Briefly describe the inputs that companies should use when determining fair value. Organize your answer according to preference levels, from highest to lowest priority.
> The way a debtor accounts for the restructuring depends on the extent of the reductionin cash payments called for by the restructured arrangement. Describe, in general, the accounting procedure forthe two basic cases: when, under the new agreement, total
> Pratt Industries owes First National Bank $5 million but, due to financial difficulties, is unable to comply with the original terms of the loan. The bank agrees to settle the debt in exchange for land having a fair value of $3 million. The book value of
> What situations cause us to remeasure a lease liability and right-of-use asset? How is that accomplished?
> Target Corporation prepares its financial statements according to U.S. GAAP. Target’s financial statements and disclosure notes for the year ended January 30, 2016, are available in Connect. This material is also available under the Investor Relations li
> Air France–KLM (AF), a Franco-Dutch company, prepares its financial statements according to International Financial Reporting Standards. AF’s financial statements and disclosure notes for the year ended December 31, 2015, are available in Connect. This m
> American Movieplex, a large movie theater chain, leases most of its theater facilities. In conjunction with recent operating leases, the company spent $28 million for seats and carpeting. The question being discussed over breakfast on Wednesday morning w
> Security Devices Inc. (SDI) needs additional office space to accommodate expansion. SDI wants to avoid income statement effects that would disrupt its attempts to “smooth” income over time. Required: 1. Which lease classification would management prefer
> Walmart Stores, Inc. is the world’s largest retailer. A large portion of the premises that the company occupies are leased. Its financial statements and disclosure notes revealed the following information: Required: 1. Discuss some po
> On January 1, 2018, Allied Industries leased a high-performance conveyer to Karrier Company for a four-year period ending December 31, 2021, at which time possession of the leased asset will revert back to Allied. The equipment cost Allied $956,000 and h
> When the original terms of a debt agreement are changed because of financial difficulties experienced by the debtor (borrower), the new arrangement is referred to as a troubled debt restructuring. Such a restructuring can take a variety of forms. For acc
> High Time Tours leased rock-climbing equipment from Adventures Leasing on January 1, 2018. High Time has the option to renew the lease at the end of two years for an additional three years for $8,000 per quarter. Adventures purchased the equipment at a c
> 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 leases. Universal earns interest under these arran
> Mid-South Auto Leasing leases vehicles to consumers. The attraction to customers is that the company can offer competitive prices due to volume buying and requires an interest rate implicit in the lease that is one percent below alternate methods of fina
> When a note’s stated rate of interest is unrealistic relative to the market rate, the concept of substance over form should be employed. Explain.
> Each of the four independent situations below describes a sales-type lease in which annual lease payments of $10,000 are payable at the beginning of each year. Each is a finance lease for the lessee. Determine the following amounts at the beginning of th
> On January 1, 2018, Rick’s Pawn Shop leased a truck from Corey Motors for a six-year period with an option to extend the lease for three years. Rick’s had no significant economic incentive as of the beginning of the lease to exercise the 3-year extension
> On January 1, 2018, National Insulation Corporation (NIC) leased equipment from United Leasing under a finance lease. Lease payments are made annually. Title does not transfer to the lessee and there is no purchase option or guarantee of a residual value
> On January 1, 2018, Sweetwater Furniture Company leased office space under a 21-year operating lease agreement. The contract calls for annual rent payments on December 31 of each year. The payments are $10,000 the first year and increase by $500 per year
> On January 1, 2018, Winn Heat Transfer leased office space under a three-year operating lease agreement. The arrangement specified three annual rent payments of $80,000 each, beginning December 31, 2018, and at each December 31 through 2020. The lessor,
> Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead of surgery to eliminate kidney stones. Physicians’ Leasing purchased a lithotripter from Rand for $2,000,000 and leased it to Mid-South Urologists Group, Inc. on January 1, 201
> On January 1, 2018, Majestic Mantles leased a lathe from Equipment Leasing under a finance lease. Lease payments are made annually. Title does not transfer to the lessee and there is no purchase option or guarantee of a residual value by Majestic. Portio
> Why will bonds always sell at their price plus any interest that has accrued since the last interest date?
> As a general rule, how should long-term liabilities be reported on the debtor’s balance sheet?
