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Questions and Answers of Accounting

Ashe and Barbour are partners with capital balances on January 1, 2011, of $40,000 and $50,000, respectively. The partnership agreement provides that each partner is allowed 10 percent interest on
The partnership agreement of Alex, Carl, and Erika provides that profits are to be divided as follows:1. Alex is to receive a salary allowance of $10,000 for managing the partnership business.2.
A summary of changes in the capital accounts of the Katie, Lynda, and Molly partnership for 2011, before closing partnership net income to the capital accounts, is as follows: REQUIRED: Determine
The partnership of Jones, Keller, and Glade was created on January 2, 2011, with each of the partners contributing cash of $30,000. Reported profits, withdrawals, and additional investments were as
The partnership of Addie and Bal is adding a new partner, Cathy, and its assets and equities at book value and fair value just prior to her admission to the partnership on January 1, 2011, are as
The capital accounts of the Ann, Bob, and Carrie partnership at December 31, 2011, together with profit and loss sharing ratios, are as follows:Ann (25%) ... $ 75,000Bob (25%) .... 100,000Carrie
Three partners, Pat, Mic, and Hay, have capital balances and profit sharing ratios at December 31, 2011, as follows: On January 1, 2012, Con invests $85,080 in the business for a one-sixth
The AT Partnership was organized several years ago, and on January 1, 2011, the partners agree to admit Carmen for a 40 percent interest in capital and earnings. Capital account balances and profit
Harry, Iona, and Jerry formed a partnership on January 1, 2011, with each partner contributing $20,000 cash. Although the partnership agreement provided that Jerry receive a salary of $1,000 per
The partnership of Parker and Boone was formed and commenced operations on March 1, 2011, with Parker contributing $30,000 cash and Boone investing cash of $10,000 and equipment with an agreed-upon
A condensed balance sheet for the Peter, Quarry, and Sherel partnership at December 31, 2011, and their profit and loss sharing percentages on that date are as follows: On January 1, 2012, the
Timmy and Lassie have been operating an accounting firm as partners for a number of years, and at the beginning of 2011, their capital balances were $60,000 and $75,000, respectively. During 2011,
Explain the objective of hedge accounting and how this objective should improve the transparency of financial statements.
Explain the differences between options, forward contracts, and futures contracts and the potential benefits and potential costs of each type of contract.
Hedge effectiveness must be documented before a particular hedge qualifies for hedge accounting. Describe the most common approaches used to determine hedge effectiveness and when they are
A hedged firm purchase or sale commitment typically qualifies for fair value hedge accounting if the hedge is documented to be effective. Compare the accounting for both the derivative and the firm
Interest rate swaps were used in the chapter to highlight the differences between fair value and cash flow hedge accounting. Explain what type of risk is being hedged when a pay-fixed,
Interest rate swaps were used in the chapter to highlight the differences between fair value and cash flow hedge accounting. Explain what type of risk is being hedged when a receive-fixed,
Explain the circumstances under which fair value hedge accounting should be used and when cash flow hedge accounting should be used.
Statement No. 138 allows companies to account for certain hedges of existing foreign currency–denominated receivables and payables as cash flow hedges. Under Statement No. 133, hedges of existing
Briefly describe how derivatives are accounted for according to the International Accounting Standards Board. Is the accounting similar to U.S. GAAP? How is it different?
Describe how to account for a forward contract that is intended as a hedge of an identifiable foreign currency commitment.
On December 1, 2011, Jol Company enters into a 90-day forward contract with a rice speculator to purchase 500 tons of rice at $1,000 per ton. Jol enters into this contract in order to hedge an
Refer to Exercise E 13-1 and assume that Jol enters into the forward contract to hedge a firm purchase commitment. Repeat parts 1 and 2 under this assumption.
