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business
intermediate accounting

Questions and Answers of Intermediate Accounting

On March 31, 2021, management of Quality Appliances committed to a plan to sell equipment. The equipment was available for immediate sale, and an active plan to locate a buyer was initiated. The
The following are excerpts from the 2016 financial statements of Renault, a large French automobile manufacturer.14 – INVESTMENT IN NISSANRenault and the Japanese automaker Nissan have chosen to
Northwest Carburetor Company established a fund in 2018 to accumulate money for a new plant scheduled for construction in 2021. How should this special purpose fund be reported in Northwest’s
[This is a continuation of Exercise 10–32 in Chapter 10 and includes amortization.]On September 30, 2021, Athens Software began developing a software program to shield personal computers from
At the beginning of 2019, Metatec Inc. acquired Ellison Technology Corporation for $600 million. In addition to cash, receivables, and inventory, the following assets and their fair values were also
Collins Corporation purchased office equipment at the beginning of 2019 and capitalized a cost of $2,000,000.This cost figure included the following expenditures:Purchase price
Howarth Manufacturing Company purchased equipment on June 30, 2017, at a cost of $800,000. The residual value of the equipment was estimated to be $50,000 at the end of a five-year life. The
On July 1, 2016, Farm Fresh Industries purchased a specialized delivery truck for $126,000. At the time, Farm Fresh estimated the truck to have a useful life of eight years and a residual value of
Described below are three independent and unrelated situations involving accounting changes. Each change occurs during 2021 before any adjusting entries or closing entries are prepared.a. On December
Mercury Inc. purchased equipment in 2019 at a cost of $400,000. The equipment was expected to produce 700,000 units over the next five years and have a residual value of $50,000. The equipment was
The property, plant, and equipment section of the Jasper Company?s December 31, 2020, balance sheet contained the following: The land and building were purchased at the beginning of 2016.
Dower Corporation prepares its financial statements according to IFRS. On March 31, 2021, the company purchased equipment for $240,000. The equipment is expected to have a six-year useful life with
[This is a continuation of Exercise 10–31 in Chapter 10 and includes amortization.]Early in 2021, the Excalibur Company began developing a new software package to be marketed. The project was
Mondale Winery depreciates its equipment using the group method. The cost of equipment purchased in 2021 totaled $425,000. The estimated residual value of the equipment was $40,000 and the group
The following information concerns the intangible assets of Epstein Corporation:a. On June 30, 2021, Epstein completed the acquisition of the Johnstone Corporation for $2,000,000 in cash. The fair
On June 30, 2021, Rosetta Granite purchased equipment for $120,000. The estimated useful life of the equipment is eight years and no residual value is anticipated. An important component of the
On December 31, 2021, management of Jines Construction committed to a plan for selling an office building and its related equipment. Both are available for immediate sale. The building has a book
In 2021, the Marion 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 ore
On March 31, 2021, Susquehanna Insurance purchased an office building for $12,000,000. Based on their relative fair values, one-third of the purchase price was allocated to the land and two-thirds to
On July 15, 2021, Cottonwood Industries sold a patent and equipment to Roquemore Corporation for $750,000 and $325,000, respectively. On the date of the sale, the book value of the patent was
On March 31, 2021, the Herzog Company purchased a factory complete with vehicles and equipment. The allocation of the total purchase price of $1,000,000 to the various types of assets along with
Funseth Farms Inc. purchased a tractor in 2018 at a cost of $30,000. The tractor was sold for $3,000 in 2021. Depreciation recorded through the disposal date totaled $26,000. (1) Prepare the
The Thompson Corporation, a manufacturer of steel products, began operations on October 1, 2019. The accounting department of Thompson has started the fixed-asset and depreciation schedule presented
Tristen Company purchased a five-story office building on January 1, 2019, at a cost of $5,000,000. The building has a residual value of $200,000 and a 30-year life. The straight-line depreciation
On April 1, 2019, the KB Toy Company purchased equipment to be used in its manufacturing process. The equipment cost $48,000, has an eight-year useful life, and has no residual value. The company
[This is a variation of Exercise 11–2 modified to focus on other depreciation methods.]On January 1, 2021, the Allegheny Corporation purchased equipment for $115,000. The estimated service life of
Refer to the situation described in BE 11–2. Calculate depreciation expense for 2021 and 2022 using sum-of-theyears’-digits assuming the equipment was purchased on 1. January 1, 2021,2.
