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intermediate accounting reporting

Questions and Answers of Intermediate Accounting Reporting

On December 1, 2019, Insto Photo Company purchased merchandise, invoice price $25,000, and issued a 12%, 120-day note to Ringo Chemicals Company. Insto uses the calendar year as its fiscal year and
On January 4, 2019, Dunbar Company purchased, on credit, 2,500 television sets at $800 each. Terms of the purchase were 2/10, n/30. Dunbar paid for 20% of these sets on January 13 and the remaining
During 2019, Lawton Company introduced a new line of machines that carry a 3-year assurance-type warranty against manufacturer’s defects. Based on industry experience, warranty costs are estimated
All of Rolf Co.’s employees are entitled to two weeks of paid vacation for each full year in Rolf’s employ. Unused vacation time can be accumulated and carried forward to succeeding years and
Morgan Company determined that (1) it has a material obligation relating to employees’ rights to receive compensation for future absences attributable to employees’ services already rendered, (2)
Bronson Apparel Inc. operates a retail store and must determine the proper December 31, 2019, year-end accrual for the following expenses:• The store lease calls for fixed rent of $1,000 per month,
On September 1, 2019, a company borrowed cash and signed a 1-year, interest-bearing note on which both the principal and interest are payable on September 1, 2021. How will the note payable and the
The inventory records of Frost Company for the years 2019 and 2020 reveal the cost and market of the January 1, 2019, inventory to be $125,000. On December 31, 2019, the cost of inventory was
The following are the inventories for the years 2019, 2020, and 2021 for Parry Company:.Required:1. Assume the inventory that existed at the end of each year was sold in the subsequent year. Prepare
On January 1, 2019, Seaver Company sold land with a book value of $23,000 to Bench Company. Bench paid $15,000 down and signed a $15,000 non-interest-bearing note, payable in two $7,500 annual
On January 1, 2019, Lisa Company sold machinery with a book value of $118,000 to Mark Company. Mark signed a $180,000 non-interest-bearing note, payable in three $60,000 annual installments on
On January 1, 2019, Somerville Corporation sold a used truck to Cornelius Company and accepted a $28,000 non-interest-bearing note due January 1, 2020. Somerville carried the truck on its books at a
On January 1, 2019, Lion Company paid $600,000 for 10,000 shares of Wolf Company’s voting common stock, which was a 10% interest in Wolf. Lion does not have the ability to exercise significant
On January 1, 2019, Easton Corporation acquired 30% of the outstanding common shares of Feeley Corporation for $140,000, purchased 25% of the outstanding common shares of Holmes Company for $82,500,
Harper Corporation acquired 80,000 of the 200,000 outstanding shares of Moore Corporation on April 1, 2019, for $400,000 and obtained significant influence. The following information concerning Moore
On January 1, 2019, Doe Company purchased 3,000 of the 10,000 common shares outstanding of Ray Company for $15 per share and obtained significant influence. Doe amortizes its patents over 10 years.
On January 1, 2019, Snow Corporation purchased 20% of the 200,000 outstanding shares of common stock of Garvey Company for $4.00 per share as a long-term investment. The purchase price of the shares
During the first quarter of 2019, Payne Corporation entered into the following transactions:Jan. 1 Acquired 150 shares of Block Corporation common stock for $20 per share, 200 shares of Bridle
Manson Incorporated reported investments in equity securities of $60,495 as a current asset on its December 31, 2018, balance sheet. An analysis of Manson’s investments on December 31, 2018,
Noonan Corporation prepares quarterly financial statements and invests its excess funds in marketable securities. At the end of 2018, Noonan’s portfolio of investments consisted of the following
8th State Bank prepares interim financial statements and follows an investment strategy of investing in equity securities. At the beginning of the third quarter of 2019, the bank held the following
The investment manager of 4th National Bank invests some of the bank’s financial resources in equity securities. During the last quarter of 2019, the following transactions occurred in regard to
During 2019, Dana Company decided to begin investing its idle cash in marketable securities. The information contained below relates to Dana’s 2019 marketable security transactions:Apr. 1 Purchased
The following information relates to Starr Company’s investment in available-for-sale bonds for 2019:Jan. 1 Purchased $30,000 face value of Bradford Company 8% bonds for $29,100. The market rate
Holly Company invests its excess cash in marketable securities. At the beginning of 2019, it had the following portfolio of investments in available-for-sale debt securities:During 2019, the
The following information relates to Sanders Company’s investment in trading securities for 2019:Jan. 1 Purchased $30,000 face value of Busbin Company 8% bonds for $29,100. The market rate of
Akers Company invests its excess cash in marketable securities. At the beginning of 2019, it had the following portfolio of investments in trading debt securities:During 2019, the following
On January 1, 2019, Mark Corporation purchased bonds with a face value of $500,000 for $475,413.60. The bonds are due December 31, 2021, carry a 10% stated rate, and were purchased to yield 12%.
