2.99 See Answer

Question: A sometimes-confusing aspect of the definition


A sometimes-confusing aspect of the definition of current assets is the inclusion of prepaid items. Prepaid expenses are not usually converted into cash in the current period. How do GAAP rationalize this classification issue?


> A boring internship suddenly gets interesting when the antiquated, but common HR policies and practices of an organic grocer collide with a manager's attempt to do the right thing. Students are asked to diagnose what went wrong, what needs to be done to

> Use the same data provided in Exercise 8-6, with the exception that Pace Company purchased the additional shares from Sime Company on January 1, 2014, at a price of $1.30 per share rather than $1.50. Required: A. Prepare the journal entry on Pace Comp

> On January 1, 2014, Pace Company purchased 250,000 shares of common stock directly from its subsidiary, Sime Company, for $1.50 per share. Noncontrolling stockholders elected not to participate in the new issue. Pace Company acquired its initial 92.5% i

> Use the data presented in Exercise 8-2, but assume use of the complete or the partial equity method rather than the cost method. Required: A. Prepare the journal entries Papke Company will make on its books during 2013 and 2014 to account for its inve

> Use the data from Exercise 8-1, but assume use of either the complete or the partial equity method rather than the cost method. Required: A. Prepare the journal entries Peck Company will make on its books during 2013 and 2014 to account for its invest

> Use the data provided in Exercise 8-2. Required: A. Prepare the workpaper eliminating entries needed for a consolidated statements workpaper on December 31, 2014. B. Determine the amount of noncontrolling interest that would be reported on the consol

> Papke Company acquired 85% of the common stock of Serbin Company in two separate cash transactions. The first purchase of 72,000 shares (60%) on January 1, 2013, cost $490,000. The second purchase, on January 1, 2014, of 30,000 shares (25%) cost $220,000

> Pomeroy Corporation owns an 80% interest in Sherer Company and a 90% interest in Tampa Company. On January 2, 2014, Tampa Company sold equipment with a book value of $600,000 to Sherer Company for $780,000. This equipment has a remaining useful life of t

> Pinta Company, a forklift manufacturer, owns 80% of the voting stock of Standard Company. On January 1, 2014, Pinta Company sold forklifts to Standard Company for $400,000. The forklifts, which represented inventory to Pinta Company, had a cost to Pinta

> During 2013, Pier One Company billed its 80% owned subsidiary, Scale Company, $700,000 for architectural services. The cost to Pier One Company of providing the services was $400,000 for salaries and $150,000 for other operating expenses. Scale Company c

> Peck Company purchased Sanno Company common stock in a series of open-market cash purchases from 2012 through 2014 as follows: Sanno Company had 18,000 shares of $20 par value common stock outstanding during the entire period. Retained earnings balance

> Peat Company owns a 90% interest in Seaton Company. The consolidated income statement drafted by the controller of Peat Company appeared as follows: During your audit you discover that intercompany sales transactions were not reflected in the controlle

> On January 1, 2015, P Company acquired a 90% interest in S Company. During 2016, S Company sold merchandise to P Company at 25% above cost in the amount (selling price) of $225,000. At the end of the year, P Company had in its inventory one-third of the

> On January 1, 2013, Price Company acquired an 80% interest in the common stock of Smith Company on the open market for $750,000, the book value at that date. On January 1, 2014, Price Company purchased new equipment for $14,500 from Smith Company. The e

> P Company owns 90% of the outstanding common stock of S Company. On January 1, 2015, S Company sold land to P Company for $600,000. S Company originally purchased the land for $400,000. On January 1, 2016, P Company sold the land purchased from S Company

> Patterson Company owns 80% of the outstanding common stock of Stevens Company. On June 30, 2013, land costing $500,000 is sold by one affiliate to the other for $800,000. Required: Prepare in general journal form the workpaper entries necessary becaus

> Procter Company owns 90% of the outstanding stock of Silex Company. On January 1, 2014, Silex Company sold land to Procter Company for $350,000. Silex had originally purchased the land on June 30, 2010, for $200,000. Procter Company plans to construct a

> Pearson Company owns 90% of the outstanding common stock of Spring Company. On January 1, 2014, Spring Company sold equipment to Pearson Company for $200,000. Spring Company had purchased the equipment for $300,000 on January 1, 2009, and had depreciat

> On January 1, 2014, Polar Company, which owns an 80% interest in Superior Company, sold Superior Company equipment with a book value of $400,000 for $560,000. The equipment had an estimated remaining useful life of eight years on the date of the intercom

