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business
intermediate accounting

Questions and Answers of Intermediate Accounting

Komissarov Company has a debt investment in the bonds issued by Keune Inc. The bonds were purchased at par for $400,000 and, at the end of 2020, have a remaining life of 3 years with annual interest
On December 31, 2020, Mercantile Corp. had a $10,000,000, 8% fixed-rate note outstanding, payable in 2 years. It decides to enter into a 2-year swap with Chicago First Bank to convert the fixed-rate
Kenseth Company has the following securities in its portfolio on December 31, 2020. None of these investments are accounted for under the equity method. All of the securities were purchased in
LEW Jewelry Co. uses gold in the manufacture of its products. LEW anticipates that it will need to purchase 500 ounces of gold in October 2020, for jewelry that will be shipped for the holiday
Jaycie Phelps Inc. acquired 20% of the outstanding common stock of Theresa Kulikowski Inc. on December 31, 2020. The purchase price was $1,200,000 for 50,000 shares. Kulikowski Inc. declared and
On October 15, 2020, Oil Products Co. purchased 4,000 barrels of fuel oil with a cost of $240,000 ($60 per barrel). Oil Products is holding this inventory in anticipation of the winter 2021 heating
On January 1, 2020, Pennington Corporation purchased 30% of the common shares of Edwards Company for $180,000. During the year, Edwards earned net income of $80,000 and paid dividends of
Hagar Corporation has municipal bonds classified as a held-to-maturity at December 31, 2020. These bonds have a par value of $800,000, an amortized cost of $800,000, and a fair value of $720,000.
Presented below is information related to the purchases of common stock by Lilly Company during 2020. Instructions (Assume a zero balance for any Fair Value Adjustment account.) a. What entry
Assume the same information as in E17.19 for Lilly Company. In addition, assume that the investment in the Woods Inc. stock was sold during 2021 for $195,000. At December 31, 2021, the following
Presented below is selected information related to the financial instruments of Dawson Company at December 31, 2020. This is Dawson Company?s first year of operations. Instructions a. Dawson elects
Elaina Company has the following investments as of December 31, 2020:Investments in common stock of Laser Company.............................$1,500,000Investment in debt securities of FourSquare
Morley Company in its first year of operations provides the following information related to one of its available-for-sale debt securities at December 31, 2020.Amortized
On January 2, 2020, Jones Company purchases a call option for $300 on Merchant common stock. The call option gives Jones the option to buy 1,000 shares of Merchant at a strike price of $50 per
On January 2, 2020, MacCloud Co. issued a 4-year, $100,000 note at 6% fixed interest, interest payable semiannually. MacCloud now wants to change the note to a variablerate note. As a result, on
On January 2, 2020, Parton Company issues a 5-year, $10,000,000 note at LIBOR, with interest paid annually. The variable rate is reset at the end of each year. The LIBOR rate for the first year is
Sarazan Company issues a 4-year, 7.5% fixed-rate interest only, nonprepayable $1,000,000 note payable on December 31, 2019. It decides to change the interest rate from a fixed rate to variable rate
On August 15, 2019, Outkast Co. invested idle cash by purchasing a call option on Counting Crows Inc. common shares for $360. The notional value of the call option is 400 shares, and the option price
Presented below is an amortization schedule related to Spangler Company?s 5-year, $100,000 bond with a 7% interest rate and a 5% yield, purchased on December 31, 2018, for $108,660. The following
Hart Golf Co. uses titanium in the production of its specialty drivers. Hart anticipates that it will need to purchase 200 ounces of titanium in November 2020, for clubs that will be sold in advance
Telephone Sellers Inc. sells prepaid telephone cards to customers. Telephone Sellers then pays the telecommunications company, TeleExpress, for the actual use of its telephone lines related to the
Leno Computers manufactures tablet computers for sale to retailers such as Fallon Electronics. Recently, Leno sold and delivered 200 tablet computers to Fallon for $20,000 on January 5, 2020. Fallon
In what situation will the unrealized holding gain or loss on inventory be reported in income?