Mercer Corporation acquired $400,000 of Park Company’s bonds on June 30, 2019, for $409,991.12. The bonds carry a 12% stated interest rate and pay interest semi-annually on June 30 and December 31.
On October 1, 2019, Jenkins Corporation bought bonds with a face value of $200,000 for $199,175, which included accrued interest. The bonds are due December 31, 2021, and carry a face rate of
Tudor Company acquired $500,000 of Carr Corporation bonds for $487,706.69 on January 1, 2019. The bonds carry an 11% stated interest rate, pay interest semiannually on January 1 and July 1, were
On January 1, 2019, Hyde Corporation purchased bonds with a face value of $300,000 for $308,373.53. The bonds are due June 30, 2022, carry a 13% stated interest rate, and were purchased to yield
The following data were available from Hegge Department Store’s records for the year ended December 31, 2019:Required:Using the retail method, what is the estimate of the merchandise inventory at
On November 21, 2019, a flood at Hodge Company’s warehouse caused severe damage to its entire inventory of Product Tex. Hodge estimates that all usable damaged goods can be sold for $10,000. The
Belstock Company manufactures one product. On December 31, 2018, Belstock adopted the dollar-value LIFO inventory method. The inventory on that date using the dollar value LIFO inventory method was
Guide Company requires additional cash for its business. Guide has decided to use its accounts receivable to raise the additional cash as follows:1. On June 30, 2019, Guide assigned $200,000 of
At January 1, 2019, the credit balance in Master Company’s Allowance for Doubtful Accounts was $400,000. For 2019, the provision for doubtful accounts is based on a percentage of credit
On January 1, 2019, Seminole Inc. purchased 300 shares of Cornett Company common stock at $40 per share. Prepare the January 1 journal entry to record the purchase of these equity securities.
On February 1, 2019, Razorback Corporation decides to transfer its available-for-sale securities to the trading category. These securities had been purchased for $9,400 early in 2018 and had a fair
Refer to the information in RE13-5. Assume that on February 1, 2020, Aggie sold its investment in Smith Corporation for $12,500. Prepare the journal entries of Aggie Corporation to record the sale
Refer to the information in RE13-5. Assume that on December 31, 2019, the investment in Smith Corporation bonds has a market value of $12,300. Prepare the year-end journal entry to record the
Refer to the information in RE13-5. Assume that on June 30, Aggie received interest on the Smith Corporation bonds. Prepare the June 30 journal entries to record the receipt of the interest.RE13-5On
On April 30, 2019, Aggie Corporation purchased Smith Corporation 10%, 5-year bonds with a face value of $12,000 at par plus four months of accrued interest. Prepare the April 30 journal entry to
Refer to the information in RE13-3. Assume that on December 31, 2019, Wolfpack received interest on the Todd Corporation bonds. Wolfpack uses the straight-line method to amortize premiums and
On July 1, 2019, Wolfpack Corporation purchased securities which it intends to buy and sell frequently. These securities consisted of Todd Corporation 10%, 5-year bonds with a face value of $20,000
On January 1, 2019, Gatrong Corporation purchased 12%, 5-year Fleming Corporation bonds with a face value of $200,000. It expects to hold these bonds until maturity. The bonds pay interest
On January 1, 2019, Park Company accepted a $36,000, non-interest-bearing, 3-year note from a major customer in exchange for used equipment. The equipment had originally cost Park $200,000 and had a
On January 2, 2019, Portela Inc. bought 30% of the outstanding common stock of Bracero Corporation for $258,000 cash. Portela accounts for this investment by the equity method. At the date of
On its December 31, 2018, balance sheet, Fay Company reported equity investments at a market value of $183,000. There was no change during 2019 in the composition of Fay’s portfolio of marketable
In 2021, Cromwell Corporation purchased bonds of Oliver Company at par for $300,000 and classified the investment as available-for-sale. In 2022, the market value declined to $200,000. In 2023, the
On July 1, 2019, Aldrich Company purchased as an available-for-sale security $200,000 face value, 9% U.S. Treasury notes for $194,000.The notes mature July 1, 2020, and pay interest semiannually on
During 2021, Anthony Company purchased debt securities as a long-term investment and classified them as trading. All securities were purchased at par value. Pertinent data are as follows:The net
On January 1, 2019, Weaver Company purchased as held-to-maturity debt securities $500,000 face value of Park Corporation’s 8% bonds for $456,200. The bonds were purchased to yield 10% interest and
Briefly describe how to determine and record the gain or loss on the sale of a minority passive investment in equity securities.
