Questions and Answers of Fundamental Financial Accounting Concepts 11th Edition

Identity the underlying accounting principle that guides the measurement of the acquisition cost of inventories, equipment, buildings, and other assets. What is the rationale for this accounting
Effect of LIFO on financial statements over several periods. Harmon Corporation commenced operations on January 2. Year 8. It uses a LIFO cost flow assumption. Its purchases and sales for the first
Effect of dipping into LIFO inventories. Robertson Corporation uses a LIFO cost flow assumption for inventories and cost of goods sold. Its beginning inventory for the current year totaled $48,900
When goods available for salt- exceed sales, firms can manipulate income even when they use specific identification. Cypres, a discounter of consumer electronics, has 300 identical computers
Computations involving different cost flow assumptions. Arnold Company's raw material purchases during January, its first month of operations, were as follows:Quantity Cost per Pound Total Costs 1/2
Reconstructing underlying events from ending inventory amounts. (Adapted from CPA examination.) Burch Corporation began a merchandising business on January 1. Year 1. It acquired merchandise costing
a. An old wisdom in tennis holds that if your first serves are always good, you are not hitting them hard enough. An analogous statement in business might be that if you have no uncollectible
"When the total amount of cash that a firm expects to collect from a customer is highly uncertain, the cost-recovery-first method seems more appropriate than the installment method."Explain. 11.
Pereentage-of-completion and completed contract methods of income recognition. The Shannon Construction Company agreed to build a warehouse for S6.000.000. Expected and actual costs to construct the
"The usefulness of the income statement declines as the quality of earnings declines." Do you agree? Why or why not?SHORT EXERCISES
Allowance method for uncollectible accounts. Diversified Technologies opened for business on January 2, Year 1. Sales on accounts during Year 1 totaled $126,900. Collections from customers from sales
Aging accounts receivable. York Company's accounts receivable show the following balances:Age of Accounts Balance Receivable 0-30 Days $1,200,000 31-60 Days 255,000 61-120 Days 75,000 More than 120
Reconstructing events when using the allowance method. Selected data from the accounts of Seward Corporation appear below.January 1 December 31 Accounts Receivable— Gross $82,900 Dr. $ 87,300
Allowance method: reconstructing journal entry from events. (From a problem by S. A.Zeff.) During Year 6. Pandora Company wrote off 52,200 of accounts receivable as uncollectible. Pandora Company
Allowance method; reconstructing journal entries from events. (From a problem by S.A.Zeff. ) The balance sheets of Milton Corporation on December 3 1 . Year 1 and Year 2, showed gross accounts
Reconstructing events from journal entries. Give the likely transaction or event that would result in making each of the independent journal entries that follow.a. Retained Earnings (Bad Debt
Installment and cost-recovery-first methods of income recognition. Cunningham Realty Partners sold a tract of land costing S80.000 toa- manufacturing firm for SI 20.000. The manufacturing firm agreed
Journal entries lor the allowance method. Data related to sales on account of Heath Company for its first three years of operations appear below:Sales on Account Accounts Written Off as Uncollectible
Journal entries for the allowance method. Data related to sales on account of Schneider Corporation appear below:Sales on Account Accounts Written Off as Uncollectible in Year Year 1 2 3 4 5 Total 12
Reconstructing events when using the allowance method. Selected data from the accounts of Logue Corporation before recognizing bad debt expense for the year appear below:January 1 December 31
Aging b\ ase accounts receivable. Dove Companj "s accounts receivable stum the following balances Age of Accounts Balance Receivable 0-30 Days $1,200,000 0-30 Days $400,000 31-60 Days 90,000 61-120
Effects of transactions involving suppliers and customers on cash flows. Refer to the excerpts from the accounting records of Home and Office Depot in Exhibit 6.8. These are the balances in various
Income recognition for various businesses. Discuss when each of the following businesses should recognize revenue and any income measurement issues that arise.a. Company A develops software and sells
Analyzing changes in accounts receivable. Selected data from the financial statements of American Express appear below (amounts in millions I.Year 4 Year5 Year 6 Year 7 Balance Sheet Accounts and
Analyzing changes in accounts receivable. The financial statements and notes for May Department Stores reveal the following for four recent years (amounts in millions):Year 9 Year 10 Year 11 Year 12