> At the beginning of 2018, VHF Industries acquired a machine with a fair value of $6,074,700 by signing a four-year lease. The lease is payable in four annual payments of $2 million at the end of each year. Required: 1. What is the effective rate of inte
> Culinary Creations leased kitchen equipment under a five-year lease with an option to renew for three years at the end of five years and an option to renew for an additional three years at the end of eight years. The first three-year renewal option can b
> You are the new controller for Moonlight Bay Resorts. The company CFO has asked you to determine the company’s interest expense for the year ended December 31, 2018. Your accounting group provided you the following information on the company’s debt: 1. O
> To raise operating funds, North American Courier Corporation sold its building on January 1, 2018, to an insurance company for $500,000 and immediately leased the building back. The lease is for a 10-year period ending December 31, 2027, at which time ow
> NutraLabs, Inc. leased a protein analyzer to Werner Chemical, Inc. on September 30, 2018. NutraLabs manufactured the machine at a cost of $5 million. The five-year lease agreement calls for Werner to make quarterly lease payments of $391,548, payable eac
> Abbott Equipment leased a protein analyzer to Werner Chemical, Inc. on September 30, 2018. Abbott purchased the machine from NutraLabs, Inc. at a cost of $6 million. The five-year lease agreement calls for Werner to make quarterly lease payments of $391,
> Werner Chemical, Inc. leased a protein analyzer on September 30, 2018. The five-year lease agreement calls for Werner to make quarterly lease payments of $391,548, payable each September 30, December 31, March 31, June 30, with the first payment at Septe
> On January 1, 2018, Worchester Construction leased International Harvester equipment from Newton LeaseCorp. Newton LeaseCorp purchased the equipment from Wellesley Harvester at a cost of $958,158. Worchester borrowing rate for similar transactions is 10%
> On January 1, 2018, Harlon Consulting entered into a three-year lease for new office space agreeing to lease payments of: $7,000 in 2018, $6,000 in 2019 and $5,000 in 2020. Payments are due on December 31 of each year with the first payment being made on
> On January 1, 2018, Harlon Consulting entered into a three-year lease for new office space agreeing to lease payments of: $5,000 in 2018, $6,000 in 2019 and $7,000 in 2020. Payments are due on December 31 of each year with the first payment being made on
> On January 1, 2018, Nguyen Electronics leased equipment from Nevels Leasing for a four-year period ending December 31, 2021, at which time possession of the leased asset will revert back to Nevels. The equipment cost Nevels $824,368 and has an expected e
> If a company prepares its financial statements according to International Financial Reporting Standards, how would it account for convertible bonds it issues for $12.5 million? What is the conceptual justification?
> A six-year lease can be renewed for two additional three-year periods, and it also can be terminated after only three years. How do the lessee and lessor decide the lease term to be used in accounting for the lease?
> What are debt issue costs and how should they be reported?
> How is periodic interest determined for outstanding liabilities? For outstanding receivables? How does the approach compare from one form of debt instrument (say bonds payable) to another (say notes payable)?
> What must a company do in the long run to be able to provide a return to investors and creditors?
> What is meant by GAAP? Why should all companies follow GAAP in reporting to external users?
> Selected balance sheet information for the Wolf Company at November 30, and December 31, 2018, is presented below. The company uses the perpetual inventory system and all sales to customers are made on credit. The following cash flow information also is
> Define net operating cash flows. Briefly explain why periodic net operating cash flows may not be a good indicator of future operating cash flows.
> McGuire Corporation began operations in 2018. The company purchases computer equipment from manufacturers and then sells to retail stores. During 2018, the bookkeeper used a check register to record all cash receipts and cash disbursements. No other jour
> The unadjusted trial balance as of December 31, 2018, for the Bagley Consulting Company appears below. December 31 is the company’s fiscal year-end. Required: 1. Enter the account balances in T-accounts. 2. From the trial balance and in
> The Marchetti Soup Company entered into the following transactions during the month of June: (1) purchased inventory on account for $165,000 (assume Marchetti uses a perpetual inventory system); (2) paid $40,000 in salaries to employees for work perfor
> Air France–KLM (AF), a Franco-Dutch company, prepares its financial statements according to International Financial Reporting Standards. AF’s financial statements and disclosure notes for the year ended December 31, 2015, are available in Connect. This m
> Distinguish between the revenue/expense and the asset/liability approaches to setting financial reporting standards.
> Excalibur Corporation sells video games for personal computers. The unadjusted trial balance as of December 31, 2018, appears below. December 31 is the company’s fiscal year-end. The company uses the perpetual inventory system. Informat
> Some theorists contend that companies that create pollution should report the social cost of that pollution in income statements. They argue that such companies are indirectly subsidized as the cost of pollution is borne by society while only production
> Describe the purpose of each of the five primary financial statements.
