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business
intermediate accounting

Questions and Answers of Intermediate Accounting

Karen Austin Inc. has issued three types of debt on January 1, 2020, the start of the company’s fiscal year.a. $10 million, 10-year, 15% unsecured bonds, interest payable quarterly. Bonds were
McCormick Corporation issued a 4-year, $40,000, 5% note to Greenbush Company on January 1, 2020, and received a computer that normally sells for $31,495. The note requires annual interest payments
On January 2, 2015, Banno Corporation issued $1,500,000 of 10% bonds at 97 due December 31, 2024. Interest on the bonds is payable annually each December 31. The discount on the bonds is also being
Shlee Corporation issued a 4-year, $60,000, zero-interest-bearing note to Garcia Company on January 1, 2020, and received cash of $60,000. In addition, Shlee agreed to sell merchandise to Garcia at
Crocker Corp. owes D. Yaeger Corp. a 10-year, 10% note in the amount of $330,000 plus $33,000 of accrued interest. The note is due today, December 31, 2020. Because Crocker Corp. is in financial
On June 30, 2012, County Company issued 12% bonds with a par value of $800,000 due in 20 years. They were issued at 98 and were callable at 104 at any date after June 30, 2020. Because of lower
At December 31, 2020, Hyasaki Corporation has the following account balances:Bonds payable, due January 1, 2029...........................$2,000,000Discount on bonds
Day Company had bonds outstanding with a maturity value of $300,000. On April 30, 2020, when these bonds had an unamortized discount of $10,000, they were called in at 104. To pay for these bonds,
On January 1, 2020, Carter Company makes the two following acquisitions.1. Purchases land having a fair value of $200,000 by issuing a 5-year, zero-interest-bearing promissory note in the face amount
Presented below are two independent situations.a. On January 1, 2020, Wright Inc. purchased land that had an assessed value of $350,000 at the time of purchase. A $550,000, zero-interest-bearing note
On January 1, 2020, Avery Co. borrowed and received $400,000 from a major customer evidenced by a zero-interest-bearing note due in 3 years. As consideration for the zero-interest-bearing feature,
Fallen Company commonly issues long-term notes payable to its various lenders. Fallen has had a pretty good credit rating such that its effective borrowing rate is quite low (less than 8% on an
At December 31, 2020, Redmond Company has outstanding three long-term debt issues. The first is a $2,000,000 note payable which matures June 30, 2023. The second is a $6,000,000 bond issue which
Strickland Company owes $200,000 plus $18,000 of accrued interest to Moran State Bank. The debt is a 10-year, 10% note. During 2020, Strickland’s business deteriorated due to a faltering regional
On December 31, 2020, American Bank enters into a debt restructuring agreement with Barkley Company, which is now experiencing financial trouble. The bank agrees to restructure a 12%, issued at par,
Using the same information as in E14.22, answer the following questions related to American Bank (creditor).In E14.22On December 31, 2020, American Bank enters into a debt restructuring agreement
Use the same information as in E14.22 above except that American Bank reduced the principal to $1,900,000 rather than $2,400,000. On January 1, 2024, Barkley pays $1,900,000 in cash to American Bank
The following amortization and interest schedule refl ects the issuance of 10-year bonds by Capulet Corporation on January 1, 2014, and the subsequent interest payments and charges. The company?s
Using the same information as in E14.22 and E14.24, answer the following questions related to American Bank (creditor).In E14.22On December 31, 2020, American Bank enters into a debt restructuring
Vargo Corp. owes $270,000 to First Trust. The debt is a 10-year, 12% note due December 31, 2020. Because Vargo Corp. is in financial trouble, First Trust agrees to extend the maturity date to
Reichenbach Co., organized in 2019, has set up a single account for all intangible assets. The following summary discloses the debit entries that have been recorded during 2020 and
Presented below is the current liabilities section of Micro Corporation. Instructions Answer the following questions. a. What are the essential characteristics that make an item a liability? b. How
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
Rodriguez Corporation includes the following items in its liabilities at December 31, 2020.1. Notes payable, $25,000,000, due June 30, 2021.2. Deposits from customers on equipment ordered by them
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
Upland Company borrowed $40,000 on November 1, 2020, by signing a $40,000, 9%, 3-month note. Prepare Upland’s November 1, 2020, entry; the December 31, 2020, annual adjusting entry; and the
The following are selected 2020 transactions of Astin Corporation.Sept. 1 Purchased inventory from Encino Company on account for $50,000. Astin records purchases gross and uses a periodic inventory
Cedarville Company pays its office employee payroll weekly. Below is a partial list of employees and their payroll data for August. Because August is their vacation period, vacation pay is also
Dumars Corporation reports in the current liability section of its balance sheet at December 31, 2020 (its year-end), short-term obligations of $15,000,000, which includes the current portion of 12%
Takemoto Corporation borrowed $60,000 on November 1, 2020, by signing a $61,350, 3-month, zero-interest-bearing note. Prepare Takemoto’s November 1, 2020, entry; the December 31, 2020, annual
Broderick Company began operations on January 2, 2019. It employs 9 individuals who work 8-hour days and are paid hourly. Each employee earns 10 paid vacation days and 6 paid sick days annually.
