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intermediate accounting volume 2

Questions and Answers of Intermediate Accounting Volume 2

On January 1, 2020, Baker Inc. enters into an operating lease of equipment for one year for \(\$ 1,000\) per month on January 1, 2020. The equipment cost \(\$ 200,000\) and has a useful life of 10
Tropical Products Inc. is in the process of negotiating a lease of equipment with a fair value of \(\$ 50,000\), and it must determine the proper lease classification. The following table describes
The following separate scenarios relate to a 5-year lease, pertaining to equipment with a fair value of \(\$ 25,000\). Assume in all scenarios that payments are made at the beginning of the period.1.
On January 1, 2020, Ashe Company entered into a 5 -year equipment lease (with no renewal options) requiring payments of \(\$ 10,000\), with the first payment due immediately. The lessor's implicit
On January 1, 2020, Lessee Inc. enters into a 5-year equipment lease agreement for \(\$ 15,000\) annually (first payment due immediately). The lease grants the lessee an option to renew the lease for
On December 30, 2019, Drew Company leased equipment under a lease for a period of 5 years. Drew contracted to pay \(\$ 90,000\) on December 31,2019 , with an annual increase of \(3 \%\) (calculated
On January 1, 2020, Alex Company signed a 5-year lease contract for equipment with Abel Company. The equipment had a normal selling price of \(\$ 55,000\) and an estimated useful life of 6 years.
Assume the same information in Exercise 17-57 except that the lessee also paid legal fees in the execution of the lease of \(\$ 1,800\) on January \(1,2020\).Requireda. How would Abel Company
Mac Leasing Company (lessor) and Ash Corporation (lessee) signed a four-year lease on January 1, 2020. The underlying asset has an estimated life of six years, and the property reverts to Mac at the
On the first day of its accounting year, January 1, 2020, Lessee Inc. leased a building at an annual payment of \(\$ 138,847.84\) to be paid at the beginning of each year for 10 years. The first
On January 1, 2020, lessor Marcy and lessee Lenox contract for the lease of a machine for five payments of \(\$ 7,000\) each. The \(\$ 7,000\) payments are to be paid at the end of each year. They
On the first day of its accounting year, Lessee Inc. leased certain property at a semiannual payment of \(\$ 60,000\) receivable at the beginning of each period for 8 years. The first payment was
Flint Company leased equipment to Land Company for a five-year period. Flint paid \(\$ 46,965\) for the equipment, its current carrying value (estimated useful life five years). The lease started on
Use the same information from Exercise 17 - 63 but assume instead that the lease contract contains a purchase option stating that Land Company can purchase the equipment for \(\$ 4,000\) on January
Dunlap Company leased a large copier to Rust Company for a three-year period. Dunlap paid \(\$ 30,000\) for the copier and immediately leased it on January 1, 2020 (estimated useful life is four
Rex Corporation (lessor) and Lee Company (lessee) agreed to a lease with the following information:» Rex's carrying value of the underlying asset (inventory item) was \(\$ 400,000\).- Lease term is
On January 1, 2020, the first day of its accounting year, Lessor Inc., leased certain equipment at an annual payment of \(\$ 10,254.19\), receivable at the beginning of each year for 10 years. The
On January 1, 2020, the first day of its accounting year, Lessor Inc., leased certain property at an annual payment of \(\$ 20,000\) receivable at the beginning of each year for 5 years. The first
Information for four separate finance/sales-type lease scenarios is provided as follows:Required Answer the following questions for each separate scenario, assuming that the lessee is aware of the
Information for four separate finance/sales-type lease scenarios is provided as follows:Required Answer the following questions for each separate scenario assuming that the lessee is aware of the
A lessor entered into a 5-year lease appropriately classified as a sales-type lease. The cost of the underlying asset was \(\$ 40,000\) and the fair value of the asset was \(\$ 50,000\). The lease
Try-Star Leasing Company enters into a contract with LLX Corporation for equipment under lease for a threeyear period. The equipment will have no residual value when the lease term ends and has an
Using the information from Exercise 17-72, complete the following requirements from the lessor's perspective.Requireda. Determine the classification of the lease to Try-Star Leasing Company.b.
