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Questions and Answers of Accounting

The Thompson Corporation, a manufacturer of steel products, began operations on October 1, 2009. The accounting department of Thompson has started the fixed-asset and depreciation schedule presented
On March 31, 2011, the Herzog Company purchased a factory complete with machinery and equipment. The allocation of the total purchase price of $1,000,000 to the various types of assets along with
In 2011, the Marion Company purchased land containing a mineral mine for $1,600,000. Additional costs of $600,000 were incurred to develop the mine. Geologists estimated that 400,000 tons of ore
The following information concerns the intangible assets of Epstein Corporation:a. On June 30, 2011, Epstein completed the purchase of the Johnstone Corporation for $2,000,000 in cash. The fair value
The property, plant, and equipment section of the Jasper Company's December 31, 2010, balance sheet contained the following:The land and building were purchased at the beginning of 2006.
Described below are three independent and unrelated situations involving accounting changes. Each change occurs during 2011 before any adjusting entries or closing entries are prepared.a. On December
Collins Corporation purchased office equipment at the beginning of 2009 and capitalized a cost of $2,000,000. This cost figure included the following expenditures:The company estimated an eight-year
At the beginning of 2009, Metatec Inc. acquired Ellison Technology Corporation for $600 million. In addition to cash, receivables, and inventory, the following assets and their fair values were also
On May 1, 2011, Hecala Mining entered into an agreement with the state of New Mexico to obtain the rights to operate a mineral mine in New Mexico for $10 million. Additional costs and purchases
The terms depreciation, depletion, and amortization all refer to the process of allocating the cost of an asset to the periods the asset is used.Required:Discuss the differences between depreciation,
At a recent luncheon, you were seated next to Mr. Hopkins, the president of a local company that manufactures bicycle parts. He heard that you were a CPA and made the following comments to you:“Why
Portland Co. uses the straight-line depreciation method for depreciable assets. All assets are depreciated individually except manufacturing machinery, which is depreciated by the composite
At the beginning of the year, Patrick Company acquired a computer to be used in its operations. The computer was delivered by the supplier, installed by Patrick, and placed into operation. The
Whaley Distributors is a wholesale distributor of electronic components. Financial statements for the year ended December 31, 2011, reported the following amounts and subtotals ($ in millions):In
There are various types of accounting changes, each of which is required to be reported differently.Required:1. What type of accounting change is a change from the sum-of-the-years'-digits method of
The company controller, Barry Melrose, has asked for your help in interpreting the authoritative accounting literature that addresses the recognition and measurement of impairment losses for
At the beginning of 2009, the Healthy Life Food Company purchased equipment for $42 million to be used in the manufacture of a new line of gourmet frozen foods. The equipment was estimated to have a
Companies often are under pressure to meet or beat Wall Street earnings projections in order to increase stock prices and also to increase the value of stock options. Some resort to earnings
The Cummings Company charged various expenditures made during 2011 to an account called repairs and maintenance expense. You have been asked by your supervisor in the company's internal audit
Caterpillar Inc. (CAT) is a world leader in the manufacture of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. CAT reported the following in a
EDGAR, the Electronic Data Gathering, Analysis, and Retrieval system, performs automated collection, validation, indexing, and forwarding of submissions by companies and others who are required by
Cadbury Schweppes, Plc., a U.K. company, is an international confectionery and beverage business that sells its products in almost every country in the world. The company prepares its financial
Refer to the financial statements and related disclosure notes of Dell in Appendix B located at the back of the text.Required:1. What amount of depreciation and amortization did the company report
British Airways, Plc. (BA), a U.K. company, prepares its financial statements according to International Financial Reporting Standards. BA's annual report for the year ended March 31, 2009, which
When market rates of interest rise after a fixed-rate security is purchased, the value of the now-below-market, fixed-interest payments declines, so the market value of the investment falls. On the
Does GAAP distinguish between fair values that are readily determinable from a securities exchange versus those needing to be calculated based on the company's own assumptions? Explain how a user
When an investment is acquired to be held for an unspecified period of time as opposed to being held to maturity, it is reported at the fair value of the investment securities on the reporting date.
Reporting an investment at its fair value means adjusting its carrying amount for changes in fair value after its acquisition (or since the last reporting date if it was held at that time). Such
What is “comprehensive income”? Its composition varies from company to company but may include which investment-related items that are not included in net income?
Why are holding gains and losses treated differently for trading securities and securities available-for-sale?
Western Die-Casting Company holds an investment in unsecured bonds of LGB Heating Equipment, Inc. When the investment was acquired, management's intention was to hold the bonds for resale. Now
Are there circumstances in which the cost method is required under U.S. GAAP but not under IFRS? Explain.
Do U.S. GAAP and IFRS differ in the amount of flexibility that companies have in electing the fair value option? Explain.
Under what circumstances is the equity method used to account for an investment in stock?
