements of Coca-Cola and PepsiCo are presented in Appendices C and D, respectively. The companies’ complete annual reports, including the notes to the financial statements, are available online.InstructionsUse the companies’ financial information to answer the following
Holtzman Company is in the process of preparing its financial statements for 2020. Assume that no entries for depreciation have been recorded in 2020. The following information related to depreciation of fixed assets is provided to you. 1. Holtzman purchased equipment on January 2, 2017, for
At the beginning of 2020, Wertz Construction Company changed from the completed contract method to recognizing revenue over time (percentage-of-completion) for financial reporting purposes. The company will continue to use the completed-contract method for tax purposes. For years prior to 2020,
The financial statements of P&G are presented in Appendix B. The company’s complete annual report, including the notes to the financial statements, is available online.InstructionsRefer to P&G’s financial statements and the accompanying notes to answer the following questions.a. Were
Mathys Inc. has recently hired a new independent auditor, Karen Ogleby, who says she wants “to get everything straightened out.” Consequently, she has proposed the following accounting changes in connection with Mathys Inc.’s 2020 financial statements.1. At December 31, 2019, the client had a
Assume the same facts as BE21.29, except the lease term is now 5 years and the five annual rental payments are $8,309, with no expected residual value at the end of the lease term. Prepare Irwin’s 2020 journal entries assuming these new facts.In BE21.29On January 1, 2020, Irwin Animation sold a
Homestead Corporation entered into an operating lease to lease equipment from Highlander, Inc. on January 1, 2020. The lease calls for annual lease payments of $10,000, beginning on December 31, for each of the 5 years of the lease. In addition, Highlander, Inc. will pay Homestead Corporation
Bucky Corporation entered into an operating lease agreement to lease equipment from Badger, Inc. on January 1, 2020. The lease calls for annual lease payments of $30,000, beginning on January 1, for each of the 3 years of the lease. In addition, Badger will pay Bucky $5,000 as a cash incentive for
Respond to the requirements in each situation.Instructionsa. On January 1, 2020, Zarle Inc. sold computer equipment to Daniell Co. The sales price of the equipment was $520,000 and its carrying amount is $400,000. Record any journal entries necessary for Zarle from the sale of the computer
Assume that on January 1, 2020, Elmer’s Restaurants sells a computer system to Liquidity Finance Co. for $680,000 and immediately leases back the computer system. The relevant information is as follows.1. The computer was carried on Elmer’s books at a value of $600,000.2. The term of the
Indiana Jones Corporation enters into a 6-year lease of equipment on December 31, 2019, which requires six annual payments of $40,000 each, beginning December 31, 2019. In addition, Indiana Jones guarantees the lessor a residual value of $20,000 at the end of the lease. However, Indiana Jones
On January 1, 2020, Nelson Co. leased a building to Wise Inc. The relevant information related to the lease is as follows.1. The lease arrangement is for 10 years. The building is expected to have a residual value at the end of the lease of $3,500,000 (unguaranteed).2. The leased building has a
Use the information pertaining to Laura Leasing Company and Plote Company from E21.15. Assume that the expected residual value at the end of the lease is $10,000, such that the payments are $24,638.87.InstructionsPrepare all of the journal entries for the lessee for 2020 to record the lease
LeBron James (LBJ) Corporation agrees on January 1, 2020, to lease equipment from Cavaliers, Inc. for 3 years. The lease calls for annual lease payments of $23,000 at the beginning of each year. The lease does not transfer ownership, nor does it contain a bargain purchase option, and is not a
Use the information for the Phelps/Walsh lease in E21.13, except that Walsh was unaware of the implicit rate used in the lease by Phelps and has an incremental borrowing rate of 9%.InstructionsHow would your answer to E21.13(a) change?In E21.13Phelps Company leases a building to Walsh, Inc. on
Glaus Leasing Company agrees to lease equipment to Jensen Corporation on January 1, 2020. 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 machinery is
You are auditing the December 31, 2020, financial statements of Hockney, Inc., manufacturer of novelties and party favors. During your inspection of the company garage, you discovered that a used automobile not listed in the equipment subsidiary ledger is parked there. You ask Stacy Reeder, plant
Use the information for Kleckner Corporation from IFRS21.4. Assume that at December 31, 2020, Kleckner made an adjusting entry to accrue interest expense of $20,133 on the lease. Prepare Kleckner’s January 1, 2021, journal entry to record the second lease payment of $48,337.In IFRS21.4Kleckner
Ludwick Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2020. Annual rental payments of $40,000 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 6%;
Kubby Company specializes in leasing large storage units to other businesses. Kubby entered a contract to lease a storage unit to Riskey, Inc. for 4 years when that particular storage unit had a remaining useful life of 5 years. The fair value of the unit was $10,000 at the commencement of the
Use the information for Rode Inc. given in BE19.12. Assume that it is more likely than not that the entire net operating loss carryforward will not be realized in future years. Prepare all the journal entries necessary at the end of 2020.
