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business
intermediate accounting reporting

Questions and Answers of Intermediate Accounting Reporting

PROBLEM 1 0-38 BOND ENTRIES-ISSUER On April 1. 1992, the MiromarTooI Company authorized the sale of $8,000,000 of 7%convertible bonds with interest payment dates ofApril 1 and October 1 . The bonds
PROBLEM 10-37 CASH FLOW EFFECTS OF A BOND PREMIUM On January- 1. 2002. Datalink Inc. issued SIOO.OOO, 10%, 10-year bonds when the market rate of interest was 8%. Interest is payable on June 30 and
PROBLEM 10-31 January 2, 1997, and currently have an unamortized premium of $210,000. Prepare the necessar)^ journal entries on Moriarty's books for each of the following independent situations. (a)
20. What two methods can be used to compute the amount of interest that should be capitalized?Which method is more theoretically correct?
EXERCISE 10-30 MODIFICATION OF DEBT TERMS Moriarty Co. is experiencing financial difficulties. Income has exhibited a downward trend, and the company reported its first loss in company history this
EXERCISE 10-29 ^^ TROUBLED DEBT RESTRUCTURING-EQUITY SWAP Southwest Enterprises is threatened with bankruptcy due to its inability to meet interest payments and fund requirements to retire $4,000,000
EXERCISE 10-28
EXERCISE 10-27 WAX CONVERTIBLE BONDS Clarkston Inc. issued SI.000,000 of convertible 10-year, 11% bonds on July 1, 2001. The interest is payable semiannually on Januar}^ 1 and July 1 . The discount
EXERCISE 10-26 ISSUANCE OF CONVERTIBLE BONDS Ricardo Insurance decides to finance expansion of its physical facilities by issuing convertible debenture bonds. The terms of the bonds follow: maturity
EXERCISE 10-25 RETIREMENT AND REFINANCING OF BONDS Chiam Corporation has S 300,000 of 12% bonds, callable at 102, with a remaining 10-year term, and interest payable semiannually. The bonds are
EXERCISE 10-24 RETIREMENT OF BONDS The December 31, 2001, balance sheet ofWorsham Company includes the following items:9% bonds payable due December 31 , 2010 Premium on bonds payable$400,000 10,800
EXERCISE 10-23 RETIREMENT OF DEBT BEFORE MATURITY The long-term debt section of Starr Company's balance sheet as of December 31, 2001, included 9% bonds payable of $200,000 less unamortized discount
EXERCISE 10-22 SALE OF BOND INVESTMENT Jennifer Stack acquired $50,000 of Oldtown Corp. 9% bonds on July 1, 1999- The bonds were acquired at 92; interest is paid semiannually on March 1 and September
EXERCISE 10-21 DISCOUNT AND PREMIUM AMORTIZATION The Rolstone Corporation issued $200,000 of 8% debentures to yield 10%, receiving$184,556. Interest is payable semiannually and the bonds mature in 5
EXERCISE 10-20 BOND INTEREST AND PREMIUM OR DISCOUNT AMORTIZATION Assume that S200.000 of Baker School District 6% bonds are sold on the bond issue date for S185.~88. Interest is payable
EXERCISE 10-19 AMORTIZATION OF BOND PREMIUM OR DISCOUNT On Januar>- 1. 2001, Terrel Company sold S 100.000 of 10-year. 8% bonds at 92.5. an effective rate of 9%. Interest is to be paid on July 1 and
EXERCISE 10-18 ISSUANCE AND REACQUISITION OF BONDS On Januan," 1. 2001, the Housen Company issued 10-year bonds of S500.000 at 102.Interest is payable on Januan- 1 and July 1 at 10%. On April 1.
