At December 31, 2012, Coburn Corp. has assets of $10,000,000, liabilities of $6,000,000, common stock of $2,000,000 (representing 2,000,000 shares of $1 par common stock), and retained earnings of $2,000,000. Net sales for the year 2012 were $18,000,000, and net income was $800,000. As auditors of this company, you are making a review of subsequent events on February 13, 2013, and you find the following. 1. On February 3, 2013, one of Coburn’s customers declared bankruptcy. At December 31, 2012, this company owed Coburn $300,000, of which $60,000 was paid in January 2013. 2. On January 18, 2013, one of the three major plants of the client burned. 3. On January 23, 2013, a strike was called at one of Coburn’s largest plants, which halted 30% of its production. As of today (February 13), the strike has not been settled. 4. A major electronics enterprise has introduced a line of products that would compete directly with Coburn’s primary line, now being produced in a specially designed new plant. Because of manufacturing innovations, the competitor has been able to achieve quality similar to that of Coburn’s products but at a price 50% lower. Coburn officials say they will meet the lower prices, which are high enough to cover variable manufacturing and selling costs but which permit recovery of only a portion of fixed costs. 5. Merchandise traded in the open market is recorded in the company’s records at $1.40 per unit on December 31, 2012. This price had prevailed for 2 weeks, after release of an official market report that predicted vastly enlarged supplies; however, no purchases were made at $1.40. The price throughout the preceding year had been about $2, which was the level experienced over several years. On January 18, 2013, the price returned to $2, after public disclosure of an error in the official calculations of the prior December, correction of which destroyed the expectations of excessive supplies. Inventory at December 31, 2012, was on a lower-of-cost-or-market basis. 6. On February 1, 2013, the board of directors adopted a resolution accepting the offer of an investment banker to guarantee the marketing of $1,200,000 of preferred stock. Instructions State in each case how the 2012 financial statements would be affected, if at all.
> Brockman Guitar Company is in the business of manufacturing top-quality, steel-string folk guitars. In recent years, the company has experienced working capital problems resulting from the procurement of factory equipment, the unanticipated buildup of re
> Vickie Plato, accounting clerk in the personnel office of Streisand Corp., has begun to compute pension expense for 2014 but is not sure whether or not she should include the amortization of unrecognized gains/losses. She is currently working with the fo
> On March 1, 2012, Pechstein Construction Company contracted to construct a factory building for Fabrik Manufacturing Inc. for a total contract price of $8,400,000. The building was completed by October 31, 2014. The annual contract costs incurred, estima
> Aykroyd Inc. has sponsored a noncontributory, defined benefit pension plan for its employees since 1989. Prior to 2012, cumulative net pension expense recognized equaled cumulative contributions to the plan. Other relevant information about the pension p
> Comparative balance sheet accounts of Marcus Inc. are presented below. Additional data (ignoring taxes): 1. Net income for the year was $42,500. 2. Cash dividends declared and paid during the year were $21,125. 3. A 20% stock dividend was declared dur
> On December 31, 2012, before the books were closed, the management and accountants of Madrasa Inc. made the following determinations about three depreciable assets. 1. Depreciable asset A was purchased January 2, 2009. It originally cost $540,000 and, fo
> Presented below are two independent situations related to future taxable and deductible amounts resulting from temporary differences existing at December 31, 2012. 1. Mooney Co. has developed the following schedule of future taxable and deductible amount
> Listed below are items that are commonly accounted for differently for financial reporting purposes than they are for tax purposes. Instructions For each item below, indicate whether it involves: (1) A temporary difference that will result in future ded
> The following are Sullivan Corp.’s comparative balance sheet accounts at December 31, 2012 and 2011, with a column showing the increase (decrease) from 2011 to 2012. Additional information: 1. On December 31, 2011, Sullivan acquired 2
> Access the glossary (“Master Glossary”) to answer the following. (a) What is an accumulated benefit obligation? (b) What is a defined benefit postretirement plan? (c) What is the definition of “actuarial present value”? (d) What is a prior service cost?
