Question: George Mallein is considering investing in

> If your school has a subscription to the FASB Codification, go to http://aaahq.org/ ascLogin.cfm to log in and prepare responses to the following. (a) What does it mean to capitalize an item? (b) What is the definition provided for an intangible asset? (

> Fresh Air Anti-Pollution Company is suffering declining sales of its principal product, non-biodegradable plastic cartons. The president, Tyler Weber, instructs his controller, Robin Cain, to lengthen asset lives to reduce depreciation expense. A process

> The chapter presented some concerns regarding the current accounting standards for research and development expenditures. Instructions: Assume that you are either (a) the president of a company that is very dependent on ongoing research and development

> Payton Furniture Corp. is nationally recognized for making high-quality products. Management is concerned that it is not fully exploiting its brand power. Payton’s production managers are also concerned because their plants are not oper

> If your school has a subscription to the FASB Codification, go to http://aaahq.org/ ascLogin.cfm to log in and prepare responses to the following. Instructions: Access the glossary (“Master Glossary”) to answer the following. (a) What is the definition

> Tiffee Company identifies the following items for possible inclusion in the physical inventory. Indicate whether each item should be included or excluded from the inventory taking. (a) 900 units of inventory shipped on consignment by Tiffee to another co

> Eaton Company is a pesticide manufacturer. Its sales declined greatly this year due to the passage of legislation outlawing the sale of several of Eaton’s chemical pesticides. During the coming year, Eaton will have environmentally safe and competitive

> Lincoln Park was organized on April 1, 2013, by Judy Tercek. Judy is a good manager but a poor accountant. From the trial balance prepared by a part-time bookkeeper, Judy prepared the following income statement for the quarter that ended March 31, 2014.

> Reagen Wholesale Corp. uses the LIFO cost flow method. In the current year, profit at Reagen is running unusually high. The corporate tax rate is also high this year, but it is scheduled to decline significantly next year. In an effort to lower the curre

> You are the controller of Fagan Inc. K. L. Howard, the president, recently mentioned to you that she found an error in the 2013 financial statements which she believes has corrected itself. She determined, in discussions with the purchasing department, t

> If your school has a subscription to the FASB Codification, go to http://aaahq.org/ ascLogin.cfm to log in and prepare responses to the following. (a) The primary basis for accounting for inventories is cost. How is cost defined in the Codification? (b)

> If your school has a subscription to the FASB Codification, go to http://aaahq.org/ ascLogin.cfm to log in and prepare responses to the following. Instructions: Access the glossary (“Master Glossary”) to answer the following. (a) What is the definition

> Eaton Company is a pesticide manufacturer. Its sales declined greatly this year due to the passage of legislation outlawing the sale of several of Eaton’s chemical pesticides. During the coming year, Eaton will have environmentally safe and competitive r

> Lincoln Park was organized on April 1, 2013, by Judy Tercek. Judy is a good manager but a poor accountant. From the trial balance prepared by a part-time bookkeeper, Judy prepared the following income statement for the quarter that ended March 31, 2014.

> Kenseth Corporation’s unadjusted trial balance at December 1, 2014, is presented below. The following transactions occurred during December. Dec. 2 Purchased equipment for $16,000, plus sales taxes of $800 (paid in cash). 2 Kenseth

> Suppose this information is available for PepsiCo, Inc. for 2012, 2013, and 2014. Instructions: Calculate the inventory turnover, days in inventory, and gross profit rate for PepsiCo., Inc. for 2012, 2013, and 2014. Comment on any trends. (in milli

> What inventory cost flow method does Tootsie Roll Industries use for U.S. inventories? What method does it use for foreign inventories? Why does it use a different method for foreign inventories?

> What title does Tootsie Roll use for gross profit? How did it present gross profit? By how much did its total gross profit change, and in what direction, in 2011?

> Madson Corporation’s balance sheet at December 31, 2013, is presented below. During January 2014, the following transactions occurred. Madson uses the perpetual inventory method. Jan. 1 Madson accepted a 4-month, 8% note from Mathen

> Heineken Electronics has enjoyed tremendous sales growth during the last 10 years. However, even though sales have steadily increased, the company’s CEO, Beth Dains, is concerned about certain aspects of its performance. She has called

> Stan Koevner believes that the allocation of cost of goods available for sale should be based on the actual physical flow of the goods. Explain to Stan why this may be both impractical and inappropriate.

> Espinosa Corporation has been using the FIFO cost flow method during a prolonged period of inflation. During the same time period, Espinosa has been paying out all of its net income as dividends. What adverse effects may result from this policy?

> Scribner Company reports net sales of $800,000, gross profit of $560,000, and net income of $230,000. What are its operating expenses?

> What is the primary basis of accounting for inventories? What is the major objective in accounting for inventories?

