Question: A partially completed pension spreadsheet showing

> What transactions are included in income from continuing operations? Briefly explain why it is important to segregate income from continuing operations from other transactions affecting net income.

> Hines Moving Company held a fixed-rate debt of $2 million. The company wanted to hedge its fair value exposure with an interest rate swap. However, the only notional available at the time, on the type of swap it desired, was $2.5 million. What will be th

> Maltese Laboratories incurred the following research and developments costs related to its pharmaceutical business: Internal projects (salaries, supplies, overhead for R&D facilities) = $620,000 Payment to acquire R&D from a third party related to a spec

> Should gains and losses on a fair value hedge be recorded as they occur, or should they be recorded to coincide with losses and gains on the item being hedged?

> One of the advantages of leasing rather than purchasing an asset is that leasing offers flexibility and a lower cost when disposing of the asset. Explain.

> The issuance of stock and the issuance of bonds are reported as financing activities. Are payments of dividends to shareholders and payments of interest to bondholders also reported as financing activities? Explain.

> Southeast Steel, Inc., changed from the FIFO inventory costing method to the LIFO method during 2020. How would this change likely be reported in the 2021 comparative financial statements?

> Sugarbaker Designs Inc. changed from the FIFO inventory costing method to the average cost method during 2021. Which items from the 2020 financial statements should be restated on the basis of the average cost method when reported in the 2021 comparative

> If merchandise inventory is understated at the end of 2020, and the error is not discovered, how will net income be affected in 2021?

> Describe the process of correcting an error when it’s discovered in a subsequent reporting period.

> How does IFRS differ from current U.S. GAAP with respect to accounting for Impairments?

> Answer Q12–26 but assume that the investment is classified as AFS. Data from Q12-26: When market rates of interest rise after a fixed-rate security is purchased, the value of the now below-market, fixed-interest payments decline, so the market value of

> Suppose the Environmental Protection Agency is in the process of investigating Ozone Ruination Limited for possible environmental damage but has not proposed a penalty as of December 31, 2020, the company’s fiscal year-end. Describe the two-step process

> Garrett Corporation began operations in 2021. To maintain its accounting records, Garrett entered into a two-year agreement with Accurite Company. The agreement specifies that Garrett will pay $35,000 to Accurite immediately, and in return, Accurite will

> The EPBO for Branch Industries at the end of 2021 was determined by the actuary to be $20,000 as it relates to employee Will Lawson. Lawson was hired at the beginning of 2007. He will be fully eligible to retire with health care benefits after 15 more ye

> Northwest Carburetor Company established a fund in 2018 to accumulate money for a new plant scheduled for construction in 2021. How should this special purpose fund be reported in Northwest’s balance sheet?

> At December 31, the end of the reporting period, the analysis of a loss contingency indicates that an obligation is only reasonably possible, though its dollar amount is readily estimable. During February, before the financial statements are issued, new

> Marshall Companies, Inc., holds a note receivable from a former subsidiary. Due to financial difficulties, the former subsidiary has been unable to pay the previous year’s interest on the note. Marshall agreed to restructure the debt by both delaying and

> In late 2017 the federal tax rate for subsequent years was decreased from 35% to 21%. How would this affect an existing deferred tax liability? How would the change be reflected in net income?

> On January 1, 2021, Brandon Electronics issued $85 million of 11.5% bonds, dated January 1. The market yield for bonds of maturity issued by similar firms in terms of riskiness is 12.25%. How can Brandon sell debt paying only 11.5% in a 12.25% market?

> Superior Company owns 40% of the outstanding stock of Bernard Company. During 2021, Bernard paid a $100,000 cash dividend on its common shares. What effect did this dividend have on Superior’s 2021 financial statements?

> Describe the typical approach for recording inventory write-downs.

> It is discovered in 2021 that ending inventory in 2019 was understated. What is the effect of the understatement on the following? 2019: Cost of goods sold Net income Ending retained earnings 2020: Net purchases Cost of goods sold Net income Ending retai

> Identify any differences between U.S. GAAP and International Financial Reporting Standards in the methods allowed to value inventory

> In March 2021, Price Company began developing a new software system to be used internally for managing its inventory. The software integrates customer orders with inventory on hand to automatically place orders for additional inventory when needed. The s

> Prepare the necessary adjusting entries for Johnstone Controls at the end of its December 31, 2021, fiscal yearend for each of the following situations. No adjusting entries were recorded during the year. 1. On March 31, 2021, the company lent $50,000 to

> Deferred revenues represent liabilities recorded when cash is received from customers in advance of providing a good or service. What adjusting journal entry is required at the end of a period to recognize the amount of deferred revenues that were recogn

> Compute the required annual payment in Question 5–13. Data from Question 5-13: Assume that you borrowed $500 from a friend and promised to repay the loan in five equal annual installments beginning one year from today. Your friend wants to be reimbursed

> Briefly explain the difference between the income statement approach and the balance sheet approach to estimating bad debts.