The equity method has been referred to as a one-line consolidation. What might prompt this description?
In the application of the equity method, how should dividends from the investee be accounted for? Why?
The fair value of depreciable assets of Penner Packaging Company exceeds their book value by $12 million. The assets' average remaining useful life is 10 years. They are being depreciated by the
Superior Company owns 40% of the outstanding stock of Bernard Company. During 2011, Bernard paid a $100,000 cash dividend on its common shares. What effect did this dividend have on Superior's 2011
Sometimes an investor's level of influence changes, making it necessary to change from the equity method to another method. How should the investor account for this change in accounting method?
How does IFRS differ from U.S. GAAP with respect to using the equity method?
What is the effect of a company electing the fair value option with respect to an investment that otherwise would be accounted for using the equity method?
Define a financial instrument. Provide three examples of current liabilities that represent financial instruments.
Whole-life insurance policies typically can be surrendered while the insured is still alive in exchange for a determinable amount of money called the cash surrender value. When a company buys a life
When market rates of interest rise after a fixed-rate security is purchased, the value of the now-below-market, fixed-interest payments declines, so the market value of the investment falls. If that
Reporting an investment at its fair value requires adjusting its carrying amount for changes in fair value after its acquisition (or since the last reporting date if it was held at that time). Such
The market value of Helig Forestry and Mining Corporation common stock dropped 6 1/8 points when the federal government passed new legislation banning one of the company's primary techniques for
Do U.S. GAAP and IFRS differ in how they account for other-than-temporary impairments? Explain.
Lance Brothers Enterprises acquired $720,000 of 3% bonds, dated July 1, on July 1, 2011, as a long-term investment. Management has the positive intent and ability to hold the bonds until maturity.
S&L Financial buys and sells securities expecting to earn profits on short-term differences in price. On December 27, 2011, S&L purchased Coca-Cola common shares for $875,000 and sold the shares on
S&L Financial buys and sells securities which it classifies as available-for-sale. On December 27, 2011, S&L purchased Coca-Cola common shares for $875,000 and sold the shares on January 3, 2012,
For several years Fister Links Products has held shares of Microsoft common stock, considered by the company to be securities available-for-sale. The shares were acquired at a cost of $500,000.
Adams Industries holds 40,000 shares of FedEx common stock. On December 31, 2010, and December 31, 2011, the market value of the stock is $95 and $100 per share, respectively. What is the
S&L Financial buys and sells securities that it typically classifies as available-for-sale. On December 27, 2011, S&L purchased Coca-Cola common shares for $875,000 and sold the shares on January
Turner Company owns 10% of the outstanding stock of ICA Company. During the current year, ICA paid a $5 million cash dividend on its common shares. What effect did this dividend have on Turner's 2011
Turner Company owns 40% of the outstanding stock of ICA Company. During the current year, ICA paid a $5 million cash dividend on its common shares. What effect did this dividend have on Turner's 2011
The fair value of Wallis, Inc.'s depreciable assets exceeds their book value by $50 million. The assets have an average remaining useful life of 15 years and are being depreciated by the
Refer to the situation described in BE 12-9, but assume that Park Industries buys 50% of Wallis's common shares. Also assume that Park reports under International Financial Reporting Standards, and
At the beginning of 2011, Pioneer Products' ownership interest in the common stock of LLB Co. increased to the point that it became appropriate to begin using the equity method of accounting for the
Turner Company purchased 40% of the outstanding stock of ICA Company for $10,000,000 on January 2, 2011. Turner elects the fair value option to account for the investment. During 2011, ICA earns
LED Corporation owns 100,000 shares of Branch Pharmaceuticals common stock and classifies its investment as securities available-for-sale. The market price of Branch's stock fell more than 30%, by
LED Corporation owns $1,000,000 of Branch Pharmaceuticals bonds and classifies its investment as securities available-for-sale. The market price of Branch's bonds fell by $450,000, due to concerns
LED Corporation owns $1,000,000 of Branch Pharmaceuticals bonds and classifies its investment as securities available-for-sale. The market price of Branch's bonds fell by $450,000, due to concerns
Wickum Corporation reports under IFRS, and recognized a $500,000 other-than-temporary impairment of an HTM debt investment in Right Corporation. Subsequently, the fair value of Wickum's investment in
Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2011. Company management has the positive intent and ability to hold the bonds until
F&T Corporation is a confectionery wholesaler that frequently buys and sells securities to meet various investment objectives. The following selected transactions relate to FF&T's investment
Shott Farm Supplies Corporation purchased 800 shares of General Motors stock at $50 per share and paid a brokerage fee of $1,200. Two months later, the shares were sold for $53 per share. The
Rantzow-Lear Company buys and sells securities expecting to earn profits on short-term differences in price. The company's fiscal year ends on December 31. The following selected transactions
Loreal-American Corporation purchased several marketable securities during 2011. At December 31, 2011, the company had the investments in common stock listed below. None was held at the last
On February 18, 2011, Union Corporation purchased 10,000 shares of IBM common stock as a long-term investment at $60 per share. On December 31, 2011, and December 31, 2012, the market value of IBM
Construction Forms Corporation buys securities to be available for sale when circumstances warrant, not to profit from short-term differences in price and not necessarily to hold debt securities to
On January 2, 2011, Sanborn Tobacco Inc. bought 5% of Jackson Industry's capital stock for $90 million as a temporary investment. Sanborn classified the securities acquired as available-for-sale.