The following is a payroll sheet for Otis Imports for the month of September 2020. The company is allowed a 1% unemployment compensation rate by the state; the federal unemployment tax rate is 0.8%
On February 1, 2021, one of the huge storage tanks of Viking Manufacturing exploded. Windows in houses and other buildings within a one-mile radius of the explosion were severely damaged, and a
Sport Pro Magazine sold 12,000 annual subscriptions on August 1, 2020, for $18 each. Prepare Sport Pro’s August 1, 2020, journal entry and the December 31, 2020, annual adjusting entry, assuming
Assume the facts in E13.3 except that Broderick Company has chosen not to accrue paid sick leave until used, and has chosen to accrue vacation time at expected future rates of pay without
Brooks Corporation sells computers under a 2-year warranty contract that requires the corporation to replace defective parts and to provide the necessary repair labor. During 2020, the corporation
Presented below is a note disclosure for Matsui Corporation. Litigation and Environmental: The Company has been notified, or is a named or a potentially responsible party in a number of governmental
As discussed in the chapter, an important consideration in evaluating current liabilities is a company?s operating cycle. The operating cycle is the average time required to go from cash to cash in
Dos Passos Company sells televisions at an average price of $900 and also offers to each customer a separate 3-year warranty contract for $90 that requires the company to perform periodic services
The following two independent situations involve loss contingencies.Part 1: Benson Company sells two products, Grey and Yellow. Each carries a 1-year warranty.1. Product Grey—Product warranty
YellowCard Company manufactures accessories for iPods. It had the following selected transactions during 2020.1. YellowCard provides a 2-year warranty on its docking stations, which it began selling
The payroll of YellowCard Company for September 2020 is as follows.Total payroll was $480,000, of which $110,000 is exempt from Social Security tax because it represented amounts paid in excess of
Alvarado Company sells a machine for $7,400 with a 12-month warranty agreement that requires the company to replace all defective parts and to provide the repair labor at no cost to the customers.
