Johnson Co. accepts a note receivable from a customer in exchange for some damaged inventory. The note requires the customer make semiannual installments of $50,000 each for 10 years. The first installment begins six months from the date the customer took delivery of the damaged inventory. Johnson’s management estimates that the fair value of the damaged inventory is $670,591.65. Accounting (a) What interest rate is Johnson implicitly charging the customer? Express the rate as an annual rate but assume semiannual compounding. (b) At what dollar amount do you think Johnson should record the note receivable on the day the customer takes delivery of the damaged inventory? Analysis Assume the note receivable for damaged inventory makes up a significant portion of Johnson’s assets. If interest rates increase, what happens to the fair value of the receivable? Briefly explain why. Principles The Financial Accounting Standards Board recently issued an accounting standard that allows companies to report assets such as notes receivable at fair value. Discuss how fair value versus historical cost potentially involves a trade-off of one desired quality of accounting information against another.
> Sterling Inc. has decided to purchase equipment from Central Michigan Industries on January 2, 2012, to expand its production capacity to meet customers’ demand for its product. Sterling issues a $900,000, 5-year, zero-interest-bearing note to Central Mi
> Presented below is information related to Rommel Company. 1. On July 6, Rommel Company acquired the plant assets of Studebaker Company, which had discontinued operations. The appraised value of the property is: Land ………………………………. $ 400,000 Buildings …………
> Below are transactions related to Impala Company. (a) The City of Pebble Beach gives the company 5 acres of land as a plant site. The fair value of this land is determined to be $81,000. (b) 14,000 shares of common stock with a par value of $50 per share
> Chopin Engineering Corporation purchased conveyor equipment with a list price of $15,000. Presented below are three independent cases related to the equipment. (Round to nearest dollar.) (a) Chopin paid cash for the equipment 8 days after the purchase. T
> The following three situations involve the capitalization of interest. Situation I On January 1, 2012, Columbia, Inc. signed a fixed-price contract to have Builder Associates construct a major plant facility at a cost of $4,000,000. It was estimated tha
> The controller for Nesheim Construction Company believes that it is appropriate to offset a note payable to Oregon Bank against an account receivable from Oregon Bank related to remodeling services provided to the bank. What is the authoritative guidance
> On July 31, 2012, Bismarck Company engaged Duval Tooling Company to construct a special-purpose piece of factory machinery. Construction began immediately and was completed on November 1, 2012. To help finance construction, on July 31 Bismarck issued a $
> On December 31, 2011, Hurston Inc. borrowed $3,000,000 at 12% payable annually to finance the construction of a new building. In 2012, the company made the following expenditures related to this building: March 1, $360,000; June 1, $600,000; July 1, $1,5
> McPherson Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $5,000,000 on January 1, 2012. McPherson expected to complete the building by December 31, 2012. McPherson has the fol
> Peloton Company constructed a building at a cost of $2,400,000 and occupied it beginning in January 1993. It was estimated at that time that its life would be 40 years, with no salvage value. In January 2013, a new roof was installed at a cost of $300,00
> In 1985, Abraham Company completed the construction of a building at a cost of $1,900,000 and first occupied it in January 1986. It was estimated that the building will have a useful life of 40 years and a salvage value of $60,000 at the end of that time
> Machinery purchased for $52,000 by Carver Co. in 2008 was originally estimated to have a life of 8 years with a salvage value of $4,000 at the end of that time. Depreciation has been entered for 5 years on this basis. In 2013, it is determined that the t
> Bosh Company purchased a piece of equipment at the beginning of 2009. The equipment cost $502,000. It has an estimated service life of 8 years and an expected salvage value of $70,000. The sum-of-the-years’-digits method of depreciation is being used. So
> Presented below is information related to Morrow Manufacturing Corporation. Instructions (a) Compute the rate of depreciation per year to be applied to the machines under the composite method. (b) Prepare the adjusting entry necessary at the end of the
> Goldman Corporation bought a machine on June 1, 2010, for $31,800, f.o.b. the place of manufacture. Freight to the point where it was set up was $200, and $500 was expended to install it. The machine’s useful life was estimated at 10 years, with a salvag
> Jeeter Industries presents you with the following information. Instructions Complete the table for the year ended December 31, 2013. The company depreciates all assets using the half-year convention. Accumulated Date Salvage Life in Depreciation De
> In addition to securitizations, what are the other types of transfers of financial assets identified in the Codification?
