Question: During Year 1 (the first year of
During Year 1 (the first year of the company’s existence), employees of the company earned vacation days as follows: 
(1) Make the journal entry necessary at the end of Year 1 to record the unused vacation days earned during the year and (2) Make the journal entry necessary in Year 2 to record the use of all of these vacation days. Assume that all employees received a 10% pay raise in Year 2.
Transcribed Image Text:
Vacation Days Vacation Days Average Wage per Day Earned This Year Employee Taken This Year 1 $160 10 10 2 200 15 10 250 20
> Ford Motor (automotive) and Caterpillar (heavy equipment) both use the LIFO inventory valuation method. Caterpillar uses it for 70% of its inventories and Ford for 28% of its inventories. Data from the 2009 10-K filings of these two companies follow (in
> You plan to retire at age 65. You anticipate needing $5,000 per month ($60,000 per year) after you retire. You expect to live for 20 years after you retire. You will work for 40 years, from age 25 to 65. Your average salary per working year will be $100,
> The Minnesota Mining and Manufacturing Company (3M) gives the following description of its business: 3M is a diversified technology company with a global presence in the following businesses: industrial and transportation; health care; display and graph
> The topic of pensions and other postretirement benefits was considered at length in an accounting theory class. The discussion centered on the following terms: (a) Representational faithfulness (b) Substance over form (c) Verifiability (d) Usefulness (e)
> Circle K was once one of the largest convenience store chains in the United States. Circle K separated its products into two major categories: gasoline and merchandise (Twinkies, beef jerky, soda pop, etc.). Selected financial statement data for the year
> The company has decided to restructure operations at one of its stores. As part of this restructuring, the company has determined that the store facility is impaired. The store originally cost $3,000,000 and has accumulated depreciation of $1,300,000. Th
> The 2009 financial statements for The Walt Disney Company can be found on the Internet. Locate those financial statements and consider the following questions. 1. What inventory valuation method does Disney use? 2. How did the change in the level of inve
> Before 2006, U.S. accounting standards did not require companies to report the funding status of a defined benefit pension plan (overfunded if the plan assets exceed the projected benefit obligation and underfunded if the plan assets are less than the PB
> What procedures must be followed when the estimate of recoverable natural resources is changed due to subsequent development work?
> Smith & Sons routinely purchases inventory from Matsutoshi Corp. Because of unpredictability in the foreign currency markets, transactions denominated in yen leave Smith & Sons exposed to the risks associated with exchange rate changes. Identify and disc
> As of January 1, 2013, information related to the defined benefit pension plan of Leffingwell Company was as follows: PBO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> In 1979 and 1980, the Hunt brothers from Texas attempted to corner the world’s silver market. Their hope was to own enough silver to be able to dictate world prices. They made purchase commitments, which locked in the price they would pay for silver. For
> The actuaries for Interconnect Cable Company provided its accountants with the following information (in thousands of $) related to the company’s pension plan: December 31, 2012: Increase in PBO arising from plan’s amendment . . . . . . . . . . . . . . .
> The Ma & Pa Grocery Store has never kept many records. The proceeds from sales are used to pay suppliers for goods delivered. When the owners, Donald and Alicia Wride, need some cash, they withdraw it from the till without any record of it. The Wrides re
> The following data relate to the defined benefit pension plan of Haan Company: Balances at January 1, 2013: PBO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,50
> The Bright-Lite Shirt Company buys wholesale sweatshirts, nightshirts, T-shirts, and other clothing items and, using a novel 4-color processing system, imprints hundreds of designs on the items. The printed shirts are marketed widely to sports stores, de
> The following information relates to the pension plan of Circle Manufacturing Company at December 31, 2013: _______________________________________________(In thousands) Balances at December 31, 2013: PBO . . . . . . . . . . . . . . . . . . . . . . . .
> The Destro Company is experiencing an unusual inventory situation. The replacement cost of its principal product has been declining, but because of a unique market condition, Destro has not had to reduce the selling price of the item. Eric Dona, company
> The information below was provided relative to the pension plan for Atlas Wholesale Company for the years 2013–2015. Instructions: 1. Compute the amount of net periodic pension expense for each of the three years. Assume that the defe
> How does the FASB define the probability term “more likely than not” in Topic 740?
> Fay Stocks sells oriental rugs. She uses the FIFO method of inventory costing. The inventory available for sale for a particular style of rug is as follows: On July 31, a wealthy customer purchases three rugs paying $2,600 for each. Fay immediately rep
> Averon Industrial, Inc., computed the following components of pension expense for the years 2013–2015: Instructions: 1. Compute the net periodic pension expense for the years 2013–2015. 2. Prepare the summary journal
> Many countries around the world do not allow use of the LIFO method. The harmonization of accounting standards across countries may require a compromise on the use of LIFO concepts. Some accountants in the United States are suggesting the use of a LIFO/F
> McGrath Financial Corp. has a defined benefit pension plan. As of January 1, 2013, the following balances were computed for the pension plan: Deferred pension gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> What is the basic difference between an operating lease and a capital lease from the viewpoint of the lessee?
