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intermediate accounting volume 2

Questions and Answers of Intermediate Accounting Volume 2

(Lessee-Lessor Entries, Balance Sheet Presentation; Sales-Type Lease) Cascade Industries and Hardy Inc. enter into an agreement that requires Hardy Inc. to build three diesel-electric engines to
(Balance Sheet and Income Statement Disclosure—Lessee) The following facts pertain to a noncancelable lease agreement between Alschuler Leasing Company and McKee Electronics, a lessee, for a
(Balance Sheet and Income Statement Disclosure—Lessor) Assume the same information as in P21-4.Instructions (Round all numbers to the nearest cent.)(a) Assuming the lessor’s accounting period
(Lessee Entries with Residual Value) The following facts pertain to a noncancelable lease agreement between Voris Leasing Company and Zarle Company, a lessee.The lessee assumes responsibility for all
(Lessee Entries and Balance Sheet Presentation; Capital Lease) Brennan Steel Company as les-9) see signed a lease agreement for equipment for 5 years, beginning December 31, 2007. Annual rental
(Lessee Entries and Balance Sheet Presentation; Capital Lease) On January 1, 2008, Charlie Doss Company contracts to lease equipment for 5 years, agreeing to make a payment of $94,732 (including the
(Lessee Entries, Capital Lease with Monthly Payments) John Roesch Inc. was incorporated in 2006 to operate as a computer software service firm with an accounting fiscal year ending August 31._
(Lessor Computations and Entries; Sales-Type Lease with Unguaranteed RV) Hanson Company manufactures a computer with an estimated economic life of 12 years and leases it to Flypaper Airlines for a
(Lessee Computations and Entries; Capital Lease with Unguaranteed Residual Value) Assume the same data as in P21-10 with Flypaper Airlines Co. having an incremental borrowing rate of
(Basic Lessee Accounting with Difficult PV Calculation) In 2005 Judy Yin Trucking Company negotiated and closed a long-term lease contract for newly constructed truck terminals and freight storage
(Lessor Computations and Entries; Sales-Type Lease with Guaranteed Residual Value) Laura Jennings Inc. manufactures an X-ray machine with an estimated life of 12 years and leases it to Craig Gocker
(Lessee Computations and Entries; Capital Lease with Guaranteed Residual Value) Assume the same data as in P21-13 and that Craig Gocker Medical Center has an incremental borrowing rate of
(Operating Lease vs. Capital Lease) You are auditing the December 31, 2006, financial statements of Sarah Shamess, Inc., manufacturer of novelties and party favors. During your inspection of the
(Lessee-Lessor Accounting for Residual Values) Lanier Dairy leases its milking equipment from Zeff Finance Company under the following lease terms.1. The lease term is 10 years, noncancelable, and
(Lessee Accounting and Reporting) On January 1, 2008, Hayes Company entered into a noncancelable lease for a machine to be used in its manufacturing operations. The lease transfers ownership of the
(Lessor and Lessee Accounting and Disclosure) Laurie Gocker Inc. entered into a noncancelable lease arrangement with Nathan Morgan Leasing Corporation for a certain machine. Morgan’s primary
(Lessee Capitalization Criteria) On January 1, Shinault Company, a lessee, entered into three noncancelable leases for brand-new equipment, Lease L, Lease M, and Lease N. None of the three leases
(Comparison of Different Types of Accounting by Lessee and Lessor)Part 1 Capital leases and operating leases are the two classifications of leases described in FASB pronouncements from the standpoint
(Lessee Capitalization of Bargain Purchase Option) Brad Hayes Corporation is a diversified company with nationwide interests in commercial real estate developments, banking, copper mining, and metal
(Lease Capitalization, Bargain Purchase Option) Cubby Corporation entered into a lease agreement for 10 photocopy machines for its corporate headquarters. The lease agreement qualifies as an
(Sale-Leaseback) On January 1, 2007, Laura Dwyer Company sold equipment for cash and leased it back. As seller-lessee, Laura Dwyer retained the right to substantially all of the remaining use of the
(Sale-Leaseback) On December 31, 2007, Laura Truttman Co. sold 6-month old equipment at fair value and leased it back. There was a loss on the sale. Laura Truttman pays all insurance, maintenance,
How should consolidated financial statements be re- ported this year when statements of individual compa- nies were presented last year?
