Introductory Accounting A Measurement Approach For Managers 1st Edition Daniel P. Tinkelman - Solutions

Which valuation method is usually used for recording fixed assets, such as buildings and equipment?
Which valuation method is usually used for inventories?
Why does the chapter say that there are mathematical issues with the total assets on the financial statements?
What is the reason that the FASB and IASB require companies to record impairments or losses in value in most asset accounts?
Why is it important that companies use the same method of valuation consistently each year?
Explain what the FASB means by:Level 1 inputs Level 2 inputs Level 3 inputs
Which estimate of fair value would you trust more—one based on Level 1 inputs, or one based on level 3 inputs? Explain your answer.
What are some ways that the FASB and IASB have made“comprehensive income” more volatile as markets change than “net income”?
What is the difference between “absorption costing” and“direct costing”?
Why does “absorption costing” give managers more of an incentive than direct costing to produce excessive inventory?
For each of the following accounts, assuming there is no impairment, indicate whether they are normally accounted for under GAAP at fair value, historical cost, or amortized (depreciated) cost:A. Accounts receivable B. Inventories of a typical retailer C. Inventories of fungible goods held by a
For each of the following items, assuming there is no impairment, indicate whether they would normally be accounted for using:nonrecognition; historical cost; amortized (depreciated) cost; or fair value.A. A valuable brand name bought from another company. It has an indefinite life.B. A brand name
For each of the following accounts, explain whether you think that fair value would be more relevant than either historical cost or depreciated historical cost? Explain your answer.A. Marketable securities the company is holding for sale in the near future.B. Shares of stock in another company that
For the same items in the previous question, indicate which method (fair value or historical cost or depreciated historical cost) is more verifiable.Previous questionFor each of the following accounts, explain whether you think that fair value would be more relevant than either historical cost or
For the same items in question A3, indicate which method (fair value or historical cost or depreciated historical cost) is more comparable across different companies.Question A3For each of the following accounts, explain whether you think that fair value would be more relevant than either
For each of the following pieces of information, indicate whether you think it is a Level 1, Level 2, or Level 3 input:A. The company owns stock in a company that is actively traded on NASDAQ. The information is the closing price on the stock on that date.B. The company trades in oil. It owns a
The Barker Corp. is a retailer. It made the following expenditures in February. Indicate which of them would become part of the cost of its inventory:A. The prices charged by suppliers for inventory shipped to Barker in February.B. The amounts Barker paid to advertise the goods for sale.C. The
The Central Corp. is a manufacturer. It made the following expenditures in February. Assuming it uses the absorption costing method, which types of cost become part of the cost of its finished goods inventory?A. Direct labor cost, for people working on the products.B. Direct materials cost, for
Assume the same facts as the previous example, but now assume the company uses a variable costing method.Previous exampleThe Central Corp. is a manufacturer. It made the following expenditures in February. Assuming it uses the absorption costing method, which types of cost become part of the cost
The Dexter Corp. buys a truck for use in itsbusiness. It incurs the following costs with respect to the truck in the first year.Which of these should be shown as part of the cost of the truck on the balancesheet? (Hint: only costs which are needed to get the truck ready for use are onthe balance
The Early Corp. is building a new building for its operations. Which of the following costs should be shown as part of the cost of the building on the balance sheet?Amount paid for construction workers’ wages.Amount paid for steel and building materials.Amount paid as fines for violating safety
A company spent $6 million to buy a small farm. It hired an appraiser to advise it on the relative fair value of the farmassets. The appraiser indicated the following separate values: Land Buildings Equipment $4.5 million 0.5 million 0.5 million
The Knox Corp. bought four assets of the Tower Company for a combined price of $1 million. An appraiser stated that the items, if bought separately, would have had the following prices:Required: Allocate the purchase price to the three assets acquired. Asset A $600,000 Asset B $150,000 Asset C
The Meade Corp. bought the Drum Corp. for a total price of $100 million. An appraiser stated that the separately identifiable assets of Drum Corp were, in millions of dollars:Required: Compute the goodwill that would be recorded on the date of acquisition. Assets: Cash Accounts receivable Inventory
The Benning Corp.buys Dix Corp. for a total purchase price of $1 billion. Shown below are the values of the various assets and liabilities of Dix as of the date of the purchase, in millions of dollars, on the books of Dix as well as their estimated fair value.A. Compute the goodwill that Benning
Assumethat the inventory record for the Gotham Steel Corp. show the followinginformation:A. Compute the cost of goods available for saleB. Compute the cost of the ending inventory of 10 units under:a. FIFOb. LIFOc. Weighted average costC. Compute the cost of goods sold undera. FIFOb. LIFOc.
