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Questions and Answers of Accounting

Refer to Practice 10-6. Assume that construction was not completed on December 31 of Year 1. Also assume that the same loans were outstanding for all of Year 2. The following expenditure was made
The company has received a donation of land from a rich local philanthropist. The land originally cost the philanthropist $48,000. On the date of the donation, it had a market value of $111,000. Make
The company purchased a mining site that will have to be restored to certain specifications when the mining production ceases. The cost of the mining site is $800,000, and the restoration cost is
The company recently replaced the heating/cooling system for its building. The old system cost $160,000, and was 80% depreciated. The new system cost $210,000, which was paid in cash. The new system
During the year, the company made the following research and development expenditures:Compute the total research and development (R&D) expense for the year assuming (1) the expenditures were for
The company started business on January 1 and during the year had oil and gas exploration costs of $500,000. Of these costs, $100,000 was associated with successful wells and $400,000 with so-called
Stafford Company purchased Deaver Manufacturing for $1,400,000 cash on January 1. The book value and fair value of the assets of Deaver as of the date of the acquisition follow:In addition, Deaver
Refer to Practice 10-14. Assume that the cash acquisition price is $720,000 instead of $1,400,000. Make the journal entry necessary on the books of Stafford Company to record the acquisition.
The company paid $500,000 to purchase the following: a building with an appraised value of $200,000, an operating permit valued at $100,000, and ongoing research and development projects valued at
Buyer Company purchased Target Company for $800,000 cash. Target Company had total liabilities of $300,000. Buyer Company’s assessment of the fair values it obtained when it purchased Target
Company A had sales for the year totaling $480,000. The net property, plant, and equipment balance at the beginning of the year was $160,000; the ending balance was $200,000. Compute the fixed asset
Refer to Practice 10-18. Company A’s competitor, Company B, had sales for the year totaling $360,000. The net property, plant, and equipment balance at the beginning of the year was $200,000; the
The following expenditures were incurred by Peterson Enterprises Co. in 2011:Purchase of land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 270,000Land survey . . . .
Dean Lang Enterprises Inc. developed a new machine that reduces the time required to insert the fortunes into its fortune cookies. Because the process is considered very valuable to the fortune
Allred Shipping Co. acquired land, buildings, and equipment at a lump-sum price of $920,000. An appraisal of the assets at the time of acquisition disclosed the following values.Land . . . . . . . .
Ratcliff Corporation purchased land, a building, a patent, and a franchise for the lump sum of $1,450,000. A real estate appraiser estimated the building to have a resale value of $600,000 (2/3 of
Custom Industries purchases new specialized manufacturing equipment on July 1, 2011. The equipment cash price is $96,000. Custom signs a deferred payment contract that provides for a down payment of
HiTech Industries purchases new electronic equipment for its telecommunication system. The contractual arrangement specifies 10 payments of $8,600 each to be made over a 10-year period. If HiTech had
On May 31, 2011, Julienne Corp. exchanged 20,000 shares of its $1 par common stock for the following assets:(a) A trademark valued at $183,000.(b) A building, including land, valued at $732,000 (20%
Sayer Co. enters into a contract with Bradford Construction Co. for construction of an office building at a cost of $680,000. Upon completion of construction, Bradford agrees to accept in full
Valdilla’s Music Store acquired land and an old building in exchange for 50,000 shares of its common stock, par $0.50, and cash of $80,000. The auditor ascertains that the company’s stock was
Brodhead Manufacturing Company has constructed its own special equipment to produce a newly developed product. A bid to construct the equipment by an outside company was received for $1,200,000. The
Carver Department Stores, Inc., constructs its own stores. In the past, no cost has been added to the asset value for interest on funds borrowed for construction. Management has decided to correct
For each of the situations described here, indicate when interest should be capitalized (C) and when it should not be capitalized (NC).(a) Queen Company is constructing a piece of equipment for its
Simpson Company purchased a nerve gas detoxification facility. The facility cost $900,000. The cost of cleaning up the routine contamination caused by the initial location of nerve gas on the
GoodeHill Company replaced some parts of its factory building during 2011:(a) The outside corrugated covering on the factory walls was removed and replaced. The job was done by an expert crew from
In 2011, the Slidell Corporation incurred research and development costs as follows:Materials and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $160,000Personnel . . . . . .
Pringle Company has a substantial research department. Following are listed, in chronological order, some of the major activities associated with one of Pringle’s research projects.Project
Exploratory Company is an oil and gas exploration firm. During 2011, Exploratory engaged in 86 different exploratory projects, only 20 of which were successful. The total cost of this exploration
One of the most difficult problems facing an accountant is the determination of which expenditures should be capitalized and which should be immediately expensed. What position would you take in each
Conglomerate Company purchased Individual Company for $860,000 cash. A schedule of the fair values of Individual€™s assets and liabilities as of the purchase date follows.1. Make the
Landers Inc. is considering purchasing J&B Properties, which has the following assets and liabilities.1. Make the journal entry necessary for Landers Inc. to record the purchase if the purchase price
Taraz Company paid $500,000 to purchase the following portfolio of intangibles with estimated fair values as indicated:EstimatedFair ValueInternet domain name . . . . . . . . . . . . . . . . . . . .