> On January 1, 2014, Sherwood Company, an 80% owned subsidiary of Paradise Company, sold to Paradise Company equipment with a book value of $600,000 for $840,000. The equipment had an estimated remaining useful life of eight years on the date of the int

> TRX Company has been forced into receivership, and you have been appointed trustee. You decide to open your own set of books in order to distinguish more clearly between transactions occurring before and after your appointment. The following account bala

> The following balance sheet was prepared for Crane Company on December 31, 2015: Crane Company has had operating difficulties, accumulating a deficit over several years before 2015. During 2015, however, Crane reported a significantly lower operating l

> Refer to Exercise 6-7. Using the same figures, assume that the sales were upstream instead of downstream. Required: Prepare the workpaper entries necessary to eliminate the effects of the intercompany sales for 2014 and 2015. Work paper Entries, Do

> Ball Company is facing bankruptcy proceedings. A balance sheet dated June 30, 2015, and other information are presented below: Ball Company Balance Sheet June 30, 2015 Cash…………………………………………………………………. $ 20,400 Accounts Receivable (net) ……………………………………. 17

> The following data are taken from the statement of affairs of the Monroe Company. (Assume that the realizable values of assets are accurate.) Assets pledged with fully secured creditors (realizable value, $190,000) ………………………………………. $240,000 Assets pledg

> Assume the same situation described in Exercise 10-4 except that the terms of modification of the debt are 1. Accrued interest of $95,000 is to be canceled. 2. The face value of the note is reduced to $600,000, payable at the end of three years. Inte

> Lake Company, a major creditor of financially troubled Spain Company, has agreed to modify the terms of a debt owed to Lake Company. The debt consists of a $900,000, 12% note that is due currently along with accrued interest of $95,000. Lake Company agre

> Bar Company, which is in financial difficulty and in the process of a voluntary reorganization, has agreed to transfer to a creditor a copyright it owns in full settlement of a $150,000 note payable and $15,000 in accrued interest. The copyright, which o

> Indicate whether each of the following is true or false. If an answer is false, explain why. ______ 1. Insolvency means that a debtor has more current liabilities than current assets. ______ 2. Voluntary bankruptcy petitions may be filed under either Cha

> Use the data provided in Exercise 10-9. Required: Prepare a combining workpaper for TRX Company as of the end of the first four months of receivership (December 31, 2015). // Data from Exercise 10-9: TRX Company has been forced into receivership, and y

> Sam’s Company reported the following stockholders’ equity account balances on December 31, 2014. Preferred stock (12%, $100 par value, call price is $105) ………………………………. $100,000 Common stock, $10 par value ………………………………………………………………………500,000 Other contr

> On January 2, 2014, Pasqual Corporation purchased 80% of the outstanding common stock and 30% of the outstanding cumulative, nonparticipating, preferred stock of Sung Company for $400,000 and $70,000, respectively. At this date, Sung Company reported acc

> On January 1, 2014, Pacelli Company acquired a 90% interest in Swartz Corporation for $720,000. On this date, Swartz Corporation reported common stock of $500,000 and retained earnings of $200,000. Any difference between implied and book value interest a

> Perkins Company owns 85% of Sheraton Company. Perkins Company sells merchandise to Sheraton Company at 20% above cost. During 2014 and 2015, such sales amounted to $450,000 and $486,000, respectively. At the end of each year, Sheraton Company had in its

> Perez, Inc. owns 7,000 shares (70% interest) of Salata Company’s $100 par value common stock. The stock was purchased for $1,250,000 on January 2, 2013, when Salata reported a common stock balance of $1,000,000, a retained earnings balance of $400,000, a

> On January 2, 2014, Peoples, Inc. acquired an 80% interest in Schmidt Corporation for $900,000. Schmidt reported total stockholders’ equity of $1,000,000 on this date. An examination of Schmidt’s books revealed that book value was equal to fair value for

> A problem similar to AFS 10-1 is available online at www.wiley.com/college/jeter comparing Blockbuster versus Netflix.

> In the tables on the next two pages, eight years of data for Best Buy and Circuit City are presented. Evaluate the performance of the two companies over time (see Appendix 1A online at www.wiley .com/college/jeter for a structured approach). In addition,

> Assessing whether an accounting error is material is addressed in FASB ASC paragraph 250–10- S55-1 (also paragraph 250-10-S99-1) and in FASB Concepts Statement No. 2. In concept 2, FASB states: The omission or misstatement of an item in a financial repo

> On December 16, 2010, Medianet Group’s CFO and Company’s Board of Directors concluded that the previously issued financial statements contained in the Company’s Quarterly Reports on Form 10-Q for each

> Describe fresh start accounting and the conditions under which it is acceptable under current GAAP.