Rick Kleckner Corporation recorded a right-of-use asset for $300,000 as a result of a finance lease on December 31, 2019. Kleckner’s incremental borrowing rate is 8%, and the implicit rate of the lessor was not known at the commencement of the lease. Kleckner made the first lease payment of
Mancuso Corporation amended its pension plan on January 1, 2020, and granted $160,000 of prior service costs to its employees. The employees are expected to provide 2,000 service years in the future, with 350 service years in 2020. Compute prior service cost amortization for 2020.
Hollenbeck Foods Inc. sponsors a post-retirement medical and dental benefit plan for its employees. The following balances relate to this plan on January 1, 2020.Plan assets.......................................................................................$200,000Expected post-retirement
Hanson Corp. sponsors a defined benefit pension plan for its employees. On January 1, 2020, the following balances related to this plan.Plan assets (market-related value)....................$520,000Projected benefit obligation.................................700,000Pension
Tevez Company experienced an actuarial loss of $750 in its defined benefit plan in 2020. For 2020, Tevez’s revenues are $125,000, and expenses (excluding pension expense of $14,000, which does not include the actuarial loss) are $85,000. Prepare Tevez’s statement of comprehensive income for
The following defined pension data of Doreen Corp. apply to the year 2020.Defined benefit obligation, 1/1/20 (before amendment).......................................$560,000Plan assets,
Henning Company sponsors a defined benefit pension plan for its employees. The following data relate to the operation of the plan for the year 2020 in which no benefits were paid.1. The actuarial present value of future benefits earned by employees for services rendered in 2020 amounted to
Larson Corp. sponsors a defined benefit pension plan for its employees. On January 1, 2021, the following balances related to this plan.Plan assets (market-related value).................................$270,000Projected benefit obligation..............................................340,000Pension
The financial statements of M&S are presented in Appendix E. The company’s complete annual report, including the notes to the financial statements, is available online.InstructionsRefer to M&S’s financial statements and the accompanying notes to answer the following questions.a. What
Ferreri Company received the following selected information from its pension plan trustee concerning the operation of the company?s defined benefit pension plan for the year ended December 31, 2020. The service cost component of pension expense for employee services rendered in the current year
Lemke Company sponsors a defined benefit pension plan for its employees. The following data relate to the operation of the plan for the years 2020 and 2021. Instructions a. Prepare a pension worksheet presenting both years 2020 and 2021 and accompanying computations and amortization of the loss
Erickson Company sponsors a defined benefit pension plan. The corporation?s actuary provides the following information about the plan. Instructions a. Compute the actual return on the plan assets in 2020. b. Compute the amount of the other comprehensive income (G/L) as of December 31, 2020.
