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intermediate accounting

Questions and Answers of Intermediate Accounting

The accounting records of Jamaican Importers, Inc., at January 1, 2021, included the following:Assets:Investment in IBM common shares ...........$ 1,345,000Less: Fair value adjustment
On January 1, 2021, Ithaca Corp. purchases Cortland Inc. bonds that have a face value of $150,000. The Cortland bonds have a stated interest rate of 6%. Interest is paid semiannually on June 30 and
On January 2, 2021, Sanborn Tobacco Inc. bought 5% of Jackson Industry’s capital stock for $90 million. Jackson Industry’s net income for the year ended December 31, 2021, was $120 million. The
Turner Company purchased 40% of the outstanding stock of ICA Company for $10,000,000 on January 2, 2021. Turner elects the fair value option to account for the investment. During 2021, ICA reports
On March 31, 2021, Chow Brothers, Inc., bought 10% of KT Manufacturing’s capital stock for $50 million. KT’s net income for the year ended December 31, 2021, was $80 million. The fair value of
At the beginning of 2021, Pioneer Products’ ownership interest in the common stock of LLB Co. increased to the point that it became appropriate to begin using the equity method of accounting for
On January 2, 2021, Miller Properties paid $19 million for 1 million shares of Marlon Company’s 6 million outstanding common shares. Miller’s CEO became a member of Marlon’s board of directors
At December 31, 2021, Hull-Meyers Corp. had the following investments that were purchased during 2021, its first year of operations: No investments were sold during 2021. All securities except
Kim Company bought 30% of the shares of Phelps, Inc., at the start of 2021. Kim paid $10 million for the shares. Thirty percent of the book value of Phelps’s net assets is $8 million, and the
Northwest Paperboard Company, a paper and allied products manufacturer, was seeking to gain a foothold in Canada. Toward that end, the company bought 40% of the outstanding common shares of Vancouver
On February 18, 2021, Union Corporation purchased 600 IBM bonds as a long-term investment at their face value for a total of $600,000. Union will hold the bonds indefinitely, and may sell them if
[This problem is an expanded version of P 12–11 that considers alternative ways in which a firm might apply the fair value option to account for significant-influence investments that would
Colah Company purchased $1 million of Jackson, Inc., 5% bonds at par on July 1, 2021, with interest paid semi-annually. Colah determined that it should account for the bonds as an available-for-sale
Turner Company owns 40% of the outstanding stock of ICA Company. During the current year, ICA paid a $5 million cash dividend on its common shares. What effect did this dividend have on Turner’s
[This problem is a variation of P 12–10 focusing on the fair value option.]On January 4, 2021, Runyan Bakery paid $324 million for 10 million shares of Lavery Labeling Company common stock. The
[This is a variation of E 12–2 focusing on available-for-sale securities.]Mills Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2021. Company
Turner Company owns 10% of the outstanding stock of ICA Company. During the current year, ICA paid a $5 million cash dividend on its common shares. What effect did this dividend have on Turner’s
On January 4, 2021, Runyan Bakery paid $324 million for 10 million shares of Lavery Labeling Company common stock. The investment represents a 30% interest in the net assets of Lavery and gave Runyan
[This is a variation of E 12–1 modified to focus on available-for-sale securities.]Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2021.