Assume that the inventory records for the Gotham Steel Corp. showthe following information:A. Compute the cost of goods available for saleB. Compute the cost of the ending inventory of 10 units under:a. FIFOb. LIFOc. Weighted average costC. Compute the cost of goods sold undera. FIFOb. LIFOc.
Assume that the Apex Tire Company’s recordsshowed the following information regarding one particular type of tires:You can assume all the sales were made on March 31. Compute the March31 ending inventory, and the cost of goods sold for the quarter, if thecompany uses:A. The FIFO inventory
Assume the same facts as the prior problem, with one change. In this case, the date the items were sold will matter to the way cost is computed.You should now assume that of the 80 items sold, 50 were sold on February 28, and the other 30 were sold on March 20. You should also assume that the
The Sheridan Corp. has the following products in inventory.A. For each product, find the lower of the cost or the market for that item.B. Use your answers from part A to find the sum of the “lower of cost or market” values for the three items in inventory.C. What is the total cost of the
The Grant Corp. has the following products in inventory.A. For each product, find the lower of the cost or the market for that item.B. Use your answers from part A to find the sum of the “lower of cost or market” values for the three items in inventory.C. What is the total cost of the
IFRS, but not GAAP, allows companies to periodically revalue fixed assets to reflect changing fair values.Assume that the Meade Corp. has a building with a historical cost of $40 million. It bought the building 10 years ago. The Meade Corp. has been recording 1/40th of the historical cost as
The Doubleday Corp. is very interested in professional sports. It engages in various transactions. For each of the following transactions, indicate if Doubleday will record an intangible asset at the time of the transaction. If it does, will the asset have to be amortized?A. It pays Major League
Assume the Abner Company buys the New York Yankees baseball team for a very large amount of money. Indicate whether, under accounting rules, it should recognize any of the following as intangible assets after the purchase. If you believe the asset should be recognized, indicate if you think it has
Assume that the Polk Corp. has investments in five assets which it bought on January 1, Year 1. Shown below are the amounts the assets cost, and their fair values on December 31, Year 1.A. Economically, what was the company’s gain or loss on holding this group of five assets for the year?B. If it
Assume that the Pierce, Fenner Corp. owns stocks in other companies. Pierce, Fenner is holding these companies for short-term investment purchases, and hopes that the values of these stocks will rise. Here is some information on the market value of its stock holdings:A. Under GAAP and IFRS,
Assume the Longstreet and Jackson companies have identical factories and inventories as of the end of Year 5. If they sold their factories and inventories, they would receive precisely the same amounts. The only difference is that they bought the factories and inventories at different times. They
Assume the James Corp. makes engine parts for cars. Some selected cost information is shown below:A. Assume the company makes and sells the 20,000 units it expects to make and sell. No items are left in inventory.a. What are the total variable costs?.b. What are the total fixed manufacturing
The FASB’s Conceptual Framework describes certain desirable attributes of accounting data. These include: predictive value; representational faithfulness; neutrality; and comparability. They also note that information must be produced at reasonable cost. Using these concepts, discuss whether the
Look at the different types of measurements used for different assets and liabilities in Table 7.1.A. Do you think there is a relation between the items that are accounted for using fair value and the existence of nearly perfect markets for those items?B. Are there items accounted for at historical
Both GAAP and IFRS require companies to record inventory at the lower of cost or market. However, they define “market” differently. For GAAP, market is usually the replacement cost, but for IFRS, it is the net realizable value.A. In general, which measure of “market” would you expect to be
Under GAAP, companies must account for marketable securities at fair value. If the values change during the year, the companies report gains or losses. However, the U.S. income tax rules use historical cost to value investments, and companies do not report gains or losses until they sell the
Under U.S. GAAP, the normal rule is that inventories are recorded at the lower of cost or market. However, there is an exception for certain fungible commodities, with a ready market, like gold or wheat or oil. Such items are recorded at fair value. Does this exception make sense, based on the