Lessory Corporation, a manufacturer of equipment, enters into a lease of specialized equipment with LesseeX Corp. Title to the asset remains with Lessory Corp upon lease expiration. LesseeX Corp does
Using the information from Exercise 17-74, complete the following requirements from the lessor's perspective. Assume that lessor classifies the equipment as inventory prior to the lease
On January 1, 2020, Frozen Yogart Inc. signed a 10 -year lease for its retail outlet. The lease payments, paid semiannually, are based upon semiannual sales and will equal \(5 \%\) of sales with a
On January 2, 2020, Wayne Inc. signed an eight-year lease for office space for \(\$ 24,000\) annually, with the first payment due immediately. Wayne has the option to renew the lease for an
On January 1, 2020, Lessee Inc. leased equipment at an annual payment of \(\$ 85,099\) payable at the beginning of each year for 4 years. The equipment had a fair value of \(\$ 400,000\), a book
Renewable Co. uses leasing as a secondary means of selling its products. The company contracted with Green Corporation to lease a machine with an economic life of 12 years to be used by Green
Using the information from Exercise 17-79, answer the following question from the perspective of the lessor.Requireda. How would Renewable Co. classify the lease?b. What baiances (account titles,
For each of the following debt scenarios described below, identify the bond type that applies.a. Bonds issued by a public corporationb. Mortgage note issued for commercial propertyc. Bonds issued at
Rowe Corporation authorized \(\$ 5,000\) of \(8 \%\) (cash interest payable semiannually) 10 -year bonds. The bonds were dated January 1, 2020; interest dates are June 30 and December 31. Assume
An eight-year, \(6 \%, \$ 1,000\) bond (cash interest payable annually) is sold to yield \(6 \%\) interest. Compute the bond selling price.
A 10 -year, \(7 \%, \$ 1,000\) bond (cash interest payable \(3.5 \%\) semiannually) is sold to yield \(6 \%\) interest. Compute the bond selling price.
A 10 -year, \(6 \%, \$ 1,000\) bond (cash interest payable \(3 \%\) semiannually) is sold to yield \(8 \%\) interest. Compute the bond selling price.
Rowe Corporation authorized \(\$ 600,000\) of \(8 \%\) (cash interest payable semiannually) 10 -year bonds. The bonds were dated January 1, 2020. Interest dates are June 30 and December 31. Assuming
Yale Corporation issued to Zap Corporation \(\$ 60,000,8 \%\) (cash interest payable semiannually on July 1 and January 1) 10 -year bonds dated and sold on January 1,2020 . If the bonds were sold at
Yale Corporation issued to Zap Corporation \(\$ 60,000,8 \%\) (cash interest payable semiannually on June 30 and December 31) 10 -year bonds dated and sold on January 1,2020 . Assume that the company
Yale Corporation issued to Zap Corporation \(\$ 60,000,8 \%\) (cash interest payable semiannually on June 30 and December 31) 10 -year bonds dated and sold on January 1, 2020. Assume that the company
Yale Corporation issued to Zap Corporation \(\$ 60,000,8 \%\) (cash interest payable semiannually on June 30 and December 31) 10-year bonds dated and sold on January 1, 2020. Assume that the company
Yale Corporation issued to Zap Corporation \(\$ 60,000,8 \%\) (cash interest payable semiannually on June 30 and December 31) 10 -year bonds dated and sold on January 1, 2020. Assume that the company
For the Yale Corporation bonds in Brief Exercise 16-34, show how the bonds and related accounts would be presented in the balance sheet as of June 30, 2020.Exercise 16-34Yale Corporation issued to
Yale Corporation issued to Zap Corporation \(\$ 60,000,8 \%\) (cash interest payable semiannually on June 30 and December 31) 10 -year bonds dated and sold on January 1, 2020. Assume that the company
Lacey Corp. issued a three-year, \(\$ 5,000\) note with an \(8 \%\) stated rate to Hayley Co. on January 1, 2020, and received cash of \(\$ 5,000\). The note requires semiannual interest payments on
On January 1, 2020, Landry Inc. issued a three-year, \(\$ 5,000\), zero-interest-bearing note to Dillon LLP, and received \(\$ 4,198\). The implied interest rate is \(6 \%\) on this note transaction.