[This problem is a continuation of Problem 10–3 in Chapter 10 focusing on depreciation.]Required:For each asset classification, prepare a schedule showing depreciation for the year ended December
[This is a variation of Exercise 11–2 modified to focus on depreciation for partial years.]On October 1, 2021, the Allegheny Corporation purchased equipment for $115,000. The estimated service life
Refer to the situation described in BE 11–2. Assume the equipment was purchased on March 31, 2021, instead of January 1. Calculate depreciation expense for 2021 and 2022 using each of the following
At December 31, 2020, Cord Company?s plant asset and accumulated depreciation and amortization accounts had balances as follows: Depreciation is computed to the nearest month and residual values are
On January 1, 2021, the Allegheny Corporation purchased equipment for $115,000. The estimated service life of the equipment is 10 years and the estimated residual value is $5,000. The equipment is
On January 1, 2021, Canseco Plumbing Fixtures purchased equipment for $30,000. Residual value at the end of an estimated four-year service life is expected to be $2,000. The company expects the
The fact that generally accepted accounting principles allow companies flexibility in choosing between certain allocation methods can make it difficult for a financial analyst to compare periodic
On January 1, 2021, the Excel Delivery Company purchased a delivery van for $33,000. At the end of its five-year service life, it is estimated that the van will be worth $3,000. During the five-year
Lee Financial Services pays employees monthly. Payroll information is listed below for January 2021, the first month of Lee’s fiscal year. Assume that none of the employees exceeded any relevant
DowDuPont Inc. provides chemical, plastic, and agricultural products and services to various consumer markets. The following excerpt is taken from the disclosure notes of DowDuPont’s 2017 annual
Suppose the Environmental Protection Agency is in the process of investigating Ozone Ruination Limited for possible environmental damage but has not proposed a penalty as of December 31, 2020, the
The Commonwealth of Virginia filed suit in October 2019 against Northern Timber Corporation, seeking civil penalties and injunctive relief for violations of environmental laws regulating forest
How do U.S. GAAP and IFRS differ in their use of present values when measuring contingent liabilities?
Woodmier Lawn Products introduced a new line of commercial sprinklers in 2020 that carry a one-year warranty against manufacturer?s defects. Because this was the first product for which the company
Indicate (by letter) the way each of the items listed below should be reported in a balance sheet at December 31, 2021. Item Reporting Method 1. Commercial paper N. Not reported C. Current
[This exercise is a variation of E 13–21 focusing on reporting under IFRS]. Refer to the circumstances listed in E 13–21, but assume that Erismus prepares its financial statements according to
The following selected circumstances relate to pending lawsuits for Erismus, Inc. Erismus’s fiscal year ends on December 31. Financial statements are issued in March 2022. Erismus prepares its
The following selected transactions relate to contingencies of Classical Tool Makers, Inc., which began operations in July 2021. Classical’s fiscal year ends on December 31. Financial statements
Reporting requirements for contingent liabilities under IFRS differ somewhat from those under U.S. GAAP.Required:For each of the following, access the online version of the indicated financial report
At April 1, 2022, the Food and Drug Administration is in the process of investigating allegations of false marketing claims by Hulkly Muscle Supplements. The FDA has not yet proposed a penalty
The Manda Panda Company uses the allowance method to account for bad debts. At the beginning of 2021, the allowance account had a credit balance of $75,000. Credit sales for 2021 totaled $2,400,000
At March 13, 2022, the Securities Exchange Commission is in the process of investigating a possible securities law violation by Now Chemical. The SEC has not yet proposed a penalty assessment.