Tablet Tailors sells tablet PCs combined with Internet service, which permits the tablet to connect to the Internet anywhere and set up a Wi-Fi hot spot. It offers two bundles with the following
The financial statements of P&G are presented in Appendix B. The company’s complete annual report, including the notes to the financial statements, is available online.InstructionsRefer to
On May 10, 2020, Cosmo Co. enters into a contract to deliver a product to Greig Inc. on June 15, 2020. Greig agrees to pay the full contract price of $2,000 on July 15, 2020. The cost of the goods is
Refer to the Tablet Bundle A revenue arrangement in P18.1. In response to competitive pressure for Internet access for Tablet Bundle A, after 2 years of the 3-year contract, Tablet Tailors offers a
The financial statements of Coca-Cola and PepsiCo are presented in Appendices C and D, respectively. The companies’ complete annual reports, including the notes to the financial statements, are
On May 1, 2020, Richardson Inc. entered into a contract to deliver one of its specialty mowers to Kickapoo Landscaping Co. The contract requires Kickapoo to pay the contract price of $900 in advance
Grill Master Company sells total outdoor grilling solutions, providing gas and charcoal grills, accessories, and installation services for custom patio grilling stations.InstructionsRespond to the
Jupiter Company sells goods to Danone Inc. by accepting a note receivable on January 2, 2020. The goods have a sales price of $610,000 (cost of $500,000). The terms are net 30. If Danone pays within
Economy Appliance Co. manufactures low-price, no-frills appliances that are in great demand for rental units. Pricing and cost information on Economy?s main products are as follows. Customers can
Diversified Industries manufactures sump-pumps. Its most popular product is called the Super Soaker, which has a retail price of $1,200 and costs $540 to manufacture. It sells the Super Soaker on a
Ritt Ranch & Farm is a distributor of ranch and farm equipment. Its products range from small tools, power equipment for trench-digging and fencing, grain dryers, and barn winches. Most products
Nair Corp. enters into a contract with a customer to build an apartment building for $1,000,000. The customer hopes to rent apartments at the beginning of the school year and provides a performance
Hale Hardware takes pride as the “shop around the corner” that can compete with the big-box home improvement stores by providing good service from knowledgeable sales associates (many of whom are
Referring to the revenue arrangement in BE18.6, determine the transaction price for the contract, assuming(a) Nair is only able to estimate whether the building can be completed by August 1, 2021, or
Blair Biotech enters into a licensing agreement with Pang Pharmaceutical for a drug under development. Blair will receive a payment of $10,000,000 if the drug receives regulatory approval. Based on
Martz Inc. has a customer loyalty program that rewards a customer with 1 customer loyalty point for every $10 of purchases. Each point is redeemable for a $3 discount on any future purchases. On July
On October 10, 2020, Executor Co. entered into a contract with Belisle Inc. to transfer Executor’s specialty products (sales value of $10,000, cost of $6,500) on December 15, 2020. Belisle agrees
Aaron’s Agency sells an insurance policy offered by Capital Insurance Company for a commission of $100 on January 2, 2020. In addition, Aaron will receive an additional commission of $10 each year
Presented below are two independent revenue arrangements for Colbert Company.InstructionsRespond to the requirements related to each revenue arrangement.a. Colbert sells 3D printer systems. Recently,
On January 2, 2020, Adani Inc. sells goods to Geo Company in exchange for a zerointerest- bearing note with face value of $11,000, with payment due in 12 months. The fair value of the goods at the
Taylor Marina has 300 available slips that rent for $800 per season. Payments must be made in full by the start of the boating season, April 1, 2021. The boating season ends October 31, and the
Shanahan Construction Company has entered into a contract beginning January 1, 2020, to build a parking complex. It has been estimated that the complex will cost $600,000 and will take 3 years to
Geraths Windows manufactures and sells custom storm windows for three-season porches. Geraths also provides installation service for the windows. The installation process does not involve changes in
On March 1, 2020, Pechstein Construction Company contracted to construct a factory building for Fabrik Manufacturing Inc. for a total contract price of $8,400,000. The building was completed by
On July 1, 2020, Torvill Construction Company Inc. contracted to build an office building for Gumbel Corp. for a total contract price of $1,900,000. On July 1, Torvill estimated that it would take
Manual Company sells goods to Nolan Company during 2020. It offers Nolan the following rebates based on total sales to Nolan. If total sales to Nolan are 10,000 units, it will grant a rebate of 2%.