Fem Company purchased goods on January 1,2020 , and issued a two-year, \(\$ 2,500\) note with a \(5 \%\) stated rate. The fair value of the goods is \(\$ 2,366\). The note requires annual interest
On January 1, 2020, Allen Corp. issued a 3-year, zero-interest-bearing note payable for \(\$ 10,000\) to Town Corp. for a cash receipt of \(\$ 10,000\). In lieu of interest payments, Allen Corp.
On January 1, 2020, a borrower signed a long-term note, face amount \(\$ 50,000\) with time to maturity of 6 years. The interest rate is \(7 \%\) and equal annual installment payments will pay off
Darien Inc. redeemed \(\$ 5,000\) of its bonds at 102 on January 1, 2020. At this date, the unamortized discount was \(\$ 690\). Prepare the journal entry on January 1, 2020, for the bond redemption.
Stonewall Corporation issued \(\$ 20,000\) of \(5 \%, 10\)-year convertible bonds. Each \(\$ 1,000\) bond is convertible to 10 shares of common stock (par \$50) of Stonewall Corporation. The bonds
On December 1, 2020, Junction Company issued at 104, 4,000 of its \(9 \%, 10\)-year, \(\$ 1,000\) par value, nonconvertible bonds with detachable stock purchase warrants. Each bond carried two
Josie Corporation issued 10 -year, \(8 \%\) interest-bearing bonds payable at face value for \(\$ 10,000\) on January 1 , 2020. At that time, Josie Corporation elected to account for the bonds
Target Corporation reported the following amounts (in millions) in a recent Form 10-K.- Total assets: \(\$ 44,553\)- Total liabilities: \(\$ 28,322\)- Total noncurrent liabilities: \(\$ 15,545\)-
For each account \(a\) through \(m\) listed below, indicate the account type (asset, liability, or equity) and the financial statement (balance sheet or statement of comprehensive income) where the
For each of the following bond scenarios \(a\) through \(e\) described below, identify a bond type that applies.a. Harrison County Flood Control Improvement Bonds issued in the state of Texas.b.
On January 1, 2020, the following debt was authorized and issued by Anderson Company.1. \(\$ 50,000,5\)-year, \(9 \%\) convertible bonds payable, cash interest payable semiannually to yield \(10
Calculate the bond selling price for the three separate scenarios that follow.a. 33M Corp. authorized and issued \(\$ 100,000,6 \%, 20\)-year bonds payable on January 1, 2020. Calculate the selling
On May 1, 2020, Setup Inc. sold an issue of 5\%, \(\$ 1,000\) bonds dated January 1, 2020, to yield 5\%. The bonds pay interest every June 30 and December 31, and mature December 31, 2024.Requireda.