> What does Tootsie Roll use as the estimated useful life on its buildings? On its machinery and equipment?

> Adriana is studying for the next accounting examination. She asks your help on two questions: (a) What is salvage value? (b) How is salvage value used in determining depreciable cost under the straight-line method? Answer Adriana’s questions.

> Nida Hat Shop received a shipment of hats for which it paid the wholesaler $2,940. The price of the hats was $3,000, but Nida was given a $60 cash discount and required to pay freight charges of $75. What amount should Nida include in inventory? Why?

> Malor Inc. needs to upgrade its diagnostic equipment. At the time of purchase, Malor had expected the equipment to last 8 years. Unfortunately, it was obsolete after only 4 years. Ronald Nolan, CFO of Malor Inc., is considering leasing new equipment rath

> Give an example of an industry that would be characterized by (a) a high asset turnover and a low profit margin, and (b) a low asset turnover and a high profit margin.

> Mrs. Betancourt is uncertain about how the historical cost principle applies to plant assets. Explain the principle to Mrs. Betancourt.

> On December 1, 2014, Havenhill Company had the following account balances. During December, the company completed the following transactions. Dec. 7 Received $3,600 cash from customers in payment of account (no discount allowed). 12 Purchased mer

> The Coca-Cola Company’s accounts receivable turnover was 9.05 in 2011, and its average amount of net receivables during the period was $3,424 million. What is the amount of its net credit sales for the period? What is the average collection period in day

> What types of receivables does Tootsie Roll report on its balance sheet? Does it use the allowance method or the direct write-off method to account for uncollectibles?

> Mendosa Company has a credit balance of $2,200 in Allowance for Doubtful Accounts before adjustment. The estimated uncollectibles under the percentage-ofreceivables basis is $5,100. Prepare the adjusting entry.

> Pine Corp. has experienced tremendous sales growth this year, but it is always short of cash. What is one explanation for this occurrence?

> Mitch Lang cannot understand why the cash realizable value does not decrease when an uncollectible account is written off under the allowance method. Clarify this point for Mitch.

> “The use of a bank contributes significantly to good internal control over cash.” Is this true? Why?

> Napoli Company’s internal controls over cash disbursements provide for the treasurer to sign checks imprinted by a check writer after comparing the check with the approved invoice. Identify the internal control principles that are present in these contro

> Dillard Co. has sales revenue of $100,000, cost of goods sold of $70,000, and operating expenses of $18,000. What is its gross profit?

> “To have maximum effective internal control over cash disbursements, all payments should be made by check.” Is this true? Explain.

> At Solis Wholesale Company, two mail clerks open all mail receipts. How does this strengthen internal control?

> On December 1, 2014, Harrisen Company had the account balances shown below. The following transactions occurred during December. Dec. 3 Purchased 4,000 units of inventory on account at a cost of $0.72 per unit. 5 Sold 4,400 units of inventory on acc

> Hoskins Inc. owns the following assets at the balance sheet date. Cash in bank—savings account ……………………………..$ 8,000 Cash on hand …………………………………………………………..1,100 Cash refund due from the IRS ………………………………..1,000 Checking account balance ……………………………………. 12,0

> Donald Bowen is reviewing the principle of segregation of duties. What are the two common applications of this principle?

> What was Tootsie Roll’s balance in cash and cash equivalents at December 31, 2011? Did it report any restricted cash? How did Tootsie Roll define cash equivalents?

> Chris Hite is confused about the lack of agreement between the cash balance per books and the balance per bank. Explain the causes for the lack of agreement to Chris and give an example of each cause.

> Marshall Company discovers in 2014 that its ending inventory at December 31, 2013, was $5,000 understated. What effect will this error have on (a) 2013 net income, (b) 2014 net income, and (c) the combined net income for the 2 years?

> Rondeli Music Center has five TVs on hand at the balance sheet date that cost $400 each. The current replacement cost is $350 per unit. Under the lowerof-cost-or-market basis of accounting for inventories, what value should Rondeli report for the TVs on

> Dipoto Company’s balance sheet shows Inventory $162,800. What additional disclosures should be made?

> A local bank reported that it lost $150,000 as the result of employee fraud. Fred Raburn is not clear on what is meant by “employee fraud.” Explain the meaning of fraud to Fred and give an example of fraud that might occur at a bank.

