Suggestions based on the Question and Answer that you are currently viewing
In January 2014, installation costs of $6,000 on new machinery were charged to Maintenance and Repairs Expense. Other costs of this machinery of $30,000 were correctly recorded and have been depreciated using thestraight-line method with an estimated life of 10 years and no salvage value. At December 31, 2015, it is decided that the machinery has a remaining useful life of 20 years, starting with January 1, 2015. What entry(ies) should be made in 2015 to correctly record transactions related to machinery, assuming the machinery has no salvage value? The books have not been closed for 2015 and depreciation aexpense has not yet been recorded for 2015.
Elliott Corp. failed to record accrued salaries for 2013, $2,000; 2014, $2,100; and 2015, $3,900. What is the amount of the overstatement or understatement of Retained Earnings at December 31, 2016?
Prior to 2014, Heberling Inc. excluded manufacturing overhead costs from work in process and finished goods inventory. These costs have been expensed as incurred. In 2014, the company decided to change its accounting methods for manufacturing inventories to full costing by including these costs as product costs. Assuming that these costs are material, how should this change be reflected in the financial statements for 2013 and 2014?
Discuss and illustrate how a correction of an error in previously issued financial statements should be handled.
Distinguish between counterbalancing and noncounterbalancing errors. Give an example of each.
\r\n
Simms Corp. controlled four domestic subsidiaries and one foreign subsidiary. Prior to the current year,
\r\nSimms Corp. had excluded the foreign subsidiary from consolidation. During the current year, the foreign subsidiary was included in the financial statements. How should this change in accounting entity be reflected in the financial statements?
How should consolidated financial statements be reported this year when statements of individual companies were presented last year?
Discuss how a change to the LIFO method of inventory valuation is handled when it is impracticable to determine previous LIFO inventory amounts.
Parsons Inc. has proposed a change from the completedcontract to the percentage-of-completion method for financial reporting purposes. The auditor indicates that a change would be permitted only if it is to a preferable method. What difficulties develop in assessing preferability?
Whittier Construction Co. had followed the practice of expensing all materials assigned to a construction job without recognizing any salvage inventory. On December
\r\n31, 2014, it was determined that salvage inventory should be valued at $52,000. Of this amount, $29,000 arose during the current year. How does this information affect the financial statements to be prepared at the end of 2014?
Indicate how the following items are recorded in the accounting records in the current year of Coronet Co.
\r\n(a) Impairment of goodwill.
\r\n(b) A change in depreciating plant assets from accelerated to the straight-line method.
\r\n(c) Large write-off of inventories because of obsolescence.
\r\n(d) Change from the cash basis to accrual basis of accounting.
\r\n(e) Change from LIFO to FIFO method for inventory valuation purposes.
Lenexa State Bank has followed the practice of capitalizing certain marketing costs and amortizing these costs over their expected life. In the current year, the bank determined that the future benefits from these costs were doubtful.Consequently, the bank adopted the policy of expensing these costs as incurred. How should the bank report this accounting change in the comparative financial statements?
Define a change in estimate and provide an illustration. When is a change in accounting estimate effected by a change in accounting principle?
What is the indirect effect of a change in accounting principle? Briefly describe the reporting of the indirect effects of a change in accounting principle.
Identify and describe the approach the FASB requires for reporting changes in accounting principles.
Discuss briefly the three approaches that have been suggested for reporting changes in accounting principles.
State how each of the following items is reflected in the financial statements.
\r\n(a) Change from FIFO to LIFO method for inventory valuation purposes.
\r\n(b) Charge for failure to record depreciation in a previous period.
\r\n(c) Litigation won in current year, related to prior period.
\r\n(d) Change in the realizability of certain receivables.
\r\n(e) Write-off of receivables.
\r\n(f) Change from the percentage-of-completion to the completed-contract method for reporting net income.
In recent years, the Wall Street Journal has indicated that many companies have changed their accounting principles. What are the major reasons why companies change accounting methods?
Presented in Illustration 21-31 are the financial statement disclosures from the January 31, 2012, annual report of Wal-Mart Stores, Inc.
\r\nInstructions
\r\nAnswer the following questions related to these disclosures.
\r\n(a) What is the total obligation under capital leases at January 31, 2012, for Wal-Mart?
\r\n(b) What is the total rental expense reported for leasing activity for the year ended January 31, 2012, for Wal-Mart?
\r\n(c) Estimate the off-balance-sheet liability due to Wal-Mart’s operating leases at January 31, 2012.
Instructions
\r\nGo to the book’s companion website or the company websites and use information found there to answer the following questions related to UAL, Inc. and Southwest Airlines.
\r\n(a) What types of leases are used by Southwest and on what assets are these leases primarily used?
\r\n(b) How long-term are some of Southwest’s leases? What are some of the characteristics or provisions of
\r\nSouthwest’s (as lessee) leases?
\r\n(c) What did Southwest report in 2011 as its future minimum annual rental commitments under noncancelable leases?
\r\n(d) At year-end 2011, what was the present value of the minimum rental payments under Southwest’s capital leases? How much imputed interest was deducted from the future minimum annual rental commitments to arrive at the present value?
\r\n(e) What were the amounts and details reported by Southwest for rental expense in 2011, 2010, and 2009?
