At the beginning of the year, Patrick Company acquired a computer to be used in its operations. The computer was delivered by the supplier, installed by Patrick, and placed into operation. The estimated useful life of the computer is five years, and its estimated residual value is significant. Required: 1. a. What costs should Patrick capitalize for the computer? b. What is the objective of depreciation accounting? 2. What is the rationale for using accelerated depreciation methods?
> You were recently hired to work in the controller’s office of the Balboa Lumber Company. Your boss, Alfred Eagleton, took you to lunch during your first week and asked a favor. “Things have been a little slow lately, and we need to borrow a little cash t
> Maxi Corporation uses the unit LIFO inventory method. The costs of the company’s products have been steadily rising since the company began operations in 2008 and cost increases are expected to continue. The chief financial officer of the company would l
> Income statement and balance sheet information abstracted from a recent annual report of Wolverine World Wide, Inc. appears below: The significant accounting policies note disclosure contained the following: Inventories The Company used the LIFO method
> In 2017 the Moncrief Company purchased from Jim Lester the right to be the sole distributor in the western states of a product called Zelenex. In payment, Moncrief agreed to pay Lester 20% of the gross profit recognized from the sale of Zelenex in 2018.
> Air France–KLM (AF), a Franco-Dutch company, prepares its financial statements according to International Financial Reporting Standards. AF’s financial statements and disclosure notes for the year ended December 31, 2015, are available in Connect. This m
> At the end of 2018, the Biggie Company performed its annual physical inventory count. John Lawrence, the manager in charge of the physical count, was told that an additional $22,000 in inventory that had been sold and was in transit to the customer shoul
> An accounting intern for a local CPA firm was reviewing the financial statements of a client in the electronics industry. The intern noticed that the client used the FIFO method of determining ending inventory and cost of goods sold. When she asked a col
> The Esquire Company employs a periodic inventory system. Indicate the effect (increase or decrease) of the following items on cost of goods sold: 1. Beginning inventory 2. Purchases 3. Ending inventory 4. Purchase returns 5. Freight-in
> You have just been hired as a consultant to Tangier Industries, a newly formed company. The company president, John Meeks, is seeking your advice as to the appropriate inventory method Tangier should use to value its inventory and cost of goods sold. Mr.
> Funseth Farms Inc. purchased a tractor in 2015 at a cost of $30,000. The tractor was sold for $3,000 in 2018. Depreciation recorded through the disposal date totaled $26,000. Prepare the journal entry to record the sale. Now assume the tractor was sold f
> Under what circumstances is the equity method used to account for an investment in stock?
> The inventory of Royal Decking consisted of five products. Information about the December 31, 2018, inventory is as follows: Costs to sell consist of a sales commission equal to 10% of selling price and shipping costs equal to 5% of cost. Required: Wh
> Cansela Corporation uses a periodic inventory system and the LIFO method to value its inventory. The company began 2018 with inventory of 4,500 units of its only product. The beginning inventory balance of $64,000 consisted of the following layers: 2,000
> Capwell Corporation uses a periodic inventory system. The company’s ending inventory on December 31, 2018, its fiscal-year end, based on a physical count, was determined to be $326,000. Capwell’s unadjusted trial balance also showed the following account
> Taylor Corporation has used a periodic inventory system and the LIFO cost method since its inception in 2011. The company began 2018 with the following inventory layers (listed in chronological order of acquisition): 10,000 units @ $15 …………………….. $150,00
> Whaley Distributors is a wholesale distributor of electronic components. Financial statements for the year ended December 31, 2018, reported the following amounts and subtotals ($ in millions): In 2019 the following situations occurred or came to light
> Caterpillar, Inc., is one of the world’s largest manufacturers of construction, mining, and forestry machinery. The following disclosure note is included in the company’s 2015 financial statements: D. Inventories ($ in millions) Inventories are stated at
> Carlson Auto Dealers Inc. sells a handmade automobile as its only product. Each automobile is identical; however, they can be distinguished by their unique ID number. At the beginning of 2018, Carlson had three cars in inventory, as follows: Car ID _____
> Topanga Group began operations early in 2018. Inventory purchase information for the quarter ended March 31, 2018, for Topanga’s only product is provided below. The unit costs include the cost of freight. The company uses a periodic inv
> Ferris Company began 2018 with 6,000 units of its principal product. The cost of each unit is $8. Merchandise transactions for the month of January 2018 are as follows: Sales Date of Sale ______________Units Jan. 5 …â€&br
> Johnson Corporation began 2018 with inventory of 10,000 units of its only product. The units cost $8 each. The company uses a periodic inventory system and the LIFO cost method. The following transactions occurred during 2018: a. Purchased 50,000 additio
> Reagan Corporation is a wholesale distributor of truck replacement parts. Initial amounts taken from Reagan’s records are as follows: Inventory at December 31 (based on a physical count of goods in Reagan’s warehouse o
> The following inventory transactions took place near December 31, 2018, the end of the Rasul Company’s fiscal year-end: 1. On December 27, 2018, merchandise costing $2,000 was shipped to the Myers Company on consignment. The shipment arrived at Myers’s
> Do U.S. GAAP and IFRS differ in the amount of flexibility that companies have in electing the fair value option? Explain.