Karen Beers controlled four domestic subsidiaries and one foreign subsidiary. Prior to the current year, Beers had excluded the foreign subsidiary from consolidation. During the current year, the
Prior to 2008, Mary Boudreau Inc. excluded manufac- turing overhead costs from work in process and finished goods inventory. These costs have been expensed as incurred. In 2008, the company decided
Lou Brady Corp. failed to record accrued salaries for 2005, $2,000; 2006, $2,100; and 2007, $3,900. What is the amount of the overstatement or understatement of Re- tained Earnings at December 31,
In January 2007, installation costs of $8,000 on new ma- chinery were charged to Repair Expense. Other costs of this machinery of $30,000 were correctly recorded and have been depreciated using the
On January 2, 2007, $100,000 of 11%, 20-year bonds were issued for $97,000. The $3,000 discount was charged to Interest Expense. The bookkeeper, John Castle, records interest only on the interest
An account payable of $13,000 for merchandise pur- chased on December 23, 2007, was recorded in January 2008. This merchandise was not included in inventory at December 31, 2007. What effect does
Equipment was purchased on January 2, 2007, for $18,000, but no portion of the cost has been charged to deprecia- tion. The corporation wishes to use the straight-line method for these assets, which
Indicate the effect-Understate, Overstate, No Effect-that each of the following errors has on 2007 net income and 2008 net income. (a) Wages payable were not recorded at 12/31/07 (b) Equipment
Charlene Rydell Manufacturing Co. is preparing its year-end financial statements and is consid- ering the accounting for the following items. 1. The vice president of sales had indicated that one
Pociek Co. is evaluating the appropriate accounting for the following items. 1. When the year-end physical inventory adjustment was made for the current year, the controller discovered that the prior
Robocop Corporation owns stock of Terminator, Inc. Prior to 2008, the investment was accounted for using the equity method. In early 2008, Robocop sold part of its investment in Terminator, and began
Rocket Corporation has owned stock of Knight Corporation since 2001. At December 31, 2007, its balances related to this investment were:On January 1, 2008, Rocket purchased additional stock of Knight
(Change in Principle—Long-term Contracts) Pam Erickson Construction Company changed from the completed-contract to the percentage-of-completion method of accounting for long-term construction
(Change in Principle—Inventory Methods) Holder-Webb Company began operations on January 1, 2005, and uses the average cost method of pricing inventory. Management is contemplating a change in
(Accounting Change) Taveras Co. decides at the beginning of 2007 to adopt the FIFO method of inventory valuation. Taveras had used the LIFO method for financial reporting since its inception on
(Accounting Change) Gordon Company started operations on January 1, 2002, and has used the FIFO method of inventory valuation since its inception. In 2008, it decides to switch to the average cost
(Accounting Change) Presented below are income statements prepared on a LIFO and FIFO ba- sis for Kenseth Company, which started operations on January 1, 2006. The company presently uses the LIFO
(Accounting Changes—Depreciation) Kathleen Cole Inc. acquired the following assets in January of 2005.The equipment has been depreciated using the sum-of-the-years’-digits method for the first 3
(Change in Estimate and Error; Financial Statements) Presented below are the comparative income statements for Denise Habbe Inc. for the years 2007 and 2008.The following additional information is
(Accounting for Accounting Changes and Errors) Listed below are various types of accounting changes and errors.1. Change in a plant asset’s salvage value.2. Change due to overstatement of
(Error and Change in Estimate—Depreciation) Joy Cunningham Co. purchased a machine on January 1, 2005, for $550,000. At that time it was estimated that the machine would have a 10-year life and no
(Depreciation Changes) On January 1, 2004, Jackson Company purchased a building and equipment that have the following useful lives, salvage values, and costs.Building, 40-year estimated useful life,
(Change in Estimate—Depreciation) Peter M. Dell Co. purchased equipment for $510,000 which was estimated to have a useful life of 10 years with a salvage value of $10,000 at the end of that time.
