Betty Foods has separate patents for its chocolate chip cookie dough and vanilla ice cream. In the current year, both patents were challenged in court. Betty Foods spent $240,000 in legal fees to successfully defend its cookie dough, and $300,000 in legal fees in an unsuccessful defense of its vanilla ice cream. For what amount can Betty Foods capitalize these costs?
> Refer to the situation described in BE10–11, but assume a 2-for-1 stock split instead of the 100% stock dividend. Explain why Sandals did not record a 2-for-1 stock split. What are the number of shares, par value per share, and market price per share imm
> On June 30, the board of directors of Sandals, Inc., declares a 100% stock dividend on its 30,000, $1 par, common shares. The market price of Sandals common stock is $35 on June 30. Record the stock dividend.
> Divine Apparel has 4,000 shares of common stock outstanding. On October 1, the company declares a $0.75 per share dividend to stockholders of record on October 15. The dividend is paid on October 31. Record all transactions on the appropriate dates for c
> Financial accounting information can often be found at financial websites. These websites are useful for collecting information about a company’s stock price, analysts’ forecasts, dividend history, historical financial accounting information, and much mo
> Waldo is planning to start a clothing store helping big and tall men blend in with the crowd. Explain to Waldo the advantages and disadvantages of a corporation in comparison to a sole proprietorship or partnership.
> Pretzelmania, Inc., issues 7%, 10-year bonds with a face amount of $70,000 for $70,000 on January 1, 2021. The market interest rate for bonds of similar risk and maturity is 7%. Interest is paid annually on December 31. 1. Record the bond issue. 2. Recor
> Pretzelmania, Inc., issues 7%, 15-year bonds with a face amount of $70,000 for $76,860 on January 1, 2021. The market interest rate for bonds of similar risk and maturity is 6%. Interest is paid semiannually on June 30 and December 31. 1. Record the bond
> Pretzelmania, Inc., issues 7%, 15-year bonds with a face amount of $70,000 for $63,948 on January 1, 2021. The market interest rate for bonds of similar risk and maturity is 8%. Interest is paid semiannually on June 30 and December 31. 1. Record the bond
> Pretzelmania, Inc., issues 7%, 10-year bonds with a face amount of $70,000 for $70,000 on January 1, 2021. The market interest rate for bonds of similar risk and maturity is 7%. Interest is paid semiannually on June 30 and December 31. 1. Record the bond
> Listed below are terms and definitions associated with bonds. Match (by letter) the bond terms with their definitions. Each letter is used only once. Definitions a. Allows the issuer to pay off the bonds early at a fixed price. b. Matures in installments
> Suppose a company signs a three-year lease agreement. The lease payments have a present value of $40,000. Prior to signing the lease, the company had total assets of $600,000, total liabilities of $400,000, and total stockholders’ equity of $200,000. Cal
> On April 1, 2021, Primer Corp. signs a five-year lease to use office space. The present value of the monthly lease payments is $100,000. Record the lease.
> Surf’s Up, a manufacturer of surfing supplies and training equipment, has the following selected data ($ in millions): Based on these amounts, calculate the following ratios for 2021: 1. Debt to equity ratio. 2. Return on assets ratio.
> Ultimate Butter Popcorn issues 7%, 20-year bonds with a face amount of $60,000. The market interest rate for bonds of similar risk and maturity is 6%. Interest is paid semiannually. At what price will the bonds issue?
> Between his freshman and sophomore years of college, Jack takes a job as ticket collector at a local movie theatre. Moviegoers purchase a ticket from a separate employee outside the theatre and then enter through a single set of doors. Jack takes half th
> On January 1, 2021, Beaver Tours financed the purchase of a new building by borrowing $600,000 from the bank using a 30-year, 6% note payable. Payments of $3,597.30 are due at the end of each month, with the first installment due on January 31, 2021. Rec
> Ultimate Butter Popcorn issues 7%, 15-year bonds with a face amount of $60,000. The market interest rate for bonds of similar risk and maturity is 8%. Interest is paid semiannually. At what price will the bonds issue?