Briefly describe how to determine and record any subsequent increases or decreases in the fair value of a minority passive investment in equity securities.
Briefly summarize the accounting for an investment in equity securities.
Describe how to recognize an impairment under the current expected credit loss model.
What accounting is required for minority passive equity investments?
a. On January 1, 2019, Tully signed an agreement to operate as a franchisee of Rapid Copy Service Inc. for an initial franchise fee of $85,000. Of this amount, $25,000 was paid when the agreement was
Lee Manufacturing Corporation was incorporated on January 3, 2018. The corporation’s financial statements for its first year’s operations were not examined by a CPA. You have been engaged to
Munn Inc. had the following intangible account balance at December 31, 2018:Patent .........................$168,000Information relating to Munn’s patent and transactions involving other intangible
Barb Company has provided information on intangible assets as follows:1. A patent was purchased from Lou Company for $1,500,000 on January 1, 2018. Barb estimated the remaining useful life of the
On January 2, 2019, Brock Corporation purchased a tract of land (site number 101) with a building for $600,000. Additionally, Brock paid a real estate broker’s commission of $36,000, legal fees of
Borrell Company purchased four delivery trucks on January 2, 2019, for $22,000 each.Borrell expected two of the trucks to last 5 years and have a residual value of $3,500 each. The other two trucks
Yummy Cereal Company is offering one toy shovel set for 15 box tops of its cereal. Yearto-date sales have been off, and it is hoped that this offer will stimulate demand. Each shovel set costs the
Intella Inc. adopted the dollar-value retail LIFO method on January 1, 2018. The following data apply to the 4 subsequent years:In addition, the following price indexes are available:Required:Compute
Red Department Store uses the retail inventory method. Information relating to the computation of the inventory at December 31, 2019, is as follows:Estimated normal shrinkage is 2% of
EKC Company uses the retail inventory method. The following information for 2019 is available:Required:Compute the cost of the ending inventory under each of the following cost flow assumptions
Turner Corporation uses the retail inventory method. The following information relates to 2019:Required:Compute the cost of the ending inventory under each of the following cost flow assumptions
On June 30, 2019, a flash flood damaged the warehouse and factory of Padway Corporation, completely destroying the work-in-process inventory. There was no damage to either the raw materials or
January 1, 2018, Sato Company adopted the dollar-value LIFO method of inventory costing. Sato’s ending inventory records appear as follows:Required:Compute the ending inventory for the years 2018,
When the double-extension approach to the dollar-value LIFO inventory cost flow method is used, the inventory layer added in the current year is multiplied by an index number. How would the following
Assuming no beginning inventory, what can be said about the trend of inventory prices if cost of goods sold computed when inventory is valued using the FIFO method exceeds cost of goods sold when
During 2019, R Corp., a manufacturer of chocolate candies, contracted to purchase 100,000 pounds of cocoa beans at $1.00 per pound, delivery to be made in the spring of 2020. Because a record harvest
Hogan Company uses the net method of accounting for sales discounts. Hogan also offers trade discounts to various groups of buyers. On August 1, 2019, Hogan factored some accounts receivable on a
SituationGilmatt Company developed a new product that it planned to sell directly to customers and to promote heavily because of “stiff” competition in the marketplace. Its marketing department
SituationAfter securing lease commitments from several major stores, Bay Lake Shops Inc. was organized and built a shopping center in a growing suburb. The shopping center would have opened on
Obtain Nestlé’s 2017 annual report using the “Investor Relations” portion of its website (do a web search for Nestlé investor relations).Required:1. What was the total amount of intangible