> Staybrite Electronics Co. amended its pension plan effective January 1, 2013. The increase in the PBO occurring as a result of the plan amendment is $6,290,000. Staybrite arranged to fund the prior service cost by equal annual contributions over the next
> In determining the classification of a lease, a lessor uses the criteria of the lessee plus two additional criteria. What are these additional criteria, and why are they included in the classification of leases by lessors?
> United Rental Company reported the following information related to its pension plan for the years 2013–2016. The fund is administered by a separate outside trustee. Instructions: 1. Prepare the required summary journal entries for ea
> What criteria must be met before a lease can be properly accounted for as a capital lease on the books of the lessee?
> Ludwig Electronics Inc. has a plan to compensate its employees for certain absences. Each employee can receive five days’ sick leave each year plus 10 days’ vacation. The benefits carry over for two additional years, a
> Describe the proper accounting treatment for a change in estimated useful life.
> (a) What discount rate is used to determine the present value of a lease by the lessee? (b) By the lessor?
> Bags, Inc., a manufacturer of suitcases, has 10 employees; five are paid on a salary basis, and five are hourly employees. The employees and their compensation are as follows: _________________________________________________Annual Salary Ken Scott (pre
> How is the lease term measured?
> Joey Department Store’s employees are paid on the 6th and 22nd of each month for the period ending the last day of the previous month and the 15th of the current month, respectively. An analysis of the payroll on Monday, October 6, 2013
> What is a bargain purchase option?
> From the following information for each of three independent cases, prepare the pension note disclosure that outlines the items that go into the computation of the pension-related asset or liability reported in the balance sheet as well as the pension-re
> Conceptually, what is the difference between a capital lease and an operating lease?
> The following information relates to the defined benefit pension plan of Mascare Company. January 1, 2013: PBO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9
> When should the profit or loss be recognized by the seller-lessee in a sale-leaseback arrangement?
> The accountants for Eden Financial Services provide you with the following detailed information at December 31, 2013. Based on these data, prepare the summary journal entries related to the recognition of pension expense and the pension contribution for
> Distinguish between the accumulated benefit approach and the projected benefit approach in determining the amount of future benefits earned by employees under a defined benefit pension plan.
> How does the lease classification standard in IAS 17 differ from that in FASB ASC Topic 840?
> The computation of pension expense includes (1) A deferral of the difference between actual and expected return on the pension fund and (2) Amortization of deferred pension gains and losses. Determine the proper addition (deduction) to pension expense re
> What disclosures are required by the FASB for lessors under sales-type and direct financing leases?
> Melba Enterprises has a deferred gain of $425,000 relating to its pension plan as of January 1, 2013. Management has chosen to amortize this deferral on a straight-line basis over the 10-year average remaining service life of its employees, subject to th
> Describe the specific lease disclosure requirements for lessees.
> Rasband Photography has a pension plan covering its 100 employees. Rasband anticipates an 11% return on its pension fund. The fund trustee furnishes Rasband with the following information relating to the pension fund for 2013: Compute the difference be
> What are the principal advantages to a lessor in leasing rather than selling property?
> Why is the principal portion of a lease receipt of a financing lease treated as an investment inflow on the lessor’s books while the principal portion of a lease payment is treated as a financial cash outflow on the lessee’s books?
> Longlee Electrical Company maintains a fund to cover its pension plan. The following data relate to the fund for 2013: Compute the 2013 actual return on the pension fund for Longlee Electrical. January 1 FVPF $875,000 Market-related value of the pe
> How does the recognition of an asset retirement obligation impact periodic depreciation expense? Interest expense?
> Under what circumstances are the minimum lease payments for the lessee different from those of the lessor?
> Osvaldo Awning Co. has prior service cost of $1,262,000 arising from a pension plan amendment. The board of directors decided to amortize this cost over the average remaining service period for its 45 employees on a straight-line basis. It is assumed tha
> Distinguish a sales-type lease from a direct financing lease.
> Da Vinci Inc. has a workforce of 400 employees. A new pension plan is negotiated on January 1, 2013, with the labor union. Based on the provisions of the pension agreement, prior service cost related to the new plan amounts to $4,823,000. The cost is to
> (a) How does a capital lease for equipment affect the lessee’s statement of cash flows? (b) How would the treatment on the statement of cash flows differ if the contract was identified as a purchase of equipment with a down payment and a long-term note p
> Using the information given for the following three independent cases, compute the amount of pension-related asset/liability that would be reported on the balance sheet. Clearly indicate whether the amount would be shown as an asset or as a liability. Al
> The use of the capital lease method for a given lease will always result in a lower net income than the operating lease method. Do you agree? Explain fully.
> Pension plan information for Naperville Window Company is as follows: Assuming no change in actuarial assumptions, what is the pension service cost for 2013? January 1, 2013 PBO. $4,780,000 АВО. $3,950,000 During 2013 Pension benefits paid to retir
> A capitalized lease should be amortized in accordance with the lessee’s normal depreciation policy. What time period should be used for lease amortization?
> Francisco Company has established a defined benefit pension plan for its lone employee, Derrald Ryan. Annual payments under the pension plan are equal to 3% of Derrald’s highest lifetime salary multiplied by the number of years with the company. Derrald’
> Describe how a change in enacted future tax rates is accounted for under the asset and liability method.