> Ultimate Butter Popcorn issues 7%, 10-year bonds with a face amount of $60,000. The market interest rate for bonds of similar risk and maturity is 7%. Interest is paid semiannually. At what price will the bonds issue?
> Premium Pizza retires its 7% bonds for $72,000 before their scheduled maturity. At the time, the bonds have a face amount of $70,000 and a carrying value of $76,567. Record the early retirement of the bonds.
> Discount Pizza retires its 7% bonds for $68,000 before their scheduled maturity. At the time, the bonds have a face amount of $70,000 and a carrying value of $64,168. Record the early retirement of the bonds.
> Presented below is a partial amortization schedule for Premium Pizza. 1. Record the bond issue assuming the face amount of bonds payable is $70,000. 2. Record the first interest payment. 3. Explain why interest expense decreases each period.
> Presented below is a partial amortization schedule for Discount Pizza. 1. Record the bond issue assuming the face amount of bonds payable is $70,000. 2. Record the first interest payment. 3. Explain why interest expense increases each period.
> On January 1, 2021, Lyle’s Limeade issues 4%, 10-year bonds with a face amount of $90,000 for $82,985, priced to yield 5%. Interest is paid semiannually. What amount of interest expense will be recorded in the December 31, 2021, annual income statement?
> On January 1, 2021, Lizzy’s Lemonade issues 5%, 20-year bonds with a face amount of $100,000 for $88,443, priced to yield 6%. Interest is paid semiannually. What amount of interest expense will be recorded on June 30, 2021, the first interest payment dat
> Pretzelmania, Inc., issues 7%, 15-year bonds with a face amount of $70,000 for $76,799 on January 1, 2021. The market interest rate for bonds of similar risk and maturity is 6%. Interest is paid annually on December 31. 1. Record the bond issue. 2. Recor
> Financial information for American Eagle is presented in Appendix A at the end of the book, and financial information for Buckle is presented in Appendix B at the end of the book. Required: 1. Which company has a higher ratio of cash to noncash assets? W
> Pretzelmania, Inc., issues 7%, 15-year bonds with a face amount of $70,000 for $64,008 on January 1, 2021. The market interest rate for bonds of similar risk and maturity is 8%. Interest is paid annually on December 31. 1. Record the bond issue. 2. Recor
> On January 1, 2021, Corvallis Carnivals borrows $30,000 to purchase a delivery truck by agreeing to a 5%, five-year loan with the bank. Payments of $566.14 are due at the end of each month, with the first installment due on January 31, 2021. Record the i
> On September 1, 2021, Southwest Airlines borrows $41 million, of which $10 million is due next year. Show how Southwest Airlines would record the $41 million debt on its December 31, 2021, balance sheet.
> During December, Far West Services makes a $3,200 credit sale. The state sales tax rate is 6% and the local sales tax rate is 2.5%. Record sales and sales tax payable.
> On May 31, Marty’s Ice Cream Shop sells gift cards for $5,000. Customers redeem $1,200 in June, $2,100 in July, and $1,400 in August. Marty’s experience is that any unredeemed gift cards as of August 31 are not likely to be redeemed. Calculate the amount
> On December 18, Intel receives $260,000 from a customer toward a cash sale of $2.6 million for computer chips to be completed on January 23. The computer chips had a total production cost of $1.6 million. What journal entries should Intel record on Decem
> Mike Samson is a college football coach making a base salary of $652,800 a year ($54,400 per month). Employers are required to withhold a 6.2% Social Security tax up to a maximum base amount and a 1.45% Medicare tax with no maximum. Assuming the FICA bas
> On April 1, Online Travel issues $13 million of commercial paper with a maturity on December 31 and a 9% interest rate. Record the issuance of the commercial paper and its repayment at maturity.