> The information necessary for preparing the 2018 year-end adjusting entries for Vito’s Pizza Parlor appears below. Vito’s fiscal year-end is December 31. a. On July 1, 2018, purchased $10,000 of IBM Corporation bonds at face value. The bonds pay interest
> What are the four different approaches to implementing expense recognition? Give an example of an expense that is recognized under each approach.
> The December 31, 2018, adjusted trial balance for the Blueboy Cheese Corporation is presented below. Required: 1. Prepare an income statement for the year ended December 31, 2018, and a classified balance sheet as of December 31, 2018. 2. Prepare the ne
> Describe how revenue recognition relates to transferring goods or services.
> The Mazzanti Wholesale Food Company’s fiscal year-end is June 30. The company issues quarterly financial statements requiring the company to prepare adjusting entries at the end of each quarter. Assuming all quarterly adjusting entries were properly reco
> What are two advantages to basing the valuation of assets and liabilities on their historical cost?
> The general ledger of the Karlin Company, a consulting company, at January 1, 2018, contained the following account balances: The following is a summary of the transactions for the year: a. Sales of services, $100,000, of which $30,000 was on credit. b.
> The Eldorado Corporation’s controller prepares adjusting entries only at the end of the fiscal year. The following adjusting entries were prepared on December 31, 2018: Additional information: 1. The company borrowed $120,000 on March 3
> Prepare the necessary adjusting entries at its year-end of December 31, 2018, for the Jamesway Corporation for each of the following situations. No adjusting entries were recorded during the year. 1. On December 20, 2018, Jamesway received a $4,000 payme
> Briefly define the financial accounting elements: (1) assets, (2) liabilities, (3) equity, (4) investments by owners, (5) distributions to owners, (6) revenues, (7) expenses, (8) gains, (9) losses, and (10) comprehensive income.
> Prepare the necessary adjusting entries at December 31, 2018, for the Microchip Company for each of the following situations. Assume that no financial statements were prepared during the year and no adjusting entries were recorded. 1. On October 1, 2018
> What is meant by the term materiality in financial reporting?
> Define closing entries and their purpose.
> Prepare the necessary adjusting entries at December 31, 2018, for the Falwell Company for each of the following situations. Assume that no financial statements were prepared during the year and no adjusting entries were recorded. 1. A three-year fire in
> Explain what is meant by: The benefits of accounting information must exceed the costs.
> Some of the ledger accounts for the Sanderson Hardware Company are numbered and listed below. For each of the October 2018 transactions numbered 1 through 12 below, indicate by account number which accounts should be debited and which should be cre
> Explain what is meant by adverse economic consequences of new or changed accounting standards.
> Indicate whether a debit will increase (I) or decrease (D) each of the following accounts listed in items 1 through 16 Increase (I) or Decrease (D) Account 1. Inventory Depreciation expense Accounts payable Prepaid rent Sales revenue 2. 3. 4. 5. Commo
> Howarth Company’s fiscal year-end is December 31. Below are the unadjusted and adjusted trial balances for December 31, 2018. Required: Prepare the adjusting journal entries that were recorded at December 31, 2018. Unadjusted Adjust
> Indicate the organization related to IFRS that performs each of the following functions: 1. Obtains funding for the IFRS standard-setting process. 2. Determines IFRS. 3. Oversees the IFRS Foundation. 4. Provides input about the standard-setting agenda. 5
> In its Final Staff Report (issued in 2012), what type of convergence between U.S. GAAP and IFRS did the SEC staff argue was not feasible? What reasons did the SEC staff give for that conclusion?
> Listed below are several terms and phrases associated with the accounting processing cycle. Pair each item from List A (by letter) with the item from List B that is most appropriately associated with it. List A List B 1. Source documents 2. Transacti
> List three key provisions of the Sarbanes-Oxley Act of 2002. Order your list from most important to least important in terms of the likely long-term impact on the accounting profession and financial reporting.
> The following transactions occurred during the month of June 2018 for the Stridewell Corporation. The company owns and operates a retail shoe store. 1. Issued 100,000 shares of common stock in exchange for $500,000 cash. 2. Purchased office equipment at
> Explain the role of the auditor in the financial reporting process.
> Define adjusting entries and discuss their purpose.
