The earning of revenue by a business enterprise is recognized for accounting purposes when the transaction is recorded. In some situations, revenue is recognized approximately as it is earned in the economic sense. In other situations, however, accountants have developed guidelines for recognizing revenue by other criteria, such as at the point of sale. Instructions (a) Explain and justify why revenue is often recognized as earned at time of sale. (b) Explain in what situations it would be appropriate to recognize revenue as the productive activity takes place. (c) At what times, other than those included in (a) and (b) above, may it be appropriate to recognize revenue? Explain.
> Each of the following items must be considered in preparing a statement of cash flows for Cruz Fashions Inc. for the year ended December 31, 2014. 1. Fixed assets that had cost $20,000 61⁄2 years before and were being depreciated on a 10-year basis, with
> Pretax financial income for Lake Inc. is $300,000, and its taxable income is $100,000 for 2015. Its only temporary difference at the end of the period relates to a $70,000 difference due to excess depreciation for tax purposes. If the tax rate is 40% for
> Describe the current convergence efforts of the FASB and IASB in the area of accounting for taxes.
> On January 3, 2013, Martin Company purchased for $500,000 cash a 10% interest in Renner Corp. On that date, the net assets of Renner had a book value of $3,700,000. The excess of cost over the underlying equity in net assets is attributable to undervalue
> LEW Jewelry Co. uses gold in the manufacture of its products. LEW anticipates that it will need to purchase 500 ounces of gold in October 2014, for jewelry that will be shipped for the holiday shopping season. However, if the price of gold increases, LEW
> The following article appeared in the Wall Street Journal. Washington—The Securities and Exchange Commission staff issued guidelines for companies grappling with the problem of dividing up their business into industry segments for their annual reports. A
> Part 1: Capital leases and operating leases are the two classifications of leases described in FASB pronouncements from the standpoint of the lessee. Instructions (a) Describe how a capital lease would be accounted for by the lessee both at the inception
> Gordon Company sponsors a defined benefit pension plan. The following information related to the pension plan is available for 2014 and 2015. Instructions (a) Compute pension expense for 2014 and 2015. (b) Prepare the journal entries to record the pensio
> The financial statements of Marks and Spencer plc (M&S) are available at the book’s companion website or can be accessed at http://annualreport.marksandspencer.com/_assets/downloads/Marksand-Spencer-Annual-report-and-financial-statements-2012.pdf. Instr
> Wise Company began operations at the beginning of 2015. The following information pertains to this company. 1. Pretax financial income for 2015 is $100,000. 2. The tax rate enacted for 2015 and future years is 40%. 3. Differences between the 2015 income
> Yanmei Construction Company began operations January 1, 2014. During the year, Yanmei Construction entered into a contract with Lundquist Corp. to construct a manufacturing facility. At that time, Yanmei estimated that it would take 5 years to complete t
> On January 1, 2014, Millay Inc. paid $700,000 for 10,000 shares of Genso Company’s voting common stock, which was a 10% interest in Genso. At that date, the net assets of Genso totaled $6,000,000. The fair values of all of Genso’s identifiable assets and
> Presented below is selected information related to the financial instruments of Dawson Company at December 31, 2014. This is Dawson Company’s first year of operations. Instructions (a) Dawson elects to use the fair value option whenever
> On January 1, 2014, Crocker Company issued 10-year, $2,000,000 face value, 6% bonds, at par. Each $1,000 bond is convertible into 15 shares of Crocker common stock. Crocker’s net income in 2014 was $300,000, and its tax rate was 40%. The company had 100,
> Goring Dairy leases its milking equipment from King Finance Company under the following lease terms. 1. The lease term is 10 years, noncancelable, and requires equal rental payments of $30,300 due at the beginning of each year starting January 1, 2014. 2
> What are interim reports? Why is a complete set of financial statements often not provided with interim data? What are the accounting problems related to the presentation of interim data?
> Turner, Inc. began work on a $7,000,000 contract in 2014 to construct an office building. During 2014, Turner, Inc. incurred costs of $1,700,000, billed its customers for $1,200,000, and collected $960,000. At December 31, 2014, the estimated future cost
> Use the information from IFRS17-10 but assume the shares were purchased to meet a non-trading regulatory requirement. In IFRS17-10 Fairbanks Corporation purchased 400 ordinary shares of Sherman Inc. as a trading investment for $13,200. During the year,
> Discuss how a change to the LIFO method of inventory valuation is handled when it is impracticable to determine previous LIFO inventory amounts.