> On July 1, Alaskan Adventures issues a $160,000, eight-month, 6% note. Interest is payable at maturity. What is the amount of interest expense that the company would record in a year-end adjustment on December 31?
> On November 1, Bahama National Bank lends $4 million and accepts a six-month, 6% note receivable. Interest is due at maturity. Record the acceptance of the note and the appropriate adjustment for interest revenue at December 31, the end of the reporting
> Financial information for Buckle is presented in Appendix B at the end of the book. Required: 1. What does the Report of Independent Registered Public Accounting Firm indicate about Buckle’s internal controls? 2. In the summary of significant accounting
> For each of the transactions below, determine the effect on (a) the current ratio and (b) the acid-test ratio. 1. Provide services to customers on account. 2. Borrow cash from the bank by signing a long-term note payable. 3. Purchase office supplies with
> Airline Accessories has the following current assets: cash, $112 million; receivables, $104 million; inventory, $192 million; and other current assets, $28 million. Airline Accessories has the following liabilities: accounts payable, $118 million; curren
> Motorola is a world leader in the development of cellular phone technology. During the year, the company becomes aware of potential costs due to (1) a product defect that is reasonably possible and is reasonably estimable, (2) a safety hazard that is p
> The Environmental Protection Agency (EPA) is in the process of investigating a possible water contamination issue at the manufacturing facility of Northwest Forest Products. The EPA has not yet proposed a penalty assessment. Management feels an assessmen
> Aviation Systems is involved in a $10 million lawsuit filed against one of its suppliers, Electronic Innovators. The litigation is in final appeal, and legal counsel advises that it is probable that Aviation Systems will win the lawsuit and be awarded so
> Electronic Innovators is the defendant in a $10 million lawsuit filed by one of its customers, Aviation Systems. The litigation is in final appeal, and legal counsel advises that it is probable that Electronic Innovators will lose the lawsuit. The estima
> Consultants notify management of Discount Pharmaceuticals that a stroke medication poses a potential health hazard. Counsel indicates that a product recall is probable and is estimated to cost the company $8 million. How will this affect the company’s in
> Sony introduces a new compact music player to compete with Apple’s iPod that carries a two-year warranty against manufacturer’s defects. Based on industry experience with similar product introductions, warranty costs are expected to be approximately 3% o
> On November 1, Bahama Cruise Lines borrows $4 million and issues a six-month, 6% note payable. Interest is payable at maturity. Record the issuance of the note and the appropriate adjustment for interest expense at December 31, the end of the reporting p
> El Tapitio purchased restaurant furniture on September 1, 2021, for $45,000. Residual value at the end of an estimated 10-year service life is expected to be $6,000. Calculate depreciation expense for 2021 and 2022, using the straight-line method, and as
> Financial information for American Eagle is presented in Appendix A at the end of the book. Required: 1. What does the Report of Independent Registered Public Accounting Firm indicate about American Eagle’s internal controls? 2. In the summary of signifi
> Early in the fiscal year, The Beanery purchases a delivery vehicle for $40,000. At the end of the year, the machine has a fair value of $33,000. The company controller records depreciation expense of $7,000 for the year, the decline in the vehicle’s valu
> Hanoi Foods incurs the following expenditures during the current fiscal year: (1) annual maintenance on its machinery, $8,900; (2) remodeling of offices, $42,000; (3) improvement of the shipping and receiving area, resulting in an increase in productivit
> West Coast Growers incurs the following costs during the year related to the creation of a new disease-resistant tomato plant. What amount should West Coast Growers report as research and development (R&D) expense in its income statement?
> Kosher Pickle Company acquires all the outstanding stock of Midwest Produce for $19 million. The fair value of Midwest’s assets is $14.3 million. The fair value of Midwest’s liabilities is $2.5 million. Calculate the amount paid for goodwill.
