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Questions and Answers of Accounting

On October 6, 2011, the Elgin Corporation signed a purchase commitment to purchase inventory for $60,000 on or before March 31, 2012. The company's fiscal year-end is December 31. The contract was
In March 2011, the Phillips Tool Company signed two purchase commitments. The first commitment requires Phillips to purchase inventory for $100,000 by June 15, 2011. The second commitment requires
The following questions are used in the Kaplan CPA Review Course to study inventory while preparing for the CPA examination. Determine the response that best completes the statements or questions.1.
The following questions dealing with inventory are adapted from questions that previously appeared on Certified Management Accountant (CMA) examinations. The CMA designation sponsored by the
Decker Company has five products in its inventory. Information about the December 31, 2011, inventory follows.The selling cost for each product consists of a 15 percent sales commission. The normal
Almaden Hardware Store sells two distinct types of products, tools and paint products. Information pertaining to its 2011 year-end inventory is as follows:Required:1. Determine the balance sheet
Smith Distributors, Inc., supplies ice cream shops with various toppings for making sundaes. On November 17, 2011, a fire resulted in the loss of all of the toppings stored in one section of the
Sparrow Company uses the retail inventory method to estimate ending inventory and cost of goods sold. Data for 2011 are as follows:The company records sales net of employee discounts. Discounts for
Alquist Company uses the retail method to estimate its ending inventory. Selected information about its year 2011 operations is as follows:a. January 1, 2011, beginning inventory had a cost of
Grand Department Store, Inc., uses the retail inventory method to estimate ending inventory for its monthly financial statements. The following data pertain to a single department for the month of
Smith-Kline Company maintains inventory records at selling prices as well as at cost. For 2011, the records indicate the following data:Required:Use the retail method to approximate cost of ending
Smith-Kline Company maintains inventory records at selling prices as well as at cost. For 2011, the records indicate the following data:Required:Assuming the price level increased from 1.00 at
On January 1, 2011, HGC Camera Store adopted the dollar-value LIFO retail inventory method. Inventory transactions at both cost and retail, and cost indexes for 2011 and 2012 are as
Raleigh Department Store converted from the conventional retail method to the LIFO retail method on January 1, 2009, and is now considering converting to the dollar-value LIFO retail inventory
On January 1, 2011, Pet Friendly Stores adopted the retail inventory method. Inventory transactions at both cost and retail, and cost indexes for 2011 and 2012 are as follows:Required:1. Estimate the
Rockwell Corporation uses a periodic inventory system and has used the FIFO cost method since inception of the company in 1976. In 2011, the company decided to switch to the average cost method. Data
You have been hired as the new controller for the Ralston Company. Shortly after joining the company in 2011, you discover the following errors related to the 2009 and 2010 financial statements:a.
The December 31, 2011, inventory of Tog Company, based on a physical count, was determined to be $450,000. Included in that count was a shipment of goods that cost $50,000 received from a supplier at
Capwell Corporation uses a periodic inventory system. The company's ending inventory on December 31, 2011, its fiscal-year end, based on a physical count, was determined to be $326,000. Capwell's
In November 2011, the Brunswick Company signed two purchase commitments. The first commitment requires Brunswick to purchase 10,000 units of inventory at $10 per unit by December 15, 2011. The second
Hudson Company, which is both a wholesaler and a retailer, purchases its inventories from various suppliers. Additional facts for Hudson's wholesale operations are as follows:a. Hudson incurs
The lower-of-cost-or-market approach to valuing inventory is a departure from the accounting principle of reporting assets at their historical costs. There are those who believe that inventory, as
York Co. sells one product, which it purchases from various suppliers. York's trial balance at December 31, 2011, included the following accounts:York Co.’s inventory purchases during 2011 were as
Huddell Company, which is both a wholesaler and retailer, purchases merchandise from various suppliers. The dollar-value LIFO method is used for the wholesale inventories.Huddell determines the
The Brenly Paint Company, your client, manufactures paint. The company's president, Mr. Brenly, decided to open a retail store to sell paint as well as wallpaper and other items that would be
Generally accepted accounting principles should be applied consistently from period to period. However, changes within a company, as well as changes in the external economic environment, may force a
W.R. Grace & Co. is a global specialty chemicals company. The following disclosure note was included in recent financial statements:Change in Accounting PrincipleIn the third quarter of 2008, Grace
J.C. Penney is one the major retailers in the United States. Access the company's 10-K for the fiscal year ended January 31, 2009. You can find the 10-K at the company's website,
Mayfair Department Stores, Inc., operates over 30 retail stores in the Pacific Northwest. Prior to 2011, the company used the FIFO method to value its inventory. In 2011, Mayfair decided to switch to
Some inventory errors are said to be self-correcting in that the error has the opposite financial statement effect in the period following the error, thereby correcting the original account balance
Danville Bottlers is a wholesale beverage company. Danville uses the FIFO inventory method to determine the cost of its ending inventory. ending inventory quantities are determined by a physical
The management of the Esquire Oil Company believes that the wholesale price of heating oil that they sell to homeowners will increase again as the result of increased political problems in the Middle
What is included in the original cost of property, plant, and equipment and intangible assets acquired in an exchange transaction?