> Robillard Inc. acquired the following assets in January of 2009. Equipment, estimated service life, 5 years; salvage value, $15,000 …………… $465,000 Building, estimated service life, 30 years; no salvage value ………………………. $780,000 The equipment has been de
> Wadkins Company, a machinery dealer, leased a machine to Romero Corporation on January 1, 2012. The lease is for an 8-year period and requires equal annual payments of $38,514 at the beginning of each year. The first payment is received on January 1, 201
> Gingrich Importers provides the following pension plan information. Fair value of pension plan assets, January 1, 2012 …………..…….. $2,400,000 Fair value of pension plan assets, December 31, 2012 ……….………. 2,725,000 Contributions to the plan in 2012 …………………
> Howser Inc. is a manufacturer of electronic components and accessories with total assets of $20,000,000. Selected financial ratios for Howser and the industry averages for firms of similar size are presented below. Howser is being reviewed by several e
> Data for Norman Company are presented in E23-5. In E23-5 Norman Company’s income statement for the year ended December 31, 2012, contained the following condensed information. Norman’s balance sheet contained the fo
> At December 31, 2012, Percheron Inc. had a deferred tax asset of $30,000. At December 31, 2013, the deferred tax asset is $59,000. The corporation’s 2013 current tax expense is $61,000. What amount should Percheron report as total 2013 income tax expense
> What factors must be considered by the actuary in measuring the amount of pension benefits under a defined benefit plan?
> Differentiate between an originating temporary difference and a reversing difference.
> When is revenue recognized under the cost-recovery method?
> Describe the procedure(s) involved in classifying deferred tax amounts on the statement of financial position under IFRS.
> Holtzman Company is in the process of preparing its financial statements for 2012. Assume that no entries for depreciation have been recorded in 2012. The following information related to depreciation of fixed assets is provided to you. 1. Holtzman purch
> Discuss how a change in accounting policy is handled when it is impracticable to determine previous amounts.
> At December 31, 2012, Higley Corporation has one temporary difference which will reverse and cause taxable amounts in 2013. In 2012, a new tax act set taxes equal to 45% for 2012, 40% for 2013, and 34% for 2014 and years thereafter. Instructions Explain
> You are compiling the consolidated financial statements for Winsor Corporation International. The corporation’s accountant, Anthony Reese, has provided you with the segment information shown below. Instructions Determine which of the
> Albertsen Corporation is a diversified company with nationwide interests in commercial real estate developments, banking, copper mining, and metal fabrication. The company has offices and operating locations in major cities throughout the United States.
> Hiatt Toothpaste Company initiates a defined benefit pension plan for its 50 employees on January 1, 2012. The insurance company which administers the pension plan provided the following selected information for the years 2012, 2013, and 2014. There we
> Matheny Inc. went public 3 years ago. The board of directors will be meeting shortly after the end of the year to decide on a dividend policy. In the past, growth has been financed primarily through the retention of earnings. A stock or a cash dividend h
> You have completed the field work in connection with your audit of Alexander Corporation for the year ended December 31, 2012. The balance sheet accounts at the beginning and end of the year are shown below. Your working papers from the audit contain t
> The management of Utrillo Instrument Company had concluded, with the concurrence of its independent auditors, that results of operations would be more fairly presented if Utrillo changed its method of pricing inventory from last-in, first-out (LIFO) to a
> Assume the same information as in P21-4. In P21-4 The following facts pertain to a noncancelable lease agreement between Alschuler Leasing Company and McKee Electronics, a lessee, for a computer system. Inception date …â€&
> Jennings Inc. reported the following pretax income (loss) and related tax rates during the years 2008–2014. Pretax financial income (loss) and taxable income (loss) were the same for all years since Jennings began business. The tax ra
> Glaus Leasing Company agrees to lease machinery to Jensen Corporation on January 1, 2012. The following information relates to the lease agreement. 1. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic li
> The following facts relate to Alschuler Corporation. 1. Deferred tax liability, January 1, 2012, $40,000. 2. Deferred tax asset, January 1, 2012, $0. 3. Taxable income for 2012, $115,000. 4. Pretax financial income for 2012, $200,000. 5. Cumulative tempo
> Robbins Company is a wholesale distributor of professional equipment and supplies. The company’s sales have averaged about $900,000 annually for the 3-year period 2011–2013. The firm’s total assets at
> Presented on page 1410 are income statements prepared on a LIFO and FIFO basis for Carlton Company, which started operations on January 1, 2011. The company presently uses the LIFO method of pricing its inventory and has decided to switch to the FIFO met
> Jacobsen Leasing Company leases a new machine that has a cost and fair value of $75,000 to Stadler Corporation on a 3-year noncancelable contract. Stadler Corporation agrees to assume all risks of normal ownership including such costs as insurance, taxes
> Andrews Company has five employees participating in its defined benefit pension plan. Expected years of future service for these employees at the beginning of 2012 are as follows. Employee _________Future Years of Service Jim …………………………………..…………………….……….
