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business
modern advanced accounting
Advanced Accounting 2nd Edition Debra C. Jeter, Paul Chaney - Solutions
Describe the reporting for service-type special assessments. LO4
Describe the manner in which special assessment debt for which the government is not obligated in any manner is reported in the financial statements. LO4
What exception to the normal expenditure recognition criteria is associated with debt service funds and what is the justification for this exception? LO4
Identify and describe four types of interfund activities. LO4
Describe some of the major reconciling items between a government fund and the governmentwide financial statements. LO4
Describe the source of accounting standards for nongovernment nonbusiness organizations (NNOs). LO9
Identify the three basic statements for NNOS. LO9
Describe the basic funds used by nongovernment nonbusiness organizations. LO9
Distinguish between a current restricted fund and an unrestricted fund. LO9
Explain the term "assets whose use is limited." LO9
Distinguish between a mandatory and a nonmandatory transfer. LO9
Explain how contributions are recorded by NNOS. LO9
Understand how donated services are recorded. LO9
Describe the funds used to account for property, plant and equipment. LO9
Explain the basic accounting used by endowment funds. LO9
Indicate how equity investments are reported in the financial statements. LO9
Explain the change in accounting for loan funds brought about by new standards. LO9
Understand the use of an annuity or life income fund. LO9
Discuss the special reporting issues of hospitals. LO9
What authoritative body(s) is (are) responsible for establishing financial accounting standards for NNOs? LO9
Why do most NNOs use fund accounting? LO9
NNOs distinguish between restricted and unrestricted funds. Why is this distinction important? LO9
What is the major difference in accounting for the general fund of a hospital and the unrestricted fund of other NNOS? LO9
What is the major difference in accounting between conditional and unconditional pledges? Give an example of each. LO9
What is the relationship (if any) between board designated funds and nonmandatory transfers? LO9
May board designated funds ever be accounted for in the unrestricted current fund? Explain. LO9
When should an NNO record donated services in its accounting records? LO9
The donated services of volunteer workers on fund- raising campaigns are usually not given accounting recognition. Why? LO9
What fund is used to account for the library books owned by a university? How should depreciation of the library books be reflected in the financial state- ments of the university? LO9
What capital assets (if any) of ONNOS need not be depreciated? LO9
Identify three different types of endowment funds and explain how they differ. LO9
Distinguish an annuity fund from a life income fund. LO9
Describe the term “constructive retirement of debt.” LO3
Describe how the gain or loss on constructive retirement of intercompany bond holdings is allocated between the purchasing and issuing companies. LO3
Explain the impact on the consolidated financial statements when a company issues a note to an affiliated company, which then discounts the note with an outside company. LO3
Determine the effect on the consolidated financial statements when a subsidiary issues a stock dividend. LO3
Understand the difference in how stock dividends and cash dividends issued by a subsidiary company affect the consolidated financial statements. LO3
Determine the impact on the investment account when a subsidiary issues a stock dividend from preacquisition earnings and from postacquisition earnings. LO3
Explain how the purchase price is allocated when the subsidiary has both common and preferred stock outstanding. LO3
Determine the controlling interest in income when the parent company owns both common and preferred stock of the subsidiary. LO3
Define “constructive retirement of debt.” How is the total constructive gain or loss computed? LO3
The gain or loss on the constructive retirement of debt is recognized subsequently by the individual companies. Explain. LO3
Give the primary argument(s) in favor of assigning the total gain or loss on constructive bond retirement to the company that issued the bonds. LO3
Under the allocation method followed in this text, how is the noncontrolling interest in combined income affected by intercompany bondholdings? LO3
Cash dividends are viewed as a distribution of the most recent earnings. How are stock dividends viewed? LO3
Explain how the reciprocity calculation is modified in periods after the declaration of a stock dividend for firms using the cost method. LO3
What journal entry, if any, would the parent company make to record the receipt of a stock dividend?EXERCISES LO3
What effect does a stock dividend have on the consolidated statements workpaper in the year of declaration? In subsequent periods? LO3
How does the existence of preferred stock affect the calculation of noncontrolling interest? LO3
Explain how to account for the difference between cost and book value interest of an investment in preferred stock of a subsidiary. LO3
What effect would cumulative preferred stock have on the allocation of a net loss to the common stockholders? LO3
Describe how the changing world environment is leading to an increased focus on international accounting standards. LO2
Explain some differences in accounting methods as they are applied internationally. LO2