(Change in Estimate—Depreciation) Gerald Englehart Industries changed from the doubledeclining balance to the straight-line method in 2008 on all its plant assets. There was no change in the
(Change in Principle—Long-term Contracts) Cullen Construction Company changed from the completed-contract to the percentage-of-completion method of accounting for long-term construction contracts
(Various Changes in Principle—Inventory Methods) Below is the net income of Anita Ferreri Instrument Co., a private corporation, computed under the three inventory methods using a periodic
(Error Correction Entries) The first audit of the books of Bruce Gingrich Company was made for the year ended December 31, 2008. In examining the books, the auditor found that certain items had been
(Error Analysis and Correcting Entry) You have been engaged to review the financial statements of Gottschalk Corporation. In the course of your examination you conclude that the bookkeeper hired
_ (Error Analysis and Correcting Entry) The reported net incomes for the first 2 years of Sandra Gustafson Products, Inc., were as follows: 2007, $147,000; 2008, $185,000. Early in 2009, the
(Error Analysis) Peter Henning Tool Company's December 31 year-end financial statements contained the following errors.An insurance premium of $66,000 was prepaid in 2007 covering the years 2007,
(Error Analysis; Correcting Entries) A partial trial balance of Julie Hartsack Corporation is as follows on December 31, 2008.Additional adjusting data:1. A physical count of supplies on hand on
(Error Analysis) The before-tax income for Lonnie Holdiman Co. for 2007 was $101,000 and $77,400 for 2008. However, the accountant noted that the following errors had been made: 1. Sales for 2007
(Error Analysis) When the records of Debra Hanson Corporation were reviewed at the close of 2008, the errors listed below were discovered. For each item indicate by a check mark in the appropriate
(Change from Fair Value to Equity) On January 1, 2007, Barbra Streisand Co. purchased 25,000 shares (a 10% interest) in Elton John Corp. for $1,400,000. At the time, the book value and the fair value
(Change from Equit. y to Fair. Value) Dan Aykroyd Corp. was a 30% owner of John Belushi Company, holding 210,000 shares of Belushi’s common stock on December 31, 2006. The investment account had
(Change in Estimate and Error Correction) Brueggen Company is in the process of preparing its financial statements for 2007. Assume that no entries for depreciation have been recorded in 2007. The
(Comprehensive Accounting Change and Error Analysis Problem) Larry Kingston Inc. was organized in late 2005 to manufacture and sell hosiery. At the end of its fourth year of operation, the company
(Error Corrections and Accounting Changes) Patricia Voga Company is in the process of adjusting and correcting its books at the end of 2008. In reviewing its records, the following information is
(Accounting Changes) Plato Corporation performs year-end planning in November of each year before their calendar year ends in December. The preliminary estimated net income is $3 million. The CFO,
(Change in Principle—LIFO to Average Cost; Income Statements—Periodic) The management of Kreiter Instrument Company had concluded, with the concurrence of its independent auditors, that results
(Accounting Change and Error Analysis) On December 31, 2008, before the books were closed, the management and accountants of Keltner Inc. made the following determinations about three depreciable
(Error Corrections) You have been assigned to examine the financial statements of Vickie L. Lemke Company for the year ended December 31, 2008. You discover the following situations. 1. Depreciation
(Comprehensive Error Analysis) On March 5, 2008, you were hired by Gretchen Hollenbeck Inc., a closely held company, as a staff member of its newly created internal auditing department. While
(Error Analysis) Mary Keeton Corporation has used the accrual basis of accounting for several years. A review of the records, however, indicates that some expenses and revenues have been handled on a
(Error Analysis and Correcting Entries) You have been asked by a client to review the records of Larry Landers Company, a small manufacturer of precision tools and machines. Your client is interested
(Fair Value to Equity Method with Goodwill) On January 1, 2006, Latoya Inc. paid $700,000 for 10,000 shares of Jones Company’s voting common stock, which was a 10% interest in Jones. At that date
(Change from Fair Value to Equity Method) On January 3, 2005, Calvin Company purchased for $500,000 cash a 10% interest in Hobbes Corp. On that date the net assets of Hobbes had a book value of
(Analysis of Various Accounting Changes and Errors) Erin Kramer Inc. has recently hired a e new independent auditor, Jodie Larson, who says she wants “to get everything straightened out.”