> Agazzi Company purchased equipment for $304,000 on October 1, 2012. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $16,000. Estimated production is 40,000 units and estimated working hours are 20,000. During
> Maserati Corporation purchased a new machine for its assembly process on August 1, 2012. The cost of this machine was $150,000. The company estimated that the machine would have a salvage value of $24,000 at the end of its service life. Its life is estim
> Wenner Furnace Corp. purchased machinery for $279,000 on May 1, 2012. It is estimated that it will have a useful life of 10 years, salvage value of $15,000, production of 240,000 units, and working hours of 25,000. During 2013, Wenner Corp. uses the mach
> Cosby Company purchased a new plant asset on April 1, 2012, at a cost of $774,000. It was estimated to have a service life of 20 years and a salvage value of $60,000. Cosby’s accounting period is the calendar year. Instructions (a) Compute the depreciat
> Hasselback Company acquired a plant asset at the beginning of Year 1. The asset has an estimated service life of 5 years. An employee has prepared depreciation schedules for this asset using three different methods to compare the results of using one met
> Lansbury Company purchases equipment on January 1, Year 1, at a cost of $518,000. The asset is expected to have a service life of 12 years and a salvage value of $50,000. Instructions (a) Compute the amount of depreciation for each of Years 1 through 3
> Devon Harris Company has provided information on intangible assets as follows. A patent was purchased from Bradtke Company for $2,500,000 on January 1, 2011. Harris estimated the remaining useful life of the patent to be 10 years. The patent was carried
> Fontenot Corporation was organized in 2011 and began operations at the beginning of 2012. The company is involved in interior design consulting services. The following costs were incurred prior to the start of operations. Attorney’s fees in connection wi
> In early January 2011, Reymont Corporation applied for a trade name, incurring legal costs of $18,000. In January 2012, Reymont incurred $7,800 of legal fees in a successful defense of its trade name. Instructions (a) Compute 2011 amortization, 12/31/11
> Powerglide Company, organized in 2011, has set up a single account for all intangible assets. The following summary discloses the debit entries that have been recorded during 2012. Instructions Prepare the necessary entries to clear the Intangible Asse
> In this simulation, you are asked to address questions concerning the application of time value of money concepts to accounting problems. Prepare responses to all parts. KWW_Professional_Simulation Time Value of Money Time Remaining 1 hour 20 minute
> As the recently appointed auditor for Hillary Corporation, you have been asked to examine selected accounts before the 6-month financial statements of June 30, 2012, are prepared. The controller for Hillary Corporation mentions that only one account is k
> Presented below is selected information for Palmiero Company. 1. Palmiero purchased a patent from Vania Co. for $1,500,000 on January 1, 2010. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2020. During 20
> Langrova Inc. has the following amounts included in its general ledger at December 31, 2012. Organization costs ………………………………………………………………………………………………… $24,000 Trademarks ……………………………………………………………………………………………………….…… 20,000 Discount on bonds payable ………………………
> Presented below is selected information related to Matt Perry Inc. as of December 21, 2012. All these items have debit balances. Cable television franchises Music copyrights Research and development costs Goodwill Cash Discount on notes payable Accounts
> During 2012, Botosan Enterprises Inc. spent $5,000,000 developing its new “Dover” software package. Of this amount, $2,600,000 was spent before technological feasibility was established for the product, which is to be marketed to third parties. The packa
> Majoli Inc. has capitalized computer software costs of $3,900,000 on its new “Trenton” software package. Revenues from 2012 (first year) sales are $2,000,000. Additional future revenues from “Trenton” for the remainder of its economic life, through 2016,
> Martinez Company incurred the following costs during 2012 in connection with its research and development activities. Cost of equipment acquired that will have alternative uses in future R&D projects over the next 5 years (uses straight-line depreciation