As of the date that I am writing this chapter (January, 2015), the average market value of the stocks in the Standard & Poor’s 500 Index is equal to 2.7 times the value of the equity as shown on those companies’ balance sheets. Based on the discussion in this chapter of how accountants value
Under both IFRS and GAAP, companies must recognize impairment losses in income if they believe their fixed assets have permanently lost value, and reduce the carrying value of the assets on the balance sheet. Under IFRS, if a company later decides that the asset has regained some value, it can
(Impairment and conceptual framework) One of the criteria for desirable accounting information, according to the FASB’s conceptual framework, is neutrality. However, while the FASB requires companies to recognize losses when it owns fixed assets whose value has decreased, it does not allow the
(Volatility) In the chapter, there was a list of areas where the FASB has taken steps to keep net income from being affected by changes in fair value. These include special rules related to pensions, to long-term investments in securities, and changes in foreign exchange rates. Do you believe that
(Inventory cost methods—rapid inflation) Assume the Royal Gas Corp. buys gasoline from a refinery, and sells it to local gas companies. It follows a policy of always selling its gasoline for 5 cents per gallon more than it paid, using a first in, first out (FIFO) assumption. Its records show the
(Impact of intangible asset accounting on comparability) Starbucks and Dunkin’ Brands are competing companies, but they account for intangible assets differently. Starbucks is a company that has grown over time from its founding.It has made some acquisitions, and recorded some goodwill on the
(Research and development) In 1974, the FASB issued its statement saying that expenditures on research and development would be considered expenses, not assets. There were many people who were concerned that by not allowing companies to recognize these expenditures as assets, the FASB would
(Bank leverage example and fair value) This is a simplified example. The actual regulations for banks are more complex.39 Assume that regulators require banks to have equity equal to 5% or more of their total assets. Assume the Barney Bank has the following summarized balance sheet:A. Does the bank
The FASB and IASB allow companies to make some different choices on how they value assets and liabilities. For example, the chapter discussed different ways of figuring out the cost of inventory. Also, the IASB allows companies to use either the depreciated cost method of accounting for fixed
Explain how the FASB’s definitions of assets and liabilities involve a need to estimate future events.
Explain the difference between“aggressive,” “neutral” and “conservative” accounting.
Which of the following financial statement users would likely be happy with a “conservative” way of measuring net income? Explain.A. Managers who are paid bonuses based on earnings B. Current shareholders wishing to sell their stock C. Potential shareholders seeking to buy stock D. Tax
Explain how the “going concern assumption” relates to the fact that accounting usually does not require companies to use liquidation values to account for assets.
In general, what criteria must be met before something is recognized as an asset?
Why does the FASB require various assets to be recorded at the “fair value,” which is based on market data, but does not require any assets to be recorded at “appraised value”?
Do the FASB’s Concepts Statements favor conservative or neutral accounting? Why?
Assume a company has a choice between a neutral or a conservative method of recording an asset this year. Explain which method is likely to give rise to higher income:A. This year B. In following years
What are some examples of disclosures companies must make about risks and uncertainties?
Why would financial statement users be concerned if a company disclosed that half of its sales were to a single customer?
What uncertainties affect the measurement of accounts receivable?
What is the allowance method of accounting for bad debts?
Explain the difference between the allowance method of accounting for bad debts and the direct write-off method.
What type of account is the allowance for doubtful accounts?Where is the allowance for doubtful accounts shown on the balance sheet?
What uncertainties affect the measurement of inventory?
What is the “lower of cost or market” rule? Why is this a conservative practice?
What is one reason a company might need to “write down” its inventory from cost to market?
Assume a company has an inventory of items that it bought for$40 each. They can now be sold for only $15 each. Can the company hide the fact that it has a loss on these items by simply not selling them, and continuing to value its inventory at cost? Explain.
What are derivative securities? What is the general rule for valuing them in accounting?
What uncertainties affect the valuation of derivatives like options and futures contracts?