> Norman Company’s income statement for the year ended December 31, 2012, contained the following condensed information. Norman’s balance sheet contained the following comparative data at December 31. (Accounts payab
> Sesame Company purchased a computer system for $74,000 on January 1, 2011. It was depreciated based on a 7-year life and an $18,000 salvage value. On January 1, 2013, Sesame revised these estimates to a total useful life of 4 years and a salvage value of
> At December 31, 2012, Suffolk Corporation had an estimated warranty liability of $105,000 for accounting purposes and $0 for tax purposes. (The warranty costs are not deductible until paid.) The effective tax rate is 40%. Compute the amount Suffolk shoul
> What is the proper accounting for volume discounts on sales of products?
> The following information was described in a note of Canon Packing Co. “During August, Holland Products Corporation purchased 311,003 shares of the Company’s common stock which constitutes approximately 35% of the stock outstanding. Holland has since obt
> The following information is available for Remmers Corporation for 2012. 1. Depreciation reported on the tax return exceeded depreciation reported on the income statement by $120,000. This difference will reverse in equal amounts of $30,000 over the year
> What is the role of an actuary relative to pension plans? What are actuarial assumptions?
> When is it appropriate to use the cost-recovery method?
> Stan Conner and Mark Stein were discussing the statement of cash flows of Bombeck Co. In the notes to the statement of cash flows was a schedule entitled “Noncash investing and financing activities.” Give three examples of significant non-cash transactio
> How are deferred tax assets and deferred tax liabilities reported on the statement of financial position under IFRS?
> Bill Haley is learning about pension accounting. He is convinced that, regardless of the method used to recognize actuarial gains and losses, total comprehensive income will always be the same. Is Bill correct? Explain.
> Keystone Corporation’s financial statements for the year ended December 31, 2012, were authorized for issue on March 10, 2013. The following events took place early in 2013. (a) On January 10, 10,000 ordinary shares of $5 par value were issued at $66 per
> On February 1, 2012, Hewitt Construction Company obtained a contract to build an athletic stadium. The stadium was to be built at a total cost of $5,400,000 and was scheduled for completion by September 1, 2014. One clause of the contract stated that Hew
> Gordon Company sponsors a defined benefit pension plan. The following information related to the pension plan is available for 2012 and 2013. Instructions (a) Compute pension expense for 2012 and 2013. (b) Prepare the journal entries to record the pens
> Presented below are comparative balance sheets for the Gilmour Company. Instructions (Round to two decimal places.) (a) Prepare a comparative balance sheet of Gilmour Company showing the percent each item is of the total assets or total liabilities and
> Starfleet Corporation has one temporary difference at the end of 2012 that will reverse and cause taxable amounts of $55,000 in 2013, $60,000 in 2014, and $75,000 in 2015. Starfleet’s pretax financial income for 2012 is $400,000, and the tax rate is 30%
> Michaels Company had available at the end of 2012 the information shown below. Instructions Prepare a statement of cash flows for Michaels Company using the direct method accompanied by a reconciliation schedule. Assume the short-term investments are c
> Aston Corporation performs year-end planning in November of each year before its calendar year ends in December. The preliminary estimated net income is $3 million. The CFO, Rita Warren, meets with the company president, J. B. Aston, to review the projec
> The following facts pertain to a noncancelable lease agreement between Alschuler Leasing Company and McKee Electronics, a lessee, for a computer system. Inception date …………&a
> The accounting records of Shinault Inc. show the following data for 2012. 1. Life insurance expense on officers was $9,000. 2. Equipment was acquired in early January for $300,000. Straight-line depreciation over a 5-year life is used, with no salvage va
> Havaci Company reports pretax financial income of $80,000 for 2012. The following items cause taxable income to be different than pretax financial income. 1. Depreciation on the tax return is greater than depreciation on the income statement by $16,000.
