Question: How should a company treat a change

> On the first day of 2019, Holthausen Company acquired the assets of Leftwich Company including several intangible assets. These include a patent on Leftwich's primary product. a device called a plentiscope Leftwich carried the patent on its books for $1.

> For comparative purposes, when the old lease standard was in effect, were footnote disclosures sufficient to overcome non-recognition on the balance sheet of assets and related liabilities for operating leases? Explain.

> On November 1, 2018, Ybarra Construction Company issued $200,000 of 5-year bonds that pay interest at an annual rate of 5%. The interest payments are due every six months (that is, the interest is compounded semi-annually). At the end of the five-year pe

> 3M Company reports the following financial statement amounts in its 10-K report: a. Compute the receivables, inventory, and PPE turnover ratios for both 2018 and 2017. (Receivables turnover and inventory turnover are discussed in Chapters 6 and 7, respec

> Explain what an unrecognized tax benefit is and where it is recorded on the balance sheet.

> The property and equipment footnote from the Deere & Company balance sheet follows ($ millions): PROPERTY AND DEPRECIATION A summary of property and equipment at October 28, 2018, in millions of dollars follows: During 2018, the company reported $7S4

> Under what circumstances would a tax payment be made that also requires the recording of a deferred tax asset or liability?

> In January 2019, Rankine Company paid $8,500,000 for land and a building. An appraisal estimated that the land had a fair value of $2,500,000 and the building was worth $6,000,000. Rankine estimated that the useful life of the building was 30 years, with

> What is the conceptual reason why income tax expense on the income statement is not equal to cash taxes paid?

> Lambert Company acquired machinery costing $110,000 on January 2, 2019. At that time, Lambert estimated that the useful life of the equipment was 6 years and that the residual value would be $15,000 at the end of its useful life. Compute depreciation exp

> Under the new lease accounting standard (Topic 842), what are the financial reporting differences between an operating lease and a finance lease? Explain.

> Palepu Company owns and operates a delivery van that originally cost $27,200. Straight-line depreciation on the van has been recorded for three years, with a $2,000 expected salvage value at the end of its estimated six-year useful life. Depreciation was

> What do the following terms mean? (a) bonds payable, (b) call provision, (c) face value, (d) coupon, (e) bond discount, (f) bond premium, and (g) amortization of bond premium or discount.

> A delivery van costing $18,000 is expected to have a $ 1,500 salvage value at the end of its useful life of 5 years. Assume that the truck was purchased on January I, 2019. Compute the depreciation expense for 2020 (its second year) under each of the fol

> Jason Shields invested $7,500 in an account that pays a 12% return. How much will the account be worth in four years if the interest is compounded a. annually? b. quarterly? c. monthly?

> On January 2, 2019, Dechow Company purchases a machine to help manufacture a part for one of its key products. The machine cost $218,700 and is estimated to have a useful life of six years, with an expected salvage value of $23,400. Compute each year's d

> How would you interpret a company's reported gain or loss on the repurchase of its bonds?

> On January 2, 2019, Verdi Company acquired a machine for $85,000. In addition to the purchase price, Verdi spent $2,000 for shipping and installation, and $2,500 to calibrate the machine prior to use. The company estimates that the machine has a useful l

> How do debt ratings affect the cost of borrowing for a company?

> The following table presents sales revenue, cost of goods sold, and inventory amounts for three specialty retailers, Tiffany & Co., Best Buy, and RH. a. Compute the gross profit margin (GPM) for each of these companies for 2017 and 2016. b. Compute t

> Why do companies report a gain or loss on the repurchase of their bonds (assuming the repurchase price is different from bond book value)?

> The footnote below is from the 2017 I 0-K report of Whole Foods Market, Inc., a Texas-based retail grocery chain. Inventories The Company values inventories at the lower of cost or market. Cost was determined using the dollar value retail last-in, first-

> What is the difference between a bond coupon rate and its market interest rate (yield)?

> How does issuing a bond at a premium or discount affect the bond's effective interest rate vis-à-vis the coupon (stated) rate?