Brk signs a firm sales commitment with Riv. The contract is to sell 100,000 widgets deliverable in three months, on January 31, 2012, at the prevailing market price of widgets at that date. On
Wil has 100,000 units of widgets in its inventory on October 1, 2011. Wil purchased them for $1 per unit one month ago. It hedges the value of the widgets by entering into a forward contract to sell
On December 12, 2011, Car entered into three forward exchange contracts, each to purchase 100,000 Canadian dollars in 90 days. Assume a 12 percent interest rate. The relevant exchange rates are as
On April 1, 2011, Win of Canada ordered customized fittings from Ace, a U.S. firm, to be delivered on May 31, 2011, at a price of 50,000 Canadian dollars. The spot rate for Canadian dollars on April
On November 2, 2011, Baz, a U.S. retailer, ordered merchandise from Mat of Japan. The merchandise is to be delivered to Baz on January 30, 2012, at a price of 1,000,000 yen. Also on November 2,
NGW, a consumer gas provider, estimates a rather cold winter. As a result it decides to enter into a futures contract on the NYMEX for natural gas on November 2, 2011. The trading unit is 10,000
Ins makes sophisticated medical equipment. A key component of the equipment is Grade A silver. On May 1, 2011, Ins enters into a firm purchase agreement to buy 1,200,000 troy ounces (equal to 100,000
On January 1, 2011, Cam borrows $400,000 from Ven. The five-year term note is a variable-rate one in which the 2011 interest rate is determined to be 8 percent, the LIBOR rate at January 1, 2011, +
Refer to Problem P 13-3 and assume that instead of initially signing a variable-rate loan, Cam receives a fixed rate of 8 percent on the loan on January 1, 2011. Instead of entering into a pay fixed,
On April 1, 2011, Bay delivers merchandise to Ram for 200,000 pesos when the spot rate for pesos is 6.0496 pesos. The receivable from Ram is due May 30. Also on April 1, Bay hedges its foreign
On October 2, 2011, Flx, a U.S. company, entered into a forward contract to purchase 50,000 euros for delivery in 180 days at a forward rate of $0.6350. The forward contract is a derivative
Bat, a U.S. corporation, anticipates a contract based on December 2, 2011 discussions to sell heavy equipment to Ram of Scotland for 500,000 British pounds. The equipment is likely to be delivered
Mar, a U.S. firm, purchased equipment for 400,000 British pounds from The on December 16, 2011. The terms were n/30, payable in British pounds. On December 16, 2011, Mar also entered into a 30-day
What is an indirect holding of the stock of an affiliate?
P owns a 60 percent interest in S, and S owns a 40 percent interest in T. Should T be consolidated? If not, how should T be included in the consolidated statements of P and Subsidiaries?
Distinguish between indirect holding affiliation structures and mutual holding affiliation structures.
Parent Company owns 70 percent of the voting stock of Subsidiary A, and Subsidiary A owns 70 percent of the stock of Subsidiary B. Is the inside ownership of Subsidiary B more than 50 percent? Should
Pat Corporation owns 80 percent of the stock of Sam Corporation, and Sam owns 70 percent of the stock of Stan Corporation. Separate earnings of Pat, Sam, and Stan are $200,000, $160,000, and
In using the schedule approach for allocating income of subsidiaries to controlling and noncontrolling stockholders in an indirect holding affiliation structure, why is it necessary to begin with the
P owns 80 percent of S1, and S1 owns 70 percent of S2. Separate incomes of P, S1, and S2 are $20,000, $10,000, and $5,000, respectively, for 2011. During 2011, S1 sold land to P at a gain of $1,000.
How is the treasury stock approach applied to the elimination of mutually-held stock?
Are the treasury stock and conventional approaches equally applicable to all mutual holdings? Explain.
Describe the concept of a constructive retirement of parent stock. Should the parent adjust its equity accounts when its stock is constructively retired?
P’s separate earnings are $50,000, and S’s separate earnings are $20,000. P owns an 80 percent interest in S, and S owns a 10 percent interest in P. What is the controlling share of consolidated
How do consolidation procedures for mutual holdings involving the father-son-grandson type of affiliation structure differ from those for mutually-held parent stock?
If companies in an affiliation structure account for investments on an equity basis, how can non-controlling interests be determined without the use of simultaneous equations?