> Define the ECL model for accounts receivable. How does it differ from the CECL model?

> Define the CECL model for accounts receivable. On what does it base the estimate of the allowance for uncollectible accounts?

> The Bockner Company shipped merchandise to Laetner Corporation on December 28, 2021. Laetner received the shipment on January 3, 2022. December 31 is the fiscal year-end for both companies. The merchandise was shipped f.o.b. shipping point. Explain the d

> What is the main difference between a perpetual inventory system and a periodic inventory system? Which system is used more often by major companies?

> Is restricted cash included in the reconciliation of cash balances on a statement of cash flows? Explain.

> When is a gain or a loss from a cash flow hedge reported in earnings?

> How are derivatives reported on the balance sheet? Why?

> In February 2021, Culverson Company began developing a new software package to be sold to customers. The software allows people to enter health information and daily eating and exercise habits to track their health status. The project was completed in No

> On January 1, 2021, S&S Corporation invested in LLB Industries’ negotiable two-year, 10% notes, with interest receivable quarterly. The company classified the investment as available-for-sale. S&S entered into a two-year interes

> On January 1, 2021, LLB Industries borrowed $200,000 from Trust Bank by issuing a two-year, 10% note, with interest payable quarterly. LLB entered into a two-year interest rate swap agreement on January 1, 2021, and designated the swap as a fair value he

> Indicate (by abbreviation) the type of hedge each activity described below would represent. Hedge Type: FV. Fair value hedge CF. Cash flow hedge FC. Foreign currency hedge N. Would not qualify as a hedge Activity: 1. An options contract to hedge possible

> Classified Electronics has an unfunded retiree health care plan. Each of the company’s three employees has been with the firm since its inception at the beginning of 2020. As of the end of 2021, the actuary estimates the total net cost of providing healt

> How might your solution differ if Lacy Construction prepares its financial statements according to International Financial Reporting Standards (IFRS)? Assume the actuary’s discount rate is the rate on high quality corporate bonds. Inclu

> Lacy Construction has a noncontributory, defined benefit pension plan. At December 31, 2021, Lacy received the following information: The expected long-term rate of return on plan assets was 10%. There were no AOCI balances related to pensions on January

> Prepare a pension spreadsheet to show the relationship among the PBO, plan assets, prior service cost, the net gain, pension expense, and the net pension asset. Data from E 17-19: Beale Management has a noncontributory, defined benefit pension plan. On

> On January 1, 2021, Ravetch Corporation’s projected benefit obligation was $30 million. During 2021, pension benefits paid by the trustee were $4 million. Service cost for 2021 is $12 million. Pension plan assets (at fair value) increased during 2021 by

> Beale Management has a noncontributory, defined benefit pension plan. On December 31, 2021 (the end of Beale’s fiscal year), the following pension-related data were available: Required: 1. Prepare the 2021 journal entry to record pensio

> Patel Industries has a noncontributory, defined benefit pension plan. Since the inception of the plan, the actuary has used as the discount rate the rate on high-quality corporate bonds, which recently has been 7%. During 2021, changing economic conditio

> Refer to the situation described in BE 9–7. Estimate ending inventory and cost of goods sold using the conventional method and the information provided. Data from BE 9-7: Kiddie World uses a periodic inventory system and the retail inv

> Actuary and trustee reports indicate the following changes in the PBO and plan assets of Douglas Roberts Industries during 2021: Required: 1. Determine Douglas-Roberts’s pension expense for 2021, and prepare the appropriate journal entr

> Warrick Boards calculated pension expense for its underfunded pension plan as follows: Required: Which elements of Warrick’s balance sheet are affected by the components of pension expense? What are the specific changes in these account

> Hicks Cable Company has a defined benefit pension plan. Three alternative possibilities for pension-related data at January 1, 2021, are shown below: Required: 1. For each independent case, calculate any amortization of the net loss or gain that should b

> Clark Industries has a defined benefit pension plan that specifies annual, year-end retirement benefits equal to 1.2% × Service years × Final year’s salary Stanley Mills was hired by Clark at the beginning of 2002. Mills is expected to retire at the end

> Pension data for Barry Financial Services Inc., include the following: Required: 1. Determine pension expense for 2021. 2. Prepare the journal entries to record (a) pension expense, (b) gains and losses (if any), (c) funding, and (d) retiree benefits for

> Abbott and Abbott has a noncontributory, defined benefit pension plan. At December 31, 2021, Abbott and Abbott received the following information: The expected long-term rate of return on plan assets was 10%. There was no prior service cost and a negligi

> Ayres Services acquired an asset for $80 million in 2021. The asset is depreciated for financial reporting purposes over four years on a straight-line basis (no residual value). Ayers deducted 100% of the asset’s cost for income tax rep

> Ayres Services acquired an asset for $80 million in 2021. The asset is depreciated for financial reporting purposes over four years on a straight-line basis (no residual value). For tax purposes the asset’s cost is depreciated by MACRS.