> Altira Corporation uses a perpetual inventory system. The following transactions affected its merchandise inventory during the month of August 2018: Aug. 1 Inventory on hand—2,000 units; cost $6.10 each. 8 Purchased 10,000 units for $5.50 each. 14 Sold 8
> Samuelson and Messenger (SAM) began 2018 with 200 units of its one product. These units were purchased near the end of 2017 for $25 each. During the month of January, 100 units were purchased on January 8 for $28 each and another 200 units were purchased
> Almaden Valley Variety Store uses the retail inventory method to estimate ending inventory and cost of goods sold. Data for 2018 are as follows: Required: Estimate the ending inventory and cost of goods sold for 2018, applying the conventional retail m
> James Company began the month of October with inventory of $15,000. The following inventory transactions occurred during the month: a. The company purchased merchandise on account for $22,000 on October 12, 2018. Terms of the purchase were 2/10, n/30. Ja
> The December 31, 2018, inventory of Tog Company, based on a physical count, was determined to be $450,000. Included in that count was a shipment of goods received from a supplier at the end of the month that cost $50,000. The purchase was recorded and pa
> At the beginning of 2018, Quentin and Kopps (Q&K) adopted the dollar-value LIFO (DVL) inventory method. On that date the value of its one inventory pool was $84,000. The company uses an internally generated cost index to convert ending inventory to b
> On January 1, 2018, Avondale Lumber adopted the dollar-value LIFO inventory method. The inventory value for its one inventory pool on this date was $260,000. An internally generated cost index is used to convert ending inventory to base year. Year-end in
> Kingston Company uses the dollar-value LIFO method of computing inventory. An external price index is used to convert ending inventory to base year. The company began operations on January 1, 2018, with an inventory of $150,000. Year-end inventories at y
> Air France-KLM (AF), a Franco-Dutch company, prepares its financial statements according to International Financial Reporting Standards. AF’s financial statements and disclosure notes for the year ended December 31, 2015, are available in Connect. This m
> Target Corporation prepares its financial statements according to U.S. GAAP. Target’s financial statements and disclosure notes for the year ended January 30, 2016, are available Connect. This material also is available under the Investor Relations link
> SFAC No. 6, “Elements of Financial Statements,” states that “an entity’s assets, liabilities, and equity (net assets) all pertain to the same set of probable future economic benefits.” Explain this statement.
> Herman Company has three products in its ending inventory. Specific per unit data at the end of the year for each of the products are as follows: Required: What unit values should Herman use for each of its products when applying the lower of cost or m
> The Zoo Doo Compost Company processes a premium organic fertilizer made with the help of the animals at the Memphis Zoo. Zoo Doo is sold in a specially designed plastic pail that may be kept and used for household chores or returned to the seller. The fe
> Consultants notified management of Goo Goo Baby Products that a crib toy poses a potential health hazard. Counsel indicated that a product recall is probable and is estimated to cost the company $5.5 million. How will this affect the company’s income sta
> Target Corporation prepares its financial statements according to U.S. GAAP. Target’s financial statements and disclosure notes for the year ended January 30, 2016, are available in Connect. This material is also available under the Investor Relations li
> WebHelper Inc. acquired 100% of the outstanding stock of Silicon Chips Corporation (SCC) for $45 million, of which $15 million was allocated to goodwill. At the end of the current fiscal year, an impairment test revealed the following: fair value of SCC,
> The December 31, 2018, year-end inventory balance of the Raymond Corporation is $210,000. You have been asked to review the following transactions to determine if they have been correctly recorded. 1. Goods shipped to Raymond f.o.b. destination on Decemb
> Crosby Company owns a chain of hardware stores throughout the state. The company uses a periodic inventory system and the retail inventory method to estimate ending inventory and cost of goods sold. The following data are available for the three months e
> Under what conditions should an employer accrue an expense and the related liability for employees’ compensation for future absences? How do company custom and practice affect the accrual decision?