> As loan analyst for Madison Bank, you have been presented the following information. Each of these companies has requested a loan of $50,000 for 6 months with no collateral offered. In as much as your bank has reached its quota for loans of this type,
> Linden Company started operations on January 1, 2008, and has used the FIFO method of inventory valuation since its inception. In 2014, it decides to switch to the average cost method. You are provided with the following information. Instructions (a) W
> Krauss Leasing Company signs a lease agreement on January 1, 2012, to lease electronic equipment to Stewart Company. The term of the noncancelable lease is 2 years, and payments are required at the end of each year. The following information relates to t
> The following facts apply to the pension plan of Boudreau Inc. for the year 2012. Plan assets, January 1, 2012 ………………………………… $490,000 Projected benefit obligation, January 1, 2012 …….……. 490,000 Settlement rate …….…….…….…….…….…….…….…….…….……. 8% Service
> Data for the Rodriquez Company are presented in E23-3. In E23-3 The income statement of Rodriquez Company is shown below. Additional information: 1. Accounts receivable decreased $310,000 during the year. 2. Prepaid expenses increased $170,000 during
> Keystone Corporation issued its financial statements for the year ended December 31, 2012, on March 10, 2013. The following events took place early in 2013. (a) On January 10, 10,000 shares of $5 par value common stock were issued at $66 per share. (b) O
> Tedesco Company changed depreciation methods in 2012 from double-declining-balance to straight-line. Depreciation prior to 2012 under double-declining-balance was $90,000, whereas straight-line depreciation prior to 2012 would have been $50,000. Tedesco’
> Aamodt Music sold CDs to retailers and recorded sales revenue of $700,000. During 2012, retailers returned CDs to Aamodt and were granted credit of $78,000. Past experience indicates that the normal return rate is 15%. Prepare Aamodt’s entries to record
> At December 31, 2012, Appaloosa Corporation had a deferred tax liability of $25,000. At December 31, 2013, the deferred tax liability is $42,000. The corporation’s 2013 current tax expense is $48,000. What amount should Appaloosa report as total 2013 inc
> When is revenue recognized in the following situations: (a) Revenue from selling products? (b) Revenue from services rendered? (c) Revenue from permitting others to use enterprise assets? (d) Revenue from disposing of assets other than products?
> What type of disclosure or accounting do you believe is necessary for the following items? (a) Because of a general increase in the number of labor disputes and strikes, both within and outside the industry, there is an increased likelihood that a compan
> Identify and describe the approach the FASB requires for reporting changes in accounting principles.
> Ballard Company rents a warehouse on a month-to-month basis for the storage of its excess inventory. The company periodically must rent space whenever its production greatly exceeds actual sales. For several years, the company officials have discussed bu
> The meaning of the term “fund” depends on the context in which it is used. Explain its meaning when used as a noun. Explain its meaning when it is used as a verb.
> Explain the meaning of a temporary difference as it relates to deferred tax computations, and give three examples.
> If an SEC-registered company uses the gross profit method to determine cost of goods sold for interim periods, would it be acceptable for the company to state that it’s not practicable to determine components of inventory at interim periods? Why or why n
> Cherokee Construction Company began operations in 2011 and changed from the completed-contract to the percentage-of-completion method of accounting for long-term construction contracts during 2012. For tax purposes, the company employs the completed cont
> Do companies need to disclose information about investing and financing activities that do not affect cash receipts or cash payments? If so, how should such information be disclosed?