EXERCISE 10-17 ZERO-COUPON BONDS Allrite Inc. is considering issuing bonds to finance the acquisition of a nationwide chain of distributors of.\llrite's products. Allrite is contemplating two
EXERCISE 10-16 SELLING BONDS AT PAR, PREMIUM, OR DISCOUNT In each of the following independent cases, state whether the bonds were issued at par. a premium, or a discount. Explain your answers.(a)
EXERCISE 10-15 COMPUTATION OF MARKET VALUES OF BOND ISSUES What is the market value of each of the following bond issues? (Round to the nearest dollar)(a) 10% bonds of $ 1 ,000,000 sold on bond issue
EXERCISE 10-14 MORTGAGE AMORTIZATION SCHEDULE On July 1, 2002, Gandalf Inc. borrowed $50,000 to finance the purchase of machinery.The terms of the mortgage require payments to be made at the end of
EXERCISE 10-13 ACCOUNTING FOR MORTGAGES On Januan' 1, 2002, Lily Company purchased a building for $800,000. The company made a 20% downpayment and took out a mortgage payable over 30 years with
CASE 10-12 DO WE REALLY HAVE INCOME?The Jefferson Corporation has $20,000,000 of 10% bonds outstanding. Because of cash flow problems, the company is behind in interest payments and in contnbutions
CASE 10-11 IN-SUBSTANCE DEFEASANCE Another form of early extinguishment of debt is referred to as in-substance defeasance, or economic defeasance. In-substance defeasance is a process of transferring
CASE 10-10 LET'S GET THAT DEBT OFF THE BALANCE SHEET!Both COCA-COLA CO. and ^AARRIO^ CORPORATION have improved the appearance of their parent company balance sheets by organizing separate companies
CASE 10-9 WHAT IS MEANT BY VALUING LIABILITIES AT CURRENT VALUES?John Jex, CPA, had just delivered a keynote address to a banker's organization on the merits of valuing loan portfolio assets at
CASE 1 0-8 CIRCLE K CORPORATION AND ITS DEBT COVENANTS When companies raise money throush the issuance of bonds or other Ions-term debt instruments, debt holders typically require the company to
CASE 1 0-7 DEFERRED INTEREST AND INTEREST RATE RESETS Corporations commonly incur debt in financins the acquisition of other companies or in fishtins takeover attacks by competitors. Two stratesies
CASE 1 0-6 IS THERE A LOSS ON CONVERSION?Holton Co. recently issued $1,000,000 face value, 8%, 30-year debentures at 97, The debentures are callable at 103 upon 30 days' notice by the issuer at
CASE 10-5 DISASTER BONDS Natural disasters—they occur all too often. Califomians worry about earthquakes. Residents of Florida worry about hurricanes. Folks along the Mississippi River worry about
CASE 10-4 ACCOUNTING FOR BONDS Startup Company decided to issue 5100,000 worth of 10%, 5-year bonds dated Januar/ 1, 2001, with interest payable semiannually on January 1 and July 1 of each year. Due
CASE 10-3 LEAVE MY CURRENT RATIO ALONE!Soto Inc., a closely held corporation, has never been audited and is seeking a large bank loan for plant expansion. The bank has requested audited financial
CASE 10-2 MEASURING LIABILITIES Long-term leases and long-term debt are typically recognized in the financial statements at their discounted present values. This recognition practice acknowledges the
needs of investors and creditors?
CASE 10-1 WHAT IS A LIABILITY?Professional athletes resularly sisn long-term multimillion-dollar contracts in which they promise to play for a particular team for a specified time period. Owners of
21. \XTiat is the recommended accounting treatment for bond restructurings effected as:(a) An asset sw^ap?(b) An equit)' s^ap?(c) A modification of terms?
20. WTiat distinguishes a troubled debt restructuring from other debt restructurings?
19. Wliat is a joint venture, and how can a joint venture be a form of off-balance-sheet financing?
18. Why is off-balance-sheet financing popular with many companies? WTiat problems are associated with the use of this method of financing?
17'. What is meant by refinancing or refunding a bond issue? When may refinancing be advisable?
16. The conversion of convertible bonds to common stock by an investor may be viewed as an exchange involving no gain or loss or as a transaction for which market values should be recognized and a
15. How does the accounting for convertible debt under IAS 32 differ from the accounting prescribed bv U.S. GAAP?
14. Wliat are the distinguishing features of convertible debt securities? WTiat questions relate to the nature of this t\pe of security ?