> Salaries of $5,000 have been earned by employees by the end of the period but will not be paid to employees until the following period. How should the expense and related liability be recorded? Why?
> How does commercial paper differ from a bank loan? Why is the interest rate often less for commercial paper?
> Banks sometimes loan cash under noninterest-bearing notes. Is it true that banks lend money without interest?
> Bank loans often are arranged under existing lines of credit. What is a line of credit? How does a noncommitted line of credit differ from a committed line?
> Bronson Distributors owes a supplier $100,000 on open account. The amount is payable in three months. What is the theoretically correct way to measure the reportable amount for this liability? In practice, how will it likely be reported? Why?
> What distinguishes current liabilities from long-term liabilities?
> What are the essential characteristics of liabilities for purposes of financial reporting?
> Refer to the situation described in BE 11–13. Assume that the present value of the estimated future cash flows generated from the division’s assets is $22 million and that their fair value approximates fair value less costs to sell. What amount of impair
> You are the plaintiff in a lawsuit. Your legal counsel advises that your eventual victory is inevitable. “You will be awarded $12 million,” your attorney confidently asserts. Describe the appropriate accounting treatment.
> Suppose the Environmental Protection Agency is in the process of investigating Ozone Ruination Limited for possible environmental damage but has not proposed a penalty as of December 31, 2017, the company’s fiscal year-end. Describe the two-step process
> Identify two advantages of dollar-value LIFO compared with unit LIFO.
> The Kwok Company’s inventory balance on December 31, 2018, was $165,000 (based on a 12/31/2018 physical count) before considering the following transactions: 1. Goods shipped to Kwok f.o.b. destination on December 20, 2018, were received on January 4, 20
> After the end of the reporting period, a contingency comes into existence. Under what circumstances, if any, should the contingency be reported in the financial statements for the period ended?
> At December 31, the end of the reporting period, the analysis of a loss contingency indicates that an obligation is only reasonably possible, though its dollar amount is readily estimable. During February, before the financial statements are issued, new
> Distinguish between the accounting treatment of a manufacturer’s warranty and an extended warranty. Why the difference?
> Name two loss contingencies that almost always are accrued.
> Portland Co. uses the straight-line depreciation method for depreciable assets. All assets are depreciated individually except manufacturing machinery, which is depreciated by the composite method. Required: 1. What factors should have influenced Portla
> Suppose the analysis of a loss contingency indicates that an obligation is not probable. What accounting treatment, if any, is warranted?
> What is the difference between the use of the term contingent liability in U.S. GAAP and IFRS?
> Refer to the situation described in BE 11–13. Assume that the sum of estimated future cash flows is $24 million instead of $28 million. What amount of impairment loss should C&R recognize? In BE 11–13 Collison and Ryder Company (C&R) has been experienci
> List and briefly describe the three categories of likelihood that a future event(s) will confirm the incurrence of the liability for a loss contingency.
> Define a loss contingency. Provide three examples.
> How do IFRS and U.S. GAAP differ with respect to the classification of debt that is expected to be refinanced?
> Campbell Corporation uses the retail method to value its inventory. The following information is available for the year 2018: Required: Determine the December 31, 2018, inventory that approximates average cost. Cost Retail Merchandise inventory, Ja
> How do companies account for gift cards?
