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intermediate accounting
Intermediate Accounting 10th edition J. David Spiceland, James Sepe, Mark Nelson, Wayne Thomas - Solutions
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. At the date of acquisition of the stock, VB’s net assets had a total fair value of $350 million
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 Lake’s operations. At the date of acquisition of the stock, Lake’s net assets had a fair value of
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 ability to exercise significant influence over Carne’s operations. Fizer received dividends of $1
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 was made in which the total of the sale proceeds was credited to the investment account.Required:1.
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 of the shares were the same at that time. During the year, Nursery Supplies earned net income of $40
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 maturity. At December 31, 2021, the Bee investment had a fair value of $3,500,000, and Stewart calculated
The investments of Harlon Enterprises included the following cost and fair value amounts ($ in millions): Harlon accounts for its equity investment portfolio at fair value through net income. Harlon sold its holdings of A Corporation shares on June 1, 2022, for $15 million. On September 12, it
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 financial statements?
Feherty, Inc., accounts for its investments under IFRS No. 9 and purchased the following investments during December 2021:1. Fifty of Donald Company’s $1,000 bonds. The bonds pay semiannual interest, return principal in eight years, and include no other cash flows or other features. Feherty plans
The accounting records of Jamaican Importers, Inc., at January 1, 2021, included the following:Assets:Investment in IBM common shares ...........$ 1,345,000Less: Fair value adjustment .............................(145,000).........................................................................$
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 December 31, and the bonds mature in 10 years. For bonds of similar risk and maturity, the market
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 fair value of the shares held by Sanborn was $98 million at December 31, 2021. During 2021, Jackson
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 $750,000 of net income and on December 30 pays a dividend of $500,000. On December 31, 2021, the fair
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 the shares held by Chow was $35 million at December 31, 2021. KT did not declare or pay a dividend
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 the investment. The balance in the investment account was $44 million at the time of the change but
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 during the first quarter of 2021. The carrying amount of Marlon’s net assets was $66 million.
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 Security D and Security F are considered shortterm investments. None of the fair value changes is
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 difference of $2 million is due to land that Phelps owns that has appreciated in value. During 2021,
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 Timber and Milling, Inc., on January 2, 2021, for $400 million. At the date of purchase, the book
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 their price increases sufficiently. On December 31, 2021, and December 31, 2022, the market value of
[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 normally be accounted for under the equity method.]Companies can choose the fair value option for
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 investment. At December 31, 2021, the Jackson bonds had a fair value of $1.2 million. Colah sold the
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 2021 financial statements? Explain the reasoning for this effect.
[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 investment represents a 30% interest in the net assets of Lavery and gave Runyan the ability to
[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 management has classified the bonds as an available-for-sale investment. The market interest rate (yield)
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 2021 financial statements? Explain the reasoning for this effect.
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 the ability to exercise significant influence over Lavery’s operations. Runyan received dividends
[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. Company management has classified the bonds as an available-for-sale investment. The market
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 December 31, 2022, the market value of the stock is $95 and $100 per share, respectively. What is the
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, December 31, 2020, and all are considered securities available-for-sale. Required:1. Prepare
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 12–8Fowler Inc. purchased $75,000 of bonds on January 1, 2021. The bonds pay interest semiannually
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 amounts other than interest and principal. Fowler’s intention is to collect contractual cash flows and
(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 2021. The company buys equity securities as noncurrent investments. None of Ornamental’s investments
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 ends on December 31. The following selected transactions relating to Rantzow-Lear’s trading account
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, their fair value was $610,000 and their amortized cost was $510,000. At the end of 2022, their fair
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 record unrealized gains for 2017. 2. Prepare a journal entry to record Microsoft?s reclassification
( 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 Insulation Corporation during 2021. The company buys debt securities, not intending to profit from
[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 holding the bonds in its trading portfolio. The market interest rate (yield) was 4% for bonds of
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 January 3, 2022, for $880,000. At December 31, the bonds had a fair value of $873,000. When it purchased
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 are intended only to earn an investment return from the dividends or interest the securities pay or
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 in price and maintaining them in an active trading portfolio. Ornamental’s fiscal year ends on
[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 is holding the bonds in its trading portfolio. The market interest rate (yield) was 8% for bonds of
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 any unrealized gains in 2022 prior to sale and reclassification of amounts out of OCI.BE
[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 million of 8% bonds, dated January 1, on January 1, 2021. Management intends to have the investment
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, 2022, for $880,000. At December 31, the bonds had a fair value of $873,000, and S&L has the intent
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 the “Significant Accounting Policies” note that follows the financial statements. Is FCA
(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 8% bonds, dated January 1, on January 1, 2021. Management intends to have the investment available
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 investment activities during the last two months of 2021. At November 1, FF&T held $48 million of
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 buys and sells securities expecting to earn profits on short-term differences in price. On December
[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, dated January 1, on January 1, 2021. Management intends to include the investment in a short-term,