13- ^X"hat purpose is ser\'ed by issuing callable bonds?
12. List three ^vays that bonds are commonly retired prior to maturity'. How should the early extinguishment of debt be presented on the income statement?
11. What amortization method for premiums and discounts on bonds is recommended by APB Opinion No. 21? Why? W'Tien can the alternative method be used?
10. What is meant by market rate of interest, stated or contract rate, and effective or yield rate? WTiich of these rates changes during the lifetime of the bond issue?
6. What is a line of credit?
4. At what amount should liabilities generally be reported?
3. Distinguish between current and noncurrent liabilities. 8.
2. (a) What is meant h\ an executory contract?(b) Do these contracts fit the definition of liabilities 6.included in this chapter? 7.
1. Identify the major components included in the 5.definition of liabilities established by the FASB.
8. Understand the conditions under which troubled debt restructuring occurs, and be able to account for troubled debt restructuring.
7. Review the notes to financial statements, and understand the disclosure associated with debt financing.EXPANDED MAT
6. Analyze a firm's debt position using ratios.
5. Explain various types of offbalance-sheet financing, and understand the reasons for this type of financing.
4. Understand the various types of bonds, compute the price of a bond issue, and account for the issuance, interest, and redemption of bonds.
3. Apply present value concepts to the accounting for long-term debts such as mortgages.
2. Account for short-term debt obligations, including those expected to be refinanced, and describe the purpose of lines of credit.
Refer to the debt restructuring information listed in P14-14.Required:For each of the independent alternatives listed in the “additional information disclosed” sections 1 through 4 of P14-14,
Tenth National Bank has a $200,000, 12% note receivable from Priday Company that is due on December 31, 2022. On December 31, 2019, Priday misses the interest payment due on that date. The bank
On February 1, 2017, Aubrey Company sold its 5-year, $1,000 par value, 9% bonds, which were convertible at the option of the investor into Aubrey Company common stock at a ratio of 10 shares of
You are beginning the 2019 audit of Alta Tierra Company’s long-term debt, and you determine that the company’s long-term note payable requires that it comply with certain financial covenants. The
You are the accountant for Speedy Company and are preparing the financial statements for 2019. Near the end of 2019, Speedy loaned its president $100,000 (a material amount) because she was having
Koreaco produces automobile transmissions, which are then sent to the United States where they are installed in domestically built cars. CarCo. a U.S. auto company, received a shipment of
Witte Inc. carries 4 items in inventory. The following per-unit data relate to these items at the end of 2002.Instructions:1. Calculate the value of the inventory under each of the following
The Jamison Appliance Company began business on January' 1, 2001. The company decided from the beginning to grant allowances on merchandise traded in as partial payment on new sales. During 2002 the
The Olsen Company values its inventory at the lower of FIFO cost or market. The inventory accounts at December 31, 2001, had the following balances.The following are some of the transactions that
Kimbell Manufacturing began operations 5 years ago. On August 13, 2002, a fire broke out in the warehouse destroying all inventory and many accounting records relating to the inventory. The
The following information was taken from the records of the Prairie Company.Instructions: Using the gross profit method, compute the value to be assigned to the inventory as of September 30, 2002,
In December 2002, BuUseye Merchandise Inc. had a significant portion of its inventory stolen. The company determined the cost of inventory remaining to be \($31,100.\) The following information was
Soho Clothing Store values its inventoy under the retail inventory method. The following data are available for 2002.Instructions:1. Compute the estimated inventory at December 3 1 , 2002, using the
The following information was taken from the records of Trump Inc. for the years 2001 and 2002.Instructions: Compute the value of the inventory at the end of 2001 and 2002 using the retail inventory
Johnson & Jones, a pharmaceutical company, uses the retail inventor method to estimate inventory at lower of cost or market. The limited information shown on the next page is available for the
The Sonntag Corporation has adjusted and closed its books at the end of 2001 . The company arrives at its inventory position by a physical count taken on December 31 of each year In March of 2002,
In 1999, Van Hover Inc. adopted the dollar-value LIFO retaU inventory method. The January 1. 1999. price index was 1,00. The data shown on the next page are available for the 4-year period ending
The St. George Sports Shop values its inventory on the dollar-value LIFO retail basis.Incremental inventory layers are costed at end-of-year prices. At December 31 , 2001, the inventory was valued as
On November 17, 2002, Chaldees Airways entered into a commitment to purchase 3,000 barrels of aviation fuel for \($165,000\) on March 23, 2003. Chaldees entered into this purchase commitment to
Charles & Sons, a U.S. computer supplies firm, had the following transactions with foreign companies during December 2001.a. Goldstar Co., Ltd., a South Korea-based firm, sold 5,000 computer hard
How are purchase discounts and sales discounts treated when using the retail inventory method?
