Question & Answer

Izzy Inc. purchased a patent for $350,000 which has an estimated useful life of 10 years. Its pattern of use or consumption cannot be reliably determined. Prepare the entry to record the amortization of the patent in its first year of use.

On July 1 of year 1, Riverside Corp. (RC), a calendar-year taxpayer, acquired the assets of another business in a taxable acquisition. When the purchase price was allocated to the assets purchased, RC determined it had purchased $1,200,000 of goodwill for both book and tax purposes.  At the end of year 1, the auditors for RC determined that the goodwill had not been impaired during the year.  In year 2, however, the auditors concluded that $200,000 of the goodwill had been impaired, and they required RC to write down the goodwill by $200,000 for book purposes.

On June 30, 2006, County Company issued 12% bonds with a par value of $800,000 due in 20 years. They were issued at 98 and were callable at 104 at any date after June 30, 2014. Because of lower interest rates and a significant change in the company’s credit rating, it was decided to call the entire issue on June 30, 2015, and to issue new bonds. New 10% bonds were sold in the amount of $1,000,000 at 102; they mature in 20 years. County Company uses straight-line amortization. Interest payment dates are December 31 and June 30. Instructions (a) Prepare journal entries to record the redemption of the old issue and the sale of the new issue on June 30, 2015. (b) Prepare the entry required on December 31, 2015, to record the payment of the first 6 months’ interest and the amortization of premium on the bonds.

How easy do you think it would be for a firm to split customers into different groups based on their incomes?

Hagar Corporation has municipal bonds classified as availablefor- sale at December 31, 2013. These bonds have a par value of $800,000, an amortized cost of $800,000, and a fair value of $720,000. The unrealized loss of $80,000 previously recognized as other comprehensive income and as a separate component of stockholders’ equity is now determined to be other than temporary. That is, the company believes that impairment accounting is now appropriate for these bonds. Instructions (a) Prepare the journal entry to recognize the impairment. No entry is needed to adjust accumulated other comprehensive income. (b) What is the new cost basis of the municipal bonds? Given that the maturity value of the bonds is $800,000, should Hagar Corporation amortize the difference between the carrying amount and the maturity value over the life of the bonds? (c) At December 31, 2014, the fair value of the municipal bonds is $760,000. Prepare the entry (if any) to record this information.

Explain how investors’ preferences for commercial paper change during a recession. How would this reaction affect the difference between commercial paper rates and T-bill rates during recessionary periods? (LO1)

Troopers Medical Labs, Inc., began operations 5 years ago producing stetrics, a new type of instrument it hoped to sell to doctors, dentists, and hospitals. The demand for stetrics far exceeded initial expectations, and the company was unable to produce enough stetrics to meet demand. The company was manufacturing its product on equipment that it built at the start of its operations. To meet demand, more efficient equipment was needed. The company decided to design and build the equipment, because the equipment currently available on the market was unsuitable for producing stetrics. In 2014, a section of the plant was devoted to development of the new equipment and a special staff was hired. Within 6 months, a machine developed at a cost of $714,000 increased production dramatically and reduced labor costs substantially. Elated by the success of the new machine, the company built three more machines of the same type at a cost of $441,000 each. Instructions (a) In general, what costs should be capitalized for self-constructed equipment? (b) Discuss the propriety of including in the capitalized cost of self-constructed assets: (1) The increase in overhead caused by the self-construction of fixed assets. (2) A proportionate share of overhead on the same basis as that applied to goods manufactured for sale. (c) Discuss the proper accounting treatment of the $273,000 ($714,000 2 $441,000) by which the cost of the first machine exceeded the cost of the subsequent machines. This additional cost should not be considered research and development costs.

Solve Problem 21.25 except that the feed = 0.0075 in/rev and the work material is stainless steel (Brinell Hardness = 240 HB)

Draw a similar diagram to Figure 25.9 showing how an appreciation of the exchange rate would similarly be reduced by stabilising speculation.

Explain how legal business entities differ in terms of the liability protection they provide their owners.

1. Could isoquants ever cross? 2. Could they ever slope upward to the right? Explain your answers.

The actuary for the pension plan of Gustafson Inc. calculated the following net gains and losses. Incurred during the Year (Gain) or Loss 2014 $300,000 2015 480,000 2016 (210,000) 2017 (290,000) Other information about the company’s pension obligation and plan assets is as follows. Projected Benefi t Plan Assets As of January 1, Obligation (market-related asset value) 2014 $4,000,000 $2,400,000 2015 4,520,000 2,200,000 2016 5,000,000 2,600,000 2017 4,240,000 3,040,000 Gustafson Inc. has a stable labor force of 400 employees who are expected to receive benefits under the plan. The total service-years for all participating employees is 5,600. The beginning balance of accumulated OCI (G/L) is zero on January 1, 2014. The market-related value and the fair value of plan assets are the same for the 4-year period. Use the average remaining service life per employee as the basis for amortization. Instructions (Round to the nearest dollar.) Prepare a schedule which reflects the minimum amount of accumulated OCI (G/L) amortized as a component of net periodic pension expense for each of the years 2014, 2015, 2016, and 2017. Apply the “corridor” approach in determining the amount to be amortized each year.