> Sylvia Owen, owner of Haul Trucking is considering expanding operation from seaule to the Portland area. Expansion is estimated to cost %10 million including the required new facilities and additional trucks. Sylvia has elected to finance the expansion b

> What is an accrual? How do accruals impact the balance sheet and the income statement?

> Crane Company had the following inventory at December 31. 2017. a. Determine the ending inventory amount by applying the lower of cost or net realizable value rule to 1. Each item of inventory. 2. Each major category of inventory. 3. Total inventory. b.

> What is the justification for using the net-of-discount method to record inventory purchases when cash discounts are offered?

> Stockcn Company has the following financial records for the current period: Ending inventory at the end of this period is 350 units. Compute the ending inventory and the cost of goods sold for the current period using (a) first-in, first-out. (b) avera

> How does issuing bonds at a premium or discount "adjust the contract rate to the applicable market rate of interest"?

> At the beginning of the current period, Chen carried 1,000 units of its product with a unit cost of $20. A summary of purchases during the current period follows: During the current period, Chen sold 2,800 units. a. Assume that Chen uses the first-in, fi

> A $3.000,000 issue of 10-year, 9% bonds was sold at 98 plus accrued interest three months after the bonds were dated. What net amount of cash is received?

> West Marine, Inc., opened its first boating supply store in 1975. Since that time, the company has grown to be one of the largest boating supply companies in the world, with fiscal year 2014 revenues in excess of $675 million. The accompanying table prov

> What are the advantages and disadvantages of issuing bonds rather than common stock?

> For each of the following items, indicate whether the cost should be capitalized or expensed immediately: a. Paid $1,200 for routine maintenance of machinery b. Paid $5,400 to rent equipment for two years c. Paid $2,000 to equip the production line with

> BJ's Wholesale Club Holdings, Inc. provides the following description of its revenue recognition policies for membership fees and its reward program. Performance Obligations The Company identifies each distinct performance obligation to transfer goods (o

> What does the term current Liabilities mean? What assets are usually used to settle current liabilities?

> The Metropolitan Opera Association, Inc., was founded in 1883 and is widely regarded as one of the world's greatest opera companies. The Metropolitan's performances run from September to May, and the season may consist of more than two dozen different op

> Why are some intangible assets amortized while others are not? What is meant by an intangible asset with an " indefinite life"?

> What is the proper accounting treatment for research and development costs? Why are R&D costs not capitalized under GAAP?

> Barth Company, which has been in business for three years, makes all of its sales on credit and does not offer cash discounts. Its credit sales, customer collections, and write-offs of uncollectible accounts for its first three years follow: a. Barth use

> When is a PPE asset considered to be impaired? How is the impairment loss determined?

> At December 3 I, 2019, Sunil Company had a balance of $375,000 in its accounts receivable and an unused balance of $4,200 in its allowance for uncollectible accounts. The company then aged its accounts as follows: The company has experienced losses as fo

> What factors determine the gain or loss from the sale of a long-term operating asset?

> Wolf Inc. establishes a construction fund on July I, 2019, by making a single deposit of $360,000. At the end of each year, Wolf will deposit an additional $60,000. The fund guarantees a 12% return each year. How much will be in the fund on June 30, 2023

> At the beginning of 2019, Penman Company had the following (normal) account balances in its financial records: During 2019, its credit sales were $1,173,000 and collections on credit sales were $1,150,000. The following additional transactions occurred d

> Steelcase, Inc. reported the following amounts in its 2018 and 2017 10-K reports (years ended February 23, 2018 and February 24. 2017. a. Prepare the journal entry to record accounts receivable written off as uncollectible in 2018. Also prepare the entry

> Why do companies use accelerated depreciation for income tax purposes, when the total depreciation taken over the asset's useful life is identical to straight-line depreciation?

> Lafond Company analyzes its accounts receivable at December 31, 20 19, and arrives at the aged categories below along with the percentages that are estimated as uncollectible. At the beginning of the fourth quarter of 2019. there was a credit balance of

> Why is the recognition of depreciation expense necessary for proper expense recognition?