List five major classifications of accounting models used in different geographical regions. LO2
Describe the role of the International Accounting Standards Committee and the International Accounting Standards Board in establishing international accounting standards. LO2
List the steps that a non-U.S. company must follow to list its shares on a U.S.stock market. LO2
Explain the role of form 20 filed with the Securities and Exchange Commission. LO2
Indicate the role of American Depository Receipts in the issuing of securities of non-U.S. companies in the United States. LO2
What is the rationale for the harmonization of inter- national accounting standards? LO2
Why is the SEC so reluctant to accept IAS in allow- ing firms to issue securities in the U.S. stock market? LO2
Discuss the types of ADRs that non-U.S. companies might use to access the U.S. markets. LO2
Describe the attitude of the FASB toward the IASC (International Accounting Standards Committee). LO2
How does the FASB view its role in the development of an international accounting system? Currently, two former FASB board members serve on the IASB. Comment on what effect this might have on the like- lihood that the U.S. standard setters will accept the new IASB statements, if any? LO2
Describe the financial reporting objectives for intercompany sales of inventory. LO5
Determine the amount of intercompany profit, if any, to be eliminated from the consolidated statements. LO5
Understand the concept of eliminating 100% (rather than only the parent’s share) of intercompany profit not realized in transactions with outsiders, and know the authoritative position. LO5
Distinguish between upstream and downstream sales of inventory. LO5
Compute the noncontrolling interest in combined income for upstream and downstream sales, when not all the inventory has been sold to outsiders. LO5
Prepare consolidated workpapers for firms with upstream and downstream sales using the cost, partial equity, and complete equity methods. LO5
Discuss the treatment of intercompany profit earned prior to the parent-subsidiary affiliation. LO5
Does the elimination of the effects of intercom- pany sales of merchandise always affect the amount of reported consolidated net income? Explain. LO5
Why are adjustments made to the calculation of the noncontrolling interest for the effects of intercompany profit eliminations and not for the amortization, depreciation, and allocation of the difference between cost and book value? LO5
What is the essential procedural difference between workpaper eliminating entries for unrealized intercompany profit made when the selling affiliate is a less than wholly owned subsidiary and those made when the selling affiliate is the parent company or a wholly owned subsidiary?Chapter 6
Define consolidated net income using the t-account or analytical approach. LO5
Why is it important to distinguish~ between upstream and downstream sales in the analysis of intercompany profit eliminations? LO5
In what period and in what manner should profits relating to the intercompany sale of merchandis be recognized in the consolidated financial statements? LO5
Must unrealized profit on intercompany transactions be considered when calculating the tax consequences of undistributed — subsidiary income? Explain. LO5
Downstream Sales P Company owns 80% of the outstanding stock of S Company. During 2004, S Company reported net income of $525,000 and declared no dividends. At the end of the year, S Company’s inventory included $487,500 in unrealized profit on purchases from P Company. Intercompany sales for
Noncontrolling Interest, Downstream Sales Refer to Exercise 6-1. Calculate the amount of the noncontrolling interest to be deducted from combined income in arriving at 2004 consolidated net income. LO5
Noncontrolling Interest, Upstream Sales Peabody Company owns 90% of the outstanding capital stock of Sloane Company. During 2004 and 2005 Sloane Company sold merchandise to Peabody Company at a markup of 25%of selling price. The selling price of the merchandise sold during the two years was $20,800
Controlling Interest, Downstream Sales On January 1, 2004, Pearce Company purchased an 80% interest in the capital stock of Searl Company for $2,460,000. At that time, Searl Company had capital stock of $1,500,000 and retained earnings of $300,000. The difference between cost and the book value of
Controlling Interest, Upstream Sales Refer to Exercise 6-4. Using the same figures, assume that the merchandise mentioned was included in Pearce’s inventory, having been purchased from Searl. LO5 Required:Calculate the controlling interest in combined net income for 2004 and 2005.
Controlling Interest, Upstream Sales Payne Company owns all the outstanding common stock of Sierra Company and 80% of the outstanding common stock of Santa Fe Company. The amount of intercompany profit included in the inventories of Payire Company on December 31, 2004, and December 31, 2005, is
Workpaper Entries, Downstream Sales Perkins Company owns 85% of Sheraton Company. Perkins Company sells merchandise to Sheraton Company at 20% above cost. During 2004 and 2005, such sales amounted to $450,000 and $486,000, respectively. At the end of each year, Sheraton Company had in its
Workpaper Entries, Upstream Sales Refer to Exercise 6-7. Using the same figures, assume that the sales were upstream instead of downstream. LO5 Required:Prepare the workpaper entries necessary to eliminate the effects of the intercompany sales for 2004 and 2005.