Briefly summarize the accounting treatment for intangible assets, explaining the difference between purchased and internally developed intangible assets.
What is goodwill and how is it measured?
Explain the method generally used to allocate the cost of a lump-sum purchase to the individual assets acquired.
When an item of property, plant, and equipment is disposed of, how is gain or loss on disposal computed?
Identify the two exceptions to valuing property, plant, and equipment and intangible assets acquired in nonmonetary exchanges at the fair value of the asset(s) given up.
In what situations is interest capitalized?
Define average accumulated expenditures and explain how it is computed.
Explain the difference between the specific interest method and the weighted-average method in determining the amount of interest to be capitalized.
Define R&D according to U.S. GAAP.
Explain the accounting treatment of equipment acquired for use in R&D projects.
Explain the accounting treatment of costs incurred to develop computer software.
Explain the difference in the accounting treatment of the cost of developed technology and the cost of in-process R&D in an acquisition.
Identify any differences between U.S. GAAP and International Financial Reporting Standards in the treatment of research and development expenditures.
Identify any differences between U.S. GAAP and International Financial Reporting Standards in the treatment of software development costs.
Beaverton Lumber purchased a milling machine for $35,000. In addition to the purchase price, Beaverton made the following expenditures: freight, $1,500; installation, $3,000; testing, $2,000;
Fullerton Waste Management purchased land and a warehouse for $600,000. In addition to the purchase price, Fullerton made the following expenditures related to the acquisition: broker's commission,
Refer to the situation described in BE 10-2. Assume that Fullerton decides to use the warehouse rather than demolish it. An independent appraisal estimates the fair values of the land and warehouse
Smithson Mining operates a silver mine in Nevada. Acquisition, exploration, and development costs totaled $5.6 million. After the silver is extracted in approximately five years, Smithson is
Refer to the situation described in BE 10-4. What is the carrying value of the asset retirement liability at the end of one year? Assuming that the actual restoration costs incurred after extraction
Pro-tech Software acquired all of the outstanding stock of Reliable Software for $14 million. The book value of Reliable's net assets (assets minus liabilities) was $8.3 million. The fair values of
On June 30, 2011, Kimberly Farms purchased custom-made harvesting machinery from a local producer. In payment, Kimberly signed a noninterest-bearing note requiring the payment of $60,000 in two
Shackelford Corporation acquired a patent from its founder, Jim Shackelford, in exchange for 50,000 shares of the company's nopar common stock. On the date of the exchange, the common stock had a
The balance sheets of Pinewood Resorts reported net fixed assets of $740,000 and $940,000 at the end of 2010 and 2011, respectively. The fixed-asset turnover ratio for 2011 was 3.25. Calculate
Lawler Clothing sold manufacturing equipment for $16,000. Lawler originally purchased the equipment for $80,000, and depreciation through the date of sale totaled $71,000. What was the gain or loss
Calaveras Tire exchanged machinery for two pickup trucks. The book value and fair value of the machinery were $20,000 (original cost of $65,000 less accumulated depreciation of $45,000) and $17,000,
Refer to the situation described in BE 10-11. Answer the questions assuming that the fair value of the machinery was $24,000, instead of $17,000.
Refer to the situation described in BE 10-12. Answer the questions assuming that the exchange lacks commercial substance.
A company constructs a building for its own use. Construction began on January 1 and ended on December 30. The expenditures for construction were as follows: January 1, $500,000; March 31, $600,000;
Refer to the situation described in BE 10-14. Assuming the company uses the weighted-average method, calculate the amount of interest capitalized for the year.
Maxtor Technology incurred the following costs during the year related to the creation of a new type of personal computer monitor:Salaries ................................ $220,000Depreciation on R&D
On March 1, 2011, Beldon Corporation purchased land as a factory site for $60,000. An old building on the property was demolished, and construction began on a new building that was completed on
Oaktree Company purchased a new machine and made the following expenditures:Purchase price ............ $45,000Sales tax ................ 2,200Freight charges for shipment of machine ....