> Finley Co. is looking for a new office location and sees a building with a fair value of $400,000. Finley also notices that much of the equipment in the existing building would be useful to its own operations. Finley estimates the fair value of the equip
> Refer to the situation described in BE7–19. Assume the sum of estimated future cash flows is $32 million instead of $38 million. What amount of impairment loss should Vegetarian Delights record?
> Whole Grain Bakery purchases an industrial bread machine for $30,000. In addition to the purchase price, the company makes the following expenditures: freight, $2,000; installation, $4,000; testing, $1,500; and property tax on the machine for the first y
> Vegetarian Delights has been experiencing declining market conditions for its specialty foods division. Management decided to test the operational assets of the division for possible impairment. The test revealed the following: book value of the division
> The balance sheet of Cedar Crest Resort reports total assets of $840,000 and $930,000 at the beginning and end of the year, respectively. The return on assets for the year is 20%. Calculate Cedar Crest’s net income for the year.
> An examination of the cash activities during the year shows the following. Suzie has not reconciled the company’s cash balance with that of the bank since the company was started. She asks Summit Bank to provide her with a six-month ban
> China Inn and Midwest Chicken exchanged assets. Midwest Chicken received equipment and gave a delivery truck. The fair value and book value of the delivery truck given were $31,000 and $32,600 (original cost of $37,000 less accumulated depreciation of $4
> China Inn and Midwest Chicken exchanged assets. China Inn received a delivery truck and gave equipment. The fair value and book value of the equipment were $22,000 and $12,000 (original cost of $45,000 less accumulated depreciation of $33,000), respectiv
> Masterson Supply purchased a small storage building for $20,000 to be used over a five-year period. The building has no residual value. Early in the fourth year, the storage building burned down. Record the retirement of the remaining book value of the s
> Piper’s Pizza sold baking equipment for $25,000. The equipment was originally purchased for $72,000, and depreciation through the date of sale totaled $51,000. What was the gain or loss on the sale of the equipment?
> Granite Stone Creamery sold ice cream equipment for $16,000. Granite Stone originally purchased the equipment for $90,000, and depreciation through the date of sale totaled $71,000. What was the gain or loss on the sale of the equipment?
> In early January, Burger Mania acquired 100% of the common stock of the Crispy Taco restaurant chain. The purchase price allocation included the following items: $4 million, patent; $5 million, trademark considered to have an indefinite useful life; and
> Omaha Beef Co. purchased a delivery truck for $50,000. The residual value at the end of an estimated eight-year service life is expected to be $10,000. The company uses straight-line depreciation for the first six years. In the seventh year, the company
> Hawaiian Specialty Foods purchased equipment for $30,000. Residual value at the end of an estimated four-year service life is expected to be $3,000. The machine operated for 3,100 hours in the first year, and the company expects the machine to operate fo
> Fresh Veggies, Inc. (FVI), purchases land and a warehouse for $490,000. In addition to the purchase price, FVI makes the following expenditures related to the acquisition: broker’s commission, $29,000; title insurance, $1,900; and miscellaneous closing c
> For each item below, indicate whether FIFO or LIFO will generally result in a higher reported amount when inventory costs are rising versus falling. The first answer is provided as an example.
> You are a tutor for introductory financial accounting. You tell the students, “Recording adjusting entries is a critical step in the accounting cycle, and the two major classifications of adjusting entries are prepayments and accruals.” Chris, one of the
> Refer to the information in BE6–5. Calculate ending inventory and cost of goods sold for the year, assuming the company uses specific identification. Actual sales by the company include its entire beginning inventory, 230 units of inventory from the May
> Refer to the information in BE6–5. Calculate ending inventory and cost of goods sold for the year, assuming the company uses weighted-average cost.
> Refer to the information in BE6–5. Calculate ending inventory and cost of goods sold for the year, assuming the company uses LIFO.