> Margaret Avery Company from time to time embarks on a research program when a special project seems to offer possibilities. In 2011, the company expends $325,000 on a research project, but by the end of 2011 it is impossible to determine whether any bene
> Presented below is net asset information related to the Mischa Division of Santana, Inc. MISCHA DIVISION NET ASSETS AS OF DECEMBER 31, 2012 (IN MILLIONS) Cash …………………………………………………………………….. $ 60 Accounts receivable ……………………………………………….. 200 Property, plant
> Presented below is information related to copyrights owned by Botticelli Company at December 31, 2012. Cost ……………………………………………………… $8,600,000 Carrying amount …………………………………….. 4,300,000 Expected future net cash flows …………………. 4,000,000 Fair value ……..……………
> At a recent meeting of the accounting staff in your company, the controller raised the issue of using present value techniques to conduct impairment tests for some of the company’s fixed assets. Some of the more senior members of the staff admitted havin
> On July 1, 2012, Gissel Corporation purchased Mills Company by paying $250,000 cash and issuing a $150,000 note payable. At July 1, 2012, the balance sheet of Mills Company was as follows. The recorded amounts all approximate current values except for
> Fred Graf, owner of Graf Interiors, is negotiating for the purchase of Terrell Galleries. The balance sheet of Terrell is given in an abbreviated form below. Graf and Terrell agree that: 1. Land is undervalued by $50,000. 2. Equipment is overvalued by
> Reddy Industries has the following patents on its December 31, 2011, balance sheet. The following events occurred during the year ended December 31, 2012. 1. Research and development costs of $245,700 were incurred during the year. 2. Patent D was purc
> During 2009, Thompson Corporation spent $170,000 in research and development costs. As a result, a new product called the New Age Piano was patented. The patent was obtained on October 1, 2009, and had a legal life of 20 years and a useful life of 10 yea
> Elwood Inc. purchased computer equipment on March 1, 2012, for $36,000. The computer equipment has a useful life of 10 years and a salvage value of $3,000. For tax purposes, the MACRS class life is 5 years. Instructions (a) Assuming that the company use
> Annunzio Enterprises purchased a delivery truck on January 1, 2012, at a cost of $41,000. The truck has a useful life of 7 years with an estimated salvage value of $6,000. The straight-line method is used for book purposes. For tax purposes the truck, ha
> The 2009 Annual Report of McDonald’s Corporation contains the following information. Instructions Compute the following ratios for McDonald’s for 2009. (a) Asset turnover ratio. (b) Rate of return on assets. (c) Prof
> At the beginning of 2012, Callaway Company acquired a mine for $850,000. Of this amount, $100,000 was ascribed to the land value and the remaining portion to the minerals in the mine. Surveys conducted by geologists have indicated that approximately 12,0
> Henrik Mining Company purchased land on February 1, 2012, at a cost of $1,250,000. It estimated that a total of 60,000 tons of mineral was available for mining. After it has removed all the natural resources, the company will be required to restore the p
> Jonas Lumber Company owns a 7,000-acre tract of timber purchased in 2005 at a cost of $1,300 per acre. At the time of purchase, the land was estimated to have a value of $300 per acre without the timber. Jonas Lumber Company has not logged this tract sin
> Using the appropriate interest table, answer the following questions. (Each case is independent of the others). (a) What is the future value of 20 periodic payments of $5,000 each made at the beginning of each period and compounded at 8%? (b) What is the
> Federer Drilling Company has leased property on which oil has been discovered. Wells on this property produced 18,000 barrels of oil during the past year that sold at an average sales price of $65 per barrel. Total oil resources of this property are esti
> Hernandez Timber Company owns 9,000 acres of timberland purchased in 2001 at a cost of $1,400 per acre. At the time of purchase, the land without the timber was valued at $400 per acre. In 2002, Hernandez built fire lanes and roads, with a life of 30 yea
> The management of Sprague Inc. was discussing whether certain equipment should be written off as a charge to current operations because of obsolescence. This equipment has a cost of $900,000 with depreciation to date of $400,000 as of December 31, 2012.