On October 1, 2020, New Co. issued an eight-year, \(6 \%, \$ 1,000\) bond at face value, with cash interest payable semiannually on April 1 and October 1.Required Provide journal entries to be made
On January 1,2020 , Williams Inc. issued 8 -year, \(\$ 50,000,5 \%\) bonds, priced to yield \(6 \%\), with cash interest payable semiannually on June 30 and December 31. The company amortizes the
On January 1, 2020, Williams Inc. issued 8-year, \(\$ 50,000,5 \%\) bonds, priced to yield \(6 \%\), with cash interest payable semiannually on June 30 and December 31. The company amortizes the bond
Mitchell Inc. issued 40, \(6 \%, \$ 1,000\) bonds on January 1,2020 , for \(\$ 38,950\). The bonds pay cash interest annually each December 31 and were issued to yield \(7 \%\). The bonds mature
Mitchell Inc. issued 40, 6\%, \(\$ 1,000\) bonds on January 1, 2020. The bonds pay cash interest semiannually each July 1, and December 31, and were issued to yield 7\%. The bonds mature December 31,
Refer to the information in Exercise 16-57. However, now assume that the interest payments are made on July 1 , and January 1.Requireda. Determine the selling price of the bonds.b. Prepare an
Mitchell Inc. issued \(40,6 \%, \$ 1,000\) bonds on January 1,2020 . The bonds pay cash interest semiannually each July 1 , and December 31 , and were issued to yield \(7 \%\). Debt issuance costs
Mitchell Inc. issued \(60,6 \%, \$ 1,000\) bonds on January 1,2020 . The bonds pay cash interest annually each December 31 and were issued to yield \(5 \%\). The bonds mature December 31, 2024, and
Mitchell Inc. issued \(60,6 \%, \$ 1,000\) bonds on January 1, 2020. The bonds pay cash interest semiannually each June 30, and December 31, and were issued to yield 5\%. The bonds mature December
Mitchell Inc., issued 40, \(6 \%, \$ 1,000\) bonds on January 1, 2020. The bonds pay cash interest semiannually each June 30 and December 31, and were issued to yield \(7 \%\). The bonds mature
Mitchell Inc., issued \(70,6 \%, \$ 1,000\) bonds on January 1,2020 . The bonds pay cash interest annually each January 1 (beginning January 1, 2021), and were issued to yield 4\%. The bonds mature
Master Corp. issued \(5 \%, \$ 300,000\) bonds on January 1, 2020. The bonds pay cash interest semiannually each July 1 and January 1, and were issued to yield \(6 \%\). The bonds mature January
Master Corp. issued \(8 \%, \$ 80,000\) bonds on February 1,2020 . The bonds pay interest semiannually each July 31 and January 31 and were issued to yield \(7 \%\). The bonds mature January 31,
For the following separate bond issues, assume that the bonds are sold on January 1, 2020, interest is paid semiannually on July 1 and December 31, and the bond term is 5 years.Required Complete the
Lathrop Inc. purchased equipment on January 1, 2020, for \(\$ 75,000\) cash plus a note payable. The fair value of the equipment on January 1,2020 , is \(\$ 271,333\). The market rate of interest is
On January 1, 2020, Jet Air Inc. contracted with Systems Plus Inc. to manufacture heavy equipment. Jet Air Inc. issued a \(\$ 75,000\) note to Systems Plus Inc. in exchange for the equipment that
On June 30, 2020, BMO Company purchased land for expansion with an assessed value of \(\$ 108,661\) by issuing a 5-year, zero-interest-bearing note. The face value of the note is \(\$
On January 1,2020 , a borrower signed a long-term note, face amount, \(\$ 100,000\); time to maturity, three years; stated rate of interest, \(8 \%\). The market rate of interest of \(10 \%\)
On March 1,2020 , Sandollar Inc. issued \(\$ 30,000\) of bonds at 105 , paying \(8 \%\) cash interest semiannually on June 30 and December 31. The bonds are scheduled to mature December 31, 2023. On
On January 1, 2020, Rocket Corporation issued \(\$ 250,000\) of \(6 \%, 20\)-year bonds at 98 . The interest is payable each December 31. Rocket uses straight-line amortization. The company's
Dillon Corp. issued \(\$ 100,000\) of \(6 \%\) (cash payable each December 31), 10 -year bonds on January 1, 2020. The bonds are callable at any point after 2024 at 103. The bonds sold on January 1,
Stonewall Corporation issued \(\$ 20,000\) of \(5 \%, 10\)-year convertible bonds. Each \(\$ 1,000\) bond is convertible to 10 shares of common stock (par \$50) of Stonewall Corporation. The bonds
On January 1,2020 , Sierra Corp. issued \(500, \$ 1,000,6 \%\) convertible bonds at face value. Each bond is convertible into 15 shares of \(\$ 1\) par value common stock. As an inducement to convert
Harley Corporation issued \(\$ 75,000\) of \(6 \%, 10\)-year, nonconvertible bonds with detachable stock purchase warrants. Each \(\$ 1,000\) bond carried 20 detachable warrants, each of which was
Target Shoppers Inc. reported cash sales of \(\$ 18,000\) for the month of June 2020. Sales taxes payable are recordeda. Assume that sales of Target Shoppers Inc. are subject to a \(6 \%\) sales tax.