On January 1, 2011, Pen Corporation purchased a 60 percent interest in Sal Corporation at book value (equal to fair value). At that time, Sal owned a 60 percent interest in Tip Corporation (acquired
Pub Corporation owns 60 percent of Sam Corporation and 80 percent of Tim Corporation. Tim owns 20 percent of Sam. Separate income and loss data (not including investment income) for the three
The affiliation structure for Place Corporation and its affiliates is as follows: During 2011 the separate incomes of the affiliates were as follows:Place .... $200,000Lake ... $ 80,000Marsh ....
The affiliation structure for Pin Corporation and its subsidiaries is as follows: Separate incomes of Pin, Son, and Tan Corporations for 2011 are $360,000, $160,000, and $100,000, respectively.1.
Pal Corporation owns 80 percent each of the voting common stock of Sal and Tea Corporations. Sal owns 60 percent of the voting common stock of Won Corporation and 10 percent of the voting stock of
Pet Corporation owns 90 percent of the stock of Man Corporation and 70 percent of the stock of Nun Corporation. Man owns 70 percent of the stock of Oak Corporation and 10 percent of the stock of Nun
The affiliation structure for a group of interrelated companies is diagrammed as follows: The investments were acquired at fair value equal to book value in 2011, and there are no unrealized or
Pat Corporation owns an 80 percent interest in Sam Corporation and a 70 percent interest in Ten Corporation. Ten owns a 10 percent interest in Sam. These investment interests were acquired at fair
Pan Corporation owns an 80 percent interest in Sol Company and Sol owns a 30 percent interest in Pan, both acquired at a fair value equal to book value. Separate incomes (not including investment
Intercompany investment percentages and 2011 earnings for three affiliates are as follows: REQUIRED: Compute controlling share of consolidated net income and noncontrolling interest share for2011.
Pin, Inc., owns 80 percent of the capital stock of Son Company and 70 percent of the capital stock of Tin, Inc. Son owns 15 percent of the capital stock of Tin. Tin owns 25 percent of the capital
Pet Corporation owns 90 percent of Sod Corporation's common stock and Sod owns 15 percent of Pet, both acquired at fair value equal to book value. Separate incomes and dividends of the affiliates for
Pug Corporation acquired a 70 percent interest in Sat Corporation for $238,000 on January 2, 2010, when Sat's equity consisted of $200,000 capital stock and $50,000 retained earnings. The excess is
The affiliation structure for Pad Corporation and its subsidiaries is diagrammed as follows: The incomes and dividends for the affiliates for 2011 are (in thousands): ADDITIONAL INFORMATION1. Axe
A summary of the assets and equities of Pot Corporation and its 80 percent-owned subsidiary, Sea Corporation, at December 31, 2011, is given as follows (in thousands): On January 2, 2012, Sea
Comparative financial statements for Pen Corporation and its subsidiaries, Sir and Tip Corporations, for the year ended December 31, 2011, are as follows (in thousands): ADDITIONAL INFORMATION1.
A schedule of intercompany investment interests and separate earnings for Par Corporation, Sit Corporation, and Tot Corporation is presented as follows: REQUIRED1. Compute controlling interest
Pin Corporation acquired a 90 percent interest in Sun Corporation for $360,000 cash on January 2, 2009, when Sun had capital stock of $200,000 and retained earnings of $150,000. Sun purchased its 10
Par Corporation acquired an 80 percent interest in Sip Corporation for $180,000 cash on January 1, 2011, when Sip had capital stock of $50,000 and retained earnings of $150,000. The excess of fair
Pan Corporation purchased an 80 percent interest in Set for $340,000 on January 1, 2011, when Set's equity was $400,000. The excess of fair value over book value is due to goodwill. At December 31,
Which of the following qualities are characteristic of fixed assets? (a) Tangible, (b) Capable of repeated use in the operations of the business, (c) Held for sale in the normal course of business,
Just Animals Co. acquired an adjacent vacant lot with the hope of selling it in the future at a gain. The lot is not intended to be used in Just Animals’ business operations. Where should such real
Distinguish between the accounting for capital expenditures and revenue expenditures.