> The Playa Company uses a periodic inventory system. The following information is taken from Playa’s records. Certain data have been intentionally omitted ($ in thousands). Required: Determine the missing numbers. Show computations whe
> Target Corporation prepares its financial statements according to U.S. GAAP. Target’s financial statements and disclosure notes for the year ended January 30, 2016, are available Connect. This material also is available under the Investor Relations link
> At a recent luncheon, you were seated next to Mr. Hopkins, the president of a local company that manufactures bicycle parts. He heard that you were a CPA and made the following comments to you: Why is it that I am forced to recognize depreciation expense
> The following disclosure note appeared in the December 26, 2015, annual report of the Intel Corporation. Note 5: Cash and Investments (partial) Available-for-sale investments as of December 26, 2015, and December 27, 2014, were as follows: Intel also i
> Microsoft’s 2015 10-K includes the following information in Note 20—Accumulated Other Comprehensive Income relevant to its available-for-sale investments: Required: 1. Prepare a journal entry to record unrealized gai
> 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 d
> For each of the following inventory errors occurring in 2018, determine the effect of the error on 2018’s cost of goods sold, net income, and retained earnings. Assume that the error is not discovered until 2019 and that a periodic inve
> Obtain the 2015 annual report of FCA Group (www.fcagroup.com), which manufactures Fiat-brand automobiles as well as other products. Required: Find FCA’s discussion of “Interests in other companies” in the “Significant Accounting Policies” note that foll
> The following are excerpts from the 2015 financial statements of Renault, a large French automobile manufacturer. 14 – INVESTMENT IN NISSAN A – Nissan consolidation method Renault’s percentage interest in Nissan is 43.7% and Renault holds 43.4% of voting
> The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2018. The company buys equity securities as investments. None of Ornamental’s investments are large enough to exert significant influence on t
> The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2018. The company buys debt securities, not intending to profit from short-term differences in price and not necessarily to hold debt securiti
> San Lorenzo General Store uses a periodic inventory system and the retail inventory method to estimate ending inventory and cost of goods sold. The following data are available for the month of October 2018: Required: Estimate the average cost of endin
> In 2018, Winslow International, Inc.’s controller discovered that ending inventories for 2016 and 2017 were overstated by $200,000 and $500,000, respectively. Determine the effect of the errors on retained earnings at January 1, 2018. (Ignore income taxe
> Tatum Company has four products in its inventory. Information about the December 31, 2018, inventory is as follows: Required: 1. Determine the carrying value of inventory at December 31, 2018, assuming the lower of cost or net realizable value (LCNRV)
> The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2018. The company buys debt securities, intending to profit from short-term differences in price and maintaining them in an active trading por
> Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2018. Management intends to have the investment available for sale when circumstances warrant. When the company purchased the bon
> The following information is available for the Johnson Corporation for 2018: Beginning inventory ………………………………………………………… $ 25,000 Merchandise purchases (on account) …………………………………. 155,000 Freight charges on purchases (paid in cash) …………………………. 10,000 Merc
> Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2018. Management intends to have the investment available for sale when circumstances warrant. For bonds of similar risk and matu
> Refer to the situation described in BE 11–10. Assume that 2016 depreciation was incorrectly recorded as $32,000. This error was discovered in 2018. How should Robotics account for the error? What is depreciation on the building for 2018 assuming no chang
> Fuzzy Monkey Technologies, Inc., purchased as a short-term investment $80 million of 8% bonds, dated January 1, on January 1, 2018. Management intends to include the investment in a short-term, active trading portfolio. For bonds of similar risk and matu
> Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2018. Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the
> Stewart Enterprises has the following investments, all purchased prior to 2018: 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, 2018, the Bee investment had a fai
> Feherty, Inc., accounts for its investments under IFRS No. 9 and purchased the following investments during December 2018: 1. Fifty of Donald Company’s $1,000 bonds. The bonds pay semiannual interest, return principal in eight years, and include no other
> On January 1, 2018, 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
> The terms depreciation, depletion, and amortization all refer to the process of allocating the cost of an asset to the periods the asset is used. Required: Discuss the differences between depreciation, depletion, and amortization as the terms are used i
> Indicate (by letter) the way each of the investments listed below most likely should be accounted for based on the information provided. Reporting Category T. Trading securities Item 1. 35% of the nonvoting preferred stock of American Aircraft Compa
> National Distributing Company uses a periodic inventory system to track its merchandise inventory and the gross profit method to estimate ending inventory and cost of goods sold for interim periods. Net purchases for the month of August were $31,000. The
> On January 2, 2018, 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 2018. The carrying amount of Marl
> 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, 2018, for $400
> Companies can choose the fair value option for investments that otherwise would be accounted for under the equity method. If the fair value option is chosen, the investment is shown at fair value in the balance sheet, and unrealized holding gains and los
> Altira Corporation uses a periodic inventory system. The following information related to its merchandise inventory during the month of August 2018 is available: Aug. 1 Inventory on hand—2,000 units; cost $6.10 each. 8 Purchased 10,000 units for $5.50 ea
> Askew Company uses a periodic inventory system. The June 30, 2018, year-end trial balance for the company contained the following information: In addition, you determine that the June 30, 2018, inventory balance is $40,000. Required: 1. Calculate the