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. The market interest rate (yield) was 4% for bonds of similar risk and maturity. Mills paid $280
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 bonds on January 3, 2022, for $880,000. At December 31, the bonds had a fair value of $873,000. What
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 until maturity. For bonds of similar risk and maturity the market yield was 10%. The price paid for the
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 maturity. The market interest rate (yield) was 8% for bonds of similar risk and maturity. Tanner-UNF paid
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. The market interest rate (yield) was 4% for bonds of similar risk and maturity. Lance Brothers paid
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 an analyst conducting introductory research into the relative merits of investing in one or both of
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 $8,000. In 2021, tools originally costing $2,000 were sold for $250 and replaced with new tools costing
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. Leeds uses the straightline method of amortization for intangible assets. At the beginning of
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 $512 million, and the fair value of liabilities assumed by Pesky was $150 million. Pesky performed a
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 Centerpoint’s fair value of $220 million approximates fair value less costs to sell and that the present
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 required goodwill impairment test:Fair value of Centerpoint
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 five years with no residual value. Straight-line depreciation is used by PKE.Required:1. Determine
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 estimated to be six years, with a $160,000 residual value. At the beginning of 2021, Clinton decides to
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 residual value is expected to be $300,000. At the beginning of 2021 (two years later), Alteran decided to
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 residual value of $4,000. On January 1, 2021, the estimate of useful life was changed to a total of 10
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 life with no residual value. Saint John uses the straight-line amortization method for all intangible
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 the beginning of that year. Due to rapid technological advances in the industry, management decided
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 2023, the company incurred legal fees of $45,000 in successfully defending a patent infringement
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 patent to be 10 years. The patent was carried on Lou’s accounting records at a net book value of
[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 in 2021 for the mining site and spent an additional $600,000 to prepare the mine for extraction of
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 logging operations were constructed and completed on March 30, 2021. The cost of the roads, which
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 $4,500,000. The company expects to extract 900,000 tons of coal during a four-year period. During 2021,
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 correct the error.(2) What is depreciation on the building for 2021 assuming no change in estimate of
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 $30,625. The expenditures made to acquire the asset were as follows:Purchase price ....................$
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. How should Robotics account for the change? What is depreciation on the building for 2021?BE
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 equipment is eligible for 60% first-year bonus depreciation. For financial reporting, the company
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 group depreciation method for the appliances. The following data are available: In 2024, three new
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 calculated using the straight-line method, a 25-year useful life, and a $1 million residual value. In 2021,
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 difficulties and asked Third BancCorp to modify the terms of the debt agreement. After negotiation
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, $4 million was spent before technological feasibility was established. Excalibur expects a useful life of five years for
Smith-Kline Company maintains inventory records at selling prices as well as at cost. For 2021, the records indicate the following data: Required:Use the retail method to approximate cost of ending inventory in each of the following ways:1. Average cost2. Conventional ($ in thousands) Retail Cost
The Manguino Oil Company incurred exploration costs in 2021 searching and drilling for oil as follows:Well 101 .........................$ 50,000Well 102 ...........................60,000Well 103 ..........................80,000Wells 104–108 ..............260,000Total ............................$
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 cash expenditures. $ 12,000 Attorneys' fees in connection with the organization of the corporation
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 the program was available for release on April 30, 2022. Development costs were incurred as
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 a chip to be used in mobile devices:Salaries and wages for basic research
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 ........................................1,600,000Legal and filing fees for a patent for the new
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 $120,000. Required:Calculate the amount of research and development expense that Delaware should
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 research projects. Depreciation on the equipment for 2021 is $10,000. During your year-end review
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 two interest-bearing liabilities that were outstanding throughout the construction period:$2,000,000,
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 help finance the construction. In addition to the construction loan, Highlands had the following
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 outstanding during 2021 was long-term bonds with a book value of $10,000,000 and an effective interest rate
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 2021, which were incurred evenly throughout the year, totaled $6,000,000. Marjlee had the following debt
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 $35,000 to Accurite immediately, and in return, Accurite will make its accounting software accessible via
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 place orders for additional inventory when needed. The software then automatically records inventory
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 track their health status. The project was completed in November 2021 at a cost of $800,000. Of this
Nvidia Corporation, a global technology company located in Santa Clara, California, reported the following information in its 2017 financial statements ($ in millions): Required:1. Calculate the company?s 2017 fixed-asset turnover ratio.2. How would you interpret this ratio? 2017 2016 Balance
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 of existing drugs. During 2021, $220 million was spent on R&D. Of this amount, $30 million was
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 outskirts of the city. The land and existing building were purchased by paying $200,000 immediately
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 20% of the total cost of equipment that will be used to improve the roads in the local area. Cranston
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 (December 31, 2021), the new product has not been manufactured for sale; however, prototype units were
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