Nancy Tercek, the financial vice president, and Margaret Lilly, the controller, of Romine Manufacturing Company are reviewing the financial ratios of the company for the years 2014 and 2015. The financial vice president notes that the profit margin on sales ratio has increased from 6% to 12%, a hefty gain for the 2-year period. Tercek is in the process of issuing a media release that emphasizes the efficiency of Romine Manufacturing in controlling cost. Margaret Lilly knows that the difference in ratios is due primarily to an earlier company decision to reduce the estimates of warranty and bad debt expense for 2015. The controller, not sure of her supervisor’s motives, hesitates to suggest to Tercek that the company’s improvement is unrelated to efficiency in controlling cost. To complicate matters, the media release is scheduled in a few days. Instructions (a) What, if any, is the ethical dilemma in this situation? (b) Should Lilly, the controller, remain silent? Give reasons. (c) What stakeholders might be affected by Tercek’s media release? (d) Give your opinion on the following statement and cite reasons: “Because Tercek, the vice president, is most directly responsible for the media release, Lilly has no real responsibility in this matter.”
> Tevez Company experienced an actuarial loss of $750 in its defined benefit plan in 2014. For 2014, Tevez’s revenues are $125,000, and expenses (excluding pension expense of $14,000, which does not include the actuarial loss) are $85,000. Prepare Tevez’s
> Explain a bill and hold sale. When is revenue recognized in these situations?
> At January 1, 2014, Langley Company’s outstanding shares included the following. 280,000 shares of $50 par value, 7% cumulative preferred stock 900,000 shares of $1 par value common stock Net income for 2014 was $2,530,000. No cash dividends were declare
> Crawford Imports Inc. was involved in two default and repossession cases during the year: 1. A refrigerator was sold to Cindy McClary for $1,800, including a 30% markup on selling price. McClary made a down payment of 20%, four of the remaining 16 equal
> Parnevik Company has the following securities in its investment portfolio on December 31, 2014 (all securities were purchased in 2014): (1) 3,000 shares of Anderson Co. common stock which cost $58,500, (2) 10,000 shares of Munter Ltd. common stock whic
> Where can authoritative IFRS be found related to the various disclosure issues discussed in the chapter?
> Presented below is an amortization schedule related to Spangler Company’s 5-year, $100,000 bond with a 7% interest rate and a 5% yield, purchased on December 31, 2012, for $108,660. The following schedule presents a comparison of the am
> Chapman Company, a major retailer of bicycles and accessories, operates several stores and is a publicly traded company. The comparative balance sheet and income statement for Chapman as of May 31, 2014, are as follows. The company is preparing its state
> On December 31, 2014, before the books were closed, the management and accountants of Madrasa Inc. made the following determinations about three pieces of equipment. 1. Equipment A was purchased January 2, 2011. It originally cost $540,000 and, for depre
> Assume the same data as in P21-13 and that Chambers Medical Center has an incremental borrowing rate of 10%. In P21-13 The normal selling price of the machine is $411,324, and its guaranteed residual value at the end of the noncancelable lease term is es
> What are diversified companies? What accounting problems are related to diversified companies?
> Garner Inc. provides the following information related to its postretirement benefits for the year 2014. Instructions Compute postretirement benefit expense for 2014. $710,000 Accumulated postretirement benefit obligation at January 1, 2014 Actual an
> The following information has been obtained for the Gocker Corporation. 1. Prior to 2014, taxable income and pretax financial income were identical. 2. Pretax financial income is $1,700,000 in 2014 and $1,400,000 in 2015. 3. On January 1, 2014, equipment
> On December 31, 2014, Grando Company sells production equipment to Fargo Inc. for $50,000. Grando includes a 1-year warranty service with the sale of all its equipment. The customer receives and pays for the equipment on December 31, 2014. Grando estimat
> The following summarized information relates to the installment sales activity of Phillips Stores, Inc. for the year 2014. Instructions (a) Prepare journal entries at the end of 2014 to record on the books of Phillips Stores, Inc. the summarized data abo
> Kenseth Company has the following securities in its trading portfolio of securities on December 31, 2013. All of the securities were purchased in 2013. In 2014, Kenseth completed the following securities transactions. March 1 Sold the 1,500 shares of Gor
> A portion of the combined statement of income and retained earnings of Seminole Inc. for the current year follows. At the end of the current year, Seminole Inc. has outstanding 8,500,000 shares of $10 par common stock and 50,000 shares of 6% preferred. O
> What are the reporting issues in a sale and buyback agreement?