Sound Audio manufactures and sells audio equipment for automobiles. Engineers notified management in December 2021 of a circuit flaw in an amplifier that poses a potential fire hazard. An intense
IGF Foods Company is a large, primarily domestic, consumer foods company involved in the manufacture, distribution and sale of a variety of food products. Industry averages are derived from Troy?s
As a second-year financial analyst for A.J. Straub Investments, you are performing an initial analysis on Fizer Pharmaceuticals. A difficulty you’ve encountered in making comparisons with its chief
Cupola Awning Corporation introduced a new line of commercial awnings in 2021 that carry a two-year warranty against manufacturer’s defects. Based on their experience with previous product
Bell International estimates that a $10 million loss will occur if a foreign government expropriates some company property. Expropriation is considered reasonably possible. How should Bell report the
At December 31, 2021, Newman Engineering’s liabilities include the following:1. $10 million of 9% bonds were issued for $10 million on May 31, 1999. The bonds mature on May 31, 2029, but
Kevin Brantly is a new hire in the controller?s office of Fleming Home Products. Two events occurred in late 2021 that the company had not previously encountered. The events appear to affect two of
Transit Airlines provides regional jet service in the Mid-South. The following is information on liabilities of Transit at December 31, 2021. Transit’s fiscal year ends on December 31. Its annual
Fleener Company is in the process of refinancing some long-term debt. Its fiscal year ends on December 31, 2021, and its financial statements will be issued on March 15, 2022. Under current IFRS,
Late in 2021, you and two other officers of Curbo Fabrications Corporation just returned from a meeting with officials of the City of Jackson. The meeting was unexpectedly favorable even though it
Van Rushing Hunting Goods’ fiscal year ends on December 31. At the end of the 2021 fiscal year, the company had notes payable of $12 million due on February 8, 2022. Rushing sold 2 million shares
Coulson Company is in the process of refinancing some long-term debt. Its fiscal year ends on December 31, 2021, and its financial statements will be issued on March 15, 2022. Under current U.S.
In the March 2022 meeting of Valleck Corporation’s board of directors, a question arose as to the way a possible obligation should be disclosed in the forthcoming financial statements for the year
CircuitTown commenced a gift card program in January 2021 and sold $10,000 of gift cards in January, $15,000 in February, and $16,000 in March 2021 before discontinuing further gift card sales.
Consider the following liabilities of Future Brands, Inc., at December 31, 2021, the company’s fiscal year-end. Should they be reported as current liabilities or long-term liabilities?1. $77
“I see an all-nighter coming on,” Gayle grumbled. “Why did Mitch just now give us this assignment?” Your client, Western Manufacturing, is involved with several situations that possibly
The Heinrich Tire Company recalled a tire in its subcompact line in December 2021. Costs associated with the recall were originally thought to approximate $50 million. Now, though, while management
The following selected transactions relate to liabilities of Interstate Farm Equipment Company for December 2021. Interstate’s fiscal year ends on December 31.Required:Prepare the appropriate
Diversified Semiconductors sells perishable electronic components. Some must be shipped and stored in reusable protective containers. Customers pay a deposit for each container received. The deposit
In Lizzie Shoes’ experience, gift cards that have not been redeemed within 12 months are not likely to be redeemed. Lizzie Shoes sold gift cards for $18,000 during August 2021. $4,000 of cards were
Eastern Manufacturing is involved with several situations that possibly involve contingencies. Each is described below. Eastern’s fiscal year ends December 31, and the 2021 financial statements
Bavarian Bar and Grill opened for business in November 2021. During its first two months of operation, the restaurant sold gift cards in various amounts totaling $5,200, mostly as Christmas presents.
On December 12, 2021, Pace Electronics received $24,000 from a customer toward a cash sale of $240,000 of diodes to be completed on January 16, 2022. What journal entries should Pace record on
Outdoors R Us owns several membership-based campground resorts throughout the Southwest. The company sells campground sites to new members, usually during a get-acquainted visit and tour. The
Sometimes compensation packages include bonuses designed to provide performance incentives to employees. The difficulty a bonus can cause accountants is not an accounting problem, but a math problem.
On January 1, 2021, Poplar Fabricators Corporation agreed to grant its employees two weeks of vacation each year, with the stipulation that vacations earned each year can be taken the following year.