Analyzing changes in accounts receivable. Selected data from the financial statements of Sears, a retail department store chain, appear below (amounts m millions).Year 4 Year 5 Year 6 Year 7 Balance
Reconstructing transactions affecting accounts receivable and uncollectible accounts.The sales, all on account, of Pins Company in Year 10, its first year of operations, were$700,000. Collections
Income recognition for a nuclear generator manufacturer. General Electric Company agreed on June 15. Year 2. to construct a nuclear generator for Consolidated Edison Company.The contract price of
Income recognition for a contractor. On October 15. Year I, Flanikin Construction Company contracted to build a shopping center at a contract price of $180 million. The schedule of expected and
Point-of-sale versus installment method of income recognition. The J. C. Spangle catalog division began business on January 1, Year 8. Activities of the company for the first two years are as
Revenue recognition for a franchise. Pickin Chicken, Inc., and Country Delight. Inc., both sell franchises for their chicken restaurants. The franchisee receives the right to use the franchisor's
Meaning of Allowance for Uncollectible Accounts account. Indicate whether each of the following accurately describes the meaning of the Allowance for Uncollectible Accounts account when properly
Ethical issues in accounting for uncollectible accounts. Sage Department Stores operates a chain of department stores throughout the United States. It provides its customers with credit cards, both
Ethical issues in accounting for long-contracts. Halliburton Company provides engineering and construction services under multi-year contracts to energy, industrial, and governmental customers. It
Ethical issues in income recognition. Qwest Communications International (Qwest), a telecommunications company, signed a $100 million contract with the Arizona Schools Facilities Board to supply
GAAP require firms to amortize the value of stock options as an expense over the periods the firm expects to receive employee services as a result of granting the option. What is the theo- retical
Distinguish between the nature of, and accounting for ( 1 ) a correction of an error in previously issued financial statements, (2) the adjustment for a change in accounting principle, and (3) the
Journal entry to issue common stock. Office Depot issues 10 million shares of $2 par value common stock for SI 2.50 per share. Give the journal entry to record this transaction.
Accounting for stock options. Intel grants 100.000 stock options to employees on December 31. Year 13. permitting them to purchase 100.000 shares of Intel SI par value common stock for$30 per share.
Accounting for conversion of bonds. Symantec has convertible bonds outstanding with a face value of SI 0.000.000 and a book value of SI 0.255.000. Holders of the bonds convert them into 100.000
Accounting for declaration and payment of a dividend. Wyeth Corporation has 100.000 shares of SI 00 par value. 4-percent preferred stock outstanding. On December 10. Year 13, Wyeth Corporation
Accounting for treasury stock transactions. On July 15. Year 13. PepsiCo purchased 75.000 shares of its common stock for S55 per share. On February 10. Year 14. PepsiCo reissued 50.000 shares of this
Computation of net income and comprehensive income. Champion Enterprises reports the following items for Year 13 (amounts in millions): income from continuing operations, SI 26.7:extraordinary loss
Treatment of accounting errors, changes in accounting principles, and changes in accounting estimates. A firm computes net income for Year 12 of $1,500 and for Year 13 of$1,800. its first two years
Journal entries for the issuance of capital stock. Prepare journal entries to record the issuance of capital stock in each of the independent cases below. You may omit explanations for the journal
Journal entries for employee stock options. Morrissey Corporation grants 50,000 stock options to its managerial employees on December 3 1 , Year 1 3, to purchase 50,000 shares of its$1 par value
Journal entries for employee stock options. Watson Corporation grants 20,000 stock options to its managerial employees on December 31. Year 6, to purchase 20.000 shares of its $10 par value common
Journal entries for stock warrants. Kiersten Corporation sells 60.000 common stock warrants for $4 each on February 26, Year 12. Each warrant permits its holder to purchase a share of the firm's $10
Journal entries for convertible bonds. Higgins Corporation issues $1 million of 20-year,$1,000 face value, 10-percent semiannual coupon bonds at par on January 2, Year 1. Each$1,000 bond is
Journal entries to correct errors and adjust for changes in estimates. Prepare journal entries to record each of the following items for Uncertainty Corporation for Year 13. Ignore income tax
Journal entries for dividends. Prepare journal entries for the following transactions of Watt Corporation. The firm has 20.000 shares of S15 par value common stock outstanding on January 1, Year 6.