At December 31, 2011, Hull-Meyers Corp. had the following investments that were purchased during 2011, its first year of operations:No investments were sold during 2011. All securities except
The accounting records of Jamaican Importers Inc. at January 1, 2011, included the following:No changes occurred during 2011 in the investment portfolio.Required:Prepare appropriate adjusting
The investments of Harlon Enterprises included the following cost and fair value amounts:Harlon Enterprises sold its holdings of A Corporation shares on June 1, 2012, for $15 million. On September
As a long-term investment, Painters' Equipment Company purchased 20% of AMC Supplies Inc.'s 400,000 shares for $480,000 at the beginning of the fiscal year of both companies. On the purchase date,
As a long-term investment at the beginning of the fiscal year, Florists International purchased 30% of Nursery Supplies Inc.'s 8 million shares for $56 million. The fair value and book value of the
The Trump Companies Inc. has ownership interests in several public companies. At the beginning of 2011, the company's ownership interest in the common stock of Milken Properties increased to the
On December 12, 2011, an investment costing $80,000 was sold for $100,000. The total of the sale proceeds was credited to the investment account.Required:1. Prepare the journal entry to correct the
Fizer Pharmaceutical paid $68 million on January 2, 2011, for 4 million shares of Carne Cosmetics common stock. The investment represents a 25% interest in the net assets of Carne and gave Fizer the
On January 1, 2011, Cameron Inc. bought 20% of the outstanding common stock of Lake Construction Company for $300 million cash. At the date of acquisition of the stock, Lake's net assets had a fair
Refer to the situation described in Exercise 12-17, but assume that Cameron bought 50% of the outstanding stock of Lake for $750 million cash, that half of the book value and fair value of Lake's
Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2011. Company management has the positive intent and ability to hold the bonds until
On January 2, 2011, Sanborn Tobacco, Inc., bought 5% of Jackson Industry's capital stock for $90 million as a temporary investment. Sanborn realized that these securities normally would be classified
As a long-term investment at the beginning of the fiscal year, Florists International purchased 30% of Nursery Supplies Inc.'s 8 million shares for $56 million. The fair value and book value of the
Edible Chemicals Corporation owns a $4 million whole life insurance policy on the life of its CEO, naming Edible Chemicals as beneficiary. The annual premiums are $70,000 and are payable at the
Below are two unrelated situations relating to life insurance.Prepare the appropriate journal entry for each situation.Required:1. Ford Corporation owns a whole life insurance policy on the life of
Bloom Corporation purchased $1,000,000 of Taylor Company 5% bonds at par with the intent and ability to hold the bonds until they matured in 2020, so Bloom classifies their investment as HTM.
Assume all of the same facts and scenarios as E12-24, except that Bloom Corporation classifies their Taylor investment as AFS.Required:1. For each of the scenarios shown in E12-24, prepare the
In early December of 2011, Kettle Corp purchased $50,000 of Icalc Company common stock, which constitutes less than 1% of Icalc's outstanding shares. By December 31, 2011, the value of Icalc's
Flower Corporation uses IFRS, and purchased €1,000,000 of James Company 5% bonds at face value during 2011. Unfortunately, a combination of problems at James Company and in the debt market caused
The FASB Accounting Standards Codification represents the single source of authoritative U.S. generally accepted accounting principles.Required:1. What is the specific citation that describes
Access the FASB's Codification Research System at the FASB website (www.fasb.org).Required:Determine the specific citation for accounting for each of the following items:1. Unrealized holding gains
The following questions are used in the Kaplan CPA Review Course to study investments while preparing for the CPA examination. Determine the response that best completes the statements or
The following questions dealing with investments are adapted from questions that previously appeared on Certified Management Accountant (CMA) examinations. The CMA designation sponsored by the
Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2011. Management has the positive intent and ability to hold the bonds
Fuzzy Monkey Technologies, Inc., purchased as a short-term investment $80 million of 8% bonds, dated January 1, on January 1, 2011. Management intends to include the investment in a short-term,
Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2011. Management intends to have the investment available for sale when
Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2011. Management intends to have the investment available for sale when
The following selected transactions relate to investment activities of Ornamental Insulation Corporation. The company buys securities, not intending to profit from short-term differences in price and
American Surety and Fidelity buys and sells securities expecting to earn profits on short-term differences in price. For the first 11 months of 2011, gains from selling trading securities totaled $8

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