> Assume the same information as E11-16, except that Pujols intends to dispose of the equipment in the coming year. It is expected that the cost of disposal will be $20,000. In E11-16 Presented below is information related to equipment owned by Pujols Com
> Presented below is information related to equipment owned by Pujols Company at December 31, 2012. Cost …………….………………………………………….. $9,000,000 Accumulated depreciation to date ……………….. 1,000,000 Expected future net cash flows ……………………. 7,000,000 Fair value …
> On March 10, 2014, No Doubt Company sells equipment that it purchased for $240,000 on August 20, 2007. It was originally estimated that the equipment would have a life of 12 years and a salvage value of $21,000 at the end of that time, and depreciation h
> Kawasaki Company shows the following entries in its Equipment account for 2013. All amounts are based on historical cost. Instructions (a) Prepare any correcting entries necessary. (b) Assuming that depreciation is to be charged for a full year on the
> Jurassic Company owns machinery that cost $900,000 and has accumulated depreciation of $380,000. The expected future net cash flows from the use of the asset are expected to be $500,000. The fair value of the equipment is $400,000. Prepare the journal en
> On September 1, 2012, Winans Corporation acquired Aumont Enterprises for a cash payment of $700,000. At the time of purchase, Aumont’s balance sheet showed assets of $620,000, liabilities of $200,000, and owners’ equity of $420,000. The fair value of Aum
> Hanson Company (see BE10-2) borrowed $1,000,000 on March 1 on a 5-year, 12% note to help finance construction of the building. In addition, the company had outstanding all year a 10%, 5-year, $2,000,000 note payable and an 11%, 4-year, $3,500,000 note pa
> Consolidated Natural Gas Company (CNG), with corporate headquarters in Pittsburgh, Pennsylvania, is one of the largest producers, transporters, distributors, and marketers of natural gas in North America. Periodically, the company experiences a decrease
> Karen Austin Corporation has capitalized software costs of $800,000, and sales of this product the first year totaled $420,000. Karen Austin anticipates earning $980,000 in additional future revenues from this product, which is estimated to have an econo
> Use the information presented for Ottawa Corporation in BE10-14, but assume the machinery is sold for $5,200 instead of $10,500. Prepare journal entries to (a) Update depreciation for 2013 and (b) Record the sale. In BE10-14 Ottawa Corporation owns mach
> Ottawa Corporation owns machinery that cost $20,000 when purchased on July 1, 2009. Depreciation has been recorded at a rate of $2,400 per year, resulting in a balance in accumulated depreciation of $8,400 at December 31, 2012. The machinery is sold on S
> Indicate whether the following items are capitalized or expensed in the current year. (a) Purchase cost of a patent from a competitor. (b) Research and development costs. (c) Organizational costs. (d) Costs incurred internally to create goodwill.
> Francis Corporation purchased an asset at a cost of $50,000 on March 1, 2012. The asset has a useful life of 8 years and a salvage value of $4,000. For tax purposes, the MACRS class life is 5 years. Compute tax depreciation for each year 2012–2017.
> In its 2009 annual report, Campbell Soup Company reports beginning-of-the-year total assets of $6,474 million, end-of-the-year total assets of $6,056 million, total sales of $7,586 million, and net income of $736 million. (a) Compute Campbell’s asset tur
> Use the information provided in BE12-7. Assume that the fair value of the division is estimated to be $750,000 and the implied goodwill is $350,000. Prepare Waters’s journal entry, if necessary, to record impairment of the goodwill. In BE12-7 Waters Cor
> What are the two main characteristics of intangible assets?
> Intangibles have either a limited useful life or an indefinite useful life. How should these two different types of intangibles be amortized?
> If intangibles are acquired for stock, how is the cost of the intangible determined?
> The financial statements and accompanying notes of P&G are presented in Appendix 5B or can be accessed at the book’s companion website, www.wiley.com/college/kieso. Instructions (a) Examining each item in P&G’s balance sheet, identify those items that r
> What are the major characteristics of plant assets?
> Target Corporation in 2010 reported net income of $2.5 billion, net sales of $63.4 billion, and average total assets of $44.3 billion. What is Target’s asset turnover ratio? What is Target’s rate of return on assets?
> In what way may the use of percentage depletion violate sound accounting theory?