Obtain Starbucks’s 2017 annual report either using the “Investor Relations” portion of its web-site (do a web search for Starbucks investor relations) or go to http://www.sec.gov and click
On June 30, 2019, your client, Sprauge Corporation, was granted two patents covering plastic cartons that it has been producing and marketing profitably for the past 3 years. One patent covers the
Elson Corporation, a retail fuel oil distributor, has increased its annual sales volume to a level three times greater than the annual sales of a dealer it purchased in 2015 in order to begin
In examining Samson Manufacturing Company’s books, you find on the December 31, 2019, balance sheet the item, “Costs of patents, $308,440.” Referring to the ledger accounts, you note the
Bryant Corporation was incorporated on December 1, 2018, and began operations one week later. Before closing the books for the fiscal year ended November 30, 2019, Bryant’s controller prepared the
Hamilton Company’s balance sheet on January 1, 2019, was as follows:Korbel Company is considering purchasing Hamilton (a privately held company) and discovers the following about Hamilton:a. No
Wember Company acquired a subsidiary company on December 31, 2015, and recorded the cost of the intangible assets it acquired as follows:Patent...................... $100,000Trade name
Bailey Company was formed in January 2017 and is preparing its financial statements under GAAP for the first time at the end of 2019. Its general ledger at December 31, 2019, includes the following
During the year-end audit of Cressman Corporation’s financial statements for 2019, you discover the following items:1. Cressman capitalized $57,000 to the Patent account at the beginning of 2018
Byrd Corporation engaged in the following transactions at the beginning of 2019:a. Purchased a Hogburger franchise for a 5-year, $60,000, 10% interest-bearing note. The franchise has an indefinite
Jolis Company has provided information on the following items:1. A patent was purchased from Totley Company for $500,000 on January 1, 2018. At that time, Jolis estimated the remaining useful life to
Several years ago, Blaha Company purchased Husker Company as a subsidiary. At that time, Blaha recorded goodwill of $100,000 related to the purchase. Since that time, the company has not considered
Marino Company had the following balance sheet on January 1, 2019:On January 2, 2019, Paul Company purchased Marino by acquiring all its outstanding shares for $300,000 cash.On that date, the fair
In 2019, eGames spent $8,000,000 developing new software. Of this amount, $5,300,000 was spent before July 2019—when technological feasibility was established. The product was marketed to consumers
Elm Company is considering purchasing EKC Company. EKC’s balance sheet at December 31, 2019, is as follows:At December 31, 2019, Elm discovered the following about EKC:a. No allowance for
Probst Company acquired a trademark several years ago at a cost of $60,000. Probst has never considered the trademark to be impaired. However, at the end of 2019, Probst has determined that the
Davis Research Company engaged in the following 5 transactions during 2019:1. Purchased a patent for $35,000. Legal costs of $5,000 were also incurred.2. Costs paid to improve patent:Engineering
Brush Company engaged in the following transactions at the beginning of 2019:a. Purchased a patent (Patent A) for $70,000 that had originally been filed in January 2013. The purchase was made to
Barnum Company acquired several small companies at the end of 2018, and based on the acquisitions, reported the following intangible assets on its December 31, 2018, balance sheet:Patent
Kling Company was organized in late 2019 and began operations on January 2, 2020. Prior to the start of operations, it incurred the following costs:Costs of hiring new employees
In 2019, Lalli Corporation incurred R&D costs as follows:Materials used from inventory ............................................................................$100,000Personnel in R&D lab
Cressman Company incurred R&D costs for various projects in 2019 as follows:Materials used for research .....................................................$ 240,000Materials used for

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