Semtech Manufacturing purchased land and building for $4 million. In addition to the purchase price, Semtech made the following expenditures in connection with the purchase of the land and
Jackpot Mining Company operates a copper mine in central Montana. The company paid $1,000,000 in 2011 for the mining site and spent an additional $600,000 to prepare the mine for extraction of the
Freitas Corporation was organized early in 2011. The following expenditures were made during the first few months of the year:Required:Prepare a summary journal entry to record the $107,000 in
On March 31, 2011, Wolfson Corporation acquired all of the outstanding common stock of Barney Corporation for $17,000,000 in cash. The book values and fair values of Barney's assets and liabilities
Johnson Corporation purchased all of the outstanding common stock of Smith Corporation for $11,000,000 in cash. The book value of Smith's net assets (assets minus liabilities) was $7,800,000. The
Pinewood Company purchased two buildings on four acres of land. The lump-sum purchase price was $900,000. According to independent appraisals, the fair values were $450,000 (building A) and $250,000
On January 1, 2011, Byner Company purchased a used tractor. Byner paid $5,000 down and signed a noninterest-bearing note requiring $25,000 to be paid on December 31, 2013. The fair value of the
Teradene Corporation purchased land as a factory site and contracted with Maxtor Construction to construct a factory. Teradene made the following expenditures related to the acquisition of the land,
On February 1, 2011, the Xilon Corporation issued 5,000 shares of its nopar common stock in exchange for five acres of land located in the city of Monrovia. On the date of the acquisition, Xilon's
Cisco Systems, Inc., reported the following information in its 2009 financial statements ($ in millions):Required:1. Calculate Cisco's 2009 fixed-asset turnover ratio.2. How would you interpret
Funseth Farms, Inc. purchased a tractor in 2008 at a cost of $30,000. The tractor was sold for $3,000 in 2011. Depreciation recorded through the disposal date totaled $26,000.Required:1. Prepare the
Cedric Company recently traded in an older model computer for a new model. The old model's book value was $180,000 (original cost of $400,000 less $220,000 in accumulated depreciation) and its fair
[This is a variation of the previous exercise.]Required:Assume the same facts as in Exercise 10-14, except that the fair value of the old equipment is $170,000. Prepare the journal entry to record
The Bronco Corporation exchanged land for equipment. The land had a book value of $120,000 and a fair value of $150,000. Bronco paid the owner of the equipment $10,000 to complete the exchange which
[This is a variation of the previous exercise.]Required:Assume the same facts as in Exercise 10-16 except that Bronco received $10,000 from the owner of the equipment to complete the exchange.1. What
The Tinsley Company exchanged land that it had been holding for future plant expansion for a more suitable parcel located farther from residential areas. Tinsley carried the land at its original cost
Connors Corporation acquired manufacturing equipment for use in its assembly line. Below are four independent situations relating to the acquisition of the equipment.1. The equipment was purchased on
The FASB Accounting Standards Codification represents the single source of authoritative U.S. generally accepted accounting principles.Required:1. Obtain the relevant authoritative literature on
Access the FASB's Codification Research System at the FASB website (www.fasb.org). Determine the specific citation for each of the following items:1. The disclosure requirements in the notes to the
On January 1, 2011, the Marjlee Company began construction of an office building to be used as its corporate headquarters. The building was completed early in 2012. Construction expenditures for
On January 1, 2011, the Shagri Company began construction on a new manufacturing facility for its own use. The building was completed in 2012. The only interest-bearing debt the company had
On January 2, 2011, the Highlands Company began construction on a new manufacturing facility for its own use. The building was completed in 2012. The company borrowed $1,500,000 at 8% on January 1 to
In 2011, Space Technology Company modified its model Z2 satellite to incorporate a new communication device. The company made the following expenditures:The equipment will be used on this and other
Delaware Company incurred the following research and development costs during 2011:The equipment has a seven-year life and will be used for a number of research projects. Depreciation for 2011 is
Janson Pharmaceuticals incurred the following costs in 2011 related to a new cancer drug:The development costs were incurred after technological and commercial feasibility was established and after
Listed below are several terms and phrases associated with property, plant, and equipment and intangible assets. Pair each item from List A with the item from List B (by letter) that is most
Early in 2011, the Excalibur Company began developing a new software package to be marketed. The project was completed in December 2011 at a cost of $6 million. Of this amount, $4 million was spent
The Manguino Oil Company incurred exploration costs in 2011 searching and drilling for oil as follows:It was determined that Wells 104€“108 were dry holes and were abandoned. Wells 101,
The following questions are used in the Kaplan CPA Review Course to study property, plant, and equipment and intangible assets while preparing for the CPA examination. Determine the response that
The following questions dealing with property, plant, and equipment and intangible assets are adapted from questions that previously appeared on Certified Management Accountant (CMA) examinations.
Tristar Production Company began operations on September 1, 2011. Listed below are a number of transactions that occurred during its first four months of operations.1. On September 1, the company
On January 1, 2011, the Blackstone Corporation purchased a tract of land (site number 11) with a building for $600,000. Additionally, Blackstone paid a real estate broker's commission of $36,000,
The plant asset and accumulated depreciation accounts of Pell Corporation had the following balances at December 31, 2010:Transactions during 2011 were as follows:a. On January 2, 2011, machinery and
The Horstmeyer Corporation commenced operations early in 2011. A number of expenditures were made during 2011 that were debited to one account called intangible asset. A recap of the
Consider each of the transactions below. All of the expenditures were made in cash.1. The Edison Company spent $12,000 during the year for experimental purposes in connection with the development of

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