> Post the journal entries prepared in E 2–2 to T-accounts. Assume that the opening balances in each of the accounts is zero. Prepare a trial balance from the ending account balances. Journal Entries from E2-2: 1. Cash 300,000 Common stock 300,000
> For each of the items listed below, identify the appropriate financial statement element or elements. 1. Obligation to transfer cash or other resources as a result of a past transaction 2. Dividends paid by a corporation to its shareholders 3. Inflow of
> Prepare journal entries to record each of the transactions listed in E 2–1. Transactions Listed in E2-1: The following transactions occurred during March 2018 for the Wainwright Corporation. The company owns and operates a wholesale warehouse. 1. Issue
> Three groups that participate in the process of establishing GAAP are users, preparers, and auditors. These groups are represented by various organizations. For each organization listed below, indicate which of these groups it primarily represents. 1. Se
> Refer to Case 2–1. Mr. Pitt has relented and agrees to provide you with the information necessary to convert his cash basis financial statements to accrual basis statements. He provides you with the following transaction information for the fiscal year e
> Refer to P 2–3 and complete the following steps: 1. Enter the unadjusted balances from the trial balance into T-accounts. 2. Post the adjusting entries prepared in P 2–3 to the accounts. 3. Prepare an adjusted trial ba
> The following transactions occurred during March 2018 for the Wainwright Corporation. The company owns and operates a wholesale warehouse. 1. Issued 30,000 shares of common stock in exchange for $300,000 in cash. 2. Purchased equipment at a cost of $40,0
> Access the FASB Accounting Standards Codification at the FASB website (www.fasb.org). Determine the specific citation for each of the following items: 1. The topic number for business combinations 2. The topic number for related party disclosures 3. The
> Presented below is income statement information of the Schefter Corporation for the year ended December 31, 2018. Required: Prepare the necessary closing entries at December 31, 2018. 284,000 12,000 4,000 30,000 20,000 Sales revenue $492,000 80,000 6
> Listed below are several transactions that took place during the second and third years of operations for the RPG Company. In addition, you learn that the company incurred advertising costs of $25,000 in year 2, owed the advertising agency $5,000 at the
> American Chip Corporation’s fiscal year-end is December 31. The following is a partial adjusted trial balance as of December 31, 2018. Required: Prepare the necessary closing entries at December 31, 2018. Account Title Deblts Credi
> Listed below are several transactions that took place during the first two years of operations for the law firm of Pete, Pete, and Roy. In addition, you learn that the firm incurred utility costs of $35,000 in year 1, that there were no liabilities at th
> Explain the difference between permanent accounts and temporary accounts. Why does an accounting system include both types of accounts?
> The accounting system of K and M Manufacturing consists of a general journal (GJ), a cash receipts journal (CR), a cash disbursements journal (CD), a sales journal (SJ), and a purchases journal (PJ). For each of the following, indicate which journal shou
> Listed below are accounting concepts discussed in this chapter. a. Economic entity assumption b. Going concern assumption c. Periodicity assumption d. Monetary unit assumption e. Historical cost principle f. Conservatism g. Matching h. Full-disclosure pr
> For each of the following situations, (1) indicate whether you agree or disagree with the financial reporting practice employed and (2) state the accounting concept that is applied (if you agree), or violated (if you disagree). 1. Winderl Corporation
> The White Company’s accounting system consists of a general journal (GJ), a cash receipts journal (CR), a cash disbursements journal (CD), a sales journal (SJ), and a purchases journal (PJ). For each of the following, indicate which jou
> Pastina Company sells various types of pasta to grocery chains as private label brands. The company’s fiscal year-end is December 31. The unadjusted trial balance as of December 31, 2018, appears below. Information necessary to prepare
> For each of the following situations, state whether you agree or disagree with the financial reporting practice employed, and briefly explain the reason for your answer. 1. The controller of the Dumars Corporation increased the carrying value of land fro
> Refer to E 2–9 and respond to the following requirements. Data from E2-9: 1. On October 1, 2018, Microchip lent $90,000 to another company. A note was signed with principal and 8% interest to be paid on September 30, 2019. 2. On November 1, 2018, the co
> For each of the following situations, indicate whether you agree or disagree with the financial reporting practice employed and state the accounting concept that is applied (if you agree) or violated (if you disagree). 1. Wagner Corporation adjusted the
> The employees of Xitrex, Inc., are paid each Friday. The company’s fiscal year-end is June 30, which falls on a Wednesday for the current year. Salaries and wages are earned evenly throughout the five-day work week, and $10,000 will be paid on Friday, Ju
> Identify the accounting concept that was violated in each of the following situations. 1. Pastel Paint Company purchased land two years ago at a price of $250,000. Because the value of the land has appreciated to $400,000, the company has valued the land
> Refer to E 2–9 and respond to the following requirements. Data from E2-9: 1. On October 1, 2018, Microchip lent $90,000 to another company. A note was signed with principal and 8% interest to be paid on September 30, 2019. 2. On November 1, 2018, the co