> On January 1, 2014, Cage Company contracts to lease equipment for 5 years, agreeing to make a payment of $137,899 (including the executory costs of $6,000) at the beginning of each year, starting January 1, 2014. The taxes, the insurance, and the mainten
> Indicate how the following items are recorded in the accounting records in the current year of Coronet Co. (a) Impairment of goodwill. (b) A change in depreciating plant assets from accelerated to the straight-line method. (c) Large write-off of inventor
> The transactions listed below relate to Wainwright Inc. You are to assume that on the date on which each of the transactions occurred, the corporation’s accounts showed only common stock ($100 par) outstanding, a current ratio of 2.7:1, and a substantial
> Comparative balance sheet accounts of Marcus Inc. are presented below. Additional data (ignoring taxes): 1. Net income for the year was $42,500. 2. Cash dividends declared and paid during the year were $21,125. 3. A 20% stock dividend was declared during
> The management of Utrillo Instrument Company had concluded, with the concurrence of its independent auditors, that results of operations would be more fairly presented if Utrillo changed its method of pricing inventory from last-in, first-out (LIFO) to a
> Amirante Inc. manufactures an X-ray machine with an estimated life of 12 years and leases it to Chambers Medical Center for a period of 10 years. The normal selling price of the machine is $411,324, and its guaranteed residual value at the end of the non
> Wood-Mode Company is involved in the design, manufacture, and installation of various types of wood products for large construction projects. Wood-Mode recently completed a large contract for Stadium Inc., which consisted of building 35 different types o
> (a) Assuming no Fair Value Adjustment (available for sale) account balance at the beginning of the year, prepare the adjusting entry at the end of the year if Laura Company’s available-for-sale securities have a fair value $60,000 below cost. (b) Assum
> What is net interest? Identify the elements of net interest and explain how they are
> Using the information in E20-19, In E20-19 Prepare a worksheet inserting January 1, 2014, balances, and showing December 31, 2014, balances. Prepare the journal entry recording postretirement benefit expense. $ 45,000 10,000 11,000 20,000 110,000 Se
> The pretax financial income of Truttman Company differs from its taxable income throughout each of 4 years as follows. Pretax financial income for each year includes a nondeductible expense of $30,000 (never deductible for tax purposes). The remainder of
> Appliance Center is an experienced home appliance dealer. Appliance Center also offers a number of services together with the home appliances that it sells. Assume that Appliance Center sells ovens on a standalone basis. Appliance Center also sells insta
> Oregon Co. had purchased 200 shares of Washington Co. for $40 each this year and classified the investment as a trading security. Oregon Co. sold 100 shares of the stock for $45 each. At year-end, the price per share of the Washington Co. stock had dropp
> Dingel Corporation has contracted with you to prepare a statement of cash flows. The controller has provided the following information. Additional data related to 2014 are as follows. 1. Equipment that had cost $11,000 and was 40% depreciated at time of
> Below is the comparative balance sheet for Stevie Wonder Corporation. Dividends in the amount of $15,000 were declared and paid in 2014. Instructions From this information, prepare a worksheet for a statement of cash flows. Make reasonable assumptions as
> Flagstad Inc. presented the following data. Instructions Compute earnings per share. Net income $2,500,000 Preferred stock: 50,000 shares outstanding, $100 par, 8% cumulative, not convertible Common stock: Shares outstanding 1/1 Issued for cash, 5/1
> In June 2014, the board of directors for McElroy Enterprises Inc. authorized the sale of $10,000,000 of corporate bonds. Jennifer Grayson, treasurer for McElroy Enterprises Inc., is concerned about the date when the bonds are issued. The company really n
> Outline the accounting procedures involved in applying the capital lease method by a lessee.