Omniportal Company purchased Network Enterprises. The following fair values were associated with the items acquired in this business acquisition:The fair value associated with Network
Dandy Hardware Stores reported the following asset values in 2010 and 2011:In addition, Dandy Hardware had sales of $3,500,000 in 2011. Cost of goods sold for the year was $2,200,000. Compute Dandy
On December 31, 2011, Bridgeport Co. shows the following account for machinery it had assembled for its own use during 2011:Account: MACHINERY (Job Order #1329)An analysis of the details in the
The accountant for Stansbury Development Company is uncertain how to record the following costs associated with the construction of a golf course.(a) Building artificial lakes.(b) Moving earth around
Skyline Corporation has decided to expand its operations and has purchased land in Salina for construction of a new manufacturing plant. The following costs were incurred in purchasing the property
The following transactions were completed by Millenial Toy Co. during 2011:Mar. 1 Purchased real property for $829,700, which included a charge of $29,700 representing property tax for March 1–June
Bylund Corporation was organized in June 2011. In auditing its books, you find the following land, buildings, and equipment account:An analysis of this account and of other accounts disclosed the
In your audit of the books of Dyer Corporation for the year ended September 30, 2011, you found the following items in connection with the company’s patents account:(a) The company had spent
What is the historical significance of par value?
Transactions during 2011 of the newly organized Menlove Corporation included the following:Jan. 2 Paid legal fees of $15,000 and stock certificate costs of $8,300 to complete organization of the
What rights of ownership are given up by preferred shareholders? What additional protections are enjoyed by preferred shareholders?
Bridges Wholesale Company incurred the following costs in 2011 for a warehouse acquired on July 1, 2011, the beginning of its fiscal year:Cost of land . . . . . . . . . . . . . . . . . . . . . . . .
Under the November 2007 Preliminary Views document issued by the FASB, how would preferred stock be classified in the balance sheet?
Powersoft Company is engaged in developing computer software for the small business and home computer market. Most of the computer programmers are involved in developmental work designed to produce
How is stock valued when it is issued in exchange for noncash assets or for services?
At December 31, 2010, certain accounts included in the Noncurrent Operating Assets section of Salvino Company’s balance sheet had the following balances:Land . . . . . . . . . . . . . . . . . . .
At December 31, 2010, Davis Company’s noncurrent operating asset accounts had the following balances:CategoryLand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Why might a company repurchase its own stock? Discuss.
Oceanwide Enterprises, Inc., is involved in building and operating cruise ships. Each ship is identified as a separate discrete job in the accounting records. At the end of 2010, Oceanwide correctly
(a) What is the basic difference between the cost method and the par value method of accounting for treasury stock? (b) How will total stockholders’ equity differ, if at all, under the two methods?
American Corporation received a $400,000 low bid from a reputable manufacturer for the construction of special production equipment needed by American in an expansion program. Because its own plant
There is frequently a difference between the purchase price and the selling price of treasury stock. Why isn’t this difference shown as a gain or a loss on the income statement?
Madison Company has purchased land that will serve as a temporary repository for nuclear waste. The site will function for 20 years, at which time Madison will be required to completely decontaminate
Aurora Corp. acquired Payette Company on December 31, 2011. The following information concerning Payette€™s assets and liabilities was assembled on the acquisition date:Instructions:1. Make
Explain the difference in the accounting for detachable and nondetachable warrants.
What option value is used in the computation of compensation expense associated with a basic stock-based compensation plan?
Santa Clarita Company reported interest expense in 2011 and 2010 of $470,000 and $410,000, respectively. The balance in Accrued Interest Payable at the end of 2011, 2010, and 2009 was $51,000,
With a performance-based stock option plan, a catch-up adjustment is necessary when the probable number of options that will vest changes from one year to the next. Describe this catch-up adjustment.
As of December 31, 2011, W. W. Cole Company’s total assets were $325 million and total liabilities were $180 million. Net income for 2011 was $38 million. During 2011, W. W. Cole’s chief
When a stock-based award calls for settlement in cash, how is the obligation accounted for?
Trevor Company completed a program of expansion and improvement of its plant during 2011. You are provided with the following information concerning its buildings account:(a) On October 31, 2011, a
Beecher’s Boston Barbeque Company purchased a customer list and an ongoing research project for a total of $300,000. Beecher uses the expected cash flow approach for estimating the fair value of
Under the November 2007 Preliminary Views document issued by the FASB, how would employee stock options be classified in the balance sheet?
