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Questions and Answers of Accounting

Accounting for Patents, Franchises, and R&D 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,
Accounting for Patents during 2007, 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
Accounting for Patents during 2007, 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
Accounting for Goodwill 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
Accounting for Goodwill On July 1, 2010, Brandon Corporation purchased Mills Company by paying $250,000 cash and issuing a $150,000 note payable. At July 1, 2010, the balance sheet of Mills Company
Copyright Impairment Presented below is information related to copyrights owned by Botticelli Company at December 31, 2010. Assume that Botticelli Company will continue to use this copyright in the
Goodwill Impairment Presented below is net asset information related to the Mischa Division of Santana, Inc. The purpose of the Mischa division is to develop a nuclear-powered aircraft. If
Accounting for R&D Costs Margaret Avery Company from time to time embarks on a research program when a special project seems to offer possibilities. In 2009 the company expends $325,000 on a
Accounting for R&D Costs Martinez Company incurred the following costs during 2010 in connection with its research and development activities.Cost of equipment acquired that will have alternative
Accounting for Computer Software Costs Majoli Inc. has capitalized computer software costs of $3,900,000 on its new “Trenton” software package. Revenues from 2010 (first year) sales are
Accounting for Computer Software Costs during 2010, Botosan Enterprises Inc. spent $5,000,000 developing its new “Dover” software package. Of this amount, $2,600,000 was spent before
Correct Intangible Asset Account Reichenbach Co., organized in 2009, has set up a single account for all intangible assets. The following summary discloses the debit entries that have been recorded
Accounting for Patents Fields Laboratories holds a valuable patent (No. 758-6002-1A) on a precipitator that prevents certain types of air pollution. Fields does not manufacture or sell the products
Accounting for Franchise, Patents, and Trade Name Information concerning Sandro Corporation’s intangible assets is as follows. 1. On January 1, 2010, Sandro signed an agreement to operate as a
Accounting for R&D Costs during 2008, Robin Wright Tool Company purchased a building site for its proposed research and development laboratory at a cost of $60,000. Construction of the building
(Goodwill, Impairment) On July 31, 2010, Mexico Company paid $3,000,000 to acquire all of the common stock of Conchita Incorporated, which became a division of Mexico. Conchita reported the following
Comprehensive Intangible Assets Montana Matt's Golf Inc. was formed on July 1, 2009, when Matt Magilke purchased the Old Master Golf Company. Old Master provides video golf instruction at kiosks in
Accounting for Pollution Expenditure Counting Crows Company operates several plants at which limestone is processed into quicklime and hydrated lime. The Eagle Ridge plant, where most of the
Accounting for Pre-Opening Costs After securing lease commitments from several major stores, Auer Shopping Center, Inc. was organized and built a shopping center in a growing suburb. The shopping
Accounting for Patents On June 30, 2010, your client, Ferry Company, was granted two patents covering plastic cartons that it had been producing and marketing profitably for the past 3 years. One
Accounting for Research and Development Costs Cuevas Co. is in the process of developing a revolutionary new product. A new division of the company was formed to develop, manufacture, and market this
Accounting for Research and Development Costs Czeslaw Corporation’s research and development department has an idea for a project it believes will culminate in a new product that would be very
Distinguish between a current liability and a long-term debt.
Assume that your friend Greg Jonas, who is a music major, asks you to define and discuss the nature of a liability. Assist him by preparing a definition of a liability and by explaining to him what
Why is the liabilities section of the balance sheet of primary significance to bankers?
How are current liabilities related by definition to current assets? How are current liabilities related to a company’s operating cycle?
Jon Bryant, a newly hired loan analyst, is examining the current liabilities of a corporate loan applicant. He observes that unearned revenues have declined in the current year compared to the prior
How is present value related to the concept of a liability?
What is the nature of a “discount” on notes payable?
How should a debt callable by the creditor be reported in the debtor’s financial statements?
Under what conditions a short-term obligation should be excluded from current liabilities?
What evidence is necessary to demonstrate the ability to consummate the refinancing of short-term debt?
Discuss the accounting treatment or disclosure that should be accorded a declared but unpaid cash dividend; an accumulated but undeclared dividend on cumulative preferred stock; a stock dividend
How does deferred or unearned revenue arise? Why can it be classified properly as a current liability? Give several examples of business activities that result in unearned revenues.
What are compensated absences?
Under what conditions must an employer accrue a liability for the cost of compensated absences?
Under what conditions is an employer required to accrue a liability for sick pay? Under what conditions is an employer permitted but not required to accrue a liability for sick pay?
Faith Battle operates a health food store, and she has been the only employee. Her business is growing, and she is considering hiring some additional staff to help her in the store. Explain to her
Define(a) A contingency(b) A contingent liability.
Under what conditions a contingent liability should is recorded?