> You have completed the field work in connection with your audit of Alexander Corporation for the year ended December 31, 2014. The balance sheet accounts at the beginning and end of the year are shown below. Your working papers from the audit contain the
> On December 31, 2014, Mercantile Corp. had a $10,000,000, 8% fixed-rate note outstanding, payable in 2 years. It decides to enter into a 2-year swap with Chicago First Bank to convert the fixed-rate debt to variable-rate debt. The terms of the swap indic
> Aston Corporation performs year-end planning in November of each year before its calendar year ends in December. The preliminary estimated net income is $3 million. The CFO, Rita Warren, meets with the company president, J. B. Aston, to review the projec
> In 2013, Grishell Trucking Company negotiated and closed a long-term lease contract for newly constructed truck terminals and freight storage facilities. The buildings were erected to the company’s specifications on land owned by the company. On
> Satchel Corporation purchases equity securities costing $73,000 and classifies them as available-for-sale securities. At December 31, the fair value of the portfolio is $65,000. Instructions Prepare the adjusting entry to report the securities properly.
> Kreter Co. provides the following information about its postretirement benefit plan for the year 2014. Instructions Compute the postretirement benefit expense for 2014. $ 45,000 10,000 11,000 20,000 110,000 Service cost Contribution to the plan Actua
> The following information is available for Remmers Corporation for 2014. 1. Depreciation reported on the tax return exceeded depreciation reported on the income statement by $120,000. This difference will reverse in equal amounts of $30,000 over the year
> How are deferred tax assets and deferred tax liabilities reported on the balance sheet?
> On May 3, 2014, Eisler Company consigned 80 freezers, costing $500 each, to Remmers Company. The cost of shipping the freezers amounted to $840 and was paid by Eisler Company. On December 30, 2014, a report was received from the consignee, indicating tha
> On January 1, Santiago Company, a lessee, entered into three non-cancelable leases for brand-new equipment, Lease L, Lease M, and Lease N. None of the three leases transfers ownership of the equipment to Santiago at the end of the lease term. For each of
> Parent Co. invested $1,000,000 in Sub Co. for 25% of its outstanding stock. Sub Co. pays out 40% of net income in dividends each year. Instructions Use the information in the following T-account for the investment in Sub to answer the following questions
> Ace Company had 200,000 shares of common stock outstanding on December 31, 2015. During the year 2016, the company issued 8,000 shares on May 1 and retired 14,000 shares on October 31. For the year 2016, Ace Company reported net income of $249,690 after
> What are stock rights? How does the issuing company account for them?
> Michaels Company had available at the end of 2014 the information shown on the next page. Instructions Prepare a statement of cash flows for Michaels Company using the direct method accompanied by a reconciliation schedule. Assume the short-term investme
> Explain how cash-basis accounting for pension plans differs from accrual-basis accounting for pension plans. Why is cash-basis accounting generally considered unacceptable for pension plan accounting?
> Penn Company is in the process of adjusting and correcting its books at the end of 2014. In reviewing its records, the following information is compiled. 1. Penn has failed to accrue sales commission’s payable at the end of each of the
> Assume the same data as in P21-10 with National Airlines Co. having an incremental borrowing rate of 10%. In P21-10 The normal selling price of the equipment is $278,072, and its unguaranteed residual value at the end of the lease term is estimated to be
> On January 1, 2013, Nichols Corporation granted 10,000 options to key executives. Each option allows the executive to purchase one share of Nichols’ $5 par value common stock at a price of $20 per share. The options were exercisable within a 2-year perio
> How might differences in presentation of comparative data under GAAP and IFRS affect adoption of IFRS by U.S. companies?