Journal entries for treasury stock transactions. Prepare journal entries to record the follow ing treasury stock transactions of Danos Corporation.a. Purchases 10,000 shares of S10 par value common
Effects on statement of cash flows. Refer to the simplified statement of cash flows in Exhibit 4.12. Numbers appear on 1 1 of the lines in the statement. Ignore the unnumbered lines in considering
Reconstructing transactions involving shareholders' equity. Fisher Company began business on January 1. Its balance sheet on December 31 contained the shareholders' equity section in Exhibit
Reconstructing transactions involving shareholders' equity. Shea Company began business on January 1. Its balance sheet on December 31 contained the shareholders' equity section shown in Exhibit
Accounting for stock options. Lowe Corporation grants stock options to its managerial employees on December 3 1 of each year. Employees may acquire one share of common stock with each stock option.
Comprehensive review of accounting for shareholders' equity. The shareholders* equity section of the balance sheet of Alex Corporation at December 31 is as follows:Shareholders' Equity Common
Ethical issues in accounting for stock options. Throughout the deliberations on the accounting for stock options during the last decade, managers of business firms, particularly in technology
A firm sold for $10,000 a machine that originally cost $30,000 and had accumulated depreciation of $24,000 (book value = $6,000). Why does accounting include a gain on the sale of the machine of
Relate the concept of return of capital to the criterion under generally accepted accounting principles for deciding whether an impairment loss on assets other than intangibles not requiring
Suggest reasons why generally accepted accounting procedures permit firms engaged in mineral exploration, such as for oil or gold, to capitalize and subsequently amortize exploration costs but
A firm that incurs research and development costs to develop a patented product must expense these costs as incurred. A firm that purchases that same patent from its creator, however, capitalizes the
Calculating interest capitalized during construction. Target Stores constructed new stores during Year 14. The average balance in the Construction-in-Process account excluding Year 14's capitalized
Computing depreciation expense. Office Depot acquired a forklift truck on January 1 of the current year for $40,000. The vehicle has an estimated useful life of six years and $4,000 estimated salvage
Change in depreciahle life and salvage value. Thomson Financial acquired a computer on January I . Year 1 2. for S 1 0,000,000. The computer had an estimated useful life of six years and$1,000,000
Distinguishing repairs versus betterments. Disney World experienced damage from a tornado at Space Mountain, one of its most popular attractions. It paid $30,200 to replace steel reinforcements to
Computing the amount of an impairment loss on tangible long-lived assets. Wildwood Properties owns an apartment building that has a book value of $15,000,000 on January 1. Year 14. The highway
Computing the gain or loss on sale of equipment. Federal Express acquired a deliver) truck on January 1. Year 10. for $48,000. It estimated that the truck would have a six-year useful life and $6,000
Amount of interest capitalized during construction. Nucor. a steel manufacturer, self-constructs a new manufacturing facility in Vermont. At the start of Year 14, the Construction-in-Process account
Capitalizing interest during construction. Nebok Company recently constructed a new headquarters building. Its Construction-in-Process account showed a balance of $23,186,000 on May 31. Year 9. and
Calculations for various depreciation methods. Alcoa acquires a machine for $88,800. It expects the machine to last six years and to operate for 30.000 hours during that time. Estimated salvage value
Revision of estimated service life changes depreciation schedule. Slow Poke Delivery Company buys a new machine for $80,000 on January 1, Year 12. It estimates that the machine will last 10 years and
Journal entries for revising estimate of life. Give the journal entries for the following selected transactions of Florida Manufacturing Corporation. The company uses the straight-line method of
Working backward to derive proceeds from disposition of plant assets. The balance sheets of Wilcox Corporation at the beginning and end of the year contained the following data:Beginning of Year
Computing the amount of impairment loss. Tillis Corporation acquired the assets of Kieran Corporation (Kieran) on January 1, Year 6. for $2,400,000. On this date, the market values of the assets of
Journal entries to correct accounting errors. Give correcting entries tor the following situations. In each case, the tinn uses the straight-line method of depreciation and closes its books annual!)