> In 2011, Austin Powers Corporation developed a new product that will be marketed in 2012. In connection with the development of this product, the following costs were incurred in 2011: research and development costs $400,000; materials and supplies consu
> Indicate the proper accounting for the following items. (a) Organization costs. (b) Advertising costs. (c) Operating losses.
> Simon Company determines that its goodwill is impaired. It finds that its implied goodwill is $360,000 and its recorded goodwill is $400,000. The fair value of its identifiable assets is $1,450,000. What is the amount of goodwill impaired?
> Last year, Wyeth Company recorded an impairment on an asset held for use. Recent appraisals indicate that the asset has increased in value. Should Wyeth record this recovery in value?
> Last year Zeno Company recorded an impairment on an intangible asset held for use. Recent appraisals indicate that the asset has increased in value. Should Zeno record this recovery in value?
> Pueblo Co. acquires machinery by paying $10,000 cash and signing a $5,000, 2-year, zero-interest-bearing note payable. The note has a present value of $4,208, and Pueblo purchased a similar machine last month for $13,500. At what cost should the new equi
> Under what circumstances is it appropriate to record goodwill in the accounts? How should goodwill, properly recorded on the books, be written off in order to conform with generally accepted accounting principles?
> Craig Brokaw, newly appointed controller of STL, is considering ways to reduce his company’s expenditures on annual pension costs. One way to do this is to switch STL’s pension fund assets from First Security to NET Life. STL is a very well-respected com
> A building that was purchased December 31, 1988, for $2,500,000 was originally estimated to have a life of 50 years with no salvage value at the end of that time. Depreciation has been recorded through 2012. During 2013, an examination of the building by
> Columbia Sportswear Company acquired a trademark that is helpful in distinguishing one of its new products. The trademark is renewable every 10 years at minimal cost. All evidence indicates that this trademark product will generate cash flows for an inde
> What basic questions must be answered before the amount of the depreciation charge can be computed?
> One financial accounting issue encountered when a company constructs its own plant is whether the interest cost on funds borrowed to finance construction should be capitalized and then amortized over the life of the assets constructed. What is the justif
> Burke Company has purchased two tracts of land. One tract will be the site of its new manufacturing plant, while the other is being purchased with the hope that it will be sold in the next year at a profit. How should these two tracts of land be reported
> In 2012, Ghostbusters Corp. spent $420,000 for “goodwill” visits by sales personnel to key customers. The purpose of these visits was to build a solid, friendly relationship for the future and to gain insight into the problems and needs of the companies
> McNabb Company spent $190,000 developing a new process, $45,000 in legal fees to obtain a patent, and $91,000 to market the process that was patented, all in the year 2012. How should these costs be accounted for in 2012?
> What is goodwill? What is negative goodwill?
> Discuss the basic accounting problem that arises in handling each of the following situations. (a) Assets purchased by issuance of capital stock. (b) Acquisition of plant assets by gift or donation. (c) Purchase of a plant asset subject to a cash discoun
> How should the amount of interest capitalized be disclosed in the notes to the financial statements? How should interest revenue from temporarily invested excess funds borrowed to finance the construction of assets be accounted for?
> You have been hired as a benefit consultant by Jean Honore, the owner of Attic Angels. She wants to establish a retirement plan for herself and her three employees. Jean has provided the following information: The retirement plan is to be based upon annu
> What are the major factors considered in determining what depreciation method to use?
> Silverman Company purchased machinery for $162,000 on January 1, 2012. It is estimated that the machinery will have a useful life of 20 years, salvage value of $15,000, production of 84,000 units, and working hours of 42,000. During 2012, the company use
> Workman Company purchased a machine on January 2, 2012, for $800,000. The machine has an estimated useful life of 5 years and a salvage value of $100,000. Depreciation was computed by the 150% declining-balance method. What is the amount of accumulated d
> What should be the pattern of amortization for a limited-life intangible?
> What are factors to be considered in estimating the useful life of an intangible asset?
> The plant manager of a manufacturing firm suggested in a conference of the company’s executives that accountants should speed up depreciation on the machinery in the finishing department because improvements were rapidly making those machines obsolete, a