> The accounting staff of Usher Inc. has prepared the following pension worksheet. Unfortunately, several entries in the worksheet are not decipherable. The company has asked your assistance in completing the worksheet and completing the accounting tasks r
> Meyer reported the following pretax financial income (loss) for the years 2012–2016. Pretax financial income (loss) and taxable income (loss) were the same for all years involved. The enacted tax rate was 34% for 2012 and 2013, and 40%
> Gottschalk Company sponsors a defined benefit plan for its 100 employees. On January 1, 2014, the company’s actuary provided the following information. The average remaining service period for the participating employees is 10 years. Al
> Briefly describe some of the similarities and differences between GAAP and IFRS with respect to the accounting for dilutive securities, stock-based compensation, and earnings per share.
> Taylor Marina has 300 available slips that rent for $800 per season. Payments must be made in full at the start of the boating season, April 1, 2015. Slips for the next season may be reserved if paid for by December 31, 2014. Under a new policy, if payme
> The following are two independent situations. Situation 1: Conchita Cosmetics acquired 10% of the 200,000 shares of common stock of Martinez Fashion at a total cost of $13 per share on March 18, 2014. On June 30, Martinez declared and paid a $75,000 cash
> On January 1, 2015, Wilke Corp. had 480,000 shares of common stock outstanding. During 2015, it had the following transactions that affected the common stock account. February 1 Issued 120,000 shares March 1 Issued a 10% stock dividend May 1 Acquired 10
> An article in Barron’s noted the following. Okay. Last fall, someone with a long memory and an even longer arm reached into that bureau drawer and came out with a moldy cheese sandwich and the equally moldy notion of corporate forecasts. We tried to fin
> Mortonson Company has not yet prepared a formal statement of cash flows for the 2014 fiscal year. Comparative balance sheets as of December 31, 2013 and 2014, and a statement of income and retained earnings for the year ended December 31, 2014, are prese
> Botticelli Inc. was organized in late 2012 to manufacture and sell hosiery. At the end of its fourth year of operation, the company has been fairly successful, as indicated by the following reported net incomes. aIncludes a $10,000 increase because of ch
> What is the difference between a future taxable amount and a future deductible amount? When is it appropriate to record a valuation account for a deferred tax asset?
> Identify the lease classifications for lessors and the criteria that must be met for each classification.
> George Company manufactures a check-in kiosk with an estimated economic life of 12 years and leases it to National Airlines for a period of 10 years. The normal selling price of the equipment is $278,072, and its unguaranteed residual value at the end of
> Presented below is an excerpt from the financial statements of H. J. Heinz Company. Segment and Geographic Data The company is engaged principally in one line of business—processed food products—which represents over 9
> What is meant by “past service cost”? When is past service cost recognized as pension expense?
> Keeton Company sponsors a defined benefit pension plan for its 600 employees. The company’s actuary provided the following information about the plan. The average remaining service life per employee is 10.5 years. The service cost compo
> The information shown below and on page 1170 was disclosed during the audit of Elbert Inc. 1. 2. On January 1, 2014, equipment costing $600,000 is purchased. For financial reporting purposes, the company uses straight-line depreciation over a 5-year life
> Discuss and illustrate how a correction of an error in previously issued financial statements should be handled.
> The residual value is the estimated fair value of the leased property at the end of the lease term. (a) Of what significance is (1) an unguaranteed and (2) a guaranteed residual value in the lessee’s accounting for a capitalized-lease transaction? (b) Of
> If pension expense recognized in a period exceeds the current amount funded by the employer, what kind of account arises, and how should it be reported in the financial statements? If the reverse occurs—that is, current funding by the employer exceeds th
> What are some of the reasons that the components of income tax expense should be disclosed and a reconciliation between the effective tax rate and the statutory tax rate be provided?