Kasten Inc. provides paid vacations to its employees. At December 31, 2020, 30 employees have each earned 2 weeks of vacation time. The employees’ average salary is $500 per week. Prepare
On December 31, 2020, Alexander Company had $1,200,000 of short-term debt in the form of notes payable due February 2, 2021. On January 21, 2021, the company issued 25,000 ordinary shares for $36 per
Green Day Hardware?s payroll for November 2020 is summarized below. At this point in the year, some employees have already received wages in excess of those to which payroll taxes apply. Assume
To stimulate the sales of its Alladin breakfast cereal, Loptien Company places 1 coupon in each box. Five coupons are redeemable for a premium consisting of a children’s hand puppet. In 2021, the
Mayaguez Corporation provides its officers with bonuses based on net income. For 2020, the bonuses total $350,000 and are paid on February 15, 2021. Prepare Mayaguez’s December 31, 2020, adjusting
Presented below are two different situations related to Mckee Corporation’s debt obligations. Mckee’s next financial reporting date is December 31, 2020. The financial statements are authorized
Sycamore Candy offers an MP3 download (seven-single medley) as a premium for every five candy bar wrappers presented by customers together with $2.50. The candy bars are sold by the company to
At December 31, 2020, Burr Corporation owes $500,000 on a note payable due February 15, 2021.(a) If Burr had restructured the note on December 15, 2020, such that Burr has the contractual right to
The following situations relate to Bolivia Company.1. Bolivia provides a warranty with all its products it sells. It estimates that it will sell 1,000,000 units of its product for the year ended
On December 31, 2020, Holmes Company has $7,000,000 of short-term debt in the form of notes payable to Gotham State Bank due in 2021. On December 28, 2020, Holmes enters into a refinancing agreement
On November 24, 2020, 26 passengers on Windsor Airlines Flight No. 901 were injured upon landing when the plane skidded off the runway. Personal injury suits for damages totaling $9,000,000 were
Scorcese Inc. is involved in a lawsuit at December 31, 2020.(a) Prepare the December 31 entry assuming it is probable that Scorcese will be liable for $900,000 as a result of this suit.(b) Prepare
Kobayashi Corporation reports in the current liability section of its statement of financial position at December 31, 2020 (its year-end), short-term obligations of $15,000,000, which includes the
Soundgarden Company sold 200 color laser copiers on July 10, 2020, for $4,000 apiece, together with a 1-year warranty. Maintenance on each copier during the warranty period is estimated to be
Polska Corporation, in preparation of its December 31, 2020, financial statements, is attempting to determine the proper accounting treatment for each of the following situations.1. As a result of
Hincapie Co. manufactures specialty bike accessories. The company is most well known for its product quality, and it has offered one of the best warranties in the industry on its higher-priced
Early in 2020, Crow Equipment sold 500 Rollomatics at $6,000 each. During 2020, Crow spent $20,000 servicing the 2-year assurance warranties that accompany the Rollomatic. All applicable transactions
Garison Music Emporium carries a wide variety of musical instruments, sound reproduction equipment, recorded music, and sheet music. Garison uses two sales promotion techniques—warranties and
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
No Doubt Company includes one coupon in each box of soap powder that it packs, and 10 coupons are redeemable for a premium (a kitchen utensil). In 2020, No Doubt Company purchased 8,800 premiums at
You are the independent auditor engaged to audit Millay Corporation’s December 31, 2020, financial statements. Millay manufactures household appliances. During the course of your audit, you
Schmitt Company must make computations and adjusting entries for the following independent situations at December 31, 2021. 1. Its line of amplifiers carries a 3-year warranty against defects. On the
Oil Products Company purchases an oil tanker depot on January 1, 2020, at a cost of $600,000. Oil Products expects to operate the depot for 10 years, at which time it is legally required to dismantle
The following are three independent situations.1. Hairston Stamp Company records stamp service revenue and provides for the cost of redemptions in the year stamps are sold to licensees. Hairston’s
Sprague Company has been operating for several years, and on December 31, 2020, presented the following balance sheet. The net income for 2020 was $25,000. Assume that total assets are the same in
Prior Company?s condensed financial statements provide the following information. Income StatementFor the Year Ended 2020Sales
Taylor Swift Corporation purchases a patent from Salmon Company on January 1, 2020, for $54,000. The patent has a remaining legal life of 16 years. Taylor Swift feels the patent will be useful for 10
After securing lease commitments from several major stores, Auer Shopping Center, Inc. was organized and built a shopping center in a growing suburb. The shopping center would have opened on schedule
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