> Access the FASB Accounting Standards Codification at the FASB website (www.fasb.org). What is the specific eight-digit Codification citation (XXX-XX-XX-X) that applies to each of the following items: 1. The specific items to which income tax expense is a

> Refer to the situation described in BE 9–7. Estimate ending inventory and cost of goods sold (LIFO) using the information provided. Data from BE 9-7: Kiddie World uses a periodic inventory system and the retail inventory method to esti

> The following income statement does not reflect intraperiod tax allocation. Required: Recast the income statement to reflect intraperiod tax allocation. The company’s tax rate is 25%.

> Delta Catfish Company has taken a position in its tax return to claim a tax credit of $10 million (direct reduction in taxes payable) and has determined that its sustainability is “more likely than not,” based on its t

> As of December 31, 2021, Lange Company has the following deferred tax assets and liabilities: Deferred tax assets: Pension plans = $300,000 Inventory = 200,000 Total deferred tax assets = $500,000 Deferred tax liabilities: Property, plant and equipment

> On January 1, 2018, Ameen Company purchased major pieces of manufacturing equipment for a total of $36 million. Ameen uses straight-line depreciation for financial statement reporting and deducted 100% of the equipment’s cost for income tax reporting in

> Case Development began operations in December 2021. When property is sold on an installment basis, Case recognizes installment income for financial reporting purposes in the year of the sale. For tax purposes, installment income is reported by the instal

> Case Development began operations in December 2021. When property is sold on an installment basis, Case recognizes installment income for financial reporting purposes in the year of the sale. For tax purposes, installment income is reported by the instal

> At December 31, DePaul Corporation had the following cumulative temporary differences associated with its operations: 1. Estimated warranty expense, $16 million temporary difference: expense recorded in the year of the sale; tax-deductible when paid (one

> Wynn Farms reported a net operating loss of $160,000 for financial reporting and tax purposes in 2021. The enacted tax rate is 25%. Taxable income, tax rates, and income taxes paid in Wynn’s first four years of operation were as follows

> Wynn Farms reported a net operating loss of $100,000 for financial reporting and tax purposes in 2021. The enacted tax rate is 25%. Taxable income, tax rates, and income taxes paid in Wynn’s first four years of operation were as follows

> During 2021, its first year of operations, Baginski Steel Corporation reported a net operating loss of $360,000 for financial reporting and tax purposes. The enacted tax rate is 25%. Required: 1. Prepare the journal entry to recognize the income tax bene

> Kiddie World uses a periodic inventory system and the retail inventory method to estimate ending inventory and cost of goods sold. The following data are available for the quarter ending September 30, 2021: Estimate ending inventory and cost of goods sol

> The information that follows pertains to Richards Refrigeration, Inc.: a. At December 31, 2021, temporary differences existed between the financial statement book values and the tax bases of the following ($ in millions): b. No temporary differences exis

> The information that follows pertains to Esther Food Products: a. At December 31, 2021, temporary differences were associated with the following future taxable (deductible) amounts: Depreciation $60,000 Prepaid expenses 17,000 Warranty expenses (12,000)

> Shwonson Industries reported a deferred tax asset of $5 million for the year ended December 31, 2020, related to a temporary difference of $20 million. The tax rate was 25%. The temporary difference is expected to reverse in 2022, at which time the defer

> On January 1, 2018, Ameen Company purchased major pieces of manufacturing equipment for a total of $36 million. Ameen uses straight-line depreciation for financial statement reporting and MACRS for income tax reporting. At December 31, 2020, the book val

> Bronson Industries reported a deferred tax liability of $5 million for the year ended December 31, 2020, related to a temporary difference of $20 million. The tax rate was 25%. The temporary difference is expected to reverse in 2022, at which time the de

> Arnold Industries has pretax accounting income of $32 million for the year ended December 31, 2021. The tax rate is 25%. The only difference between accounting income and taxable income relates to an operating lease in which Arnold is the lessee. The inc

> Allmond Corporation, organized on January 3, 2021, had pretax accounting income of $14 million and taxable income of $20 million for the year ended December 31, 2021. The 2021 tax rate is 25%. The only difference between accounting income and taxable inc

> For the year ended December 31, 2021, Fidelity Engineering reported pretax accounting income of $978,000. Selected information for 2021 from Fidelity’s records follows: Interest income on municipal governmental bonds: $32,000 Depreciation claimed on the