> Selected transactions of TV Land Company are presented below. 1. A television set costing $540 is sold to Jack Matre on November 1, 2014, for $900. Matre makes a down payment of $300 and agrees to pay $30 on the first of each month for 20 months thereaft
> Teresa Ramirez and Lenny Traylor are examining the following statement of cash flows for Pacific Clothing Store’s first year of operations. Teresa claims that Pacific’s statement of cash flows is an excellent portrayal
> Pacific Crossburgers Inc. charges an initial franchise fee of $70,000. Upon the signing of the agreement, a payment of $28,000 is due. Thereafter, three annual payments of $14,000 are required. The credit rating of the franchisee is such that it would ha
> Following are selected statement of financial position accounts of Sander Bros. Corp. at December 31, 2014 and 2013, and the increases or decreases in each account from 2013 to 2014. Also presented is selected income statement information for the year en
> Fairbanks Corporation purchased 400 ordinary shares of Sherman Inc. as a trading investment for $13,200. During the year, Sherman paid a cash dividend of $3.25 per share. At year-end, Sherman shares were selling for $34.50 per share. Prepare Fairbanks’ j
> The following statement is an excerpt from the FASB pronouncement related to interim reporting. Interim financial information is essential to provide investors and others with timely information as to the progress of the enterprise. The usefulness of suc
> 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.
> Carow Corporation purchased, as a held-for-collection investment, $60,000 of the 8%, 5-year bonds of Harrison, Inc. for $65,118, which provides a 6% return. The bonds pay interest semiannually. Prepare Carow’s journal entries for (a) The purchase of the
> Ramirez Company has a held-for-collection investment in the 6%, 20-year bonds of Soto Company. The investment was originally purchased for $1,200,000 in 2013. Early in 2014, Ramirez recorded an impairment of $300,000 on the Soto investment, due to Soto’s
> What is service cost, and what is the basis of its measurement?
> Amigos Burrito Inc. sells franchises to independent operators throughout the northwestern part of the United States. The contract with the franchisee includes the following provisions. 1. The franchisee is charged an initial fee of $120,000. Of this amo
> Use the information for Rick Kleckner Corporation from IFRS21-7. Assume that at December 31, 2014, Kleckner made an adjusting entry to accrue interest expense of $29,530 on the lease. Prepare Kleckner’s January 1, 2015, journal entry to record the second
> Midwest Health Club (MHC) offers one-year memberships. Membership fees are due in full at the beginning of the individual membership period. As an incentive to new customers, MHC advertised that any customers not satisfied for any reason could receive a
> The financial statements of Marks and Spencer plc (M&S) are available at the book’s companion website or can be accessed at http://annualreport.marksandspencer.com/_assets/downloads/Marks-and-Spencer-Annual-report-and-financial-statements-2012.pdf. Inst
> Norman Co., a fast-growing golf equipment company, uses GAAP. It is considering the issuance of convertible bonds. The bonds mature in 10 years, have a face value of $400,000, and pay interest annually at a rate of 4%. The equity component of the bond is
> Widjaja Company is accounting for a long term construction contract using the percentage-of-completion method. It is a 4-year contract that is currently in its second year. The latest estimates of total contract costs indicate that the contract will be c
> Which types of investments are valued at amortized cost? Explain the rationale for this accounting.
> Briefly describe some of the similarities and differences between GAAP and IFRS with respect to reporting accounting changes.
> You have been asked by a client to review the records of Roberts Company, a small manufacturer of precision tools and machines. Your client is interested in buying the business, and arrangements have been made for you to review the accounting records. Yo
> Richardson Company is contemplating the establishment of a share-based compensation plan to provide long-run incentives for its top management. However, members of the compensation committee of the board of directors have voiced some concerns about adopt
> Outline the accounting procedures involved in applying the operating method by a lessor.