Classify each of the following expenditures as either a revenue or capital expenditure:(a) Installation of a video messaging system on a semitrailer, (b) Changing oil in a delivery truck, (c)
Are the amounts at which fixed assets are reported in the balance sheet their approximate market values as of the balance sheet date? Discuss.
a. Does the recognition of depreciation in the accounts provide a special cash fund for the replacement of fixed assets? Explain. b. Describe the nature of depreciation as the term is used in
a. Under what conditions is the use of an accelerated depreciation method most appropriate?b. Why is an accelerated depreciation method often used for income tax purposes?c. What is the Modified
For some of the fixed assets of a business, the balance in Accumulated Depreciation is exactly equal to the cost of the asset. (a) Is it permissible to record additional depreciation on the assets if
a. Over what period of time should the cost of a patent acquired by purchase be amortized?b. In general, what is the required accounting treatment for research and development costs?c. How should
Fastball Delivery Company acquired an adjacent lot to construct a new warehouse, paying $30,000 and giving a short-term note for $270,000. Legal fees paid were $1,425, delinquent taxes assumed were
Legacy Ironworks Co. reported $3,175,000 for equipment and $2,683,000 for accumulated depreciation—equipment on its balance sheet. Does this mean (a) That the replacement cost of the equipment is
Convert each of the following estimates of useful life to a straight-line depreciation rate, stated as a percentage, assuming that the residual value of the fixed asset is to be ignored: (a) 2
A Kubota tractor acquired on January 9 at a cost of $75,000 has an estimated useful life of 20 years. Assuming that it will have no residual value, determine the depreciation for each of the first
A storage tank acquired at the beginning of the fiscal year at a cost of $172,000 has an estimated residual value of $20,000 and an estimated useful life of eight years. Determine the following: (a)
Sandblasting equipment acquired at a cost of $85,000 has an estimated residual value of $5,000 and an estimated useful life of 10 years. It was placed in service on October 1 of the current fiscal
The following data were taken from recent annual reports of Interstate Bakeries Corporation (IBC). Interstate Bakeries produces, distributes, and sells fresh bakery products nationwide through
Equipment acquired on January 3, 2007, at a cost of $504,000, has an estimated useful life of 12 years, has an estimated residual value of $42,000, and is depreciated by the straight-line method.a.
Equipment acquired on January 3, 2007, at a cost of $265,500, has an estimated useful life of eight years and an estimated residual value of $31,500. a. What was the annual amount of depreciation for
Cikan Mining Co. acquired mineral rights for $16,200,000. The mineral deposit is estimated at 90,000,000 tons. During the current year, 13,750,000 tons were mined and sold.a. Determine the amount of
Isolution Company acquired patent rights on January 4, 2007, for $750,000. The patent has a useful life equal to its legal life of 15 years. On January 7, 2010, Isolution successfully defended the
On January 1, 2007, Hoffman Financial, Inc., purchased the assets of AMG Insurance Co. for $100,000,000, a price reflecting a $25,000,000 goodwill premium. On December 31, 2010, Hoffman determined
Apple, Inc., designs, manufactures, and markets personal computers and related software. Apple also manufactures and distributes music players (iPodTM) along with related accessories and services,
List the errors you find in the following partial balancesheet:
The following payments and receipts are related to land, land improvements, and buildings acquired for use in a wholesale apparel business. The receipts are identified by an asterisk. a. Finder's fee
Newbirth Coatings Company purchased waterproofing equipment on January 2, 2009, for $380,000. The equipment was expected to have a useful life of four years, and a residual value of
Razor Sharp Company purchased tool sharpening equipment on July 1, 2008, for $48,600. The equipment was expected to have a useful life of three years, and a residual value of
New tire retreading equipment, acquired at a cost of $144,000 at the beginning of a fiscal year, has an estimated useful life of four years and an estimated residual value of $10,800. The manager
Data related to the acquisition of timber rights and intangible assets during the current year ended December 31 are as follows:a. On December 31, the company determined that $20,000,000 of goodwill
Esteban Appleby, CPA, is an assistant to the controller of Summerfield Consulting Co. In his spare time, Esteban also prepares tax returns and performs general accounting services for clients.
The following is an excerpt from a conversation between two employees of Quantum Technologies, Pat Gapp and Faye Dalby. Pat is the accounts payable clerk, and Faye is the cashier.Pat: Faye, could I

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