> Hayes Company sold 10,000 shares of Kenyon Co. common stock for $27.50 per share, incurring $1,770 in brokerage commissions. These securities were classified as trading and originally cost $260,000. Prepare the entry to record the sale of these securitie
> Olga Conrad, a financial writer, noted recently, “There are substantial arguments for including earnings projections in annual reports and the like. The most compelling is that it would give anyone interested something now available to only a relatively
> Presented below are two independent situations related to future taxable and deductible amounts resulting from temporary differences existing at December 31, 2014. 1. Mooney Co. has developed the following schedule of future taxable and deductible amount
> Explain how the amount of cash payments to suppliers is computed under the direct method.
> Paul Dobson Stores sell appliances for cash and also on the installment plan. Entries to record cost of sales are made monthly. Repossessions recorded during the year are summarized as follows. Instructions From the trial balance and accompanying inform
> Beilman Inc. reports the following pretax income (loss) for both book and tax purposes. (Assume the carryback provision is used where possible for a net operating loss.) The tax rates listed were all enacted by the beginning of 2012. Instructions (a) Pre
> Distinguish between counterbalancing and noncounter balancing errors. Give an example of each.
> Alice Foyle, M.D. (lessee), has a noncancelable 20-year lease with Brownback Realty, Inc. (lessor) for the use of a medical building. Taxes, insurance, and maintenance are paid by the lessee in addition to the fixed annual payments, of which the present
> Hamilton Construction Company uses the percentage-of-completion method of accounting. In 2014, Hamilton began work under contract #E2-D2, which provided for a contract price of $2,200,000. Other details follow: Instructions (a) What portion of the total
> What are “liability gains and losses,” and how are they accounted for?
> Differentiate between “accounting for the employer” and “accounting for the pension fund.”
> Addison Co. has one temporary difference at the beginning of 2014 of $500,000. The deferred tax liability established for this amount is $150,000, based on a tax rate of 30%. The temporary difference will provide the following taxable amounts: $100,000 i
> What are the two basic methods of accounting for long term construction contracts? Indicate the circumstances that determine when one or the other of these methods should be used.
> At the end of the year, Falabella Co. has pretax financial income of $550,000. Included in the $550,000 is $70,000 interest income on municipal bonds, $25,000 fine for dumping hazardous waste, and depreciation of $60,000. Depreciation for tax purposes is
> Briefly describe some of the similarities and differences between GAAP and IFRS with respect to income tax accounting.
> Warren Co. purchased a put option on Echo common shares on January 7, 2014, for $360. The put option is for 400 shares, and the strike price is $85 (which equals the price of an Echo share on the purchase date). The option expires on July 31, 2014. The f
> The board of directors of Gifford Corp. declared cash dividends of $260,000 during the current year. If dividends payable was $85,000 at the beginning of the year and $90,000 at the end of the year, how much cash was paid in dividends during the year?
> Simms Corp. controlled four domestic subsidiaries and one foreign subsidiary. Prior to the current year, Simms Corp. had excluded the foreign subsidiary from consolidation. During the current year, the foreign subsidiary was included in the financial sta
> Metheny Corporation’s lease arrangements qualify as sales-type leases at the time of entering into the transactions. How should the corporation recognize revenues and costs in these situations?
> On June 3, Hunt Company sold to Ann Mount merchandise having a sales price of $8,000 with terms of 2/10, n/60, f.o.b. shipping point. An invoice totaling $120, terms n/30, was received by Mount on June 8 from the Olympic Transport Service for the freight
> What is meant by “prior service cost”? When is prior service cost recognized as pension expense?
> Assume the same information as in E17-19 for Lilly Company. In addition, assume that the investment in the Woods Inc. stock was sold during 2015 for $195,000. At December 31, 2015, the following information relates to its two remaining investments of com
> Using the information in E20-22, In E20-22 Prepare a worksheet inserting January 1, 2014, balances, showing December 31, 2014, balances, and the journal entry recording postretirement benefit expense. Service cost $ 90,000 Prior service cost amortiz
> What date or event does the profession believe should be used in determining the value of a stock option? What arguments support this position?