> What is a troubled debt restructuring?

> List all the topics found in topic 400—Liabilities. (Hint: There are nine topics.) ASC 405- 10 provides the overall guidance for liabilites. What is the overall objective of this section?

> 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 Payne Company on December 31, 2014, and December 31, 2015,

> Peek Corporation owns 70% of the common stock of Seacrest Company. The stock was purchased for $420,000 on January 1, 2010, when Seacrest Company’s retained earnings were $100,000. Preclosing trial balances for the two companies at Dece

> Must a defined pension plan that presents financial information in accordance with the provisions of topic 960 provide a statement of cash flows?

> Pearson Company owns 80% of the common stock of Sedbrook Company. Pearson Company sells merchandise to Sedbrook Company at 25% above its cost. During 2014 and 2015, such sales amounted to $265,000 and $475,000, respectively. The 2014 and 2015 ending inve

> Must a firm separately disclose the cash flow pertaining to extraordinary items or discontinued items in operating activities?

> (Note: This is the same problem as Problem 6-14, but assuming the use of the complete equity method.) On January 1, 2013, Perry Company purchased 80% of Selby Company for $960,000. At that time Selby had capital stock outstanding of $400,000 and retaine

> (Note: This is the same problem as Problem 6-7 and Problem 6-13, but assuming the use of the complete equity method.) Paque Corporation owns 90% of the common stock of Segal Company. The stock was purchased for $810,000 on January 1, 2012, when Segal Co

> Cash paid for interest expense amounted $10,000. Where is the cash outflow reported on the statement of cash flows?

> (Note: This is the same problem as Problem 6-11, but assuming the use of the complete equity method.) Pruitt Corporation owns 90% of the common stock of Sedbrook Company. The stock was purchased for $540,000 on January 1, 2012, when Sedbrook Company&acir

> A company incurred debt issue costs. Where is the cash paid for debt issue costs classified on the statement of cash flows?

> 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. Required: Calculate the controlling interest in consolidated net income for 20

> On January 1, 2012, Paul Company purchased 80% of the voting stock of Simon Company for $1,360,000 when Simon Company had retained earnings and capital stock in the amounts of $450,000 and $1,000,000, respectively. The difference between implied and book

> A company purchased a loan from another company and classified the loan as a receivable. When the cash is collected, how should the company classify the cash received on the statement of cash flows?

> On January 1, 2013, Perry Company purchased 80% of Selby Company for $960,000. At that time Selby had capital stock outstanding of $400,000 and retained earnings of $400,000. The fair value of Selby Company’s assets and liabilities is e

> Define kick-out rights. How can you determine if the kick-out rights are substantive?

> Paque Corporation owns 90% of the common stock of Segal Company. The stock was purchased for $810,000 on January 1, 2012, when Segal Company’s retained earnings were $150,000. Financial data for 2016 are presented here: The January 1,

> There are three definitions of control in the glossary. Which definition is used for business combinations? Provide the definition.

> Using the information in Problem 6-11, prepare a consolidated statements workpaper using the trial balance format. Data from Problem 6-11: Pruitt Corporation owns 90% of the common stock of Sedbrook Company. The stock was purchased for $540,000 on Janua

> Does ASC 505 (stock dividends and stock splits) apply to both issuers and recipients? If not, which party is addressed?

> Pruitt Corporation owns 90% of the common stock of Sedbrook Company. The stock was purchased for $540,000 on January 1, 2012, when Sedbrook Company’s retained earnings were $100,000. Preclosing trial balances for the two companies at De

> FASB assumes that if the number of shares issued in a stock dividend is large enough to materially reduce the per-share market value, it is inappropriate to record the impact using the firm’s market value. What is the preferred treatment in such cases? D

> On January 1, 2014, 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 book of value Searl e

> 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 2014 and 2015 is indicated below. Salvador Company reported net income of $50,000 in 2014 and

> FASB’s Emerging Issues Task Force (EITF) issued EITF 00-21 to provide guidance on revenue arrangements with multiple deliverables. List the topic and subtopic where this information can be found in the Codification (i.e., ASC XXX-XX).

> On January 1, 2012, 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 e

> Define a related party and provide an example.

> On January 2, 2014, 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 between book value of equity acquire

> Is a change in the method of accounting for depreciation considered a change in estimate or a change in accounting principle? What is the justification? Has it always been treated this way under U.S. GAAP? Explain.

> Paque Corporation owns 90% of the common stock of Segal Company. The stock was purchased for $810,000 on January 1, 2012, when Segal Company’s retained earnings were $150,000. Financial data for 2016 are presented here: The January 1,

> A subsidiary sold an old, abandoned plant to its parent and incurred a loss of $10 million. Can this loss be reported on the subsidiary-only income statement as an extraordinary item?