Adams Industries holds 40,000 shares of FedEx common stock, which is not a large enough ownership interest to allow Adams to exercise significant influence over FedEx. On December 31, 2021, and
Loreal-American Corporation purchased several marketable securities during 2021. At December 31, 2021, the company had the investments in bonds listed below. None was held at the last reporting date,
Assume the same facts as in BE 12–8, but that Fowler intends to hold the bonds until maturity. How much unrealized gain or loss would Fowler include in 2021 net income with respect to the bonds?BE
Fowler Inc. purchased $75,000 of bonds on January 1, 2021. The bonds pay interest semiannually and mature in 20 years, at which time the $75,000 principal will be paid. The bonds do not pay any
(This problem is a variation of P 12–5, modified to consider equity investments.)The following selected transactions relate to investment activities of Ornamental Insulation Corporation during
Rantzow-Lear Company buys and sells debt securities expecting to earn profits on short-term differences in price, and holds these investments in its trading portfolio. The company’s fiscal year
For several years Fister Links Products has held Microsoft bonds, considered by the company to be securities available-for-sale. The bonds were acquired at a cost of $500,000. At the end of 2021,
Microsoft?s 2017 10-K includes the following information in Note 19?Accumulated Other Comprehensive Income relevant to its available-for-sale investments: Required:1. Prepare a journal entry to
( This problem is a variation of P 12–5, modified to categorize the investments as securities available-for-sale.)The following selected transactions relate to investment activities of Ornamental
[This is a variation of E 12–2 modified to focus on trading securities.]Mills Corporation acquired as an investment $240 million of 6% bonds, dated July 1, on July 1, 2021. Company management is
S&L Financial buys and sells securities that it typically classifies as available-for-sale. On December 27, 2021, S&L purchased Coca-Cola bonds at par for $875,000 and sold the bonds on
Corporations frequently invest in securities issued by other corporations. Some investments are acquired to secure a favorable business relationship with another company. On the other hand, others
The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2021. The company buys debt securities, intending to profit from short-term differences
[This is a variation of E 12–1 modified to focus on trading securities.]Tanner-UNF Corporation acquired as an investment $240 million of 6% bonds, dated July 1, on July 1, 2021.Company management
For the Coca-Cola bonds described in BE 12–4, prepare journal entries to record (a) any unrealized gains or losses occurring in 2021 and (b) the sale of the bonds in 2022, including recognition of
[This problem is a variation of P 12–3, modified to cause the investment to be accounted for under the fair value option.]Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80
S&L Financial buys and sells securities which it classifies as available-for-sale. On December 27, 2021, S&L purchased Coca-Cola bonds at par for $875,000 and sold the bonds on January 3,
Obtain the 2016 annual report of FCA Group (www.fcagroup.com), which manufactures Fiat-brand automobiles as well as other products.Required:Find FCA’s discussion of “Basis of Consolidation” in
(This problem is a variation of P 12–1, modified to categorize the investment as securities available-for-sale.)Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of
FF&T Corporation is a confectionery wholesaler that frequently buys and sells securities to meet various investment objectives. The following selected transactions relate to FF&T’s
For the Coca-Cola bonds described in BE 12–2, prepare journal entries to record (a) any unrealized gains or losses occurring in 2021 and (b) the sale of the bonds in 2022.BE 12–2S&L Financial
[This problem is a variation of P 12–1, modified to categorize the investment as trading securities.]Fuzzy Monkey Technologies, Inc., purchased as a short-term investment $80 million of 8% bonds,
Mills Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2021. Company management has the positive intent and ability to hold the bonds until maturity.
S&L Financial buys and sells securities expecting to earn profits on short-term differences in price. On December 27, 2021, S&L purchased Coca-Cola bonds at par for $875,000 and sold the
Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2021. Management has the positive intent and ability to hold the bonds
Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2021. Company management has the positive intent and ability to hold the bonds until
Lance Brothers Enterprises acquired $720,000 of 3% bonds, dated July 1, on July 1, 2021, as a long-term investment. Management has the positive intent and ability to hold the bonds until maturity.
In the Chapter 11 Data Analytics Case, you used Tableau to examine a data set and create calculations to compare the relative age of two companies’ assets. In this case you continue in your role as
Cadillac Construction Company uses the retirement method to determine depreciation on its small tools. During 2019, the first year of the company’s operations, tools were purchased at a cost of
On September 30, 2019, Leeds LTD. acquired a patent in conjunction with the purchase of another company. The patent, valued at $6 million, was estimated to have a 10-year life and no residual value.