The unadjusted trial balance of the Manufacturing Equitable at December 31, 2021, the end of its fiscal year, included the following account balances. Manufacturing’s 2021 financial statements
JWS Transport Company’s employees earn vacation time at the rate of 1 hour per 40-hour work period. The vacation pay vests immediately (that is, an employee is entitled to the pay even if
The balance sheet at December 31, 2021, for Nevada Harvester Corporation includes the liabilities listed below:a. 11% bonds with a face amount of $40 million were issued for $40 million on October
The following selected transactions relate to liabilities of United Insulation Corporation. United’s fiscal year ends on December 31.Required:Prepare the appropriate journal entries through the
Camden Biotechnology began operations in September 2021. The following selected transactions relate to liabilities of the company for September 2021 through March 2022. Camden’s fiscal year ends on
On July 1, 2021, Ross-Livermore Industries issued nine-month notes in the amount of $400 million. Interest is payable at maturity. Required:Determine the amount of interest expense that should be
A fellow accountant has solicited your opinion regarding the classification of short-term obligations repaid prior to being replaced by a long-term security. Cheshire Foods, Inc., issued $5,000,000
Blanton Plastics, a household plastic product manufacturer, borrowed $14 million cash on October 1, 2021, to provide working capital for year-end production. Blanton issued a four-month, 12%
On November 1, 2021, Quantum Technology, a geothermal energy supplier, borrowed $16 million cash to fund a geological survey. The loan was made by Nevada BancCorp under a noncommitted short-term line
Rell Corporation reports under IFRS No. 9. Rell has an investment in Tirish, Inc. bonds that Rell accounts for at amortized cost, given that the bonds pay only interest and principal and Rell’s
Assume all of the same facts and scenarios as E 12–30, except that Bloom Corporation classifies its Taylor investment as AFS.Required:1. For each of the scenarios shown in E 12–30, prepare the
Bloom Corporation purchased $1,000,000 of Taylor Company 5% bonds, at their face amount, with the intent and ability to hold the bonds until they matured in 2025, so Bloom classifies its investment
Edible Chemicals Corporation owns a $4 million whole life insurance policy on the life of its CEO, naming Edible Chemicals as beneficiary. The annual premiums are $70,000 and are payable at the
[This is a variation of E 12–20 modified to focus on the fair value option.]As a long-term investment at the beginning of the 2021 fiscal year, Florists International purchased 30% of Nursery
[This is a variation of E 12?12 modified to focus on the fair value option.]Colah Company purchased $1 million of Jackson, Inc., 5% bonds at their face amount on July 1, 2021, with interest paid
[This is a variation of E 12–1 modified to focus on the fair value option.]Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2021. Company
On July 1, 2021, Gupta Corporation bought 25% of the outstanding common stock of VB Company for $100 million cash, giving Gupta the ability to exercise significant influence over VB’s operations.
On January 1, 2021, Cameron Inc. bought 20% of the outstanding common stock of Lake Construction Company for $300 million cash, giving Cameron the ability to exercise significant influence over
Fizer Pharmaceutical paid $68 million on January 2, 2021, for 4 million shares of Carne Cosmetics common stock. The investment represents a 25% interest in the net assets of Carne and gave Fizer the
On December 12, 2021, an equity investment costing $80,000 was sold for $100,000. The investment was carried in the balance sheet at $75,000, and was accounted for under the equity method. An error
As a long-term investment at the beginning of the 2021 fiscal year, Florists International purchased 30% of Nursery Supplies Inc.’s 8 million shares for $56 million. The fair value and book value
Stewart Enterprises has the following investments, all purchased prior to 2021:1. Bee Company 5% bonds, purchased at face value, with an amortized cost of $4,000,000, and classified as held to
The investments of Harlon Enterprises included the following cost and fair value amounts ($ in millions): Harlon accounts for its equity investment portfolio at fair value through net income. Harlon
Superior Company owns 40% of the outstanding stock of Bernard Company. During 2021, Bernard paid a $100,000 cash dividend on its common shares. What effect did this dividend have on Superior’s 2021
Feherty, Inc., accounts for its investments under IFRS No. 9 and purchased the following investments during December 2021:1. Fifty of Donald Company’s $1,000 bonds. The bonds pay semiannual

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