Shaw Company sells goods that cost $300,000 to Ricard Company for $410,000 on January 2, 2020. The sales price includes an installation fee, which has a standalone selling price of $40,000. The
Amigos Burrito Inc. sells franchises to independent operators throughout the northwestern part of the United States. The contract with the franchisee includes the following provisions.1. The
On July 10, 2020, Amodt Music sold CDs to retailers on account and recorded sales revenue of $700,000 (cost $560,000). Amodt grants the right to return CDs that do not sell in 3 months following
Crankshaft Company manufactures equipment. Crankshaft’s products range from simple automated machinery to complex systems containing numerous components. Unit selling prices range from $200,000 to
Allee Corp. is evaluating a revenue arrangement to determine proper revenue recognition. The contract is for construction of 10 speedboats for a contract price of $400,000. The customer needs the
Refer to the information in Question 14. Assume that Allee has limited experience with a construction project on the same scale as the 10 speedboats. How does this affect the accounting for the
On June 1, 2020, Mills Company sells $200,000 of shelving units to a local retailer, ShopBarb, which is planning to expand its stores in the area. Under the agreement, ShopBarb asks Mills to retain
On March 10, 2020, Steele Company sold to Barr Hardware 200 tool sets at a price of $50 each (cost $30 per set) with terms of n/60, f.o.b. shipping point. Steele allows Barr to return any unused tool
Refer to the revenue arrangement in E18.16. Assume that instead of selling the tool sets on credit, that Steele sold them for cash.On March 10, 2020, Steele Company sold to Barr Hardware 200 tool
Talarczyk Company sold 10,000 Super-Spreaders on December 31, 2020, at a total price of $1,000,000, with a warranty guarantee that the product was free of any defects. The cost of the spreaders sold
On October 2, 2020, Laplante Company sold $6,000 of its elite camping gear (with a cost of $3,600) to Lynch Outfitters. As part of the sales agreement, Laplante includes a provision that if Lynch is
On May 1, 2020, Mount Company enters into a contract to transfer a product to Eric Company on September 30, 2020. It is agreed that Eric will pay the full price of $25,000 in advance on June 15,
On June 3, 2020, Hunt Company sold to Ann Mount merchandise having a sales price of $8,000 (cost $6,000) with terms of n/60, f.o.b. shipping point. Hunt estimates that merchandise with a sales value
Organic Growth Company is presently testing a number of new agricultural seed planters that it has recently developed. To stimulate interest, it has decided to grant to five of its largest customers
Under what conditions does a company recognize revenue over a period of time?
Uddin Publishing Co. publishes college textbooks that are sold to bookstores on the following terms. Each title has a fixed wholesale price, terms f.o.b. shipping point, and payment is due 60 days
Turner, Inc. began work on a $7,000,000 contract in 2020 to construct an office building. During 2020, Turner, Inc. incurred costs of $1,700,000, billed its customers for $1,200,000, and collected
Guillen, Inc. began work on a $7,000,000 contract in 2020 to construct an office building. Guillen uses the completed-contract method. At December 31, 2020, the balances in certain accounts were
Zagat Inc. enters into an agreement on March 1, 2020, to sell Werner Metal Company aluminum ingots. As part of the agreement, Zagat also agrees to repurchase the ingots on May 1, 2020, at the
Archer Construction Company began work on a $420,000 construction contract in 2020. During 2020, Archer incurred costs of $278,000, billed its customer for $215,000, and collected $175,000. At
Frozen Delight, Inc. charges an initial franchise fee of $75,000 for the right to operate as a franchisee of Frozen Delight. Of this amount, $25,000 is collected immediately. The remainder is
On May 3, 2020, Eisler Company consigned 80 freezers, costing $500 each, to Remmers Company. The cost of shipping the freezers amounted to $840 and was paid by Eisler Company. On December 30, 2020, a
On January 2, 2020, Grando Company sells production equipment to Fargo Inc. for $50,000. Grando includes a 2-year assurance warranty service with the sale of all its equipment. The customer receives
During 2020, Nilsen Company started a construction job with a contract price of $1,600,000. The job was completed in 2022. The following information is available. Instructions a. Compute the amount
Pacific Crossburgers Inc. charges an initial franchise fee of $70,000. Upon the signing of the agreement (which covers 3 years), a payment of $28,000 is due. Thereafter, three annual payments of
In September 2020, Gaertner Corp. commits to selling 150 of its iPhone-compatible docking stations to Better Buy Co. for $15,000 ($100 per product). The stations are delivered to Better Buy over the