> The comparative balance sheets for Hinckley Corporation show 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 disposal was sold for $2,500. 2. $10,000 of the
> On January 1, 2014, Lesley Benjamin signed an agreement to operate as a franchisee of Campbell Inc. for an initial franchise fee of $50,000. The amount of $10,000 was paid when the agreement was signed, and the balance is payable in five annual payments
> The financial statements of Marks and Spencer plc (M&S) are available at the book’s companion website or can be accessed at http://annualreport.marksandspencer.com/_assets/downloads/Marksand-Spencer-Annual-report-and-financial-statements-2012.pdf. Instr
> Cutting Edge is a monthly magazine that has been on the market for 18 months. It currently has a circulation of 1.4 million copies. Negotiations are underway to obtain a bank loan in order to update the magazine’s facilities. They are producing close to
> Assume that Sarazan Company has a share-option plan for top management. Each share option represents the right to purchase a $1 par value ordinary share in the future at a price equal to the fair value of the shares at the date of the grant. Sarazan has
> Jennings Inc. reported the following pretax income (loss) and related tax rates during the years 2010–2016. Pretax financial income (loss) and taxable income (loss) were the same for all years since Jennings began business. The tax rate
> Griseta & Dubel Inc. was formed early this year to sell merchandise credits to merchants who distribute the credits free to their customers. For example, customers can earn additional credits based on the dollars they spend with a merchant (e.g., air
> Briefly describe some of the similarities and differences between GAAP and IFRS with respect to the accounting for investments.
> Assume the same information in IFRS16-11, except that Angela Corporation converts its convertible bonds on January 1, 2014. In IFRS16-12 Angela Corporation issues 2,000 convertible bonds at January 1, 2013. The bonds have a 3-year life, and are issued at
> Latoya Company provides the following selected information related to its defined benefit pension plan for 2014. Instructions (a) Compute pension expense and prepare the journal entry to record pension expense and the employer’s contri
> Angela Corporation issues 2,000 convertible bonds at January 1, 2013. The bonds have a 3-year life, and are issued at par with a face value of $1,000 per bond, giving total proceeds of $2,000,000. Interest is payable annually at 6%. Each bond is converti
> Dan Aykroyd Corp. was a 30% owner of Steve Martin Company, holding 210,000 shares of Martin’s common stock on December 31, 2013. The investment account had the following entries. On January 2, 2014, Aykroyd sold 126,000 shares of Martin
> Sylvan Inc. entered into a non-cancelable lease arrangement with Breton Leasing Corporation for a certain machine. Breton’s primary business is leasing; it is not a manufacturer or dealer. Sylvan will lease the machine for a period of 3 years, which is 5
> The financial statements of Marks and Spencer plc (M&S) are available at the book’s companion website or can be accessed at http://annualreport.marksandspencer.com/_assets/downloads/Marks-and-Spencer-Annual-report-and-financial-statements-2012.pdf. Inst
> What is the full disclosure principle in accounting? Why has disclosure increased substantially in the last 10 years?
> Revenue is usually recognized at the point of sale. Under special circumstances, however, bases other than the point of sale are used for the timing of revenue recognition. Instructions (a) Why is the point of sale usually used as the basis for the timi
> In 2014, Steinrotter Construction Corp. began construction work under a 3-year contract. The contract price was $1,000,000. Steinrotter uses the percentage-of-completion method for financial accounting purposes. The income to be recognized each year is b
> Addison Manufacturing holds a large portfolio of debt and equity securities as an investment. The fair value of the portfolio is greater than its original cost, even though some securities have decreased in value. Sam Beresford, the financial vice presid
> Holtzman Company is in the process of preparing its financial statements for 2014. Assume that no entries for depreciation have been recorded in 2014. The following information related to depreciation of fixed assets is provided to you. 1. Holtzman purch
> In computing the interest component of pension expense, what interest rates may be used?
> Petrenko Corporation has outstanding 2,000 $1,000 bonds, each convertible into 50 shares of $10 par value ordinary shares. The bonds are converted on December 31, 2014. The bonds payable has a carrying value of $1,950,000 and conversion equity of $20,000
> Jack Kelly Company has grown rapidly since its founding in 2004. To instill loyalty in its employees, Kelly is contemplating establishment of a defined benefit plan. Kelly knows that lenders and potential investors will pay close attention to the impact
> Englehart Co. provides the following information about its postretirement benefit plan for the year 2014. Instructions Compute the postretirement benefit expense for 2014. Service cost $ 90,000 Prior service cost amortization Contribution to the plan
> Peterson Industries has three operating divisions—Farber Mining, Enyart Paperbacks, and Glesen Protection Devices. Each division maintains its own accounting system and method of revenue recognition. Farber Mining Farber Mining specializes in the extrac
> When the records of Debra Hanson Corporation were reviewed at the close of 2015, the errors listed below were discovered. For each item, indicate by a check mark in the appropriate column whether the error resulted in an overstatement, an understatement,
> On July 1, 2014, Selig Company purchased for cash 40% of the outstanding capital stock of Spoor Corporation. Both Selig and Spoor have a December 31 year-end. Spoor Corporation, whose common stock is actively traded on the American Stock Exchange, paid a
> Archer Company issued $4,000,000 par value, 7% convertible bonds at 99 for cash. The net present value of the debt without the conversion feature is $3,800,000. Prepare the journal entry to record the issuance of the convertible bonds.