> Southern Atlantic Distributors began operations in January 2021 and purchased a delivery truck for $40,000. Southern Atlantic plans to use straight-line depreciation over a four-year expected useful life for financial reporting purposes. For tax purposes

> When a company records a deferred tax asset, it may need to also report a valuation allowance if it is “more likely than not” that some portion or all of the deferred tax asset will not be realized. Required: 1. Access the FASB Accounting Standards Codif

> Refer to the situation described in BE 9–15. What steps would be taken to report the error in the 2021 financial statements? Data from BE 9-15: In 2021, Winslow International, Inc.’s controller discovered that ending inventories for 2019 and 2020 were o

> At the end of 2020, Payne Industries had a deferred tax asset account with a balance of $25 million attributable to a temporary book-tax difference of $100 million in a liability for estimated expenses. At the end of 2021, the temporary difference is $64

> At the end of 2020, Payne Industries had a deferred tax asset account with a balance of $25 million attributable to a temporary book-tax difference of $100 million in a liability for estimated expenses. At the end of 2021, the temporary difference is $64

> Each of the three independent situations below describes a finance lease in which annual lease payments are payable at the beginning of each year. The lessee is aware of the lessor’s implicit rate of return. Required: For each situation

> Manufacturers Southern leased high-tech electronic equipment from International Machines on January 1, 2021. International Machines manufactured the equipment at a cost of $85,000. Manufacturers Southern’s fiscal year ends December 31. Related Informatio

> Edison Leasing leased high-tech electronic equipment to Manufacturers Southern on January 1, 2021. Edison purchased the equipment from International Machines at a cost of $112,080. Related Information: Lease term 2 years (8 quarterly periods) Quarterly r

> Manufacturers Southern leased high-tech electronic equipment from Edison Leasing on January 1, 2021. Edison purchased the equipment from International Machines at a cost of $112,080. Related Information: Lease term 2 years (8 quarterly periods) Quarterly

> On June 30, 2021, Georgia-Atlantic, Inc. leased warehouse equipment from Builders, Inc. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $562,907 over a three-year lease term (also the asset’s useful life), payable each

> To raise operating funds, National Distribution Center sold its office building to an insurance company on January 1, 2021, for $800,000 and immediately leased the building back. The operating lease is for the final 12 years of the building’s estimated 2

> To raise operating funds, Signal Aviation sold an airplane on January 1, 2021, to a finance company for $770,000. Signal immediately leased the plane back for a 13-year period, at which time ownership of the airplane will transfer to Signal. The airplane

> On June 30, 2021, Georgia-Atlantic, Inc. leased warehouse equipment from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $562,907 over a three-year lease term (also the asset’s useful life), pay

> In 2021, Winslow International, Inc.’s controller discovered that ending inventories for 2019 and 2020 were overstated by $200,000 and $500,000, respectively. Determine the effect of the errors on retained earnings at January 1, 2021. (Ignore income taxe

> The following relate to an operating lease agreement: a. The lease term is 3 years, beginning January 1, 2021. b. The leased asset cost the lessor $800,000 and had a useful life of eight years with no residual value. The lessor uses straight-line depreci

> The lease agreement and related facts indicate the following: a. Leased equipment had a retail cash selling price of $300,000. Its useful life was five years with no residual value. b. The lease term was five years and the lessor paid $265,000 to acquire

> Terms of a lease agreement and related facts were as follows: a. Incremental costs of commissions for brokering the lease and consummating the completed lease transaction incurred by the lessor were $4,242. b. The retail cash selling price of the leased

> On January 1, 2021, NRC Credit Corporation leased equipment to Brand Services under a finance/sales-type lease designed to earn NRC a 12% rate of return for providing long-term financing. The lease agreement specified the following: a. Ten annual payment

> Warren Marina owns a large marina that contains numerous boat slips of various sizes. Warren contracts with boat owners to provide slips to house the customers’ boats. Lucky Fisherman Fleet contracted with Warren to provide space for four of its fishing

> Warren Marina owns a large marina that contains numerous boat slips of various sizes. Warren contracts with boat owners to provide slips to house the customers’ boats. Lucky Fisherman Fleet contracted with Warren to provide space for four of its fishing

> Universal Leasing leases electronic equipment to a variety of businesses. The company’s primary service is providing alternate financing by acquiring equipment and leasing it to customers under long-term sales-type leases. Universal earns interest under

> On June 30, 2021, Georgia-Atlantic, Inc. leased warehouse equipment from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $562,907 over a three-year lease term, payable each June 30 and December

> Federated Fabrications leased a tooling machine on January 1, 2021, for a three-year period ending December 31, 2023. The lease agreement specified annual payments of $36,000 beginning with the first payment at the beginning of the lease, and each Decemb