Refer to the information in E18.31.Tyler Financial Services performs bookkeeping and taxreporting services to startup companies in the Oconomowoc area. On January 1, 2020, Tyler entered into a 3-year
Tyler Financial Services performs bookkeeping and tax-reporting services to startup companies in the Oconomowoc area. On January 1, 2020, Tyler entered into a 3-year service contract with Walleye
In 2020, Steinrotter Construction Corp. began construction work under a 3-year contract. The contract price was $1,000,000. Steinrotter uses the percentage-of-completion method for financial
On April 1, 2020, Dougherty Inc. entered into a cost plus fixed fee contract to construct an electric generator for Altom Corporation. At the contract date, Dougherty estimated that it would take 2
On January 1, 2020, Lesley Benjamin signed an agreement, covering 5 years, to operate as a franchisee of Campbell Inc. for an initial franchise fee of $50,000. The amount of $10,000 was paid when the
On July 1, 2020, Wheeler Company purchased $4,000,000 of Duggen Company’s 8% bonds, due on July 1, 2027. The bonds, which pay interest semiannually on January 1 and July 1, were purchased for
Winsor Inc. recently purchased Holiday Corp., a large midwestern home painting corporation. One of the terms of the merger was that if Holiday’s income for 2020 was $110,000 or more, 10,000
Berg Company adopted a stock-option plan on November 30, 2019, that provided that 70,000 shares of $5 par value stock be designated as available for the granting of options to officers of the
On January 1, 2019, Garner issued 10-year, $200,000 face value, 6% bonds at par. Each $1,000 bond is convertible into 30 shares of Garner $2 par value common stock. The company has had 10,000 shares
Assume that Amazon.com has a stock-option plan for top management. Each stock option represents the right to purchase a share of Amazon $1 par value common stock in the future at a price equal to
Ragatz, Inc., a drug company, reported the following information. The company prepares its financial statements in accordance with GAAP.
The executive officers of Rouse Corporation have a performance-based compensation plan. The performance criteria of this plan is linked to growth in earnings per share. When annual EPS growth is 12%,
On January 1, 2019, when its $30 par value common stock was selling for $80 per share, Plato Corp. issued $10,000,000 of 8% convertible debentures due in 20 years. The conversion option allowed the
Aubrey Inc. issued $4,000,000 of 10%, 10-year convertible bonds on June 1, 2020, at 98 plus accrued interest. The bonds were dated April 1, 2020, with interest payable April 1 and October 1. Bond
The financial statements of P&G are presented in Appendix B. The company’s complete annual report, including the notes to the financial statements, is available online.InstructionsRefer to
For each of the unrelated transactions described below, present the entry(ies) required to record each transaction.1. Grand Corp. issued $20,000,000 par value 10% convertible bonds at 99. If the
The financial statements of Coca-Cola and PepsiCo are presented in Appendices C and D, respectively. The companies’ complete annual reports, including the notes to the financial statements, are
Petrenko Corporation has outstanding 2,000 $1,000 bonds, each convertible into 50 shares of $10 par value common stock. The bonds are converted on December 31, 2020, when the unamortized discount is
Volker Inc. issued $2,500,000 of convertible 10-year bonds on July 1, 2020. The bonds provide for 12% interest payable semiannually on January 1 and July 1. The discount in connection with the issue
Amy Dyken, controller at Fitzgerald Pharmaceutical Industries, a public company, is currently preparing the calculation for basic and diluted earnings per share and the related disclosure for
The December 31, 2020, balance sheet of Kepler Corp. is as follows. On March 5, 2021, Kepler Corp. called all of the bonds as of April 30 for the principal plus interest through April 30. By April
On January 1, 2020, Barwood Corporation granted 5,000 options to executives. Each option entitles the holder to purchase one share of Barwood’s $5 par value common stock at $50 per share at any
Melton Corporation is preparing the comparative financial statements for the annual report to its shareholders for fiscal years ended May 31, 2020, and May 31, 2021. The income from operations for
On January 1, 2020, Gottlieb Corporation issued $4,000,000 of 10-year, 8% convertible debentures at 102. Interest is to be paid semiannually on June 30 and December 31. Each $1,000 debenture can be
Four years after issue, debentures with a face value of $1,000,000 and book value of $960,000 are tendered for conversion into 80,000 shares of common stock immediately after an interest payment

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