> Simply Technologies, Inc., manufactures electronic equipment used to facilitate control of production processes and tracking of assets using RFID and other technologies. Since its initial public offering in 1996, the company has shown consistent growth i

> What is the effect of capitalized interest on the income statement in the period that an asset is constructed? What is the effect in future periods?

> LVMH Moet Hennessy Louis Vuitton SE (LVMH) is a French multinational luxury goods conglomerate headquartered in Paris. The following information is selected from their 2017 annual report. LVMH has an income tax rate of approximately 30%. a. Compute LVMH'

> Under what circumstances should a company report goodwill in its balance sheet? What is the effect of goodwill on the income statement?

> Use the following year-end footnote information from Cisco Systems, Inc. 's I 0-K report to answer parts a and b. a. At what amount is its available-for-sale investments reported on Cisco's 20 18 balance sheet? Explain. b. How is its net unrealized loss

> Amazon.com, Inc. provides the following description of its revenue recognition policies in its second quarter of 2018 I 0-Q report. Revenue Revenue is measured based on the amount of consideration that we expect to receive, reduced by estimates for retur

> How should companies account for costs, such as maintenance or improvements, which are incurred after an asset is acquired?

> Floyd Corporation is a large engineering and construction company that designs and builds office buildings, apartment buildings, distribution warehouses and other structures for its customers. Projects usually begin with a design and engineering phase, f

> What is a LIFO reserve? How is the LIFO reserve related to unrealized holding gains?

> Assume that General Electric Company agreed in February 2019 to construct an electricity generating facility for Ever source Energy, a utility serving the Boston area. The contract price of $500 million is to be paid as follows: $200 million at the time

> What is inventory "shrink?" How does a company determine the amount of inventory shrink that may have occurred?

> Haskins, Inc. has reached an agreement with a customer, Skaife Corporation, to deliver 200 units of a customized product. The standard billing price per unit is $1,000, and there are no discounts, so Skaife Corporation will pay $200,000 in total. At the

> Under what conditions would each of the inventory costing methods discussed in the chapter produce the same results?

> Discuss and justify when each of the following businesses should recognize revenues: a. A clothing retailer like L Brands, Inc. b. A contractor like The Boeing Company that performs work under long-term government contracts. c. An operator of grocery sto

> In a recent annual report, Kaiser Aluminum Corporation made the following statement in reference to its inventories: "The Company recorded pretax charges of approximately $ 19.4 million because of a reduction in the carrying values of its inventories cau

> On September 1, 2018, Luft, Inc. deposited $400,000 in a debt retirement fund. The company needs $955,000 cash to settle a maturing debt September I, 2026. What is the minimal rate of compound interest required to assure the debt will be paid when due?

> Refer to the income statements for The Gap, Inc., presented in ES-34. a. Prepare common-size income statements for fiscal years 2017 (ending February 3, 2018) and 2016 (ending January 28, 2017). b. Prepare an income statement forecast for the fiscal year

> Even though it does not reflect their physical flow of goods, why might companies adopt last-in, first-out inventory costing in periods when costs are consistently rising?

> Doug Stevens, controller of Nexgen, Inc., has asked his assistant, Gayle Sayres, for suggestions as to how the company can improve its reported financial performance for the year. The company is in the last quarter of the year and projections to the end

> If inventory costs are rising, which inventory costing method- first-in, first-out; last-in, first-out; or average cost-yields the (a) lowest ending inventory? (b) lowest net income? (c) largest ending inventory? (d) largest net income? (e) greatest

> Demski, Inc., manufactures heating and cooling systems. It has a 75% interest in Asare Company, which manufactures thermostats, switches, and other controls for heating and cooling products. It also has a 100% interest in Demski Finance Company, created

> What is one explanation for increased gross profit during periods of rising inventory costs when FIFO is used?

> On January 2, 2019, Magee, Inc., purchased, as a stock investment, 20,000 shares of Dye, lnc.'s common stock for $21 per share, including commissions and taxes. On December 31, 2019, Dye announced a net income of $280,000 for the year and declared a divi

> Why do relatively stable inventory costs reduce the importance of management's choice of an inventory costing method?