\r\n(f) How does UAL’s use of leases compare with Southwest’s?
The financial statements of Marks and Spencer plc (M&S) are available at the book’s companion website or can be accessed at http://annualreport.marksandspencer.com/_assets/downloads/Marksand- Spencer-Annual-report-and-financial-statements-2012.pdf.
\r\nInstructions
\r\nRefer to M&S’s financial statements and the accompanying notes to answer the following questions.
\r\n(a) What types of leases are used by M&S?
\r\n(b) What amount of finance leases was reported by M&S in total and for less than one year?
\r\n(c) What minimum annual rental commitments under all non-cancelable leases at 31 March 2012 did M&S disclose?
Daniel Hardware Co. is considering alternative financing arrangements for equipment used in its warehouses. Besides purchasing the equipment outright, Daniel is also considering a lease. Accounting for the outright purchase is fairly straightforward, but because Daniel has not used equipment leases in the past, the accounting staff is less informed about the specific accounting rules for leases. The staff is aware of some general lease rules related to “risks and rewards,” but they are unsure about the meanings of these terms in lease accounting. Daniel has asked you to conduct some research on these items related to lease capitalization criteria.
\r\nInstructions
\r\nAccess the IFRS authoritative literature at the IASB website (http://eifrs.iasb.org/). (Click on the IFRS tab and then register for free eIFRS access if necessary.) When you have accessed the documents, you can use the search tool in your Internet browser to respond to the following questions. (Provide paragraph citations.)
\r\n(a) What is the objective of lease classification criteria?
\r\n(b) An important element of evaluating leases is determining whether substantially all of the risks and rewards of ownership are transferred in the lease. How is “substantially all” defined in the authoritative literature?
\r\n(c) Besides the non-cancelable term of the lease, name at least three other considerations in determining the “lease term.”
A lease agreement between Lennox Leasing Company and Gill Company is described in IFRS21-10. Refer to the data in IFRS21-10 and do the following for the lessor. (Round all numbers to the nearest cent.)
\r\nInstructions
\r\n(a) Compute the amount of the lease receivable at the inception of the lease.
\r\n(b) Prepare a lease amortization schedule for Lennox Leasing Company for the 5-year lease term.
\r\n(c) Prepare the journal entries to reflect the signing of the lease agreement and to record the receipts
\r\nand income related to this lease for the years 2014, 2015, and 2016. The lessor’s accounting period
\r\nends on December 31. Reversing entries are not used by Lennox.
\r\n
The following facts pertain to a non-cancelable lease agreement between Lennox Leasing Company and Gill Company, a lessee. (Round all numbers to the nearest cent.)
\r\nInception date: May 1, 2014
\r\nAnnual lease payment due at the beginning of each year, beginning with May 1, 2014: $18,829.49
\r\nBargain-purchase option price at end of lease term: $4,000.00
\r\nLease term: 5 years
\r\nEconomic life of leased equipment: 10 years
\r\nLessor’s cost: $65,000.00; fair value of asset at May 1, 2014, $81,000.00
\r\nLessor’s implicit rate: 10%; lessee’s incremental borrowing rate 10%
\r\nThe lessee assumes responsibility for all executory costs.
\r\nInstructions
\r\n(a) Discuss the nature of this lease to Gill Company.
\r\n(b) Discuss the nature of this lease to Lennox Company.
\r\n(c) Prepare a lease amortization schedule for Gill Company for the 5-year lease term.
\r\n(d) Prepare the journal entries on the lessee’s books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2014 and 2015. Gill’s annual accounting period ends on December 31. Reversing entries are used by Gill.
Brecker Company leases an automobile with a fair value of $10,906 from Emporia Motors, Inc., on the following terms:
\r\n1. Non-cancelable term of 50 months.
\r\n2. Rental of $250 per month (at end of each month). (The present value at 1% per month is $9,800.)
\r\n3. Estimated residual value after 50 months is $1,180. (The present value at 1% per month is $715.)
\r\nBrecker Company guarantees the residual value of $1,180.
\r\n4. Estimated economic life of the automobile is 60 months.
\r\n5. Brecker Company’s incremental borrowing rate is 12% a year (1% a month). It is impracticable to determine Emporia’s implicit rate.
\r\nInstructions
\r\n(a) What is the nature of this lease to Brecker Company?
\r\n(b) What is the present value of the minimum lease payments?
\r\n(c) Record the lease on Brecker Company’s books at the date of inception.
\r\n(d) Record the first month’s depreciation on Brecker Company’s books (assume straight-line).
\r\n(e) Record the first month’s lease payment.
The benefits of buying with AnswerDone:
Access to High-Quality Documents
Our platform features a wide range of meticulously curated documents, from solved assignments and research papers to detailed study guides. Each document is reviewed to ensure it meets our high standards, giving you access to reliable and high-quality resources.
Easy and Secure Transactions
We prioritize your security. Our platform uses advanced encryption technology to protect your personal and financial information. Buying with AnswerDone means you can make transactions with confidence, knowing that your data is secure
Instant Access
Once you make a purchase, you’ll have immediate access to your documents. No waiting periods or delays—just instant delivery of the resources you need to succeed.