Effect of transaction on statement of cash flows. (Requires coverage of Appendix 8.1.)Refer to the simplified statement of cash flows in Exhibit 4.12. Numbers appear on 1 1 of the lines in the
Interpreting disclosures regarding property, plant, and equipment. Mead Corporation reports the following information in its financial statements and notes for a recent year (amounts in
Effect on net income of changes in estimates for depreciable assets. American Airlines has$3 billion of assets, including airplanes costing $2.5 billion with net book value of SI. 6 billion.It earns
Recording transactions involving tangible and intangible assets. Present journal entries for each of the following transactions of Moon Macrosystems:a. Acquired computers costing $400,000 and
Expensing versus capitalizing research and development costs. Pfizer, a pharmaceutical company, plans to spend $90 million on research and development (R&D) at the beginning of each of the next
Ethical issues in capitalization versus expensing policy. Refer to Example 1 involving the treatment of access costs by WorldCom.a. Assume that you were the chief financial officer of WorldCom. What
"Reporting marketable securities available for sale at market values on the balance sheet but not including the unrealized holding gains and losses in income is inconsistent and provides opportunity
Compare and contrast each of the following pairs of accounts:a. For securities available for sale: Unrealized Holding Gain (or Loss) on Marketable Equity Securities and Unrealized Holding Gain (or
When is a derivative also a hedge? When is it not also a hedge? Can management manipulate earnings by its choice of whether to use hedge accounting?
When will a firm not show in income the periodic gain or loss caused by the change in fair value of a derivative?
Distinguish between minority investments in other companies and the minority interest in a consolidated subsidiary.
Why does GAAP require firms to write off over time any portion of an excess purchase price allocated to buildings and equipment but not goodwill?SHORT EXERCISES
Accounting principles for marketable securities. For each of the following items, describe its accounting using one of the following four systems:(1) Measured at fair value with changes appearing in
Working backward from data on marketable securities transaction. (Adapted from a problem by S. A. Zeff.) Dunne Year 3. Fischer/Black Co. purchased equity securities classified as securities available
Reconstructing events from journal entries. Give the likely transaction or event that would result in making each of the independent journal entries that follow: a.Accumulated Other Comprehensive
Equity method entries. Hanna Company purchased KM) percent of the common stock of Denver Company on January 2 for $550,000. The common stock of Denver Company at this dale was $2()(),()()(), and the
Working backward to consolidation relations. Laesch Company, as parent, owns shares in Lily Company. Laesch Company has owned them since it formed Lily Company. Lily Company has never declared a
Working backward from consolidated income statements. Dealco Corporation published a consolidated income statement for the year, shown in Exhibit 11.10. The unconsolidated affiliate retained 25
Classifying securities. Firms must classify minority, passive investments in securities along two dimensions:• Purpose o\' investment: debt securities held to maturity, trading securities, or
Journal entries to apply the market value method to short-term investments in securities.Events related to Elston Corporation's investments of temporarily excess cash appear below. The firm
Journal entries to apply the market value method for short-term investments in securities.Events related to Simmons Corporation's investments of temporarily excess cash appear below. The firm
Amount of income recognized under various methods of accounting for investments. On January 1 , Apollo Corporation acquired common stock of Venus Corporation. At the time of acquisition, the book
Balance sheet and income effects of alternative methods of accounting for investments.On January 1 , Trusco acquired common stock of USP Company. At the time of acquisition, the book value and the
Journal entries to apply the market value method for long-term investments in securities.The following information summarizes data about the long-term minority, passive investments in securities of

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