What uncertainties affect the measurement of fixed assets like factories and equipment?
What are some factors affecting the estimated useful life and salvage value of fixed assets?
What is the FASB’s general rule regarding accounting for research and development costs? Why do you think it decided on this treatment?
Is the treatment of research and development costs in accounting aggressive, neutral, or conservative? Explain.
Is the treatment of intangible assets under GAAP aggressive, neutral, or conservative? Explain.
IFRS allows some assets to be revalued upwards. Examples include intangible assets and fixed assets. GAAP does not allow these upward revaluations. Which system is more conservative? Explain.
What uncertainties affect the measurement of natural resources like oil wells and copper mines?
What are the normal accounting rules for recording and measuring natural resource assets?
Explain what is meant by “loss contingencies” and “gain contingencies”?
Explain the FASB rules for recording:A. Liabilities for loss contingencies B. Gain contingencies
Explain whether the FASB requires accrual or disclosure or both for loss contingencies that are:A. Remote B. Reasonably possible C. Probable
What are the criteria for recording a liability for an unasserted claim?
Can a company record a benefit for taking an extreme position on its tax returns that has no legal support, because the company believes there is only a 1 in 20 chance of being caught by the IRS?Explain.
Assume the Reb Company guarantees the debt of the Sac Company. Reb believes there is only a 1% chance of having to pay any money on this guarantee. Does Reb need to record a liability? Explain.
What are some significant uncertainties related to companies’ promises to pay their employees pensions and other benefits after retirement?
Why are pension plans a significant issue for managers and analysts?
Why did the FASB require that the effects of certain events be shown as part of other comprehensive income, not in net income?
What are the general criteria for recognizing revenue?
Under GAAP, if a company learns that its estimate for inventory obsolescence last year was too high, should it revise the previous year’s financial statements? Explain.
Assume a company estimated that its bad debt expense for 2014 should be $100 million, and established an allowance for bad debts of $100 million. What will be the effect of this estimate on the 2015 income if it turns out that the “correct” amount of bad debt expense for 2014 should have
In 2014, the Holmes Corp. had total accounts receivable of $73 million. At the end of that year, it believes that it will collect all but 2% of this balance. However, it is not yet aware of any customers in particular who are not going to pay.In 2015, the Holmes Corp. learns that six accounts that
The Schnur Company uses the allowance method of accounting for bad debts. In 2014, the Schnur Company had sales of $90 million on credit. Based on its historical experience, it expects that it will collect all but 1% of these amounts. Over the course of the year, it makes entries to record$900,000
The Cohen Corp. has inventory at a cost of $450 million worth of Model 7 of its popular tablet at the end of fiscal year 2014. It is planning to announce the sale of Model 8 in a month. Once Model 8 is announced, it will not be able to sell Model 7 profitably. It expects that it will only be able
For each of the situations listed, indicate whether FASB rules would require the company to: accrue a liability; disclose a contingency, but not accrue a liability; both accrue a contingent liability and disclose it; neither accrue nor disclose it. Explain.A. The company owns a factory in
The Schwalb Corp. is involved in several lawsuits. For each case below, indicate if it is required to: accrue an asset; accrue a liability; make no accrual, but make a disclosure; make neither a disclosure nor an accrual.Explain.A. It is suing the Wu Corp. for $15 million. Schwalb’s attorneys say
The Kuttner Corp. is sued in 2014 for violating patent laws. In 2014, the Kuttner Corp. decides that a loss is probable, and records an expense of$23 million. What is the effect on income in 2016 if the case is settled in that year for:A. $23 million B. $20 million C. $30 million?
The Kaufman Car Company sells cars with a warranty that they will work properly. Based on its historic experience, it expects the cost of honoring this warranty to be about 1% of sales. In 2014, it makes $500 million of sales. Assume all the warranties for these cars expire at the end of 2016. The
The Snyder Company sells equipment with a warranty that it will work properly. Based on its historic experience, it expects the cost of honoring this warranty to be about 2% of sales. In 2014, it makes $300 million of sales. Assume all the warranties expire at the end of 2015. The actual costs to

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Introductory Accounting A Measurement Approach For Managers 1st Edition Daniel P. Tinkelman - Solutions

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