On May 28, 2021, Pesky Corporation acquired all of the outstanding common stock of Harman, Inc., for $420 million. The fair value of Harman’s identifiable tangible and intangible assets totaled
Refer to the situation described in E 11–31, requirement 1. Alliant prepares its financial statements according to IFRS, and Centerpoint is considered a cash-generating unit. Assume that
In 2019, Alliant Corporation acquired Centerpoint Inc. for $300 million, of which $50 million was allocated to goodwill. At the end of 2021, management has provided the following information for a
In 2021, internal auditors discovered that PKE Displays, Inc. had debited an expense account for the $350,000 cost of equipment purchased on January 1, 2018. The equipment’s life was expected to be
For financial reporting, Clinton Poultry Farms has used the declining-balance method of depreciation for conveyor equipment acquired at the beginning of 2018 for $2,560,000. Its useful life was
Alteran Corporation purchased office equipment for $1.5 million at the beginning of 2019. The equipment is being depreciated over a 10-year life using the double-declining-balance method. The
Wardell Company purchased a minicomputer on January 1, 2019, at a cost of $40,000. The computer was depreciated using the straight-line method over an estimated five-year life with an estimated
Saint John Corporation prepares its financial statements according to IFRS. On June 30, 2021, the company purchased a franchise for $1,200,000. The franchise is expected to have a 10-year useful
Van Frank Telecommunications has a patent on a cellular transmission process. The company has amortized the patent on a straight-line basis since 2017, when it was acquired at a cost of $9 million at
On January 2, 2021, David Corporation purchased a patent for $500,000. The remaining legal life is 12 years, but the company estimated that the patent will be useful only for eight years. In January
Janes Company provided the following information on intangible assets:a. A patent was purchased from the Lou Company for $700,000 on January 1, 2019. Janes estimated the remaining useful life of the
[This exercise is a continuation of Exercise 10?4 in Chapter 10 focusing on depletion and depreciation.]Jackpot Mining Company operates a copper mine in central Montana. The company paid $1,000,000
At the beginning of 2021, Terra Lumber Company purchased a timber tract from Boise Cantor for $3,200,000. After the timber is cleared, the land will have a residual value of $600,000. Roads to enable
On April 17, 2021, the Loadstone Mining Company purchased the rights to a coal mine. The purchase price plus additional costs necessary to prepare the mine for extraction of the coal totaled
Refer to the situation described in BE 11–14. Assume that 2019 depreciation was incorrectly recorded as $32,000. This error was discovered in 2021.(1) Record the journal entry needed in 2021 to
On January 2, 2021, the Jackson Company purchased equipment to be used in its manufacturing process. The equipment has an estimated life of eight years and an estimated residual value of $30,625. The
Refer to the situation described in BE 11–14. Assume that instead of changing the useful life and residual value, in 2021 the company switched to the double-declining-balance depreciation method.
On April 1, 2023, Titan Corporation purchases office equipment for $50,000. For tax reporting, the company uses MACRS and classifies the equipment as 5-year personal property. In 2023, this type of
Highsmith Rental Company purchased an apartment building early in 2021. There are 20 apartments in the building and each is furnished with major kitchen appliances. The company has decided to use the
At the beginning of 2019, Robotics Inc. acquired a manufacturing facility for $12 million. $9 million of the purchase price was allocated to the building. Depreciation for 2019 and 2020 was
At January 1, 2021, Clayton Hoists Inc. owed Third BancCorp $12 million, under a 10% note due December 31, 2022. Interest was paid last on December 31, 2019. Clayton was experiencing severe financial
Early in 2021, the Excalibur Company began developing a new software package to be marketed. The project was completed in December 2021 at a cost of $6 million. Of this amount, $4 million was spent
Smith-Kline Company maintains inventory records at selling prices as well as at cost. For 2021, the records indicate the following data: Required:Use the retail method to approximate cost of ending
The Manguino Oil Company incurred exploration costs in 2021 searching and drilling for oil as follows:Well 101 .........................$ 50,000Well 102 ...........................60,000Well 103
Freitas Corporation was organized early in 2021. The following expenditures were made during the first few months of the year: Required:Prepare a summary journal entry to record the $107,000 in
On September 30, 2021, Athens Software began developing a software program to shield personal computers from malware and spyware. Technological feasibility was established on February 28, 2022, and