Distinguish between a current liability and a contingent liability. Give two examples of each type.
How are the terms “probable,” “reasonably possible,” and “remote” related to contingent liabilities?
Contrast the cash basis method and the accrual method of accounting for warranty costs.
Grant Company has had a record-breaking year in terms of growth in sales and profitability. However, market research indicates that it will experience operating losses in two of its major businesses
How does the expense warranty approach differ from the sales warranty approach?
Southeast Airlines Inc. awards members of its Flight line program a second ticket at half price, valid for 2 years anywhere on its flight system, when a full-price ticket is purchased. How would you
Pacific Airlines Co. awards members of its Frequent Fliers Club one free round-trip ticket, anywhere on its flight system, for every 50,000 miles flown on its planes. How would you account for the
When must a company recognize an asset retirement obligation?
Should a liability be recorded for risk of loss due to lack of insurance coverage? Discuss.
What factors must be considered in determining whether or not to record a liability for pending litigation for threatened litigation?
Within the current liabilities section, how do you believe the accounts should be listed? Defend your position.
How does the acid-test ratio differ from the current ratio? How are they similar?
Roley Corporation uses a periodic inventory system and the gross method of accounting for purchase discounts. On July 1, Roley purchased $60,000 of inventory, terms 2/10, n/30, FOB shipping point.
Upland Company borrowed $40,000 on November 1, 2010, by signing a $40,000, 9%, 3-month note. Prepare Upland’s November 1, 2010, entry; the December 31, 2010, annual adjusting entry; and the
Takemoto Corporation borrowed $60,000 on November 1, 2010, by signing a $61,350, 3-month, zero-interest-bearing note. Prepare Takemoto’s November 1, 2010, entry; the December 31, 2010, annual
At December 31, 2010, Burr Corporation owes $500,000 on a note payable due February 15, 2011.(a) If Burr refinances the obligation by issuing a long-term note on February 14 and using the proceeds to
Sport Pro Magazine sold 12,000 annual subscriptions on August 1, 2010, for $18 each. Prepare Sport Pro’s August 1, 2010, journal entry and the December 31, 2010, annual adjusting entry.
Dillons Corporation made credit sales of $30,000 which are subject to 6% sales tax. The corporation also made cash sales which totaled $20,670 including the 6% sales tax.(a) Prepare the entry to
Lexington Corporation’s weekly payroll of $24,000 included F.I.C.A. taxes withheld of $1,836, federal taxes withheld of $2,990, state taxes withheld of $920, and insurance premiums withheld of
Kasten Inc. provides paid vacations to its employees. At December 31, 2010, 30 employees have each earned 2 weeks of vacation time. The employees’ average salary is $500 per week. Prepare
Mayaguez Corporation provides its officers with bonuses based on net income. For 2010, the bonuses total $350,000 and are paid on February 15, 2011. Prepare Mayaguez’s December 31, 2010, adjusting
Scorcese Inc. is involved in a lawsuit at December 31, 2010.(a) Prepare the December 31 entry assuming it is probable that Scorcese will be liable for $900,000 as a result of this suit.(b) Prepare
Buchanan Company recently was sued by a competitor for patent infringement. Attorneys have determined that it is probable that Buchanan will lose the case and that a reasonable estimate of damages to
Calaf’s Drillers erects and places into service an off-shore oil platform on January 1, 2011, at a cost of $10,000,000. Calaf is legally required to dismantle and remove the platform at the end of
Streep Factory provides a 2-year warranty with one of its products which was first sold in 2010. In that year, Streep spent $70,000 servicing warranty claims. At year-end, Streep estimates that an
Leppard Corporation sells DVD players. The corporation also offers its customers a 2-year warranty contract. During 2010, Leppard sold 20,000 warranty contracts at $99 each. The corporation spent
Wynn Company offers a set of building blocks to customers who send in 3 UPC codes from Wynn cereal, along with 50¢. The blocks sets cost Wynn $1.10 each to purchase and 60¢ each to mail to
Balance Sheet Classification of Various Liabilities how would each of the following items be reported on the balance sheet?(a) Accrued vacation pay.(b) Estimated taxes payable.(c) Service warranties
Accounts and Notes Payable the following are selected 2010 transactions of Darby Corporation.Sept. 1 Purchased inventory from Orion Company on account for $50,000. Darby records purchases gross and
Refinancing of Short-Term Debt On December 31, 2010, Alexander Company had $1,200,000 of short-term debt in the form of notes payable due February 2, 2011. On January 21, 2011, the company issued
Refinancing of Short-Term Debt On December 31, 2010, Santana Company has $7,000,000 of short-term debt in the form of notes payable to Golden State Bank due in 2011. On January 28, 2011, Santana
Compensated Absences Mathewson Company began operations on January 2, 2010. It employs 9 individuals who work 8-hour days and are paid hourly. Each employee earns 10 paid vacation days and 6 paid
Compensated Absences Assume the facts in the preceding exercise, except that Mathewson Company has chosen not to accrue paid sick leave until used, and has chosen to accrue vacation time at expected