Progressive Company reported the following asset values in 2010 and 2011:In addition, in 2011, Progressive had sales of $4,800,000; cost of goods sold for the year was $2,900,000. As of the end of
How should mandatorily redeemable preferred shares be reported in the balance sheet?
1. Cole Co. began constructing a building for its own use in January 2011. During 2011, Cole incurred interest of $50,000 on specific construction debt and $20,000 on other borrowings. The amount of
When a corporation writes a put option on its own shares, what does the corporation receive? What does the corporation agree to do?
Fugate Energy Corp. has recently purchased a small local company, Gleave Inc., for $556,950 cash. Fugate’s chief accountant has been given the assignment of preparing the journal entry to record
Strategy, Inc., was organized by Elizabeth Durrant and Ramona Morales, two students working their way through college. Both Elizabeth and Ramona had used the Internet extensively while in high school
Terri Morton has been recently hired as a financial analyst. Her first assignment is to analyze why the reported return on assets (ROA) for Arnold Company is so much different from that of Baker
In 1974, as the FASB considered requiring the expensing of all in-house research and development expenditures, the Board received many comments predicting that if firms were required to expense R&D,
What distinguishes a situation in which an obligation to issue shares is recorded as equity from a situation in which an obligation to issue shares is recorded as a liability?
In 1996, Financial World magazine estimated and ranked the most valuable brand names in the world. Number 11 in the ranking was Gillette with an estimated value of $10.3 billion. Financial World
What is noncontrolling interest?
Rouse Company, a real estate developer, is well known as one of the few U.S. companies to have reported the current value of property and equipment in its financial statements. As mentioned in the
How are errors corrected when they are discovered in the current year? in a subsequent year?
How can retained earnings be restricted by law? In what other ways can retained earnings be restricted?
Locate the 2007 financial statements for The Walt Disney Company on the Internet. Use those financial statements and consider the following questions.1. As illustrated in Exhibit 10-10, Interbrand
The following announcement appeared on the financial page of a newspaper: The Board of Directors of Benton Co., at its meeting on June 15, 2011, declared the regular quarterly dividend on outstanding
The 2007 annual report of Minnesota Mining and Manufacturing (3M) included the following information (all dollar amounts are in millions):1. Using only the net PP&E figures, estimate the book value
The directors of The Dress Shoppe are considering declaring either a stock dividend or a stock split. They have asked you to explain the difference between a stock dividend and a stock split and the
The 2007 annual report of Continental Airlines, Inc., included the following information (all dollar amounts are in millions): 2007Net interest expense . . . . . . . . . . . . . . . . . . . . . . . .
(a) What is a liquidating dividend? (b) Under what circumstances are such distributions made?
Hunter Company has developed a computerized machine to assist in the production of appliances. It is anticipated that the machine will do well in the marketplace; however, the company lacks the
To help you become familiar with the accounting standards, this case is designed to take you to the FASB’s Web site and have you access various publications. Access the FASB’s Web site at
What three types of unrealized gains and losses are shown as direct equity adjustments (part of accumulated other comprehensive income), bypassing the income statement? Briefly explain each.
On St. Patrick’s Day 1992, Chambers Development Company, one of the largest landfill and waste management firms in the United States, announced that it had been improperly capitalizing costs
In accounting for the equity of foreign companies, what is the primary purpose of equity reserves?
The company has 10,000 shares of 6%, $100 par preferred stock outstanding. In addition, the company has 100,000 shares of common stock outstanding. The company started business on January 1, 2010.
The company issued 10,000 shares of $1 par common stock for cash of $40 per share. Make the necessary journal entry.
The company received subscriptions for 20,000 shares of $1 par common stock for $25 per share. The company received 40% of the subscription amount immediately and the remainder two months later. Make
The company is experiencing a cash flow shortfall and has asked certain key employees to accept shares of common stock (instead of cash) in payment of salaries. The employees accepted 35,000 shares
The company repurchased 10,000 shares of $1 par common stock for a total of $300,000. None of the shares were retired. A month later, the company sold 4,000 of these shares for $144,000. The shares
Refer to Practice 13-5. Make the necessary journal entries using the par value method.
The company issued 20,000 shares of 7%, $50 par preferred stock. Associated with each share of stock was a detachable common stock warrant. Each warrant entitles the holder to purchase one share of
On January 1, the company granted 150,000 stock options to key employees. Each option allows an employee to buy one share of $1 par common stock for $25, which was the market price of the shares on
Refer to Practice 13-8. Assume that the stock-based compensation plan is performance based. As of the end of the first year, the number of options that are probable to vest is 150,000. At the end of

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