NXS Semiconductor prepares its financial statements according to International Financial Reporting Standards.The company incurred the following expenditures during 2021 related to the development of
Janson Pharmaceuticals incurred the following costs in 2021 related to a new cancer drug:Research for new formulas .............................................$ 2,425,000Development of a new formula
Delaware Company incurred the following research and development costs during 2021: The equipment has a seven-year life and will be used for a number of research projects. Depreciation for 2021 is
In 2021, Space Technology Company modified its model Z2 satellite to incorporate a new communication device. The company made the following expenditures: The equipment will be used on this and other
Thornton Industries began construction of a warehouse on July 1, 2021. The project was completed on March 31, 2022. No new loans were required to fund construction. Thornton does have the following
On January 1, 2021, the Highlands Company began construction on a new manufacturing facility for its own use. The building was completed in 2022. The company borrowed $1,500,000 at 8% on January 1 to
On January 1, 2021, the Shagri Company began construction on a new manufacturing facility for its own use. The building was completed in 2022. The only interest-bearing debt the company had
On January 1, 2021, the Marjlee Company began construction of an office building to be used as its corporate headquarters. The building was completed early in 2022. Construction expenditures for
Garrett Corporation began operations in 2021. To maintain its accounting records, Garrett entered into a two-year agreement with Accurite Company. The agreement specifies that Garrett will pay
In March 2021, Price Company began developing a new software system to be used internally for managing its inventory. The software integrates customer orders with inventory on hand to automatically
In February 2021, Culverson Company began developing a new software package to be sold to customers. The software allows people to enter health information and daily eating and exercise habits to
Nvidia Corporation, a global technology company located in Santa Clara, California, reported the following information in its 2017 financial statements ($ in millions): Required:1. Calculate the
Mayer Biotechnical, Inc., develops, manufactures, and sells pharmaceuticals. Significant research and development (R&D) expenditures are made for the development of new drugs and the improvement
Early in its fiscal year ending December 31, 2021, San Antonio Outfitters finalized plans to expand operations. The first stage was completed on March 28 with the purchase of a tract of land on the
Cranston LTD. prepares its financial statements according to International Financial Reporting Standards. In October 2021, the company received a $2 million government grant. The grant represents
Thomas Plastics is in the process of developing a revolutionary new plastic valve. A new division of the company was formed to develop, manufacture, and market this new product. As of year-end
In 2021, Starsearch Corporation began work on three research and development projects. One of the projects was completed and commercial production of the developed product began in December. The
On February 1, 2021, the Xilon Corporation issued 50,000 shares of its no-par common stock in exchange for five acres of land located in the city of Monrovia. On the date of the acquisition,
The balance sheets of Pinewood Resorts reported net fixed assets of $740,000 and $940,000 at the end of 2020 and 2021, respectively. The fixed-asset turnover ratio for 2021 was 3.25. Calculate
[This is a variation of the previous problem, modified to focus on the weighted-average interest method.]Required:Refer to the facts in Problem 10–9 but now assume the $3 million loan is not
Huebert Corporation and Winslow Corporation reported the following information: Calculate each companies fixed-asset turnover ratio and determine which company utilizes its fixed assets most
On January 1, 2021, the Mason Manufacturing Company began construction of a building to be used as its office headquarters. The building was completed on September 30, 2022. Expenditures on the
On January 1, 2021, Byner Company purchased a used tractor. Byner paid $5,000 down and signed a noninterestbearing note requiring $25,000 to be paid on December 31, 2023. The fair value of the
On June 30, 2021, Kimberly Farms purchased custom-made harvesting equipment from a local producer. In payment, Kimberly signed a noninterest-bearing note requiring the payment of $60,000 in two
On September 3, 2021, the Robers Company exchanged equipment with Phifer Corporation. The facts of the exchange are as follows: To equalize the exchange, Phifer paid Robers $5,000 in

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