Elton Co. has the following post-retirement benefit plan balances on January 1, 2020. Accumulated post-retirement benefit obligation................$2,250,000Fair value of plan assets............................................................2,250,000 The interest (settlement) rate applicable to
Using the information in E20.13 about Erickson Company?s defined benefit pension plan, prepare a 2020 pension worksheet with supplementary schedules of computations. Prepare the journal entries at December 31, 2020, to record pension expense and related pension transactions. Also, indicate the
Latoya Company provides the following selected information related to its defined benefit pension plan for 2020.Pension asset/liability (January 1)..............................................$ 25,000 Cr.Accumulated benefit obligation (December 31).......................400,000Actual and expected
The actuary for the pension plan of Gustafson Inc. calculated the following net gains and losses. Incurred During the Year ? ? ? ? ? ? ? ? ? (Gain) or
Keeton Company sponsors a defined benefit pension plan for its 600 employees. The company?s actuary provided the following information about the plan. The average remaining service life per employee is 10.5 years. The service cost component of net periodic pension expense for employee services
The accounting staff of Usher Inc. 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
Kreter Co. provides the following information about its post-retirement benefit plan for the year 2020.Service cost........................................................................$ 45,000Contribution to the plan.....................................................10,000Actual and expected
Using the information in E20.19, prepare a worksheet inserting January 1, 2020, balances, and showing December 31, 2020, balances. Prepare the journal entry recording post-retirement benefit expense.Service cost................................................................$ 45,000Contribution to
Garner Inc. provides the following information related to its post-retirement benefits for the year 2020.Accumulated post-retirement benefit obligationat January 1, 2020..........................................................$710,000Actual and expected return on plan
Englehart Co. provides the following information about its post-retirement benefit plan for the year 2020.Service cost.........................................................................................................$ 90,000Prior service cost
Using the information in E20.22, prepare a worksheet inserting January 1, 2020, balances, showing December 31, 2020, balances, and the journal entry recording post-retirement benefit expense.Service
The accounting staff of Holder Inc. has prepared the following post-retirement benefit 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
On January 1, 2020, Evans Company entered into a non-cancelable lease for a machine to be used in its manufacturing operations. The lease transfers control of the machine to Evans by the end of the lease term. The term of the lease is 8 years, which equals the useful life of the asset. The lease
The financial statements of P&G are presented in Appendix B. The company’s complete annual report, including the notes to the financial statements, is available online.InstructionsRefer to P&G’s financial statements, accompanying notes, and management’s discussion and analysis to
The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Vance Company, a lessee.Commencement date
DU Journeys enters into an agreement with Traveler Inc. to lease a car on December 31, 2019. The following information relates to this agreement.1. The term of the non-cancelable lease is 3 years with no renewal or bargain purchase option. The remaining economic life of the car is 3 years, and it
Callaway Golf Co. leases telecommunications equipment from Photon Company. Assume the following data for equipment leased from Photon Company. The lease term is 5 years and requires equal rental payments of $31,000 at the beginning of each year. The equipment has a fair value at the commencement of
Daniel Hardware Co. is considering alternative financing arrangements for equipment used in its warehouses. Besides purchasing the equipment outright, Daniel is also considering a lease. Accounting for the outright purchase is fairly straightforward, but because Daniel has not used equipment leases
The financial statements and notes to the financial statements for Delta Air Lines and Southwest Airlines can be found online.InstructionsUse information found in the companies’ financial reports to answer the following questions.a. What types of leases are used by Southwest and Delta and on
On January 1, 2020, Cage Company contracts to lease equipment for 5 years, agreeing to make a payment of $120,987 at the beginning of each year, starting January 1, 2020. The leased equipment is to be capitalized at $550,000. The asset is to be amortized on a double-declining-balance basis, and the
On December 31, 2019, Burke Corporation signed a 5-year, non-cancelable lease for a machine. The terms of the lease called for Burke to make annual payments of $8,668 at the beginning of each year, starting December 31, 2019. The machine has an estimated useful life of 6 years and a $5,000
Jelly Co. processes jam and sells it to the public. Jelly leases equipment used in its production processes from Squishy, Inc. This year, Jelly leases a new piece of equipment from Squishy. The lease term is 5 years and requires equal rental payments of $15,000 at the beginning of each year. In
The following are the financial statement disclosures from the January 31, 2018, annual report of Wal-Mart Stores, Inc. Instructions Answer the following questions related to these disclosures. a. What is the total obligation under capital leases and financial obligations at January 31, 2018, for
What are the major advantages to a lessor for becoming involved in a leasing arrangement?
Outline the accounting procedures (the finance lease method) for a lease by a lessee.
Salaur Company, a risky start-up, is evaluating a lease arrangement being offered by TSP Company for use of a standard computer system. The lease is non-cancelable, and in no case does Salaur receive title to the computers during or at the end of the lease term. TSP will lease the returned
Shapiro Inc. was incorporated in 2019 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.Shapiro has
Assume that on December 31, 2019, Kimberly-Clark Corp. signs a 10-year, non-cancelable lease agreement to lease a storage building from Sheffield Storage Company. The following information pertains to this lease agreement.1. The agreement requires equal rental payments of $71,830 beginning on
Kleckner Corporation recorded a lease at $300,000 on December 31, 2019. Kleckner’s incremental borrowing rate is 8%, and the implicit rate of the lessor is not known. Kleckner made the first lease payment of $48,337 on December 31, 2019. The lease requires eight annual payments. The equipment has
Identify the lease classification tests and how they are applied.
In 2019, 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, 2020, Grishell Trucking took possession of
Castle Leasing Company signs a lease agreement on January 1, 2020, to lease electronic equipment to Jan Way Company. The term of the non-cancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement.1. Jan Way has the option to
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