> If a company registered with the SEC justifies a change in accounting method as preferable under the circumstances, and the circumstances change, can that company switch back to its prior method of accounting before the change? Why or why not?
> How should a lessor measure its initial gross investment in either a sales-type lease or a direct financing lease?
> What information about its pension plan must a publicly traded company disclose in its interim financial statements?
> When is a company allowed to initially recognize the financial statement effects of a tax position?
> When would a construction company be allowed to use the completed-contract method?
> What are some of the key obstacles for the FASB and IASB within its accounting guidance in the area of cash flow reporting? Explain.
> Livesey Company has signed a long-term contract to build a new basketball arena. The total revenue related to the contract is $120 million. Estimated costs for building the arena are $40 million in the first year and $30 million in both the second and th
> Describe the immediate recognition approach for unrecognized actuarial gains and losses.
> Morlan Corporation is preparing its December 31, 2012, financial statements. Two events that occurred between December 31, 2012, and March 10, 2013, when the statements were authorized for issue, are described below. 1. A liability, estimated at $160,000
> On January 1, 2012, Adams Corporation signed a 5-year noncancelable lease for a machine. The terms of the lease called for Adams to make annual payments of $9,968 at the beginning of each year, starting January 1, 2012. The machine has an estimated usefu
> The asset-liability approach for recording deferred income taxes is an integral part of generally accepted accounting principles. Instructions (a) Indicate whether each of the following independent situations should be treated as a temporary difference
> Ashley Company is a young and growing producer of electronic measuring instruments and technical equipment. You have been retained by Ashley to advise it in the preparation of a statement of cash flows using the indirect method. For the fiscal year ended
> Listed below and on the next page are three independent, unrelated sets of facts relating to accounting changes. Situation 1 Sanford Company is in the process of having its first audit. The company has used the cash basis of accounting for revenue recog
> On January 1, Santiago Company, a lessee, entered into three noncancelable leases for brand-new equipment, Lease L, Lease M, and Lease N. None of the three leases transfers ownership of the equipment to Santiago at the end of the lease term. For each of
> On March 1, 2012, Chance Company entered into a contract to build an apartment building. It is estimated that the building will cost $2,000,000 and will take 3 years to complete. The contract price was $3,000,000. The following information pertains to th
> Penn Company is in the process of adjusting and correcting its books at the end of 2012. In reviewing its records, the following information is compiled. 1. Penn has failed to accrue sales commissions payable at the end of each of the last 2 years, as fo
> Bradburn Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock, was one of the organizers of Bradburn and is its current president. The company has been successful, but it current
> Mortonson Company has not yet prepared a formal statement of cash flows for the 2012 fiscal year. Comparative balance sheets as of December 31, 2011 and 2012, and a statement of income and retained earnings for the year ended December 31, 2012, are prese
> The following information has been obtained for the Gocker Corporation. 1. Prior to 2012, taxable income and pretax financial income were identical. 2. Pretax financial income is $1,700,000 in 2012 and $1,400,000 in 2013. 3. On January 1, 2012, equipment
> Brennan Corporation began 2012 with a $90,000 balance in the Deferred Tax Liability account. At the end of 2012, the related cumulative temporary difference amounts to $350,000, and it will reverse evenly over the next 2 years. Pretax accounting income f
> The following information is available for the pension plan of Radcliffe Company for the year 2012. Actual and expected return on plan assets ………………………….……………………. $ 15,000 Benefits paid to retirees …………………………………………………………………………….. 40,000 Contributions (fu
> LaGreca Company is involved in four separate industries. The following information is available for each of the four industries. Instructions Determine which of the operating segments are reportable based on the: (a) Revenue test. (b) Operating profit
> Ramirez Co. decides at the beginning of 2012 to adopt the FIFO method of inventory valuation. Ramirez had used the LIFO method for financial reporting since its inception on January 1, 2010, and had maintained records adequate to apply the FIFO method re
> Assume that on January 1, 2012, Kimberly-Clark Corp. signs a 10-year noncancelable lease agreement to lease a storage building from Trevino Storage Company. The following information pertains to this lease agreement. 1. The agreement requires equal renta