Use the information provided in BE12.1. Assume that at January 1, 2022, the carrying amount of the patent on Taylor Swift’s books is $43,200. In January, Taylor Swift spends $24,000 successfully
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
Fields Laboratories holds a valuable patent (No. 758-6002-1A) on a precipitator that prevents certain types of air pollution. Fields does not manufacture or sell the products and processes it
An intangible asset with an estimated useful life of 30 years was acquired on January 1, 2010, for $540,000. On January 1, 2020, a review was made of intangible assets and their expected service
On June 30, 2020, your client, Ferry Company, was granted two patents covering plastic cartons that it had been producing and marketing profitably for the past 3 years. One patent covers the
In 2019, Austin Powers Corporation developed a new product that will be marketed in 2020. In connection with the development of this product, the following costs were incurred in 2019: research and
Information concerning Sandro Corporation’s intangible assets is as follows.1. On January 1, 2020, Sandro signed an agreement to operate as a franchisee of Hsian Copy Service, Inc. for an initial
Cuevas Co. is in the process of developing a revolutionary new product. A new division of the company was formed to develop, manufacture, and market this new product. As of year-end (December 31,
On January 2, 2020, Raconteur Corp. reported the following intangible assets: (1) copyright with a carrying value of $15,000, and (2) a trade name with a carrying value of $8,500. The trade name has
Gershwin Corporation obtained a franchise from Sonic Hedgehog Inc. for a cash payment of $120,000 on April 1, 2020. The franchise grants Gershwin the right to sell certain products and services for a
The following is selected information for Alatorre Company.1. Alatorre purchased a patent from Vania Co. for $1,000,000 on January 1, 2018. The patent is being amortized over its remaining legal life
Treasure Land Corporation incurred the following costs in 2020.Cost of laboratory research aimed at discovery of new knowledge........................$120,000Cost of testing in search for product
On July 31, 2020, Mexico Company paid $3,000,000 to acquire all of the common stock of Conchita Incorporated, which became a division (a reporting unit) of Mexico. Conchita reported the following
On September 1, 2020, Winans Corporation acquired Aumont Enterprises for a cash payment of $700,000. At the time of purchase, Aumont’s balance sheet showed assets of $620,000, liabilities of
As the recently appointed auditor for Bryan Corporation, you have been asked to examine selected accounts before the 6-month fi nancial statements of June 30, 2020, are prepared. The controller for
Montana Matt?s Golf Inc. was formed on July 1, 2019, when Matt Magilke purchased the Old Master Golf Company. Old Master provides video golf instruction at kiosks in shopping malls. Magilke plans to
Marshall Company, organized in 2019, has set up a single account for all intangible assets. The following summary discloses the debit entries that have been recorded during
During 2018, Wright Tool Company purchased a building site for its proposed research and development laboratory at a cost of $60,000. Construction of the building was started in 2018. The building
In early January 2019, Outkast Corporation applied for a trade name, incurring legal costs of $16,000. In January 2020, Outkast incurred $7,800 of legal fees in a successful defense of its trade
Carter Company has provided information on intangible assets as follows.A patent was purchased from Ford Company for $2,000,000 on January 1, 2019. Carter estimated the remaining useful life of the
Romo Company spent $190,000 developing a new process, $45,000 in legal fees to obtain a patent, and $91,000 to market the process that was patented, all in the year 2020. How should these costs be
Nieland Industries had one patent recorded on its books as of January 1, 2020. This patent had a book value of $288,000 and a remaining useful life of 8 years. During 2020, Nieland incurred research
During 2016, Winston Corporation spent $170,000 in research and development costs. As a result, a new product called the New Age Piano was patented. The patent was obtained on October 1, 2016, and
Sinise Industries acquired two copyrights during 2020. One copyright related to a textbook that was developed internally at a cost of $9,900. This textbook is estimated to have a useful life of 3
Tones Industries has the following patents on its December 31, 2019, balance sheet. The following events occurred during the year ended December 31, 2020. 1. Research and development costs of
Margaret Avery Company from time to time embarks on a research program when a special project seems to off er possibilities. In 2018, the company expends $325,000 on a research project, but by the
Wilson Corporation commenced operations in early 2020. The corporation incurred $60,000 of costs such as fees to underwriters, legal fees, state fees, and promotional expenditures during its
Fred Moss, owner of Moss Interiors, is negotiating for the purchase of Zweifel Galleries. The following balance sheet of Zweifel is given in an abbreviated form as follows. Moss and Zweifel agree

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