(Analysis of Three Accounting Changes and Errors) Listed below are three independent, unrelated sets of facts relating to accounting changes.Situation 1 Penelope Millhouse Company is in the process
(Analysis of Various Accounting Changes and Errors) Mischelle Reiners, controller of Lisa Terry Corp., is aware that a standard on accounting changes has been issued. After reading the standard, she
(Change in Principle, Estimate) As a certified public accountant, you have been contacted by Ben Thinken, CEO of Sports-Pro Athletics, Inc., a manufacturer of a variety of athletic equipment. He has
(Change in Estimates) Andy Frain is an audit senior of a large public accounting firm who has just been assigned to the Usher Corporation’s annual audit engagement. Usher has been a client of
The Coca-Cola Company and PepsiCo, Inc.Instructions Go to the KWW website and use information found there to answer the following questions related to The Coca-Cola Company and PepsiCo Inc.(a)
Instructions .Use an appropriate source to identify two firms that recently reported a voluntary change in accounting principle. Answer the following questions with regard to each of the
The May 7, 2002 edition of the Wall Street Journal includes an article by James Bandler and Mark Maremont entitled “KPMG’s Work With Xerox Sets Up a New Test for SEC.”Instructions Read the
At the end of the current period, Jacob Inc. had a pro- jected benefit obligation of $400,000 and pension plan assets (at fair value) of $300,000. What are the accounts and amounts that will be
At the end of the current year, Joshua Co. has prior ser- vice cost of $9,150,000. Where should the prior service cost be reported on the balance sheet?
Why didn't the FASB cover both types of postretirement benefits-pensions and healthcare-in the earlier pen- sion accounting statement?
AMR Corporation (parent company of American Airlines) reported the following for 2004 (in millions).Compute AMR Corporation’s 2004 pension expense. Service cost Interest on P.B.O. $358 567 Return
At January 1, 2011, Uddin Company had plan assets of $250,000 and a projected benefit obliga- tion of the same amount. During 2011, service cost was $27,500, the settlement rate was 10%, actual and
For 2004, Campbell Soup Company had pension expense of $43 million and contributed $65 million to the pension fund. Prepare Campbell Soup Company's journal entry to record pension expense and funding.
Duesbury Corporation amended its pension plan on January 1, 2011, and granted $120,000 of prior service costs to its employees. The employees are expected to provide 2,000 service years in the fu-
At December 31, 2011, Conway Corporation had a projected benefit obligation of $510,000, plan assets of $322,000, and prior service cost of $127,000 in accumulated other comprehensive income.
Hunt Corporation had a projected benefit obligation of $3,100,000 and plan assets of $3,300,000 at January 1, 2011. Hunt also had a net actuarial loss of $475,000 in accumulated OCI at January 1,
Judy O'Neill Corporation has the following balances at December 31, 2010.How should these balances be reported on O’Neill’s balance sheet at December 31, 2010? Projected benefit obligation Plan
DeMent Co. had the following amounts related to its pension plan in 2009.Determine for 2009: (a) DeMent’s other comprehensive income, and (b) comprehensive income. Net income for 2009 is $26,000;
Depp Corp. has three defined-benefit pension plans as follows.How will Depp report these multiple plans in its financial statements? Pension Assets. (at Fair Value) $600,000 900,000 Projected Benefit
Caleb Corporation has the following information available concerning its postretirement ben- efit plan fbr 2011.Compute Caleb’s 2011 postretirement expense. Service cost Interest cost Actual and
For 2011, Benjamin Inc. computed its annual postretirement expense as $240,900. Benjamin’s contribution to the plan during 2011 was $160,000. Prepare Benjamin’s 2011 entry to record
(Pension Expense, Journal Entries) The following information is available for the pension plan of Kiley Company for the year 2010.Instructions (a) Compute pension expense for the year 2010.(b)
(Computation of Pension Expense) Rebekah Company provides the following information about its defined benefit pension plan for the year 2011.Instructions Compute the pension expense for the year
(Preparation of Pension Worksheet) Using the information in E20-2 prepare a pension worksheet inserting January 1, 2011, balances, showing December 31, 2011, balances, and the journal entry recording
(Basic Pension Worksheet) The following facts apply to the pension plan of Trudy Borke Inc.for the year 2011.Instructions Using the preceding data, compute pension expense for the year 2011. As part
(Application of Years-of-Service Method) Valente Company has five employees participating in its defined benefit pension plan. Expected years of future service for these employees at the beginning of
(Computation of Actual Return) James Paul Importers provides the following pension plan information.Instructions From the data above, compute the actual return on the plan assets for 2011. Fair value
(Basic Pension Worksheet) The following defined pension data of Doreen Corp. apply to the 6) year 2011.Instructions For 2011, prepare a pension worksheet for Doreen Corp. that shows the journal
(Application of the Corridor Approach) Dougherty Corp. has beginning-of-the-year present values for its projected benefit obligation and market-related values for its pension plan assets.The average

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