Karen Stewart, president of Laronco, Inc., recently attended a seminar on effectively managing a business. One session of the seminar that particularly impressed Karen was the discussion of inventory
REGINA, INC., was a fast-srowins floor-care company that went public in 1985 and went bankrupt in 1988. Resina went from a one-product company with \($60\) million in sales in 1985 to a four-product
The following inventory data are available for Alpine Ski Shop at December 31.1. Determine the value of ending inventory using the lower-of-cost-or-market method applied to(a) individual items and(b)
The Muhlstein Corporation began business on January 1. 2002. The following table shows information about inventories, as of December 31. for 3 consecutive years under different valuation methods.
Wailea Inc. sells new equipment with a \($3,900\) list price. A dissatisfied customer returned one piece of equipment. Wailea determines that the returned equipment can be resold if it is
On August 15, 2002, a hurricane damaged a warehouse of Rheinhart Merchandise Company. The entire inventory and many accounting records stored in the warehouse were completely destroyed. Although
On June 30, 2002, a flash flood damaged the warehouse and factory of Bend Corporation, completed destroying the work in process inventory. There was no damage to either the raw materials or finished
The Evening Out Clothing Store values its inventory using the retail inventory method. The following data are available for the month of November 2002.Compute the estimated inventory at November 30,
Carmel Department Store uses the retail inventory method. On December 31, 2002, the following information relating to the inventory was gathered.Compute the ending inventory value at December 31,
Armual income for the Stoker Co. for the period 1998-2002 appears below. However, a review of the records for the company reveals inventory misstatements as listed.Calculate corrected net income for
The Martin Company reported income before taxes of \($370,000\) for 2001 and \($526,000\) for 2002. A later audit produced the following information.a. The ending inventory for 2001 included 2,000
The Cardoza Products Company's inventory record appears below.The company uses a LIFO cost flow assumption. It reported ending inventories as follows for its first 3 years of operations:Determine if
The Paradise Hardware Store began using the dollar-value LIFO retail method in 2001 for determining inventory values. In 2001. the cost percentage was computed at 62%. Information relating to the
On Februan 15. 2003. Rooker. Madras & Associates compiled the following information concerning inxentory for five years. They used the dollar-value LIFO retail inventory method.Compute the
On October 1. 2002, Gore Electronics Inc. entered into a 6-month. \($520,000\) purchase commitment for a supply of Product A. On December 31, 2002, the market value of this material had fallen to
Guenther's. a German company that supplies your firm with a necessan- raw material, recently shipped 10,000 units of the material to your production facilit)-.1. Prepare the necessary journal entries
The White Wove Corporation began operations in 2002. A summary of the first quarter appears below.The White Wove Corporation used the LIFO perpetual inventory method and correctly computed an
In 1 989 an investigation by the U.S. Department of Justice Criminal Division uncovered a massive fraud perpetrated by top management of MINISCRIBE CORPORATION. MiniScribe manufactured and sold
Caitlin Georse, an accountins student at Rider Coliese, is wntins a research paper on inventories.She discovers that Accountins Research Study No. 1 3 on inventories was issued in the 1970s by the
The Innovative Production Co. has used the LIFO method of valuins its inventories for several years. Layers for some of the inventory items are valued at amounts one-third to one-half of the current

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