> Megan Keen, a business major, is working on a case problem for one of her classes. In this case problem, the company needs to raise cash to market a new product it developed. Jeff Denton, an engineering major, takes one look at the company’s balance shee

> On December 1, 2014, Boline Distributing Company had the following account balances. During December, the company completed the following summary transactions. Dec. 6 Paid $1,600 for salaries due employees, of which $600 is for December and $1,000 is

> Due to rapid employee turnover in the accounting department, the following transactions involving intangible assets were improperly recorded by Maxwell Corporation in 2014. 1. Maxwell developed a new manufacturing process, incurring research and developm

> Here is information related to Orson Company for 2014. Total credit sales ………………………………………………….$1,800,000 Accounts receivable at December 31 …………………………500,000 Bad debts written off ………………………………………………….15,000 Instructions: (a) What amount of bad debt exp

> Derose Company was organized on January 1. During the first year of operations, the following plant asset expenditures and receipts were recorded in random order. Debit 1. Cost of real estate purchased as a plant site (land $200,000 and building $70,000

> Reinsch Company reported the following amounts (in euros) in 2014: Net income, €150,000; Unrealized gain related to revaluation of buildings, €10,000; and Unrealized loss on nontrading securities, €(35,000). Determine Reinsch’s total comprehensive income

> Franklin Company has the following four items in its ending inventory as of December 31, 2014. The company uses the lower-of-cost-or-net realizable value approach for inventory valuation following IFRS. Compute the lower-of-cost-or-net realizable value

> At April 30, the bank reconciliation of Longacre Company shows three outstanding checks: No. 254 $650, No. 255 $700, and No. 257 $410. The May bank statement and the May cash payments journal are given here. Instructions: Using step 2 in the reconcilia

> Petrino Company incurred the following costs. 1. Sales tax on factory machinery purchased……………………………………… $ 5,000 2. Painting of and lettering on truck immediately upon purchase ………………700 3. Installation and testing of factory machinery ……………………………………..2,

> Farwell Company sells three different categories of tools (small, medium and large). The cost and market value of its inventory of tools are as follows. Determine the value of the company’s inventory under the lower-of-cost-or-market

> Dobler Company just took its physical inventory on December 31. The count of inventory items on hand at the company’s business locations resulted in a total inventory cost of $300,000. In reviewing the details of the count and related inventory transacti

> Downs Company purchases a patent for $156,000 on January 2, 2014. Its estimated useful life is 6 years. (a) Prepare the journal entry to record amortization expense for the first year. (b) Show how this patent is reported on the balance sheet at the end

> Quinn Company sells office equipment on July 31, 2014, for $21,000 cash. The office equipment originally cost $72,000 and as of January 1, 2014, had accumulated depreciation of $42,000. Depreciation for the first 7 months of 2014 is $4,600. Prepare the j

> Suppose in its 2014 annual report, McDonald’s Corporation reports beginning total assets of $28.46 billion; ending total assets of $30.22 billion; net sales of $22.74 billion; and net income of $4.55 billion. (a) Compute McDonald’s return on assets. (b)

> Harmon Company had the following two transactions related to its delivery truck. 1. Paid $38 for an oil change. 2. Paid $400 to install special shelving units, which increase the operating efficiency of the truck. Prepare Harmon’s journal entries to reco

> Howe Chemicals Company acquires a delivery truck at a cost of $31,000 on January 1, 2014. The truck is expected to have a salvage value of $4,000 at the end of its 4-year useful life. Compute annual depreciation for the first and second years using the s

> Tolbert Company incurs these expenditures in purchasing a truck: cash price $24,000; accident insurance (during use) $2,000; sales taxes $1,080; motor vehicle license $300; and painting and lettering $1,700. What is the cost of the truck?

> Depreciation information for Howe Chemicals Company is given in BE9-3. Assuming the declining-balance depreciation rate is double the straight-line rate, compute annual depreciation for the first and second years under the declining-balance method.

> Gant Company reported net income of $157,000. It reported depreciation expense of $12,000 and accumulated depreciation of $47,000. Amortization expense was $8,000. Gant purchased new equipment during the year for $50,000. Show how this information would

> These expenditures were incurred by Dunston Company in purchasing land: cash price $60,000; accrued taxes $5,000; attorney’s fees $2,100; real estate broker’s commission $3,300; and clearing and grading $3,500. What is the cost of the land?

> Richman Corp. had a beginning balance in accounts receivable of $70,000 and an ending balance of $91,000. Credit sales during the period were $598,000. Determine cash collections.

> The following information is available for Conger Company for the month of January: expected cash receipts $59,000; expected cash disbursements $67,000; and cash balance on January 1, $12,000. Management wishes to maintain a minimum cash balance of $9,00

> Span Company has these cash balances: cash in bank $12,742; payroll bank account $6,000; and plant expansion fund cash $25,000. Explain how each balance should be reported on the balance sheet.

> Roy Luber is uncertain about the control features of a bank account. Explain the control benefits of (a) a checking account and (b) a bank statement.