Adjusting Entry for Sales Tax during the month of June, Danielle’s Boutique had cash sales of $265,000 and credit sales of $153,700, both of which include the 6% sales tax that must be remitted to
Payroll Tax Entries the payroll of Delaney Company for September 2010 is as follows. Total payroll was $480,000, of which $140,000 is exempt from Social Security tax because it represented amounts
Payroll Tax Entries Allison Hardware Company's payroll for November 2010 is summarized below. At this point in the year some employees have already received wages in excess of those to which payroll
Warranties Winslow Company sold 150 color laser copiers in 2010 for $4,000 apiece, together with a one-year warranty. Maintenance on each copier during the warranty period averages $300.(a) Prepare
Warranties Selzer Equipment Company sold 500 Rollomatics during 2010 at $6,000 each. During 2010, Selzer spent $30,000 servicing the 2-year warranties that accompany the Rollomatic. All applicable
Premium Entries Moleski Company includes 1 coupon in each box of soap powder that it packs, and 10 coupons are redeemable for a premium (a kitchen utensil). In 2010, Moleski Company purchased 8,800
Contingencies Presented below are three independent situations. Answer the question at the end of each situation.1. During 2010, Maverick Inc. became involved in a tax dispute with the IRS.
Asset Retirement Obligation Bassinger Company purchases an oil tanker depot on January 1, 2010, at a cost of $600,000. Bassinger expects to operate the depot for 10 years, at which time it is legally
Premiums Presented below are three independent situations.1. Mar-quart Stamp Company records stamp service revenue and provides for the cost of redemptions in the year stamps are sold to licensees.
Financial Statement Impact of Liability Transactions Presented below is a list of possible transactions. 1. Purchased inventory for $80,000 on account (assume perpetual system is used). 2. Issued an
Ratio Computations and Discussion Costner Company has been operating for several years, and on December 31, 2010, presented the following balance sheet. The net income for 2010 was $25,000. Assume
Ratio Computations and Analysis Vogue Company's condensed financial statements provide the following information. (a) Determine the following for 2010. (1) Current ratio at December 31. (2)
Ratio Computations and Effect of Transactions Presented below is information related to Leland Inc. (a) Compute the following ratios or relationships of Leland Inc. Assume that the ending account
Current Liability Entries and Adjustments Described below are certain transactions of Edward son Corporation. The company uses the periodic inventory system.1. On February 2, the corporation
Liability Entries and Adjustments Listed below are selected transactions of Schultz Department Store for the current year ending December 31.1. On December 5, the store received $500 from the Jackson
Payroll Tax Entries Cedarville Company pays its office employee payroll weekly. Below is a partial list of employees and their payroll data for August. Because August is their vacation period,
Payroll Tax Entries Below is a payroll sheet for Otis Import Company for the month of September 2010. The company is allowed a 1% unemployment compensation rate by the state; the federal unemployment
Warranties, Accrual, and Cash Basis Brooks Corporation sells computers under a 2-year warranty contract that requires the corporation to replace defective parts and to provide the necessary repair
Extended Warranties Dos Passos Company sells televisions at an average price of $900 and also offers to each customer a separate 3-year warranty contract for $90 that requires the company to perform
Warranties, Accrual, and Cash Basis Alvarado Company sells a machine for $7,400 under a 12-month warranty agreement that requires the company to replace all defective parts and to provide the repair
Premium Entries to stimulate the sales of its Alladin breakfast cereal, Loptien Company places 1 coupon in each box. Five coupons are redeemable for a premium consisting of a children’s hand
Premium Entries and Financial Statement Presentation Sycamore Candy Company offers a CD single as a premium for every five candy bar wrappers presented by customers together with $2.50. The candy
Loss Contingencies: Entries and Essay on November 24, 2010, 26 passengers on Windsor Airlines Flight No. 901 were injured upon landing when the plane skidded off the runway. Personal injury suits for
Loss Contingencies: Entries and Essays Polska Corporation, in preparation of its December 31, 2010, financial statements, is attempting to determine the proper accounting treatment for each of the
Warranties and Premiums Garison Music Emporium carries a wide variety of musical instruments, sound reproduction equipment, recorded music, and sheet music. Garison uses two sales promotion
Liability Errors you are the independent auditor engaged to audit Millay Corporation’s December 31, 2010, financial statements. Millay manufactures household appliances. During the course of your
Warranty and Coupon Computation Schmitt Company must make computations and adjusting entries for the following independent situations at December 31, 2011. 1. Its line of amplifiers carries a 3-year

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