> Apple Inc., is one of the most successful enterprises of all time. Its computers, tablets, phones, and watches are all highly desired by consumers, and the company's product innovations keep arriving at a steady pace. Apple's financial success can also b

> LIFO liquidation is often discretionary. What motives might management have to liquidate LIFO inventory?

> For each of the situation below determine if the investment should be reported as a passive investment (P). an investment reflecting significant influence 151). or a i:ontrolling interest (C).

> Restaurant Brands International, Inc. reports the following in footnote 13 to their financial statements in their 2017 I 0-K related to redeemable preferred stock. Note 13 Redeemable Preferred Shares On December 12, 2014 we issued 68,530,939 Class A 9.0%

> LIFO liquidation may be involuntary-that is beyond the control of management. Suggest two situations that might lead to involuntary UFO liquidation.

> Liz Plummer, vice president and general counsel, chairs the Executive Compensation Committee for Sunlight Corporation. Four and one-half years ago, the compensation committee designed a performance bonus plan for top management that was approved by the b

> Analysts claim that it is more difficult to forecast net income for a company that uses LIFO. Why might this be true?

> The stockholders· equity section of Pillar Corporation ·s comparative balance sheet at the end of 2018 and 2019 is presented below. It is part of the financial data just reviewed at a stockholders' meeting. The following items

> Under what circumstances is it justified to include transportation costs in the value of the inventory purchased?

> Ron King. chair person of the board of directors and chief executive officer of Image. lnc .. is 1x.rndering a recommendation to make to the firm's board of directors in response to actions taken by Jack Hatcher. Hatcher recently informed King and other

> Explain how management can shift income from one period into another by its estimation of uncollectible accounts.

> Andrea Frame and her supervisor are sent on an out-of-town assignment by their employer. At the supervisor's suggestion, they stay at the Spartan Inn (across the street from the Luxury Inn). After three days of work, they settle their lodging bills and l

> How might earnings forecasts that are published by financial analysts encourage companies to manage earnings?

> Linda Reed, an executive at VIP Inc. has earned a performance bonus. She has the option of accepting $60,000 now or $100,000 5 years from now. What would you advise her to do? Explain and support with calculations.

> Sarah Penney operates the Wildlife Picture Gallery, selling original art and signed prints received on consignment (rather than purchased) from recognized wildlife artists throughout the country. The firm receives a 30% commission on all art sold and rem

> Why does GAAP allow management to make estimates of amounts that are included in financial statements? Does this improve the usefulness of financial statements? Explain.

> Northrop Grumman Corporation reports the following in footnote 4 to its 2008 I 0-K related to its convertible preferred stock. Conversion of Preferred Stock-On February 20, 2008, the company's board of directors approved the redemption of the 3.5 million

> What is the concept of non-GAAP income or proforma income and why has this income measure been criticized?

> Alphabet Inc. reported the following in note 14 to its 2018 10-K report: Note 14. Income Taxes Income from continuing operations before income taxes included income from domestic operations of $12.0 billion, $10.7 billion, and $15.8 billion for the years

> Why might companies want to manage earnings? Describe some of the tactics that some companies use to manage earnings.

> The following information is taken from Williams-Sonoma, lnc.'s 10-K . Note D: Income Taxes The components of earnings before income taxes, by tax jurisdiction, are as follows: The provision for income taxes consists of the following: We have historicall

> Explain the concept of a big bath and why restructuring costs are often identified with this event.

> Identify the two typical categories of restructuring costs and their effects on the balance sheet and the income statement.

> Debra Wilcox won $7 million in the California lottery. She must choose how she wants the prize to be paid to her. First, Debra can elect to receive 26 annual payments, with the first payment due immediately. Second, she can elect to receive a single paym

> Foster Corporation is in the third quarter of the current year. and projections are that net income will be down about $600.000 from the previous year. Foster's return on assets is also projected to decline from its usual 15% to approximately 13%. lf ear

> Why are discontinued operations reported separately from continuing operations in the income statement?