> During the year, Wright Company sells 470 remote-control airplanes for $110 each. The company has the following inventory purchase transactions for the year. Calculate ending inventory and cost of goods sold for the year, assuming the company uses FIFO.
> For each company, calculate the missing amount.
> At the beginning of the year, Bryers Incorporated reports inventory of $8,000. During the year, the company purchases additional inventory for $23,000. At the end of the year, the cost of inventory remaining is $10,000. Calculate cost of goods sold for t
> Refer to the information in BE6–21. What impact will this error have on ending inventory and retained earnings in the current year and following year? Ignore any tax effects.
> Ebbers Corporation overstated its ending inventory balance by $15,000 in the current year. What impact will this error have on cost of goods sold and gross profit in the current year and following year?
> Financial information for American Eagle is presented in Appendix A at the end of the book. Required: 1. Calculate American Eagle’s percentage change in total assets and percentage change in net sales for the most recent year. 2. Calculate American Eagle
> Refer to the information in BE6–13, but now assume that Shankar uses a periodic system to record inventory transactions. Record the inventory purchase on February 2 and the payment on February 10.
> Tony and Suzie graduate from college in May 2021 and begin developing their new business. They begin by offering clinics for basic outdoor activities such as mountain biking or kayaking. Upon developing a customer base, they’ll hold their first adventure
> Maria comes to you for investment advice. She asks, “Which company’s stock should I buy? There are so many companies to choose from and I don’t know anything about any of them.” Required: Respond to Maria by explaining the two functions of financial acco
> The purpose of this research case is to introduce you to the Internet home pages of the Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB). Required: 1. Access the SEC home page on the Internet (www.sec.gov). Und
> Suppose an auditor has been paid $1,000,000 each year for the past several years by a company to perform the audit of its annual financial statements. This company is the auditor’s largest client. In the current year, the auditor notices that the prelimi
> Financial information for American Eagle is presented in Appendix A at the end of the book, and financial information for Buckle is presented in Appendix B at the end of the book. Required: 1. Which company reports higher total assets? 2. Which company r
> Financial information for Buckle is presented in Appendix B at the end of the book. Required: 1. Determine the amounts Buckle reports for total assets, total liabilities, and total stockholders’ equity in the balance sheet for the most recent year. Verif
> Financial information for American Eagle is presented in Appendix A at the end of the book. Required: 1. Determine the amounts American Eagle reports for total assets, total liabilities, and total stockholders’ equity in the balance sheet for the most re
> Tony Matheson plans to graduate from college in May 2021 after spending four years earning a degree in sports and recreation management. Since beginning T-ball at age five, he’s been actively involved in sports and enjoys the outdoors. Each summer growin
> Investments in equity securities for which the investor has insignificant influence over the investee are classified for reporting purposes under the fair value method. What is fair value?
> How does a company determine whether to account for an equity investment using the fair value method or equity method or to prepare consolidated financial statements?
> Match each of the following inventory classifications with its definition.
> Obtain a copy of the annual report of McDonald’s Corporation for the most recent year. You can find the annual report at the company’s website (www.mcdonalds.com) in the investor information section or at the Securities and Exchange Commission’s website
> What is the relationship between the present value of a single amount and the present value of an annuity?
> What is an annuity?
> Define the present value of a single amount. What is the discount rate?
> Identify the three items of information necessary to calculate the future value of a single amount.
> Define interest. Explain the difference between simple interest and compound interest.
> Determine whether each of the following changes in risk ratios is good news or bad news about a company. a. Increase in receivables turnover. b. Decrease in inventory turnover. c. Increase in the current ratio. d. Increase in the debt to equity ratio.
> Which risk ratios best answer each of the following financial questions? a. How quickly is a company able to collect its receivables? b. How quickly is a company able to sell its inventory? c. Is the company able to make interest payments as they become
> What is the difference between liquidity and solvency?
> Explain why ratios that compare an income statement account with a balance sheet account should express the balance sheet account as an average of the beginning and ending balances.