> Using the information in Problem 6-5, prepare a consolidated statements workpaper using the trial balance format. Pruitt Sedbrock Carporation Company Cash $ 90,800 $ 96,000 Accounts Receivabk (net) 243,300 135,000 165,000 Inventory 1/1 Investment in

> There are 21 required line items to be reported on the income statement as determined by the SEC. Is a firm required to report its gross margin on the income statement?

> Peabody Company owns 90% of the outstanding capital stock of Sloane Company. During 2014 and 2015 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 $

> A company that manufactures and sells a product excludes depreciation expense from the computation of cost of goods sold. The company computes the gross margin by subtracting this cost-of goods- sold number from sales. Is this a violation of current GAAP

> Define an extraordinary item.

> Suppose that a firm would like to adopt the LIFO method to account for its inventories, but it is not practical to determine the amounts assigned to major classes of inventories. Can the firm use the LIFO method? If so, what option is available?

> If a firm uses the LIFO method to account for inventories, is the firm required to disclose the excess of replacement or current cost over the stated LIFO value?

> P Company holds an 80% interest in S Company. Determine the effect (that is, increase, decrease, no change, not determinable) on both the total book value of the noncontrolling interest and the noncontrolling interest’s percentage of ownership in the net

> When a subsidiary issues additional shares of stock to noncontrolling stockholders and such issuance results in an increase in the book value of the parent’s share of the subsidiary’s equity, how should the increase be reflected in the financial statemen

> Explain how a parent company that owns less than 100% of a subsidiary can purchase an entire new issue of common stock directly from the subsidiary.

> When a parent company has obtained control of a subsidiary through several purchases and subsequently sells a portion of its shares in the subsidiary, how is the carrying value of the shares sold determined?

> Refer to Exercise 6-1. Calculate the amount of the noncontrolling interest to be deducted from consolidated income in arriving at 2014 controlling interest in consolidated net income. Downstream Sales LO2 P Company owns 80% of the outstanding stock

> Green Mountain Coffee Roasters reported net income for the year ended September 26, 2009 of $54.439 million. There were 120,370,659 common shares outstanding. On November 13, 2009, Green Mountain acquired all the outstanding shares of Timothyâ&#128

> One issue concerning Enron’s collapse centered on the amount of non-audit fees paid by Enron to its external auditor, Arthur Andersen. For each of the following items, discuss the potential ethical issues between the firm and its auditor. For each item,

> During a recent review of the quarterly financial statements and supporting ledgers, you noticed several unusual journal entries. While the dollar amounts of the journal entries were not large, there did not appear to be supporting documentation. You dec

> Some people believe that the use of executive stock options is directly related to the increased number of earnings restatements. For each of the following items, discuss the potential ethical issues that might be related to earnings management within th

> From an ethical perspective, some believe that it is never justifiable for an individual or business to declare bankruptcy. Others believe that some actions are appropriate only in extreme circumstances. Without question, as stated in the Journal of Acco

> The company that you work for is a subsidiary of a larger company. At the beginning of each year, the subsidiary prepares a budget for the year that includes a forecast of revenues for the coming year. The subsidiary sells a significant amount of invento

> Goodman Group is an Australian company reporting under a form of IFRS acceptable in Australia. Under IFRS, associate companies are those entities over whose financial and operating policies the consolidated entity exercises significant influence but not

> ABC Corporation purchased 10,000 shares (80%) of EZ Company at $30 per share and sold them several years later for $35 per share. The consolidated income statement reports a loss on the sale of this investment. Explain.

> On September 30, 2014, SRP Company filed a petition for reorganization with a bankruptcy court. The plan was approved by the court and all parties of interest on January 2, 2015, when SRP Company’s balance sheet was as follows: The t

> On January 19, 2010, Kraft Foods announced the terms of its final offer for each outstanding ordinary share of Cadbury, including each ordinary share represented by an American Depositary Share (“Cadbury ADS”), and the Cadbury Board of Directors recommen

> Why is it important to distinguish between upstream and downstream sales in the analysis of intercompany profit eliminations?

> One of the officers of a corporation that had just received a discharge in bankruptcy said, “Good, now we don’t owe anyone.” Is he correct?

> What are “dividends” in a bankruptcy proceeding?

> What is the purpose of a combining workpaper prepared by a trustee?

> Explain how the reciprocity calculation is modified in periods after the declaration of a stock dividend for firms using the cost method.

2.99

See Answer