Upstream and Downstream Sales Peat Company owns a 90% interest in Seaton Company. The consolidated income statement drafted by the controller of Peat Company appeared as follows: LO5 Peat Company and Subsidiary Consolidated Income Statement for Year Ended December 31, 2005 Sales $14,000,000 Cost of
Deferred Taxes and Intercompany Sales of Inventory (Upstream)Pasco Company owns 75% of Shank Company. Pasco Company sells merchandise to Shank Company at 20% above cost. During 2004 and 2005, such sales amounted to $450,000 and $486,000, respectively. At the end of each year, Shank Company had in
Deferred Taxes and Intercompany Sales of Inventory (Downstream)Refer to Exercise 6-10A. Using the same figures, assume that the sales were upstream instead of downstream. LO5 Required:Assume that the companies file separate income tax returns. Prepare the workpaper entries necessary to eliminate
Upstream Sales Peel Company owns 90% of the common stock of Seacore Company. Seacore Company sells merchandise to Peel Company at 20% above cost. During 2004 and 2005, such sales amounted to $436,000 and $532,000, respectively. At the end of each year, Peel Company had in its inventory one-fourth
Upstream Sales Shell Company, an 85% owned subsidiary of Plaster Company, sells merchandise to Plaster Company at a markup of 20% of selling price. During 2004 and 2005, intercompany sales amounted to $442,500 and $386,250, respectively. At the end of 2004, Plaster had one-half of the goods that it
Downstream Sales Peer Company owns 80% of the common stock of Seacrest Company. Peer Company sells merchandise to Seacrest Company at 25% above its cost. During 2004 and 2005 such sales amounted to $265,000 and $475,000, respectively. The 2004 and 2005 ending inventories of Seacrest Company
Upstream and Downstream Sales Pace Company owns 85% of the outstanding common stock of Sand Company and all the outstanding common stock of Star Company. During 2005, the affiliates engaged in intercompany sales as follows: LO5 Sales of Merchandise Pace to Sand $ 40,000 Sand to Pace 60,000 Sand to
Intercompany Downstream Sales, Cost Method Pruitt Corporation owns 90% of the common stock of Sedbrook Company. The stock was purchased for $625,500 on January 1, 2001, when Sedbrook Company’s retained earnings were $95,000. Preclosing trial balances for the two companies at December 31, 2005,
Trial Balance Workpaper—Cost Method Using the information in Problem 6-5, prepare a consolidated statements workpaper using the trial balance format. LO5
Upstream Workpaper—Cost Method Paque Corporation owns 90% of the common stock of Segal Company. The stock was purchased for $810,000 on January 1, 2000, when Segal Company’s retained earnings were $150,000.Financial data for 2004 are presented here: LO5 Paque Segal Corporation Company Sales
Upstream Eliminating Entries and Consolidated Net Income, Comprehensive Problem On January 2, 2002, Patten Company purchased a 90% interest in Sterling Company for $1,400,000. At that time Sterling Company had capital stock outstanding of $800,000 and retained earnings of $425,000. The difference
Upstream and Downstream Workpaper, Comprehensive Problem On January 1, 2002, Perry Company purchased 80% of Selby Company for $990,000. At that time Selby had capital stock outstanding of $350,000 and retained earnings of $375,000.The fair value of Selby Company’s assets and liabilities is equal
Controlling and Noncontrolling Interest Penn Company owns a 90% interest in Salvador Company and an 80% interest in Sencal Company. Profit remaining in ending inventories from intercompany sales for 2004 and 2005 is indicated below.Intercompany Profit in Ending Inventory of: LO5 2004 2005 Selling
Downstream Workpaper—Partial Equity Method Pruitt Corporation owns 90% of the common stock of Sedbrook Company. The stock was purchased for $540,000 on January 1, 2000, when Sedbrook Company’s retained earnings were $100,000. Preclosing trial balances for the two companies at December 31,
Downstream Trial Balance Workpaper Using the information in Problem 6-11, prepare a consolidated statements workpaper using the trial balance format. LO5
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