> On January 10, 2014, Tolleson Co. sold merchandise on account to Simmons for $8,000, terms n/30. On February 9, Simmons gave Tolleson Co. a 7% promissory note in settlement of this account. Prepare the journal entry to record the sale and the settlement

> The internal control procedures in Edmiston Company make the following provisions. Identify the principles of internal control that are being followed in each case. (a) Employees who have physical custody of assets do not have access to the accounting re

> Using the data in BE 8, indicate (a) the items that will result in an adjustment to the depositor’s records and (b) why the other items do not require adjustment. BE 8: The following reconciling items are applicable to the bank reconciliation for Nues

> The following reconciling items are applicable to the bank reconciliation for Nuessen Co. Indicate how each item should be shown on a bank reconciliation. (a) Outstanding checks. (b) Bank debit memorandum for service charge. (c) Bank credit memorandum fo

> Match each situation with the fraud triangle factor (opportunity, financial pressure, or rationalization) that best describes it. (a) An employee’s monthly credit card payments are nearly 75% of their monthly earnings. (b) An employee earns minimum wage

> Catt Company has the following internal control procedures over cash disbursements. Identify the internal control principle that is applicable to each procedure. (a) Company checks are pre numbered. (b) The bank statement is reconciled monthly by an inte

> While examining cash receipts information, the accounting department determined the following information: opening cash balance $150, cash on hand $1,125.74, and cash sales per register tape $988.62. Prepare the required journal entry based upon the cash

> Halleran Company has the following internal control procedures over cash receipts. Identify the internal control principle that is applicable to each procedure. (a) All over-the-counter receipts are entered in cash registers. (b) All cashiers are bonded.

> Data for Giffin Company are presented in BE6-2. Compute the cost of the ending inventory under the average-cost method. (Round the cost per unit to three decimal places.) Data given in BE 2: In its first month of operations, Giffin Company made three pu

> In its first month of operations, Giffin Company made three purchases of merchandise in the following sequence: (1) 300 units at $6, (2) 400 units at $8, and (3) 500 units at $9. Assuming there are 200 units on hand at the end of the period, compute t

> Prepare the journal entries to record these transactions on Kimbrel Company’s books using a periodic inventory system. (a) On March 2, Kimbrel Company purchased $800,000 of merchandise from Pineda Company, terms 2/10, n/30. (b) On March 6, Kimbrel Compan

> Presented here are the components in Casilla Company’s income statement. Determine the missing amounts. Sales Cost of Gross Operating Expenses Net Revenue Goods Sold Profit Income $ 71,200 $108,000 (a) (b) $70,000 $71,900 $ 30,000 (

> Berwik Company hires an accounting intern who says that intangible assets should always be amortized over their legal lives. Is the intern correct? Explain.

> During a recent management meeting, David Bryce, director of marketing, proposed that the company begin capitalizing its marketing expenditures as goodwill. In his words, “Marketing expenditures create goodwill for the company which benefits the company

> Lakeland Corporation owns a machine that is fully depreciated but is still being used. How should Lakeland account for this asset and report it in the financial statements?

> Carington Company acquires the land and building owned by Ankiel Company. What types of costs may be incurred to make the asset ready for its intended use if Carington Company wants to use only the land? If it wants to use both the land and the building?

> Since hiring a new sales director, Hilson Inc. has enjoyed a 50% increase in sales. The CEO has also noticed, however, that the company’s average collection period has increased from 17 days to 38 days. What might be the cause of this increase? What are

> The president of Dickerson Inc. proudly announces her company’s improved liquidity since its current ratio has increased substantially from one year to the next. Does an increase in the current ratio always indicate improved liquidity? What other ratio o

> General Motors Company has accounts receivable and notes receivable. How should the receivables be reported on the balance sheet?

> Carrera Company dishonors a note at maturity. What are the options available to the lender?

> Debbie Trevino, the vice president of sales for Tropical Pools and Spas, wants the company’s credit department to be less restrictive in granting credit. “How can we sell anything when you guys won’t approve anybody?” she asks. Discuss the pros and cons

> Moritz Corporation reported net income of $346,000, cash of $67,800, and net cash provided by operating activities of $221,200. What does this suggest about the quality of the company’s earnings? What further steps should be taken?

> As the company accountant, explain the following ideas to the management of Jurgens Company. (a) The concept of reasonable assurance in internal control. (b) The importance of the human factor in internal control.

> “When perpetual inventory records are kept, the results under the FIFO and LIFO methods are the same as they would be in a periodic inventory system.” Do you agree? Explain.

> Marcia Tague asks your help concerning an NSF check. Explain to Marcia (a) what an NSF check is, (b) how it is treated in a bank reconciliation, and (c) whether it will require an adjusting entry on the company’s books.

> Alison Hinck is studying for the next accounting midterm examination. What should Alison know about (a) departing from the cost basis of accounting for inventories and (b) the meaning of “market” in the lower-of-cost-or-market method?