> Chantal Stores sells merchandise on open account as well as on installment terms. Instructions From the data above, which cover the 3 years since Chantal Stores commenced operations, determine the net income for each year, applying the installment-sales
> What quantitative materiality test is applied to determine whether a segment is significant enough to warrant separate disclosure?
> On January 1, 2014, Beyonce Co. purchased 25,000 shares (a 10% interest) in Elton John Corp. for $1,400,000. At the time, the book value and the fair value of John’s net assets were $13,000,000. On July 1, 2015, Beyonce paid $3,040,000
> Linda Berstler Company sponsors a defined benefit pension plan. The corporation’s actuary provides the following information about the plan. Instructions (a) Compute the actual return on the plan assets in 2014. (b) Compute the amount o
> You have been engaged by Buhl Construction Company to advise it concerning the proper accounting for a series of long-term contracts. Buhl commenced doing business on January 1, 2014. Construction activities for the first year of operations are shown bel
> On July 1, 2015, Fontaine Company purchased for cash 40% of the outstanding capital stock of Knoblett Company. Both Fontaine Company and Knoblett Company have a December 31 year-end. Knoblett Company, whose common stock is actively traded in the over-the
> What is service cost, and what is the basis of its measurement?
> Presented below are three unrelated situations involving equity securities. Situation 1: An equity security, whose fair value is currently less than cost, is classified as available-for-sale but is to be reclassified as trading. Situation 2: A noncurrent
> Shapiro Inc. was incorporated in 2013 to operate as a computer software service firm with an accounting fiscal year ending August 31. Shapiro’s primary product is a sophisticated online inventory-control system; its customers pay a fixe
> Buhl Corp. sponsors a defined benefit pension plan for its employees. On January 1, 2014, the following balances relate to this plan. As a result of the operation of the plan during 2014, the following additional data are provided by the actuary. Instruc
> Describe the procedures involved in segregating various deferred tax amounts into current and noncurrent categories.
> Outline the accounting procedures involved in applying the finance lease method by a lessee.
> Differentiate between a defined contribution pension plan and a defined benefit pension plan. Explain how the employer’s obligation differs between the two types of plans.
> On January 1, 2014, Pennington Corporation purchased 30% of the common shares of Edwards Company for $180,000. During the year, Edwards earned net income of $80,000 and paid dividends of $20,000. Instructions Prepare the entries for Pennington to record
> Bill Haley is learning about pension accounting. He is convinced that in years when companies record liability gains and losses, total comprehensive income will not be affected. Is Bill correct? Explain.
> Johnstone Co. purchased a put option on Ewing common shares on July 7, 2014, for $240. The put option is for 200 shares, and the strike price is $70. (The market price of a share of Ewing stock on that date is $70.) The option expires on January 31, 2015
> Sue’s Construction is in its fourth year of business. Sue performs long-term construction projects and accounts for them using the completed-contract method. Sue built an apartment building at a price of $1,100,000. The costs and billin
> Four years after issue, debentures with a face value of $1,000,000 and book value of $960,000 are tendered for conversion into 80,000 shares of common stock immediately after an interest payment date. At that time, the market price of the debentures is 1
> Four years after issue, debentures with a face value of $1,000,000 and book value of $960,000 are tendered for conversion into 80,000 ordinary shares immediately after an interest payment date. At that time, the market price of the debentures is 104, and
> If the bonds in Question 8 are classified as available for sale and they have a fair value at December 31, 2014, of $3,604,000, prepare the journal entry (if any) at December 31, 2014, to record this transaction.
> The following defined pension data of Doreen Corp. apply to the year 2014. Instructions For 2014, prepare a pension worksheet for Doreen Corp. that shows the journal entry for pension expense and the year-end balances in the related pension accounts.
> Monat Construction Company, Inc., entered into a firm fixed-price contract with Hyatt Clinic on July 1, 2014, to construct a four-story office building. At that time, Monat estimated that it would take between 2 and 3 years to complete the project. The t
> Lexington Co. has the following available-for-sale securities outstanding on December 31, 2014 (its first year of operations). During 2015, Summerset Company stock was sold for $9,200, the difference between the $9,200 and the “fair val
> What are the arguments for giving separate accounting recognition to the conversion feature of debentures?
> 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