On June 15, 2020, Red Buckle Inc. purchased merchandise for resale for \(\$ 12,000\) on credit terms \(2 / 10, \mathbf{n} / 30\). On June 20 , Red Buckle paid for the merchandise. Record the entry on
Jet Air Inc. collected \(\$ 300\) cash from a customer who purchased a one-way airline ticket on June 1, 2020, for a flight from Minneapolis to New York on August 15, 2020. Record the entry on June
Chica's Inc. sold a \(\$ 50\) gift card on February 1, 2020. The gift card was redeemed on February 14, 2020. Record the entries on (1) February 1 and (2) February 14 for Chica's Inc.
BSW Inc. had a weekly payroll of \(\$ 5,000\) for three employees with mandatory withholdings of social security tax \((7.65 \%)\), federal withholdings of \(\$ 1,000\), and state withholdings of
The following information relating to compensated absences was available from Graf Company's accounting records at December 31, 2020.- Employees' rights to vacation pay vest and are attributable to
On December 15, 2020, the board of directors of Limited Label Inc. approved a bonus payout of \(\$ 70,000\) to executives, based upon services performed in 2020. The bonus is payable on January 25,
On August 31, 2020, Pine Company issued a 9 -month, \(12 \%\) note payable to National Bank in the amount of \(\$ 900,000\). Interest is due at maturity. Record the entries for Pine Company on the
First Choice Company buys equipment on October 1, 2020, providing as payment a noninterest-bearing note for \(\$ 20,000\) to be paid one year from today. The equipment could be purchased for \(\$
The face value of commercial paper borrowings at December 31,2020 , was \(\$ 6\) million. The six-month loan originated on September \(1,2020\).a. Prepare the journal entry for issuance of the loan
Maple Leaf Co. has a \(\$ 50,000,5 \%, 10\)-year note issued July 31, 2011.a. How will the \(\$ 50,000\) be classified on the December 31,2020 , balance sheet?b. If the \(\$ 50,000\) is refinanced
On December 31, 2020, Mainstreet Inc. has a \$100,000 note payable due on demand or on June 30, 2025, whichever is earlier, to First Bank. The repayment of the note by First Bank is not expected at
Finisher Inc. sells merchandise of \(\$ 250,000\) in 2020 that includes a three-year limited warranty. Warranty costs are estimated to be \(1 \%\) of sales. The company incurred actual costs of \(\$
Madison Co. sells merchandise of \(\$ 250,000\) in 2020, along with a two-year warranty (for years 2020 and 2021) for \(\$ 25\) per product. Warranty costs are estimated to be \(0.5 \%\) of sales.
On November 5, 2020, a Dunn Corporation truck was in an accident with an auto driven by R. Bell. Dunn received notice on January 12, 2021, of a lawsuit for \(\$ 350,000\) in damages for personal
Pitt Company is the defendant in a lawsuit filed by Hoffman in 2020 disputing the validity of a copyright held by Pitt. At December 31, 2020, Pitt determined that Hoffman would probably be successful
The following information pertains to a fire insurance policy in effect during the calendar year 2020, covering Vail Company's inventory:Vail's inventory averages \(\$ 500,000\) uniformly throughout
Marathon Inc. estimates that it will be required to spend approximately \(\$ 40,000\) to remove an underground storage tank in 10 years that was constructed in 2020 for \(\$ 300,000\). The present

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