Tim Mattke Company began operations in 2012 and for simplicity reasons, adopted weighted-average pricing for inventory. In 2014, in accordance with other companies in its industry, Mattke changed its inventory pricing to FIFO. The pretax income data is reported below. Weighted- Year Average FIFO 2012 $370,000 $395,000 2013 390,000 430,000 2014 410,000 450,000 Instructions (a) What is Mattke’s net income in 2014? Assume a 35% tax rate in all years. (b) Compute the cumulative effect of the change in accounting principle from weighted-average to FIFO inventory pricing. (c) Show comparative income statements for Tim Mattke Company, beginning with income before income tax, as presented on the 2014 income statement.

The accountant of Latifa Shoe Co. has compiled the following information from the company’s records as a basis for an income statement for the year ended December 31, 2014. Rent revenue $ 29,000 Interest expense 18,000 Market appreciation on land above cost 31,000 Salaries and wages expense (selling) 114,800 Supplies (selling) 17,600 Income tax 37,400 Salaries and wages expense (administrative) 135,90 5Other administrative expenses $ 51,700 Cost of goods sold 496,000 Net sales 980,000 Depreciation on plant assets (70% selling, 30% administrative) 65,000 Cash dividends declared 16,000 There were 20,000 shares of common stock outstanding during the year. Instructions (a) Prepare a multiple-step income statement. (b) Prepare a single-step income statement. (c) Which format do you prefer? Discuss.

} Assume Ellina earns a 10 percent after-tax rate of return, and that she owes a friend $1,200.  Would she prefer to pay the friend $1,200 today or $1,750 in four years?

The U.S. Securities and Exchange Commission (SEC) was created in 1934 and consists of five commissioners and a large professional staff. The SEC professional staff is organized into five divisions and several principal offices. The primary objective of the SEC is to support fair securities markets. The SEC also strives to foster enlightened stockholder participation in corporate decisions of publicly traded companies. The SEC has a significant presence in financial markets, the development of accounting practices, and corporation-shareholder relations, and has the power to exert influence on entities whose actions lie within the scope of its authority. Instructions (a) Explain from where the Securities and Exchange Commission receives its authority. (b) Describe the official role of the Securities and Exchange Commission in the development of financial accounting theory and practices. (c) Discuss the interrelationship between the Securities and Exchange Commission and the Financial Accounting Standards Board with respect to the development and establishment of financial accounting theory and practices.

Teller Corporation’s post-closing trial balance at December 31, 2014, was as follows. IFRS Insights 879 TELLER CORPORATION POST-CLOSING TRIAL BALANCE DECEMBER 31, 2014 Dr. Cr. Accounts payable $ 310,000 Accounts receivable $ 480,000 Accumulated depreciation—building and equipment 185,000 Allowance for doubtful accounts 30,000 Bonds payable 700,000 Building and equipment 1,450,000 Cash 190,000 Dividends payable on preference shares—cash 4,000 Inventories 560,000 Land 400,000 Prepaid expenses 40,000 Retained earnings 201,000 Share capital—ordinary ($1 par value) 200,000 Share capital—preference ($50 par value) 500,000 Share premium—ordinary 1,000,000 Share premium—treasury 160,000 Treasury shares—ordinary at cost 170,000 Totals $3,290,000 $3,290,000 At December 31, 2014, Teller had the following number of ordinary and preference shares. Ordinary Preference Authorized 600,000 60,000 Issued 200,000 10,000 Outstanding 190,000 10,000 The dividends on preference shares are $4 cumulative. In addition, the preference shares have a preference in liquidation of $50 per share. Instructions Prepare the equity section of Teller’s statement of financial position at December 31, 2014.

Specific identification is sometimes said to be the ideal method of assigning cost to inventory and to cost of goods sold. Briefly indicate the arguments for and against this method of inventory valuation.

1.      : Are Connie and her staff on the right track to avoid manager mishaps by defining a new set of leader rules and core values and imposing it by fiat, from the top down?

The trial balance before adjustment of Reba McIntyre Inc. shows the following balances Dr. Cr. Accounts Receivable $90,000 Allowance for Doubtful Accounts 1,750 Sales Revenue (all on credit) $680,000 Instructions Give the entry for estimated bad debts assuming that the allowance is to provide for doubtful accounts on the basis of (a) 4% of gross accounts receivable and (b) 1% of net sales.

Tanaka Company has land that cost $15,000,000. Its fair value on December 31, 2014, is $20,000,000. Tanaka chooses the revaluation model to report its land. Explain how the land and its related valuation should be reported.

The treasurer of Miller Co. has read on the Internet that the stock price of Wade Inc. is about to take off. In order to profit from this potential development, Miller Co. purchased a call option on Wade common shares on July 7, 2014, for $240. The call option is for 200 shares (notional value), and the strike price is $70. (The market price of a share of Wade stock on that date is $70.) The option expires on January 31, 2015. The following data are available with respect to the call option. Date Market Price of Wade Shares Time Value of Call Option September 30, 2014 $77 per share $180 December 31, 2014 75 per share 65 January 4, 2015 76 per share 30 Instructions Prepare the journal entries for Miller Co. for the following dates. (a) July 7, 2014—Investment in call option on Wade shares. (b) September 30, 2014—Miller prepares financial statements. (c) December 31, 2014—Miller prepares financial statements. (d) January 4, 2015—Miller settles the call option on the Wade shares.

On January 1, 2014, 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 $20,000. Instructions Prepare the entries for Pennington to record the purchase and any additional entries related to this investment in Edwards Company in 2014.

Under what circumstances would you expect the after-tax return from an investment in a capital asset to approach that of tax-exempt assets assuming equal before-tax rates of return?

If a country imports a whole range of goods whose average income elasticity of demand is the same as for home-produced goods, will the mpm rise or fall as national income rises?