> Why do asset and liability balances for capital leases usually differ after the first year?
> General Aviation Company employs six people. Each employee is entitled to three weeks’ paid vacation every year the employee works for the company. The conditions of the paid vacation are (a) For each full year of work, an employee will
> What amount should be recorded as an asset and a liability for capital leases on the books of the lessee?
> Aggie Co. sells agricultural products. Aggie pays its salespeople a salary plus a commission. The salary is the same for each salesperson, $1,000 per month. The commission varies by length of employment and is a percentage of the company’s total gross sa
> If an operating lease requires the payment of uneven rental amounts over its life, how should the lessee recognize rental expense?
> Express Company paid one week’s wages of $21,200 in cash (net pay after all withholdings and deductions) to its employees. Income tax withholdings were equal to 17% of the gross payroll, and the only other deductions were 7.65% for FICA tax and $160 for
> What are the principal advantages to a lessee in leasing rather than purchasing property?
> On January 1 of Year 1, the company had a projected benefit obligation (PBO) of $10,000 and a pension fund with a fair value of $9,200. Prior service cost was $2,000; it was being amortized on a straight-line basis over the 5-year average remaining life
> What other factors are considered when determining whether effective control exists when the investor does not possess absolute voting control?
> Refer to Practice 17-6 and Practice 17-7. Assume that as of January 1, 2013, Wu Company changed the discount rate it uses to compute the PBO from 8% to 12%. Assume that before this change, Wu Company had the following pension-related balances: Projected
> Describe the component approach to computing depreciation.
> What is “the fair value option”?
> As of January 1, the company had the following pension-related balances: Projected benefit obligation (PBO) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(15,000) Fair value of pension fund . . . . . . . . . . .
> Why is the impairment of a loan accounted for differently from the decline in value of a debt security?
> Refer to Practice 17-8. Enter all of the pension information, including the beginning balances, in a pension work sheet. Use the pension work sheet to display the computation of pension expense for the year as well as the ending balances for all pension-
> What additional disclosures are recommended under FASB Statement No. 115 for trading, available-for-sale, and held-to-maturity securities?
> You have just completed a preliminary draft of the year-end financial statements and notes and have distributed it to members of the board of directors for the upcoming board meeting. At the meeting, board members will have an opportunity to analyze, ask
> Where are the cash flow effects of purchases and sales of equity securities reported?
> Deferred taxes in the United Kingdom have historically been computed in a slightly different manner than in the United States. The concept underlying this “crystallisation” approach is that if a liability is deferred indefinitely, then the present value
> What securities fall under the scope of FASB ASC Topic 320?
> FASB ASC Topic 740 discusses uncertain tax positions and highly certain tax positions. In one page or less, discuss the difference between an uncertain tax position and a highly certain tax position.
> How should compensated absences be accounted for?
> Are trading, available-for-sale, and held-to-maturity securities disclosed on the balance sheet as current or long-term assets?
> Sara Lee Corporation owns the following brands: Ball Park franks, Sara Lee bakery goods, Hillshire Farm, Jimmy Dean, Kiwi shoe care products, and many other products. The following information relates to the company’s deferred taxes.
> How are realized gains and losses on trading securities handled in the statement of cash flows? How are unrealized gains and losses on trading securities handled?
> The 2009 financial statements for The Walt Disney Company can be found on the Internet. 1. Using the financial statements and information contained in the notes, determine how much income tax expense Disney reported for the fiscal year ended October 3, 2
> When transferring securities between categories, how is the transfer accounted for? At what value are the securities recorded?
> Assume that you go to work for one of the large accounting firms upon your graduation from college and that for your first assignment, you are asked to review the deferred income tax asset account to determine whether a valuation allowance seems to be wa
> What impact does the sale of investment securities during the year have on the computation of unrealized gains and losses on trading securities? On unrealized increases and decreases on available-for-sale securities?
> When the corporate tax rate was lowered from 46% to 34% in 1986, most firms that had adopted the asset and liability method of deferred tax accounting reported onetime gains as a result of the revaluation of their deferred tax items. In fact, one writer
> How is an “other-than-temporary” decline in the value of investments recorded?
> Tyler Dee is the controller for Martinez Company, a major employer in the area. Tyler has just come from a meeting of a local civic group. The meeting was an opportunity for Tyler to present and explain Martinez’s financial statements for the fiscal year
> Briefly describe group depreciation, and describe how asset retirements are recorded under this method.
> What type of account is Market Adjustment? How is it disclosed on the financial statements?
> Hurst Inc. is a new corporation that has just completed a highly successful first year of operations. Hurst is a privately held corporation, but its president, Byron Hurst, has indicated that if the company continues to do as well for the next four or fi
> How are changes in value reported in the financial statements for trading securities? Available-for-sale securities? Held-to-maturity securities?
> 1. At December 31, 2013, Bren Co. had the following deferred income tax items: • A deferred income tax liability of $15,000 related to a noncurrent asset • A deferred income tax asset of $3,000 related to a noncurrent liability • A deferred income tax as
